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Operator: Good morning, and welcome to Molina Healthcare's Third Quarter 2025 Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeffrey Geyer, Vice President, Investor Relations at Molina Healthcare. Please go ahead. Jeffrey Geyer: Good morning, and welcome to the Molina Healthcare's Third Quarter 2025 Earnings Call. Joining me today are Molina's President and CEO, Joe Zubretsky; and our CFO, Mark Keim. A press release announcing our third quarter 2025 earnings was distributed after the market close yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, October 23, 2025, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in the third quarter 2025 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2025 guidance, our preliminary 2026 outlook, the medical cost trend and our projected MCRs, Medicaid rate adjustments and updates, our 2026 marketplace pricing and rate filings, our RFP awards, including our contract wins in Georgia and Texas as well as our M&A pipeline and activity, revenue growth related to RFP wins and M&A activity. The recently enacted Big Beautiful Bill and expected Medicaid, Medicare and Marketplace program changes, our expected future growth in both our existing footprint and in the new products and markets and the estimated amount of our embedded earnings power. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe? Joseph Zubretsky: Thank you, Jeff, and good morning. Today, we will provide you with updates on our reported financial results for the third quarter, an update on our full year 2025 guidance, our outlook for 2026 and our growth initiatives. Let me start with our third quarter performance. Last night, we reported adjusted earnings per share of $1.84 on $10.8 billion of premium revenue, below our expectations. Our 92.6% consolidated MCR reflects the continuation of a very challenging medical cost environment in the third quarter. We produced an adjusted pretax margin of 1%. The headline for the quarter is that approximately half of our underperformance is driven by the Marketplace business and that Medicaid while experiencing some pressure, is still producing strong margins. Year-to-date, our consolidated MCR is 90.8%, and our adjusted pretax margin is 2.7%. Some color on the quarter. In Medicaid, our flagship business, representing 75% of our total premium revenue, we reported an MCR of 92% and an adjusted pretax margin of 2.6%. Medical cost trend was higher than expected and driven by utilization of behavioral health, pharmacy, LTSS and inpatient care, largely consistent with what we observed throughout the year. A few positive rate updates were not enough to offset the elevated trend, and our risk corridor protection is now very limited. While our Medicaid performance did not meet our expectations for the quarter, many would characterize these results as best-in-class in this environment. In Medicare, we reported a third quarter MCR of 93.6%. We continue to experience higher utilization in this high acuity population, particularly related to LTSS and high-cost drugs. In Marketplace, the third quarter MCR at 95.6% was significantly higher than expected. We continue to experience much higher utilization relative to risk adjustment revenue. Our third quarter adjusted G&A ratio of 6.3% was very strong, reflecting our continued operating discipline. Turning now to our 2025 guidance. Our full year premium revenue increases to approximately $42.5 billion. Our full year 2025 adjusted earnings per share guidance is now expected to be approximately $14 per share which is $5 below our prior guidance of $19 per share. This revised guidance reflects a consolidated MCR of 91.3% and a pretax margin of 2.1%. As we recount our original EPS guidance of $24.50 and a $10.50 revision to $14, we note that half of this revision emerges from the unprecedented utilization trend in Marketplace, which represents nearly 10% of our business. Only 1/3 emerges from the rate and trend imbalance in Medicaid, which is 75% of our business and the remainder for Medicare. Now some color on the segments related to our revised guidance. In Medicaid, our guidance assumes a full year MCR of 91.5%, which produces a pretax margin of 3.2%. This Medicaid MCR result is above the high end of our long-term target range, but we evaluate it in the context of this challenging trend environment. Average rates achieved are now expected to be 5.5% but medical cost trend for the year is now expected to be 7%, which is 100 basis points higher than previous guidance. Our early 2025 rate increases were sufficient at the beginning of the year. But as medical cost trend increase beyond those rates, our MCR increased each quarter. The rate updates we received later in the year and risk corridors did not provide an adequate buffer. In Medicare, our full year guidance includes an MCR of 91.3% and pretax margin is at breakeven. We continue to effectively manage elevated utilization through our cost control protocols. In Marketplace, the full year guidance MCR of 89.7% produces a negative pretax margin. We expect higher utilization to persist as in past quarters with little to no risk adjustment revenue offset. Our Marketplace business has significantly underperformed our expectations, but its performance appears consistent with industry-wide trends. As noted a moment ago, approximately half the earnings per share reduction from initial guidance and prior guidance is attributable to this business. which represents just 10% of our consolidated revenue. Marketplace was initially projected to produce over $3 of earnings per share, but is now expected to produce a loss of $2 per share, a swing of over $5 of the $10.50 reduction from our initial 2025 guidance. Our updated full year guidance at $14 per share, implies earnings per share of approximately $0.35 in the fourth quarter. Within this fourth quarter EPS guidance, Medicaid is projected to earn $3 per share with a 92.5% MCR and a pretax margin of approximately 2.5%. Medicare and Marketplace are expected to offset the Medicaid performance with a combined $2.65 loss per share. The fourth quarter and second half projected Medicaid performance provides a strong jump-off point for our 2026 outlook. Now some commentary on our outlook for 2026. While it is far too early to provide formal guidance, we believe a discussion of the 2026 building blocks for both revenue and earnings per share will be helpful. I will lay out the components and Mark will provide further details. Our 2026 premium revenue outlook anticipates growth in our current footprint, consistent with historical levels, significant new Medicaid contracts in Georgia and Texas, and Medicare duals growth in 5 states through our recent RFP wins and MMP conversions. These items alone would put us on track to meet our target of $46 billion of revenue in 2026. However, our 2026 pricing strategy for Marketplace with the intention and expectation of reducing our exposure will likely be a revenue headwind, although earnings accretive. With respect to our outlook for 2026 earnings per share, there are several items to consider, particularly related to the Medicaid earnings baseline. First, our Medicaid performance in the second half of 2025 is expected to produce a 92.3% MCR and a 2.5% pretax margin. This equates to $6.50 per share in the second half, the annualization of which is an appropriate jumping off point for 2026. Second, we note that there is normal rate-related seasonality pressure in Medicaid in the second half of the year. Third, with some early views of our January rate cycle, which comprises 60% of our full year revenue, we project rates will be modestly in excess of trend. And Medicare and Marketplace are projected to at least break even, although we are driving to achieve our target margins. This early view of the 2026 earnings per share baseline should provide for an outlook for 2026, which likely approximates this year's updated full year guidance. However, we further note the following areas of potential upside to this baseline view. Medicaid rates as every 100 basis points of improvement produces an additional $4.50 per share, performing better than breakeven in Medicare and Marketplace as we continue to target low to mid-single-digit pretax margins and harvesting a portion of our $8.65 of embedded earnings. That at a high level is our outlook for 2026. Mark will take you through more detail on this in a moment. Finally, turning to our growth initiatives. Despite the short-term margin challenges, we continue to fuel our growth engines and see a clear path to surpass the $50 billion premium revenue mark in the next few years. During the third quarter, we continued our successful track record of winning RFPs with the renewal of our Wisconsin My Choice contract in Regions 2 and 7. We are engaged in active RFPs in several states and have an active pipeline of $54 billion of new opportunities over the next few years. On the M&A side, our acquisition pipeline contains a growing number of actionable opportunities. This current challenging operating environment has been a catalyst for many smaller and less diverse health plans to consider their strategic options. We remain opportunistic in deploying capital to accretive acquisitions. In this temporary period of rate and trend in balance, we are going to work to acquire as much Medicaid revenue as possible and as we have done in the past, work it up to target margins. At our last Investor Day, we characterized this environment as inclement weather rather than climate change, metaphorically, meaning temporary rather than permanent. We continue to believe this to be true. Medicaid is expected to produce a 3.2% pretax margin and contribute approximately $16 per share this year. Rates will come back into balance with medical cost trend and the business will recalibrate to target margins. Medicare is experiencing a rejuvenation aimed at serving the very attractive dual eligible segment, which we believe is poised for significant profitable growth. And Marketplace is undergoing a rationalization, addition by subtraction as we reduce our exposure, while the risk pool stabilizes. In short, these businesses are well positioned for the long term and sustainable profitable growth. With that, I will turn the call over to Mark for some additional color on the financials. Mark? Mark Keim: Thanks, Joe, and good morning, everyone. Today, I'll discuss some additional details on our third quarter performance, the balance sheet, our 2025 guidance and the building blocks of our 2026 outlook. Beginning with our third quarter results. For the quarter, we reported approximately $11 billion in total revenue and $10.8 billion of premium revenue with adjusted EPS of $1.84. Our third quarter consolidated MCR was 92.6%, reflecting a continued challenging medical trend environment for each of our segments, but was moderated by our consistently effective medical cost management. Half the miss versus our expectations this quarter was due to the significant underperformance in Marketplace. In Medicaid, our third quarter MCR was 92%, higher than our expectations. We continue to experience medical cost pressure across many cost categories, particularly for behavioral, pharmacy and LTSS. The combination of these trends exceeded rate updates received throughout the year. In Medicare, our third quarter MCR was 93.6%, also higher than our expectations. We experienced higher utilization among our high-acuity duals populations, particularly for LTSS and high-cost pharmacy drugs. In Marketplace, our third quarter reported MCR was 95.6%. Utilization in our membership was significantly elevated compared to our prior guidance. In past years, higher trends have often been offset by risk adjustment benefits. However, since Marketplace risk adjustment is relative to the market, not absolute like Medicare, the higher trend this year across the entire national population mitigates the risk adjustment offset we would have expected to realize. Our adjusted G&A ratio for the quarter was 6.3%, reflecting our normal operating discipline. I will note that our effective tax rate in the third quarter dropped significantly, reflecting benefits related to acquired federal tax credits and the impact of lower nondeductible expenses. Turning to the balance sheet. Our capital foundation remains strong. While margins are lower than our targets, I point out that positive earnings continued to add to our capital base and drive cash flow via dividends to the parent. In the quarter, we harvested approximately $278 million of subsidiary dividends and our parent company cash balance was approximately $108 million at the end of the quarter. RBC ratios, which test the level of capital at the subsidiary level compared to regulatory requirements, are 340% in aggregate and unchanged since the end of 2024. Total subsidiary capital is 70% above state minimums. Our operating cash flow for the first 9 months of 2025 was an outflow of $237 million due to the settlement of Medicaid risk corridors and Marketplace risk transfer payments as well as the timing of tax payments and government receivables that offset the normal positive items. In the quarter, we have repurchased approximately 2.8 million shares at a cost of $500 million. We see real value in our shares at current market prices, which we believe at this low point in the rate cycle underappreciate the longer-term margin targets of our business. Debt balances at the end of the quarter increased temporarily to fund the share repurchase. Current ratios are 2.5x trailing 12-month EBITDA and our debt-to-cap ratio is about 48. We continue to have ample cash and access to capital to fuel our growth initiatives and execute on our capital allocation priorities. Turning to reserves. Days in claims payable at the end of the quarter was 46. We remain confident in the strength and consistency of our actuarial process and our reserve position even in this period of sustaining high trend. Next, a few comments on our 2025 guidance. Our full year premium revenue guidance is slightly higher at $42.5 billion. Our adjusted earnings are now expected to be approximately $14 per share. Within our guidance, the full year consolidated MCR increases to 91.3% up 110 basis points from our prior guidance. Updated EPS guidance is $5 below our prior guidance of $19 per share, reflecting our higher full year MCR outlook. The medical margin decline of $6.25 in our guidance is partially offset by $1.25 of favorable G&A and the modest impact of lower average share count. I will note that Marketplace, which comprises just 10% of our total revenue, contributes half of that medical margin-driven EPS shortfall. In Medicaid, we expect fourth quarter MCR of 92.5% and full year now at 91.5%. This full year outlook is up 60 basis points from our prior guidance, reflecting the third quarter experience and our expectations for higher trend in the fourth quarter. Within those numbers, our full year Medicaid trend rises from 6% to 7%. Updates in several states increased our full year rate outlook from 5% to 5.5%. We continue to see a willingness from states to discuss off-cycle and retro rate adjustments as data develops, but we do not include speculative updates in our guidance. Even in this challenging operating environment, our Medicaid segment's full year pretax guidance margin is 3.2 and implied second half margin is 2.5, demonstrating the underlying strength and execution of our main business. In Medicare, we expect fourth quarter MCR of 93.6%, in line with the third quarter. Our guidance for the full year of Medicare MCR rises to 91.3%, a 130 basis point increase from our prior guidance, mainly driven by expectation for full year trend rising from about 4 to 5. The Medicare segment full year pretax guidance margin is breakeven. In Marketplace, we expect fourth quarter MCR of 96.2% and full year at 89.7%. Within our marketplace guidance, full year trend rises from about 11 to 15. We expect the full year G&A ratio to be approximately 6.5%. Due to third quarter share repurchases, our fourth quarter share count falls to 50.9 million and full year is 53 million. Finally, I'll expand on Joe's comments on our initial outlook for 2026. While we're unable to give guidance at this early stage, I would like to further detail our initial views on the premium and EPS building blocks for 2026, which may help shape your perspectives and modeling. A number of known items put us on track to meet our target of $46 billion of revenue in 2026. They include normal growth in our current footprint, the new Medicaid contract wins in Georgia and Texas, and the Medicare duals growth in 5 states as our MMPs transition to FIDEs and HIDEs. However, we anticipate 2 revenue headwinds in 2026, which we are unable to size at this early stage. First, given the lapse of enhanced tax credits or subsidies in Marketplace and the significant uncertainty will cause in the risk pool, we are repricing the Marketplace book of business to reduce exposure and restore margins. Our 2026 rate increases averaged 30%, ranging from 15% to 45%, and we have exited difficult geographies. I will note that for the next year, we have reduced our county footprint by 20% and our #1 and #2 price position goes from 50% of our footprint in 2025 to an estimated 10% of our footprint in 2026. Separately, we may see a small impact to Medicaid membership due to the recently passed budget bill, but continue to expect most of that impact will manifest in 2027 and 2028. I'll now run through a similar set of building blocks on the EPS side. As a baseline for 2026, our Medicaid performance in the second half of 2025 is expected to produce a 92.3% MCR, a 2.5% pretax margin and contributes $6.50 per share to earnings. We annualized that to $13 per share for full year Medicaid baseline for 2026. Next, we adjust that baseline upward to reflect normal seasonality pressure in the second half of the year. Remember, second half MLR is typically 50 basis points higher for seasonal items in our rate cycle, which implies a 25 basis point increase to next year's annualized outlook from the second half of 2025. Then early views of draft rates in our January rate cycle, which comprises 60% of our full year revenue, now suggest next year's full year rates could be better than an initial proxy for trend by 50 basis points. While still short of the significant catch-up needed in rates more generally, our early data points suggest states are moving in the right direction. Next, we anticipate increased G&A expense next year as a return to normal compensation expense levels are only slightly offset by the end of the unusual implementation expenses we recognized in 2025. Lastly, we expect the benefit of lower share count next year to be largely offset by the impact of declining interest rate environment on our interest income. These building blocks will enable a fair outlook for 2026 that likely approximate for this year's updated full year guidance. I will note that this approach inherently assumes that both Medicare and Marketplace are earnings neutral next year. As we build our plan for next year, we see additional potential upsides in 3 areas. Most significantly, we remain optimistic on the margin improvement potential as state set rates for 2026. Many state programs are underfunded as we are now in the sixth consecutive quarter of abnormally high medical cost trend. Published reports and our own internal analysis suggests that the market needs 300 to 500 basis points of rate in excess of trend to breakeven. States are listing, becoming more responsive and weighing more heavily on recent medical claims data in the rate setting process. We have very strong rate advocacy efforts working with our state partners to restore rates to appropriate levels. Rate increases beyond our initial assumptions create significant earnings upside as each 100 basis points of MLR yields $4.50 of earnings per share. Separately, as noted, this 2026 outlook also conservatively assumes Medicare and Marketplace will break even. In Medicare, we remain strategically focused on our dual eligible population and improving pretax margins. Each 100 basis points of MLR yields $0.80 of earnings per share. In Marketplace, any positive margins are also upside to our building blocks even on declining revenues. A final source of upside is our embedded earnings which accounts for the estimated accretion from new contract wins and recent acquisitions. We will harvest some portion of the $8.65 per share in 2026. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question comes from Andrew Mok with Barclays. Andrew Mok: Can you elaborate on the drivers of ACA MLR pressure in the quarter? It sounds like there was a negative surprise in the September Wakely data can you confirm and quantify that for us? And given the timing of the ACA pressure, how confident are you that this most recent utilization and morbidity experience was captured in your 2026 pricing? Joseph Zubretsky: I'll frame the answer and then hand it to Mark for more detail. The pressure in the quarter was strictly related to increased medical cost trend literally across all categories. We have a higher percentage of special enrollment membership, which usually runs hot initially. It's all medical cost trends. The risk adjustment was not a factor in our trajectory of earnings per share. Now for next year, as Mark mentioned in his comments, we don't like to allocate capital to a product in an unstable risk pool. That's why we kept this small, silver and stable at 10% of revenue. So next year, our rate increases state-by-state range from 15% to 45%. They average 30%. We reduced our footprint by 20%, and more importantly than the raw price increase that went into the market is where does your product price sit compared to the other market participants. We were #1 or #2 silver in 50% of our markets last year. And this year, an early read, we don't have all the information, suggests that we're only going to be priced #1 or #2 in 10% of our core markets. Mark, anything to add? Mark Keim: Joe, I think that's well summarized. Just to hit that in the third quarter, a number of drivers because certainly, our MLR is up a lot Q3 over Q2 to your question. In general, it's the same trend pressure that every one of our segments are seeing. Joe mentioned SEP volumes keep coming. Program integrity, the different forms of membership attrition that come out certainly put a little pressure on it. What you'll also see, and I expect you to ask about this, is in our IBNR roll forward, you'll see some development that went back to last year on some large dollar items and some provider claim settlements. So you put those items all together, it certainly is the driver of a lot of pressure here in the third quarter on marketplace. Joe hit the key theme for next year exactly. We'll reduce our exposure significantly next year. We're not as competitive in most markets. We're pretty far down the rankings on most prices, which means I think we have enough price in there to jump over any unforeseens in the third and fourth quarters and more importantly, minimize exposure next year. Joseph Zubretsky: That initial 2026 outlook only assumed on a reduced revenue base that would get Marketplace back to breakeven. But in our pricing, we certainly targeted mid-single-digit pretax margins. Operator: The next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Just a couple of clarifications on how you're thinking about Medicaid going into next year. In terms of the rates that you're discussing, are you then expecting rates to be in the excess of this 7% cost trend that you're seeing right now. And then when you speak to enrollment trends, on one hand, it sounded like you talked to some level of normal enrollment growth, but then also talking about some expected pressure on enrollment. I guess could you just clarify whether you're expecting on a same contract basis in Medicaid for next year, whether enrollment is going to be up, down or stable? Joseph Zubretsky: I'll answer the second question first. In each of the last 3 quarters, we saw a 1% membership decline in Medicaid, and that's just due to more rigorous and disciplined enrollment activities in each of our states. Now as you know, stayers versus leavers, that usually adds a little bit of acuity shift, which is probably part of the issue of why medical cost trend is increasing. But your first question about rates, there are 4 reasons why we're optimistic that rates will at least keep pace with the trend and probably be slightly in excess of trend. One is in the past, over the past year, states have been very responsive, on-cycle, off-cycle, retroactive, prospective and responding to the increased trend. Two, this cost inflection started in mid-'24 through mid-'25. We have a full year baseline that includes significant cost increases that can be rated for. So the updated baseline gives us optimism if that's included in the rate projections, then it captures a lot of the cost increase. Third, 3 of the cost categories that are increasing pressure on our results, LTSS, pharmacy and behavioral are discrete rating cells in the rating process, very visible, very prominent, gives you great visibility into those cost components, and they can be rated for adequately. And lastly, an early glimpse, very early glimpse at the 1/1 cycle where 60% of our revenue renews gives us some optimism that rates will be slightly ahead of trend and including rate updates for the full year in 2026, be slightly in excess of trend. Mark, did I miss anything? Mark Keim: No, Joe, I think it's well summarized. Stephen, it's indisputable that managed Medicaid rates are 300 to 400 basis points underfunded and our state partners are recognizing that. We understand there's budget pressures out there. But with the development of data, as Joe mentioned, that's indisputable. And our early outlook for next year is that rates will be at least somewhat better than expected trend. But as you can imagine, we're feeling our way through both of those right now, and we'll have more as guidance develops. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: I appreciate the early comments about next year. Thinking about what you're assuming on the public exchanges, there are a lot of different scenarios on the table now with respect to subsidies, enhanced subsidies, et cetera. How does that affect -- what have you assumed embedded in the comment about breakeven? And how much of a variability might there be depending on the various ways this could play out? Joseph Zubretsky: Well, we gave you the rate increases ranging from 15% to 45% averaging 30%. And I won't go through the discrete components. I'll describe them qualitatively. You were underwater this year. We're going to have a 3% negative margin so you put in a catch-up to get you back to target margins. You put in an estimate of trend, which we believe is very conservative. And then, of course, you have to estimate the impact of the acuity shift as the membership growth reduce due to the enhanced subsidy expiration. We believe we conservatively priced for all those 3 elements. But again, the more important point is where does the product sit on the shelf compared to your competitors. And the fact that it's not 1 or 2 in most of our markets gives us a view that volume will be reduced next year. I can't tell you how much right now, but it will be reduced. And our assumption is that on that reduced volume, we can at least get this back to breakeven. But those conservative pricing assumptions did target mid-single-digit margins. Anything to add, Mark? Mark Keim: The only thing to add, A.J., is right now, we're priced for the expiration of subsidies, which is the base case on the table. I think inherent in your question might be, well, what if the rules on subsidies change? If the rules on subsidies change, then pricing changes as well. Our objective, as Joe said, would be the same, which is to break even or be better. But if the outlook and the regulation on subsidies changes, then the rates need to change as well. Operator: The next question comes from Josh Raskin with Nephron Research. Joshua Raskin: When you look at that early view of 2026 being similar to the $14 this year, would you characterize that as a new baseline from which you grow and realize your embedded earnings going forward? Or do you view that as abnormally depressed still and we should expect above-average growth for a couple of years as margins get back to targets in all 3 segments? Joseph Zubretsky: Whether we're taking the full year of 2025 in Medicaid at $16 or an annualization of the second half at $13, with the items of upside we mentioned, we certainly believe that rates will come back into balance with medical cost trend over time. Now the question everybody ask is, well, how much time will that take? We don't know, and we're not forecasting that. But next year, we are assuming that rates are in excess of trend, modestly in excess of trend, and that's a good jumping off point. But we do believe we have not changed our long-term outlook on the margins for this business. In the first half of the year, we had a 3.8% pretax margin. And even that was below our long-term target of about 4.5% for the business. We believe, over time, these things come back to target margins. The market in Medicaid needs 300 to 500 basis points to break even, just to break even. We've consistently operated 200 to 300 basis points better than the competitors in all of our markets. We only need a fraction of what the market needs in order to get back to target margins. Mark? Mark Keim: And Josh, just to build on that, I noticed overnight, some of you did the math on our initial outlook, the building blocks to $14 and a few of you got pretty close. It sort of implies next year that the whole company would run about a 2% pretax margin and maybe a 2.5% on Medicaid, which, in both cases, is significantly below our longer outlook of 4% to 5% pretax for the whole company or 4.5% at the midpoint. So it certainly implies that next year, margins are reduced with a lot of growth potential as this rate cycle normalizes. Operator: The next question comes from Justin Lake with Wolfe Research. Justin Lake: I was hoping I could get you to share where you think exchange revenue would be for next year, given all those moving parts you talked about versus kind of the $4.5 billion run rate this year. And then maybe you talked about SG&A be a little pressured year-over-year given bonuses returning. Can you -- anything you could share with us in terms of where you think that SG&A ratio will shake out year-over-year? Joseph Zubretsky: I'll answer the exchange revenue question first and kick it to Mark for the G&A color. We have various scenarios. And of course, what you're doing is you're looking at your price position versus the price positions of other players and looking at your competitive position and trying to forecast how much volume will you keep and how much volume will you get. We don't believe we'll get a lot of new membership, but we believe we'll hold on to some renewal membership. We have scenarios that indicate that revenue could come down from $4 billion to $2 billion or even slightly less than that at $1.5 billion. In either case, we are 100% comfortable of at least breaking even in that line of business next year. But our pricing models, even at that reduced volume, were priced to produce mid-single-digit target margins. Mark, do you want to take the G&A question? Mark Keim: Yes, Joe, just to build on the marketplace one, a lot of the consensus views out there are that Marketplace could shrink nationally 30% to 50% next year. I think what Joe is suggesting is it wouldn't be out of line to think we would as well with some of the numbers Joe mentioned. On the G&A ratio, we'll probably come in at a 6.5% this year within our guidance. That is low for the reasons you mentioned, compensation and a few other items, probably targeting roughly about a 6.8-ish is the right way to go for next year, at least to start your modeling. Joseph Zubretsky: On the -- another point on the G&A question is really important because when we talk about target margins in Medicaid, one of the facts that is usually missed is that we operate just north of 5% of a G&A ratio in that line of business, which we believe is best-in-class. So if we get 200 to 300 basis -- 100 basis points of rates, which is equal to $4.50 a share and continue to operate just north of 5% on the G&A line in Medicaid, then we're well on our way back to target margins. Operator: The next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. I guess I appreciate with the guidance that you basically are only signaling potential areas of upside. It really seems like the market is much more focused on potential areas of downside. You have some peers who are thinking that margins trough next year rather than are slightly better in Medicaid. Obviously, the exchanges are unknown. So I would just love to hear your view on where you think the downside risk to the numbers are. You said that this year, trends matched -- rates matched trend, but then trend got worse as the year went on. It's not clear to me why you have confidence that today, when you say rates look like they're going to be slightly above, why you'd have confidence that by the end of the year, that would still be the case. And then with your embedded earnings comment with, I guess, the business underperforming, how do we think about the embedded earnings? I guess, in the past, you've kind of talked about the trajectory of realizing them. Is that all pushed out a year? Like how should we be thinking about that part of the equation? Joseph Zubretsky: Well, on the margin question or the MCR question in Medicaid, when you produce a 91% MCR in the first half of the year, 92% in the second, averaging 91.5% and your pretax margins at 3.2%. It depends what you mean at trough from. I mean these are the lowest point of our margins because we started at 4.5% to 5%. So I think we have to -- when comparing our results to others, you have to look at the starting point. We started at 4.5% to 5%. It was just a year ago, we were 200 basis points into the corridors. One of the reasons why the cost inflection that began in mid-2024 didn't hit us as much is we were 200 basis points into the corridors late in '24, which buffered a lot of that medical cost pressure. So we're operating the way we want to operate. We believe we'll get back to target margins and even back into the corridors. And we're -- I articulated the early view of rates to our items, past state rate updates, the '24/'25 baseline already including a lot of the cost inflection, 3 rating components that are very discrete and highly prominent and an early glimpse at 1/1/26. So we think the Medicaid business, which is the earnings back to the company, 75% of our revenue, producing a 3.2% pretax margin at $16 a share this year is going to continue to perform. Is there downside? Any business has downside on medical cost trends. And there's no question that in all of our businesses with a 7% cost trend in Medicaid, a 5% cost trend in Medicare and a 15% cost trend in Marketplace, it's all about cost trend and where that settles in, in 2026. But our view is the appointment logs are filled in doctors' offices, the beds are filled in the hospitals. And at some point in time, capacity has to level out and trend levels out on this highly increased cost base. If trend just levels, costs are still up 15%, 20% of where they were 2 years ago. Mark Keim: Yes, Kevin, the second part of your question was on embedded earnings. As we said in our prepared remarks, we've got $8.65 now. And remember what that is, that's earnings on top of what we're currently guiding to in the current year, things that will emerge in future years. We're at $8.65. We had previously signaled we thought about 1/3 would come out into earnings in 2026. We're not ready to give a more specific number. Joe and I certainly will when we give guidance after the fourth quarter. But what you can think about is within that $8.65, remember, we were carrying $1 of implementation costs, which depressed our earnings in 2025. That just goes away. That was the preparation for the FIDEs and HIDEs. We'll kick those into gear January 1. So that kind of headwind goes away for next year. The other small component was we were expecting a little bit of a loss on -- from the Virginia contract going away. That was a $0.40 item. So that falls out. So you get the dollar next year. You have to recognize the $0.40 headwind from Virginia, but net, you're up at least $0.60 just on things that are money in the bank. The rest we'll update as Joe and I have a better view on trend in rates next year, but you'll get some portion of that $8.65. Joseph Zubretsky: The only thing I would add is embedded earnings is what we call an ultimate concept, meaning that you get to your ultimate target margins over a period of time. Now given where margins have settled recently, could that then take longer to get to ultimate? Sure. But we have not changed our view of the ultimate target margins in those businesses, but the timing of emergence is certainly something we'll update you on when we give 2026 guidance in February. Operator: [Operator Instructions] The next question comes from Scott Fidel and Goldman Sachs. Please go ahead. Scott Fidel: Maybe switching over -- let's switch back over to Medicare a little bit. And interested maybe if you can sort of break down for us around the performance for this year, sort of breaking it down between, let's say, the traditional MOH sort of D-SNP focused book of business. And then the acquisition of the bright assets in California and how each of those sort of have built into the performance this year. And that then looking out to next year as well how each of those 2 categories influence your view on Medicare into that, I think, sort of breakeven margin view that you have for next year? Joseph Zubretsky: Well, I'll tee it up, and I'll hand it to Mark. The Medicare business, as I said in my prepared remarks, is sort of going through a rejuvenation, and that is because it is -- it was always aimed at the dual eligible segment. But now with the MMPs, the $2 billion, 44,000 members, $2 billion of revenue converting to FIDEs and HIDEs, we're really well positioned, particularly with the swipe of Illinois, Ohio and Michigan and the D-SNP RFP process. So as we look year-over-year, this year versus next, the Bright acquisition will be what, the third full year of ownership, and that was coming from a very low margin position, we're building it up. That will provide some improvement. But as we convert these 44,000 members and by the way, add 20,000 due to the service area expansion and the MMP conversions, we're being a little cautious. They're the same members. They're in the same geographies, but it is a different product chassis. So we're being a little cautious with the margins in that product. So breakeven to breakeven, Bright does better in the third year of ownership, and we're a little bit cautious on the profitability of the MMP conversions until we have 1 year of experience. Mark, do you want to add anything? Mark Keim: Joe, that's well summarized. Within our $6 billion of Medicare, it's about 1/3 MAPD, about 1/3 MNP and about 1/3 D-SNP. As we look to next year, those MMPs will translate to FIDEs and HIDEs given all of the RFPs that we won so I think you'll see slight margin erosion as you go from MMPs into FIDEs and HIDEs, and that's one, just us being cautious about a new product; and two, recognizing that the second half of the year was hotter than we thought this year. That slight margin erosion though, I think, is offset as on the MAPD side, Bright ConnectiCare come back up to closer to where they should be on target margin. You put that all together, we're starting off at least margin neutral for next year. Operator: The next question comes from John Stansel with JPMorgan. John Stansel: On the M&A pipeline, since Investor Day last year, you spent a fair amount of time talking about the opportunities you see with smaller and regional players. And I think we've heard a fair amount of commentary across the space about potentially negative margins in Medicaid. And to contrast that with the significant share repurchase done in the quarter, can you just talk through how you're thinking about capital allocation priorities from here, capacity and how developed that pipeline is in the coming quarters? Joseph Zubretsky: Sure. Our capital priorities have not changed. The order priority, organic growth, inorganic growth and returning capital to shareholders through share repurchase, that haven't changed, and we have ample capital, as Mark said, we're still producing earnings. You throw leverage on top of earnings. We're producing $1.5 billion of capital capacity a year even at these compressed margins. On the M&A pipeline, if you look at our history of purchasing, what, $11 billion of revenue over 7 or 8 deals and only acting capital equal to 22% of purchase revenue, half of which is regulatory capital, hard capital we barely paid any goodwill value for the acquisitions. In this period of cyclically low margins, we're going to be very disciplined about prices paid for revenue streams. If you can buy a revenue stream, from a struggling local health plan at or about book value, it's just as good as winning a new contract, no goodwill capital. All the capital was hard capital and regulatory capital. So the number of local not-for-profit health plans in Medicaid that have experienced prolonged operating difficulties and therefore, profitability and capital problems has been a catalyst for the pipeline being replenished in very full, very full of actionable opportunities. And if you can action them at or around book value is as good or even better than winning a new contract. Mark, anything on capital allocation? Mark Keim: On capital allocation, Joe mentioned the prioritization, we always prefer to grow organically. But these M&A situations, when you buy them so close to book, almost feel organic. If the industry is 300 to 400 basis points underfunded, you can imagine some of these smaller players are starting to really struggle, which is why we feel good about the opportunities to do some M&A here and drive additional value from that perspective. On the capital side, we remain in a really good spot with our financial ratios. And again, with the earnings power of the business, even at these lower levels, we just continue to build book value and therefore, debt capacity. So we feel pretty good about one, the opportunities, and two, our capital position. Operator: The next question comes from Ryan Langston with TD. Cowen. Ryan Langston: Great. I appreciate all the details for 2026. It sounds like you see states moving in the right direction in terms of rates. But I'm wondering, is there any other type of relief that states are offering just above and beyond. Joe, I think in the second quarter call you said utilization management was constrained in certain states and more sort of allowable services. Are you seeing any signaling from states this could change over time? Joseph Zubretsky: With, I think what you're describing is the construction of the program. Look, states are pressured on budgets. They have a variety of things they can do. They can change the program, reduce benefits, reduce eligibility. And we've heard other companies talk about this. We've seen this at the margin. Have there been utilization pauses called by various states? Yes, isolated, mostly on behavioral. And what do you think happens when you pause utilization on any component of cost that goes up. Most states are going back to full utilization protocols at this point, but it's not a major phenomenon. Benefit changes, meaning reduction in the size of the program to the benefit changes. We've seen those on the margin in various places, but not significant. So going into next year, program changes, program construction is really not a major phenomenon to consider as we -- in our outlook for 2026. It's here, it's there, it's isolated, but it's not a major driver. Now the other component that we are seeing, as I mentioned before, and it shouldn't be ignored, is states even before work requirements are taking enrollment processes more seriously, and we've lost about 1% of membership per quarter for each of the last 3. Leavers usually have a lower MCR than stayers. So they're putting a little bit of pressure due to an acuity shift, but most of the pressure in Medicaid is higher utilization by the stayers, not the acuity shift by the leavers, but continued program integrity is another phenomenon that were experienced state by state. Operator: The next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: Just a bigger picture question on the exchange business in light of just the uncertainties, whether it's subsidies or otherwise the lack of visibility sometimes across that business, and you're taking a conservative approach, but I guess, can you talk about your overall commitment to that business, how you think about that? And at what point would your thinking change on that front in terms of your priorities and the overall mix of your business. Joseph Zubretsky: As I mentioned previously, thanks for the question. We will allocate capital to the business as long as we are convinced that the risk pool will continue to be stable. And I look over the past 5 years, insurtechs coming in with unreasonable pricing, expanding the eligibility for special enrollment, enhanced subsidies in enhanced subsidies out. I mean you can go back and look at duration of membership, fast-churn membership, you need risk adjustment, you have a member for 18 months, you don't get risk adjustment. So when you look at the inherent what I call inherent volatility of the book, we have no choice in my -- in our capital philosophy of allocating as little capital to an unstable risk pool as we can. However, we did not pull the product. The product is available. It's available in over 300 counties. It's on the shelf. And if we come to the conclusion that the risk pool stabilizes for a period of time, we can allocate more capital, leverage our broker relationships. And while other market participants might consider this product a necessity, we consider it an option. We believe that option is out of the money next year. But when it goes back closer to the money or in the money, we'll exercise it. Operator: The next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Great. Just a couple of clarifications on Medicaid and Marketplace. For the '26 assumptions on trend and rate, are you kind of presuming that rates, given visibility you've got thus far are going to improve up to that trend level? Or do you think that trend level is going to be normalizing down? Could you also talk a little bit about the variability you see contract-to-contract or state to state in your margin performance? And does that present any opportunities for exiting any particular contracts? Or are they all doing kind of comparably well? And then the last question is just on Marketplace. If you're seeing any sort of pull forward in activity kind of the uncertainty in the membership there, if they're going to have the program going into next year for some of them. And if you could quantify that? Joseph Zubretsky: Mark, do you want to take the Medicaid rate question, the 2026 rate question, the state by state question. Mark Keim: Absolutely. Lance, on the Medicaid rates versus trend, again, the industry is 300 to 400 basis points underfunded right now. And while states might have budget pressures and be reluctant to completely address that, it's inevitable they need to. And so our view into early next year and what we're seeing from our state partners, is that the trend in rate imbalance can't perpetuate. We're far enough into at least 6 quarters into it, that the trailing data is catching up with it. And our assumption is that extremely high trends as we've seen don't continue that they moderate somewhat. But more importantly, that states are recognizing with the trailing data that they need to catch up. It may take them many quarters to catch up, but they are starting to recognize that and catch up. And remember, if the industry is 300 to 400 basis points underfunded, the stat filings show that Molina is still performs 200 to 250 basis points better than the industry. So we need half of what the broader industry needs to get to our target margins and the probability of us getting that half sooner than later is probably better than the whole market coming back to stasis. So we feel that some catch-up is appropriate and warranted, and we're expecting, again, a small catch up in our initial outlook here. Joseph Zubretsky: With the question state-by-state, Mark and I spent a lot of time managing what we call the portfolio. and we do not tolerate performance SKUs, everybody's got to deliver. Now things go through cycles and sometimes the state rate will get weaker and then sometimes it gets stronger. But every property in the portfolio is performing at least in excess of its cost of capital. There's a supposition out there that some of the smaller plans can't be doing well because they can't be scaled properly. We have $5 billion health plans, and we have $500 million health plans. The margins are not correlated to the size of the plan. They're just not. We can make money in a $500 million to $1 billion health plan, all the shared services, claims, grievances and appeals all those shared services call centers are completely leveraged at an enterprise level. So right now, sure, states go through -- our state properties, go through various cycles of profitability, ebbing and flowing. But no, there is no contemplation of reducing the size of the portfolio. We still have an active pipeline targeting $54 billion of opportunities over the next number of years. We have 2 active RFPs, 2 of our bigger states in flight right now. So now we're building the portfolio. And right now, there is no discussion over any underperformance or any state where we're not happy to do business. Operator: The next question comes from George Hill with Deutsche Bank. George Hill: I had a Medicare question. And I guess, Mark, when I think of your portfolio in Medicare, I think you talked about like the LTSS and the duals penetration, I think if you guys as having high duals in a relatively sick book of business, which is why I was surprised at the magnitude of the MLR miss in the quarter. I guess, can you talk about the variable consumption that you guys saw in the Medicare business? And what's driving that because, again, I think the really sick members is constant utilizers of care. So I kind of really like to hear about the marginal -- like what's driving the marginal cost of care in Medicare. Mark Keim: I think you have a variety of things going on. We typically talk about LTSS as being a bigger driver in a high acuity population, and it's certainly a built-in big part of each of these high acuity and duals products. And then on the high-cost drug side, that continues to be a factor across all of our businesses, but with certain cancer treatments with certain other of the therapies that are out there, high-cost drugs continued to be a very big driver of it. Joseph Zubretsky: And you make an interesting point. That in highly chronic populations, by definition, ABD and Medicaid and Duals, you wouldn't expect to see a cost inflection because they're using services from day 1 to day 365. And but we have seen it. And those are the 2 cost components in Medicare, LTSS hours and SNF admits and high-cost drugs, which are our Rx trends as a company are about of 16% and 36% in the top 10 therapeutic categories. So they're being used across all our populations, and that is what's putting the cost pressure in Medicare. Even though they're already high acuity chronic populations, utilization is up. Operator: The next question comes from Michael Ha with Baird. Hua Ha: With regard to Medicaid margins and state rate increases, I understand you're strongly advocating for better rate alignment. So I'm wondering how many of your states are actually reflecting recent '25 trends into the reference look back period for the upcoming January rates. Curious because in our conversations with state actuaries, it seems like actuaries at best can only consider a look-back period of 12 to 24 months, just given how difficult it is to shorten it, just given they need a few months ahead of time to submit to CMS for approval, need roughly half a year to run the process and then clean 12-month look back that reflects about 3 months of claims runoff. So I'm curious, are you seeing states who actually reflecting '25 trends? And also on the Medicaid member attrition this year. I was wondering if you could quickly elaborate on the nature of that disenrollment. How many of these lives are rolling off because of procedural or administrative reasons? Just trying to better understand if this might be emblematic at the higher level of outsized procedural disenrollment that we've been seeing? Joseph Zubretsky: On the Medicaid rates, and Mark and I, particularly Mark spent a lot of time in this process. The data through June of 2025 is virtually complete. Yes, actuaries like to see data very well seasoned. And this cost inflection did start in mid-'24. So whether they use '24 but include early '25 as a trend factor or use mid-'24, '25 as the baseline and late '25 as a trend factor. As long as they capture the medical cost inflection either in the baseline or trend, we believe we'll be in good shape. So I'm not going to go state by state. The industry's advocacy efforts to fully consider the latest experience are very strong, and we believe are working. Whether the actual baseline period is 12 months older and then they include a generous trend on top of it or more recent period and less generous trend, it mathematically doesn't matter. But we are confident that the latest cost information either in the baseline or in a trend assumption is being contemplated in rates. Mark? Mark Keim: And Joe, that's a big point that isn't always well understood. If the look-back period is 6 months or 12 months ago, sure, that makes a difference from one perspective, but that's not the rate you get. The rate you get is that look back starting point plus a fair trend on top of it. Now actuaries can argue over what that fair trend is on top of it. But if that fare trend comes out at an appropriate place, the specific data, the look-back period is less relevant. Joseph Zubretsky: On your membership question, yes, states have just gotten more disciplined on eligibility requirements, and there's no one state or one area, about 1% per quarter for the last 3. And I believe in the membership decline in Virginia must be in there as of June 30. So the loss of Virginia, I don't have the number in front of me. Mark might have it. That also accounted for some of the membership loss. That contract rolled off a few months ago. Mark Keim: Right? And in the third quarter, 120,000 of our Medicaid members fell off due to the termination of Virginia. Joseph Zubretsky: Right. Operator: Our last question comes from Jason Cassorla with Guggenheim. Jason Cassorla: Great. Maybe just piggybacking off of the benefits questions from Medicaid. You noted program construction isn't like a phenomenon for 2026. But as opposed to multiple years of elevated rates, discussion around being 300 to 400 basis points underfunded in Medicaid. What do you believe needs to happen for states to take a deeper look at benefit structures and find areas that they'd be willing to pare back? And what would be like the mechanism or timing around when that could possibly happen? Or do you see a greater honors for states to do that and look at benefit structures? Joseph Zubretsky: Well, they do from time to time, carving out pharmacy, putting pharmacy back in. And the real issue there is while we don't like to see swings in revenue, revenue, we like to see revenue coming in. We certainly don't like to see it leave. The real issue there is if they take out benefits, how much rate do they take out? Do they take out the right amount of rate for the reduced benefit. So it should be margin neutral that and over time, it usually is. But there are value-added benefits in many states. I mean there's the core essential benefits that you'd always provide, but there were benefits around the edges that are always provided where they could actually cut back. States tended to have a tendency to carve out pharmacy. Some states have done that and found that it increased costs substantially. So we don't see that as a new emerging phenomena, there's 4 or 5 states that already do it. We don't see any more that are inclined to do it. So I think around the edges, they will look at that in order to save money. It will reduce revenue, but as long as the right amount of rate is taken out of the capitated rate, then volume goes down a little -- premium volume goes down a little bit, but margins should be neutral and should not be affected. Operator: This concludes our question-and-answer session and Molina Healthcare's Third Quarter 2025 Earnings Call. Thank you for participating and attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Third Quarter 2025 Results. Our featured speakers today are Marguerite Nader, our CEO; Patrick Waite, our President and COO; and Paul Seavey, our Executive Vice President and CFO. In advance of today's call, management released earnings. [Operator Instructions] As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meanings of the federal security laws. Our forward-looking statements are subject to certain economic risk and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G, reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings. At this time, I would like to turn the call over to Marguerite Nader, our President and CEO. Please go ahead. Marguerite Nader: Good morning, and thank you for joining us today. I am pleased to discuss our third quarter results and will provide some insight into the strengths we see in 2026. Turning to the results for the third quarter, we delivered strong normalized FFO growth in line with our expectations of 4.6%. Our full year guidance shows continued strength in property operations and FFO. I would like to highlight some of the key demand drivers for our annual business and the access points for our new customers. There are approximately 7 million manufactured homes across the country, housing over 18 million people, accounting for about 6% of all U.S. housing. Outside of metro areas, this share increases significantly to 14%. New manufactured homes in our communities are designed to meet the needs of our core demographic, offering value both in terms of cost and quality of life. Construction and safety standards for manufactured housing have been meaningfully enhanced over time, making today's homes more durable and cost 60% less than that of a comparable site built home in the surrounding area. As important as affordability, our residents benefit from amenitized communities that foster a strong sense of belonging, security and connection. We serve a large and expanding market, which includes nearly 70 million Baby Boomers and 65 million members of Gen X within our target demographic. These individuals are increasingly seeking housing options that combine desirable locations, high-quality homes at attractive price points and a welcoming community environment. Our properties deliver on all 3 fronts, offering a value proposition that resonates with this growing segment of the population. Our marketing efforts focused on leveraging technology and insights into our customers' travel patterns and lifestyles to reach the nation's 8 million RV owners. We listen closely to feedback and adapt to evolving preferences. Our seasonal guests increasingly seek flexibility to book stays and visit multiple locations while Thousand Trails members value our new subscription-based memberships with tiered benefits that they can purchase online. Manufactured home buyers increasingly research and communicate with us online and via text. Our digital tools offer detailed information, virtual tours, online applications and text messaging with local sales agents. Alongside technology, our teams focus on personal outreach. Property managers build relationships with their customers invite guests to return next season and share new home opportunities that meet their needs. Turning to 2026 expectations. Within our manufactured housing portfolio, we expect to have issued 2026 rent increase notices to 50% of our MA presence by the end of October with an average rate increase of 5.1%. In our RV portfolio, annual rates have already been set for over 95% of our annual sites with an average rate increase of 5.1%. We continue to engage with our residents to identify and prioritize capital improvements within our communities. These efforts not only enhance the resident experience, but also support the long-term value of our assets. The anticipated rent increases position us to extend our long-standing track record of REIT-leading revenue growth. Our ability to share strong current results and provide early visibility into 2026 reflects the strength and dedication of our team. Their ongoing commitment to supporting our residents and customers is fundamental to our success. Through their focus on service quality and community, we've been able to consistently deliver superior operating performance over the past 2 decades. I will now turn the call over to Patrick to provide an overview of property operations. Patrick Waite: Thanks, Marguerite. As we wind down the summer season in the north, our Sunbelt properties are gearing up for their winter season. Our MH and RV properties in Florida, Arizona and South Texas are preparing for the inflow of customers and increase in activities. On-site teams have begun welcoming residents and guests to properties. Our manufactured homes and communities continue to experience consistent demand and offer desirable features and amenities at prices that provide value in their respective markets. In the quarter, we continued to experience a consistent pace of new home sales. Our Florida MH portfolio reached 94% of occupancy. Florida continues to be one of the top states for net in migration, which supports demand for our key submarkets like Tampa, St. Pete and Fort Lauderdale, West Palm Beach. To meet that demand, we developed more than 900 sites in Florida over the last 5 years. Florida is also supporting strong rent growth, reflected in mark-to-market rent increases of 13% to new homebuyers. Arizona and California are our next largest markets, which are 95% occupied. Home buyers in our Western markets are attracted to these communities due to their desirable locations, quality amenities and the substantial value they offer in their respective markets, particularly the coastal markets in California. We continue to execute on our expansion strategy, providing opportunities for more customers to enjoy our product offerings. This strategy leverages in-place utility infrastructure, operational efficiencies, zoning and the brand recognition of existing properties. We started the fourth quarter -- as we started the fourth quarter, we started a -- completed a 103 site expansion at Clover Leaf Farms and MH Community on the Gulf Coast of Florida. This was the second and final phase of development, which added a total of 170 sites plus an amenity core. The first phase of 67 sites is approaching 100% occupancy. We also continue to see growth on the RV side of our business. Our RV annual sites provide an affordable second home, whether it's lakeside retreat in the summer or warm weather destination in the winter. In the quarter, we increased annual RV occupancy by 476 sites. With respect to our Canadian customers, many of whom return year after year to their site in one of our properties for the winter season, we're engaging with them through personal outreach as well as our traditional marketing channels. The regional weather outlook for the winter season looks favorable. The NOAA Climate Prediction Center forecasts a La Nina pattern this winter. This season's forecast calls for warmer drier conditions in the south, along with cooler weather conditions in the north, making the Sunbelt particularly attractive for winter getaways. Our operations team has prioritized occupancy and revenue growth, while thoughtfully budgeting and executing on expenses. Our on-site teams are focused on providing excellent customer service, and we are leveraging technology to increase efficiency for the staff members. Tools like electronic lease agreements and SMS, text, customer service platforms have been well received by our customers and help ensure that our teams have more time to focus on delivering memorable experiences. Finally, the third quarter wrapped up our 11th annual 100 days of camping campaign, which saw record engagement among our social media fans and followers. The campaign had over 46 million impressions on social media, and we received nearly 1,100 photo entries of our viewers with our signature rally towels, which reflects a strong and active customer base that wants to engage with our properties and brands. Now I'll turn the call over to Paul. Paul Seavey: Thanks, Patrick, and good morning, everyone. I will discuss our third quarter and September year-to-date results, review our guidance assumptions for the fourth quarter and full year 2025 and close with the discussion of our balance sheet. Third quarter normalized FFO was $0.75 per share, in line with our guidance. Continued strong performance in our core portfolio resulted in 5.3% NOI growth in the quarter, 40 basis points higher than guidance. Core community-based rental income increased 5.5% for the quarter and for the September year-to-date period compared to the same periods in 2024. In the third quarter, we generated rate growth of 6% as a result of noticed increases to renewing residents and market rent paid by new residents after resident turnover. Core RV and Marina annual base rental income, which represents approximately 70% of total RV- and Marina-based rental income increased 3.9% for the third quarter and for the year-to-date period compared to the same periods last year. Year-to-date, in the core portfolio, seasonal rent decreased 7% and transient rent decreased 8.4%. We continue to see offsetting reductions in variable expenses. The net contribution from our total membership business consists of annual subscription and upgrade revenues, offset by sales and marketing expenses. The membership business contributed $16.8 million and $48.2 million net for the third quarter and September year-to-date periods, respectively, compared to the same periods last year. Core utility and other income increased 4.2% for the September year-to-date period compared to prior year. Our utility income recovery percentage was 48.1% year-to-date in 2025, about 150 basis points higher than the same period in 2024. In addition, we recognized higher tax pass-through income, mainly in Florida. Core property operating expenses for the year-to-date period were 60 basis points higher than the same period last year. This includes the change in membership expenses associated with the membership upgrade subscription program that was implemented earlier this year. Expense growth for the third quarter was 40 basis points lower than guidance, mainly resulting from savings in real estate tax expense. Third quarter core property operating revenues increased 3.1%, while core property operating expenses increased 50 basis points, resulting in growth in core NOI before property management of 5.3%. For the year-to-date period, core NOI before property management increased 5.1%. Income from property operations generated by our noncore portfolio was $1.8 million in the quarter and $8.3 million year-to-date. I'll now discuss guidance. As I do the following remarks are intended to provide context for our current estimate of future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package. We are maintaining our full year 2025 normalized FFO guidance of $3.06 per share at the midpoint of our range of $3.01 to $3.11 per share. Full year normalized FFO per share at the midpoint represents an estimated 4.9% growth rate compared to 2024. We expect fourth quarter normalized FFO per share in the range of $0.75 to $0.81. We project full year core property operating income growth of 4.9% at the midpoint of our range of 4.4% to 5.4%. Full year guidance assumes core base rent growth in the ranges of 5% to 6% for MH and negative 20 basis points to positive 80 basis points for RV and Marina. The midpoint of our guidance assumptions for combined seasonal and transient show a decline of 13.3% in the fourth quarter and a decline of 8.8% for the full year compared to the respective periods last year. Core property operating expenses are projected to increase 40 basis points to 1.4% for the full year 2025 compared to prior year. Our full year expense growth assumption includes the benefit of savings in payroll expense year-to-date in 2025, reduced membership expenses and the impact of our April 1st insurance renewal for 2025. Consistent with our historical practice, we make no assumption for the impact of a material storm event that may occur. Our fourth quarter guidance assumes core property operating income growth is projected to be 4.4% at the midpoint of our guidance range. In our core portfolio, property operating revenues are projected to increase 3.3%, and expenses are projected to increase 1.6%, both at the midpoint of the guidance range. I'll now provide some comments on our balance sheet and the financing market. We maintain our focus on balance sheet management and believe we are well positioned to execute on capital allocation opportunities. We have no secured debt scheduled to mature before 2028, and our weighted average maturity for all debt is almost 8 years. Our debt-to-EBITDAre is 4.5x and interest coverage is 5.8x. We have access to over $1 billion of capital from our combined line of credit and ATM programs. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Current secured debt terms vary depending on many factors, including lender, borrower sponsor and asset type and quality. Current 10-year loans are quoted between 5.25% and 5.75%, 60% to 75% loan-to-value and 1.4 to 1.6x debt service coverage. We continue to see solid interest from life companies and GSEs to lend for 10-year terms. High-quality, age-qualified MH assets continue to command best financing terms. Now we would like to open the call up for questions. Operator: [Operator Instructions] And our first question will come from Michael Goldsmith with UBS. Michael Goldsmith: First question is on the 2026 rent increases. Can you talk a little bit about the process that goes into setting those? And then I guess historically, RV has been at a higher rate than MH, and it has closed the gap here. So can you talk a little bit about what's going on there? And is there a risk that maybe you're not even conservative enough there. So just trying to get the thought process on that closing of the gap. Patrick Waite: Yes. Sure, Michael, it's Patrick. The process for the MH rate increases and the RV annual rate increases are very similar to one another. Our property operations teams review the competitive set. And as we work our way through our budget process, we set the rates for the upcoming year. So that's been consistent and the take that we're hearing, and it's early, is that the year is behaving very similar to prior periods. There's nothing really unusual. Just with respect to the fact that the annual has moderated somewhat, so it's just general market forces. We've come off of a period where the annual rate increases did outpace as you noted. The fact that, that's coming a little bit more in line, I don't think there's a real relationship between the 2 property types, it just has more to do with the overall cadence of the market. Michael Goldsmith: Got it. And my follow-up has to do with the seasonal reservation base for Canadian customers. It sounds like you've been reaching out and through traditional marketing channels and reaching out individually, I'm just trying to get a sense of the success rate there and just the ability to affect change and get that number higher as we approach the seasonal time. Marguerite Nader: Yes. I mean, Michael, one of the things that we've often talked about is that it's really the cold winter season that drives the reservations. We've had a very moderate October. So both in the United States and Canada, there hasn't been a lot of bad weather, which tends to dampen reservations a bit. So I think as we continue to head into winter, we will see increased reservations. On the Canadian front, as you know, there is a political issue there that is causing people to pause before coming to the United States. Operator: And the next question will come from Brad Heffern with RBC. Brad Heffern: On the reservation pace being down 40% for the Canadians, does that -- does guidance assume that the actual bookings from those customers end up being down 40%, or do you assume that they're just waiting longer to book, and there's some sort of moderation there? Paul Seavey: Yes. So Brad, I guess I can walk through. As we said, the combined seasonal transient growth is down 13.3% at the midpoint of that range. That compares to our prior guidance update issued in July when we assumed the combined seasonal and transient will be down 1.5%. That difference, the unfavorable development of $2.7 million is primarily related to seasonal and mainly the result of the lower reservations from Canadian customers. And I'll just walk through that just to kind of be clear on what's happened. So we've previously said that Canadians represent about 10% of our total RV revenue, 50 percentage from annual customers. So the remaining 50%, which is just over $21 million is generally split evenly between seasonal and transient. In the fourth quarter, we earn approximately 25% of our seasonal revenue for the year and approximately 15% of our transient revenue for the year. So that was the basis for our prior expectation of approximately $4.3 million of Canadian seasonal and transient in the fourth quarter. Our current Canadian reservation pace, as we said, is down approximately 40% compared to prior year. Brad Heffern: Okay. Got it. And then obviously, 4Q typically the lowest combined seasonal transient revenue quarter, first quarter typically the highest. So I'm just curious how much we should read the expectations for the fourth quarter into the first quarter as well? Paul Seavey: Yes. I mean, we're not providing guidance right now for 2026. I can say that the reservation pace from Canadian customers for the first quarter is similar to the pace that we're seeing for the fourth quarter. Operator: And the next question comes from Jana Galan with Bank of America. Jana Galan: Paul, I was just curious on the core FFO guidance range, fourth quarter, you have $0.06 of variability and full year is still $0.10. So just checking if there's any expectation of greater volatility or share count changes or anything to call out for the difference? Paul Seavey: Nothing to call out. We simply carried forward the convention that we've used all year with the $0.10 range for the year. Jana Galan: Great. And then Marguerite, curious on your MH comments at the beginning of the call and kind of the opportunity there, could you potentially be developing more sites or anything on the acquisition side available in MH that could be interesting? Marguerite Nader: Sure. Patrick, maybe can walk through our development. With respect to acquisitions, as you know, we'd certainly like to buy a high-quality MH portfolios. They're just difficult to source. I think we continue to see muted volume in terms of transactions. The ownership base is very fragmented, and we work with owners as they make their way towards becoming sellers. These assets have -- they've behaved and performed incredibly well over time. And so there's not a lot of desire to sell the assets. So -- but to the extent that there are opportunities to grow inside of the MH space, we would certainly want to continue to do that. Right now, as we look to deploying capital, we think that continuing to invest in our properties is a good return. And maybe, Patrick, you can walk through that. Patrick Waite: Yes. So for the year, we're looking to add about 400 to 500 expansion sites. That's on the lower end of what we've developed over the last 5 years on an annual basis. We had just over 1,000 sites delivered in 2020, and through the last 5 years, we've delivered about just shy of 5,000 sites. So now our goal is to be in that 500 to 1,000 site range. We think that's sustainable for the foreseeable future. But there will be some variability year-over-year when you're imposing a calendar year over a development pipeline. And as I mentioned on previous calls, we have had some headwinds just working our way through some of the administrative processes to get permits and complete developments in recent quarters. Operator: And our next question comes from Steve Sakwa with Evercore. Steve Sakwa: I guess I wanted to circle up on the MH rent increase. It's gone to 50% of the customers. But when you sort of look back historically, at the other 50%, how does that bucket trend relative to the first half? And then could you maybe just also comment on the decline in occupancy that we're seeing in the MH portfolio? Paul Seavey: Sure, Steve. With respect to the lease agreements with our customers, 50% of those agreements are based on market. The other 50% have some linked to CPI. Half of those are rent control or some other direct CPI link and the other are, what we call, long-term agreements. There are typically 2- to 3-year agreements, primarily in Florida, that we've entered into in negotiation with our customers. When we think about the first 50% that have been noticed for 2026, it is more heavily weighted towards Florida residents. And we do also have a higher percentage of customers going to market. So the notices in January tend to be slightly higher than what we might see throughout the year, subject to fluctuations in CPI as we issue notices throughout 2026 that are more heavily weighted to the CPI index. Patrick Waite: And then, Stephen, just with respect to the occupancy trends. I mean, we increased occupancy in the quarter. Year-to-date through Q1, Q2, we did have some hangover from the impact of hurricanes last year. We're past that now, and the trend is back towards increasing occupancy. Steve Sakwa: Okay. And then I guess second question, just you guys have done a very good job on expense containment both in the quarter and year-to-date at sub-1%. Just any kind of broad thoughts as you kind of look into next year on some of the puts and takes that you maybe got this year that were better or maybe worse? And how should we just think about that broad trend moving forward? Paul Seavey: Sure, sure. As we think about it, we focus quite a bit on the 2/3 of our expenses that are utilities, payroll and repairs and maintenance. And we have certainly in 2025, benefited with respect to payroll expenses as we've managed through some of the challenges we've seen in the RV transient business. So that for the year is trending close to flat. I wouldn't necessarily anticipate that as a run rate over the long term for payroll. Our insurance renewal that occurred in April of 2025 was favorable, and that was, as a reminder, for everybody, down 6% compared to prior year. And then the last thing I'll note is, in 2024, we saw some fairly significant increases in real estate taxes, particularly coming from the state of Florida. That, based on our preliminary TRIM notices, received for the 2025 tax year, that trend has reversed somewhat, and we've seen some relief from our expectations. Not to say that those taxes have declined necessarily. It's just some relief from our expectations. So we could see volatility in real estate taxes continue into 2026. Operator: And the next question comes from Jamie Feldman with Wells Fargo. James Feldman: I just wanted to make sure I understand the seasonal impact of the Canadian demand down 40%. So if we assume it stays at 40% into '26 based on the fact that so much of the income is hitting in 4Q and 1Q, like is there another 3% hit next year, or since you've already taken it out of -- if we already take it out of our '25 models, it's kind of the run rate already in '26. Can you just help us think through that? Paul Seavey: Sure. I mean, I think it's challenging to consider what we're experiencing in the fourth quarter, our run rate for '26 because clearly, the current environment is something that will likely change over the next 12 months. What I'll say about the first quarter is when you think about our expectation to earn 50% of our seasonal rent and 20% of our transient rent in the first quarter, that suggests that we -- that -- the 40% decline would be around $3 million. And what I'll say, as we think about the current environment, and how challenging it is as it relates to U.S. and Canadian relations, when we think about our long history, the only time period that we can see as any sort of reference point is during the pandemic. In late 2020 and early 2021, when there were travel restrictions in place, including the border closures, that impacted our expectations for seasonal and transient revenue. In January of '21, we anticipated a decline of $10 million in seasonal and transient revenue during that first quarter of 2021. And when we were on our call in April, the results proved better than that, and we ended up being down $6 million. Marguerite Nader: ; So it is about those last-minute bookings. And as I mentioned, as the weather changes and as the reservations increase and that pace increases. James Feldman: Okay. I guess in this environment, I think we've all learned not to get hopeful. Who knows it's around the corner. I mean, are there any data points or tea leaves you can point to that are actually giving you conviction that 40% is not the bottom, or 40% won't -- isn't going to stay around for a while? Marguerite Nader: I mean, what we've heard is that our customers or Canadian customers that have made reservations are excited to come back. And what we know from our long history of watching reservation pacing, it is a function of what's happening in one's local area. And as the snow starts to come down, the phone start to ring. So that's -- we don't think that's going to change. James Feldman: Can I ask one more since that was more of a follow-up. Marguerite Nader: Sure. Sure, Jamie. James Feldman: Okay. Just got to play by the rules here. Marguerite Nader: We'll appreciate that. James Feldman: So following up to Steve's question on expenses. You've -- your model has been very successful in being able to lower expenses based on the transient revenue decreases. At some point, does that relationship break, and you just can't cut anymore? I mean I know you've commented you think 40% is about as bad as it's going to get, but just theoretically, if it gets worse or if transient continues to decline, like is there some point where you just have fixed expenses that you can no longer compensate or mitigate the revenue declines? Marguerite Nader: Yes. I mean certainly, there are fixed expenses at the property level. There's a certain amount of staff that's needed just to run the business. But we look at this and evaluate it. The operating team does a great job evaluating it on a daily basis to understand who's coming into the properties, who's checking into the properties, and how many people are working. So we'll just continue to do what I think the team has done a really good job over the last 3 or 4 years on making sure that we're operating efficiently. Operator: And the next question comes from Eric Wolfe with Citi. Eric Wolfe: For the 5.1% price increase on annual RV, at what point over the next couple of months, will you have a good understanding of what the acceptance of those increases look like. So I'm trying to understand at what point do you know sort of the turnover for those properties, specifically for the Sunbelt locations that renew a bit earlier. And I think you've said in prior calls that the Phoenix market is by far the biggest in terms of annual customer for Canadian travelers. So do you have any early read on what that market looks like so far? Paul Seavey: Sure. So Eric, we mentioned that a portion of the notices or the rate increases for the RV annual are essentially effective now or over the next couple of months as the winter season is starting, and so we have visibility into the annual renewals right now, that's live. And then with respect to the summer season, those renewals tend to take effect in the middle of the second quarter. So that's when we start to gain visibility into customer acceptance. Marguerite Nader: And then, Eric, in terms of Canadian annuals, and we haven't seen any decrease in appetite for people -- for our annual customers to stay with us. We haven't seen an increase in home sale activity among the Canadians that are annuals with us. So that is all trending positively. Eric Wolfe: Got it. So I guess just to make sure I understand. I mean because I think if you look back to the fourth quarter call earlier this year, I think you said that you noticed a bit higher turnover in some of those Sunbelt locations. But it sounds like you're saying right now, you have very good insight, at least for the next 3 months because those rate increases are effective. I guess what I'm trying to understand is, at what point do you sort of have that locked in -- that 5.1% locked in? Is that by kind of like December, January, or is it already set for those 95% they've already effectively accepted those? Just trying to understand how turnover might change from the next 3 months to like the next 6 months and the potential for any kind of surprise come sort of the fourth quarter call. Patrick Waite: Yes. I guess, adding to what Paul said that the cadence of the Sunbelt, we're at the early stages of that process right now. And the notice is going out for the next summer season are being sent currently. So we're getting very early visibility there. I guess I'd say at this point, we don't see anything, as I mentioned earlier with -- just with respect to the MH and the RV notices. They seem very much like a run rate year for us. We're not seeing any indication that there's an unusual pattern. I would phrase that or characterize that as a normal rate of acceptance. And as we move into the summer season when those increases are effective in the second quarter, we'll have better visibility. But the early read is that it's behaving very much like a run rate year for us. Marguerite Nader: And Eric, I think it's also just an important data point that we covered in, I think Patrick covered it in his comments, but also in our release that we filled 475 annual RV sites in the quarter, which is a very high watermark for us. So I wanted to make sure you saw that. Operator: And our next question comes from John Kim with BMO Capital Markets. John Kim: I work at a Canadian bank, so I have to stick to Canada. In your discussions with your Canadian customers, how much of the reason that they're not returning due to weather versus the political environment? And if it's the latter, why would that not impact the annual RV customers? Marguerite Nader: Yes, I think there's a couple of things happening. So what we're hearing is the customers that have not booked -- that had previously booked, they are not interested due to political issues. So that's just what we're hearing. Now the reason it doesn't impact the annual customers, that annual customer has a home on site at one of our properties. They've already made that decision. They put capital on our properties. They own a home, they own an RV, maybe on the site, but that is -- they've made that commitment. So that's why -- I think that's why we're not seeing it because the -- on the seasonal base, they haven't made their way down yet. They haven't gotten the RV and started driving yet. So that's the difference that we're seeing. It's really a function of the political overtones right now. John Kim: Okay. And then on your guidance for the fourth quarter, seasonal transient down 13% at the midpoint. What do you assume as far as backfilling some of that Canadian demand with non-Canadians. And also, you mentioned the shorter booking window, like how much of that do you think -- like how much of the demand do you think just books kind of like last minute? Marguerite Nader: Yes. I would point -- I think Paul mentioned that what we -- how we dealt with things during COVID. We thought it was going to be one number ended up being much better, and that was because we were filling the properties with U.S. demand. The impact on the Canadian properties is a handful of properties has primarily the bulk of the discrepancy. And so those are -- that is something that we continue to market to United States customers, which we, in the past, have not. So we're continuing to try to provide them access to those properties that they previously didn't have access to because they were filled and reserved with our Canadian customers. Operator: And the next question comes from Jason Wayne with Barclays. Jason Wayne: Just on the RV and Marina annual, that came in a bit weaker than expected, a little lower guidance. You previously mentioned there was an impact from some storm damaged properties. So just wondering that's driving impact, and are the storm properties back online there? Patrick Waite: Yes. So what you're referring to is the impact on our Marina portfolio, the Marina annuals. We're working our way through that 3 specific properties that were previously damaged by storms. It's just taking us a little bit more time to work through the permitting process and completing construction. We expect those properties to come online fully in 2026. So we'll see a rebound. We're not seeing an impact from an overall demand perspective. Rather, it's driven by the impact of those properties that have some reduced capacity. Operator: Our next question will come from Wesley Golladay with Baird. Wesley Golladay: Can you talk about the seasonal and transient RV trends ex Canada? Paul Seavey: Sure. What I'd say just kind of walking through the math or the analysis that I discussed earlier. If you think about the remainder, what we're seeing is reservation level or pacing that is similar to what we've seen year-to-date in 2025. Wesley Golladay: Okay. And then when we look at the building blocks for '26 RV revenue growth, it looks like this year, overall revenue growth lagged the rate growth that was set last year. Do you expect similar headwinds this year on occupancy and other items? Patrick Waite: As we look forward, I'll go back to just what I highlighted with respect to the rate increases, and what we're seeing is early acceptance. I would expect that we're going to go to something that's a more normal trend for us, which would include occupancy that would improve over what we've seen over the prior year. Marguerite Nader: And the most recent data point we have on that is the sites that I mentioned just the annual growth -- annual RV sites growth in the quarter. Operator: And the next question comes from David Segall with Green Street. David Segall: I was hoping you can kind of provide a little more color on how you can backfill the missing demand from Canadian customers of domestic and domestic customers and whether that might involve discounted rates in order to spur demand? Marguerite Nader: Sure. It's really about exposing those customers to the property. So our marketing strategy really -- we engaged with previous guests and try to give them exposure to the new properties, making social media post. It's really important and making them very relevant and topical. We have over 2.2 million fans and followers between Facebook, Instagram and Twitter. We use pictures and videos of the locations to really help the customer make the decision to book. And then we're very focused on leveraging the current news cycle for topical material that we can really incorporate into our marketing, including sporting events, local festivals and that type of thing to draw people into and experience the properties. In many ways, we try to view it as a sample to property, you'll try it, you like it kind of thing. And I think we've been successful with that in the past. And then we successfully work with online travel agents, Expedia and Booking.com to post our properties on their websites. David Segall: Okay. So you're not necessarily trying to cut rates to fill demand, it's more of a marketing play. Marguerite Nader: Yes. That decision whether or not to offer concessions is done on a market-by-market or property-by-property basis and in some instances, where we see it makes sense to reduce rates and bring in volume, we will do that. David Segall: Great. And then for my second question, just with regard to the several hundred annual RV sites that you released in the quarter, looks like it effectively reversed the sites that went last quarter that went from manual to transient. Are you reletting the same sites that had been vacated last quarter or these different sites? And why the addition of these additional annual paying sites not seem to impact the outlook for the remainder of the year? Is it just too late in the year to make a difference? Paul Seavey: Yes. I think the latter part of your question is the answer to the impact. There is impact, of course, from filling those, but it's modest, just given the time left in the year. When you think about the chart that we provide that shows the site count, the annuals increased as you saw in the transient decrease. Essentially, the way that chart works, all sites are available for transient to the extent that we fill annuals, we're going to show that, and it just naturally offsets the transient. And finally, like I said, so we didn't release the same sites. It was the mix of sites that we filled in the quarter that changed. Operator: And the next question will come from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: I just wanted to wanted to go back to Jana's question just about guidance. Again, just kind of given so late in the year already, but there's still that $0.10 gap from that perspective. Just wondering, again, at this point, what's driving the higher end or the lower end of guidance kind of at this late stage in the year? Paul Seavey: Well, I guess I'll just say when you look at the math, yes, there's a difference. I'll also comment. We've done this the other way in the fourth quarter, where we've reduced the range to $0.06, and we've had confusion on that. So I'm not sure which way is the right way to handle it on a go-forward basis. But with respect to the upper and the lower end of guidance, I think I would point to, as I mentioned, we don't have an assumption for a storm event. So that's not factored in at all to the extent that we see meaningful acceleration in something like MH occupancy, that could potentially drive revenues. We could see expense changes potentially if we have not yet seen meaningful impact from tariffs or other influencers on expenses. But I suppose it's possible that, that could come up in the quarter. And generally speaking, there could be just other points of volatility in the business, but there's not a signal as it relates to the difference between the guidance for the quarter and the guidance for the full year. Omotayo Okusanya: That's helpful. And then one follow-up question. In regards to kind of initiatives to kind of move some of the transient business over to annual, again to kind of just lower volatility in general. Could you talk a little bit about kind of what's happening along those lines, how successful you are at kind of making some of those conversions, or whether it's kind of been a little bit more difficult than you were anticipating? Patrick Waite: I'll just speak to the typical trends that we see. And of our annual customers, about 15% to 20% of them has previously stayed with us as a transient or a seasonal. That also adds to our seasonal customers, 15% to 20% of them has previously stayed with us as a transient customer. So that pipeline of an original transient stay that ends up migrating to longer-term stays for us is, call it, in that 20% range. And that's been relatively consistent. We are focused on -- we have guests on sites that they experience a high level of customer service and that they're presented with the ask of a take on a longer-term stay. Operator: Since we have no more questions on the line, at this time, I would like to turn it back over to Marguerite Nader for closing remarks. Marguerite Nader: Thank you. We appreciate you joining our call today. We look forward to updating you on our next call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Lonza Q3 2025 Qualitative Update Conference Call and Live Webcast. I am Sandra, 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 Philippe Deecke, CFO. Please go ahead, sir. Philippe Deecke: Good morning, good afternoon, and a very warm welcome to our Q3 qualitative update. Before we go into more details, please let me remind you that we intend to provide you with a general business overview with our qualitative update, but we will not be sharing figures related to our financial performance. We will do so on the 28th of January with our full year update. Let me start with an overview of our group performance before we move to the performance of our business platforms and [ THI ]. Afterwards, I will provide you with an update on our business contracting and our growth projects, followed by the current macroeconomic situation before I close for the Q&A session. Today, we report a strong Q3 performance across our CDMO businesses aligned with our expected full year trajectory. Supported by this strong performance, we are confirming our 2025 outlook for the CDMO business, which we upgraded at half year, with sales growth of 20% to 21% at constant exchange rates compared to the prior year and a core EBITDA margin in the range of 30% to 31%. Excluding Vacaville, which is now expected to contribute at the upper end of the range of around CHF 0.5 billion in sales and a better-than-expected core EBITDA margin in 2025, we expect low teens percentage organic CER growth and a margin improvement in our CDMO business, in line with our CDMO organic growth model. As anticipated at our half year release in July, we confirm our expectation of higher sales in H2 2025 than in H1. We see a healthy progression of our core EBITDA margin in line with the 2025 outlook. Progressing well on its expected recovery path, we also confirm our full year 2025 outlook for the Capsules and Health Ingredients for CHI business at the low to mid-single-digit percentage CER growth and an improved core EBITDA margin in the mid-20s. Based on FX rates at the beginning of October, we can reiterate an anticipated year-over-year headwind of around 2.5% to 3.5% of sales and core EBITDA for full year 2025. However, our margin is well protected due to a strong natural hedge and our hedging program in place. Moving to the performance of our business platforms. Let's start with Integrated Biologics. Integrated Biologics continue to see strong momentum with robust demand for its large-scale mammalian assets. This is further supported by Vacaville, as I just commented on. In our small-scale mammalian assets, we see a high level of utilization, and we have a good level of visibility for the remainder of this year. But let me come back to the early-stage business later to provide further context and outlook. Overall, we are pleased to report a continued good operational execution alongside maturing growth projects and growth and margin drivers in our Integrated Biologics business. Turning to our Advanced Synthesis platform. We continue to see strong commercial demand for our small molecules and bioconjugates capacities as underlined by the deal mentioned in our Q3 release, signing a large multiyear supply agreement in small molecules. Growth is supported by new capacities in small molecules with our new highly potent API plant and bioconjugates. The business platform further benefits from a robust operating execution and the demand for complex products supporting margins as witnessed already with our half year results. Our Specialized Modalities platform improved in Q3 as expected. Also, we expect the full year performance to remain moderate in the context of the softer first half. Deliveries are weighted into Q4 and depending on the progress of key customer projects and decisions, sales may also fall into 2026. Life Science had a good Q3 with robust growth, and we are pleased to report that microbial returned to growth in Q3 after a softer H1 performance. In Cell & Gene, ongoing pipeline variability and complex manufacturing continues to weigh on asset utilization. While we anticipate a gradual recovery in operational performance, it will remain below the strong execution seen in 2024. Cell & Gene is a business with strategic relevance to Lonza and is our aim to increase resilience of the business over time, commercially and operationally. But in the meantime, some business variability may persist. Our CHI business returned to positive CER growth in Q3, in line with the expected full year trajectory for 2025. We are pleased to report that also the pharma capsules business is seeing improved demand trends and returned to positive volume growth in Q3. We can, therefore, confirm that both our nutraceuticals and pharmaceutical capsules business has moved beyond the post-pandemic destocking phase. In the current geopolitical environment, our manufacturing footprint in Greenwood, South Carolina and Puebla, Mexico is continuing to support CHI's customers to navigate the evolving geopolitical environment. In the U.S., recent preliminary affirmative countervailing and antidumping decisions continue to be in place, allowing more balanced competition for pharmaceutical and nutraceutical capsules in the U.S. In Q3, we progressed with the necessary internal carve-out measures to prepare our exit from the CHI business. The good business momentum highlights the attractiveness of the CHI business as a leader in its markets, and we are confident in the business ability to return to historical CER sales growth in the low to mid-single-digit percentage and a core EBITDA margin above 30%. We are, therefore, confident to exit the business in the best interest of our customers, employees and shareholders, and we will do so at the appropriate time. Before turning to our growth projects, let me say a few words on contracting. For 2025, we expect again a healthy level of contract signings across technologies and sites. Recently, we were able to sign several significant contracts, including a further strategic long-term contract for integrated drug substance and drug product supply of bioconjugates. In our small molecules technology platform, we signed a large multiyear commercial supply agreement. And in Integrated Biologics, we were able to secure a fourth significant long-term supply agreement for our Vacaville site. In Vacaville, we expect further contract signings in the coming months, and we continue to see strong customer interest for large-scale U.S. capacity. Let me say a few more words about Vacaville. One year after closing the acquisition, we are very pleased with the site's integration into Lonza's network, which is progressing in line with plan. The site continues to demonstrate robust execution in support of Roche and maintaining excellent quality track record, which is also reflected in our expectations for Vacaville continuing at the high end of our initial estimate for 2025. The site is also preparing new product introductions for 2026 and the first phase of CapEx is progressing as planned to the [indiscernible] system and [indiscernible]. [indiscernible] our new highly potent API facility is progressing well, and we commenced full commercial operation in July 2025. Our large-scale mammalian facility also showed good progress in ramp-up activity in Q3. GMP operations are underway and commercial production is expected to ramp up gradually from 2026 onwards. Ramp-up activities for both facilities are those progressing in line with plan. Before closing my remarks and opening for the Q&A session, let me reiterate our expectations of no material financial impact on Lonza from the currently announced official U.S. trade policies. The so far announced U.S. tariffs do not include tariffs on API, intermediates and raw materials as described in the Annex 2 of the Executive Order. We further remain confident that our well-diversified global manufacturing footprint with large capacities in the U.S., Europe and Singapore will enable us to support our customers' global manufacturing requirements today and in the future. We, of course, remain vigilant to the continued evolution of the situation and potential impact on our businesses. We also continue to closely monitor biotech funding trends and recent fluctuations in funding levels are expected to have only a minimal impact on Lonza's growth momentum in 2025 and beyond, with early-stage activities representing only approximately 10% of the CDMO business and only a portion of that business originating from companies requiring funding. To close, let me provide some final remarks. Lonza is on track to deliver on its full year 2025 outlook. We see strong contracting demand with customers seeking Lonza's services for their strategic projects. Our growth projects are on track and are contributing to our growth this year and will continue to do so also in the years to come. In the current geopolitical environment, our large commercial business provides stability and our global asset positions us well to support our customers in the complex manufacturing needs. With that, I would like to thank you for your time and hand over to Sandra. Operator: [Operator Instructions] Our first question comes from Ebrahim Zain from JPMorgan. Zain Ebrahim: Hopefully, you can hear me okay. This is Zain Ebrahim from JPMorgan. I'll stick to one question, which is on Vacaville. So just on the significant contracts you announced this morning, how should we think about the timing of tech transfer for the contract? And when can it start contributing to revenues? And related to that, just based on this contract, where are you with respect to your target for being able to maintain Vacaville sales stable over the midterm? Philippe Deecke: Thank you very much for the question. So I think as we've stated in the past, I think large commercial contracts are usually not for immediate use of batches. It takes time to tech transfers, as you say. But I think all the contracts we are announcing for Vacaville are part of the plan to offset the reduced need for batches from the initial Roche contract. And so this new contract is part of that plan and reconfirms that our stated trajectory for Vacaville of more or less flat sales in the next few years is exactly on track. So this contract will start working the [indiscernible] site next year [indiscernible] to revenue over the next 2 to 3 years. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: Charles over here from Barclays. Hopefully, you can hear me okay. Just a question, please, on guidance. Just wondering, given you kind of raised the backfill outlook to the upper end of your around CHF 0.5 billion range this year, but you ran the top line guide. I was just wanting to confirm if there's one portion of your business that you think is kind of deteriorated such that you are just kind of reiterating that top line guide? And just maybe whilst we're on guidance, I was wondering if you were -- if you could provide commentary on your thoughts on FY '26 guidance next year, which is currently looking for low double-digit growth. I know you don't typically comment, but worth asking. Philippe Deecke: Yes. Thank you, Charles. Thank you for offering the answer to your second question. [indiscernible] more seriously. Look, I think on guidance for this year, I think we gave you a range. There's always things that move up and down. So certainly, I think we're pleased with the Vacaville progress this year and continue to be pleased with it. So that's helping us. On the other hand, there are, as we mentioned, some uncertainty on SPM. So I think within that range, this is what the puts and takes are. So that's for 2025. We're 3 months away. So we kind of have good visibility on what's going to happen for the rest of the year. On 2026, as you know, we usually guide in January when we report full year numbers. So we will stick with that. For 2026, I think we talked about early stage, which is not going to have a material impact on our numbers no matter what the funding level is. And I think we're very pleased with the contracting, as we said, for 2025, which will also help in '26. So, I think everything is in line for '26, so far [indiscernible]. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: I wanted to stick on 2026, please. So not asking for a number. But since the large mammalian Visp asset will be ramping in '26, which could presumably be a bit dilutive to margin with a relatively high base in Advanced Synthesis in Vacaville, there might be some headwinds to margin improvement year-on-year in 2026, perhaps a bit offset by the Advanced Synthesis improvements. But are there any other moving parts that I haven't mentioned that could drive an improvement next year? Philippe Deecke: Yes, Charles, so again, you summarized very well, which is great to hear. I think, again, yes, we have large growth assets that start dilutive as it is very normal. Vacaville, I think, is probably more of a top line headwind because this is going to be more or less flat for next year. So that's a big block of sales, if you want, that does not contribute to growth next year. Nevertheless, I think our organic growth model is looking at low teens growth and improved margin year-over-year. And that's, I think, for now the new best assumption for next year. Operator: The next question comes from [ Theodora Rowe Beadle ] from Goldman Sachs. Unknown Analyst: So just on the separation of the CHI business, is the process of carving out this business now complete? And are you able to share with us anything in terms of the timing of separation or when you'll be able to communicate the decision? Philippe Deecke: Yes. Thank you for the question on CHI. So I think the progress on the internal separation, which contains of legal entity work, [indiscernible] as I said in my speech before, is progressing well. I think we're nearing completion of that. And I think the rest of the process is really an internal process that is going to be between us and the other parties and we will inform when things are decided. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: On back of [indiscernible], I mean you've announced you won a new contract and there's potentially some in the coming months. So just to clarify, should we understand that there could be some by year-end, but we're not going to find that out until full year in January if you don't plan to disclose more in real time like your peers? I guess I'm asking this because some of them have been more visible to the market in terms of the number of contracts they've signed, which suggests a much more competitive environment. So perhaps I can also ask what you're seeing on that front? Philippe Deecke: Yes. Thank you, James. So again, we usually do not communicate all the contracts we're signing. This would be issuing a lot of release. I think if you remember, our signing in 2023 was about CHF 12 billion. Last year, it was about CHF 9 billion, if I recollect right. So I think these are a lot of contracts being signed. We do not have a history and we do not mention every single contracts we're signing. I think we decided to do so on Vacaville to provide you, I think, more visibility into our confidence to fill the assets over time. So this is the reason why we're kind of providing you the Vacaville contracts on a more regular basis. And usually, our customers also have no interest for us to publicly announce their contracts. So we don't do so. I think indeed, I think if we were to sign further contracts this year, you'll probably hear about it at the end of January when we report our full year numbers. And I think as stated as well, I think we should get off the rhythm of announcing contracts for a single site. And probably we won't do so in 2026. But let's see, I think the contracting situation is very strong. We're also very pleased with the interest in Vacaville. So we have a lot of concurrent negotiations ongoing. Some will finalize over the next few months. Others may take longer. These are very large contracts. These are usually also complex multiyear contracts that need time to be negotiated. In terms of the competitiveness and what our peers are doing, you would have to ask them. I think for now, we are very pleased to have a very strong footprint in the U.S. with attractive capacities available in the U.S., but also our sites in Europe and Asia see good demand. And you saw that some of the contracts that I mentioned today also include some of our non-U.S. assets. So I think on the contracting side, we're very pleased with the progress and with the interest of companies, large and small to contract with Lonza. Operator: The next question comes from Patrick Rafaisz from UBS. Patrick Rafaisz: Just a follow-up on the large contract wins. For Vacaville, is there any chance you could add a bit of color on size and types of capacities, the amount of capacity required. And the same for the large bioconjugate contracts, for which site was that specifically? And can you add some color on what types of services from your end did this include? Philippe Deecke: Yes. Patrick, happy to take your question. So I think on the Vacaville contract, I'm not going to directly answer your question, but maybe give some more color about the contracts that we have signed so far. I think all of these contracts, including the latest one, are multiyear contracts that are significant for the site as well and which are very important for us to offset the declining revenue coming from Roche. So I think these are very helpful projects because they start contributing very soon, helping us to maintain flat sales for Vacaville. Important also to note that we see great interest for both assets within Vacaville. I think, as you know, we have a 12,000-liter asset and a 25,000-liter asset. And I think also coming from the market, I think there were certainly question marks around the market still requiring such large reactors like the 25,000 liters we have. And we're very pleased to say that, yes, indeed, there is big demand for such large reactors. So we see contracting for both our 12,000-meter reactor and our 25,000-meter reactor. So again, Vacaville for us following a very -- tracking very well along the plan that we had. And this confirms our outlook for kind of flattish sales to 2028 and then increasing sales further on as we ramp up utilization of the site. For the integrated offer contracts that we also mentioned today, I think here, we are offering several services, including producing the protein, the conjugation and the drug product. So again, I think the reason why we mentioned this contract to you is because, again, this shows the interest from pharma companies, large and small, to ask us for integrated business, which cover more than one modality. So more and more we get asked to do not just the protein or not just the conjugation or not just the drug product, but the combination of several modalities across our platforms. And I think we believe that this is, again, something where Lonza can clearly differentiate, of course, in the areas of ADC, but not only. Operator: The next question comes from Thibault Boutherin from Morgan Stanley. Thibault Boutherin: My question is just on tariff and the CapEx announcements in the U.S. by large pharma players. Clearly, there is a push from the U.S. administration to bring more manufacturing to the U.S. So did you have discussion with the administration and confirmation that investing through CDMOs such as Lonza meets the administration goals for locating manufacturing in the U.S.? So it makes sense that it does, but just wondering if you had an explicit confirmation that it would fit what you're looking for? Philippe Deecke: Yes. Thanks, Thibault. So I think there are multiple discussions happening. I think with the U.S. government, certainly, pharma companies are talking directly. The Swiss government is talking directly. We also have contacts that we use. I wouldn't go into more details of what's happening in these discussions until there's a result. I think this would be premature. So I think we'll wait until something is official and is being communicated. But overall, I think I reiterate that also we at Lonza are investing significantly in the U.S. So of course, if you compare this with the numbers of big pharma, this is a different magnitude. But I think as an industry leader, we are investing significantly in the U.S. in multiple sites -- of our investments in Portsmouth, of course, our investment -- of our large investment in California and Vacaville, and there are other sites that are seeing further investments. So I think we feel very confident to also here be very much in line with the intention of the government, but more importantly, the intention of our customers to have capacity and strong capacity in the U.S. So we will continue to offer increased capacity in the U.S. And if our pharma customers can leverage this, then even better. But in any case, having a footprint in the U.S. is helpful to our customers. Operator: The next question comes from Manesiotis Odysseas from BNP Paribas. Odysseas Manesiotis: First one, Philippe, I wanted to follow up on the detail you provided on the contracting between Vacaville bioreactors. Is it fair to interpret your -- the details you provided there as that you've landed in these 4 contracts, at least one of them has to do with the 25,000 liter? And on top of that, within these 4 contracts, you also have contracts for more than one bioreactor? So that's the first one. And secondly, could you remind us the pace of the new Visp mammalian capacity ramp? Is this still expected to run at full utilization by '28, '29? And has there been any plans change given the recent push to reshore capacity in the U.S.? Philippe Deecke: Yes. So let me give you -- maybe reconfirm what I want to say just before on the Vacaville contract. So indeed, I think we have been able to contract for both assets for the 25,000 and the 12,000. So I think there's a different mix in the contracts. I'm not sure I understand what you meant with the contract for more than one reactor. But I think I can confirm that the new contracts that we have signed are involving both 25,000 and 12,000 assets. I think on the Visp, on our large-scale mammalian facility, I think we mentioned a while back how the profile of such large-scale facilities look like. And indeed, it usually takes 2 to 3 years also to ramp. So since we started late this year, you can do the math as to when we would expect utilization to be high and contributing favorably to our bottom line and to our margins. So I think this asset is a typical large-scale asset that will follow this path. Yes. So everything is in line. We started GMP processing this quarter. So progress is in line with our plans. Operator: The next question comes from Max Smock from William Blair. Max Smock: Maybe just a quick one here on Vacaville. I appreciate the fact that revenue is going to be flat next year in 2026. But in the past, you've talked about margins at that facility ramping up as you replace some of that Roche revenue with additional third-party customers. Can you just talk about how you expect Vacaville margins specifically to trend next year? Philippe Deecke: Yes, Max. So I think on Vacaville, again, we said 2 things. One, I think revenue will be more or less flattish through '28 and margins will progress over time to basically be neutral to group by 2028. So I think this continues to hold true. I think margins this year were a bit better or better than we expected, as we mentioned in our first half call. Now of course, this was also an easier year. 2025 was an easier year for Vacaville since they were basically continuing to produce the products that they knew from before for Roche with not a lot of new tech transfers to do, et cetera. So 2026 will be more challenging, if you want, for Vacaville because they have not only the implementation or the execution of the CapEx investments to do, but they also need to start to onboard and tech transfer new programs while still delivering the batches for Roche. So it's a more complex year. Nevertheless, I think we believe that our goal for 2028 is confirmed, and we'll have to see closer to next year how the margin exactly behave versus what they do this year. I think we had before the question from Charles around the dilutive effect in terms of growth for the company. So in terms of growth, yes, this is a dilution. In terms of margin, we'll have to see if we can replicate this year's margin or not. But the progression -- the progression over the next 3 years is confirmed. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: My question is on your Cell & Gene business. And now that we are in the middle of your fourth quarter, can you speak a little bit more about your level of visibility into this year-end pickup and what exactly is driving that? Philippe Deecke: Yes. So I think if you talk only about the Cell & Gene business, I think there, we met in H1 that we had also operational issues. I think remember this is a much more manual and very complex manufacturing process. So there, I think we see improvement in the second half and that business has certainly improved versus the first half. But I think we're still managing the complexities. And overall, for the year, we don't expect this to be as good of a year as we had in 2024. Now if you talk about SPM as a platform, I think there also, we saw better performance in the third quarter. We remain with several customer decisions and customer projects that are late -- happening late this year in Q4. And so these are the one that could still move between '25 and '26 and this we will only know probably late this year. Microbial, which is the second large business in this platform, is performing well and it's usually a very stable and strong business. We explained the first half in our July call with mainly a very high base and some contract -- some construction in our assets in microbial. But otherwise, this is kind of a stable and nice business. So overall, we see SPM better in the second half, but for the full year, certainly will be difficult to offset what happened in the first half. Operator: The next question comes from Sebastian Bray from Berenberg. Sebastian Bray: It's on the early-stage fraction of the portfolio. It was mentioned earlier in the call that it looks relatively robust, at least on a few months' view. How far does the visibility extend in this area? And if conventional biotech funding measures, which suggest that this business faces a funding squeeze in '26, are no longer a reliable guide, where is the money for these end customers coming from? When they go and sign the contract and if research funding is not there anymore, where is it coming from instead? Philippe Deecke: Sebastian, so let me first reconfirm what you said very quickly. I think the early-stage business is strategic for us because it allows us to look very early into the pipeline of pharma companies as to what services and technologies will be needed in the future and also contributes clearly to our future commercial utilization. So I think this is an important business for us. But again, this is not a very large business for us given the sizable commercial contracts and commercial assets that we have. So this early-stage work is about 10% of our CDMO revenues. And also for us, the funding in biotech is only a portion of what drives this early-stage work for us because many of our customers don't require external funding. This can be large pharma, large biotechs, midsized companies that have their own revenue and own funding. So only a portion of the 10% is actually really relying on external funding being from [indiscernible], follow-ons, venture capital, et cetera, et cetera. So I think what we wanted to make clear is that the funding levels that we're seeing today, and I'll come to this in a second, will not play a major role in the Lonza performance. And we have visibility of roughly 6 to 9 months in that business. That's usually the delta that you see between any movement of funding and then again, these smaller company relying on funding being able to deploy the capital they received or having to reduce their spending because of the lack of funding. So this is usually the visibility that we have. So for now, we would see roughly into the first half of 2026. And for there, I think we see good level of utilization certainly for '25 and early '26. I think the inquiries that we're seeing have reduced slightly throughout 2025, but not dramatically. And on the funding side, actually is good news. Q3 was actually better than Q3 last year. So I think this is not only bad news there. I think we saw a great increase in pipe funding, which is one of the other mechanisms for these companies to get money. [indiscernible], I think, was holding well at similar level as previous quarter. So I think this is still something that's volatile, but the decline that we've seen since early '25, at least has been put on hold for Q3. That's at least what we see, but that's probably the same data that you are all looking at. So I would say we're happy with the progress certainly in '25. We are confident that we can manage '26 and that we will continue to see interest for early-stage work to then be retained within the Lonza network over the years to come. Operator: Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the conference back over to Philippe Deecke for any closing remarks. Philippe Deecke: Yes. Thank you, everybody, for the question and the interest in Lonza. Again, a strong Q3 and confirming our outlook for this year. So I think good news from our end, and I wish you a great end of your day and talk to you in January. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hexcel Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Kurt Goddard, Vice President of Investor Relations. Sir, please go ahead. Kurt Goddard: Hello, everyone. Welcome to Hexcel Corporation's Third Quarter 2025 Earnings Conference Call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings and earnings release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our CEO and Chairman and President; and Patrick Winterlich, our Executive Vice President and Chief Financial Officer. The purpose of the call is to review our third quarter 2025 results detailed in our news release issued yesterday. Now let me turn the call over to Tom. Tom? Thomas Gentile: Thanks, Kurt. Hello, everyone, and thank you for joining us today for Hexcel's Third Quarter 2025 Earnings Call. Our confidence in the growth outlook in the aerospace and defense markets and Hexcel's unique position within the industry remains strong. With Hexcel's broad portfolio of advanced innovative lightweight materials, we are well positioned to meet the needs of our customers as they increase commercial and military aircraft and rotorcraft production rates. We are also working with customers on developing innovative advanced material solutions for next-generation commercial and military platforms. As we look at the opportunities in front of us, the outlook for Hexcel is compelling. At our September Board meeting, which centered on strategy, we reinforced our strategic focus of advanced material science with an emphasis on the aerospace and defense market. This is our North Star as we navigate a dynamic near-term environment and look to take advantage of the medium- and longer-term opportunities in the aerospace and defense industry. The aerospace recovery from the pandemic has been frustratingly slow with numerous start stops for original equipment suppliers like Hexcel. However, we have growing confidence that we are seeing the beginnings of a more sustained ramp-up in production based on our customer discussions and actions as well as what we see in the aerospace supply chain. The demand for fuel-efficient lightweight aircraft is clear. Air traffic has more than recovered to 2019 levels. The backlog for commercial aircraft has grown from 13,000 units before the pandemic to more than 15,000 today. Even with limited availability of near-term production slots, airlines around the world continue to place orders with Airbus and Boeing. As we look at the macro environment for the commercial aerospace industry, we are clearly seeing growing momentum as past supply chain constraints subside. While we may experience some lingering destocking in the fourth quarter of 2025, we expect to exit 2025 fully aligned with the commercial aircraft build rates of our customers and positioned for growth in 2026 and beyond. Positive news developments in the past few weeks further support the rate ramps for each of our key platforms. Beginning with the A350, our largest program, where we provide the entire lightweight material system, anticipated production rate increases by Airbus will be impactful for Hexcel in terms of driving capacity utilization. Airbus is targeting 12 aircraft per month by 2028 on the A350 program. Rising build rates will drive operating leverage for Hexcel and the EU approval last week that allows for the Spirit AeroSystems merger to move forward is another positive data point as those operations become streamlined into Airbus and Boeing. On the A320, Airbus is targeting 75 planes per month by 2027, with the expectation that build rates will be in the 60s in 2026. GE Aerospace just raised their 2025 LEAP delivery guidance for engines, and Safran just announced a new LEAP-1A engine assembly line in Morocco to support Airbus and the A320 program, and that should be operational by the end of 2027. On the 737 MAX, production has reached 38 airplanes per month and Boeing recently received FAA approval to increase to 42 airplanes per month. On the 787, Boeing is now at 7 a month as they target 10 aircraft per month in 2026. Boeing is currently expanding its 787 production capacity in their Charleston facility, so there may be future upside beyond Rig 10. We visited Charleston recently and saw the construction underway. All of these different signs of improving production system stability in the 4 major programs for both Airbus and Boeing give me and our Board increasing confidence that their production targets are now getting traction. This growing confidence, coupled with actions that we have taken to clean up our portfolio, including the divestiture of our plant in Austria, will help us approach the margin levels we enjoyed in the past as production rates increase and drive operating leverage for Hexcel. We are clearly at the start of a multiyear growth cycle for commercial aerospace original equipment production, which will benefit Hexcel given the strong positions that we have on all the major programs. Turning to our financial results. Hexcel generated $456 million in sales and adjusted diluted EPS of $0.37 in the third quarter of 2025. These results are in line with our expectations for the quarter, which we knew in advance would be challenging due to slower seasonal sales and continued destocking by the commercial OEMs. Hexcel's gross margin for the third quarter was 21.9% compared to 23.3% in the third quarter of 2024. This was partly driven by tariffs and our decision to reduce finished goods inventory in the quarter, which impacted operating leverage and margins. As build rates rise into 2026, that increased sales volume will drive operating leverage and margin expansion. Regarding our markets, Commercial Aerospace sales were $274.2 million for the third quarter. Commercial Aerospace declined 7.3% year-over-year on a constant currency basis, primarily due to destocking on the Airbus 350 program and to a lesser extent, on the Boeing 787 platform. That lower volume was partially offset by a 9.3% increase in other commercial aerospace sales driven by regional jet sales growth. Looking ahead to 2026, Hexcel is already seeing increased order activity for the first half of next year from the commercial OEMs, which supports our growing confidence. We experienced continued strength in our Defense, Space and Other segment with $182 million in sales for the third quarter, an increase of 11.7% on a constant currency basis over the same period last year. This growth was broad across several platforms for domestic and international customers that include fighters, rotorcraft and space. As defense budgets in the U.S. and with allied countries around the globe continue to increase, particularly to support the introduction of new platforms, we see continued strength in the underlying demand for Hexcel's advanced lightweight composite materials. Our innovative solutions enable greater range and payload as well as lower observability for stealth platforms. In August, we were honored to host the U.S. Secretary of Labor, Lori Chavez-DeRemer at Our Salt Lake City facility. This is our largest global facility. We produce both carbon fiber and prepreg at this facility, and the site also hosts our newest research and technology center of excellence. This visit was an opportunity to highlight Hexcel's critical role as the only vertically integrated U.S. domiciled manufacturer of high-strength aerospace-grade composite materials for commercial aircraft and defense platforms. It was also an opportunity to showcase our innovation as we develop and deliver even lighter, stronger and stiffer composite solutions that are designed to support high production volumes by our customers. Our innovation is a mix of evolutionary steps by improving upon existing products, such as enhancing the adhesion characteristics of the carbon fiber surface and revolutionary steps such as new resin systems that cure more quickly and at lower temperature to enable greater throughput by our customers. While we see commercial aerospace production rates starting to rise in the fourth quarter and into 2026, we still expect lingering OEM destocking in Q4. Tariffs also remain a headwind. As we look at how the year may close out, we have narrowed our sales expectation to the bottom of the prior range, and we have reduced EPS guidance due to the impact of lower production from lingering destocking and the incorporation of tariffs into our guidance. We have also continued our cost reduction actions as we streamline operations through site rationalization. At the end of September, we completed the divestiture of our Neumarkt, Austria plant, which supplied wind energy and recreational markets using third-party purchased glass and industrial carbon fibers. This action follows the closure of a high-cost facility in Belgium and the divestiture of an additive manufacturing business that was not strategic for Hexcel earlier this year. These actions are part of our broader strategy to focus our operations and reduce our cost profile as we prepare for the upcoming production rate increases in our major programs. As we have throughout this year, we continue to manage headcount closely. In previous calls, we stated that our headcount at the end of 2025 will be no higher than it was at the end of 2024. Our headcount has continued to decrease this year due to attrition and streamlining our operational footprint as well as lagging production schedules until we see clear evidence of increases. At the end of the third quarter of 2025, our headcount was around the levels of year-end 2023 and well below where we ended 2024. Our inventory acts as a near-term buffer for unexpected demand spikes, and we expect to begin hiring again sometime in early 2026. We are comfortable that we will be able to attract and train the workers we will need. We do not ever intend to be a bottleneck for our customers' production. In addition to our cost reduction actions, we continue to drive productivity. This includes our future factory initiative to drive greater unit cost efficiency with more use of automation, digitalization, robotics and artificial intelligence. Along with cost and productivity gains, we will continue to work to realize price. As we have shared before, about 10% to 15% of our contracts come up for renewal annually. As we negotiate new contracts, we are realizing price gains and expanding escalation and pass-through clauses. Once publicly disclosed peak build rates are reached, our existing sole-source contracts with Airbus and Boeing will generate an incremental $500 million of annual revenue. Defense-based business and regional jets are all additive to that number. So the path to sales growth is very clear. And again, the increasing sales drive operating leverage and margin expansion for Hexcel. As we grow back into existing capacity, capital expenditures will remain subdued for a period of time at less than $100 million per year, likely for the rest of this decade. These factors will all drive strong free cash flow generation. We are forecasting to cumulatively generate more than $1 billion of free cash flow over the next 4-year period of 2025 to 2028. With the forecasted production rates finally firming, our primary focus for the immediate future will be executing on the rate ramp, innovating lightweight materials to earn a position on the next generation of aircraft and organically growing our defense business while returning excess cash to our stockholders. Given that the business is generating cash in excess of reinvestment needs, the Board and the management team spend a lot of time thinking about capital allocation. In the past 18 months during my time as CEO, we have undertaken an extensive review of potential inorganic growth opportunities. We have not found any business that meets our stringent and disciplined strategic criteria for M&A, namely innovative advanced material science with an emphasis on aerospace and defense and a return threshold of 15% ROIC or greater. What we do see in front of us is unprecedented and pent-up demand for modern lightweight aircraft. This represents a tremendous organic growth opportunity for Hexcel. While OEM production schedules have been challenged for the past several years, we are seeing the OEMs increase production as the supply chain stabilizes. The individual catalysts for each major program that I mentioned earlier have helped remove obstacles to production rate increases. Hexcel is uniquely positioned in this market as the largest and most vertically integrated aerospace-grade carbon fiber composite manufacturer. Our industry segment has significant barriers to entry given the large sums that we have invested in our material system and production facilities globally. We have industry-leading technology and intellectual property. And most importantly, we have our people, a highly trained and skilled workforce that we know can deliver on the rising demand in front of us with safety, quality and the on-time delivery our customers expect. Our confidence is growing that the ongoing recovery in build rates is at an inflection point to a sustained ramp to peak rates, providing us greater optimism in our sales outlook and future cash generation. Given all these factors, strong cash generation profile driven by significant organic growth that provides us significant volume leverage, combined with cost control and productivity to improve margins and an unmatched position in the marketplace, we believe now is the right time to repurchase Hexcel stock. Since 2013, we have returned more than $1.5 billion to stockholders through share repurchases. In the past 7 quarters, we have repurchased $350 million of shares and retired almost 6% of our float. Yesterday, Hexcel's Board of Directors authorized an additional $600 million share repurchase program, and we also announced an accelerated share repurchase program, or ASR, of $350 million. We will fund the ASR from our revolver, which we will then repay from future cash generation. Launching this ASR now and making a significant repurchase of our stock underscores our strong belief in commercial aerospace production rate increases and our ability to execute with safety, quality and on-time delivery to our customers. We are seeing resolution of major supply chain problems that have plagued the industry the past several years, and we see all the OEMs making solid progress on increasing their production rates. I also want to be clear that we remain committed to a disciplined financial policy. We target a leverage ratio of 1.5 to 2x debt to EBITDA. We plan to repay the ASR borrowings as soon as possible during 2026 to return Hexcel to this targeted leverage range. Now before I turn the call over to Patrick to provide more details on the numbers, I want to comment on the 8-K we just filed announcing that Patrick has accepted an offer to move over to Howmet, a much larger company than Hexcel. I am thrilled that Patrick has this opportunity to work with a company that plays such an important role in our industry. For 27 years, Patrick has been a transformational leader at Hexcel and has helped position our company to capture the opportunities I have described. He has also been a terrific partner in helping me transition into my role at Hexcel over the last 1.5 years. We all wish him great success in his new role. Patrick has agreed to remain as our CEO during a transition period through the end of November, and we've already launched a process with a leading global executive search firm to recruit a world-class CFO to succeed them. So with that, over to you, Patrick, for your final Hexcel call. Patrick Winterlich: Thank you, Tom. I appreciate your comments. Total third quarter 2025 sales of $456.2 million were unchanged year-over-year as strength in defense and space was offset by Commercial Aerospace destocking. By market, Commercial Aerospace third quarter 2025 sales were $274.2 million, representing approximately 60% of total third quarter sales. Third quarter Commercial Aerospace sales decreased 7.3% compared to the third quarter of 2024. While the third quarter is seasonally slower due to summer holidays taken by our customers, 2025 third quarter sales were also impacted by destocking. The A350 program was most impacted, followed by the 787. Sales for the 737 MAX program continued to lag stated Boeing build rates as we expected, though we did see positive progress in the third quarter. For the A320neo, third quarter 2025 sales increased nominally compared to the prior year period. Sales for Other Commercial Aerospace in the third quarter increased 9.3% year-over-year, led by regional jets. Defense, Space and Other represented approximately 40% of third quarter sales and totaled $182 million, increasing 11.7% on a constant currency basis from the same period in 2024. Demand was strong across a number of fighter, helicopter and space programs, both domestically and overseas. For fighters, sales increased for the F-35, the Rafale and the Eurofighter. For helicopters, European demand was strong, along with the Black Hawk, including replacement helicopter blades. And it was a solid quarter for space sales, including launches, rocket motors and satellites. Gross margin of 21.9% in the third quarter of 2025 decreased from 23.3% in the third quarter of 2024 as sales mix, tariffs and inventory reduction actions negatively impacted operating leverage. The lower third quarter sales from seasonality and destocking magnified the underutilization of carbon fiber assets, pressuring margins. As our customers increase production rates, higher sales levels in 2026 and beyond will drive strong operating leverage and lead to margin expansion. So said another way, higher sales levels are critical for us to return to mid-teens margins. As mentioned above, tariffs are also a headwind. We continue to work on mitigation actions and continue to monitor this dynamic regulatory environment. As a percentage of sales, selling, general and administrative expenses and R&D expenses were 12.1% in the third quarter of 2025 compared to 11.7% in the comparable prior year period. Financial and manufacturing IT system upgrades, which we have mentioned previously, along with the impact of wage inflation contributed to higher operating expenses as a percentage of sales. Other operating expenses totaled $8.8 million in the third quarter of 2025, including charges for the divestment of the Neumarkt Austria industrial business and the closure of the Belgium facility. Adjusted operating income in the third quarter was $44.8 million or 9.8% of sales compared to $52.9 million or 11.6% of sales in the comparable prior year period. Foreign exchange has been a consistent tailwind to margins for an extended period of time as Hexcel benefits when the dollar is strong. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time. This foreign exchange tailwind is now beginning to switch to a headwind as the impact of a weaker dollar begins to work into the business. While our third quarter top line benefited to a modest degree from the dollar weakness, particularly from our European military sales dominated in local currency, the operating margin was negatively impacted by approximately 10 basis points. Now turning to our 2 segments. The Composite Materials segment represented 80% of total third quarter sales and generated an adjusted operating margin of 11.2%. This compares to an adjusted operating margin of 14.5% in the prior year period. The Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 15.5%. This compares to an adjusted operating margin of 11.5% in the prior year period. Net cash provided by operating activities in the first 9 months of 2025 was $105 million compared to net cash provided of $127.3 million in the first 9 months of 2024. Working capital was a cash use of $63.8 million in the first 9 months for 2025 compared to a cash use of $93.1 million in the first 9 months of 2024. Capital expenditures on an accrual basis were $49.9 million in the first 9 months of 2025 compared to $59.6 million in the comparable prior year period. Free cash flow in the first 9 months of 2025 was $49.9 million, which compares to $58.9 million in the first 9 months of 2024. Adjusted EBITDA totaled $249.2 million in the first 9 months of 2025 compared to $291.3 million in 2024. As Tom explained, we are executing a $350 million accelerated share repurchase program or ASR. We will fund this repurchase using our revolver. This action will result in leverage temporarily being over our targeted range of 1.5 to 2x. We will utilize subsequent cash generation to repay the revolver and return to our targeted leverage range over the coming quarters. Following the Board stock repurchase authorization of $600 million and after this ASR is concluded, the remaining authorization under the share repurchase program will be approximately $384 million. Hexcel did not repurchase any stock during the third quarter of 2025. I want to reiterate, we remain committed to a disciplined financial policy and to returning leverage to the targeted range of 1.5 to 2x as soon as possible during 2026. The Board of Directors declared a $0.17 quarterly dividend yesterday. The dividend is payable to stockholders of record as of November 3 with a payment date of November 10. We have revised our 2025 guidance, as Tom explained. To share some additional color, operating leverage within the business is strong on rising sales, but conversely is a headwind on softer sales, which we are now forecasting for the fourth quarter of 2025. Our reduced EPS guidance reflects the impact of lower production as we work through some lingering destocking in the fourth quarter and our continued focus on inventory levels. Further, we have now incorporated tariffs into our guidance. And finally, the revised earnings guidance includes the impact of higher interest expense in the fourth quarter from revolver borrowings to execute the ASR. We continue to assume an underlying effective tax rate of 21% for the fourth quarter of 2025. Given some discrete adjustments in the first 9 months of 2025, we expect the average adjusted ETR for the full year 2025 to be lower than 21%. We continue to forecast a tariff impact of $3 million to $4 million per quarter, however, the tariff situation remains uncertain. Our regional sourcing helps to insulate us from the direct impact of tariffs and over time, we will continue to work on mitigation and pass-throughs. I would also like to highlight that the divested Neumarkt, Austria industrial business generated just under $10 million of sales per quarter in the first 3 quarters of 2025. The divestment occurred on September 30, so there will not be any sales from the Austrian business in the fourth quarter of 2025 or going forward. The niche value-add industrial market that we will continue to serve will be supported by existing Hexcel Aerospace facilities using existing aerospace assets. When we first issued guidance in January 2025, we had forecasted 2025 sales for the Commercial Aerospace market to be flat and for sales for the Defense, Space and Other market to be flat. As the year has progressed, Commercial Aerospace has been weaker than initially forecasted due to anticipated destocking, particularly on the A350. Conversely, Defense and Space has been stronger. As a result, we are revisiting these percentages. 2025 Commercial Aerospace sales are now forecasted to be down mid- to upper single digits and Defense, Space and other sales are now forecasted to be higher by mid- to upper single digits on a percentage basis. Consistent with past practice, we provide annual guidance during our fourth quarter and full year earnings call. To reemphasize what Tom already covered, we expect to exit 2025 strongly positioned for growth as we anticipate being generally aligned with our commercial aerospace customer build rate. Sales growth will drive operating leverage and margin expansion in 2026 and beyond, supported by continuing price realization, productivity gains and cost control. Lastly, as I close out my 33rd and final earnings call for Hexcel, I would like to take a couple of moments to express my sincere gratitude to this great company. Companies, as we all know, are ultimately a collection of people aligning to achieve a common goal. And I have been honored to work with so many wonderful people over my 27 years. I cannot thank them enough. I now look forward to joining Howmet and starting what I believe will be an incredible new journey. However, I know for certain, I will never forget my amazing colleagues at Hexcel. With that, let me turn the call back to Tom. Thomas Gentile: Thanks, Patrick. To close, while the third quarter reflected near-term headwinds, the strong-term fundamentals for Hexcel remain exceptionally strong. The Commercial Aerospace backlog is at historic levels. Defense spending continues to rise globally and the Aerospace and Defense supply chain is finally ramping to support build rate increases. Hexcel is uniquely positioned to capitalize on this momentum. Our unmatched portfolio, deep customer relationships and global manufacturing footprint give us confidence in our ability to deliver accelerating growth over the coming years. We expect to generate over $1 billion in cumulative free cash flow over the next 4 years. That cash flow will support continued investment in innovation, and we will continue to evaluate returning cash to stockholders as demonstrated by the new share repurchase authorization of $600 million and the $350 million ASR that we just announced. We believe the recovery in build rates is real and sustainable. Hexcel is ready to meet that demand and deliver long-term value for our stakeholders. Tiffany, we're now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Myles Walton with Wolfe Research. Myles Walton: Congratulations, Patrick, on the move and good luck in the search, Tom. In the context of the $500 million growth that you're looking for at manufacturer production rates, Tom, can you talk about -- I think that implies maybe $1 billion of Airbus revenue out in that time frame. How much of that should it be -- or how much higher should that be if you actually had contracts that allowed for inflationary pricing to have escalated during the last decade? Thomas Gentile: Well, the good thing about the Airbus contract that we signed in 2008 for the A350 is that it was a long-term contract, and it gave us the confidence and foundation to make massive capital investments to industrialize for the A350. And we extended that contract in 2016 to go all the way out to 2030. Now as you know, the production rates ramp very quickly up through 2018, 2019, they peaked. We delivered 112 A350s in 2019. And our overall revenue that year was $2.355 billion and the margins were 18%. Now since that time, the pandemic hit, volume dropped quite a bit, and we also experienced a lot of inflation. Now where we are today, we're not getting volume leverage across the board. And we've absorbed a lot of that inflation on some of our long-term contracts, particularly with Airbus. When we get back to the $2.35 billion of revenue, probably sometime in the next couple of years, our margins are going to be a little bit curtailed. They'll be at about 16%. So about 200 basis points of headwind from the inflation is really what the impact is. Now when we get the full impact of the $500 million from all of the targets across the major programs, we think that will get us back to 18%. But obviously, we would like to do more than that, and that's why we're driving our productivity projects. So to summarize, the impact of the inflation that we've absorbed over the past couple of years is about 200 basis points, and we're working to offset that. Myles Walton: Okay. And Patrick, one financial one for you. The debt or interest costs we should plan on for '26 in light of the ASR, is it close to $50 million or so? Patrick Winterlich: 50, Did you say 5-0? I mean, it should be a lot less than that. And the debt will decrease quite rapidly after the first quarter. The first quarter will probably be a cash usage, it's normal but then we should see the debt coming down quickly as we generate free cash flow next year. So you can assume the revolver about 5.5% interest rate as that balance reduces through next year. Operator: Your next question comes from the line of Michael Ciarmoli with Truist Securities. Michael Ciarmoli: Maybe just to stay on both of those topics. Tom, I think you said getting back to that 18%. I mean, so is it reasonable to think that incremental margins can be in that, I guess, implied 40% plus range to get back to that 18%? I mean, is there going to be any disruption with labor add-backs? Or do you think you have more confidence in pricing along the way with -- I think you said 10% to 15% of these contracts renew and then you probably have that bigger renewal out in 2030 with Airbus. But is that the right way to think about incrementals? Thomas Gentile: Yes, yes. I mean the way I would say it summarize is that as the volumes increase and as our revenue goes up, we're going to get a lot of operating leverage. And we're not going to have to make a lot of capital investment to get there. you always have to offset various things, inflation and productivity and potentially other costs like utilities or logistics. But that's what your productivity programs have to offset. But the biggest driver for Hexcel is that as production rates increase and our revenues go up, that drives an incredible amount of operating leverage, which will create the enhanced margins and the recovery back to the 16% first and then 18% as we get the full impact of all the target rate reductions across the major programs. Michael Ciarmoli: Okay. Okay. And then just on the ASR, I mean, maybe a little bit of dilution out of the gate but it sounds like that should be paid down if you're carrying a portion of that interest expense here in 4Q, maybe a full $5 million in 1Q and 2Q but then you're obviously going to have the cash generation. So that should kind of eliminate some of that interest headwind and shouldn't really be dilutive on a full year basis for '26? Patrick Winterlich: It should be positive on a full year basis. So we'll take out 80% of the share count basically on Monday or tomorrow or Monday when those 80% of our shares are surrendered. So you'll have 2/3, 2 months out of 3 this quarter will benefit from that reduced stock count of what, 4 million, 4.5 million shares, I would guess. And then you'll have that benefit offset by the interest charge next year. But I would assume there would be a net benefit to 2026 overall as the debt gets paid down quickly. Operator: Your next question comes from the line of Gavin Parsons with UBS. Gavin Parsons: I guess just following up on the margin question. In 2026, if Commercial Aero revenue is higher than it was in 2024, can margins also be higher? Thomas Gentile: They can, yes. We have work to do to offset some of the natural inflation that we see normally but that's certainly the goal. Gavin Parsons: Okay. And then, Tom, I guess, as you plan for 2026, obviously, the supply chain has been pretty lumpy. A350 increases have been set back. How do you think about possible contingencies if destocking does continue longer than you expect? So maybe it's not as operationally disruptive to Hexcel as it was this year? Thomas Gentile: Well, what we've been doing is lagging a little bit more in terms of the demand, waiting to see it materialize before we go ahead and hire the heads. And we'll continue to do that. We have a lot of inventory, so we can cushion any potential unexpected increase in the short term. But that's really the primary way we've been managing it and cushing it is one is set realistic expectations, lag the growth in terms of when we actually hire and use our inventory to make sure we have a proper cushion for any unexpected demand. Operator: Your next question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Patrick, congrats. Patrick Winterlich: Thanks, Scott. Scott Mikus: Tom, you referenced the LTA negotiations and historically, your LTAs have included language where some of the productivity benefits are shared between Hexcel and its customer. So as those agreements come up for renegotiation, are you making sure that you get to keep a larger share of the productivity benefits going forward? Thomas Gentile: Well, we always want to keep as much as we can. That's for sure. But at the same time, you've got to make sure any negotiation ends up being a win-win. And a lot of the productivity projects that we drive do require engineering resources from our customers. And so you want to make sure you can obtain those resources. So yes, the goal is always to make sure we get a fair return on the investments that we make and the value that we deliver but also recognizing that we want to make it -- we want to facilitate the fact that we need some help and engineering from our customers. Scott Mikus: Okay. And then we've seen some airlines complain that the A321 XLRs range is a little bit shorter than advertised and they produce their orders. But just given that your material reduces the weight of the aircraft, is there an opportunity for Hexcel to potentially increase its content on the A321 XLR if Airbus were looking to extend its range? Thomas Gentile: Well, lightweight materials always help, and there's always an effort to look at material substitution and to change out higher weight materials for lower weight materials. Those efforts are ongoing. A lot of the ones, I'd say the low-hanging fruit has already been captured. So there's probably limited opportunities to, frankly, to change it on the existing aircraft but a lot of opportunity on the next generation. The A321, all the versions, the 19, the 20, the 21 LR, XLR, et cetera, are only 15% carbon fiber composite. The A350 is 50%. so the next-generation narrow-body will for certainly be much higher ratio of carbon fiber composite lightweight going forward. But the current aircraft, probably most of the material substitution has already been captured. Operator: Your next question comes from Ken Herbert with RBC Capital Markets. Kenneth Herbert: And Patrick, let me extend my congratulations as well, and thanks for the help over the years. Maybe -- yes, first question, Tom, last quarter, you were pretty explicit in terms of expected delivery schedules on some major programs. It looks like the guidance maybe implies about 5-ish A350 units were pushed out of the fourth quarter. Can you just talk about if we're thinking about that appropriately? And specifically, maybe you sound very confident in the exit rate on that program this year, sort of where you expect to be exiting this year as you think about that program? Thomas Gentile: Yes. I think that's about right, Ken. What we're seeing is that Q4 is a little bit lighter than we thought. We only had about 5 aircraft per month full in Q3. And Airbus has gone to 7 aircraft per month now. That change has been made, but it's not necessarily flowing all the way down yet. And so as a result, the orders for Q4 were a little bit lighter than we expected. Now that said, the orders going into 2026 are stronger than we expected. And so that, again, gives us confidence in this rate ramp really taking traction. Airbus is at 7 now. They're supposed to go to 8 sometime in the middle of the year and maybe even get to 9 aircraft per month by the end of the year is the current schedule. But yes, it was a little softer in Q4, but the orders going into 2026 are actually higher than we expected. So that's very promising. Kenneth Herbert: That's great. And with the tariff impact, is there any opportunity to recapture to call back some of those incremental costs at some point in the future? Thomas Gentile: Yes, there are. There's a couple of different provisions if the goods are for export or if the goods are for military use. There's lots of different areas that we can push and pull to try to recover, and we're doing that. It's just -- those are a little bit more longer term and the impact, the dollars that we pay out are right now, and that's been about $3 million or $4 million a quarter. But we do hope to recover some of that as we go forward and frankly, to shift some of our foreign supply to domestic sources to avoid the tariffs. Operator: Your next question comes from John McNulty with BMO Capital Markets. John McNulty: Patrick, again, congratulations on the move. So I guess I was hoping you might be able to quantify or give us a little bit of an idea of how big do you feel like that inventory cushion that you have actually is? Is it a couple of months? Is it a couple of quarters? Yes, I guess as you're thinking about the ramp going into 2026, I'm just trying to get a better understanding of that cushion. Thomas Gentile: Yes. Well, we've been running pretty high on inventory the last couple of quarters, over 100 days, north of $400 million total amount. And that's down to about 90. Back in the 2018, 2019 time period, it was more like 70 days. So we've got a 90-day cushion on inventory but it should more in kind of static terms and steady state, be more like 70%. So that's the goal. So that's where we are. We do have that inventory. We've been burning it down, and you saw some evidence of that in this quarter. By burning down some inventory, we had some absorption impact, and that impacted our margins a little bit. John McNulty: Got it. Okay. Fair enough. And then I guess when you're thinking at least as of now about the ramp for your customers next year, I guess, how much in terms of labor will you have to be adding? Because it does sound like you've drawn it down a decent amount this year. And it almost feels like you're trying to thread a pretty small needle here with letting labor come down and only to basically rehire or hire next year. So I guess, can you help us to think about that? Thomas Gentile: Right. Well, we're really right now starting some of the hiring in Europe in Q4 because we see this very high strong demand that has come in for 2026. And we'll be hiring in the early part of '26 and really throughout the years -- throughout the year in order to align to production rates. So we know how much labor we need for the production that's on the books, and we'll be hiring that. As I said, some of that hiring has actually started in Europe in Q4, and it will continue into the first part of 2026. Operator: Your next question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Congrats, Patrick. I guess maybe, Tom, you could talk more about Space and Defense, just the growth you've seen over the last 2 or 3 quarters. Does it feel like this is the start of kind of this European secular defense spending trend? Or are we not there yet? And I was wondering, should we expect a pretty big ramp on the CH-53K as well now that Lockheed got the full rate production contract? Thomas Gentile: Yes. Well, on Europe, I mean, honestly, we saw growth in Europe at European Defense at about 18% for the quarter. So that was very strong. And I think it is an indication that we're really seeing defense spending in Europe increase. Obviously, they had 1% of their GDP historically, and they've committed now to 5% going forward. So there's going to be a massive ramp, and we've seen that with a lot of the companies in Europe. And an example of a program is the Rafale program. It's been around a long time, but France has said that they are going to be increasing production of the Rafale in the coming years to meet the demand for European defense. And we have a very big position on the Rafale. So that's going to bode well for Hexcel. So the answer to that is yes. European defense is growing, and we expect it to continue growing, and we're going to be doubling down on that. Now with regard to the CH-53K, this was probably a bit of a softer quarter, Q3 on the CH-53K but you read that Lockheed signed a $10 billion deal with the Navy and the Marines to deliver 99 units that will take it out to 2032. So that is a great sign of confidence in the CH-53K program. And so we have a very large position on it, $2.5 million to $3.5 million per ship set. And so we're very excited about that program, very excited about this multiyear deal that Lockheed and Sikorsky were able to sign with the Navy and the Marine. Peter Skibitski: Tom, just one more program, the F-35, just because Lockheed got the Lot 18 and 19 contracts definitized. Is that pretty steady state for you guys? I know it's a big program for you as well. Is that pretty steady state for you guys for a while? Thomas Gentile: It is. They've been producing at about 156 aircraft per year. I think this year, they might do 170 to catch up a little bit. But in general, at 156 is a good steady state amount, and that will go for years and years to come. So that's what we will see is a little bit of an uptick on sustainment. Some of the materials that we make for the F-35 are consumable based on usage and flight legs. And as the fleet grows and they fly more, that will drive a little bit more of that material sales for us. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Patrick, congratulations and Tom, good luck. And maybe, Tom, if I could ask you on the first question Myles asked going back to that. Just the $1 billion of free cash flow over the next 4 years on an additional $500 million of revenue, assuming that 35% incremental historically holds, it still assumes some working capital lift. Can you maybe talk about how we should think about inventory unwind from here? Thomas Gentile: Well, the goal is to continue to drive it down. We've been running heavy on inventory because sales have been lower, and we produced, and we're managing that now a lot more tightly. And so the goal is we're, call it, 90, 95 days of receivables on hand and the goal is to drive that down into 70. That's more of a steady state for us. And if we can do better, we will but that's the target right now on inventory. So we will be winding inventory down in the coming quarters. Sheila Kahyaoglu: Got it. And then if I could just ask on the margin commentary for '25. How do we -- I know you didn't have a direct margin guidance but as we think about the implied margins, it seemed like they're down 100 basis points versus the prior guide and the tariffs were about 60. So what could you attribute the remainder of that to? Thomas Gentile: A little bit of it was this inventory drawdown, which is absorption for us. So as we don't produce and take out of inventory, that creates some pressure on our operating -- and so that was part of it. We also, as we've mentioned in previous calls, have been investing in a new ERP system, Microsoft D365. And the implementation of that is a little bit of a hang. And then just the lower volume in general because of the destocking and some mix changes and kind of the combination of all that is what weighed on the margins this quarter. Operator: Your next question comes from the line of Gautam Khanna with TD Cowen. Gautam Khanna: Congrats, Patrick. Patrick Winterlich: Thanks, Gautam. Gautam Khanna: Guys, I may have missed it, but can you update us on what the A350 equivalent shipments are expected to be this year? Previously, I think you were saying low 60s. And I just want to make sure I understood what happened in Q3 and... Thomas Gentile: That's not -- 60 is the right number. We started off much higher. Our original plan was 84, and that dropped after the first quarter to 68. We're staying about 60 right now. Gautam Khanna: And your best guess, given what you know now about 2026 equivalents would be? Thomas Gentile: I'd say in the 80 range. Gautam Khanna: Okay. And to your point, you already have kind of capacity, labor, et cetera, to meet that rate. So in theory, the incrementals next year could even be -- I know you answered the question on 40% but could they even be higher given the absorption? Thomas Gentile: You always have other factors that you have to offset. But there's no doubt that as those production rates, particularly on the 350 go up, we get better operating leverage and that drives higher margins. Gautam Khanna: And last question just on tariffs. Previously, I think you said $3 million to $4 million a quarter, and I just wanted to know what is in the 2025 guide aggregate tariff headwind? Thomas Gentile: That's what we've incorporated into the updated guidance is that amount. Gautam Khanna: And is that's for 3 quarters or for 2? Thomas Gentile: Yes. Yes, right. And then I mean, if you look at it, basically, it's about $0.10 of EPS. So we dropped our midpoint on EPS from $1.95 to [ $1.75 from $1.95 to $1.75. ] And so $0.10 of that was based on the tariffs. Operator: Your next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Patrick, let me add my thanks for all your help over the years. Patrick Winterlich: Thanks, Noah. Noah Poponak: If I look at consensus right now, it has total company revenue up 12% full year 2026 versus 2025. Is that kind of growth directionally achievable? Or does the aerospace new build destock last long enough into '26 to make that look steep? Thomas Gentile: It probably looks a little bit steep. I don't think -- we're confident that we've reached the inflection point and it's going up but I don't think we want to overcall it. I think we want to be conservative in terms of what that outlook is. So it's definitely going up, and it will be a healthy increase but 12% is a little aggressive, and we'll see where we end up. But I think we'll also be conservative in our outlook of what we plan for and build and wait and see the increases happen before we get too far out in front of it. Noah Poponak: Okay. That makes sense. And Tom, at a high level, if I look across the aerospace supply chain and I take the 2025 operating margin versus the pre-pandemic, the 2019 -- there aren't that many suppliers that are down, a lot are similar and a lot are up considerably, and Hexcel is down. What do you attribute that to? And I know you have some pretty significant contract renegotiations over the next few years. Are there things you're looking to change in your contract terms with your customers to improve the profitability protection in the case of downturns and industry disruptions? Thomas Gentile: Yes. Well, first of all, let me answer the first question. The reason our margins are down and maybe others in the industry aren't down is we are mostly original equipment and others have more aftermarket. If you look at the industry, air traffic dropped 96% in April of 2020. and it recovered fully within 4 years. But production peaked in 2018 at 1,734 units. Last year, we were only at 1,230 units, only 75%. So while air traffic increased, production didn't. And probably 3,600 aircraft that should have been built in that period weren't built. And that meant that the fleets were older and people had to spend a lot more on aftermarket. So anybody who's had aftermarket exposure has done extremely well. For better or worse, Hexcel makes material that goes into structures that don't wear and don't have a lot of aftermarket. And so the fact that we are so heavily tilted toward original equipment for commercial aerospace and that production is only 75% recovered. And by the way, only 50% recovered on widebodies, that explains why our margins are still down and others are higher because they have this great aftermarket exposure. But as the production rates increase, we will get huge amounts of operating leverage. And that's why the next 4 or 5 years for Hexcel are going to be absolutely great because we're going to benefit from the $500 million of incremental annual revenue and the increased cash flow that, that will generate. So that's what I would say. And then in terms of the contracts, yes, the contracts as we go forward, first of all, they won't be longer. The 22-year contract is not what we're going to be looking for. And we'll also have more tiered to volume. So as volume goes up and volume goes down, the price will change. We'll probably also look at more pass-throughs on costs that we can't necessarily control some of our resins or chemicals and products like that. So the contracts will be more sophisticated to reflect a more dynamic environment that we face today that we didn't face back in 2008. Operator: Your final question comes from Scott Deuschle with Deutsche Bank. Scott Deuschle: Tom, just to clarify your response to Ken's question, do you expect to enter 2026 at 7 a month on the A350? Thomas Gentile: Yes, we do. They're there. A little bit of destocking in the fourth quarter, but they'll have a couple of months under their belt at 7, and we expect to enter '26 at 7 going to 8 and possibly 9 by the end of the year. Scott Deuschle: Okay. And then, Patrick, can you offer any quantification as to what the FX headwind that you flagged in your prepared remarks could look like going forward? I'd imagine it's fairly immaterial, but I just want to check on that. Patrick Winterlich: Well, it was very immaterial really in the fourth quarter, just 10 basis points, as I called out, the hedging mechanism that we have in place and have had in place for many years smooths the peaks and the troughs. We are at this cusp of a turning point from a strong dollar to a weaker dollar, so into a slight headwind now into 2026. But again, I wouldn't overstate the 10, 20, 30 basis points maybe in 2026 but it all depends on where the dollar now moves. Scott Deuschle: Okay. And one last question, if I could. I mean, Tom, if you see value in the stock today, just trying to understand why you didn't buy back any in the third quarter when the stock price was 20% lower than it is right now. It would have been. Thomas Gentile: A $350 ASR. I think that's my response. Operator: We have time for one more question from Richard Safran with Seaport Research Partners. Richard Safran: Patrick, wish you all the best. It's been a pleasure. Listen, Tom, I know you're coming off of facilities in Austria, Hartford and Belgium. I was just wondering if you're contemplating any further changes in the portfolio. Thomas Gentile: Well, we're always looking at the portfolio to figure out how to streamline and optimize it. And so there could be a few more things that we do. These were the big ones, but that's an ongoing part of our normal operating cadence. And so we're going to continue to look at that and figure out how do we optimize so that we get the best cost and make sure we're focused on the strategic priorities. And the #1 priority for us in the next few years is making sure we can ramp up to meet the production rate increases for our customers, the safety, quality and delivery. That's our #1 priority, and we'll continue to optimize the portfolio to help achieve that. Richard Safran: Okay. And on the -- just quickly on the buyback. I was just accelerated buyback. I just wondered what drove the change in capital deployment strategy? It seems a bit out of character. And should we take that in the future, you're going to do more of these with the $1 billion you're anticipating over the next 4 years? Thomas Gentile: Well, the answer to that is yes, we'll continue to look at that, and it will be a top priority. I think what changed is a couple of things. One is we're looking at the market and the market clearly is at an inflection point and the rates are going up. So we now have great confidence in that. Secondly, as I mentioned, our capital deployment strategy has always been fund productivity, fund R&D to get on the next generation of products, fund organic growth and then look at inorganic growth. Well, we look hard. We did a very comprehensive search. We didn't see anything out there that met our strategic priorities or our return threshold. And so we said we've got all this excess cash that's coming. The best investment in aerospace right now is Hexcel, that's where we put our money. And that's why we did the ASR, and that's why we made the reauthorization as big as it is so that we could do more in the future once we pay this one down and get back to our target leverage ratio. Operator: Ladies and gentlemen, this concludes the Hexcel Third Quarter Earnings Call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q3 Results 2025 Conference Call of Beiersdorf AG. I'm Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christopher Sheldon, Head of Investor Relations. Please go ahead, sir. Christopher Sheldon: Good morning, everyone, and thank you for joining us for our third quarter conference call. I'm here with our CEO, Vincent Warnery; and our CFO, Astrid Hermann. As always, we will start with the presentation of our sales performance of the quarter and the first 9 months of the year, followed by a Q&A session. And with that, I'd like to hand over to Vincent. Vincent Warnery: Thank you, Christopher, and good morning, everyone. Thank you for joining our conference call. Astrid and I will provide an overview of our sales performance and key developments of the third quarter and the first 9 months of the year. The third quarter continued to be impacted by a very challenging market environment. Despite the headwinds, Beiersdorf was able to improve its performance versus the prior quarter. Our Derma business continues to outperform, delivering outstanding double-digit growth and winning market shares across regions. In September, we kicked off 2 major NIVEA launches. In our face care franchise, we roll out our breakthrough ingredient Epicelline. In our deodorant range, we launched the new Derma control line. While the initial impact on Q3 was limited due to timing, these launches are a key building block for our performance in Q4. We've also initiated a strategic rebalancing of the NIVEA core portfolio by broadening our efforts beyond face care to other skin care categories and reinforcing high potential categories like deodorants. And finally, in a continued challenging market, La Prairie returned to growth in Q3, supported by improved momentum in China. Let's take a closer look at how these developments are shaping our recent performance. The third quarter showed signs of gradual improvement, while we continue to see volatility across key markets. NIVEA continues to face pressure from an even weaker mass market environment especially in emerging markets, resulting in an organic sales decline of 0.4%. The major launches initiated in September only had a limited impact on Q3. Excluding the strategic repositioning in China, which is now completed, NIVEA's organic sales growth would have been positive. Our Derma business, with Eucerin and Aquaphor, once again delivered strong double-digit growth of 12.4%, reaffirming its role as a key growth driver in our portfolio. Our Health Care business, which includes the Hansaplast and Elastoplast brands outstanding growth of 9.8%, still supported by the successful rollout of our Second Skin plaster innovation. And despite ongoing market volatility, La Prairie continued its sequential quarterly improvement as planned, turning to positive organic sales growth of plus 1.6% in Q3. Overall, our Consumer Business recorded organic sales growth of 2.1% in the third quarter. Let me point out that our skin care organic sales growth increased to 4% in Q3 compared to 2.6% in the first half of the year. Beiersdorf's performance in the third quarter was flat, in line with our expectations and impacted by the difficult environment in the automotive industry. The Electronics segment, on the other hand, delivered a positive contribution, driven by a strong performance in Asia. Overall, this results in group organic sales growth of 1.7% in Q3. Looking at our Derma business in more detail. Once again, we delivered double-digit growth of 12.4% in the third quarter, a fantastic results on top of the tough 2024 comparison base when we first launched Epicelline. This underlines the strength of our innovation pipeline and our ability to identify and capture white space opportunities. It proves that we can deliver outstanding results and outperform competition even in markets that have slowed down substantially compared to previous years. Innovation remains the cornerstone of our success. This applies both to breakthrough ingredients and to the regular relaunches across our portfolio. Epicelline launched just a year ago, continues its successful rollout and remains a key growth driver in our Derma portfolio. And Thiamidol, which has been on the market for 7 years, continues to grow double digits. At Europe's leading dermatology congress EADV, Thiamidol was recognized as the only Derma-cosmetic active ingredient delivering effective treatment of hyperpigmentation at the root cause. This was endorsed by a newly established global consensus for the treatment of hyperpigmentation, a powerful validation of our science-led approach. But innovation doesn't stop with our hero ingredients. We continue to invest in regular relaunches across our portfolio. With our new Eucerin DERMOPURE Clinical range, for example, we are not simply introducing a new product line. We are delivering science-based solutions for acne, a skin concern that affects up to 85% of people globally. Acne is a leading reason for dermatological consultation and one of the fastest-growing categories in skin care. Our Derma business is not only performing across categories, it's also delivering across regions. In North America, our largest market for Derma, we achieved outstanding growth of plus 56% in the Eucerin Face category despite the slow overall market. The launch of the Eucerin Radiant Tone range with Thiamidol earlier this year, is showing excellent traction. In Europe, we are excited to report double-digit growth of plus 10%. This was fueled by the continued success of Epicelline, which is reinforcing our innovation leadership in the region. Looking at Northeast Asia, the entry of Eucerin into the domestic market in China has exceeded expectations with exceptional organic sales growth of plus 86% in the third quarter. Following the official approval of our patented ingredient Thiamidol last year, we are already seeing early success in the market. The Eucerin Thiamidol serum has already achieved a double-digit market share making it the #1 derma anti-pigment serum in China. And last but not least, we'll be launching Eucerin Japan, another white space next month. With NIVEA, we successfully started the launch of our breakthrough ingredient Epicelline in September. Building on the strong results achieved with Eucerin, we are now scaling this innovation into the mass market. This is the biggest NIVEA launch of all times. While the impact on our Q3 figures were still limited due to timing of the launch, the first week has already performed above our expectations. We are seeing strong early traction, including #1 category positions across key European markets. In France, for example, the NIVEA Epigenetics Serum reached the #1 position in hygiene and beauty products. And in Germany and Austria, we secured the #1 face care position at dm, the region's largest drugstore retailer. The initial strong launch performance is also visible in our September net sales figures for NIVEA with organic sales growth of plus 7.8%. A key driver of this momentum alongside the very recent NIVEA Epicelline launch, has been our NIVEA Derma Control Deodorant range. This is where our skin care expertise meets the high performance of personal care, the skinification of deodorants. While our recent launches are encouraging, we acknowledge that NIVEA's overall performance has fallen short of our initial expectations this year, particularly in the second quarter. So let me remind you of the journey we are on. Four years ago, we put a strategic focus on skin care, our core strength. We are committed to innovation, expanding into white spaces guided by our belief that beauty is global and offer-driven. This strategy has delivered outstanding results since 2022, 2023 and 2024, NIVEA achieved exceptional growth in some cases even double digit. That success gives us confidence in the path that we have chosen. Now to ensure that NIVEA continues on the strong growth trajectory we are making targeted adjustments with a proactive rebalancing of our portfolio. What does it mean? We are broadening our focus within skin care. While face care remains a key category, we are balancing our R&D and marketing investments across other skin care segments. We're also reinforcing deodorants as a strategic growth pillar, a category where NIVEA has a strong right to win through innovation. NIVEA is a value for money brand and stands for affordable prices, and that remains unchanged. While we see customers' willingness to pay for breakthrough innovations like Thiamidol and Epicelline, most of our portfolio continues to be priced at accessible price ranges. We know there is work ahead, but we also know that we are capable of, and we are taking action to bring NIVEA back to stronger growth and continue building on its legacy as 1 of the world's most trusted skin care brand. And let's not forget, as we have always said, even a brand has established as NIVEA still offers significant white space opportunities. A great example is India, where we launched NIVEA Face earlier this year and are continuing our double-digit trajectory. We are equally excited about the potential of NIVEA Thiamidol in China, where we are just beginning to build momentum. This leads me to our NIVEA repositioning efforts in China, which were completed at the end of Q3. Performance has stabilized, and NIVEA in China is already back to growth in October setting the stage for acceleration in the remaining fourth quarter. Our strategy in China is clear. We aim to win through innovation in skin care. With Thiamidol as our hero ingredient, we are confident that it provides a distinct competitive edge in this highly dynamic market. China remains a key opportunity for us in the mid- to long term. It's a demanding environment, but with the right portfolio and continued innovation, we are convinced that NIVEA is well positioned to compete even against strong local brands. Coming to La Prairie, which is back to growth. While the market environment remains volatile, La Prairie delivered a solid Q3 performance with growth of plus 1.6%. This was driven in part by continued momentum in China, which achieved growth of 3% and an outstanding double-digit sellout. I'm also pleased to announce a major milestone in our global expansion strategy. After successfully establishing NIVEA Face and Eucerin in India, we've now expanded our premium portfolio with the launch of La Prairie, exclusively on Nykaa. This marks our entry into 1 of the world's most dynamic and fast-growing beauty markets, an important step in strengthening our global footprint. Before I hand over to Astrid, let me turn to our e-commerce performance. E-commerce continues to be a key growth driver for Beiersdorf. In the first 9 months, we achieved organic sales growth of 16.6% with Q3 accelerating to 19.2%. We are gaining market share everywhere, with particularly strong momentum in emerging markets in Europe. Our Luxury e-commerce business continues to grow, fueled by targeting online activations, while our Derma portfolio shows global trends delivering double-digit growth across all regions. Astrid will now take us through the tesa results and our financial performance in more detail. Astrid Hermann: Thank you, Vincent. Now let us review tesa's business performance for the first 9 months of 2025. Despite ongoing market challenges, tesa delivered 2.0% organic sales growth year-to-date, rising uncertainty and the potential impact of U.S. tariffs continue to affect demand, particularly in Europe and North America, while Asia continues to be a strong growth contributor. Our Electronics business was a key growth driver, supported by strong demand for major customers, particularly in Asia. The automotive segment continues to navigate a complex and volatile market environment. Despite the challenges, the segment showed resilience and delivered growth in some regions, particularly in Asia Pacific, where we are winning new customer projects. tesa's consumer segment remains under pressure, especially in Europe, Nevertheless, it achieved growth over the first 9 months, supported by a solid performance in the third quarter. Finally, I'd like to highlight a leadership change Dr. Kourosh Bahrami, has succeeded Dr. Norman Goldberg as CEO of tesa, with over 30 years of international leadership in the adhesive industry, Dr. Bahrami brings strong leadership and a clear commitment to drive customer value and sustainable growth. We thank Dr. Goldberg for his transformative leadership and look forward to continuing tesa's successful course under Dr. Bahrami's direction. Now let's continue with our 9-month sales performance in more detail. In the first 9 months of 2025 Beiersdorf Consumer division grew by 2.0% organically. Due to unfavorable foreign exchange effects, nominal sales declined slightly to EUR 6.25 billion. The tesa division reported solid organic growth of 2.0% for the same period. In nominal terms, net sales remained flat at EUR 1.29 billion. Overall, the group generated EUR 7.5 billion net sales in the first 9 months of 2025, translating into 2.0% organic sales growth. Now let's take a closer look at the performance of our brands within the Consumer Business segment. Vincent has already provided an overview of the third quarter sales results. So I will focus on a summary of our brand's performance in the first 9 months of this year. In a persistently challenging market environment, NIVEA delivered modest growth of 0.6% in the first 9 months. Our performance was further impacted by higher competition from local brands and the strategic repositioning in China, which we successfully completed at the end of Q3. In addition, our innovation pipeline was weighted towards the second half of the year, especially Q4. Key launches, including Epicelline and Deo Derma Control, were launched in September and only had a minor effect on Q3. They are expected to be a strong pillar of our growth in Q4. Derma sustained its strong momentum with an outstanding performance over the first 9 months, achieving 12.3% sales growth, clearly outperforming the market and our peers. Eucerin Face delivered exceptional results driven by the successful rollout of Epicelline and the launch of Thiamidol in the U.S. Growth was further supported by the remarkable success in Latin America, particularly in Brazil and Mexico, as well as the successful launch of Eucerin in domestic China and India. Building on the strong momentum from the first half of the year, Health Care continued to reinforce its market position in Q3, delivering a remarkable 8.8% sales growth for the first 9 months. Australia and Indonesia delivered double-digit growth, both in Q3 and across the 9-months period, while Germany also accelerated to double-digit growth in Q3. For La Prairie, we have seen a gradual improvement quarter-by-quarter, resulting in a return to growth in the third quarter. This recovery was supported by an improving performance in China, particularly a strong e-commerce business during Q2 and Q3. Let's take a closer look at the organic sales growth of our Consumer Business in the first 9 months across regions. In Europe, we grew by 1.2% with Western Europe growing 1.7% and Eastern Europe slightly declining with 0.7%. Western Europe was negatively impacted by the global luxury travel retail business, particularly during the beginning of the year. Eastern Europe faced pressure from a broader market slowdown and retailer conflicts, particularly in the first half. The Americas region concluded the first 9 months with a robust growth of 2.2%. North America showed a mixed performance with excellent results in Derma, driven by the Thiamidol launch in the U.S. while facing some headwinds in the mass business and with Coppertone in the tough sun care market. Latin America grew by 2.0%, also reflecting a mixed performance. Eucerin delivered strong double-digit growth with outstanding results in key markets such as Mexico and Brazil while our NIVEA business was impacted by general market slowdown, particularly in the deo category and by increased competition from local brands. The Africa, Asia, Australia region delivered solid sales growth of 2.9% despite a negative impact from the ongoing NIVEA portfolio cleanup in China, which was successfully concluded by the end of Q3 as planned. Strong growth was recorded in markets such as India and Japan. With that, I would like to hand over to Vincent, who will provide the outlook for the rest of the year. Vincent Warnery: Thank you, Astrid. Let us conclude with our guidance for the rest of the year 2025. The Consumer Business delivered plus 2% organic sales growth over the first 9 months with an improvement visible in Q3. At the same time, we saw a further deterioration of the market in the third quarter, especially in emerging markets, which is affecting the core of our mass market business. As a result, we are adjusting our full year guidance to around 2.5% organic sales growth for consumer. Our expected growth for the fourth quarter is based on the following pillars. NIVEA is entering the final quarter with a strong innovation pipeline. We recently launched Epicelline, our breakthrough innovation in skin care along with our new derma control deodorant. These launches are still in the early stage and are expected to gain traction and visibility throughout the fourth quarter. Early indicators and the September performance are positive as highlighted in our presentation. The remainder of the year will be driven by the performance of these launches as well as the strengthening of Nivea core business to support both we have implemented targeted rebalancing measures to reinforce our core categories, while at the same time, supporting the successful rollout of our innovations. In China, the strategic repositioning of Nivea, which had a negative effect on our performance during the first 9 months has now been completed and will no longer weigh on our results going forward. Our luxury business with La Prairie is beginning to show encouraging signs of improvement, the return to growth in the third quarter. Finally, our Derma segment continues to perform strongly. We expect double-digit growth over the full year while Q4 is expected to remain below the 9 months performance due to an exceptionally strong fourth quarter in 2024 when Epicelline was rolled out initially. We still confirm our EBIT margin guidance with an improvement of 20 basis points, excluding special factor in the Consumer segment for the full year. In the tesa Business Segment, we confirm our guidance of 1% to 3% organic sales net growth and an EBIT margin, excluding special factors, at around 16%. At group level, we expect organic sales growth of around 2.5% with the EBIT margin, excluding special factors, slightly above last year's level. We continue to be committed to outperforming the market over mid-term, driven by innovation and strategic expansion into white spaces. On profitability, as we have stated in the past, will not sacrifice long-term value creation potential over short-term margin optimization. Nevertheless, we remain committed to profitable growth with EBIT growing at least as fast as the top line. We'll provide further guidance for 2026 and beyond in our full year 2025 call. Now over to you, Christopher for the Q&A. Christopher Sheldon: [Operator Instructions] And we will start with Patrick Folan of Barclays this morning. Patrick Folan: Just 2 questions for me. Maybe focusing on NIVEA first. You had a strong September performance. Was this mainly due to the Epicelline sell-in here and your Derma deo performance? Or was there a wider recovery in the core portfolio here? And my second question is that you talk about value for money for the NIVEA brand, are there any changes you are making to the current pricing strategy with NIVEA in any of your markets? And in terms of the Epicelline price point in Europe, are you still targeting a EUR 25 to EUR 30 pricing? Vincent Warnery: Patrick. On your first question, yes, absolutely, the success of the month of September is mostly due to the launch of Epicelline, NIVEA Epicelline and Derma Control, as the core business, the core market has been in line with Q2. Epicelline is really doing extremely well. I receive every day very good sell-out results. I mentioned, #1 hygiene and beauty product in France. I mentioned also Germany. I was looking also at Italy. This is already the #1 serum in Italy. This is the #1 serum in Netherlands. This is the #1 face care product in Switzerland, in Belgium, in Spain, in Portugal. So clearly, it was already by far the best ever launched Epicelline, but we clearly sell out going in the right direction. Derma Control, we launched it a bit later. We are doing extremely well. I mean, Romania, we are back to the best ever market share in deo. We are regaining market share in deo in Germany. So I feel also very positive about that. On your question about the value for money, I think you have to really to remember that there are only 2 expensive products in the range of NIVEA, which are the Epicelline and the Thiamidol launch. The rest of the product are priced between EUR 2 and EUR 4. So there is no issue of price positioning. This being said, we are currently launching Epicelline. And the way the business is managed, we have some promotions. So for example, if you go to the U.K. that [ Bucci ] is promoting the product at GBP 24, for example, versus a normal price at GBP 29. We have also some promotions. So we will fine-tune the -- we'll see a little bit of the first months are working. And if we feel the need to go below EUR 29, could be EUR 28, EUR 27. We'll do it just to be sure that we have absolutely the right price elasticity. On Derma Control, we had EUR 2.80, so absolutely no issue. So the only open question and again, we'll have the market results soon is do we decrease the price of Epicelline by EUR 1 or EUR 2 in Europe, knowing that, as you might remember, in emerging markets, we are pricing Epicelline below. We are at EUR 22, having also a specific packaging, which allows to keep the same margin, but at a lower price. Patrick Folan: Okay. Just to clarify one thing there. Just on pricing, so you feel comfortable with the price points you have in your current portfolio as we go into next year? Vincent Warnery: Absolutely. I mean the prices are between EUR 2 and EUR 4. What we are clearly trying to do is to reduce the price increase we do next year. You might remember that we were the only brand doing a price increase in 2025, which created some customer retaliations. We try to minimize that next year, focusing really on the products and the innovation where we are bringing a real added value to consumers. Christopher Sheldon: The next question is from Celine Pannuti of JPMorgan. Celine Pannuti: My first question is on the market growth. Vincent, you said that the market has decelerated, especially in emerging markets, and you adjusted your guide for that. How do you feel the company can deliver as you look into 2026? So also given that you're talking about the rebalancing of investment for NIVEA, I wonder as well if you can provide on how you feel in terms of your new level of investment in the deodorant and personal care part and whether for 2026, we should expect that you have -- you need this extra investment and maybe a limited margin expansion? That's my first question. I'll give you the second one after. Vincent Warnery: On your first question, Celine, so what we clearly see, and I mentioned that in my speech that the market -- the skin care market is difficult. And we have -- if you look at the year-to-date figures, we are more -- we are around 0.5%, 1% growth on the market with, of course, different dynamics in mass market, we are around 5%. Derma, this is the news, we are more into the 3%, 4% and luxury is still at minus 5%. So this is a market which is not growing as much as expected. We are expecting a small recovery in the months to come. We see, for example, that the derma market in the U.S. is doing better, and we are over performing this market. We see also luxury, I was mentioning China, but also saw some good figures in luxury going in the same direction. So overall, for the market growth this year between 1% and 2%, and we believe that we go slightly above next year. What we are -- what is making us optimistic in a way is that the worst market dynamics is the derma market. And this is a market which really used to be growing at double digit. And we are now into a market dynamics, which is around 3%, 4%. And this is a market where we are overperforming by a factor to between 2 and 3x the market because we are coming with innovation and because we are supporting those innovation. And this is why when I look at the dynamics next year, on NIVEA. I feel a little bit better than I would say, in 2025 because we have the launches that we are doing right now, and I mentioned Epicelline and Derma Control, but we have also a launch plan, which is much more -- much better balanced next year with more launches in the first semester versus this year and something where we can really have a more balanced dynamics launches versus core. And we are indeed, thanks also to the courageous decisions we have taken on prices, we are able to manage a pretty good gross margin, allowing us to invest -- to continue to invest on those launches. So we will rebalance a little bit the investment between the face care premium product, and we had to launch both Thiamidol and Epicelline in 2025. So rebalance this money into not only other skin care categories, also on more affordable face care proposal, for example, in emerging market, but also on the other end. So with the current P&L equation, we can increase the marketing spendings beyond NIVEA. And of course, on Derma, there is no question, we will continue to invest more. Celine Pannuti: All right. Just maybe to follow up on that, asking whether the 50 basis points plus margin expansion that's your midterm target, how you feel about it going into '26. So that's my follow-up. And then my second question, Astrid now. Can you provide a bit more details about Europe, which really came back to good growth at 3%. Was there a travel retail impact there? If you can tell us what quantify this? And how do you feel about the overall consumer and retail environment? Of course, you have the benefit of the sellout and sell-in of Epicelline. But overall, how you feel the European market is developing as we look into the quarters to come. Vincent Warnery: On your first question, so we will not give a guidance for 2026, and we'll give that in 2025, but we maintain the idea that we have to overperform the market and continue to grow profitably. So we'll come back to that in 3 months. On your question about Europe, yes, travel retail has an impact on the performance of Europe. This is a 40 basis point impact because we are overperforming this market with La Prairie, but this is a double-digit negative market. So this has an impact on Europe. When you look at the question sell-in versus sell-out, the fact that we see some improvement in deo, for example, which was really the biggest market share loss in 2025 in Europe is making us more optimistic. Even if you look at Germany, which is by far our biggest deo market we have been gaining market share over the last 3 months in a row, which is a good news. We see also that the outstanding success of the sun season in Europe, we grew 12% in a market which was growing double digit, but this is really one of the best performance in Sun is also giving us some good momentum. So deo, I would say we feel positive. Sun care is positive. The question is face care. As I said, the sellout results we are getting from specific retailers is promising. But you remember my story, sell-in is one thing, sell-out is another thing. Repurchase is absolutely essential, and this is what we'll be able to measure in the first quarter. So not to -- neither optimistic nor pessimistic, but some good signals that will -- should give us some better performance in Europe next year. Christopher Sheldon: The next question is from Jeremy Fialko of HSBC. Jeremy Fialko: So a couple of questions from me. First one, just to go into the Eastern Europe region that was kind of pretty negative within the period. So just what's going on there? And then the second question is just on kind of capital return. Now you've done the EUR 500 million share buyback for the last couple of years. Do you think -- what do you think the potential would there be to increase that in 2026, given where the share price is [indiscernible] given the kind of existing authority that you have got, if that's something you think would be on your agenda to bring on a board? Vincent Warnery: First question, yes, indeed. Eastern European used to grow double digit. The market was really booming. It suddenly decelerated vigorously and moving from a plus 12% to plus 2%, plus 3%. There's also interesting competitive environment, which has changed. If you look at a country like Poland, 100% of the growth is coming through Korean brands and not really big Korean brands, but Korean brands are there for 6 months and then replaced by others. So all of us, all the global brands are suffering from that. What also worsened the situation are a few customer issues that we have been able to solve. So that's something where we should have a positive momentum in 2026. But the key question is, and this is where obviously rebalancing the portfolio for us is to be sure that we are not only investing on Epicelline and Thiamidol, but we have also a strong action on deodorants. This is by far our biggest market in Eastern Europe. So that's what we are doing right now. And I mentioned the example of Romania, for example, where we reached our best ever market share in deo. That's something which is giving us some hope. On your question about share buyback, we just closed, the second time we did share buyback. So you have to allow us to discuss with the Supervisory Board at the end of the year what we want to do. What is essential? You remember that in terms of priority, we know that we have too much cash available and the priority should and will continue to be M&A. Christopher Sheldon: The next question would be from Guillaume Delmas from UBS. Guillaume Gerard Delmas: Two questions for me, please. The first one on the 2025 revised outlook. I mean, still trying to reconcile this updated guidance of around 2.5% for Consumer. That seems to imply a little bit more than 4% organic sales growth in Q4, but you also had that very strong momentum of NIVEA in September, growing nearly 8%. So why -- wondering why you would expect such a sequential slowdown between September and the fourth quarter? And then my second question, it's on the changes you are making to your strategy, particularly that stronger support behind more skin care categories and deo. I mean, I guess, first, when do you think we should start seeing some benefits from this? I mean, could it be immediate? Or is it more of a slow burn? And secondly, given that your margin guidance for the year for 2025 for Consumer is unchanged, would it be fair to assume that at this stage, it's much more about reallocation of resources rather than an overall increase in your marketing budget? Vincent Warnery: Guillaume, on your first question, you should not forget that, obviously, when you launch a new -- I mean, the biggest launch ever on Epicelline and NIVEA plus a range of 6 or 7 SKUs of deo in September, you cannot continue the same momentum for the next 3 months. So you will have -- the pipeline effect will be, I would say, September, October. And then you have the sellout. So this is why we have indeed planned the growth with the full success of those launches, but a core business, which will not improve dramatically. So that's the assumption of the Q4. This is why we wanted to come with a more realistic assumption for Q4, which is, by the way, consistent with what all of you thought. On the rebalancing, no, I mean, the reason why we came with Q2 and we decided to change the guidance on EBIT moving from plus 50 basis points to plus 20 basis points is simply because we knew that those big launches were coming in Q4, and we knew that it would have been a shame not to support them just because we wanted to deliver in a kind of dogmatic way the first guidance we gave on EBIT. So the 20 basis points that we -- the 30 basis points that we decided to allocate to marketing budget are exactly the money we're going to spend in Q4, and we have the biggest ever spending on the face care launch on NIVEA and the biggest ever spending on the deo launch on NIVEA on top of, of course, continuing to support the launch of all the launches and the activity of Derma and the bigger mission in China with 11/11. So no change in the media strategy, just using the 30 basis points that we freed in the Q2 to support those big launches in the weeks to come. Christopher Sheldon: The next question is from like Ulrike Dauer from Dow Jones. Ulrike Dauer: I hope you can hear me. I don't have much of a voice today. Sorry. I'd like to ask a question about the U.S. import tariffs after the failed tariff deal between Switzerland and U.S., the import tariffs are now 39%, which are affecting La Prairie. And I was just wondering, will you be able to pass on the additional cost to customers? How much more expensive will be even already expensive products deal? And is that still not enough for a strategy change? Or do you consider maybe producing more in the U.S. now like many other companies more or less voluntarily are planning to do? Also, the overall import tariff exposure, you said that a lot of the products for the U.S. market are produced in Mexico or other countries. Can you quantify additional costs related to those new import tariffs by quarter, by full year? Is there any additional information you might be able to provide? I have some other question about Kering. Maybe you can answer that question later. Vincent Warnery: Your question about La Prairie. So yes, indeed, the Swiss government has not yet been able to negotiate a reduced tax level tariff increase with the U.S. So we have indeed this extremely difficult situation. We have been, of course, anticipating the change of service. So we are covered, I would say, in terms of stocks in the U.S. For the time being, we are waiting -- wait and see in a way. We do not believe today that it will be wise to implement immediately the tariff increase on the La Prairie prices, which, as you mentioned, are already very high. You imagine that in percentage is high, but in absolute value, it's extremely high for La Prairie. So we are not planning to do that. You can imagine that we have anyway a gross margin, which is pretty comfortable on La Prairie. We will see the way other competitors are acting. What is absolutely out of the question is to produce in the U.S. because the strength of La Prairie is made in Switzerland. That's the story of the brand. So we'll absolutely not produce in the U.S. We'll continue to produce in Switzerland. On your second question, you rightly mentioned that we are in a way, lucky because we have one -- a big part of the production that we are selling in the U.S. is produced in the U.S. and the other big part is in Mexico, where there was no additional tariffs. So we have today an economic equation, which is pretty good for our business. Yes, we have a few products produced in Europe. So they will be affected by the 15% tariff increase, but it's really a minor, minor part of the range, and we'll be able to absorb that either through small price increases or just by managing value engineering projects. So all in all, yes, La Prairie is an issue, but it's a small part of the business in the U.S. The rest of the range is in a way, protected. Ulrike Dauer: May I ask one more question about the Kering brands that were up for sale. Have you looked at them and considered or don't they really match your portfolio strategy? Vincent Warnery: Ulrike, we are good in 1 category, which is skin care, skin care, skin care, and we are lucky enough that this is by far the biggest beauty category in the world. We have no expertise in perfume. So it would have been a mistake to enter this field without any expertise, so we did not even look at the project. Christopher Sheldon: And the next question is from Bernadette Hogg of Reuters. Bernadette Hogg: I'm sorry. I was still in mute. So it's a bit of a recap question on the slowdown of the market -- in the emerging markets for skin care. So do you see these factors as temporary? Or is it more structural? And how long do you anticipate it lasting? And what are the major causes of the slowdown? Vincent Warnery: A clear deceleration. We used to have an emerging markets, skin care growing double digit. We end up to a level which is close to low single digit, even negative in some countries. There are a few phenomenons which are taking place. Obviously, Latin America is hit by the -- not only the political uncertainties, but also all the discussions about U.S. tariffs, not U.S. tariffs and Mexico is a country where obviously, we -- the market was suffering with that. We see in other countries, the development of simplified routines. People -- this is what they call the skinimalism trend where people are buying less product and some of that cheaper. So the only solution, and this is what we are doing pretty successfully with Derma is to come with innovation. In fact, the worst market dynamics in emerging market is the derma market, and we are growing extremely high with double-digit growth in each and every market. We gained market share everywhere. So the recipe that we have been using successfully with Eucerin, we are using it now with NIVEA with also some changes and some rebalancing. For example, I mentioned already the fact that we -- it's the first time we are launching the same global product Epicelline with 2 different packaging proposal, so one allowing us to sell it at below EUR 22 in emerging markets, and that's much cheaper than the EUR 29 we have in Europe. We are also putting a lot of focus on products like NIVEA Soft in India, which is a fantastic accessible product, but also Facial in Brazil, which has a 30% market share in skin care. We are rebalancing our investment also on deo. I mentioned Derma Control, which is a global launch that we are launching everywhere. So we are not optimistic on the development of the emerging market dynamics. We'll see what happens. But clearly, we are coming with a much stronger innovation portfolio and -- I would say, much more -- much better adapted launch portfolio to emerging markets. So we hope to see some good figures in the months to come. Christopher Sheldon: The next question is from Anna Westkämper of Handelsblatt. Anna Westkämper: I have 2 questions regarding tesa. First of all, how dependent are you on the recovery of the automotive sector here? And second of all, are you looking into expanding into other industries like defense with tesa? Astrid Hermann: Thank you so much, Anna, for your questions. So look, automotive is a big part of the tesa business. Between automotive and electronics, they're really the pillars of what tesa has established. The nice thing about tesa is that they continue to make progress in each of the industries, in automotive as well. So while the market certainly was challenged in Europe and North America, the projects it gained, particularly in Asia Pacific, have really helped kind of balance that impact. so again, not an easy market and certainly not a huge growth driver for tesa year-to-date, but 1 that is also not a huge drag, which is very, very helpful. And yes, tesa has really invested if you followed some of our commentary also in previous calls. They've really invested over the last few years significantly into innovation and business development, and that is really to go beyond these 2 industries as well and significantly drive more business in other industries. Christopher Sheldon: And the next question is from Olivier Nicolai of Goldman Sachs. Jean-Olivier Nicolai: Just very 2 quick follow-ups. First, on NIVEA Epicelline, you obviously have it in Europe and a few other countries. But are you planning to roll this brand out across your whole geographic footprint in next year? And then secondly, on tesa, just a quick follow-up. In the context of obviously what we just discussed about the automotive market, should we expect most of the growth for tesa for next year to come from Electronics? Vincent Warnery: Thanks for your question. Yes, absolutely, NIVEA Epicelline will be launched and is launched absolutely everywhere. So obviously, not yet in China because we are focusing all our energies in Thiamidol. But this is -- the objective is to launch it in most of our NIVEA countries in the next 6 months. We have already covered Europe. We are starting now in Q4 to launch it in some emerging markets, but this is clearly a very big priority for NIVEA globally. On tesa, Astrid? Astrid Hermann: Yes. Thank you for your question on tesa. Look, we -- the tesa business absolutely wants to continue to grow in electronics. As you know, a lot of the Electronics business is a project business. So we need to win projects every single year, for example, also with the big device manufacturer. So absolutely, we continue to look for growth in the electronics business as well. Christopher Sheldon: Next question is from Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: The first one would be on NIVEA. So if September was so strong, it would imply quite a sluggish delivery in July, August. Would you please be able to provide some color by categories within NIVEA, which were particularly weak in July, August? And my second question is on Chantecaille and Coppertone. How did both brands do in Q3? Vincent Warnery: On your question about the NIVEA, yes, July, August was well low also because, obviously, we had 0 launches at the time. We had also no effect on any price increase. So we did a minus single digit, I think, on NIVEA, if I remember well, on July, August, compensated by the figures of September, I was just sharing. You have also to keep in mind that's important also to mention that, that the Chinese relaunch has changed -- has obviously impacted strongly the development of NIVEA. If you look at the first 9 months, if we didn't have that this revamping of the Chinese business, NIVEA will be growing plus 1.3%. So that's also something which obviously we decided to do. We are hoping at the time to have a better NIVEA business, but it has obviously impacted the situation. The second question, Mikheil was? Mikheil Omanadze: It was on Coppertone, Chantecaille. Vincent Warnery: Coppertone, Chantecaille, yes. Coppertone, the only good news on Coppertone is that we finally found our way. We clearly have tried a lot of things with Coppertone, trying to launch in face care, trying to launch in spray, trying to develop the brand in a lot of directions. If you know a little bit the U.S. market, we have refocused on sport. We took a very famous rugby -- female rugby player. We are gaining market share on sport. It's not enough to compensate the loss of the rest of the categories. But at least we will continue to support that. We'll focus all our investment on sport, which is the legacy, the origin of the brand and try to gain market share in this category. Chantecaille, we had a very good first semester with also the launch of China, which impacted the figures. Q3 was a little bit more difficult because we suffered from the slow development of the U.S. luxury market, and we are very dependent on the luxury market. And we have not yet been able to open the stores we wanted to open. They are more coming in the fourth quarter and the first quarter. So all in all, we grow at 7%, 6.8%, which is good, but I was hoping to do better. And we'll see really the way the Chinese business, but also the Indian market, and we are launching in India will also complement hopefully, a better U.S. business in the months to come. Christopher Sheldon: And then we have Tom Sykes next in line. Tom Sykes: Just, I guess, some -- a couple of follow-ups on questions already been asked. But in terms of the rollout or level of innovation in full year '26, excluding the sort of country rollouts of Epicelline, then what's the level of that in full year '26 compared to '25? Because you obviously had theoretically a large upgrade of many products in NIVEA? And how would you view that being phased H1 versus H2? And just on pricing, I don't know whether you've given the -- I don't think you've given the commentary on sort of pricing versus volume at all at the moment. But any view on commentary you can give on that? And to what degree do you need to push price to maintain gross margins given that FX has moved from where we were, please? Vincent Warnery: Tom, on the rollout, yes, absolutely. We have a better launch plan for next year, better in 2 directions. First, balance between H1 and H2. I mean, one of the difficulties that we had this year was the fact that we had almost no launches on NIVEA in the first semester. One of the reasons being that I didn't want to launch NIVEA Epicelline too early after the launch of Eucerin Epicelline. So it has clearly created a first semester with a very low level of innovation. Next year, we have a big plan in the first semester, where clearly it's really 50-50 in terms of new launches, H1 versus H2. The second difference also it's also a wider plan in the sense that most of the initiatives in 2025 were in face care and Derma Control deo at the end of the year. We have next year some very good launches on body, on deo, on lip, on sun care. And on face care, which is interesting, not only the, I would say, the usual suspects, the premium product, Epicelline and Thiamidol, but also a very big ambition also on some more accessible offer, NIVEA Q10, NIVEA Soft, facial in Brazil in order to be sure that also in face care, we maintain this good value for money dimension. On pricing, I always say that the objective is clearly to have a dynamic which is more 2/3 volume, 1/3 price. What I find interesting in the third quarter is, in fact, this is a quarter which is purely driven by volumes. And this is the first time because obviously, the price effect was in Q1 and Q2, which I find interesting because it proved that this is one of the best performance in volume we had since a lot of quarter. We are able to regain this volume growth and also to recruit new consumers. So next year, will be surgical. We'll not do price increase over the board. We'll be surgical. We'll do it only when we are obliged indeed to do it because we want to protect the gross margin. And we are also willing to be much more demanding in terms of cost of goods increase. We are challenging our suppliers. We are moving also from a high dependency on single sourcing to a much better multi-sourcing in order to make some negotiation on the cost of goods. And we'll show that we do price increase where we have to protect the gross margin and/or where we are coming with an innovation or innovation was a true added value in the eyes of retailers, but also in the eyes of consumers. So the level of price increase will be strongly, dramatically below the one we had in the years before. Christopher Sheldon: And it looks like we have one follow-up question from Celine. Celine Pannuti: What China did in the third quarter, it seems that it was negative for NIVEA. But overall, if you can talk about how comfortable you feel about the reacceleration in the fourth quarter? And if you could comment as well on La Prairie. Vincent Warnery: I must say, Celine, I feel well with China. Let me start with the absolutely obvious success. We have Eucerin, which is growing 83% in Northeast Asia, which means that we are growing 150% in China. We have the anti-pigment serum of Eucerin, which is today the #1 anti-pigment serum in China. So we are beating not only the global competitors, but also local competitors. And the first 11/11 figures, so it's only 30% of the time, but we are growing in sell-out by 83% versus last year. So pretty, pretty happy with Eucerin. We have a great story. We have this unique ingredient, which is exactly what you need to succeed in China. So more to come, but an outstanding performance in 2025 and 2026. The second element, which is making us optimistic is La Prairie. I mentioned the fact that we are growing in net sales by 3%. But if you look at sellout, we are growing at 10% and with e-commerce growing at 30%, and that's really something that we did not experience in China since a long time. So La Prairie, good dynamics, compensating -- more than compensating the difficulty of Hainan, which was always small for us. I think the job which has been done by the new CEO and the team is starting to pay off. And the fact that we discovered late, but clearly, with a great execution, e-commerce is doing well. Last but not least, NIVEA, this is a question. What I can tell you that when you look at the face care business over the last quarter, we have been growing step by step. If you look at sellout quarter 2 plus 18%, quarter 3 plus 36%. Again, if I look at my 11/11 first figures, again, 30% of the time, we are growing plus 30%. I also believe that this Thiamidol story with, of course, a better price is an asset for NIVEA. And again, we are also using Eucerin to make some -- to create some awareness on Thiamidol. So I would not open champagne, but I think when I look at the 3 major brands in China, we have pretty good signals and more to come in Q4, which will be extremely strong for China. Christopher Sheldon: Thank you. That was the last question. This concludes our conference call. Beiersdorf's next Investor Relations event will be the release of our full year results on March 3, 2026. We appreciate your interest in Beiersdorf and look forward to seeing you back here again in the new year. Thank you very much. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's third quarter 2025 fiscal results. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie, Senior Vice President of Investor Relations. Please go ahead. Suann Guthrie: Thank you, and thank you for joining the Darling Ingredients Third Quarter 2025 Earnings Call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; and Mr. Bob Day, Chief Financial Officer. Our third quarter 2025 earnings news release and slide presentation are available on the Investor page of our corporate website, and it will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the risk section of our Form 10-K, 10-Q and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randy. Randall Stuewe: Okay. Thanks, Suann. Good morning, everyone, and thanks for joining us for third quarter earnings call. Our core ingredients business delivered its strongest performance in 1.5 years fueled by robust global demand and exceptional execution across all operations. While the renewables market is facing some short-term uncertainty as we wait for clarity on the renewable volume obligation, we're confident that momentum is building. We believe we're on the verge of a shift that will highlight the strength of Darling's integrated model, a competitive advantage that is unmatched in the industry. Our combined adjusted EBITDA for third quarter was $245 million as our Global Ingredients business performed strong with $248 million of EBITDA. As I mentioned, the renewables business continues to be challenged as we posted negative $3 million EBITDA for DGD, which included a lower of cost or market expense of $38 million at the entity level. Bob is going to discuss more details later in the call. But I will say that both LIFO and LCM were negative in the third quarter, which is unusual and does not typically happen for extended periods. In addition, uncertainty and continued delays in getting a final RVO ruling had a negative impact on the overall biofuel environment in the U.S. during the quarter. Now in our feed segment, in our Feed Ingredients segment, global rendering volumes margins were up both sequentially and year-over-year, driven by strong demand for fats and proteins and solid execution by our global operations and marketing teams. In the U.S., robust demand for domestic fats, supported by a strong national agriculture and energy policy helped boost revenue and margins. elsewhere in the world, our global rendering business, particularly in Brazil, Canada and Europe demonstrated stronger year-over-year performance. Export protein demand is showing signs of recovery with slightly firmer pricing trends emerging. Tariff implications, primarily China and APAC countries clearly have impacted our value-added poultry protein products, which serve to meet the needs of global pet food and aquaculture customers. Turning to our Food segment. Performance remained steady quarter-over-quarter sales dipped slightly in the quarter as customers responded to ongoing tariff volatility, but we offset that with strong raw material sourcing and disciplined margin management. We continue to see repeat orders for our next Nextida Glucose Control product and early studies on new formulations look promising. We're on track to launch our new next Nextida product in the back half of 2026. In our fuel segment, the renewables market continues to face headwinds. This quarter, we saw higher feedstock costs, lower RINs and LCFS pricing, which ultimately impacted margins. A scheduled turnaround of DGD3 led to reduced volumes of renewable diesel and sustainable aviation fuel and DGD1 remains idled until margins improve. We believe these pressures are temporary. As mentioned earlier, we're approaching the rollout of thoughtful public policy aimed at strengthening American agriculture and energy leadership, a shift that we believe will significantly enhance DGD's earnings potential. Now with that, I'd like to hand the call over to Bob to take us through some financials, and I'll come back at the end and give you my thoughts for the balance of 2025. Bob? Robert Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, core business results for third quarter improved as expected, while DGD faced some challenges that we'll explain later in the call. Specifically, third quarter combined adjusted EBITDA was $245 million versus $237 million in third quarter 2024 and $250 million last quarter. Adjusting for DGD, the quarter was very solid at $248 million versus $198 million in 2024 and $207 million last quarter. Total net sales in the quarter were $1.6 billion versus $1.4 billion while raw material volume remains steady at 3.8 million metric tons and gross margins improved to 24.7% for the quarter compared to 22.1% last year. Looking at the Feed segment for the quarter, EBITDA improved to $174 million from $132 million a year ago. Total sales were $1 billion versus $928 million, Feed raw material volumes were approximately 3.2 million tons compared to 3.1 million tons and gross margins relative to sales improved nicely to 24.3% versus 21.5%. In the Food segment, total sales for the quarter were $381 million, higher than third quarter 2024 at $357 million while gross margins for the segment were 27.5% of sales compared to 23.9% a year ago, and raw material volumes increased to 314,000 metric tons versus 306,000. EBITDA for third quarter 2025 was up significantly compared to 2024 at $72 million versus $57 million. Moving to the Fuel segment, specifically Diamond Green Diesel. Darling's share of DGD EBITDA was negative $3 million for the quarter versus positive $39 million in the third quarter of 2024. While the environment for renewable fuels has been challenging, results were further impacted by 2 items. First, a catalyst turnaround at DGD3, Port Arthur, which included a pause in operations for approximately 30 days, limited staff production and the higher average margins associated with that product. And second, end of quarter market dynamics led to negative impacts on earnings from both LIFO and LCM which, in most cases, would move in the opposite direction and have an offsetting impact. Regarding LIFO, rising feedstock prices throughout the quarter and higher quarter ending values resulted in a negative impact to EBITDA, while LCM was impacted by lower heating oil and RIN values in the days after quarter end, resulting in an LCM loss of around $38 million at the entity level. After 3 quarters, the combination of LIFO and LCM has resulted in a wider than normal loss that should reverse course over time. In addition to those 2 items, the biofuel market in the U.S. has been challenged by policy delays, specifically delays in RVO enforcement dates for 2024 obligations, clarity around small refinery exemptions, SREs, SRE reallocations and the final RVO ruling for '26 and '27. However, the EPA made a supplemental proposal on September 18, that would be very constructive. In the first page of the appendix in the shareholder deck that we provided, we've shown a picture of the 2025 RIN supply versus demand, showing how these policy issues have led to an oversupply for 2025 and also showing what the balance looks like considering the EPA's proposal comparing 50% SRE reallocations and 100% reallocations for '26 and '27. In either case, a significant amount of additional U.S. biofuels would be needed to satisfy that RVO, suggesting higher prices for feedstocks, farm products and wider margins for biofuels. With lower biofuel margins and late in the year timing related to receiving production tax credit PTC payments, we contributed $200 million to DGD during the quarter. a total of $245 million year-to-date, which includes a $5 million contribution subsequent to quarter close. These contributions are offset by the $130 million dividend received in first quarter 2025 and payments from expected sales of around $250 million of PTCs that we expect to receive in the fourth quarter. To further clarify regarding PTCs, we expect to generate a total of around $300 million in 2025. During the third quarter, we agreed to the sale of $125 million. We anticipate an additional $125 million to $170 million of sales in the fourth quarter and we estimate receiving payment for around $200 million of the total $300 million we will expect to generate by year-end 2025, the balance of which we expect to monetize in early 2026. Overall, we are very pleased with how the market has developed for production tax credits. Demand is robust as potential buyers have become more familiar with the details surrounding the credit. Other fuel segment sales, not including DGD, were $154 million for the quarter versus $137 million in 2024 despite lower volumes of 351,000 metric tons versus 391,000 metric tons which were affected by animal disease in Europe. Combined adjusted EBITDA for the fuel segment was $22 million in the quarter versus $60 million in the third quarter of 2024. The difference was primarily due to lower earnings at DGD. As of September 27, 2025, total debt net of cash was $4.01 billion versus $3.97 billion ending December 28, 2024. The increase from year-end is minimal despite contributions made to DGD and a $53 million earn-out payment related to the FASA acquisition from 2022. Capital expenditures totaled $90 million in the third quarter and $224 million for the first 9 months of 2025. We expect total debt to decrease by year-end as we generate cash from the core business and receive payments from selling PTC credits. Our bank covenant preliminary ratio at the end of third quarter was 3.65x versus 3.93x at year-end 2024. In addition, we ended quarter 3, 2025, with approximately $1.7 billion available on our revolving credit facility. The company recorded an income tax benefit of $1.2 million for the 3 months ended September 27, 2025, yielding an effective tax rate of minus 6.3%, which differs from the federal statutory rate of 21% due primarily to recognition of revenue from the production tax credits. The company paid $19 million of income taxes in the third quarter and $52 million year-to-date and expects to pay approximately $20 million more in the fourth quarter. Overall, net income was $19.4 million for the quarter or $0.12 per diluted share compared to net income of $16.9 million or $0.11 per diluted share for the third quarter of 2024. Now I will turn the call back over to Randy. Randall Stuewe: Thanks, Bob. I couldn't be more excited about what's ahead for Darling Ingredients. And our conversations with the Trump administration, they followed through on everything they've committed to. The renewable volume obligation they've drafted is thoughtful and designed to support American agriculture and energy leadership. And we believe it will be a major catalyst for Diamond Green Diesel. The pieces are in place, and we believe it's only a matter of time before Darling's unmatched position in the industry becomes even more clear. As we look ahead, we remain focused on what we can control, given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business. For the full year 2025, we expect the core ingredients business EBITDA, excluding DGD to be in the range of $875 million to $900 million. With that, let's go ahead and open it up to questions. Operator: [Operator Instructions] The first question comes from the line of Thomas Palmer with JPMorgan. Thomas Palmer: Maybe just to start out, you gave some helpful scenario analysis for RIN balances and how that might proceed over the next couple of years in the earnings presentation. I wondered about what you think the most likely time line is that we might start to get clarity on some of these outstanding regulatory items, the RVO, the exemptions and then the reallocation. Robert Day: Thanks, Tom. This is Bob. Obviously, a difficult question to answer. As everyone is aware, the government has shut down. At the same time, we've heard that the RVO is considered an essential process. We have people there at the EPA that are working on this. So we're optimistic based on that view and the things that we're hearing, we expect sometime in the month of December to have the comment period closed or the EPA to submit to the Office of Management and Budget their proposal and to have something approved by the end of the year. But like I said, that's amid a lot of things going on, but that's our view. Thomas Palmer: Okay. I know it's a unique situation. And then I just wanted to clarify on the Feed outlook for the fourth quarter. The midpoint of the core ingredients EBITDA guidance implies for the kind of 3 combined segments that 4Q is comparable to what we saw in 3Q. At the same time, it does look like the price of waste fats and oils have dipped a bit in September. So do we need prices to rebound in order for 4Q to look similar to 3Q? Or are there other things we should be considering as we move from 3Q to 4Q? Randall Stuewe: Yes. I mean, Tom, this is Randy. I mean the $875 million to $900 million, the reason we put the range on there was exactly as you laid out. We have seen, given the uncertainty on policy waste fat prices come down a little bit here most of our material in North America is going to DGD. But remember, there's still Brazil and Canada and prices remain strong there. So ultimately, it's kind of -- it's a fairly narrow range for the business. As I look around the horn on DGD, I expect the Food segment to be stronger a little bit in Q4, maybe a little consistent, maybe a little on the Feed segment. But I think we'll come in close to that range. And hopefully, we can surprise you 1 day and be above it. Operator: The next question comes from the line of Conor Fitzpatrick with Bank of America. Conor Fitzpatrick: It looks like your RIN supply and demand table in the slides calls for significant biomass-based diesel feed imports through 2027. As a coastal operator, DGD may import feed and receive the RINs penalty on those gallons but could you maybe walk through the benefits to RINs policy protectionism on the feed side and maybe explain how that nets out within your U.S. fuel and feed businesses? Robert Day: Yes. Thanks, Conor. This is Bob. If I don't answer your question directly, let me know. I think the first thing I would say is, it's still not totally clear how the EPA is going to treat foreign feedstocks. That's a part of this process. As to whether foreign feedstocks are needed to meet the production and the obligations. It's going to depend on a lot of things. We do have a lot of crop -- crops and crop oils in the United States and overall North America that could be used as feedstock for biofuels. So until some of the rules around what -- if there are penalties for foreign feedstocks and how some of the crop oils are going to be treated, it's really hard to answer that question. I will say that I think when you look at overall supply and demand for fats and oils in North America and you include biofuels and food and this picture and this proposed RVO from the than probably some foreign feedstocks will be required to meet that mandate. And we're just not clear yet on how that will be accommodated. Operator: The next question comes from the line of Dushyant Ailani with Jefferies. Dushyant Ailani: Congrats on the quarter. I also wanted to note that we really appreciate the change in guidance approach that does help us. My first question was on the 3Q DGD margins. The capture was significantly better than expected. What are some of the drivers there? Robert Day: The third quarter capture was better? Is that what you said? Dushyant Ailani: Yes. Yes. For the DGD margins, it just came in better than expected. Was it like staff production or any export ARP that we can think of? Robert Day: Yes. I think the -- so I'm not sure I fully understand the question because the DGD result was maybe not as good as we hoped... Randall Stuewe: I'll help Bob here a little bit. I think, Dushyant, you're referring to the capture that Valero reports. And keep in mind here, this is a bit awkward in that they met their LCM against their other segments. So they had the same LCM we have. They just didn't put it against the renewables or DGD segment. So that's what makes the capture rate look better. Dushyant Ailani: Got it. Okay. That's helpful. And then maybe just staying on topic for the 4Q DGD margins. But we understand the nuance on removing the DGD guidance. It seems like fundamentals are still improving nicely. Indicator margins are up, again, Valero's indicator margins seem to be up $0.36 quarter-over-quarter. What are you seeing in 4Q? And how do you kind of think about that? What are some of the puts and takes, if you can share? Randall Stuewe: Yes. I mean this is kind of the challenge that's out there. I mean clearly, the 2 big units in Port Arthur and Norco are going to be operating at capacity. SAF is going to be at capacity yes, the capture indicator is stronger right now. The challenge for us is we thought by this time, we would have RIN values kind of starting to reflect the restarting of the industry and they really have it yet. So it's kind of hard. I mean we're the low-cost operator. We have enough feedstock to run our units. Our SAS margins are better than classic renewable diesel. And what else you want to add Bob? Robert Day: Well, I think we have seen an improvement in margins so far in the quarter. The question is just -- or the point here is until we get clarity on the final ruling on the RVO for '26 and '27, it's hard to it's hard to say with certainty that those margins are going to continue. But thus far in the quarter, yes, we've seen some improvement. That's for sure. Operator: The next question comes from the line of Manav Gupta with UBS. Manav Gupta: My first question is we saw a good improvement in your Feed segment margins. I think Randy, over the years, you had indicated that eventually those acquisitions coming in you would be able to drive improvement in those fronts. So help us understand some of the factors that drift help you drive a movement in the Feed segment margin? And also to an earlier question, yes, imported feedstocks might be needed, but domestic feedstocks will price at a higher premium because they'll get 100% win. So what would be the outlook for the Feed segment going into 2026. If you could talk a little bit about that? Randall Stuewe: Yes. I mean, clearly, as we've talked in Q1 and Q2, we've used the word building momentum. We were seeing feedstock prices come up what we've seen mostly is feedstock prices are flowing through now, although they've come off a little bit for Q4, but we're seeing protein prices improve around the world. It's -- I call it there's a tariff on 1 day, a tariff off 1 day. China needs to buy poultry proteins to feed aquaculture and whether it's China or Vietnam when the window opens, they trade. And so we've seen a pretty nice improvement. You can look sequentially, you can look year-over-year in the appendix of the supplier or the shareholders' debt there. and ultimately see the pricing movement. Clearly, fat prices were up sharply. The products we use at DGD and -- but protein prices were up 10%. So I think we're going to carry into Q4, remember, we're always about 60 days sold ahead. And so we'll carry some pretty strong prices into Q4. And I'm hoping that as we move into next year, we'll have kind of the same momentum. There's always a little bit of seasonality here, but really, that's kind of what I'm expecting as I look out there. Manav Gupta: Perfect. My quick question on the table that you have created. It's very helpful. But help me understand, here you're assuming a flattish capacity. We know there are facilities which are heavily dependent on foreign feedstocks at this point of time, and they are still struggling I think they will struggle even more next year if you decide to give only 50% RIN to imported feedstocks. So is there a possibility this RIN balance would look even more attractive if some of those facilities that are heavily dependent on imported feedstock actually decided to call it a day and shut down. Randall Stuewe: Yes. I think Bob and I will tag team this. My answer is we went into 2025 with the belief that the DGD margins would be no lower than they were in 2024. And we were wrong. And where were we wrong? Well, we didn't understand that the big oil guys would actually run at such significant losses to produce their own RINs. We believe that's changing as we come into 2026 and 2027. The losses at those plants are substantial. I mean it clearly shows how efficient and operationally effective DGD is. The RIN balance that Bob will talk about here in a minute, yes, it actually gets even more constructive if people behave rationally. Robert Day: Yes. And I'll just add, I think all of that is true. In addition, the proposed RVO for '26 and '27 is substantially larger than 2025. So even if we had similar production, as you noticed from the grid that we provided, then we will ultimately have a deficit in '26 and '27. And what this is intending to show is specifically that. And then beg the question, how much do margins need to improve in order for production to increase so that we can satisfy the mandate '26 and '27. You add a layer of complexity when you -- with the imported feedstock and if imported feedstock only generates half a RIN. I think that some of that is going to depend on what is the origin tariff placed on that feedstock -- if a feedstock, if a foreign feedstock only is penalized by getting half a RIN and then not being eligible for the PTC, then it's reasonable to expect a decent amount of foreign feedstocks to competitively come into the United States. It would just come in at a discount to the U.S. feedstock prices which, again, is constructive to the feed business and our core rendering business in the United States, but it would allow for satisfying the mandate for the RVO but it would -- again, it suggests that margins need to go up quite a bit in renewable diesel in order for that to happen. Operator: The next question comes from the line of Pooran Sharma with Stephens Inc. Pooran Sharma: I just wanted to maybe just peel into to that last answer you gave there, Bob. I know in the past, you have kind of walked through different RIN pricing scenarios and there are a little moving pieces here just with how foreign feedstocks will get counted. But just as it stands now, no PTC, half a rent for the foreign need stocks, are you able to quantify like what range RINs should be at in order for the industry to run, to meet the mandate in 2026? Robert Day: So this is going to be somewhat of a swag here because like you said, there are a lot of moving pieces. And if we assume that there's -- we have access to our origin feedstocks that don't face a significant tariff. And the primary source of the penalty is the half rent and lack of access to a PTC. Then we probably need RINs to go up $0.40 or so in order to incentivize enough production to satisfy the mandate for '26. If the SRE reallocation is only 50%. Pooran Sharma: Great. Great. Appreciate that. My follow-up, I just kind of wanted to focus on the balance sheet more specifically your debt and leverage. I wanted to revisit what your plans are to pay off debt. And I also wanted to ask, what are your restrictions? Like what leverage ratios do your debt restrictions, the covenants start kicking in at? Robert Day: We're nowhere near breaking any covenants. I think we've said before, we're committed to paying down debt. We've got a lot of headroom in our revolver due to circumstances around receiving cash payments from selling production tax credits we will be receiving more cash in the fourth quarter, and we didn't receive any cash from production tax credits in the third quarter. And so by the end of the year, we expect our debt coverage ratio as it's viewed by the banks, to be right around 3x. So that's really -- that's our position on that. Randall Stuewe: And long term, Pooran, we've got a financial policy agreed in the board room to go down to 2.5x. It doesn't take much for the restart of DGD to start to do that. We've not been in a capital deprivation or starvation mode of any of the factories globally. So we're in good shape here to continue to build this thing out and grow and delever at the same time. Operator: The next question comes from the line of Ryan Todd with Piper Sandler. Ryan Todd: Sorry, I know you talked a lot about this, but maybe one more follow-up on some of the regulatory uncertainty. I mean the -- as we wait for the final RVO, I mean, you've talked about the uncertainty around reallocation and a couple of other things. What are some of the other topics that you think are still being kicked around. Is there a possibility of any change in the approach to import of foreign biofuels? Are they still -- is there still a consideration in terms of the treatment of domestic feedstocks in terms of carbon intensity, like land use penalties and stuff like that? And what are some of the potential risks or positive things you think could come out of the final ruling there outside of just kind of the high-level RVO and the reallocation? Randall Stuewe: Well, I think, Ryan, this is Randy and Bob and I'll kind of tag it again here if I leave anything out. I mean, clearly, American agriculture is at the forefront of the discussions in D.C. right now. Clearly, when you lose your largest customer for soybeans, when you get beef prices as high as they are, you've got a lot of people in the room that have ideas on how to fix the situation. And so what we've been part of, as many of these discussions is, what's the easy button. The easy button here is a large SPO for RVO with a 100% reallocation. Now if you go back and you look, really, the ETA gave you a multiple choice test. It's at either 50% or 100%, but if you're really inclined, you can talk about something else you'd like. And so they've set the table there. Clearly, the PTC out there is -- doesn't encourage foreign feedstocks. So I mean that's a block in itself with a tariff on top of that even makes it more difficult. We've had discussions in D.C. and we said, well, the easy button is that, just remember, if you don't allow foreign feedstocks in here because they can't generate a credit then, oh, by the way, where are those feedstocks going to go and the room goes silent. They finally got it. They realize those stocks are going to go back to other processors, you can probably name who they are around the world in Singapore and Rotterdam and Porvoo, Finland. And then they're going to move finished RD on top of us and that's disruptive to what they're trying to accomplish. So they're trying to figure out right now how to manage that under the tariff code. So you've got the U.S. trade along with the EPA collaborating, trying to figure out how to put this together to accomplish the needs that are going to produce energy and be constructive to the U.S. farm community. Robert Day: Yes. And I'll just add that as we sit here today, the EPA has already proposed a 50% RIN generated for foreign biofuel, no access to PTC. So -- that in and of itself makes it more difficult. But as Randy said, there's a lot of momentum to preventing foreign biofuels to come in and participate in U.S. support programs. So we're pretty confident that, that's going to work out well as it relates to feedstocks, that is another thing that we're waiting for clarity on and whether they're going to enforce the 50% RIN concept or if we're -- foreign feedstocks are simply going to be limited by origin tariffs. Ryan Todd: Okay. And then maybe just -- I mean you talked about -- you provided a little bit of clarity around PTC monetization. You've had a couple -- you're a couple of quarters into the experience of a few quarters in the experienced production under the PTC regime, you're getting more consistency. Can you talk about how the monetization market seems to be working there? Have the discounts been fairly stable? And how should we think about the general ratability of the process at this point? Is the $125 million this quarter, $150 million at the midpoint next quarter? Is that like a -- are you in a fairly ratable place now in terms of monetizing the majority of your production? Robert Day: Yes, I think so. I think the context here is that there were 2 things that made it difficult earlier in the year to sell production tax credits. One is that not many counterparties were familiar with the credit itself. So there was lots of questions. The value of the credit is determined in part by carbon intensity. So you can just imagine for industries looking to buy tax credits that aren't familiar with our biofuel industry trying to understand all that is not an easy thing. And then the other is that most companies had -- it was pretty cloudy what their tax liabilities were going to look like at the end of '25 because of the Big Beautiful Bill and a lot of things that went on around that. So early in the year, it was difficult to get a lot of traction. That's obviously changed significantly. Both of those pictures are a lot more clear. And so yes, I think that for us, we're confident in our ability to sell a majority of the credits that we'll generate in 2025 and then it should be a pretty ratable process through 2026. Randall Stuewe: Yes. I think just one last piece to that is I would characterize the environment is there is more interested parties now. than there were earlier in the year. So it's now getting a chance to define terms, refine terms and pick the counterparty that we want to deal with, with timing respective to when to receive the cash. So it's a very constructive environment now. Operator: The next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Regarding guidance, I appreciate the position you guys are taking with the more volatile DGD business segment. With that said, we are seeing better stop margins in 4Q for most feedstocks and specifically for tallow and yellow grease. Would it be fair to highlight that DGD could post the best quarter in 2025 at current margins which, again, will be a positive development as you enter 2026? Robert Day: Yes. Thanks, Derrick. I think that would be fair. I think one of the things we're sensitive to is just how uncertain policy has been and the impact that, that's had on margins. I mean, look, we're very optimistic about improvement in the fourth quarter and the outlook for next year. But we realized that the market at large really wants to see proof of that before estimates believing a lot of what estimates are out there. So I think that we are encouraged by what we've seen so far in the quarter, and we think the outlook is good, but we're just hesitant to define that with a lot of precision, just given the lack of clarity around policy that we're still facing. Randall Stuewe: Bob, can you comment on what it takes to trigger RIN and obligations and when that would happen? Robert Day: So with the enforcement dates and -- yes. I mean, I think one thing that has caused a real delay in the reaction of the RIN, has been the movement of the 2024 enforcement date from March 31 to December 1. Until we get the final ruling on the '26 and '27 RVO and clarification as to when the 2025 enforcement date is going to be. It's difficult for obligated parties to feel that they're incentivized to go and buy all their RINs, especially when so many small refinery exemptions were granted for the small refineries out there that are wondering whether they should buy RINs they have an incentive to wait when the obligation date is set at a later time in the event that they get an exemption. And so what Randy is alluding to is until some of those things are clarified, which we do think is going to happen around the end of the year. But until those things are clarified, the incentive to buy RINs and tighten up the RIN S&D doesn't exist the way that it's intended. And so it's just -- it gets a little bit difficult to forecast. But we -- to your point, Derrick, we have seen an improvement in margins so far in the quarter. The outlook is better, and we're very optimistic about 2026. Derrick Whitfield: Great. Understood. And as my follow-up, we've seen the RD market in Europe strengthen in recent months. If you guys work through the complex math of spreads, shipping and tariffs, to what extent could you access this market if it remains robust? Robert Day: We can access that market, but we pay a duty to access that market. So -- and that duty can fluctuate a bit, but it's typically over $1 a gallon. So we are selling consistently to that market. Our Diamond Green is. But it's just -- it's -- we're looking at it as a net of duties and comparing that to other markets we have available. Operator: The next question comes from the line of Matthew Blair with TPH. Matthew Blair: I was hoping you could talk a little bit about the feedstock mix at DGD. And I know that you're always looking to optimize and some of this is commercially sensitive. But just on a big picture basis, it looks like some of the indicator margins for RD made from vegetable oil are trending a little bit better than RD made from low CIP. So -- just overall, has DGD shifted to more of a veg oil mix? Or is it still pretty much all low CIPs? Robert Day: Yes. Thanks, Matthew. This is Bob. So I wouldn't -- DGD hasn't materially shifted its mix as I think you're aware, DGD1 is still down if DGD1 were to go back up and run, then that mix would shift more towards soybean oil. But as we sit here today, the mix hasn't changed a lot. Our best margins are on UCO and yellow grease and animal fats. And so we're going to maximize the opportunity we have to use those products. Randall Stuewe: Yes. The only thing that I would add, Matthew, is that clearly, in Q1 and Q2 as we were trying to figure out the rules around the PTC and 45Z redomesticating our supply chain was a pretty significant challenge. DGD is heavily reliant now on Darling's UCO and Darling's yellow grease and animal fat supply. And so we've got that up and running full speed now, and it's really visible now that you can see it in the earnings of our core ingredients business. And ultimately, it will translate into a better sales value within DGD. Matthew Blair: That's helpful. And then apologies if I missed this, but the contributions that Darling is making to DGD is that to help fund the DGD3 turnaround? Or why is Darling sending money back to DGD? Robert Day: Yes. And it's hard. So the answer to that question, some of that's timing, some of that is turnaround. Some of that is just the margin structure. So remember, that the PTC revenue that we will get as Darling, that flows directly to the partners. So that money doesn't stay inside of Diamond Green Diesel. That's number one. The other is, as you pointed out, in 2025, we've completed 3 catalyst turnarounds. And so our maintenance CapEx is higher in 2025 than normal. So it's really the timing of all those things that's led to the contributions that we've made. Operator: The next question comes from the line of Jason Gabelman with TD Securities. Jason Gabelman: I wanted to go back to something else that Bob had mentioned just around companies complying with their RIN obligations and that perhaps catalyzing stronger RIN prices. Can you talk about, I guess, more specifically the time line around that I think 2024 RINs are due December 1. And then at that time, the balances for 2025 should become more visible to the market. So do you expect that December 1st deadline to hold? And do you think that could be an initial catalyst to move RIN prices higher before we get the final RVO for '26 and '27? Robert Day: Yes. Thanks, Jason. So I do think that, that deadline will hold. I don't know that it will have much of an impact on RIN prices because all the RINs that have been procured so far in 2025 can ultimately be used to satisfy the obligation for 2024. And that's quite a long time and a lot of RINs. There may be some refiners who are waiting until the last moment to buy their RINs. But because we've had so much time in 2025 to do that, we're not expecting that, that's going to result in a significant lift to RIN prices at that time. If we have clarity around enforcement dates for 2025, going back to the March 31, 2026, as they normally would be. That would be a time when we would expect RIN values to probably see a lift. Jason Gabelman: Got it. That's helpful. And then my second one is hopefully a simple question. Just given on the screen, DGD margins have improved. It seems like it could be the margin signal could be there to restart DGD1, so wondering what exactly you need to see to have confidence to restart DGD1? Robert Day: So we've talked about this before. DGD1 went down for a catalyst turn around early in 2025. Given the changes in the PTC and the origin tariffs on so many of the feedstocks, our view is that DGD1 only makes sense to restart at least in the current environment with the current RVO under the current rules when soybean oil can be profitable, and profitable means a margin that's good enough for a long enough outlook that justifies burning up a catalyst. And so I think, certainly, we're a lot closer to that than we have been. We may get there, but it definitely looks a lot better than it did a few months ago. Operator: The next question comes from the line of Andrew Strelzik with BMO. Unknown Analyst: This is Ben on for Andrew. My first question is around the Food segment. And just a commentary there that when it's maybe some weakness exiting third quarter and into fourth quarter. So I was just hoping you could just walk us through your outlook for the next few months in the food segment. Randall Stuewe: Yes, I think what we were trying to put in the narrative is clearly tariff on, tariff off, up to 50, [ fentanyl ] tariffs, trying to figure out the supply chain was very confusing for our customers in Q3 and so the choice was to pull down domestic inventories. So remember, most of our Brazilian production comes into the U.S. that's in the hydrolyzed collagen peptide form, very successful product for us. . And so we had some delays in orders there. We think it will pick up and be a stronger Q4. That's about all the color that I can give you today on it. And what we've seen is a continued rebound of the hydrolyzed collagen business. And while our new Nextida products are making a foothold in the industry, they're still relatively minor in the contribution of that segment. But they are as we quoted in there, we're getting repeat orders, which is a great thing. By next summer, we're going to launch what I think will be called Nextida Brain, and that will be a brain health product and it's got a really great outlook, too. Unknown Analyst: Well, that's great to hear. And then on my next question, something that kind of, I think gets lost in the weeds sometimes or at least lately, California LCFS credit value, they've been generally stable at weak levels. Can you remind us of the expected time line of triggers that should propel these values higher eventually? Robert Day: Thanks, Andrew, this is Bob. I think as we know, there was quite a bit of a delay in the implementation of their step down to increase the greenhouse gas obligation, reduction obligation in California. And so -- as a result of that, that bank got built up so large that most of the obligated parties from our perspective had a sufficient number of credits where they -- even with the change in the ruling they didn't need to go out and immediately buy credits. Our view is that they are working their way through those credits and that sometime in 2026, we'll start to see that S&D come more into balance and steady increases in the LCFS credit premium. But it's hard to -- I think we believe it will be more steady than sort of a step-up in value. Operator: The next question comes from the line of Heather Jones with Heather Jones Research. Heather Jones: I had a question on your Feed segment and just thinking about the protein pricing. I know in the past that you have put in place and some of your fat pricing contracts, you had like minimum levels and if it went below that, what Darling received, it wouldn't go below that? And I was just wondering if you all had put any of those kind of things in place for your protein business in the U.S.? Robert Day: Heather, This is Bob. So all of our every contract is somewhat unique, and it really has to do with our approach towards accommodating our suppliers and trying to work with them on terms that make sense for their business as you're -- I think what you're pointing out is that we do have some contracts where Darling collects a minimum processing fee. And if prices get above a certain threshold, then we participate in some of the value of those prices. There are certain instances where protein prices are part of that as fat prices are. I think generally speaking, though, we see -- as you're well aware, we see a lot more volatility in fat prices and a lot more upside from time to time in fat prices. And so we tend to focus more on that than we do on the volatility in the protein markets. Randall Stuewe: Yes, I think to argument, what Bob said, is the thing that happened is the United States was heavily reliant on shipping low-ash poultry meal into the Asia countries for dominantly China for aquaculture. The offset was a strong domestic pet food demand in the U.S. And what we've seen twofold is, one, with the tariffs on, tariffs off with China and Vietnam, they're unable to take the risk, if you will, to buy that product. So it has to find as all commodities do the next best market. What you're seeing in the pet food business is post COVID, you've seen fluffy back to the shelter. And then you're not seeing a growth that's very significant right now on the pet food side. And then you're seeing that the consumer -- the CPG companies took prices up pretty drastically making those bags of brand name products with meat in them, really, really pricey and you're watching strong growth now in the green-based alternatives, namely old Roy. So it's essentially a disruption scenario right now, Heather, and we're off from where traditionally poultry high-end, low-ash poultry products have traded, although they're coming back. The second that Trump relieved the tariff on Vietnam for 30 days or whatever, big shipments and sales went out of here. That's our Eastern Seaboard plant that are heavily reliant on those products. So I think we've got a pretty good outlook. They've come back now and have improved quarter-over-quarter. And I think we're cautious on next year, but we think it's -- we think everything looks much better. Heather Jones: Okay. And then my follow-up is on Europe. So recently, they extended the tariffs on RD imports and biodiesel imports extended to staff. So as we're thinking about Q4, you'll have a full quarter of SAP production and SAP pricing in Europe is really strong. So will having a full quarter production more than offset the impact of them now imposing these tariffs on U.S. staff? Just wondering how to think about those moving pieces. Robert Day: Yes. Thanks, Heather. I think the way to look -- think about that is it will have if it's going to have an impact, the impact is going to be felt a bit later on. SAF is not -- we aren't selling market. The SAF that we're producing today was sold a while ago, and most of the SAF that we will produce in 2026 is already sold. So the tariff impacts will affect new contracts as they come about. We'll just have to see what those markets look like and supply and demand. But we still have access to voluntary markets in the United States. So we're optimistic about where we stand with SAF and SAF sales. Operator: The question comes from the line of Betty Zhang with Scotiabank. Y. Zhang: For my first question, I wanted to ask about broadly the core EBITDA guidance. It's been updated to that $875 million to $900 million range, and that's a bit lower versus the first number that you gave out at the beginning of the year, so I'm wondering if you could reflect on how the year played out and where it didn't quite meet your earlier expectations. And looking forward to 2026, do you think that this year's 12% to 13% growth is somewhat comparable to what you're seeing for next year? Randall Stuewe: Yes, Betty, this is Randy. I mean the $875 million to $900 million is the amalgamation of all 3 segments, net of DGD. Clearly, we're 2/3 of the way through October, we don't know really where October is going to finish. We don't have that type of visibility on a day-to-day basis here. So it's just -- this business when prices are steady, and volumes are steady around the world, you can give some guidance there. What we have tried to do is it's just too difficult to put a number out on DGD either for Q4 or next year. The core ingredients right now looks similar to stronger in 2026. But we won't know that and be able to give guidance on that until around -- till an RVO is published and then when we do our -- probably our February earnings call. Y. Zhang: Okay. Fair enough. And my follow-up question, I want to ask about the Fuel Ingredients business, the portion, excluding DGD. The margin there looked a bit the gross margin looked a bit higher quarter-over-quarter and also the segment earnings came in higher versus what we saw in the first half. Could you please share maybe some of the drivers there? Randall Stuewe: Yes, that business is made up, while Bob described it in his comments, a disease, it's really mortality destruction predominantly in Europe today. And then that's our green gas business, remind people that the green gas or green certification business in Europe, we're the one of the largest in all of Europe today producing gas over there. And then those are our digester businesses, and we added a small one in Poland now. So ultimately, that business ebbs and flows with what we call the Rendac business predominantly, and that's the 7 rendering plants in Europe that are geared towards mortality destruction. Anything you want to add there, Bob? Robert Day: I mean I think it's -- what you're alluding to is just sometimes the inputs, the price, the cost will change for the inputs energy prices that we're selling there remains strong. And so that's what you're seeing with these gross margins. Operator: There are no additional questions left at this time. I will hand it back to the management team for any further or closing remarks. Randall Stuewe: Thank you again for all the questions, today. As always, if you have additional questions, feel free to reach out to Suann. Stay safe. Have a great holiday season, and we look forward to talking to you after the first of the year. Operator: That concludes today's conference call. Thank you. You may now disconnect your lines.
Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q3 release call for Hemnet Group. My name is Jonas Gustafsson, and I'm the Group CEO of Hemnet. With me here on my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Omulf; and our Head of Investor Relations, Ludvig Segelmark. As usual, we will go through the presentation that was published on our website this morning during today's session. I will kick it off with a summary of the main highlights during the third quarter and a few exciting updates regarding strategic initiatives and planned product launches soon to come. Thereafter, Anders Omulf will cover the financial details before I will come back in the end to wrap up this session. As always, there will be opportunities to ask questions at the end of the presentation. Today's session will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a continued challenging property market, Hemnet demonstrated strong ARPL growth and resilience in the third quarter. Net sales decreased by minus 1.5% on the back of low Q3 listing volumes. ARPL, average revenue per listing grew by 21% in the third quarter, driven by a continued increasing demand for Hemnet's value-added services, where conversion towards Hemnet premium continues to be the main driver. Paid published listings were down with minus 19.2% in Q3, reflecting a challenging Swedish property market with continued high supply levels, extended sales cycles and continued pressure on the housing prices. Around 4 percentage points of the volume decline was attributed to a new business rule introduced in Q1 2025, allowing sellers to change agents without buying a new listing that is impacting the year-on-year comparison negatively. EBITDA declined by minus 5.9% to SEK 195.4 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. Today, we announced new strategic product initiatives to strengthen Hemnet's role throughout the sales process. The aim with these new initiatives, which include a new commercial proposition where you pay only when you sell is to help sellers and agents to fully realize the value of Hemnet, which we think leads to a better chance of a successful property transaction. I will come back to these initiatives later on in the presentation. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 367 million, down with minus 1.5% compared to the same period last year, driven by a significant decline in listing volumes during the quarter. EBITDA decreased by minus 5.9% to SEK 195 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 53.3%. We are pleased that we're able to deliver a high margin despite low volumes. Anders will break down these profitability dynamics in more details as we move on in the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side on this slide, you see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased 19% year-on-year in the third quarter, reflecting a property market with high supply, longer sales cycles and continued price pressure, leaving many customers hesitant to enter the market. The most recent buyer barometer from Hemnet gives further support to the sentiment, indicating that more consumers now expect prices to fall compared with last month. At the same time, lower interest rates, stabilizing inflation and the easing of mortgage regulations planned for April ‘26 could gradually help increase activity. Listing duration, the average time it took for a property to sell on Hemnet during the last 12 months increased by 18% to 52 days compared to 44 days in Q3 last year. Anders will break down the financial effect of the longer listing duration later on in the presentation. Around 4 percentage points of the volume decline was attributed to a new business rule introduced by 1st February 2025. This new business rule allows sellers to change agents without buying a new listing. It's important to remember that our published listing number follows a specific definition and differs from general market numbers. The negative listing development is challenging, but it's more important to remember that property market can be volatile, and we've been through the similar development in the past years. Just look at 2023. Let's move on to the next slide and provide some additional color on the supply situation and how that impacts the current state of the market. We do get a lot of questions on the state of the property market and how new published listings relate to transactions and total supply. Therefore, I wanted to take this opportunity to provide some color on what we are seeing and visualize it in a few graphs to eliminate some misunderstandings. We continue to see a high supply on Hemnet, but the growth rate has started to come down during the past few months. In September, in 2025, our supply grew by 2% year-on-year compared to 22% the same month last year. With that said, we're still at aggregated supply levels on the platform that is 50% higher compared to 3 years ago. The supply of Hemnet and how it moves is a function of a number of different factors. The supply increases with new listings as new listings are down the last 12 months compared to the previous year, that has a negative effect on the supply. The supply decreases with transactions as transactions are up during the same time period, that also has a negative effect on the supply. The supply follows the sales duration as average days on the platform increases, so does total supply. Average listing days on a last 12 months basis in Q3 were 18% higher compared to last year, which obviously has a significant impact. In addition to these fairly straightforward effects, there are other factors like renewals, like relistings and where we are in the new property development cycles that also impacts the overall supply levels. Now let's look a bit on how this has looked over time on the next slide. The number of new listings have exceeded the number of market transactions on Hemnet since 2022, which has built up a large supply of unsold properties during this time, which is visible on the top graph. As you also can tell clearly from the same graph, that trend has started to reverse during 2025. This is a natural correction after a few years of increasing supply. Looking at the history, we've seen the same similar patterns historically. You can also see from the bottom graph that listings and transactions over time follow the same seasonal patterns, but that the relationship between the 2 can differ quite a lot in the short term. To summarize, supply coming down from aggregated levels is positive for the property market. Lower supply signals a more healthy market where more transactions are taking place, while it is also supportive for the price development. Now turning to Page 7 to look at the ARPL development in the third quarter. ARPL grew by 21% in the third quarter. The ARPL growth was mostly driven by a strong demand for our value-added services. The conversion rate to higher tier packages continued to increase during the quarter and 3 out of 4 sellers on Hemnet now shows either Hemnet Plus, Hemnet Premium or Hemnet Max. This highlights the strength of our offering and that our customers see clear value in investing for increased visibility and impact. Our newest package, Hemnet Max, introduced earlier this year is a natural step for sellers seeking maximum exposure. The product is showing strong performance per seller. So let's look a bit on the performance on Hemnet Max. So please move to Slide 8. As mentioned, Hemnet Max continued to show strong product performance, while adoption is still at low levels. In Stockholm County, for example, homes advertised with Hemnet Max that were sold between April and August received more than 70% traffic compared to homes advertised with Hemnet Premium. Moreover, the Hemnet Max homes also got more engagement on the listing and on the average generated a much higher bid premium. We have launched a number of key initiatives to drive Max adoption going forward, including further enhancement of product features and scaling up the marketing of Hemnet Max towards agents and property sellers. We continue to work with the product, and we look forward to it being an important growth driver for Hemnet in the coming quarters and years. Now turning to Page 9 for some other exciting news. Today, we are very happy to be able to announce a set of new strategic product initiatives to help sellers and agents to fully leverage Hemnet's potential. Looking at property transactions in Sweden, we have a large opportunity as Hemnet to increase the value of the Hemnet investment for agents and sellers. We know that ensuring visibility throughout the entire home selling journey is an important part of achieving the best possible outcome. For example, data shows that listings visible on Hemnet from the start of the sales process have a higher chance of a successful sale with homes published as upcoming on Hemnet on average, selling 5 days faster than those listed as directly for sale. To help sellers and agents fully leverage Hemnet's potential, we're announcing 2 strategic initiatives today. First of all, a new success-based product offering. Since 1st of October, we have had a live pilot where we are testing a new commercial model where sellers pay only when a property is sold. Second to that, we're also announcing new strategic partnership with franchisers and brand owners that want to recommend Hemnet as part throughout the entire sales process. Now let's move to Slide 10 to talk a bit more about the ongoing pilot. So we're announcing a new commercial model to further lower the threshold for sellers to list on Hemnet. We launched a pilot test for a new commercial model on 1, October, where sellers pay only when the property is sold. The new model aims to lower the barrier for sellers to advertise on Hemnet from the start and will be a part of our strategic partnerships, and I'll elaborate a bit more on those on the next slide. This is a highly demanded model from both sellers and agents as it becomes a risk-free for the seller and easier for the broker to recommend the most suitable package for the client. We share the risk with the seller to maximize the chances of a successful sale. And we do this because we know that Hemnet works. It is still early, but the initial response and the initial feedback and collected data from the pilot has been very supportive and very strong. with sellers showing increased willingness to list on Hemnet with the new model. We plan to roll out the new model as part of the strategic partnerships during 2026. Now let's move on to Slide 11 to elaborate a bit more on the strategic partnerships. The second exciting announcement that we have to make today is our new strategic partnerships. Hemnet will offer all franchises and brand owners that want to recommend Hemnet as partner throughout the entire sales process, the opportunity to enter into a strategic partnership agreement. The aim of the strategic partnership is to help home sellers and agents to fully realize the value of Hemnet to enhance the chance of a successful property transaction. It is also a way for Hemnet to strengthen the relationship on an HQ level, meaning headquarters. The new commercial model will form a part of this strategic partnership, along with increased visibility, increased brand exposure, increased traffic and increased lead generation and new product features. We very much look forward to being able to speak more about these news and what they will mean for Hemnet and our partners as they are being rolled out over the coming months. Moving on to Slide 12 for some additional launches and product news. We continue to accelerate the pace of our product innovation. Within short, we're launching Hemnet Insights, a new AI-powered analytic tool providing agents with valuable market data as part of their Hemnet business subscription. We're confident that this will be a very useful tool, and extremely appreciated tool for agents across the country, and we're excited about the launch. During the quarter, we improved our CRM functionality, which makes it possible for us to strengthen communication and add more value to both homebuyers and home sellers on the platform. Moreover, by the beginning of next year, we will also launch a new enhanced offering for property developers that is better suited to their needs. We have also launched a marketing partnership with hitta.se, where both our listings and valuation tools are now being integrated. Lastly, our increased marketing investment during the year have begun to show results. We are seeing positive development in key brand metrics with spontaneous brand awareness increasing 11 percentage points year-on-year in Q3. And according to Orvesto survey data covering May to August 2025, Hemnet remains Sweden's third largest commercial website, reaching close to 2 million unique visitors per week with a slight year-on-year increase of 0.4% compared to last year. This is particularly encouraging given the weaker market conditions. All in all, we continue to accelerate product innovation, invest in marketing and build for the future, and it's yielding results. With that, I will hand over to Anders for the financial update, starting with Page 13. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 14 directly and the financial summary. Let me begin with an overview of the third quarter of 2025. Net sales for the third quarter were SEK 367 million, a decrease of 1.5% year-over-year. This demonstrates strong resilience. We managed to maintain revenues despite published listings dropping by almost 20% in the quarter. It's a testament to our business model holding up across market conditions, much like we saw in the first half of the year 2023 before bouncing back the second half year. Key driver, of course, sustaining revenue was ARPL growing 21% year-over-year. This was supported by continued strong demand for our value-added services for home sellers, Hemnet Plus, Premium and Max. This underlines the value our platform delivers to home sellers also in a challenging housing market. In addition, our B2B segment had a strong quarter with a growth of 1.5%. We will discuss the B2B segment in more details on the next slide. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 44 days in Q3 2024 to 48 days in Q2 2025 and now 52 days in Q3 2025. The year-on-year effect of a longer listing time is negative SEK 9 million in revenue and the sequential effect of 4 additional days from Q2 to Q3 is also SEK 9 million. To smooth out seasonal variations, we recommend tracking ARPL growth on a rolling 12-month basis as shown on Page 4 of the presentation. Turning to profitability. EBITDA came in at SEK 195 million, down 5.9% development in more detail later on. The EBITDA margin for the quarter was 53.3%, which is 2.5 percentage points lower than the margin in Q3 2024. This decline is mainly due to fixed costs that cannot be fully adjusted to offset the 9% drop in listing volumes. One important component in the margin development is compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases quarter-on-quarter from 30.1% in Q2 to 30.9% in Q3, driven by further improvement in both recommendation rates and actual conversion to value-added products. Looking at the effective commission compared to Q3 2024, it rises from 29.4% to 30.9%, higher commission reflecting a substantially stronger underlying improvement of our [ VAS ] products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making it more suitable to measure over longer periods. Free cash flow last 12 months was SEK 808 million, a 36% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of the earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.5, an improvement from 0.6 in Q3 last year. This low leverage provides us with flexibility going forward. The reduction is particularly encouraging given our active capital allocation strategy. As you know by now, we expanded our share buyback program from SEK 450 million to SEK 600 million this year following the mandate approved at the AGM. We have been returning capital to shareholders while still maintaining a conservative balance sheet. At first glance, the headcount increase of 13 may appear notable. However, it is important to take into account the technical nuance that helps explain the development. A higher number of employees were on parental leave during Q3 '25 compared with the same period in 2024. In addition, the organization has been selectively strengthened primarily within product and tech. With that overview, let's turn to the revenues by segment and take a closer look at the Q3 figures. Moving into Slide 15, which breaks down the revenues by customer group. Since we focus the seller -- very much on our seller revenue so far, let's turn the attention to our B2B segment, which grew by 1.5% despite the continued challenging and cautious market environment. Revenues from real estate agents increased by 2% to SEK 26 million and property developers contributed SEK 13 million, up 14% year-on-year. These gains reflect strong engagement for our prioritized customer segment, and it's particularly encouraging to see both an increase in listings and an uptake in VOS products for property developers, leading to a double-digit growth. However, advertising revenues from other advertisers declined by 8% to SEK 16 million, reflecting a softer display advertising market. This was again driven by broader macroeconomic headwinds and lower impressions as a result of reduced listings volumes on the platform. Overall, an uplift for the B2B segment, marking it the strongest quarter this year. With that, let's move to the EBITDA bridge to dive deeper into the Q3 figures. On Slide 16, we show the year-on-year development of EBITDA. We have already covered what has driven the top line for the quarter, so let's turn to costs. As mentioned, EBITDA declined by 5.9% compared to the third quarter of 2024. Agent compensation increased in absolute terms, driven by strong recommendation and commercial levels despite net sales declining by 1.5%. And again, remember, ARPL grew 21% in the quarter. Looking at costs, expenses were higher than last year, mainly driven by increased marketing investments. We continue to raise our ambition in external brand building activities, and we have also increased tactical digital marketing efforts. In addition, higher pace in product development resulted in higher consulting costs. In total, fixed OpEx, excluding personnel costs increased by SEK 9 million. Personnel expenses increased somewhat, reflecting wage inflation and larger headcount. However, this quarter was -- we also benefited from a reversal of a bonus provision, which explains why personnel costs as a total were slightly lower compared to last year. The other cost category remained fairly stable, although slightly higher capitalized development costs reflect the higher product development activity. Overall, the minus SEK 19 million listing effect naturally mirrors our revenue and profit development and puts pressure on the margin. That said, taking a step back, it's encouraging to see the resilience of the underlying earnings capacity. We're not afraid to continue investing in marketing and product development, even though the total cost increase remained relatively modest at around 9%. In total, this adds up to an absolute EBITDA decline of minus SEK 12 million year-on-year. Moving on to Page 17 and some spotlight on the cash flow. Starting on the left-hand side, our rolling 12-month free cash flow continued its upward trend and exceeded SEK 800 million. Cash conversion remains strong, supporting both reinvestments in the business and capital returns to shareholders. In the middle, you can see the development of our share buybacks. During the third quarter, we repurchased shares worth approximately SEK 149 million. In volume terms, we acquired 560,000 shares, reflecting the lower share price during the period. This is part again of the SEK 600 million mandate approved in May. And finally, on the right-hand side, our net debt stood at SEK 427 million, corresponding to 0.5 leverage, well below our target of 2x. In summary, continue to accelerate investments in marketing, product development while delivering strong cash flow, gives us the flexibility to keep executing on our strategic priorities and maintain attractive shareholder returns. With that, I want to hand over to Jonas for a summary on Page 18. Jonas Gustafsson: Thank you, Anders. Let's move to the summary slide on Slide #19. To summarize the third quarter and the news that we announced today. First of all, we saw continued pressure on new published listings in Q3. The weak volumes negatively impacted both net sales and EBITDA. Second to that, we had a strong ARPL growth of 21%, and we continue to show resilience in a difficult property market. Thirdly, we announced 2 new strategic product initiatives that will aim to help sellers and agents to fully leverage Hemnet's potential, and I'm extremely excited about the impact this will have on our business in 2026 and onwards. All in all, we continue to act decisively. We're working faster. We're working smarter, and we're working with a continued focus on innovation. By doing so, we're strengthening Hemnet's position for the benefit of buyers, sellers and agents alike. With that, let's open up for the Q&A. Operator: [Operator Instructions] The next question comes from Will Packer from BNP Exane. William Packer: Three from me, please. Firstly, could you help us think through the strategic rationale of pivoting your revenue model now? You had a very strong track record over the last 5 years. Paying a bit later does bring in new risks such as arguably low inventory quality and revenue recognition headwinds. Can you just help us understand why now? Secondly, thanks for the initial details on the agent partnerships. Would you consider listing exclusivity as a part of that partnership? Or do you think the regulator wouldn't allow it? And then finally, as has been well flagged, inventory is down significantly in the quarter, 19%. Could you help us understand what cyclical market dynamics versus inventory share loss? So for example, Boneo claimed Q3 listings and the market were down high single digit for Q3. What do you think market listings are down? Jonas Gustafsson: So we'll take them one by one. And on the split ship in, and I'll start. So with the sort of the new model from a commercial perspective that we now are piloting, I think this is, to a large extent, based on discussions and feedback that we've had with agents that we've had with sellers. And it's especially sort of important, the reason for testing this out right now is the fact that we have a -- the market dynamics have changed, and we've seen them gradually changing driven by a few different factors. I mean one is related to the high competitive situation that you see on supply. Number two is driven by the fact that you have longer sales periods that we also spoke about. And I think it's one dynamic that is important and that has changed over the last 5 years is that you now see a pattern where a seller of a property typically sell before you buy. That is creating a different market dynamics. What we want to achieve is to ensure that you use the full value of Hemnet. And a way of ensuring this is that we're now testing this new model, and it's conditional to the fact that you would list directly on Hemnet. We know that we have a model that works. We know that we have an extremely efficient platform. We're the market leader. But at the same time, we need to adopt to the changing market conditions. And I think this is something that will be highly appreciated. It will help us to drive volumes. It will help us to strengthen the relationship with the agent industry that is so extremely important. So that's number one. Number two, related to the agent partnerships. We elaborated a bit on the different components as part of these strategic partnerships. And as it goes, by definition, this is a partnership. So obvious when you go into a partnership is that you want to find mutually beneficial wins. So this is a win-win partnership where we see an upside, but we're also going to help our friends out there who wants to be a part of this agreement to help them to sell more properties and help them to gain market share. And when it comes to exclusive listings, I think having exclusive listings totally depends on how you would do it, but it's obviously something where you would need to look at the regulatory dimensions very closely. And that's something that we will explore going forward. Thirdly, when it comes to volumes, so I think -- the sort of -- if you start with the minus 19%, which is our starting point, I think we clearly laid out both in the CEO letter in the presentation that we conducted earlier that parts of this 4% is driven by a business rule change that is impacting the year-on-year figures from a Hemnet perspective negatively in Q3. And it's important to remember that the numbers that was published by Boneo without knowing them in detail, I think if you look at the market and how it defines sort of the volume development, it is not like-for-like compared to Hemnet. The business rule change, I'm pretty sure that the numbers from a market perspective would not capture the relistings and the effect that the 4% had on our numbers. So that is also explaining it. Then I think there's a number of different factors, right? And it is the low demand in general. It is the duration of the sales cycles that is impacting. And also, the way I understand those numbers is not taking into consideration impact from new property developments. So there's a lot of different factors. And the most important thing for Hemnet is to ensure that we remain as the #1 player in Sweden. We want to ensure that the listings end up on Hemnet. And eventually, they do. We've seen that in 2024, and you know the numbers that we published in July, we had 89% market share in 2024. That has moved up and down. In 2023, it was 90%. In '22 and '21, it was 86%. In '20, it was 90%. So market shares tend to move with the market dynamics. So it's difficult to make a full assessment, and there are so many different type of market shares that you could define, whether it's content market share, whether it's new published listing market share, whether it's sold market share. For us, it's most important to ensure that the properties end up [ atonement ] eventually. Anders Ornulf: I can just -- maybe it was a good overview, Jonas. Maybe I can just add that of course, when it comes to our dominant position that we will -- we take that into a very deep consideration before signing any contracts. So as we have always said around that question, it's a very important question it has to be with the position we have. Operator: The next question comes from Yulia Kazakovtseva from UBS. Yulia Kazakovtseva: This is Julia Kazakovtseva from UBS. I have 2 questions, if that's okay. So my first question would be about volumes. So you said that 4 percentage points of the 19% decrease in Q3 was driven by the change in the business terms. Could you please give us the estimate of this impact for Q2? And my second question would be about the new pilot scheme where sellers only pay once the property is sold. So just thinking about the process and the mechanics of this. So if a seller lists their property, but it remains unsold after, let's say, a few months, and they decide to eventually remove it from Hemnet, will they still be required to pay for this listing? And then in this situation, if this happens and then eventually if the property is transacted somewhere outside of Hemnet after this, what's your position here? Would they still need to pay for this or not? Jonas Gustafsson: I'll start off and then Anders, please fill in. So when it comes to the volumes, you're absolutely right, Julia. 4% is connected with the change in terms of the business rule. The 4% that we saw in Q3, if you look at Q2, that number was also 4%. So you should sort of consider the same levels in Q2 as in Q3. So hopefully, that covers the first question. Second to that, when it looks -- when we look at the new product proposition, First of all, we're testing right now. So we don't know the exact scope, the exact terms and conditions of this pilot. We're extremely satisfied with the initial results that we've seen, the reception that we've had from both sellers and especially from agents, it's been very, very positive. When it comes to the specific case that you asked for, obviously, something that we need to detail out. But the current hypothesis and that hypothesis is very strong, is that if you take one listing as an example, you would use this new business opportunity, meaning that, first of all, you would list directly on Hemnet with this new proposition and just play with the thought that it would not be sold for 3 months or whatever period you decide, and it would be taken down. If it's then selling on off Hemnet, if the property has been taken down, you would still need to pay for it. So we will track individual properties and ensure that we get the money for it. The terms and conditions would be that you have used and you have leveraged the marketing power of Hemnet being the most or the leading and the strongest property platform in Sweden. So therefore, you should pay for it. So that's the hypothesis. With that said, it's one of the things that we're testing. But I think otherwise, it would be a way too large risk, and we don't want to cannibalize on our core business. That is a key component in deciding this new proposition. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: I have a couple. So just starting with this new initiative with success-based product offering, how is that going to work with the other product that you have, which is pay when listing is removed because that doesn't seem to make much sense anymore if you go live fully with this. Jonas Gustafsson: Obviously, just repeating the same message that we said before, this is a pilot we're testing. And as part of this pilot and making the full assessment of this new product proposition, we would also look at the totality and the full scope of our portfolio. Current hypothesis is that the pay later if removed, that product would remain. However, and I'm sure there will be questions going forward around this as well, is obviously what price point we would price this new proposition at. And that's something that we're testing and you could expect potentially a differentiation from PL when it comes to the new product. Hopefully, that's helpful, Georg. Georg Attling: Yes, it is. And just second question on the ARPL slowdown here. It's 14 percentage points lower than Q2. if you could just help with the components to this. I mean the price effect should be similar, if not higher than Q2. So I guess mix is really the main reason for the delta helpful for -- with any details would be helpful. Jonas Gustafsson: Please take it. Anders Ornulf: The main explanation is actually tougher comps. So last year, 1st of July, we launched a new compensation model. So a very high uptick to [indiscernible] and now we are lapping and meeting those. So remember, ARPL growth is a growth figure year-on-year, right? So -- and we called out on the call that [indiscernible] is actually growing, continue to grow. So even though we continue to grow, the ARPL growth actually slowed down, as you called out here. So the main reason to answer your question is actually tougher comps. Georg Attling: Yes. And then tougher comps in terms of mix, right, because of the steep increase in premium in Q3 last year. Anders Ornulf: So the uptake between Q2 and Q3 last year was a lot higher than Q2 and Q3 this year. Operator: The next question comes from Giles Thorne from Jefferies. Giles Thorne: The first question was back on the PO sale new commercial model. And the elephant in the room for Hemnet for the past 6 months, maybe 12 months has been buy in the free-to-list model. So it'd be interesting, Jonas, to hear you talk on how the pay on the new commercial model will directly deal with that competitive threat. The second question was a bigger picture question, and it's on agent compensation. And I suppose, Jonas, it'd be useful to hear your case with this new partnership model as to why that amount of capital being allocated to the agency base is still the best thing for Hemnet's long-term interest. I appreciate that's a much bigger, harder question to answer, but it's certainly something on a lot of people's minds. And then the final question was on the open letter that we all saw over the summer from one of your largest shareholders, which called out many things, but in particular, how you're allocating capital your shareholder remuneration. So maybe Anders, some comments on any changes you intend to make on the back of that pressure. Jonas Gustafsson: Thanks, Giles. I'll start, and we'll take them one by one. And Anders, please help me, and I think you are the best one to ask the last question, but let's take it off. So when it comes to this pay on sale, I think the most important reason for us elaborating and testing this pilot now as we speak is that there are -- the market dynamics have changed. And I think I've been repeating this message over the last months since I've had the privilege to be the CEO of this company is that there's a few market dynamics right now where you have an all-time high supply where competition in the supply segment and in the own sales segment is tougher than it's ever been before. Second to that, it takes much longer time to sell a property today than it used to do 3 years ago. If you just look at the average sales duration, that was hovering around 25 days 3 years ago. Now on the last 12-month basis, it is 52 days. That has changed the sales process, the way the agents work and the way the sellers think. Thirdly, which is important is the fact that you now sell before you buy. So what we see right now with the data is that roughly 70% of all property transaction happens in sort of in a way where you sell before you buy. That used to be the opposite. So that used to be 30%. So the market dynamics have changed. This means that we want to ensure that we adopt our product proposition towards the market rather than the competitive situation to ensure that we become relevant, we remain relevant throughout the entire sales process. We know that we have a platform that works. We know that if you list on Hemnet from the beginning, the likelihood of a successful transaction and successful transaction covers everything from finding the right buyers, ensuring that you get reduced sales cycles and maximizing the bidding premium. Those 3 factors are improved when you use Hemnet the entire way. So that is a way -- and that's our hypothesis of using this. And given sort of the market situation, we want to lower the entry barriers for the sellers. We want to help the agents from the beginning. And we think that this product is going to make the difference here. We think it's a very strong proposition that will get listings earlier on Hemnet, more listings and it will help sellers to make better transactions. I think that should cover the first question. When it comes to the second question, it was a bit difficult for me to hear. But I think the question is around agent compensation and how that is related to the new strategic partnerships. But please clarify if I misunderstood it. Giles Thorne: Yes. It was -- it's at heart, a very simple question, albeit probably quite a difficult answer, which is you pay away a lot of your value to this large pool of important stakeholders. And for a very long time, that served you very, very well. But now there are open questions about whether that is the best use of your capital. So it was a question for you, Jonas, to make the case of why this is still the best use of your capital and perhaps use the new strategic partnership as a way of illuminating that case. Hope that's clear. Jonas Gustafsson: Yes. Perfect. So I think when it comes to the agent compensation, I think that has served us well. I think it continues to serve us well. It's strengthening the relationship with our most important ambassadors in the market, and that's individual agents. I think it's fair. And I think I fully understand where you come from, it's a substantial part of our P&L on the cost side that is related to compensation, but it's also helping us to build very strong relationship and mutual beneficial opportunity for both Hemnet and for the agents. When it comes to the way you understand this, Giles, but I think -- I mean, the agent compensation and the compensation model, that is a contractual and transactional relationship between Hemnet and the franchise owners. We see large opportunities of also strengthening our relationship with the HQs, the ones that has a central role and in many cases, a very important influence. And creating opportunities also on HQ level is important. And what we haven't spoken too much today about is also the individual agents. I think Hemnet in the past has been very strong with the franchise owners. We need to remain strong there, but we should also strengthen the relationship with HQs, and we should become better friends and become more supportive to the individual agents. So it's the full slate that we're thinking about. Then thirdly, the open letter from GCQ. Anders, would you like to elaborate around our view when it comes to the capital allocation? Anders Ornulf: Sure. Of course, we saw the letter and the shareholders' input is very important for us. It's one very important piece of the puzzle. But we stick to the current capital allocation strategy that we will continue to distribute excess cash through buybacks on an arm's length basis via Carnegie. On a personal view, I think not, I think it's a good success story for Hemnet since the IPO to be consistent with the buybacks and not taking bets on share price from time to another. So that's the answer. Giles Thorne: So Anders, you won't change the cadence or the pace of buybacks depending on share price moves? Anders Ornulf: No. Operator: The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: What development do you expect for staff costs and other costs at Hemnet in 2026 and 2027? Jonas Gustafsson: Anders, would you like to take that? Anders Ornulf: Sure. We don't know since we haven't decided, but what we said in the beginning of the year is that we will continue to grow this company. We will invest in marketing and talent and the product, and we will continue with that. Last year, we had a fixed OpEx growth of 30%. We said then that you will not see that this year. And now after 9 months, we are at around 15%. So all else being equal, you should expect us to continue that. But to be fair, the details has not been decided and the best way to look at it is to look at the current run rates. Jonas Gustafsson: And I think just to kick in an open door, we like operational leverage, and that's what we're going to plan for also for the next year and after that. Thomas Nilsson: Okay. And one second final question, if I may. Looking at your growth targets of 15% to 20%, how much do you think this will come from structural price raises and how much will come from promoting higher-priced packages? Jonas Gustafsson: We remain committed, and we think that the growth ambition of 15% to 20% is important. I think what we've said is that in the past, I think the largest price hikes days for Hemnet, those days are over, and we need to work on value-based pricing. And when I talk about value-based pricing, we need to ensure that we deliver products that the customers are willing to pay for. And I think this quarter, Q3, but also what we saw in Q2 and Q1 is a testimony of that. We do see that the product mix and the BOS penetration is the main driver. It is not prices. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: Two questions, please. First of all, you've mentioned about further enhancements of Max. Should we read that as small sort of iterative additions to the Max package or perhaps a bit more of a rebalancing of the relative benefits across the package structure, so potentially including elements like free renewals? And then you've also talked about increased Max marketing. How receptive do you think agents have been able to be to these messages about the value of Max in a sort of difficult market backdrop? Or do you think their interest and ability to upsell packages will also be reliant on picking up when the macro also picks up? Jonas Gustafsson: So on the first one, I think when it comes to the enhancement of Max, I mean, Max is still a baby. It's been around for 6 months. So it's still young. We are continuously testing new features. We're elaborating with the price point. We've been running different campaigns. There are campaigns live now in the larger cities to just learn. So we're still in data collection mode. I think we need to look at a few maybe potentially bigger things as well going forward. And per your point, classifieds. So it's all a relative game comparing the features of Max also towards premium and others. But I think -- I mean, I don't think that you should continue to decrease the proposition of premium and Plus. This is all about ensuring that you improve features when it comes to Max. So that's something that we continuously work on. Anders Then I think, would you like to take the second one? Anders Ornulf: I didn't get that to be fair. Jonas Gustafsson: Sorry, can you take it again, Ed? Edward Young: Sure. I was just saying you're talking about increased marketing behind Max. I was just wondering, do you think that agents have been receptive to those messages? Or do you think ultimately that in sort of in the difficult macro backdrop? Or do you think that you need macro to pick up for them to sort of have more space if they're under pressure? Is it really a priority for them to push that? Is the macro impact an important part of the backdrop there? Jonas Gustafsson: Thanks, Ed. I can take it, Anders, and then you can fill in sorry. So I think -- I mean, it's a very good question, Ed. I mean, I think if you look at the actual product performance, and we showed a few highlights with 70% more traffic, 50% higher premiums, 50% more lift, things and engagement up. So I think those are fantastic results. I think that when it comes to Max, obviously, it is priced at a 50% premium versus Hemnet premium. And I think that has been part of the challenge in getting a quick adoption given these current market conditions. The key -- the sort of -- the way this business works to a large extent, is the fact that conversion follows recommendations. So it's all about ensuring that the individual agents recommend Max to a larger extent. That's really the main lever that we have to pull. And I think these marketing investments that we refer to is to a very large extent, B2B marketing, so investing in communication, investing in roadshows, investing in getting the message out there. But I think the sort of the Max adoption to some extent, is held back given the current market conditions. Operator: The next question comes from Eirik Rifdahl from DNB Carnegie. Eirik Rafdal: I got a few at the end here. Just to start on the strategic partnership. Are you configuring or looking to configure the commission model as well to kind of drive more agents to push this offer with pay when sold? Jonas Gustafsson: Simple answer is no. We're not looking to adjust the compensation model. Obviously, kicking an open door, everything, you would understand this. But obviously, I mean, we would pay a commission towards the agent if the property is sold and only so. So that's the part of it. But that's also one thing that we're obviously testing. Eirik Rafdal: That's very clear. And Jonas also you stated that the initial feedback and data from the pilot has been supportive and sellers showing increased willingness to list on Hemnet with the new payment option. Have you also seen increased willingness to jump on Max on the back of this? Jonas Gustafsson: What we've seen is that I wouldn't comment on Max specifically because the numbers are still quite low, but we see that there is a willingness to recommend higher tier products and higher than we have today. So that has been part of the reason why we see a very positive response. Perfect. Eirik Rafdal: And just a final question for me, which is a bit more big picture. What's your overall thoughts right now on AI risk, particularly on the back of the Silo ChatGPT integration announced a couple of weeks back? Jonas Gustafsson: I mean if you look at AI, and I'll take the big picture answer. I mean we're actively looking at how to best integrate AI into our operations to enhance user experience and internal efficiency. Up until today, our efforts internally, we focused a lot on our valuation pool. But obviously, we follow and see what is happening. And I think the -- so and the ChatGPT integration last week are very relevant and interesting. So we continue to look at that, and that's something that the team is looking at it, and we're exploring those opportunities. We want to be part of this when this takes off and when it gets to Europe. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just one from me. Can you give more color on why the Max package uptake hasn't accelerated given the data that you have on product performance and investment? Is it purely just a lack of understanding from sellers? Or is it something you eventually consider having part of the commission model for agents to help uplift that uptake? Jonas Gustafsson: I think I mean taking a step back, Hemnet Max is something that would help us in '26, '27 and '28 and will be an important component to continue to drive ARPL growth. We're still in the learning phase. Please remember the last time the Hemnet launched a new product was back in 2019. So this is not something that we do on a sort of on a quarterly basis. And I think -- I mean, sitting here today and being a part of this earnings call, the key driver of what is actually driving ARPL growth in Q3 2025 is Premium and Plus, and that was introduced in 2019. So this is a long-term bet. I think when it comes to why the adoption has not picked up faster, I think parts of it is sort of related to what Ed asked about before. There is tough market conditions right now that I think has been holding back the MAX penetration. That's just a fact. And second to that, I think the awareness, this is the numbers that we show to you guys today are very, very strong. Now it's -- we have a lot of things to be done at our communication department. We need to be out there and spread the dos. Operator: The next question comes from Nicola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, interesting news regarding the new model. I appreciate that this is just in pilot mode so far, of course. But just to understand the mechanics of this. Will the cost of the listing ad be automatically deducted during the settlement with the banks when a home transaction closes? Or will the seller have to pay as they've done previously, that is just paying a regular invoice to Hemnet? Jonas Gustafsson: So the simple answer is that what we're testing right now is that the payment method and the payment flow would be very similar to our current products, meaning that would be a separate bill. However, I mean, if you look ahead, and that's a question about product development and integration towards our partners, I think sort of having the Hemnet cost being deducted in the overall settlement, that's also an interesting opportunity. But what we're piloting right now is the first stage. Nikola Kalanoski: Yes, that's crystal clear. And just another thing to clarify. I believe you mentioned earlier during this conference call, some changed market dynamics, which I'm sure we're all familiar with. But I reacted a little bit to you saying that competition in the supply segment and -- or sorry, competition in the on sale segment is tougher than it's ever been before. I just want to make sure, does this refer to there being competition among home sellers trying to sell their home or competition between Hemnet and other marketplaces, right? Jonas Gustafsson: Thanks for allowing me to clarify that if that was unclear. What I meant and clearly meant is that if you look at the on sale segment, supply levels are at record high levels, meaning that if you're a home seller, the competition to sell your property is very, very high. So it's a question about supply/demand to put it simple. Do you follow me, Nikola? Nikola Kalanoski: Yes, absolutely. I was just looking for a clarifying Operator: The next question comes from Julia Kazakovtseva from UBS. Yulia Kazakovtseva: Just one small follow-up for me. What's the current penetration of the pay later feature at the moment? I mean, the number of new listings. Anders Ornulf: It tends to fluctuate a bit, and we've commented before that it's been around 40% to 50% since launch, and it might be -- I haven't looked at it today, but it might be a little bit lower today. Jonas Gustafsson: Hovering around 40% but it goes with seasonality. So around 40% to 50%. Operator: The next question comes from Eirik Rifahl from DNB Carnegie. Eirik Rafdal: It's Eirik again. Just a quick follow-up question because we've been kind of discussing the perception of the max value and the perception of the value you guys create overall. And one thing is the perception that the agents kind of know of your value. But do you have a feeling that they understand the relative value between you and for instance, [indiscernible], I mean, on the numbers we're tracking and looking at, you guys are reporting all-time high time on site today of 52 days, but [indiscernible], at least on our numbers, is north of 120 days, so more than 2x what you guys can deliver. Do you feel that the agents kind of understand this in this market that it doesn't really help them to go there and kind of try to avoid going on Hemnet? I mean I think obviously, it's a mix. I think we have we have more work to be done and continue to educate the market around that. And you're absolutely right. I mean Hemnet is a much more efficient and much stronger property portal when it comes to ensuring that you sell your property quickly and fastly. With that said, I think this is something that we're continuously work on. And I think I've been talking a bit about how we invest in our sales force. The main reason for investing in our sales force is that we need boots on the ground to be out there, help the individual agent to understand the fantastic value that Hemnet is delivering. And also what we did in Q3 was to lift up Marcus to become my management team. And I think becoming closer to the agent, becoming closer to the industry is it's a strong rationale of why we're doing that and not only because Marcus is a fantastic salesperson. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: Thank you, everyone, for joining the call today and for a lot of good questions. We ran slightly over time. But with that said, we'll conclude today's session, and I wish you a fantastic day. Thanks.
Operator: " Diego Echave: " Head of Investor Relations Sameer S. Bharadwaj: " Chief Executive Officer Jim Kelly: " Chief Financial Officer Andres Cardona: " Citigroup Inc., Research Division Tasso Vasconcellos: " UBS Investment Bank, Research Division Alejandra Obregon: " Morgan Stanley, Research Division Leonardo Marcondes: " BofA Securities, Research Division Jeff Wickman: " Payden & Rygel Jaskaran Singh: " Golman Sachs Operator: Good morning, and welcome to Orbia's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Diego Echave, Orbia's Vice President of Investor Relations. Please go ahead, sir. Diego Echave: Thank you, operator. Good morning, and welcome to Orbia's Third Quarter 2025 Earnings Call. We appreciate your time and participation. Joining me today are Sameer Bharadwaj, CEO; and Jim Kelly, CFO. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Today's call should be considered in conjunction with cautionary statements contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company disclaims any obligation to update or revise any such forward-looking statements. Now I would like to turn the call over to Sameer. Sameer S. Bharadwaj: Thank you, Diego, and good morning, everyone. Before we begin discussing this quarter's results, I would like to thank our global employees for their continued commitment to improving business performance and staying customer-focused in difficult market conditions. Turning to Slide 3. I will share a high-level overview of our third quarter 2025 performance. Revenues of $2 billion increased 4% year-over-year and EBITDA of $295 million increased 2% compared to the prior year period. Our performance this quarter reflects subdued end markets in some of our business groups with some positive signs in others. As a result, we are reaffirming our 2025 EBITDA guidance adjusted for nonoperating items of between $1.1 billion and $1.2 billion, with results likely falling in the lower half of the range. In this environment, we are intensely focused on strengthening our leading market positions, making important progress on cost reduction and cash generation, realizing incremental profitability from recently completed investments, executing noncore asset sales and taking proactive actions to simplify and strengthen our business and balance sheet for the long-term. I will now turn the call over to Jim to go over our financial performance in further detail. Jim Kelly: Thank you, Sameer, and good morning, everyone. I'll start with a discussion of our consolidated third quarter results on Slide 4. Net revenues of $2 billion increased by 4% year-over-year, reflecting higher sales across all business groups. Revenue growth was mainly driven by strong demand in Precision Agriculture and Connectivity Solutions. Higher volume in Polymer Solutions, favorable pricing across several regions in Building & Infrastructure and strength in Fluor & Energy Materials. I'll provide a more comprehensive description of these factors in the business by-business section. EBITDA was $295 million in the quarter, a 2% increase year-over-year. Higher volume in Connectivity Solutions and a favorable product mix in Precision Agriculture were partially offset by lower resins pricing in Polymer Solutions, restructuring costs in Building & Infrastructure and higher input costs in Fluor & Energy Materials. Operating cash flow of $271 million decreased by $12 million compared to the prior year quarter and free cash flow in the quarter of $144 million improved by $2 million year-over-year. The decrease in operating cash flow was driven by lower cash generation from working capital. The increase in free cash flow was driven by lower capital expenditures, which more than offset lower operating cash flow. Net debt to EBITDA decreased from 3.98x to 3.85x during the quarter. This decrease was primarily driven by an increase in cash and cash equivalents of $132 million and an increase in the last 12 months EBITDA of approximately $7 million, offset by an increase in total debt of $26 million. The increase in debt was entirely driven by the appreciation of the Mexican peso during the quarter and included a paydown of $7 million of debt in the quarter. Net debt to EBITDA at the end of the third quarter using adjusted EBITDA to better reflect underlying earnings decreased from 3.51x to 3.42x. On October 6, 2025, Orbia redeemed and canceled the remaining portion of its 2027 senior notes in accordance with their underlying indenture. This transaction represented the final step of the completion of the refinancing of our near-term debt maturities that was initiated in the second quarter. Turning to Slide 5, I'll review our performance by business group. In Polymer Solutions, third quarter revenue of $647 million increased 2% year-over-year, largely driven by higher resins volume, partially offset by lower derivatives volume and lower resin pricing. Third quarter EBITDA of $78 million declined 13% year-over-year with an EBITDA margin of 12%. The decrease was primarily driven by lower resin pricing and higher ethane costs. In Building & Infrastructure, third quarter revenue was $647 million, an increase of 2% year-over-year, driven by better pricing across most of EMEA, Brazil and the Andean region, partly offset by lower volume and pricing in Mexico and Eastern Europe and the recently completed noncore asset divestments. Third quarter EBITDA was $76 million, a decrease of 3% year-over-year with an EBITDA margin of 12%. The decrease was driven by restructuring costs and an unfavorable product mix in Western Europe, partially offset by better results in the UK and Brazil and continued benefits from cost reduction initiatives. Moving to Precision Agriculture. Third quarter revenue was $257 million, an increase of 11% year-over-year. The increase in revenues for the quarter was primarily driven by strong demand in Brazil and the U.S. as well as higher project activity in Africa and Peru. These improvements were partially offset by declines in Mexico and Central America. Third quarter EBITDA was $30 million, an increase of 28% year-over-year with an EBITDA margin of 12%. The increase was driven by higher revenues and a favorable product mix. In our Connectivity Solutions business, third quarter revenue was $253 million, an increase of 8% year-over-year. The increase in revenues for the quarter was driven by strong volume growth, supported by increased demand in telecommunications and data center markets as well as a favorable product mix, partially offset by lower prices. Third quarter EBITDA increased 36% year-over-year to $42 million with an EBITDA margin of 17%. The increase was primarily driven by higher revenues, higher plant utilization levels and benefits from cost reduction initiatives, partly offset by lower prices. Finally, in our Fluor & Energy Materials business, third quarter revenue was $227 million, an increase of 3% year-over-year, driven by strong demand across most of the product portfolio, partially offset by constrained volume and shipment timing for upstream minerals and intermediates. Third quarter EBITDA was $64 million, a decrease of 3% year-over-year with an EBITDA margin of 28%. The decrease was driven by higher input costs across key raw materials, freight costs and unfavorable currency fluctuations, partly offset by strength in refrigerants and the benefits from cost savings initiatives. Turning to Slide 6. I'd like to provide an update on our progress in improving earnings and strengthening our balance sheet as first outlined in our October 2024 business update and reviewed again last quarter. First, by the end of Q3 2025, our cost reduction program achieved $169 million in annual savings compared to 2023. This represents 68% of our target to reach a savings level of $250 million per year by 2027. Second, the contribution from recently completed or close to complete organic growth investments, which are primarily focused on new product launches and capacity expansions, reached approximately $35 million of EBITDA year-to-date. The goal is to achieve $150 million in incremental EBITDA per year from these investments by 2027. And finally, we have signed agreements that have generated net proceeds of approximately $83 million from noncore asset divestments as of the end of the third quarter of 2025, exceeding our full year target of at least $75 million. We continue to aim for total proceeds of approximately $150 million by the end of 2026. Before I turn the call over to Sameer, I'd like to comment on a recent change in our credit rating. On Tuesday, Moody's announced the downgrade of our debt rating from Baa3 to Ba1, largely as a result of their more pessimistic view of the chemical sector trends and their belief that a market recovery does not appear imminent. We remain focused on our plan to generate cash and reduce leverage supported by the initiatives that we've been executing on since last year. As I previously indicated, all of these initiatives are on track. The business continues to show its resilience with year-to-date adjusted EBITDA margin slightly above 15%. We also have strong liquidity with cash on hand of $991 million and availability of $1.4 billion of committed funds on our revolving credit facility. Finally, we extended all of our material debt maturities to 2030 and beyond, and we have healthy and stable cash generation from operations to service our debt commitments. We will continue to maintain an open dialogue with the credit rating agencies, investors, bankers and the general public, consistent with how we have done this over the last years, providing updates on our progress toward improving our financial ratios and strengthening our balance sheet. With that, I will now turn the call back over to Sameer. Sameer S. Bharadwaj: Thank you, Jim. Turning to Slide 7. I will now provide an update to our outlook for the current year. The underlying assumptions for the company's guidance reflect a continued subdued environment in Polymer Solutions and Building & Infrastructure, partially offset by improving conditions in Precision Agriculture, Connectivity Solutions and Fluor & Energy Materials. Therefore, we reaffirm the full year 2025 adjusted EBITDA guidance range of $1.1 billion to $1.2 billion, likely falling in the lower half of the range. The company also reaffirms its 2025 capital expenditures guidance of approximately $400 million with a continued focus on investments to ensure safety and operational integrity completing growth projects under execution that are close to revenue and being extremely selective on any new growth investments. Now looking ahead in each of our business segments for the coming quarter and remainder of the year. Beginning with Polymer Solutions, persistent weak market dynamics driven by excess supply and lower export prices from China and the U.S. are expected to continue for the remainder of the year alongside rising ethane and ethylene input costs. While the first half was marked by raw material disruptions and operational issues in derivatives, the business has now stabilized operations and is focused on running at high utilization to improve profitability and cash management control. In Building & Infrastructure, we anticipate modest growth driven by new product launches and margin expansion. This growth is expected despite persistently challenging conditions in Western Europe and Mexico. To navigate this environment, the business remains intensely focused on realizing operational cost efficiencies to further improve profitability. In Precision Agriculture, market conditions are expected to remain stable to slightly improving, supported by continued positive momentum in Brazil and the U.S. The company anticipates continued strong performance in parts of Latin America and from projects in Africa. The business will remain focused on driving growth through deeper penetration in extensive crops while maintaining a consistent emphasis on cost management and working capital improvements. In Connectivity Solutions, we expect continued volume growth throughout the year, supported by sustained momentum in network deployment, data center demand and investment in the power sector. Profitability is set to grow, driven by the benefits of cost-saving initiatives and higher facility utilization. And finally, in Fluor & Energy Materials, we expect continued strength in Fluorine markets with resilient demand and pricing expected through the remainder of the year, which will help offset input cost increases. To support margins, the business is centered on prioritizing cost control initiatives complemented by active portfolio management -- product portfolio management to maximize value creation. In summary, our near-term priorities are to deliver on our commitments, delever the balance sheet, simplify operations and focus on our core business. We aim to improve EBITDA and cash flow through cost savings and growth from recently completed project investments, complemented by cash generation from noncore asset sales. These actions will enable us to significantly improve our leverage and strengthen our balance sheet by the end of 2026 without relying on potential market recovery or further benefits from business simplification. We remain committed to meeting customer needs and generating long-term value for our shareholders. Before I turn the call over for Q&A, I would like to note that we have issued a formal statement regarding recent market rumors about the Precision Agriculture business. As indicated in that statement, the company is continually engaged in assessing opportunities to optimize its portfolio and create value for its shareholders. Operator, we are ready to take questions at this time. Operator: [Operator Instructions] And your first question today will come from Andres Cardona with Citi. Andres Cardona: Stay on the capital allocation front, I just wanted to ask a very straight question about the JV you have with OxyChem and if there is any tag right that you may eventually decide to secure to exit your investment in this particular business. And if it exists, if there is any time for you guys to trigger it? Sameer S. Bharadwaj: Thank you, Andres. As you are aware, earlier this month, it was announced that Berkshire Hathaway had agreed to acquire the Occidental Petroleum's Chemicals business, including our joint venture with OxyChem in Ingleside, Texas. Now this joint venture is important and of significant value to both parties, and we are pleased that Berkshire Hathaway has decided to make this investment. Their long-term perspective and their commitment now at the bottom of the cycle validates the belief in the long-term prospects and value of the PVC chlor-alkali sector. And so on our side, we look forward to building a strong collaborative and productive relationship with our new partners, Berkshire Hathaway. And as far as any tag-along rights are concerned, no, there are no tag-along rights as such, and things continue as usual. Operator: And your next question today will come from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I do have a question on the CapEx side. You did reaffirm the $400 million in CapEx for this year. I'm just wondering how do you view this level of CapEx as being sustainable looking forward? Because we have been reducing the disbursements because of the low of the cycle. So I'm just wondering if the cycle turns or if it doesn't, maybe looking one, two or three years ahead, if you should do some kind of catch-up on this CapEx or if eventually, you'll be able to maintain the maintenance CapEx at this low level? That's my question. Sameer S. Bharadwaj: Tasso, thank you for the question. In fact, the way we think about capital expenditures is our first and foremost priority is safety and asset integrity that allows business continuity. And so we will not compromise on that because that can have serious consequences both from a disruption standpoint as well as safety standpoint. And so our steady-state maintenance CapEx, it varies depending on the turnarounds for the different plants in various years, but it's somewhere in the range of $250 million to $270. And anything in addition to that is basically completing projects that we have already started so that they can get to revenue as soon as possible. And we would be extremely selective about any growth capital investment while we are going through the bottom of the cycle, right? And so our expectation would be to not compromise on maintenance CapEx and be super selective on growth CapEx going forward. Operator: And your next question today will come from Alejandra Obregon with Morgan Stanley. Go ahead. Alejandra Obregon: Hi. Good morning and thank you for taking my question. I actually have 2. The first one is on your optimization program. I was wondering if you can elaborate on what has been achieved so far? Where do you think there is more room for 2026? And if there's any region or any division that you believe could be optimized more for the coming year? And how should we think of it? And then the second one is on the Fluorspar division. I was just wondering if you have observed any recent change in the supply chain of fluorspar or maybe HF among your conversations or with your customers and competitors. This in the context of tightening export policies in China and of course, the increased scrutiny over critical minerals. It's clear that fluorspar is gaining some recognition, I have to say, as a strategic resource. So just wondering if you think that Mexico and Orbia could emerge as a relevant partner or a more relevant partner for the U.S. Sameer S. Bharadwaj: Okay. Well, look, I'll let Jim respond to the first question, and I can complement that as necessary, and I'll take the second question. Jim Kelly: Thanks, Alejandra. Appreciate the question. In terms of the optimization efforts, as I mentioned during my comments, the 3 key legs of the program that we announced a year ago are very much on track. So the cost reductions of $169 million achieved cumulatively over the -- since 2023, so over the past couple of years, with $250 million. And I would say at this point, honestly, $250 million plus being the objective by the time we get to 2027. We continue to look for alternatives and are proactive about continuing to drive cost reductions across all areas of the business. And secondly, we talked about the generation of EBITDA through already implemented or as Sameer calls it sort of near revenue growth projects that we've been driving, and that is on track to generate another $150 million of EBITDA by the time we get to 2027. And then the third element being the cash generation from the sale of noncore assets, where we've said we would generate approximately $150 million or potentially even more through 2025 and 2026, and we are ahead of schedule on that. We mentioned already having achieved about $85 million on that so far through this year relative to our target of $75 -- so that is well on track. And I believe that there are additional alternatives that we can be executing as we go through the remainder of the period of the next couple of years to continue to drive the delivering plan that we've stated. And important to note that as you see the results of that is in the third quarter, we did see leverage come down, as I noted in my comments from 3.51 to 3.42, and we would expect that process to continue over the remainder of this year and through next year. So I think we are beginning to see the results of that, and we'll continue to be aggressive in finding ways to continue that process. Sameer S. Bharadwaj: So as far as your second question is concerned, Ali, Fluorspar is on the list of U.S. critical minerals. -- and Orbia maintains its position as the global market leader in fluorspar supply. This competitive edge is difficult to replicate due to the unique assets Orbia controls and its exclusive rights to operate these critical resources in Mexico. So in that context, we expect the fluorine chain to continue to remain tight through the course of the decade with growth in new applications such as lithium-ion batteries and semiconductors. And the Mexico-U.S. corridor will play a very important role in securing that value chain for the U.S. So you're absolutely right. This is very important to us, and we are very well positioned to take advantage of this. Alejandra Obregon: And perhaps can you remind us of your utilization in your fluor plant in San Luis Potosi at the moment? Sameer S. Bharadwaj: So the mine actually is running at -- we are basically producing at maximum output. There have been some constraints with respect to the optimization of the tailing circuit and the water circuit, and we have been optimizing that over the last year with new technologies, and that will allow us to increase the output even more next year. But the bottom line is we sell every fluorine atom we produce. So we are completely maxed out. And our strategy is to place that fluorine atom in the highest value segments and the most profitable segments down the chain. Alejandra Obregon: Okay, Thank you very much. Sameer S. Bharadwaj: Thank you. Operator: And your next question today will come from Leonardo Marcondes with Bank of America. Please go ahead. Leonardo Marcondes: Good morning, Thank you for picking my questions. I have 2 from my end and the 2 are regarding the Netafim, right? So you mentioned the noncore asset sales, right? But could you maybe provide a bit better color on what you're thinking about the sale of core assets, right? How relevant this is for you nowadays? If you guys -- if this is something that you guys are considering? And the second question, this one is more related to Netafim, right? I mean when you bought the assets in 2018, right, and the first time you disclosed the company's EBITDA, I mean, Netafim's EBITDA was in 2019, the EBITDA was around $190 million, right? So if you guys could do a small analysis of what happened with Netafim over the past years that lead to a drop in profitability and drop in EBITDA as well. If you guys see any micro or macro trends there, I mean, this would be very helpful. Sameer S. Bharadwaj: Okay. Leonardo, let me address both of your questions here. In terms of noncore asset sales, what we call noncore are these small sales of smaller businesses or segments that are not strategic to us long term or sale of land buildings and machinery. And these are relatively small amounts. And as Jim said, we executed on about $83 million of noncore asset sales this year. With respect to Netafim, right, we are aware of certain recent media reports and market speculation concerning a potential divestiture of the business. Now we are continually engaged in assessing opportunities to optimize the company's portfolio. And we don't comment on market rumors on speculation. We are obviously committed to providing material information to the market in accordance with our disclosure obligations and regulatory requirements. We continue to assess ways in which potential changes to our portfolio could on our focus, reduce leverage and create significant shareholder value. And this includes considering divesting in whole or in part businesses that we determine are not an optimal fit within our portfolio or that would create more value under a different owner. Any such process would be done deliberately on a time line we determine. Our focus remains building a strategically focused, highly synergistic portfolio going forward with a single-minded dedication to creating value for our shareholders, okay? Now in terms of what happened to Netafim over the last several years in terms of profitability, Netafim's profitability at its peak was around in the mid-180s, around $180 million, $185 million. And back then, the market, particularly in the U.S. for our traditional heavy wall market and also in Europe were very strong. And these heavy wall crops typically are almonds, pistachios, walnuts, the entire greenhouse market in the Netherlands, where all the major greenhouses use Netafim equipment. And that took a significant hit after COVID, okay? So there were blockbuster years. There were huge inventories created, supply chain restrictions prevented exports of these materials. And then there was a significant slowdown in our traditional heavy wall markets. and that led to a decline in profitability. And the breaking out of the war in Europe had energy costs go through the roof and that impacted the greenhouse market, the drip irrigation equipment that we sell into greenhouses in a very significant way. We compensated for that by growing in new areas, in particular, the thin wall market, which is used for a broader fruits, vegetables and seasonal crops. And we have had tremendous growth in volume in the thin wall segment, but that comes at a somewhat lower profitability and wasn't enough to offset the decline in profitability in the heavy wall segment. Now what we have seen in the past 12 to 18 months, and you've seen a consistent improvement in Netafim's performance over the last couple of years, -- and we have also been focused on reducing costs, optimizing the footprint, focusing on cash generation. There's a huge focus on cash flow generation within Netafim. And you can see that in the results. And we are beginning to see some of our core markets like the United States, Mexico come back. And in particular, Brazil is an exceptionally strong market, driven by growth in coffee, cocoa, oranges, citrus and a number of other crops, okay? So I think we are in a very good trajectory to continue the improvement that we see in Netafim and with a strong focus on cash generation. But essentially, that's what happened with that business over the last several years. Leonardo Marcondes: That’s very clear, Thank you very much. Sameer S. Bharadwaj: Yes. And the thing to note is the thin wall market that we have created is completely complementary. So when the heavy wall market recovers, and we are beginning to see signs of that, that will be all additive. And so there is tremendous operating leverage in Netafim's earnings going forward. Leonardo Marcondes: Thank you. Operator: [Operator Instructions] And your next question today will come from Jeff Wickman with Payden & Rygel. Jeff Wickman: Thank you for the call, Could you provide an update on where you think leverage will be at the end of this year and then at the end of 2026, please? Sameer S. Bharadwaj: Jim, do you want to take this question? Jim Kelly: Sure. I'd be happy to do that. Thanks for the question, Jeff. So as I mentioned, we do expect that we'll continue to see a reduction from where we were at the end of Q3. So this is -- normally, we have a seasonal reduction in working capital, in particular, on top of all the initiatives that we've been driving. So my expectation for the end of the year is we talk about the leverage based on our adjusted EBITDA. That's the one that I talked about that went from 3.51 down to 3.42. I would expect that to end in the roughly 3.2 region by the end of the year. And we continue to drive significant reductions as we go through 2026. And I would expect to be in probably the kind of certainly between 2.5 and 3, probably around the middle of that range, 2.7ish, 2.8ish range, by the end of next year, based on what we see right now. Jeff Wickman: " Got it. Thank you. And then could you give us an update on what Netafim EBITDA is currently. [Audio gap] Sameer S. Bharadwaj: Jim... Go ahead. Jim Kelly: EBITDA for Netafim. So when you say what Netafim is currently in what regard in terms of their EBITDA or? Jeff Wickman: EBITDA, please. Jim Kelly: So on a year-to-date basis -- just give me 1 second. 135... So on a year-to-date basis, we are at $103 million. And we would have an expectation to be in the -- close to the $130 million or slightly above $130 million range, I would say, for the full year in that business. Jeff Wickman: Thank you very much. That’s it from me Jim Kelly: Thank you Jeff Operator: And your next question today will come from Jaskaran Singh with Goldman Sachs. Jaskaran Singh: Just a small clarification on the debt maturities that is there in the appendix. It shows a bank loan of $266 million in 2025. Is the expectation that this will be rolled? [Audio gap] Jim Kelly: Yes, I'm sorry. Yes, I did. the question now. So the expectation is, yes, that the bank debt that we have outstanding will be rolled over. We do not expect to have to pay that down. We'll speak with the banks and just roll that over. Although as we pay down our debt in the coming years, that may be one of the alternatives that we consider in terms of debt reduction, some combination potentially of that and the outstanding bonds. But the expectation right now, I would say, would be to roll that debt. Jaskaran Singh: Got it. So second question is just on Moody's. You mentioned like you are in constant touch with the rating agencies. I see that ratings are still on a negative outlook, and Moody's looks at a downgrade trigger is gross leverage of around 3.5x. I think -- so within that, could we expect any divestment that you already that is rumored? And would that lead to basically redemption of bonds? Just if you can share any thoughts on that because gross leverage as of LTM is around 4.8x, which needs to be around 3.5x for Moody's to at least stabilize the ratings at Ba1. Sameer S. Bharadwaj: I think you've already Go ahead, Jim. Go ahead, Jim Kelly: No, I was just going to say that we can't predict necessarily what other rating agencies will do. Moody's has decided to downgrade based on their metrics and their view of what the chemical sector is going to look like in the coming years. Their projections of leverage are through their model and how they view the world. We will continue to drive, as I mentioned during the comments that I made, the initiatives that we've had going that we talked about starting a year ago, but honestly, which we began considerably before the time that we had a public discussion about the sort of the 3 legs of the initiatives. We will continue to drive those things and the things that are within our control to bring our leverage down. So in terms of whether we would be looking to divest of assets to help to drive this or whatever, I think Sameer addressed that. And any potential divestiture of assets, I would say, would be largely driven by shareholder value creation and focus of Orbia's portfolio and our ongoing strategy more so than being focused just to delever. So we'll continue on the things that we control. And as you have seen, we will continue to bring the leverage down as we've already begun to do. And that process will continue over the course of the next coming years. Sameer S. Bharadwaj: Yes. But as Jim said, we have a strong plan to continue to delever as we generate earnings growth and free cash flow over the next 2 or 3 years. And any portfolio move only accelerates that effort. That's it. Operator: And your next question today is a follow-up from Alejandra Obregon of Morgan Stanley. Alejandra Obregon: If I can just piggyback on the prior question about the EBITDA for Netafim. If you can help us understand how much of that is the Netafim business and how much of that is Mexichem's legacy irrigation business? And if you were to explore alternatives around the division, would that include the whole thing? Or would that exclude Mexichem's irrigation legacy business? Sameer S. Bharadwaj: I think there's some confusion around that. I mean, at this point of time, there is no -- I mean, there is only one irrigation business. And so a long time ago, all operations were merged. And as of today, there is only one irrigation business. And Netafim is what it is, Alejandra Obregon: Got it. Understood, thank you very much. Sameer S. Bharadwaj: Yes, there might be some confusion with PVC pipe we may have sold through Wavin into the Irrigation segment, but that is completely independent of the drip irrigation systems that we sell. Operator: Okay, This will conclude our question-and-answer session. I would like to turn the conference back over to Sameer Bharadwaj for any closing remarks. Sameer S. Bharadwaj: Thank you, Nick. Our business continues to show resilience in challenging market conditions. With all our actions, we have created meaningful operating leverage to increase profitability when market conditions normalize. Thank you for participating in today's call. I look forward to our next update in February. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to the Boyd Gaming Third Quarter 2025 Earnings Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which we are hosting on Thursday, October 23, 2025. [Operator Instructions] Our speakers for today's call are Keith Smith, President and Chief Executive Officer; and Josh Hirsberg, Chief Financial Officer. Our comments today will include statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, both of which are available at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Today's call is being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. With that, I would now like to turn the call over to Keith Smith, Keith? Keith Smith: Thanks, David, and good afternoon, everyone. The third quarter was another quarter of growth for our company with revenues once again exceeding $1 billion, while EBITDAR was $322 million for the quarter. After adjusting for our recent FanDuel transaction, we continue to deliver revenue and EBITDAR growth on a company-wide basis, while margins were consistent with the prior year at 37% as we successfully maintained efficiencies throughout our operations. During the third quarter, play from our core customers continued its long-term growth trend, and we saw further improvements in play from our retail customers. This strength in play drove healthy gaming revenue growth across all 3 of our property operating segments and more than offset the weakness in destination business. Across the portfolio, our results reflect continued broad-based improvements in customer demand, sustained operating and marketing efficiencies and the success of our capital investments focused on enhancing our property offerings. Now turning to segment results. Our Las Vegas Locals segment posted revenues of $211 million and EBITDAR of $92 million for the quarter. Gaming revenues continued to grow during the quarter, driven by strong demand from our locals customers. We continue to benefit from ongoing growth in play from our core customers as well as improving trends in play from our retail customers. This growth in gaming revenue was offset by declines in our destination business, primarily at the Orleans. Excluding the Orleans, our Locals segment delivered year-over-year growth of 2% in both revenues and EBITDAR with gaming revenue growth in line with the broader locals market for the quarter, while margins for the third quarter were consistent with the prior year at 47%, supported by disciplined marketing and operating efficiencies. For the broader Las Vegas Locals market as a whole, gaming revenue growth was up more than 3% over the last 12 months, reflecting the resilience of the Locals market. The health of the Locals market is supported by solid wage growth throughout the Southern Nevada economy. Through August, average weekly wages were up more than 6% over the trailing 12 months, outpacing the national average. Over the last 10 years, the local population has grown at twice the national rate, reaching 2.4 million last year. And during the same time frame, per capita income in the Las Vegas Valley has grown by more than 5% on an annual basis, while total personal income in Southern Nevada has nearly doubled. An important driver of this growth has been the increasing diversification of the local economy. While hospitality has continued to grow over the past decade and currently represents approximately 25% of the local job market, job gains have been more substantial in other sectors. These include education, health services, transportation, warehousing and professional and business services sectors. Construction jobs have also remained a steady performer, growing more than 5% since 2019. With more than $10 billion in projects currently underway across the Las Vegas Valley, construction employment should remain healthy well into the future. And as we head into next year's tax season, we believe that our customers around the country will benefit from the tax bill passed by Congress this summer, including new deductions for tips and overtime and an additional deduction for seniors as well as a larger standard deduction for all taxpayers. In all, the Southern Nevada economy remains resilient and is more diversified than ever, positioning our Las Vegas Locals business for continued success. Next, in our Downtown Las Vegas segment, revenues and EBITDA were in line with the prior year, supported by continued strength in play from our Hawaiian customers. Much like our local segment, growth in gaming revenues were offset by softness in destination business, including lower hotel revenues and reduced pedestrian traffic along the Fremont Street experience. Next, our Midwest and South segment achieved its strongest third quarter revenue and EBITDAR performance in 3 years. For the quarter, revenues rose 3% to $539 million, while EBITDAR grew to $202 million, more than 2% over the prior year. Operating margins once again exceeded 37% as we remain disciplined in our cost structure and marketing spend. Growth in the segment was broad-based, including continued gains at Treasure Chest more than a year after the opening of our new land-based facility there. Similar to our Nevada segments, gaming revenues increased year-over-year in the Midwest and South, driven by continued growth in play from our core customers and further improvements in play from our retail customers. Next, results in our Online segment reflected growth from Boyd Interactive as well as changes related to our recent FanDuel transaction. Given current trends, we are increasing our guidance for this segment to $60 million in EBITDAR for this year. For 2026, we expect approximately $30 million in EBITDAR from this segment. Finally, our managed business had another strong performance with continued growth in management fees from Sky River Casino. Demand has remained strong over the 3 years since Sky River opened, giving us in the Wilton Rancheria Tribe great confidence in the growth potential of the property's ongoing expansion. The first phase of this expansion will add 400 slot machines and a 1,600 space parking garage upon completion in the first quarter of next year. Once this first phase is complete, we will begin a second phase that will further enhance Sky River's appeal by adding 300-room hotel, 3 new food and beverage outlets, a full-service resort spa and an entertainment and event center. On its completion in mid-2027, we are confident this expansion will further strengthen Sky River's position as one of Northern California's leading gaming and entertainment destinations. So in all, the third quarter was another quarter of growth for our company. Across the country, we continue to see strengthening play from our core customers and improvements in play from our retail customers against the backdrop of consistent and efficient property operations. And while the fourth quarter has just started, it is worth noting that the customer trends we saw in the third quarter have continued into October, including improving play from both core and retail customers. Our strong operating performance is supported by the investments we are making throughout our portfolio as we enhance our casino floors, food and beverage outlets and hotel rooms. Hotel room renovations will be completed early next year at the IP and work is set to begin next month on our room renovation project at the Orleans. We are also continuing our modernization project at Suncoast with the complete transformation of our casino floor as well as enhanced meeting and public spaces. While we are dealing with ongoing construction, we are encouraged that Suncoast performance is in line with the prior year, further increasing our confidence in the long-term growth potential of this investment. Following completion of our Suncoast renovations around the middle of next year, we plan to begin a similar project at the Orleans as we look to further enhance our offerings at this important property. In addition to these property enhancements, we are continuing to work on our growth capital projects with an annual budget of $100 million per year. In September, we completed our expanded meeting and convention center in Ameristar St. Charles. By nearly tripling the size of its meeting space, Ameristar can now accommodate more and larger events. This will create incremental visitation from new customers as well as groups who had previously outgrown our space. We are already seeing great interest with strong bookings in the fourth quarter and into the next several years. In Southern Nevada, construction is progressing on Cadence Crossing, our newest Las Vegas Locals property, scheduled to open in the second quarter of 2026. Cadence Crossing will replace our existing Joker's Wild casino with a modern and appealing gaming and entertainment facility. This investment will allow us to better serve the adjacent community of Cadence, one of the fastest-growing master planned communities in the nation. And we are well positioned to keep pace with continued residential growth in the area with future plans for hotel, additional casino space and more non-gaming amenities. Next, in Illinois, we are continuing the design and planning work for our new gaming facility at Paradise and expect to start construction in late 2026, pending regulatory approval. Finally, development is well underway on our most significant growth opportunity, our $750 million resort development in Norfolk, Virginia. Pending regulatory approval, we are just a few weeks away from opening our transitional casino at the site. And while we look forward to reaching this key milestone, our focus remains on the development of our permanent resort scheduled to open in November of 2027. This market-leading resort experience will feature a 65,000 square foot casino, 200-room hotel, 8 food and beverage outlets, live entertainment and an outdoor amenity deck. In addition to offering the highest quality gaming experience in the market, we will have the most convenient location for much of the 1.8 million residents of the Hampton Roads region as well as the 15 million tourists who visit nearby Virginia Beach each year. In all, our capital investments are delivering strong returns for our company, enhancing our competitiveness and supporting our long-term growth. At the same time, our substantial free cash flow and strong balance sheet allow us to continue returning capital to our shareholders. During the third quarter, we repurchased $160 million in stock and paid $15 million in dividends. So far this year, we have returned a total of $637 million to our shareholders. Share repurchases and dividends are important components of our balanced approach to capital allocation, and we intend to maintain a pace of $150 million per quarter in share repurchases, supplemented by our recurring dividend. In closing, we are pleased to deliver another quarter of strong performance as we continue to execute on our strategy and create long-term value for our shareholders. During the quarter, we continued to benefit from strong growth in plate from our core customers as well as improving plate from retail. Our capital investment program is delivering excellent returns and positioning us well for future growth. Our teams across the country are successfully maintaining efficiencies and delivering consistent property operating results, and we continue to return substantial capital to our shareholders while maintaining the strongest balance sheet in our company's history. Our success is a reflection of the dedication and contributions of thousands of Boyd Gaming team members across the country, and we are grateful for all that they do for our company and our guests. Thank you for your time today. I would now like to turn the call over to Josh. Josh Hirsberg: Thanks, Keith, and good afternoon, everyone. During the third quarter, play from our core customers continued its long-term growth trend, while retail customers play also continued to improve. Management teams did their part remaining focused on operating efficiently and generating returns from our capital investments. As a result, excluding the effects of our recent FanDuel transaction, we continue to deliver growth in revenue and EBITDAR despite weakness in our destination business. We are continuing our capital investment program to enhance our guest experience while expanding our opportunities for growth. During the third quarter, we invested $146 million in capital, bringing year-to-date capital expenditures to $440 million. We now expect total capital expenditures for this year to be approximately $600 million. Our capital plans include approximately $250 million in recurring maintenance capital, an additional $100 million in maintenance capital related to hotel room renovation projects. A $100 million in growth capital, which includes the recently completed meeting and convention space at Ameristar St. Charles and the ongoing Cadence Crossing development here in Las Vegas. And then finally, $150 million or so for our casino development in Virginia. Our growth capital projects remain on budget and on schedule. In terms of our shareholder capital return program, we paid a quarterly dividend of $0.18 per share during the quarter, totaling $15 million. Also during the quarter, as Keith mentioned, we repurchased $160 million in stock, acquiring 1.9 million shares at an average price of $84.05 per share. Actual shares outstanding at the end of the quarter were 78.6 million shares, an 11% reduction in our share count since the third quarter of last year. Since we began our capital return program in October 2021, we have returned more than $2.5 billion in the form of share repurchases and dividends while reducing our share count by 30%. Going forward, we intend to maintain repurchases of approximately $150 million per quarter, supplemented by our regular quarterly dividend. This equates to more than $650 million per year or more than $8 per share. With strong free cash flow, low leverage and ample liquidity, we are maintaining the strongest balance sheet in our company's history while continuing to invest in our business and return capital to shareholders. As you may recall, during the quarter, we closed on our transaction to sell our 5% stake in FanDuel. We initially used proceeds from that transaction to repay our Term Loan A balance and borrowings outstanding under our revolver. As a result, our total leverage ratio declined from 2.8x at the end of the second quarter to 1.5x at the end of the third quarter. Our lease adjusted leverage declined from 3.2x to 2.0x. Finally, beginning with this quarter's financial results, we have provided the tax pass-through amounts as a separate line item on our GAAP income statement. Excluding the tax pass-through amount for this quarter, company-wide margins for the third quarter this year would have been 510 basis points above the margin we reported. In conclusion, with strong play from our core customer and improving trends among our retail customers, efficient operations, robust free cash flow and a strong balance sheet, we have outstanding flexibility to continue executing our strategy for creating long-term value for our shareholders. With that, I'd like to turn the call to David to open the call for questions. David? Operator: Thank you, Josh. [Operator Instructions] Our first question comes from Barry Jonas of Truist. Barry Jonas: I wanted to start on Vegas. Can you talk about what you see as the main drivers of the weakness you're seeing in the destination business? And just help us feel comfort that you think the non-destination business won't see any of that related weakness. Keith Smith: So maybe starting with the second half of your question. I think as we noted, we've seen strong play from our core customers. And as we look at the database here and the source of our revenue here in Las Vegas, our locals customers are performing extremely well, and our core customers are growing extremely well. The shortfall really was all about the destination business has been kind of widely reported and talked about. How long that continues? We'll all have to see. We have seen, as we look at our kind of forward 90-day bookings in our hotels here in Las Vegas, we've seen improvement, still soft, but certainly better results than we saw 3 months ago. So we turned the corner, hard to say, but the 90-day booking results certainly look better than they did 3 months ago. Josh Hirsberg: And Barry, one thing I would add to Keith's remarks is when we -- pretty much the impact of the destination business, as we said in our remarks, are focused on the Orleans. So when you separate the Orleans from the rest of the business, you see a couple of things going on. You see growth in gaming revenues throughout the remainder of the portfolio. You see growth in overall revenues. You see growth in EBITDA. You see consistency in margins. So I think we see -- and the gaming revenue kind of is growing in line with the overall market. So I think we feel pretty good about the underlying customer trends overall. It's just one aspect of the business that we're trying to deal with. And in fact, when you look at the segment's performance, you could really attribute the EBITDA decline in Q3, all to the Orleans because it was down even more than what we're seeing in the segment for the quarter. Barry Jonas: Got it. That's really helpful. And then just as a follow-up, we're starting to see some M&A deals come about. Curious if you could share your thoughts on the M&A pipeline, the environment, either in terms of buying whole assets or opcos? Keith Smith: Look, we obviously have a fairly successful track record of M&A based on a disciplined strategy of making sure it's the right asset in the right market at the right price. And so we continue to look at it. We certainly note that a few things have traded recently. I don't know that we're necessarily seeing more pitch books across our desk, but we certainly pay attention and monitor opportunities. And for the right opportunity, we're certainly prepared to dig in. But other than that, I'm not sure we have a whole lot to comment on. Operator: Our next question comes from Steven Wieczynski of Stifel. Steven Wieczynski: So Keith or Josh, if we think about the Midwest and South properties, I mean, those results were really solid, came in much better than we were expecting. So if you think about that portfolio, wondering if the trends you witnessed there were pretty much broad-based or there were markets or pockets of strength versus other markets? I guess just trying to figure out if certain markets are kind of outperforming other markets. And obviously, you guys called out Treasure Chest, I guess, excluding Treasure Chest. Keith Smith: I think when we look across that portfolio that comprises some 17 properties, it was generally broad-based. Look, there's always 1 or 2 that don't perform maybe quite as strong in any given quarter, but it generally was broad-based strong results. We called out Treasure Chest because it's interesting to us and very positive that it continues to grow even after anniversarying its opening. So Josh, I don't know if you have anything to add? Josh Hirsberg: Not really, Keith. I think that covers it. Steven Wieczynski: Okay. And then, Keith or Josh, a little bit of a bigger picture question. But wondering if you kind of take a step back and look at your Vegas Locals assets, how do you think they're positioned today from a CapEx perspective? I mean -- what I mean is, do you think the majority of your assets in that market are in a pretty good spot relative to your peers in that region? And -- or is it something where you guys might have to spend a little bit more across your portfolio over the next couple of years to keep up with some of that newer supply? I heard your comment about Orleans and Suncoast there. Keith Smith: Right. So look, we've been talking about the renovation work we're doing at the Suncoast over the last year or so. And so that has been, I think, a very positive investment for us as we're not even fully through it yet, and we're seeing performance that's in line with the prior year. So that gives us confidence that this will be a successful investment. Look, the Orleans needs a little bit of an updating also. It's an important asset for us. Look, other than that, I think our portfolio of properties here in Las Vegas are well positioned. We're looking at a number of restaurant projects just as part of our overall capital plan to make sure the properties remain competitive. It's not significant capital, but it's an important capital to be competitive. So you look at our slot floors, and I would put them on par with anybody's in the market and probably better than most. And so I think we feel pretty good with the exception of once again, needing to make, I think, an important investment in the Orleans to make sure it's competitive for the long-term. Operator: Our next question comes from David Katz of Jefferies. David Katz: So I just wanted to get your updated thoughts on the investments that you're making internally in the portfolio and how you're thinking about returns, the timing to those returns or hurdle rates? And just -- it will help us think about forecasting out into the future. But what's the return process? And how should we think about the earnings potential on it? Josh Hirsberg: Yes. Dave, it's Josh. I'll take it and then Keith jump in and add anything. Generally, I think kind of for good rule of thumb and modeling purposes, we generally think of kind of a 15% to 20% kind of cash-on-cash type of return. And so we certainly achieved that with Treasure Chest. I think we're seeing the early signs of achievement with that with the meeting space at Ameristar St. Charles. The next one up will be Cadence, which is like a $60 million investment. So that will be in that, we fully expect that property once it comes online to generate incremental EBITDA above what we're getting today from the current Jokers Wild facility that would generate that return. And then after that, I think we're more dependent on regulatory approval for Paradise, but we're excited about that opportunity. So good rule of thumb is that 15% to 20%. We've been fortunate enough to kind of meet or exceed that on the projects that we've announced to date. We have as we've tried to condition the market to think about kind of a pipeline of these projects and we continue to kind of better choose the one that have the highest return potential throughout. A lot of the stuff around Suncoast, most of the hotel renovations even the Orleans will be in our maintenance capital budgets. But as Keith mentioned, the early signs that Suncoast or -- we're seeing new customers in the building. We're seeing people visit more frequently. And so we're encouraged by those type of investments even though they kind of qualify in our book as maintenance capital. So I hope that kind of gives you some color. David Katz: It does. And if I can just follow up and clarify, when we're thinking about the Orleans because it's in the maintenance budget, we aren't necessarily sort of holding it to the same standard or thinking about its earnings power longer term in the same way with that 15% or 20%, right? Josh Hirsberg: Yes, I think that's right, because it gets to be a blend of maintenance and capital and growth, and it's just hard to kind of distinguish between kind of what that project? Is it more maintenance or is it more growth. So I think that's why we put it in maintenance really. Operator: Our next question comes from Brandt Montour of Barclays. Brandt Montour: So first question is just a clarification about the Orleans project for next year, which you mentioned. Is that -- I mean, I imagine your hotel rooms, you mentioned a few things. Is that something we should consider some -- potentially some disruption impact? I know that it's got easy comps here, and there's a couple of different things going on in the market that's affecting that property. So how do you think about that property into next year? Josh Hirsberg: So I think it's a little early to try to figure out kind of disruption. I don't -- I think our view would be that at the beginning of a project like that, if we're even able to get it started in the second half of next year, it'd be more limited in terms of the disruption. Once we understand the actual program scope and the timing, we can provide better color on that. We've been -- our management teams at Suncoast have done a very good job to manage through the disruption to date at that property, and it's been significant and that construction activity continues. So we're learning how to manage that -- those processes. Each one will be unique and different. But to date, we've been pretty good at managing through it at the Suncoast. No doubt, it is affecting our performance in some way. But the fact that it is, like Keith said, in line with prior year at this point, that's pretty encouraging. So I think at this point, we wouldn't be calling out expectations for disruption related to Orleans and until we have better clarity on timing and the full scope of the project. Keith, I don't know if you want to add to that. Keith Smith: No, I think just tagging on to what Josh said, as you're thinking about 2026 and thinking about the Orleans, I wouldn't anticipate anything significant as we begin to have more clarity on the timing of all of that and what's going to take place first and second. And when we end up getting to "the middle of the casino," which, yes, we will have some disruption as we get into those types of things, yes, we'll be able to update you. At this point, as you're modeling out 2026, I wouldn't anticipate anything. Brandt Montour: Great. That's helpful. Just a quick second question about Midwest and South. How would you describe the promotional environment across your markets? Any sort of changes quarter-over-quarter? Or has it been pretty consistent from competitors? Keith Smith: In several markets, there have been competitors who've been stepping on the gas, so to speak, with respect to marketing spend and being more aggressive. We have generally remained very disciplined. It is reflective in our margins that remain consistent year-to-year. And while we may be up just a tick just a little bit overall, once again, it is highly efficient, highly productive dollars reflected and we're able to grow revenue, we're able to grow EBITDA and we're able to maintain margins. So we are seeing some enhanced marketing by our competitors, but we're not responding. Frankly, some of the enhanced marketing we're doing is in relation to declines in destination business, not in relation to what our competitors are doing. Operator: Our next question comes from Ben Chaiken of Mizuho. Benjamin Chaiken: On the Suncoast renovation, you mentioned in line with the prior year a few times, but I would think that there was still some disruption. So to the extent there was, could you quantify that impact in 3Q and then maybe how you're thinking about 4Q even just anecdotally? Keith Smith: Yes, I'd love to, but it's really difficult to quantify the disruption. Look, when we say it was in line with prior year revenue and EBITDA perspective, I think that says it all. There's clearly disruption. We have fewer slots on the floor today than we did a year ago because we're in the middle of the casino. There are a lot of walls up. There's ceiling work being done. So it is disruptive, and it will continue to be disruptive. If you were to walk in the building today, we have a temporary front desk because we're doing work around the front desk area. But to date and through Q3, and we'd expect it to be through Q4, things are in line with the prior year. Our customers are hanging in there with us. The management team is doing a great job of taking care of our guests. The guests have had very, very strong positive reactions to what we've unveiled thus far. And so everything is working, but hard to quantify. Benjamin Chaiken: Okay. Understood. And then you've got a large expansion at Sky River, I believe, that opens early next year, 1Q, I believe. Understanding you earn management fees here, is there anything we need to watch out for in Q4 in terms of construction, just ahead of that opening? Keith Smith: From a construction standpoint, everything is on the outside of the building. And so there really isn't any impact to -- on the negative side to the ongoing construction or "the opening whenever that happens sometime early next year," it's parking garage, along with some added casino space that will house the added slots. The second phase that I described, which includes hotel towers, more restaurants, also is on the outside of the building. And so there will be no immediate impact or construction disruption from that. Operator: Our next question comes from Steve Pizzella of Deutsche Bank. Steven Pizzella: Just curious, as we think about early next year, can you share any expectations you might have for a benefit from the tax bill? Josh Hirsberg: Yes, Steve, I mean it's a question we get asked quite a bit. I don't -- we've not really found a way that we're comfortable to kind of estimate the overall benefit from that. We -- there's several elements to it from -- and I think Keith mentioned in his remarks, ranging from tax on tips to certain higher standard deductions and credit for seniors. I think ultimately, we come away thinking it's just incremental benefit to us overall, but we have not quantified it in terms of revenue and EBITDA. Operator: Our next question comes from John DeCree of CBRE. John DeCree: Josh or Keith, I wanted to ask if you could provide a little color on kind of how the quarter played out and maybe the Cadence month-to-month. We kind of use the state GGR data to help us, but July and August looks pretty strong. September, maybe a little bit more mixed. So any color you could give us on kind of how the quarter played out, particularly in the Midwest and South regions. Keith Smith: I think as we look across our portfolio, it was fairly steady. You have to take into account like in September where the holiday fell different, and therefore, we got a little bit bigger benefit technically in August than we did in September. But that's over the course of a 10-day period, it flips in 1 month versus the other. But when we look at kind of core trends in the business week-to-week, not a lot of fluctuation. So I don't know that I have anything else to add other than that. John DeCree: That's great, Keith. And then maybe I know this one is difficult to kind of track given the limited data, but curious if you could give us a little bit more color, again, in the Midwest and South, specifically on the retail play, some of the better trends you're seeing there. Is that kind of year-over-year growth in kind of spend, more customers come in the door? And if you have any guesses, a number of theories, but kind of what might be driving that uptick in retail play? Keith Smith: So it's a trend that actually has been going on for a couple of quarters now. We've actually been talking about it, and it continued in through the third quarter with the improvements kind of increasing, so to speak. I think we're seeing generally on the rated side, increases in frequency and increases in spend. So both ADT or spend are going up and frequency is increasing, which are positive trends. Josh, I don't know if there's anything else to add. Josh Hirsberg: Yes. I would just add, just to clarify for everyone, retail is 2 buckets. It's the lower end of the rated. That's what Keith was just talking about in terms of spend and frequency. And then there's the unrated component as well. So we can kind of understand what's going on with the lower end of the rated piece. What's interesting as a group is the unrated business has also been improving sequentially over time as well and actually been a big driver of the retail component. So both the low end of the retail rated piece that we know about and the unrated segment have both been kind of in lockstep improving year-over-year as we've moved through this year. So -- and it's been a consistent trend. It's been very interesting to watch. Operator: Our next question comes from Dan Politzer of JPMorgan. Daniel Politzer: I was wondering maybe we can walk through the fourth quarter. It seems like there's a few moving pieces there. So maybe just to get some clarity. I think Tunica is closing in November in Norfolk. I think there's a temporary casino that opens also in November. And then I don't know if you gave -- I don't think you gave an update for Managed & Other, but then also that would help. And then any impact from the cybersecurity incident in the quarter? Keith Smith: I think as you think about Tunica, you should expect obviously a fairly negligible impact. I wouldn't adjust your models for anything related to that or for Norfolk for that matter. We've talked in previous calls about this is a very small, modest temporary facility, and our focus really is on the permanent. And so you assume that this will be a breakeven as you think about the fourth quarter or even next year. As you think about the cyber event, once again, not much we can say other than what was in the 8-K, which is it did not have any impact to our business operation and we've got cyber insurance to backstop us. There was a third question in there, I lost -- fourth I lost track of... Daniel Politzer: Managed & Other? Josh Hirsberg: Yes. I'll let you answer that. So Managed & Other, I think the key for Managed & Other, it's going to be a pretty stable business in Q4 relative to when you think about the trends of this year just because the business is operating at or very near capacity. And then once it gets the incremental slots early next year, that's in the quarters following that, I think, is where we'll start to see the benefit of that and then eventually from the expansion of the hotel and meeting space in mid -- probably mid 2027. So I think for Managed & Other for Q4 will be very similar to what you've seen in the quarters of other -- earlier quarters of this year. Daniel Politzer: Got it. And then just for my follow-up, I don't think you paid the taxes in the quarter on the FanDuel stake sale. When can we expect that? And then along with -- on the tax front, the one big bill, is there any impact or offset you could get from that, that may be applied here? Josh Hirsberg: Not much of an offset. More than likely, the payment will occur sometime in the first quarter of next year. Operator: Our next question comes from Stephen Grambling of Morgan Stanley. Stephen Grambling: I was hoping you could dig into the balance sheet a little bit. Just how are you thinking about the optimal leverage of the business, particularly if M&A opportunities maybe don't come to fruition, could we see that leverage tick back up? Or what would you be looking to do in terms of optimizing the balance sheet longer term? Josh Hirsberg: Steve. So before the FanDuel transaction, our leverage was about 2.8x as -- and our leverage target was around 2.5x long-term. Post -- as a result of the FanDuel transaction, which happened in late July, early August, our leverage is, as I stated in my remarks, around 1.5x. I think based on just the capital plans that we have now, primarily related to Virginia coming -- the capital related to the permanent of Virginia, our leverage will tick up over time. It will go back up to around probably in the next 1.5 years or so to around 2.5x. I think it's odd to talk about your optimal leverage being at least for us, it's odd for optimal leverage to be above where a target above where we are. But I think that it doesn't -- it's not something we strive to achieve given where we are today. To the extent that we have opportunities I guess the way I would say, in other words, we're not trying to hit the target just because we're a 1.5x, and we want to be at our target leverage. It could be that our leverage remains at 1.5x over time. We don't think that's probably the right leverage, but we don't have anything that warrants increasing our leverage at this point. And so we'll continue to think through this and continue to be kind of prudent on how we think about it. But it's kind of like we were in a good place and doing everything we were doing at 2.5x, happened to get a big windfall, we're 1.5x, and that doesn't really change the way we think about anything that we were doing before. If opportunities come along, if we decide to buy back more shares or return more capital, then that will be just part of our thought process that we develop over time. But until then, we'll be running the business between 1.5x to 2x and will gradually tick up as a result of our capital plans and the plans we have in place today. Keith, I don't know if there's anything you want to add to that? Keith Smith: No, look, I think what Josh was alluding to is, first, it's only been -- it's less than 90 days since we received the payment and leverage has been pushed down to 1.5. And we want to take a long-term view, be thoughtful about what to do with the current leverage, how best to position the company, could be M&A, could be other things, could tick back up. And so we don't have an answer for you right now other than we understand it, and we're having thoughtful discussions about where that should be. I'm sure we'll have more to talk to you about in future quarters, but nothing really to say right now. Stephen Grambling: That all makes sense. If I could sneak one unrelated follow-up in. As we look at the Locals market, and you talked about the 6% wage growth there. It seems like it's about as wide as I've seen it relative to the GGR growth for that market in aggregate. Do you think that there's a lead lag here? Or is there anything else that you would point out that's maybe creating that wider gap versus history? Josh Hirsberg: Yes. So Steve, I think that like -- I mean, it's a good observation, but I think you perhaps at least in our business, the impact of the destination business is shown and visible on the income statement when you look at hotel revenues year-over-year. You can look at that, see they were down about $5 million. But that destination business is a significant amount of hotel room nights. While it's primarily at the Orleans, it affected really every property in Las Vegas and outside of Las Vegas to some degree. And there is F&B. There's banquet business, is highly profitable to us, and there's a significant amount of gaming revenue associated with that business. So it's very profitable business to us. And while it's very difficult to estimate the impact, I think the reality is that, that's probably what's creating that gap. There's wage growth that we're seeing show up in our business in terms of a stronger local customer, but if you had backed up and said, okay, we had that wage growth and destination business, you would see probably a healthy gaming revenue growth that would mirror maybe what your expectations were. So that's how I think about it at least. Operator: Our next question comes from David Hargreaves of Barclays. David Hargreaves: So in terms of Hawaii, I think you said revenue was steady. I'm wondering about headcount and volumes. How are things there? Keith Smith: Specifically coming out of Hawaii? David Hargreaves: Yes, with Downtown. Keith Smith: Look, Downtown volumes on the street are down, and that's frankly driven by visitation to Las Vegas because there's a strong, strong correlation between visitor volumes Downtown and visitor volumes to Las Vegas. And so visitation on the street is down, which is what kind of impacted, we call it destination business in the downtown area for us. Kind of our core market, which is the Hawaiian market, performed normally. And -- but we felt softness in the destination business. We felt softness from lack of tourism on the street. David Hargreaves: And then with respect to the Tunica closure, I'm just wondering if there's just leaving the building and leaving town something that maybe happens with the gaming equipment. Did you try to sell that property? Curious as to what happened there? Keith Smith: I think the way to think about the closure of Tunica, first of all, when we're all done with this, the site will be scraped clean. We'll take everything down. We've already found homes for the equipment and all the recoverable assets, so to speak, in the building. The property had gotten to a point where EBITDA was fairly small and the level of maintenance capital required to maintain it at our standards was growing. And frankly, there was not going to be a good return on that capital investment to maintain that building or standards because we do have standards as to how we want our buildings to look and feel and what we want our guests to experience. And so we're just looking at the data, looking at the maintenance capital that's going to be required and the current level of EBITDA and where the market is, it just made sense to close the building down. Not a decision we came to lightly, but it's a decision we came to. And once again, we will be able to reuse a lot of the gear and a lot of the equipment, sell off some stuff that we don't have use for. Everything will be scraped clean. It will be turned back into just raw land, and we'll attempt to dispose of the land. David Hargreaves: Last one. I really applaud your conservatism with the balance sheet. If we look at your properties that are leased, are you happy with the EBITDA coverage of interest and rent at this point as you are with your leverage? How do you feel about the rent coverage picture? Josh Hirsberg: Yes. I think we're happy with it and our landlord is happy with it, quite honestly. They don't have a corporate guarantee, but they really don't need one given the coverage there. So everything is a happy partnership there. Operator: Our last question comes from Chad Beynon of Macquarie. Chad Beynon: First one on the opening or start of Missouri sports betting. I know you have a partnership with Fanatics. I believe it might be the first with them. And I know that includes some of their branded retail sports books at your properties. So could you maybe talk about anything you're willing to disclose in terms of the relationship and then maybe future opportunities with this company given their ascension on market share that we've been able to track? Keith Smith: Yes. So you're right. We have 2 properties in Missouri, Ameristar Kansas City, Ameristar St. Charles. And both of them received licenses as did Fanatics yesterday when the Missouri Gaming Commission issued licenses. So people could be prepared to open the 1st of December. It is our first relationship with Fanatics. And whether or not that expands, always hard to tell. It's a strong relationship thus far. We know some of the folks in that organization. So we have a good relationship there. And we'll see, once again, how it develops and what other opportunities exist to take that relationship further. Nothing really to report other than that at this point. Chad Beynon: Okay. Great. And then in terms of some of the near-term, I guess, an inflection in Vegas in the destination market, we met with a lot of the companies on the strip in the past couple of weeks and some pointed to November, others obviously talked about F1 maybe being more of a good guy this year and then the strength into Q1. Should all of that help you as well? And in terms of internal bookings, are you viewing maybe November as kind of an inflection point where you're starting to see good year-over-year growth? I guess that would be more Downtown, maybe excluding Orleans with some of the things that you've talked about? Keith Smith: Yes. So once again, I noted earlier that as we look at our kind of 90-day booking pattern, today, sitting here today or a week or so ago, it is much more positive than it was 3 months ago. And it's still soft, but it is significantly better than it was 3 months ago. And so that makes us feel good about kind of the next several months given those numbers, and that's true for Downtown as well as it is for our Locals properties with hotels. So we'll see how it all comes together. As the strip continues to do better, as occupancy and rate on the strip continue to rebound, clearly, that will benefit us. It's just an indication that people are traveling again and coming back out. So that will help us. But overall, our own bookings are once again better over the next 90 days than they were a couple of months ago. Operator: This concludes our question-and-answer session. I'd now like to turn the call over to Josh for concluding remarks. Josh Hirsberg: Thanks, David, and thanks to everyone for joining the call and the questions we received today. If you have any follow-ups, please feel free to reach out to the company. This concludes our call and you can now disconnect. Have a good day.
Operator: Welcome to the Sallie Mae Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Kate deLacy, Senior Director and Head of Investor Relations. Please go ahead. Kate deLacy: Thank you, Chloe. Good evening, and welcome to Sallie Mae's Third Quarter 2025 Earnings Call. It is my pleasure to be here today with Jon Witter, our CEO; Pete Graham, our CFO; and Melissa Bronaugh, Managing Vice President of Strategic Finance. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those factors in the company's Form 10-Q and other filings with the SEC. For Sallie Mae, these factors include, among others, results of operations, financial conditions and/or cash flows as well as any potential impact of various external factors on our business. We undertake no obligation to update or revise any predictions, expectations or forward-looking statements to reflect events or circumstances that could occur after today, Thursday, October 23, 2025. Thank you. And now I'll turn the call over to Jon. Jonathan Witter: Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's Third Quarter 2025 results. I hope you'll take away 3 key messages today. First, we delivered a successful quarter and peak season. Second, we're pleased with our year-to-date performance and believe we have real momentum that will carry us through the rest of the year. And third, we're optimistic about the long-term outlook for private student lending and the growth of Sallie Mae. Let me begin with the quarter's results. GAAP diluted EPS in the third quarter was $0.63 per share. Loan originations for the third quarter were $2.9 billion, representing 6.4% growth over the year ago quarter and 6% growth year-to-date. We were pleased to see that the credit quality of originations remain strong, showing incremental improvement year-over-year and steady but meaningful improvement over the last several years. Our cosigner rate for the third quarter was 95% compared to 92% in the year-ago quarter and the average FICO score at approval increased to 756 from 754. These indicators reflect continued discipline in our underwriting standards. We have continued to see positive momentum in our credit performance. Private education loan net charge-offs in Q3 of '25 were $78 million, representing 1.95% of average private education loans and repayment, down 13 basis points from the year ago quarter. While we are certainly living in a period of economic ambiguity, we have not observed any material change in our borrowers' ability to meet their obligations to Sallie Mae. During the third quarter, we successfully completed the previously announced sale of approximately $1.9 billion in loans, generating $136 million in gains. We continued our capital return strategy in the third quarter, repurchasing 5.6 million shares at an average price of $29.45 per share. Since initiating this strategy in 2020, we have reduced our outstanding shares by 55% with an average price of $16.75. Pete will now take you through some additional financial highlights of the quarter. Pete? Peter Graham: Thank you, Jon. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the third quarter of 2025, we earned $373 million of net interest income. This is up $14 million from the prior year quarter. Our net interest margin was 5.18% for the quarter, 18 basis points ahead of the year ago quarter with 13 basis points behind the prior quarter given the drag from the initial liquidity that we hold to satisfy the requirements of peak season. We continue to believe that an annual NIM target in the low to 5% range -- low to mid-5% range remains appropriate over the longer term. Our provision for credit losses was $179 million in the third quarter, down from $271 million in the prior year quarter. This was largely due to $119 million of provision release resulting from the third quarter loan sale. Our total allowance as a percentage of private education loan exposure modestly improved to 5.93%, slightly below the prior quarter's 5.95% and just 9 basis points above the year ago quarter. The change from the year ago quarter results from a few factors. As we noted last quarter, the Moody's economic forecast that we use in our CECL models have deteriorated, driving a significant portion of the increase to our allowance. This model-driven impact was partially offset, however, by continued improvements in our credit performance and portfolio quality. At the end of the third quarter, 4% of private education loans and repayment were 30 days or more delinquent, up from 3.6% at the end of the year ago quarter. It's important to note that this year-over-year increase is largely attributable to changes we made last year to our loan modification eligibility criteria. Specifically, since October of last year, we've restricted loan modifications to those who are at least 60 days delinquent. This change was purposeful based on our observation that many early-stage delinquent borrowers tend to self-cure without intervention. We believe that approximately 25 basis points of delinquencies this quarter can be attributed to borrowers who would have qualified for a modification prior to entering our reported delinquency buckets under the prior eligibility criteria. Importantly, we've seen stability in our late-stage delinquencies and roll rates. Our loan modification programs continue to deliver strong results. When we look at borrowers who have been in the programs for over a year, 80% are consistently making payments. Additionally, following the previously mentioned change, monthly loan modification enrollments declined and have now stabilized around half the level that they were prior to the change. We continue to believe that our loss mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment habits. Third quarter noninterest expenses were $180 million compared to $167 million in the prior quarter and $172 million in the year ago quarter. This aligns with our full year outlook and positions us well as we head into the final months of the year. And finally, our liquidity and capital positions remain strong. We ended the quarter with a liquidity ratio of 15.8%, total risk-based capital was 12.6% and common equity Tier 1 capital was 11.3%. We're encouraged by the exciting opportunities ahead as we continue to grow and evolve our business, enabling strong return of capital to shareholders moving forward. Now I'll turn the call back to Jon. Jonathan Witter: Thanks, Pete. I hope you share my belief that our third quarter performance reflects strong execution and positions us well to sustain momentum through the remainder of 2025. As we look ahead, we're optimistic about the impact of recent federal reforms and the opportunities they create for our industry and for Sallie Mae to better serve students and families. As the leading private student lender, Sallie Mae is well positioned to support them through this transition. At the same time, we recognize that these changes create new challenges for our school partners. We are proud to be working closely with many of them to design innovative solutions that help ensure students can access and complete their desired degrees. In parallel, we have been actively exploring alternative funding partnerships in the private credit space to expand our ability to serve students. We expect to announce a first-of-its-kind partnership in the near term, and we'll share more details soon after. We view this as a strategic step toward unlocking the value of our attractive customer base, setting the stage for sustainable growth of capital-light fee-based revenues. We are looking forward to sharing more at a second investor forum later this year. Let me conclude with a discussion of 2025 guidance. To kick off this partnership, we anticipate selling both a small portfolio of seasoned loans and a portion of our recent peak season originations either in the fourth quarter or early in 2026. Accordingly, we expect to designate a portion of our loans as held for sale prior to the end of the year. As a result, we now expect our GAAP earnings per common share for 2025 to be between $3.20 and $3.30. At the same time, we are reaffirming all other elements of our 2025 outlook, including originations growth, net charge-offs and noninterest expense metrics, reflecting continued confidence in our strategic trajectory. With that, Pete, why don't we go ahead and open up the call for some questions? Operator: [Operator Instructions] Our first question is coming from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. I guess maybe 2 thoughts and questions. The first, I guess, is, is there a way to kind of think about the performance of the current delinquency out a little further than the end of the year. I guess, I know it's not your custom to give guidance past the current year, but -- and we've looked at roll rates and we see that they've gotten somewhat better, but there has been some concern about the level of delinquency. So could you -- is there any way to kind of give us a sense as to how you expect that -- the current book to perform over the next several quarters? Peter Graham: Yes, Moshe, it's Pete here. I think, look, we've been really pleased with the performance of the loan mod programs. We are encouraged by the stability we've seen in terms of new entrants to the programs that we've seen over the last few quarters. Given the seasonality of our business, yes, early-stage delinquencies ticked up a little bit in this quarter, but we don't view that as anything troubling in terms of longer-term trends. And we expect to continue to see stability in the late-stage delinquencies and our roll rates. And so we're comfortable with the guidance we've given through the end of this year, and we continue to believe that, that kind of high 1s, low 2% net charge-off rate is the right way to think about us over a longer term. Moshe Orenbuch: Got it. And obviously, your new partner in terms of this sale is obviously also, I would assume, given that some thought. Is there any way to give us any further texture around how to think about that sale and how -- what the terms would be like? Peter Graham: Again, we're still in final -- sort of the final stretch of the deal coming together, and we'll release appropriate level of detail when we complete that, and we look forward to talking in more detail about what that means for the future as we go into the investor forum, as Jon said. Operator: We'll take our next question from Jeff Adelson with Morgan Stanley. Jeffrey Adelson: Just wanted to circle back on the modification question. Listen, I recognize that the pace of modifications has slowed. And if we look at the 10-Q disclosure on the payment status table, the volume of modifications over the past 12 months has come down a lot. But if we do look at that table, it does seem like there's a higher percentage of 12-month mods rising on a delinquency basis. So just maybe some color there. And how are you thinking about the roll-off of those modifications as borrowers are graduating out over the next 12 months? Peter Graham: Yes. Again, we're happy with the performance of people in the mods. For those that have been in for 12 months or longer, there's strong sort of payment patterns amongst that cohort. And we believe that these programs have been successful in helping people through a period of stress and to establish positive payment patterns. And so we're optimistic as we look to those sort of first graduating wave from these that will have a high degree of success, and that's something that we're keeping an eye on. Jeffrey Adelson: And just on a partnership opportunity, any sort of early details you can give us ahead of the Investor Forum later this year, just maybe any sort of insight into the economics, length of the terms? And are you going to potentially be starting to use some of the current book? Or will that be more for the forthcoming opportunity with Grad PLUS going away? And just any sort of like high-level commentary on how that might shift economics. Peter Graham: Yes. Again, we're close to being done, but we're not done. So I can't share too much detail. We've said pretty consistently that we were looking to establish a multiyear arrangement with a strategic partner and that still holds true. I think if you consider Jon's comments around our revision of guidance, the fact that we're designating a portion of our portfolio of loans as held for sale as we go into the fourth quarter, that's an indicator that we have loans in the current book that are going to be part of it. Operator: We'll move next to Mark DeVries with Deutsche Bank. Mark DeVries: I have a follow-up question on Moshe's first question about kind of the outlook for credit, given where we are with the delinquency trends. I mean I get that -- I think you indicated roughly 25 basis points of the delinquencies are due to kind of changes in eligibility for the loan mods, but that would still imply we're kind of up year-over-year on -- I think you commented on stable, not necessarily improving roll rates. So is it still right to assume that delinquencies at best or kind of I mean, charge-offs as we look forward, are going to be kind of flat, if not slightly higher, just given we're up year-over-year on delinquencies net? Jonathan Witter: Yes, Mark, it's Jon. I'm not sure I have a lot to add over what Pete said to Moshe. But look, I think if you look at the overall delinquency trend, I think the change in program terms really accounts for the majority of the change in delinquency rate year-over-year. We obviously have a methodology for figuring that out that points to the specific cases that we know with certainty. By the way, there's a sort of confidence band around that, it could be even a little bit higher. But I sort of consider delinquencies to be sort of plus or minus flat within sort of normal operational variability that we're seeing in the book. And I think as Pete said, we feel pretty comfortable about the roll rates being consistent and flat and the performance of the mod. So as I mentioned, we are certainly in an ambiguous economic environment. It's hard to make predictions now 15 months out if you start to think about the end of next year. So we're not going to do that here today. But I think we continue to feel confident in sort of the long-term through-the-cycle sort of metrics that we laid out before, the 1.9% to sort of 2.1% numbers that have been commonly cited. And I think we believe that we're delivering on those commitments pretty well and are excited to continue that progress next year. Mark DeVries: Okay. Fair enough. And then just turning to, I think the marketing strategies that you talked about being kind of the reason that you had to kind of reduce the origination guidance for this year. Are these strategies that you've kind of revisited and potentially looking for ways to kind of reaccelerate origination growth as we look into 2026? Jonathan Witter: Yes. I mean, I think, Mark, a couple of thoughts. One, I think we put up over 6% origination growth for the quarter year-over-year. That's really strong and I think attractive origination growth that I think probably fares and compares well with what a lot of other consumer credit-oriented companies would do. So one, I don't think we're making any apologies for the level of originations growth that we've seen. Two, as I think Pete shared at a conference earlier this fall, there's gives and gets every year in how we think about originations growth. We, every year, strive to be better, more efficient, more effective in our marketing. I think we've done that. You've seen that in our cost of acquisition coming down over time. We've also been really thoughtful about ways that we can continue to hone and refine our underwriting models to make sure that we are sort of getting the very best type of customer that we can and the ones that will really maximize our ROEs. And I think Pete shared that over the last 3 or 4 years, we've taken rough justice, $600 million to $700 million a year out of our annual originations. So the growth rates that we're talking about, which I think are really attractive growth rates are happening simultaneously to us improving pretty dramatically the quality of our originations. I think that's a trade our investors really do like and should like. That's value creation. I think this year, we had a plan that we thought would get us to slightly higher originations growth in light of the headwinds of sort of those underwriting changes. I think we executed most of it. We didn't quite get all of it. But again, I think we believe we are on a trajectory, and we've built a marketing machine that will allow us to continue to sort of maintain and at times, potentially grow our already industry-leading market share. We see no reason to believe that we won't continue our successful growth next year. And we look forward to not only competing for the traditional business we have, but quite frankly, also competing very hard for the emerging PLUS opportunity as it unfolds. Operator: We will take our next question from Terry Ma with Barclays. Terry Ma: Just wanted to follow up on credit. If I just think simplistically, historically, there's a positive correlation between delinquencies and net charge-offs. So when you sit here today and look at the 4%, like any color you can kind of give us on, like why that wouldn't kind of imply maybe higher charge-offs for 2026? Peter Graham: Yes. I think I covered it in my prior comments, Terry, that like we feel like the combination of the loan modification programs we put in place are going to behave as we intended them to do when we designed the programs. And what we're seeing so far with those programs is that we've got stable levels of late-stage delinquency and the roll rates are stabilized as well. So like that's our expectation going forward. Again, barring any exogenous sort of market event, we feel like we're set up for success there. And we reconfirmed our guidance for this year, and we reconfirmed our longer-term read on destination net charge-off range. I'm not sure what more we can say. Terry Ma: Okay. Fair enough. And I guess, like in your deck, you mentioned Grad originations are up 11% year-over-year. Any color you can give us on kind of what's driving that, whether it's behavioral changes from borrowers as a result of the bill that passed earlier? Or are you just kind of gaining share? Jonathan Witter: Terry, we won't have share numbers for the quarter for probably another month plus on that. We have always had a grad business. It is one that in the grand scheme of all the grad business out there was relatively small because of the Grad PLUS position from the government. There were only pockets where we felt like we could really profitably compete with the Grad PLUS program. We have obviously, since PLUS reform was announced, started to pay a lot more attention to the opportunities to innovate in our graduate marketing. I think we felt like it was important to sort of continue to break out our sort of Grad performance. And so my guess is the result is probably in part the change of a little bit of customer behavior. I think we don't quite know that yet, but it wouldn't surprise me. I think it's also just a focus of us beginning to gear up and get ready for what we think will be a much larger opportunity ahead. But we see it as an exciting opportunity for us, not only in next year's volume, which given the phase-in of the PLUS reform is going to be smaller, but really playing out here over the course of the next couple of years. Operator: We'll move next to Don Fandetti with Wells Fargo. Donald Fandetti: In terms of the recent credit and ABS market volatility, do you think that's going to impact your gain on sale margins for the Q4, Q1 production? And is the 7% this quarter sort of a good base level run rate? Peter Graham: Yes. I think what I would say there is, there's different phases in the cycle. We've done over time, pretty successful loan sales over a multiyear period in kind of that sort of mid- to high single-digit range. Sometimes we've gotten above that. Sometimes we're a little below that. But I think it's really tied to kind of where spreads are in general at any point in time when we're executing a trade. At the margins, it can also be impacted by the implied structure that the purchaser is intending to use for their leverage takeout as well. Operator: We'll take our next question from Sanjay Sakhrani with KBW. Sanjay Sakhrani: Pete, I just want to make sure I understood sort of the fourth quarter impact on moving those loans to held for sale. Does that mean that you sort of recognize -- do you move provisions over? I'm just trying to think about like it has an earnings benefit, correct? It's not the actual gain on sale that you recognize. Peter Graham: Correct. So when you -- the accounting for held for sale, it is essentially a lower cost of market. So to the extent you expect a premium, you don't really have a change in the value of the loans themselves. You can continue to carry them at their sort of par basis for lack of a better term. And then to the extent they're in held for sale, you don't have to put a CECL provision against them. So the impact that we've reflected in our updated guidance is the release of that provision. Sanjay Sakhrani: Got it. And is there any way to sort of dimensionalize that as far as sort of what the contribution was to the annual guide? Peter Graham: Again, you need to know the exact amount of loans that have been reclassified, which we haven't disclosed. And it's roughly the CECL reserve rate that we talk about each quarter that gets released. Sanjay Sakhrani: Okay. You guys haven't disclosed that yet what you've reclassified? Peter Graham: Correct. Sanjay Sakhrani: Okay. And then, Jon, just one follow-up on this repayment wave that's coming through in November. Obviously, lots of discussion about graduates and the challenging job market. I mean, is there any -- I know all the commentary that you have was pretty constructive in terms of what you're seeing. I mean, do you guys have any foresight into sort of how those cohorts will behave as they come into repayment? Or is that sort of a point of scrimmage type of event? Jonathan Witter: Yes, Sanjay, great question. And look, I read all the same stories that I'm sure you and others read and sort of see the same facts. Let me see if I can paint a little bit of a picture here. But I would start by saying the period where students graduate and transition into their adult lives, we know is -- always has been, and I suspect always will be one of the most difficult periods in sort of their life. And that's reflected by the fact that rough justice half of all financial distress that we see, and this has been true, Sanjay, for many, many years, happens in that first year or 2 after they finish their higher education experience and enter repayment. So this is always a time where unemployment is higher. This is always a time where financial distress is a little bit higher. And by the way, that's our business. That's why we've built the programs we've built. That's why we're really expert in sort of understanding how to market to and educate our students and their cosigners about the transition to higher education and the like. It's a known period of sort of performance importance for us. So that's sort of thought number one. Thought number two is if you go back and you look at what's been going on with early graduate unemployment rates. So think about students who are sort of 20 to 24 years old. And if you take out the COVID year or 2, which was obviously unusual, what we have seen for the last 3 or so years is early kind of graduate unemployment rates are slightly elevated from where they were pre-COVID. What's really interesting is despite all the stories of sort of a gloom and doom for the current graduating class, the current unemployment rate for early-stage graduates is only up about 10 basis points over last year. And that's even smaller on a percentage basis than what you might imagine. And I'd encourage you to go back and look at the data for yourself. And so while I said earlier in my prepared remarks that we are certainly living in, I think my term was ambiguous economic times, I think I was also pretty clear in saying we just haven't seen that yet in our operating results. Now as the leader of a credit-oriented company, I'm not ever going to tempt fate by sort of trying to predict what the future economic environment is going to be like. But I think we would say the unemployment story is always a challenge. We are really well prepared and suited to manage it. The impacts year-over-year, I think, are not what maybe is the popular perception out there and I think sort of the data tells a pretty clear story. And we haven't seen it in our performance, but we're not taking that for granted. We are continuing to work really constructively with our borrowers. We're continuing to up our outreach program for soon-to-be graduates to really help ease their transition into repayment because we do view this as a really important performance moment for us and really more importantly, a really important moment for our students and their families and helping them be successful in this transition. Operator: We'll move next to Rick Shane with JPMorgan. Richard Shane: A couple of things. Look, the decision to sell loans in the fourth quarter, doing some rough math, it looks a little bit different from what you guys outlined strategically 2 years ago in terms of growing the book a little bit faster and reducing or at least keeping flat the actual dollar volume of loans sold. So I'm curious sort of what shifted in your thinking there. And then I want to make sure I understand the answer to Sanjay's question because it sounds like there are basically 2 scenarios here. One scenario where loans are held for sale, you release the reserves, but you don't recognize the gain on sale. Second scenario is you complete the sale and you get both the gain on sale and the reserve release. Given where gain on sale margins are, it would seem that the variance between those 2 scenarios is significantly more greater than the variance between the high end and low end of your guidance. And so I'm trying to make sure I understand this fully. Jonathan Witter: Yes. Rick, let me take those in reverse order, and I'll invite Pete at the end to jump in if I miss anything. We have not assumed anything in our guidance about a gain on sale. I think we said very clearly that the actual loan sale would happen either in the fourth quarter or in the first quarter. We don't know that timing yet. We felt like it was inappropriate for us to incorporate the gain into our outlook. So there is nothing about the gain in our guidance. I think what we said was we expect to sort of conclude and to hopefully sign this deal here in the near term. When we do, we will identify the loans that will be a part of that sort of initial deal. And as I think is appropriate and good accounting, we will, therefore, start to account for those loans differently at that time regardless of whether or not the actual closing date for that sale has a '25 handle on it or a '26 handle on it. So hopefully, that sort of answers your question. And again, we've tried to be as clear as we can be about that so that you can model it appropriately. I think in terms of your question -- I'm sorry? Richard Shane: I was going to say that's helpful. Basically, the reserve release is contemplated in that guidance, but you're not embedding a gain on sale. If the deal closes in the fourth quarter, it's probably upside to the number? Jonathan Witter: Correct. In terms of your question of sort of what strategically has changed, I think the answer in short form is nothing, but I think it's a little more complicated than that. We are still very, very committed to the strategy that we -- the general strategy that we laid out at the Investor Forum 2 years ago, December, which is the idea of modest balance sheet growth in the bank, using loan sales to moderate that growth, still have aggressive return of capital and so forth. What I think has changed since then is really 2 things: one, PLUS reform, which if you look at it when fully implemented, has the opportunity to increase our annual originations meaningfully, and I think we've given all those numbers on past calls. The other is both the growth in sort of size and sophistication of private credit and sort of our ability to think about creating a new sort of third funding leg of the stool, if you will, and sort of a real business around that. And so our view is at one end of the spectrum, you've got growing the bank balance sheet, and that comes with really stable, high-quality earnings, but it also has a fairly high and heavy capital requirement to it. At the other end of the spectrum, you've got our traditional loan sale program, which we still really like which is attractive earnings economics but -- and very attractive sort of capital characteristics, but a little bit more volatility in the earnings. I think you heard Pete talk about that a minute ago. I think what we believe we have the opportunity to create is something that's a little bit in the middle that has the potential of having sort of more stable long-term earnings. I think we've talked about this over time, the kinds of things that would be easier to sort of model and manage, think about it almost in a sort of asset under management kind of construct. At the very same time, really attractive sort of capital characteristics that go along with that. And Rick, you've known us long enough to know that we really care about capital efficiency and capital return as sort of our North Star. And so I think what you're hearing us talk about and you've heard us talk about for the last 3 or 4 quarters, is we're excited about building sort of that third leg to our stool. And I think this is the right time for us to do it as we're sitting here on the eve of PLUS reform beginning. Yes, that probably will cause us to think a little bit differently about balance sheet growth levels here over the next several quarters as we get that up and going. But make no mistake, nothing has changed in our strategy, except we have an exciting third opportunity, which should only make it better. Richard Shane: Got it. Okay. I suspect we'll see a slide on this in a few months. Jonathan Witter: I would hope so. Operator: We'll move next to Giuliano Bologna with Compass Point. Giuliano Anderes-Bologna: I appreciate a lot of the commentary around the new program. Maybe touching on the -- on that program and a little bit of the accounting around that. I'm curious when you talk about the loans that are being moved to held for sale, is that just for the initial sale that you're planning? Or is there -- or will you continue to roll loans into held for sale as you kind of keep executing to the program? Or will those go up more similarly to the current loan sales? Peter Graham: Yes. So the idea and the intent is to create a multiyear partnership arrangement. The specific loans that we've identified are sort of the start of that relationship. And so over time, we would have ideally some portion of our new originations that would go into this new partnership. Giuliano Anderes-Bologna: That's helpful. So we should see kind of an ongoing flow of loans that just go directly into held for sale at lower cost of market going forward. And then when I think about the -- I realize that there are limitations in terms of how much you can say, but in order to kind of get within the guidance range, it seems like it's -- you need to have a number that's well into the $1 billion, even close to $2 billion that would have to move to held for sale in terms of the reserve releases. Is that wildly off base? Or am I thinking about the right ZIP code? Peter Graham: I mean, again, the simple math would be our reserve rate times a notional number. So that's probably about all I'm comfortable giving you on the call. Giuliano Anderes-Bologna: That's helpful. And then maybe just one quick one. I realize that the prior questions come up a few times. I mean there's obviously been a bit of a structural change in the way that you're approaching the forbearance modifications and how to deal with delinquencies. And we had all the commentary in terms of what you expect when it comes to the ultimate improvements. I'm curious when you think about the overall kind of accounting impact, is the kind of lower usage of forbearance and higher usage of modifications post-COVID or in the current time frame and going forward, something that will have a benefit when it comes to more -- less interest rate reversals and that might move around the actual delinquency rate and benefit charge-offs over time? Or is there a potential that charge-offs might be higher, but you have less interest rate reversals because you're getting more loans to reperform and still benefiting on a net basis? Peter Graham: Yes. I think if you take a few steps back and you look broadly at our use of forbearance as a tool to manage the stress in the early-stage repayment portion of the book, the overall levels of people enrolled in that forbearance prior to our change in practice compared to the overall level of people that are now in the mod programs is relatively consistent. It's not exactly like-for-like, but it's -- on order of magnitude, it's pretty consistent. But what we substituted was sort of short-term and judgmental usage of forbearance to manage stress and forbearance, meaning no payments are required for a more programmatic tool that tries to adjust for where the borrower is in terms of their ability to make payments on the loan. And so we feel like these new programs that we have put in place are fit for purpose, so to speak. We believe that the metrics that we're seeing in terms of performance of the borrowers in those programs are promising and give us comfort that they're designed appropriately. And we believe that as these borrowers start to graduate out of those programs and step back into their contractual terms, we expect to see a high degree of success in doing that. Operator: We'll move next to John Arfstrom with RBC Capital. Jon Arfstrom: How are you thinking about buyback appetite at this point and the authorization as well? Jonathan Witter: John, it's Jon. I think the way that I would say that is, first of all, we are delighted with how our buyback program has performed through the course of this year. If you look at the numbers we just announced, we were obviously very active in the marketplace over the last couple of months during this period of dislocation. And I think bought back stock on attractive terms and at prices that I think when we look back in a month or 2 or a quarter or 2, we're going to feel absolutely great about. We've obviously talked a lot about the partnership on this deal. We've talked a lot about sort of the various gives and takes to sort of our balance sheet and business model over the course of the next quarter or 2. I think our view is we will sit back as we get this partnership across the goal line. We will look at the exact timing of that. We will determine, therefore, what's our appetite to do sort of additional share buybacks, how much of that we're going to do. And we'll set up our plan to sort of execute that over the course of this and coming quarters. So I can't comment today any more specifically on what it's going to be. I think we have to get through a couple of these sort of moving pieces. But I think you should expect, as has been the case for the last 5 years, we remain really committed to buying back our stock aggressively. It's something that we feel is an important thing that drives shareholder value. And we'll continue to do so at the time and in the quantity that we deem to be correct. Jon Arfstrom: Okay. Fair enough. And then just an optics question, the 4% delinquency rate. Is that a level that we should expect to continue to trend up over time? Or is it not clear? Or is that not the right way to really look at it? Peter Graham: Look, I think that we're -- this quarter, in particular, is a seasonal sort of peak with the way that the repayment waves come through. And so I would expect this to be kind of a high point in terms of delinquencies in any given year. In terms of absolute levels, again, we're not as concerned about what the absolute level is. What we're concerned about is what are the late-stage delinquency levels, what are the roll rates and how does that implicate in terms of net charge-offs. And we feel really good about the programs that we've designed and how they're performing. Jon Arfstrom: Okay. And then if I can ask one more, Jon, for you. Just very big picture. The noise is kind of deafening on consumer health and students entering the job market and delinquencies. Do you feel like we're all -- it's been a wild quarter in your stock. Do you feel like we're all too pessimistic on the credit outlook? Are we overreacting to it? Or do you have any thoughts on that, just bigger picture? Jonathan Witter: Yes, John, I'm not sure I have a lot to add over the answer I gave earlier. I think we have seen a relatively de minimis change year-over-year in the unemployment rate of early college grads or young college grads, those kind of 20 to 24. I think I said in my prepared remarks that we have not yet seen this ambiguous economic environment translate into anything that we sense as an inability for customers to not meet their financial obligations and sort of commitments to Sallie Mae. It's a little bit hard for me to say whether it's overblown or not. I'll just say we have not seen -- we have not seen the results of some of the stories that have been put out there. And it's obviously something that we take very seriously, and we'll continue to watch for. But the time of college graduation is always associated with higher unemployment and a little bit more financial distress. And I'm not sure that we're seeing anything right now that's particularly out of the ordinary from what we would expect to see. Operator: We'll move next to Caroline Latta with Bank of America. Caroline Latta: I just wanted to ask, how are you guys thinking about the opportunity from the PLUS program and other federal government policy changes? Jonathan Witter: Yes, Caroline, I probably won't do it justice here today. I think we see it as an important opportunity for the private student lending market to step in and help support families and students through sort of this time of transition. We gave some numbers on the last call of what we thought that could be worth in terms of annual origination changes to us when fully implemented. And I think we were thinking about that, if memory serves in the sort of $4 billion to $5 billion range. That will not all be sort of recognized on year 1. The PLUS reform phases in sort of each year. So if you're enrolled in a program and you've taken a loan before, I think it's July 1 of next year, you're grandfathered in under the old program. So that means it's really next year's undergraduate freshmen and graduate school first years that are sort of under the new program. So you have to sort of build it up over time based on the average length expectancy of sort of each of those programs. But if you go back and you look at sort of the details we provided on the last call, I think you'll get a pretty good sense of that. Caroline Latta: Awesome. And then maybe just a follow-up. Are you seeing any differences in how graduate loans are performing versus undergraduate loans in terms of like entry into delinquency and roll rates? Jonathan Witter: Yes. We have a number of different grad programs. It is an apples-to-oranges comparison. All the different programs perform differently. But all of them are sort of governed under the same kind of return and lifetime loss thresholds and standards that we hold. So while the timing and the patterns might be a little bit different, the underlying sort of decision and governance matrix and framework is the same. So yes, they're different on the surface, but we like those loans every bit as much as we like our other loans. Operator: This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. Jon Witter for closing remarks. Jonathan Witter: Chloe, thank you, and thank you to everyone who joined today. We appreciate your ongoing interest in Sallie Mae. We look forward to speaking with all of you at the upcoming Investor Forum, which we will schedule here in the weeks ahead, but will happen before the end of the year and obviously look forward to continuing the conversation as well next quarter. With that, Kate, we'll turn it over to you for some closing business. Kate deLacy: Thanks, Jon. Thank you all for your time and questions today. A replay of this call and the presentation will be available on the investors page at salliemae.com. If you have any further questions, feel free to contact me directly. This concludes today's call. Operator: This concludes today's Sallie Mae Third Quarter 2025 Earnings Conference Call and Webcast. Please disconnect your line at this time, and have a wonderful evening.
Operator: Good day, and welcome to the Enova International 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 Lindsay Savarese, Investor Relations for Enova. Please go ahead. Lindsay Savarese: Thank you, operator, and good afternoon, everyone. Enova released results for the third quarter 2025 ended September 30, 2025, this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at ir.enova.com. With me on today's call are David Fisher, Chief Executive Officer; and Steve Cunningham, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements and as such, is subject to risks and uncertainties. Actual results may differ materially as a result from various important risk factors, including those discussed in our earnings press release and in our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Forms 8-K. Please note that any forward-looking statements that are made on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Enova reports certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release. As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website. And with that, I'd like to turn the call over to David. David Fisher: Thanks, and good afternoon, everyone. I appreciate you joining our call today. We are pleased to report another great quarter, highlighted by solid loan growth and strong credit metrics across our portfolios, driven by our nimble online-only business model and well-diversified portfolio. Before we dive into the quarter, as a reminder, last quarter, we announced that Steve Cunningham, our CFO, will take over as CEO on January 1, at which time I will transition to the Executive Chairman role. I've committed to remain as Exec Chair for at least 2 years. Scott Cornelius, our Treasurer, will succeed Steve as CFO. Steve and Scott are preparing well for their new roles, and we expect a seamless transition with the continuation of our focused growth strategy and consistent performance. Now turning to the quarter. In Q3, we once again generated strong growth, supported by stable credit and significant operating leverage. Thanks to our diversified product offerings, the sophistication of our machine learning models and outstanding team, we've been able to consistently deliver significant portfolio growth while maintaining stable credit, resulting in strong financial results. Third quarter originations increased 22% year-over-year and 9% sequentially to almost $2 billion. The strong origination growth produced a 20% year-over-year increase in our combined loan and finance receivables to a record $4.5 billion. Small business products represented 66% of the total portfolio and consumer 34%. Revenue increased 16% year-over-year and 5% sequentially to $803 million in the third quarter. SMB revenue increased an impressive 29% year-over-year and 7% sequentially to a record $348 million, and our consumer revenue increased 8% year-over-year and 4% sequentially to $443 million. Overall, the stability of our customer base continues to underpin our growth as credit quality is solid across the portfolio. The consolidated net charge-off ratio for the quarter was 8.5% compared to 8.1% last quarter and 8.4% in Q3 of last year. Despite some noise in the macro environment, the underlying trends for our customers continues to be positive. The job market remains healthy with unemployment rates staying historically low at 4.3% as of August, and wage growth continues to outpace inflation for our target customers. In addition, August consumer spending data showed a meaningful uptick, reinforcing steady household demand. When looking at external data, it's helpful to keep a couple of key factors in mind. First, our consumer customers in some ways are always in a recession. As a result, they are adept at managing variabilities in their finances. Second, these customers tend to have jobs with more fungibility in terms of being able to move between companies. This can lead to less volatility in their earnings over time. Looking back to our Q2 earnings call, we discussed how early in the spring, we had seen some minor elevated default metrics in one of our consumer products. As we mentioned, in response, we tightened our credit models for that product, particularly for new customers. Because we're able to adjust so quickly, we avoided any significant impact to our consumer business. Taking swift action like this to adjust our models is routine for us. We're able to do this because of the rapid performance feedback we get as a result of the design of our products and the sophistication of our credit models. It's something we do all the time, hundreds of times per year, and this goes both ways, whether we're making adjustments to tighten credit or to expand it. So as expected, following the adjustment to this one product, credit performance has quickly returned to normal. In fact, credit in that product now exceeds our expectations with some of the lowest early default metrics we have witnessed. As a result, we've begun rapidly reaccelerating its growth. So looking forward to Q4, we expect to see consumer origination growth rates accelerate sequentially and credit metrics continue to improve. Also contributing to our stable financial performance through market fluctuations are the benefits of having a diversified portfolio. Having operated in the nonprime space for decades, it's common to see short-term fluctuations in demand and credit in any one product or customer segment. In addition to being well diversified across our SMB and consumer businesses, within each of those, we offer a wide variety of products, adding multiple layers of diversification across our portfolio. This structure gives us the flexibility to allocate resources towards the strongest opportunities and have the confidence to moderate exposure where risks are elevated. With this in mind, we continue to see compelling opportunities within our SMB business, which had another fantastic quarter in Q3. Our leading brand presence, scale, solid credit and low levels of competition again resulted in solid demand and credit performance. Originations for SMB increased 11% sequentially and 31% year-over-year to nearly $1.4 billion in Q3. Insights from internal and external sources reflect solid underlying trends for small businesses. In conjunction with Ocrolus, we released the eighth iteration of our small business cash flow trend report earlier this week. This offers key insights into the state of small businesses and highlights ongoing trends observed over the past year. Small business confidence is high as tariffs remain manageable and the economy and in particular, consumer spending remains strong. Small business growth expectations stayed strong in Q3 with 93% of owners anticipating moderate to significant growth over the next year. And approximately 3/4 of small businesses were from nonbank lenders with nearly 40% of those in business reporting being denied by traditional banks. Further, external data aligns with these observations. Small business sentiment reached a new high in the third quarter with the MetLife and U.S. Chamber of Commerce Small Business Index climbing to 72, its highest reading ever and up from 65.2% last quarter, signaling strong optimism across the sector. Driven by the operating leverage inherent in our online-only business, growth in EPS again outpaced both origination and revenue growth in Q3. Adjusted EPS increased 37% year-over-year, primarily as a result of our strong growth, efficient marketing and a lower cost of funds. Before I wrap up, I'd like to spend a few moments discussing our strategy and outlook for the remainder of 2025 and beyond. We've carefully designed our business with a thoughtful unit economics approach that has enabled us to operate profitably for more than 2 decades. This is through many different environments, including downturns in consumer spending, interest rate hikes, surges in inflation, not to mention the Great Recession and a global pandemic. During this time frame, we've successfully navigated periods where the unemployment rate was more than double where it is today. And our business is better prepared than ever to withstand changes in the macro environment as our technology and analytics continue to be more sophisticated and our balance sheet is stronger than ever, while our portfolio has become more diversified. I said this last quarter, but I've never been more excited about Enova's future. We have an incredibly experienced team, a strong foundation, a time-tested playbook and industry-leading products, all clear signs of the opportunity ahead of us. Steve and I share a common vision that our focused growth strategy will continue to steer our path forward. We continue to adapt and innovate and remain committed to producing sustainable and profitable growth while meeting the needs of our customers and driving shareholder value. With that, I would like to turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. And following Steve's remarks, we'll be happy to answer any questions you may have. Steve? Steven Cunningham: Thank you, David, and good afternoon, everyone. As David noted in his remarks, we're pleased to deliver another solid quarter of top and bottom line results that were in line or better than our expectations, with strong growth in originations, receivables and revenue, along with solid credit, operating efficiency and balance sheet flexibility. Turning to our third quarter results. Consistent with our expectations, total company revenue of $803 million increased 16% from the third quarter of 2024, driven by 20% year-over-year growth in total company combined loan and finance receivables balances on an amortized basis. Total company originations during the third quarter rose 22% from the third quarter of 2024 to nearly $2 billion. Revenue from small business lending increased 29% from the third quarter of 2024 to $348 million as small business receivables on an amortized basis ended the quarter at $3 billion or 26% higher than the end of the third quarter of 2024. Small business originations rose 31% year-over-year to $1.4 billion. Revenue from our consumer businesses increased 8% from the third quarter of 2024 to $443 million as consumer receivables on an amortized basis ended the third quarter at $1.5 billion or 9% higher than the end of the third quarter of 2024. Consumer originations grew 4% year-over-year to $590 million. As David mentioned, the slower consumer growth this quarter was intentional to ensure we were maintaining solid credit quality across the portfolio. For the fourth quarter of 2025, we expect total company revenue to be 10% to 15% higher than the fourth quarter of 2024 as a result of strong SMB growth and a reacceleration of growth in our consumer portfolios. This expectation will depend upon the level, timing and mix of originations growth during the quarter. Now turning to credit, which is the most significant driver of net revenue and portfolio fair value. Our consolidated credit performance continues to demonstrate that our diversified product offerings and discipline around our unit economics enable consistent results across different operating environments. The third quarter consolidated net revenue margin of 57.4% was in line with our expectations and reflects continued solid credit performance. The consolidated net charge-off ratio for the third quarter was 8.5%, flat to the third quarter of 2024 and reflects our typical consumer seasonality and continued strong small business credit performance. Sequential stability and year-over-year improvement in the consolidated 30-plus day delinquency rate and a stable consolidated portfolio fair value premium reflect our expectation of stable future consolidated portfolio credit performance. Small business credit performance remained strong. Sequentially and compared to the third quarter of 2024, the net charge-off ratio, the net revenue margin, fair value premium and 30-plus delinquency rate for our small business portfolio all improved and reflect continued and expected stable credit performance. Consumer credit also remained solid. Following our typical seasonality, the consumer net charge-off ratio rose sequentially to 16.1% for the third quarter and while higher than the year ago quarter, remained in our expected range. The consumer net revenue margin and credit metrics for the third quarter were influenced primarily by mix shifts and the rate of originations growth on the heels of consumer portfolio adjustments that we discussed last quarter. Those adjustments and our overall balanced approach to growth meaningfully reduced the year-over-year change in the consumer 30-plus delinquency rate compared to last quarter. And as David noted, we exited the third quarter with the lowest ever initial defaults on weekly vintages on the consumer product we adjusted, allowing us to accelerate sequential growth opportunities into the fourth quarter. Additionally, during the quarter, year-over-year consumer installment originations grew at the fastest rate that we've seen in several years as we saw higher demand from existing customers for refinancing and debt consolidation. This is another example of how the breadth of our consumer products and credit segments, combined with our disciplined approach to unit economics, enables us to navigate varying operating environments and generate consistent consolidated results. The fair value premium on our consumer portfolio at the end of the third quarter was flat to last quarter and remained consistent with levels observed over the past 2 years, indicating a stable risk return profile and strong underlying unit economics for our portfolio. Looking ahead, we expect the total company net revenue margin for the fourth quarter of 2025 to be in the range of 55% to 60%. This expectation will depend upon portfolio payment performance and the level, timing and mix of originations growth during the quarter. Now turning to expenses. Total operating expenses for the third quarter, including marketing, were 31% of revenue compared to 34% of revenue in the third quarter of 2024 as we continue to see the benefits of our efficient marketing activities, the leverage inherent in our online-only model and thoughtful expense management. Our marketing spend continues to be efficient, driving strong originations growth and was in line with our guidance range for the quarter. Marketing costs as a percentage of revenue were 18% compared to 20% for the third quarter of 2024. We expect marketing expenses to be around 20% of revenue for the fourth quarter, but will depend upon the growth and mix of originations. Operations and technology expenses, which were driven by growth in receivables and originations were 8% of revenue for the third quarter, similar to the third quarter of 2024. Given the significant variable component of this expense category, sequential expenses and O&T costs should be expected in an environment where originations and receivables are growing and should be between 8% to 8.5% of total revenue. Our fixed costs continue to scale as we focus on operating efficiency and thoughtful expense management. General and administrative expenses for the third quarter increased to $40 million or 5% of revenue versus $39 million or 6% of revenue in the third quarter of 2024. While there may be slight variations from quarter-to-quarter, we expect G&A expenses in the near term should be between 5% and 5.5% of total revenue. We continue to deliver solid profitability and strong returns on equity this quarter. Compared to the third quarter of 2024, adjusted EPS, a non-GAAP measure, increased 37% to $3.36 per diluted share, delivering an annualized third quarter return on equity of 28%. We ended the third quarter with $1.2 billion of liquidity, including $366 million of cash and marketable securities and $816 million of available capacity on debt facilities. Our cost of funds declined to 8.6% or 15 basis points lower sequentially and nearly 100 basis points lower than the third quarter of 2024 as a result of lower short-term interest rates and strong execution on recent financing transactions. Continuing our track record of strong capital markets execution that reflects our solid credit performance. During the third quarter, we upsized our corporate revolver by $160 million to $825 million, extending the final maturity to 2029, reduced the cost by 25 basis points and expanded our bank lender group. Our balance sheet and liquidity position remains strong and give us the financial flexibility to successfully navigate a range of operating environments, while delivering on our commitment to drive long-term shareholder value through both continued investments in our business and share repurchases. During the third quarter, we acquired 339,000 shares at a cost of $38 million, and we started the fourth quarter with share repurchase capacity of approximately $80 million. Before wrapping up with our fourth quarter expectations, I'd like to touch on our valuation. Enova has delivered strong and consistent results over many years and operates a highly scalable online-only model with more diversification than any nonbank specialty finance company. Since our acquisition of OnDeck 5 years ago, we've not only maintained our strong profit margins, we've done so while cutting our consolidated net charge-off rate in half. Our demonstrated world-class risk management capabilities and approach to unit economic decisioning has driven our differentiated financial performance and return on equity as well as our ability to finance the business at market-leading spreads. To put this in perspective, Enova has never reported a quarter of negative adjusted EPS. And over the past 10 years, has delivered $1.8 billion of adjusted net income and grown annual adjusted EPS at a compound average annual growth rate of approximately 20%. Over that same time, we reduced our financing costs by hundreds of basis points from lower credit spreads that are a direct result of our portfolio credit performance and predictability. Despite our demonstrated operating model advantages and unmatched financial performance as a public company, we remain frustrated by a persistent valuation gap. We continue to trade at discounts to the S&P 600 and Russell 2000, the financial components of each of those indexes and to other specialty finance lenders that have less consistent performance and profitability. In fact, at the end of the third quarter, Enova traded at a similar price multiple on 2026 consensus adjusted EPS estimates but similar to 2016 and 2017 forward PE ratios when we were a much smaller consumer-centric company. We continue to believe there is meaningful upside to our current share price and continuing to unlock the value our company creates remains a top focus of Enova's leadership. You should expect that we will continue our focus on growth with financial consistency and we'll continue to lean into our capital returns through opportunistic share repurchases. To wrap up, let me summarize our fourth quarter expectations. For the fourth quarter, we expect consolidated revenue to be 10% to 15% higher than the fourth quarter of 2024, with a net revenue margin in the range of 55% to 60%. Additionally, we expect marketing expenses to be around 20% of revenue, O&T costs to be between 8% to 8.5% of revenue and G&A costs to be between 5% and 5.5% of revenue. These expectations should lead to adjusted EPS for the fourth quarter of 2025 that is 20% to 25% higher than the fourth quarter of 2024. Our fourth quarter expectations will depend upon the path of the macroeconomic environment and the resulting impact on demand, customer payment rates and the level, timing and mix of originations growth. Our third quarter results reflect the strength of our diversified product offerings and the ability of our team to consistently deliver strong growth, revenue and profitability while maintaining solid credit. Our operating model has now delivered 6 consecutive quarters of year-over-year adjusted EPS growth of at least 25% or more, and we remain confident in our ability to generate meaningful financial results for the remainder of 2025 and beyond. And with that, we'd be happy to take your questions. Operator? Operator: [Operator Instructions]. The first question today comes from David Scharf with Citizens Capital Markets. David Scharf: Congratulations again. Dave and Steve, you're the latest. What's becoming a long line of lenders that have reported very stable, positive and constructive credit commentary this earnings season. So I'm going to leave the credit questions to some others to ask about. I was curious, maybe 2 more granular things. One is just on kind of capital actions. This is, I think, similar commentary on how you perceive the stock's valuation as you provided in the last couple of calls. Is there any kind of update you can provide us on whether you would ever consider seeking additional covenant relief to return potentially even more capital in terms of buybacks or whether a dividend is potentially something the Board would consider? David Fisher: Yes. I think everything is on the table. Certainly, both of those over time as well as other ways of utilizing excess cash. We have plenty of excess capital, other ways of using excess capital to maybe further diversify the businesses and increase our valuation. I think as Steve said very well in his prepared remarks, given the incredibly strong track record of the performance of our business, how much it's evolved over the last 7 or 8 years just in terms of stability, diversification, balance sheet strength to be trading at the same PEs we were back then is obviously not where we think the value of the business is. So yes, opportunities to increase the buyback. The returns on our buybacks over time has been very, very, very strong. Certainly, a dividend at the right time, although that's, I think, usually a better tool when the stock is more fully valued. And then are there places -- other places in the market where we could utilize our capital. David Scharf: Understood. Understood. Maybe as a follow-up, on the marketing side, there have been quite a number of quarters now where at least as a percentage of revenue, marketing dollars have come in below your guidance. And I think you guided to 20% last quarter, it came in at 18% again. And at some point, trying to figure out what's a feature versus a bug. And are you seeing anything about the composition of either by channel or just percentage of repeat borrowers or just maybe it's the mix shift towards more SMB. But is there anything that would kind of lead you to tell us structurally the operating model is potentially more profitable than we've been sort of modeling and that 20% is maybe too high a ceiling? David Fisher: Yes. I mean, look, the model continues to get more profitable, and I'll give a lot of credit to our marketing and business teams who are continuing to get more efficient on the marketing and acquisition and conversion side, those all tie together. But some of it's also just a confluence of events. If you kind of go back to Q4 of last year, volume came really, really late in the quarter. And so we probably underspent because we didn't see the volume earlier in the quarter. Q1, there was just a tremendous amount of volume that we never would expect to see in Q1. So we're probably underspending again. And then we had a lot of excess revenue from the strong Q4 and Q1 kind of increasing the denominator for Q2 where actually the spend was actually kind of pretty near where we would have thought it was going to be. And then as we talked about in Q3, we pulled back a bit on the consumer side just while we were letting the credit settle in the -- that one consumer product. So as we look for Q4 as we're now accelerating growth, especially on the consumer side. Now the credit, as I mentioned on my prepared remarks, credit looks incredibly good right now, not just solid. I mean it looks like incredibly good at the moment. We're going to lean into that accelerate growth. And look, a lot can change between now and the end of the year, and it's hard to predict the holiday season. But we would -- we're certainly expecting higher levels of spend in Q4. Operator: The next question comes from Bill Ryan with Seaport Research Partners. William Ryan: Question on the growth outlook. I mean you obviously seem very optimistic on the consumer originations going into Q4. Looking at Q3, consumer installment, as you noted, was very, very strong, a little bit of decline in consumer line of credit originations. I presume that might be reflective of the tightening and kind of the wait-and-see approach that you took from Q2 to Q3. Just was that the case? And do you expect kind of a mix of growth between the 2 products going into Q4, like a reacceleration in line of credit? David Fisher: Yes. I mean, very observant view, Bill, so I'll give you credit for sure. Steve guess that someone is going to pick that up and he was right. So yes, that was the product. And yes, that is where we're expecting the most acceleration going into Q4. Again, we're filling demand here. So we don't always know for sure. But that is certainly our expectation on the consumer side that we'll see a reacceleration of that line of credit and a mix shift in favor of line of credit. Not that there's any issue with installment right now, there's not. But there's just more -- there's more acceleration opportunities in line of credit given the slight pullback we had intentionally in Q3. William Ryan: Okay. And I assume this might relate to that as well, but the change in fair value on the consumer loan portfolio little bit of an uptick in Q3 as well. I assume was that related to some of the adjustments that were made. Steven Cunningham: Yes. I mean if you think about the change in fair value line item in terms of dollars, there's 2 components. One of them is the back book sort of running its course, which the fair value premium was very stable. So all of that was as expected as we just sort of continue to mature the back book. The bigger difference would have been the slower originations growth overall on the consumer portfolio, which would have been a negative in the change in fair value line item for the quarter. Operator: The next question comes from Vincent Caintic with BTIG. Vincent Caintic: I guess I'll ask the credit question. But -- so your credit trends have been strong, both in SMB and in consumer. And I was just wondering, I guess, with the applications you're getting in or maybe just kind of a broad industry outlook, if you have any of where you might be seeing or where there might be any sort of deterioration that might be out there, like perhaps are you getting more applications in certain areas where you might be declining more or anything where you might be seeing that? David Fisher: I mean, look, we adjust credit hundreds of times a quarter. So there's always something here or something there, but there's no significant pockets at all. our subprime business has some of the best credit metrics we've seen in a long, long time. And so our near prime book business has like some of the best credit metrics we've seen in a long, long time. So it's broad-based. I know there's been a lot of questions about it because of subprime auto and maybe 1 or 2 vintages and some of upstarts older securitizations. But I mean, those -- that kind of one vintage doesn't mean much of anything. And subprime auto, we've seen many, many times over Enova's history is just not correlated to what we do. It's so much based on asset prices and supply and demand. So no, we are seeing top to bottom consumer and small business incredibly good credit. And it's not surprising. The economy remains strong. The job market remains strong. Inflation has moderated. There's no reason to expect that it wouldn't be. So yes, no areas that we're really concerned about at all right now. Vincent Caintic: Okay. Great. And I guess relatedly, on the competitive front, so I know maybe banks aren't your direct competitors, but some of the failings that maybe have happened amongst other lenders, particularly in commercial side, there's maybe some of those lenders are now relooking at their portfolios and so forth and maybe tightening up a bit. So I'm kind of wondering if you're seeing that and if in turn, that allows you to take more share and maybe that's part of the marketing opportunities that you're seeing. If you could talk about that. David Fisher: Yes. I mean -- yes, sure. On the small business side, we continue to see banks being extremely conservative, and that's created an enormous opportunity for us over the years. And we don't -- we haven't seen that change at all. I mean, if anything, we've seen more conservatism from banks, which has obviously been a huge positive for us there. And then on the consumer side, there haven't been any new entrants into that space in a long, long time. And when we see kind of people on the fringes, more prime lenders try to dip their toes into near prime, we see them pull back very, very quickly. It's just that they're just different businesses. And they're not good at lending above 36%, no different than we would not be good at lending at 12% or 18%. It's just not what we do. We're not going to compete with Capital One, and I think they've been pretty smart about not trying to compete with us. So I think as we've talked about, the competitive dynamic is good for us, and we continue to not see many changes there. Operator: The next question comes from Kyle Joseph with Stephens. Kyle Joseph: Just in terms of growth, obviously, it's been weighted towards the small business side of things and kind of you guys mentioned kind of the credit blip you saw in the spring. But yes, touching on competitive dynamics, and then I think you mentioned that you expect consumer to reaccelerate. Just give us a sense for kind of the competitive dynamics between the 2. David Fisher: Yes. So look, we don't purposely push growth in one versus the other. As you've heard us talk about, it's all based on our unit economics framework. We have excess capital. So where we can originate loans above our ROE targets, we will and we let the market dynamics play out. And I would say the variances in the growth rates between the 2 businesses over the last 2 years have been almost all market and credit driven. So in 2023, for example, consumer outgrew small business by a fair amount. This year, small business is outgrowing consumer. That's fine, but that's great. This quarter, you might see that revert, especially with the reacceleration on the consumer side. And next year, we don't know. What we do know is we have a lot of good products across a pretty wide spectrum of the non-prime credit base. And so if one market is stronger than the other, we'll lean into it and take advantage of that diversification. But -- so that's kind of the longer term and shorter term, like I said, we are pushing pretty hard on the consumer side right now, pushing hard relative for Enova, obviously. I mean we're always very balanced between growth and credit. You've never seen us get out ahead of our skis, and we're certainly not going to do that now. But we just -- credit looks so good on the consumer side that we're certainly leaning in. Operator: The next question comes from Alexander Villalobos with Jefferies. Alexander Villalobos-Morsink: Congrats on the results. My question was more on the cap market side and just interest expense. I know you guys generate a ton of cash. And is there anything on the bond side or just cap market side where you guys can, in the future, kind of lower the interest expense a little bit more and kind of get a little more push on the EPS side from there? Steven Cunningham: Yes, for sure. So we've talked about the expectation that we're going to see lower benchmark rates in the short end of the curve, which is where we tend to fund. So that we expect over the near term over the next year or 2, that's going to be a tailwind for us. But -- more importantly, just the performance of the portfolio has allowed us just to continue to bring our spreads down. You saw that I mentioned in my commentary. Every transaction here over the last year or so, we've talked about the decline in the credit spreads over the benchmark because of that performance. So I think there's clearly some opportunity between those 2 things to capture some of the tailwinds in the capital markets to help support growth in EPS. Operator: The next question comes from John Hecht with Jefferies. John Hecht: So I'll only ask one question, but it's kind of, I guess, a broad question. I mean you've got rates declining. It sounds like very good consistent current trends. I think the competitive environment continues to be favorable for you, but then we're high prepayment activity, which in some cases, looks like it's tied to just excessive amounts of liquidity in the system. So the point is like things seem good, but they are on the margin kind of moving targets. How do those things affect your -- kind of the way you think about near-term and intermediate term strategies? David Fisher: Yes. It was a little hard to hear some of that with the background noise. I think -- look, competitively, you talked about, there's not much new. I think you said -- you asked about prepays, like elevated prepays. Look, in the subprime and near prime space, that just doesn't move the needle much. I mean it's just -- our customers need the cash. And so we don't tend to see that a lot. So again, look, we don't get overly confident in Enova. It's just something we don't do. But the model, the products are looking really strong and stable right now. We're not seeing many cracks. We're not seeing many changes other than improving credit. Our customer bases look very solid kind of across any metric that we can look at. I mean when we think about prepayment rates haven't changed, average loan sizes are staying steady. We're not seeing customers being more or less price sensitive. It just -- it's a very stable environment right now. Again, we're fully cognizant that, that can change, and we're watching all the metrics every day. But right now, things are looking very stable. Operator: The next question comes from John Rowan with Janney. John Rowan: Obviously, you spent a lot of time talking about current credit, given obviously what's going on in the news. But maybe just touch on quickly what you think about 2026, in particular, think about what's going on with tax laws and tips and overtime and changes to child care tax credit and some of those other programs. Just give us an idea of maybe how much of your consumers are impacted by some of those large changes in tax policy. David Fisher: Yes. Well, I think the estimates are for higher tax refunds next year, which should help with credit. And then, look, I think this year, we saw what we thought was going to be one of the bigger impacts, which was the resumption of payments on student loans and the resumption of collections on student loans. And we've been able to navigate with that with no problem at all. And I think some of the tax -- some of the tax changes next year kind of pale in comparison to that in terms of magnitude and if anything, are likely to be helpful. So again, we you don't know until it actually plays out, but it doesn't seem like it's going to be an issue for us at all. Operator: [Operator Instructions]. The next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Most of my questions have actually been asked and answered. But I was sort of hoping to kind of just -- and maybe the idea of you talked about leaning in kind of on the line of credit side of the consumer and the consumer being significantly stronger in Q4 than Q3. I guess given your approach, does that mean that you will have less origination on the small business side? Or does it mean that we should just think about you kind of investing just incrementally heavily in Q4? David Fisher: Completely incremental. As you know, we have plenty of excess capital. I think we had about $1 billion of excess liquidity at the end of Q3. So we have plenty of capital to invest in both in Q4. And SMB looks really good as well. I mean they had just killer Q3, and that momentum has continued into Q4. So -- the only reason we talked -- haven't talked more about SMB is because it's just doing well and it's continuing to do well. And we'll -- yes, we have plenty of capital to keep that business going full speed. And then -- so it's really just that the change is really just on the consumer side where now that we're accelerating growth again, we should see stronger growth in the consumer book. Moshe Orenbuch: Got you. Okay. And the -- and this may be just our forecast, but you bought back a little less stock in Q3 than we had in our model. Given that you've got this kind of extra kind of faster growth expected in Q4, should we think that buybacks would be similar to Q3? Or more like prior quarters. Steven Cunningham: Moshe, so as we've talked about, we have the capital and liquidity to do all of it organic growth as well as buybacks. And our buyback is we run an opportunistic program. So we still bought 60% of the capacity this quarter, but you also remember, we touched all-time high for a couple of weeks, which at those levels, we would still be buying, but at a lower level than we would, say, for example, right now. And in those quarters where we were buying nearly all of the capacity, we were trading off of where we are today. So you should expect us to follow that approach. We have about $80 million available in Q4, which is -- we kept some of that powder dry in case there's volatility as we go forward from here, and we'll continue to be opportunistic and buy as much as we can against that program and continue to grow the business as fast as we can against our focused growth -- balanced growth approach. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Fisher for any closing remarks. David Fisher: Thanks, everyone, for joining our call today. We certainly appreciate it and look forward to speaking with you again next quarter. Have a good evening.
Operator: Good morning, ladies and gentlemen. Welcome to the Wyndham Hotels & Resorts Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now at this time, I would like to turn the call over to Mr. Matt Capuzzi, Senior Vice President of Investor Relations. Please go ahead, sir. Matt Capuzzi: Good morning, and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Michele Allen, our CFO and Head of Strategy. Before we get started, I want to remind you that our remarks today will contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We'll also be referring to a number of non-GAAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release and investor presentation, which are available on our Investor Relations website at investor.wyndhamhotels.com. We are providing certain measures discussing future impact on a non-GAAP basis only because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening, we posted an investor presentation containing supplemental information on our Investor Relations website. We may continue to provide supplemental information on our website and on our social media channels in the future. Accordingly, we encourage investors to monitor our website and our social media channels in addition to our press releases, filings submitted with the SEC and any public conference calls or webcast. With that, I will turn the call over to Geoff. Geoffrey Ballotti: Good morning, everyone, and thanks for joining us today. Our Q3 results illustrate yet another quarter of resilience and execution by our teams around the world. Despite a challenging macro environment, we delivered a 21% increase in room openings, signed 24% more deals in the quarter and grew our global pipeline by 4% to 257,000 rooms and nearly 2,200 hotels. We drove an 18% increase in ancillary fee streams and year-to-date, our resilient, highly cash-generative business has produced over $260 million of adjusted free cash flow and returned $320 million to our shareholders. As we continue to focus our development on higher FeePAR brands and geographies and expand our direct franchising in regions that previously relied on master licensees. We're adding hotels with stronger long-term economics. As of September 30, our global pipeline carried a FeePAR premium of over 30% domestically and 25% internationally compared to our existing system. Here in the United States, we grew our mid-scale and above system by over 200 basis points, led by solid conversion activity and some great new construction additions, including another 4 ECHO Suites opening in strong markets like Reno, Nevada and Sterling, Virginia. Earlier this month, we also introduced Dazzler Select by Wyndham, a domestic extension of our Latin America Dazzler by Wyndham brand into the economy lifestyle space here in the United States. Targeting hoteliers seeking flexibility without sacrificing the power of scale, we're attracting owners of high-quality economy hotels who want to preserve their properties' individuality while tapping into Wyndham's global distribution, loyalty, technology and marketing platforms. Internationally, we grew net rooms by 9%. EMEA grew its net rooms by 8% with several new construction additions like the stunning new Wyndham Grand Udaipur in India, where we now have 88 direct franchise hotels open across that important country and another 50 in our development pipeline. Along with spectacular new conversions like the Dolce by Wyndham, Comwell, an iconic upscale edition with 5-star meeting facilities in the heart of historic Aalborg Denmark. Latin America and the Caribbean grew net rooms by 4% with 5-star additions like the new Wyndham Grand Costa del Soul located inside of Lima, Peru's new Jorge Chavéz International Airport, as well as several exceptional conversions like the Isla Verde, a trademark collection by Wyndham Hotel near some of the most beautiful beaches in the Caribbean. In China, we grew our direct franchising system 16% with many outstanding new construction additions like the Wyndham Grand in the port city of Yucheng on the Yangtze River, our 50th Wyndham Grand in China, along with the La Quinta Turpan in the hub of the world famous Silk Road, our 10th La Quinta in the Asia Pacific region. In Southeast Asia and the Pacific Rim, net rooms increased 13% with several exceptional additions like the Hotel Traveltine, our first trademark collection hotel in Downtown Singapore. And in July, we announced a strategic partnership with the Ovolo Group, bringing 4 Design Forward Ovolo hotels and resorts into our system later this quarter and strengthening Wyndham's upscale offerings in Sydney, Brisbane, Canberra and Melbourne. RevPAR declined 5% in constant currency, both globally and domestically, reflecting continued consumer caution in an uncertain economic environment, especially within the select service segments here in the United States, where our guests are more price sensitive. While we saw continued outperformance across parts of the Midwest in states like Oklahoma, Michigan, Illinois, in Missouri, Minnesota and in Ohio, which collectively grew RevPAR 4% versus prior year, continued softness in the Sunbelt states where Wyndham over-indexes from a room count standpoint more than offset that strength. Internationally, RevPAR declined 2%, driven primarily by Asia Pacific, which was down 8%, led by China down 10% and Latin America, which declined 5%. Elsewhere internationally, performance remained strong. Both Europe and the Middle East grew 4% with considerable strength in Spain, Turkey and Greece. And in Canada, which continued to impact U.S. leisure drive-to markets, RevPAR increased 8% as Canadian travel domestically remained strong. Beyond RevPAR, our focus on growing our ancillary fees again delivered impressive results. New strategic partnerships, new technology initiatives and growth in our co-branded credit card program, where new accounts increased 11% and average spend grew 7%, fueled an 18% growth in third quarter ancillary fees, raising our year-to-date growth to 14%. A key contributor to this growth is the continued strength of Wyndham Rewards, which achieved a record 53% share of occupancy contribution for our domestic hotels and an 8% increase in our global membership enrollments. And earlier this week, we introduced Wyndham Rewards Insider, a travel rewards annual subscription program and a first of its kind among our branded peer set in the hotel loyalty space. As the $500 billion subscription economy is projected to grow to over $2 trillion, Wyndham wants to be a part of that, and Wyndham Rewards Insider offers unmatched value to our 121 million Wyndham Rewards members for an annual subscription of $95 per year. Members subscribing to these upgraded lifestyle benefits will enjoy savings of up to 30% and earn opportunities across flights, hotels, car rentals, cruises and so much more. They'll be granted annual Wyndham Rewards Gold status, exclusive concierge services, Ticketmaster, earn and burn access, expansive bonus earning opportunities on hotel stays and many additional exciting benefits. Capturing the essence and generosity that defines Wyndham Rewards as the fastest way to earn a free night, Wyndham Insider will further enhance the program's appeal and reinforce the strength that has kept Wyndham Rewards ranked the #1 hotel loyalty program by the readers of USA Today for the eighth consecutive year. Last quarter, we talked about the success of Wyndham Connect and Wyndham Connect PLUS, a suite of supercharge technology innovations that we're promoting to our owners as Wyndham AI. This quarter, over 230 AI agents with encyclopedic knowledge on each of our 8,300 hotels began leveraging the power of Salesforce, Oracle and Canary Technologies to generate and modify direct bookings while also answering questions and providing tailored travel recommendations by utilizing large language model AI and first-in-industry Agentic AI voice assistance. These new Wyndham AI Agentic Assistants are delivering seamless and complete natural language conversations with full guest service support while also handling live messaging through WhatsApp and Apple messaging. Wyndham AI is driving more direct bookings, introducing front desk workloads that's accelerating significant ancillary revenues for thousands of our hotel owners through automatic upsell opportunities like early check-ins, late checkouts and in-room amenity upgrades. To date, Wyndham AI has already handled more than 0.5 million customer interactions, delivering faster service, higher booking conversion and a 25% reduction in average handle time, all contributing to nearly 300 basis points of improvement in direct contribution for hotels leveraging Wyndham AI to its fullest potential. And with only 7% of our 8,300 hotels now live with this new Agentic AI by Wyndham component and adoption ramping quickly, we're only beginning to unlock what Wyndham AI can deliver. Before Michele takes us through the financials, we as always want to extend our sincere appreciation to our team members and franchisees worldwide without whose passion and collaboration, our solid performance and execution would not be possible. Their conviction in the opportunities ahead of us, coupled with their commitment to our strategic initiatives to deliver exceptional value, continues to be the cornerstone of our success. And with that, I'll now turn the call over to Michele. Michele Allen: Thanks, Jeff, and good morning, everyone. I'll begin my remarks today with a detailed review of our third quarter results. I'll then review our cash flows and balance sheet, followed by an update to our outlook. Before we begin, let me remind everyone that the comparability of our financial results continues to be impacted by the timing of our marketing fund spend. In the third quarter of this year, marketing fund revenues exceeded expenses by $18 million compared to revenues exceeding expenses by $12 million in the third quarter of last year. To enhance transparency and provide a better understanding of the results of our ongoing operations, I will be highlighting our results on a comparable basis, which neutralizes the marketing fund impact. In the third quarter, we generated $382 million of fee-related and other revenues and $213 million of adjusted EBITDA. Fee-related and other revenues declined 3% year-over-year, primarily reflecting a 5% decrease in global RevPAR, as Jeff mentioned, as well as lower other franchise fees. These headwinds were partially offset by an 18% increase in ancillary revenues, a larger global system and royalty rate expansion, both domestically and internationally. Despite $12 million of lower fee-related and other revenue, adjusted EBITDA was flat year-over-year on a comparable basis as the revenue decline and elevated costs related to insurance, litigation defense and employee health-care programs, all of which are reflective of the broader operating environment were more than offset by operational efficiencies and onetime cost containment measures. Adjusted diluted EPS for the quarter was $1.46, up 1% on a comparable basis as the benefit of share repurchases was partially offset by higher interest expense. Adjusted free cash flow was $97 million in the third quarter and $265 million year-to-date with a conversion rate from adjusted EBITDA of 48%. Development advance spend totaled $22 million in the third quarter, bringing our year-to-date investment to $73 million. These investments support high-quality FeePAR accretive additions that strengthen our system and future earnings power. Year-to-date, about 30% of our openings have included development advances, and these hotels are entering our system at a FeePAR premium roughly 40% above our current system. We returned $101 million to our shareholders during the third quarter through $70 million of share repurchases and $31 million of common stock dividends. Year-to-date, we have now repurchased 2.5 million shares of our stock for $223 million. We closed the quarter with approximately $540 million in total liquidity, and our net leverage ratio of 3.5x remained as expected at the midpoint of our target range. Last week, we completed the refinancing of our revolving credit facility, increasing total capacity to $1 billion, a more than 30% increase in potential liquidity while reducing the borrowing cost of the facility by 35 basis points and extending maturity to 2030. Turning to outlook. With RevPAR trends softening throughout the third quarter, we now expect full year constant currency global RevPAR to range between down 3% to down 2%. This represents a reduction of 100 to 300 basis points from our prior outlook and implies fourth quarter global RevPAR of down 7% to down 4%. At the low end, this assumes roughly 200 basis points of additional softening beyond third quarter results, while the high end assumes slightly better performance than the 5% decline experienced in Q3. This outlook also assumes that U.S. performance continues to lag meaningfully behind our international regions and that international trends moderate modestly from recent levels. There are no changes to our net room growth outlook of 4% to 4.6%. Fee-related and other revenues are now expected to be $1.43 billion to $1.45 billion, down $20 million to $40 million from our prior outlook of $1.45 billion to $1.49 billion. Since our initial outlook in February, RevPAR has come in about 500 basis points softer and our revenue forecast has decreased by approximately $60 million. Through cost containment measures, including both operational efficiencies and onetime variable reductions, we have been able to offset approximately $30 million of that revenue shortfall as well as $15 million of incremental costs primarily related to litigation defense and employee health-care programs. As a result, adjusted EBITDA is now expected to be between $715 million and $725 million, down $15 million to $20 million, or approximately 2% from our prior outlook of $730 million to $745 million. Our marketing fund expenses are now expected to exceed marketing fund revenues by approximately $5 million, which reflects a modest investment to support in-flight initiatives that strengthen the long-term health of our franchise system. As a reminder, we do not adjust the performance of our marketing funds out of our reported results and we have a strong track record of recovering these investments and fully intend to do so here as well. Adjusted net income is projected to be $347 million to $358 million and adjusted diluted EPS is projected at $4.48 to $4.62, which is based on a diluted share count of 77.5 million and as usual, does not assume future share repurchase activity or incremental interest expense associated with any potential new borrowings. There are no changes to our outlook for development advance spend or free cash flow conversion. In closing, we remain focused on executing our plan in this challenging economic environment. We're maintaining cost discipline across controllable expenses, delivering strong ancillary revenue growth returning capital to shareholders and investing in our business to attract high-quality additions to our system, all while continuing to expand our royalty rate and grow our pipeline. With that, Geoff and I will be happy to take your questions. Operator: [Operator Instructions] We'll go first this morning to Dan Politzer with JPMorgan. Daniel Politzer: This is dual-pronged, but as you think about this challenging RevPAR environment that we're currently in, especially in the economy segment, can you talk about, I guess, what's in your control and what you're doing, and what's out of your control and kind of the active things that you're doing? And then similarly, how do we gain comfort that there isn't something structurally wrong with the economy segment, just given the recent RevPAR trends are obviously pretty concerning? Geoffrey Ballotti: The structural piece, I'll take first. I mean we're moving into our slowest quarter of the year. And despite the softness that we talked about in Texas, California, Florida, we are seeing nothing structural that concerns us in any of the leading indicators that we look at daily. Our booking lead times, they're up 2% to prior year. Our length of stay are consistent with last year, something that if we thought something structural was happening would not be the case. And our cancellation rates have actually improved over last year by 160 basis points in Q3 versus prior year. So on those indicators, we feel good. Slide 11 is an interesting slide that we've -- because we know you're getting a lot of questions, we're getting a lot of questions on this structural question. And we're looking at demand and occupancy. And this year, if you look at that slide, we're seeing occupancy down across all chain scales year-over-year with the divergence of RevPAR really being driven by ADR with the upscale segments taking rate, while the economy and the mid-scale where we're concentrated are not. Occupancy, as we all know, has not recovered to pre-COVID levels in any segment, but it has more so in economy and mid-scale. If we look versus 2019, STR mid-scale is down 5% to 2019 versus upper upscale and luxury, both down 8% to 2019, 100 basis points worse than economy and 300 basis points worse than mid-scale. So the question you ask in terms of is there anything structural that we're seeing out there aside from persistent inflation and consumer uncertainty and immigration in some of those states that we mentioned that aren't helping is the upscale hotels are able to price more aggressively to inflation than the lower chain scales are where the guest is obviously more price sensitive. STR ADR for economy is up 11% to 2019 versus up 29% in the luxury segment. And luxury is the only segment, as we know, that's been able to outpace inflation growth at 26%, which is very good news for economy and mid-scale segments from a pricing power standpoint moving longer term, especially as wage growth continues to outpace inflation, providing upside when that consumer confidence stabilizes and we get back to that 2% to 3% CAGR. In terms of the first part of the question, what we're doing to help our franchisees, franchisees in the lower chain scales are beginning to discount. We're seeing that in the rates, more so to try to capture demand right now. And we're helping franchisees where we can and urging franchisees to hold rate where it makes sense, especially on leisure versus the corporate contracted pricing and discounting where appropriate, but not playing heavily in that last-minute discounting on those all channel sales. We're trying not to discount last minute because of the long-term value dilution. And we're seeing our brands, they gained the most share in the mid-scale. We saw 160 basis points of RevPAR index, and it's being driven by the weekday, which was up 180 basis points for our mid-scale brands. And we're gaining with more rate index, which our revenue management teams really want to see continue for franchisee profitability. Operator: We'll go next now to Brandt Montour of Barclays. Brandt Montour: So just a follow-on to that. We'll stick on the demand side for a minute. And maybe just talk about business and infrastructure-related travel demand, specifically to what extent the new administration's curtailment of government spending and that sort of program has slowed down the pipeline of projects that I know that you guys have been excited about that was driving a tailwind late last year. And maybe data centers have been a bit of a positive offset, but if you could sort of frame that up for us. Geoffrey Ballotti: Thanks for the question, Brandt. Yes, look, we continue to view the $1.2 trillion of infrastructure as a multiyear tailwind for our franchisees. That's going to drive over $3 billion of revenue to our hotels. And the 150 basis points of growth that drove for us in the Q4 of last year is now more on par with the rest of our portfolio. Obviously, there's a lot of headlines out there that allocated monies have potentially been frozen as the federal government looks to possibly reallocate among states. And we're seeing some projects being paused as project priorities are certainly shifting. For example, EV-related spending is more shifting to energy spending or modernizing highways and bridges and air traffic control we read a lot about. But we're optimistic that the infrastructure spending, again, over 80% of which is not spend, is going to resume at some point. Infrastructure room nights contracted this year are up 2x versus consumed, and they're pacing well ahead of same time last year. And to the back part of your question, we're also very confident that private investment in reshoring and manufacturing will continue to boom as it has specifically with data centers, as you mentioned, where our hotels in those markets outperform the hotels from a RevPAR standpoint and have gained 500 to 600 basis points. Many of the states that we called out in our script are certainly benefiting from that. We're spending a lot of time with our teams. We've identified over 150 planned data centers. And the Wyndham hotels in those markets that we're tracking and targeting from the $1.6 billion Amazon Web data center in Canton, Mississippi to the $800 million Meta data center in Graniteville. They're seeing traction, and we're contracting with the surveyors from a GSO global sales standpoint and the design firms on the data centers that haven't even begun. There's so much early site development. Our teams, we met recently with the Mississippi Governor, Kate Reeves. And the $1.4 billion AWS data center in Richland, Mississippi is the biggest investment that's ever seen. So our hotels within the radius, and we've got a lot of them, are seeing improvement in Q3 market share, which gives us a lot of optimism compared to the other sites and markets outside of those radius that are under pressure for all the reasons we mentioned. So it's a really big deal and something that we're very excited about. Operator: We go next now to Dany Asad of Bank of America. Dany Asad: Michele, in your prepared remarks, you mentioned that you expect U.S. RevPAR in Q4 to be in line with Q3. Look, we're obviously still early in the quarter, but any early reads you can share with us as to where we're trending today relative to that domestic down 5% expectation? Michele Allen: I'd say from an October perspective, we are encouraged by some of the early trends in our 3 largest states, California, Texas and Florida, we're seeing RevPAR track about 100 basis points above September performance. We've also seen stabilization in U.S. booking pace month-to-date in October and a really strong Oktoberfest in Germany. So those are some of the green shoots that we're tracking. The rest of the portfolio appears to be performing more in line with third quarter results. So our fourth quarter implied RevPAR is at the midpoint anchored to those third quarter results and also includes, I'd say, the headwinds from last year's hurricane. And then the high end would assume some modest improvement from those trends, not a sharp rebound at all. And again, it's supported by those things that I just mentioned. And then, of course, the low end would allow for some further softening. But we believe -- certainly believe it is potentially achievable if booking trends hold and some of that strength I mentioned continues through the end of the year. Operator: We'll go next now to David Katz of Jefferies... David Katz: With respect to net unit growth, right, presumably, the bigger it gets, the easier it is to weather RevPAR volatility. Geoff, can you -- or Michele, can you talk about what kinds of momentum we can expect to see from you in terms of net unit growth, and what the gating factors or puts and takes would be toward next year being the same or better than what we have in terms of total net unit growth in geographies, et cetera, a lot to talk about there. Geoffrey Ballotti: Yes, there is, David, and our favorite David Katz quote, "Nothing lasts for a lifetime." We need RevPAR to get back. But we're feeling very good about our NRG outlook. Accelerating in the higher fee segments, it's continued. And as you've seen, we've opened a record 48,000 organic rooms year-to-date. which is up 9% to prior year. It's up 29% to 2019. And what we're really happy about and confident about looking forward is that openings are pacing ahead of prior year. And net room growth sequentially is pacing ahead each quarter throughout the year. So Q1, we added net 4,800 rooms. Q2, 6,800 net rooms were added and Q3, 8,700 net rooms were added in the quarter. So as of September 30, we have opened 9% more rooms versus where we were same time last year. So we're feeling again very good about our outlook. And 70% of those rooms are in the mid-scale and the above segments. We're -- in terms of next year, given just how strong the pipeline is, we're feeling very, very good. This was our 21st consecutive quarter of pipeline growth. and it's up sequentially and it's up 4% versus year-over-year with, again, a concentration in higher RevPAR segments in markets not only across the U.S., but obviously internationally as well. 60% of our pipeline is international with really steady growth across Europe, the Middle East, Eurasia, Latin America, which have grown 140% since spin and 170% in Latin America's case since spin. So with that type of continued growth in net rooms, we're feeling confident about the rest of the year, obviously, and more importantly, next year in '27. Operator: We'll go next now to Michael Bellisario of Baird. Michael Bellisario: Two-parter for you, probably for Michele here. Just first on the franchise fees in the third quarter. Can you maybe give us a little more detail on what's in that other bucket that you mentioned? And maybe also why were they down more than you thought? Any color there would be helpful. And then second part is just as we think about the bridge into next year, maybe help us put some of the moving pieces with G&A, the cuts this year and maybe any step-ups that you expect next year? Michele Allen: With respect to franchise fees, Mike, that line item captures a number of items that aren't tied directly to rooms or RevPAR. So those are things like termination fees, transfer fees, application fees, transactional revenue that's subject to varying revenue recognition policies. These items are event-driven. So the level of activity can vary quarter-to-quarter. For example, the number of transfers in any given quarter can shift based on deal timing and obviously, transaction volume, which is down quite meaningfully this year industry-wide 24% for the select service space. So I think when we look at these fees, they're healthy. It's a high-margin part of our business, but naturally variable. And that's why occasionally, you're going to see some movement year-over-year in this line item. This quarter, we saw a $7 million decline versus last year third quarter. But in terms of our internal expectations, we were only short about $3 million to our forecast. And year-to-date, I think these fees are just roughly maybe $2 million ahead of last year. So we're really -- we really look at the Q3 decline as timing related. I think the second part of your question was with respect to next year. And I'd say it's still too early to talk about our 2026 expectations. We're just beginning our planning process now. We are, of course, approaching the budget the same way we always do. We're staying very focused on what we can control. From an expense perspective, we did have some variable reductions this year. About half of those we expect will be permanent to the margin and the other half are more temporary for 2025. Operator: We'll go next now to Steve Pizzella with Deutsche Bank. Steven Pizzella: Maybe we could pivot to ancillary revenue. Can you talk about your expectations for ancillary fee growth to accelerate from low teens this year to mid-teens in 2026? What are the drivers of that, specifically from a credit card perspective? How should we think about lapping the tough compares for most of this year? And do you expect the procurement business to also accelerate next year? Michele Allen: Okay. Yes. There's a lot in there. I'm going to try to remember your 6-part question. We're really pleased with how ancillary revenues are performing, up 18%, I think, in the quarter. Year-to-date, we're tracking 14%, pretty much in line with maybe modestly ahead of our low teens expectation. On the credit card side, we saw a 10% increase in new accounts. We saw a 7% lift in average spend per cardholder. That's an acceleration from the Q2 metrics, which were 5% and 2%, so 5% in new accounts and 2% in average spend. For ancillary revenues, we've got several initiatives driving this multiyear above algo growth. So Credit card is obviously the largest contributor to growth this year, but we've got the replatforming happening later this year as well as early next year. That's another inflection point from a growth perspective. Then we've got international expansion. We've got the debit card, which is ramping slowly and intentionally slowly. We've got technology like Wyndham Connect. And then we're really excited about Wyndham Insider. It's first of its kind, as Geoff mentioned, to add-on subscription service. It won't drive much in EBITDA this year or even perhaps next year as we focus on ramping the program and testing and proving out the model. But we think there's real opportunity here in future years from an ancillary fee perspective. So at this point in time, like I just mentioned, still a little too early to talk about 2026. We don't consider the forecast or the 2026 period as lapping a tough comparison. We see -- we're growing off of a higher base, obviously, post renewal, but we still think there is a significant growth opportunity, not just in 2026, but like I said, multiyear tailwinds from the number of initiatives we currently have in place. Geoffrey Ballotti: I think the only thing you missed, Steve asked about was sourcing, a team that Michele leads and a team that's making significant strides, Steve. We've got new sourcing categories and global expansion of programs that are really benefiting our franchisees. New sourcing brands that Michele's team are adding like Nestle, Seattle's Best, Starbucks on the coffee side and a great program for franchisees when it comes to sourcing insurance through a program that's driving significant savings on franchisee insurance quotes, which is a big issue for small business owners, resulting in a lot of savings for franchisees. So we're optimistic as well that we've got a lot of upside on the sourcing side. Operator: We'll go next now to Lizzie Dove of Goldman Sachs. Elizabeth Dove: You mentioned in the presentation that your new deals which require key money are coming in at about a 40% FeePAR premium versus the portfolio. But then China is also becoming -- or has become a bigger part of the mix. Curious like how we should think about the kind of balance of that mix shift, the benefit from the key money deals versus China and whether this is kind of accretive or dilutive to RevPAR over time? Michele Allen: So key money is absolutely accretive to RevPAR over time. We are having great success with that strategy, bringing in high-quality product in higher demand, higher RevPAR markets. I think your question more has to do with the mix of net room growth, right? So as we grow faster in international regions that have lower royalty rate, that could wind up looking dilutive to the overall royalty rate and maybe even dilutive to FeePAR on a global basis, but still very accretive to revenue and very accretive to EBITDA. So we have -- from our perspective, the world is a very big place. Nothing -- no market is off limits just because it's a lower RevPAR market. We may not be incentivizing our development team as much to tap into those markets, and we may be adding more feet on the street in higher RevPAR markets, all of those things are very true. But if the deal comes our way and we can support it appropriately and drive the value proposition, we're not going to say no just because the RevPAR market itself is a lower RevPAR market. And again, like I said, I think from a key money perspective, feel highly confident that where we are deploying our money is for higher FeePAR product coming into our system. Geoffrey Ballotti: And I think it's fair to say, Michele, that we're not deploying key money in China today, correct, or very little. Michele Allen: That's right. Geoffrey Ballotti: Yes. I mean -- and we're, Lizzie, just having a great success over there with -- as we've talked a lot about with you when we've been out on the road driving that double-digit net room growth increase in direct FeePAR accretive rooms without key money. And it was just so great to see what happened again this quarter, the team executed 52 new deals in the quarter in China, 30% more than last year and 11% now more than last year year-to-date. And it was great to see that net room growth grow sequentially and the pipeline grow sequentially. Pipeline was up 3% in China without key money. And so many of those contracts awarded are new construction. I mean, just absolutely positively stunning new adds this quarter with Wyndham Grands and just some phenomenal locations competing against our larger peers in so many cities across China without the use of key money. So we're really excited that, that could continue. And congratulations on your recent nuptials. Operator: We'll go next now to Stephen Grambling of Morgan Stanley. Stephen Grambling: Geoff, I appreciate some of the detail you gave on the AI front, but I want to make sure I understood some of what you're doing there. Is that largely an internal AI tool to drive bookings in the direct channels? And if so, how do you think about partnerships or opportunities with indirect channels? For example, what would make partnering with an LLM more or less attractive versus other LLMs or even considering compared to OTAs? Geoffrey Ballotti: Well, a lot to unpack there, Stephen, how we would consider it. I mean, certainly, Chat, Perplexity, Gemini are reshaping how guests book hotels. And it is presenting a unique opportunity for us to continue to reduce our dependency on OTAs. I've heard you asked this question before. We continue to add new capabilities to optimize how our brand.com sites appear in LLM searches, and we're currently experimenting with MCP server, a sort of USB port, if you will. For AI to allow LLMs to plug into us to directly access all of our hotel availability, all of our rates, all of our inventory, making it easier for an LLM to receive fully updated hotel information from a trusted source. What we referenced in the script and that we've not put into the IP is what the last 6 years of investment, the $375 million that we have invested in our industry-leading tech stack with best-in-class providers who all embrace AI. We don't think we could build it better than Oracle or Adobe or any of these great providers we partner with. We were the first to cloud with a very scalable system that is fully optimized right now, 100% optimized to drive down cost. You could read a lot about our tech team's success. Rackspace, a global leader in cloud management recently said that Wyndham's cloud environment is more optimized for AI than most, if not all of its competitors. And that's enabling us to innovate faster and innovate at a lower cost. I mean AI has been helping everyone in the industry for years on the security front, the marketing front, the operations front. But what we're doing with Wyndham AI, which is an industry first is leveraging now that we have the system built Salesforce and Canary, Canary Technologies with the 250 AI agents that we talked about who are handling hundreds of thousands of guest calls. Mrs. Grambling calls and she wants to book the Gramblings on a holiday. And one of our AI agents know everything about whichever one of our 8,300 hotels, the Grambling kids want to visit. And it's able to answer any question, on any question that, that guest might have about any of our hotels and seamlessly book it. And that's what's driving direct bookings. That's what is allowing our franchisees to save on the labor cost. And it's what's driving right now 300 basis points of increased direct contribution for only 600 of our 8,300 hotels have that specific Wyndham AI piece enabled so far. We talked last call on Wyndham Connect, which is allowing us to talk to customers with AI. A lot of our competitors are doing that. We're taking labor-intense tasks away from our franchisees. We're allowing them to make extra money by seamlessly selling an early check-in or late checkout to the Gramblings, or an upgrade or amenities in terms of what the kids want in the refrigerator. But what we're doing right now with Wyndham AI in terms of that direct booking piece is what really excites our franchise sales team and our franchisees. We're told by Oracle, who works with all of our peers that we're doing things really no one else is, and it's something that our franchisees are very, very excited about. Operator: We'll go next now to Ian Zaffino of Oppenheimer. Ian Zaffino: I just wanted to ask kind of a follow-up on the Wyndham Rewards Insider. Michele, I know you said kind of not a lot of EBITDA impact either this year or next year. But how do we kind of frame the opportunity here? Maybe just longer term, like when you conceptualize what it could deliver to you from either a profitability standpoint, et cetera, or maybe point us to kind of a comparable program that you might think your rewards system could deliver? And then also, how do you actually get there? Would that just be on the fees? Would it be on more loyalty? Just any other type of color you could give us there would be helpful. Geoffrey Ballotti: I would frame it, and Michele could add to this, but we're very excited about it. I think it has the potential to deliver engagement on par at some point with our credit card. Wyndham Insider right now, as Michele said, we expect a strong take rate for members over the next 24 months. And over time, it has that type of potential. So long-term fee growth is certainly the goal. But short term, as Michele said, the focus is more on proving out the model and using returns to further grow Wyndham Rewards. Our new co-branded credit card complements it, and with the credit card rewarding everyday spend, and we're really excited about that, but Insider enhancing Wyndham Rewards value proposition. I mean we know, to frame the opportunity that the subscription economy is absolutely booming, the hotel loyalty travel subscriptions are really in their infancy. Of those that have something like this in the hotel space, they're tied and they're limited to select brands or hotel-only benefits. But at $95 a year, we expect the savings for the average Wyndham Rewards member to more than cover the fee after just one trip. Plus members earn a free night, and we hope you subscribe to this, Ian, at thousands of hotels with the 7,500 annual bonus points. It expands our value prop to our most important members and it basically stacks their discount. So if our promo rate to you is 10% off, as an Insider, Ian Zaffino as a Wyndham Insider gets an additional discount on top of that with a 50% acceleration in the points earned. And without impacting our franchise, and that's a very important point, without impacting our franchisees' costs, the program is absorbing the costs. We've had a lot of interest, a lot of excitement from franchisees, a lot of interest, obviously, from the media, upgraded points called quite a lot of value for $95, T+L magazine, no editorial from our friends at T+L, it's completely separate, compares this program well to premium credit card fee programs, which are charging anywhere between $795 to $895 that we see. We're partnering with American, with United, with JetBlue, with Avis, who else? We're partnering with Carnival with up to 30% discounts from some of those providers. And that's really driving the value prop and the affinity to most importantly, increase our Wyndham Rewards members engagement and their share of wallet. So we're super excited about this. Operator: We'll go next now to Alex Brignall of Redburn. Alex Brignall: The first one is on the marketing expense overspend. Could you just talk a little bit about what that specifically is and you talk about getting it back. Does that sort of specifically mean in the next couple of years? And what are the benefits that you're getting and who's sort of sharing them between you and franchisees? And then the second, you talked a lot about the structural dynamics of RevPAR and demand in the U.S. It's obviously something that's a curiosity for a lot of people. In September, it was obviously a very, very hard comp for the economy segment because of the hurricane impact last year. But versus 2019, the gap between luxury and economy was actually -- there was no gap having previously been a very large gap in the months before. I guess what I'm wondering is if that gap is to close and you talked about franchisees cutting rates, are you worried that it will be because the higher segments will have to see price deterioration because you become a better value prop versus them because of the relative cumulative price growth over time? Or do you think that the economy segment can see sort of a big bounce back in pricing in 2026? Michele Allen: I'll take the fund question, Geoff, and then maybe you want to address the second part of Alex's question. I mean, look, it's $5 million overspend to the marketing fund, let's keep it in perspective. The fund is over $0.5 billion, right, so in annual activity. So it's only roughly 1% of total spend. So still a very immaterial amount when we're trying to kind of manage that level of spend. And remember, we're the only large lodging corporation that does not adjust these marketing funds out of our reported earnings. If you look at the peer set, their -- the variability from their marketing funds is much larger than $5 million. So we feel pretty good about how we've been able to manage that level of annual activity in this RevPAR environment. specifically. And I think as RevPAR deteriorated specifically throughout the third quarter, we had to make a conscious decision on whether or not we were going to stop some in-flight initiatives or we were going to continue them. And certainly, there were ones that we decided to pause, but there were a bunch of other ones that we looked at the overall benefits of those investments to our franchisees and to our -- the overall health of our franchise system. things like Wyndham Insider, for example, some of the AI initiatives that Geoff was talking about, a bunch of personalization initiatives that we're doing and some updates we're doing even to our digital platform to our websites. And so we decided that we were going to continue to invest in those programs. They will have benefits not just in 2025, but well beyond 2025. So ultimately, we view this modest overspend as an investment, and we do have a very strong track record of recovering these funds in future periods, and we're really comfortable with that decision. When we recover this $5 million could be as early as 2026. It could be 100% in 2026, it could be 100% in 2027. It could be some in '26 and some in 2027, but certainly more in the nearer term as opposed to the longer term. Geoffrey Ballotti: In the back half, Alex, it's a really good question. I've seen your sort of the answer on it, I think, in your Hitchhiker's Guide. If you think about the rate for economy up whatever it is, 10% to where we were pre-COVID and luxury right now at up 30%. And to your point, what's happening there, it is very good news for our economy and mid-scale segments from a pricing power standpoint. And at some point, we do believe, to your question, that can flip when consumer confidence stabilizes. Remember, both of those segments, economy and mid-scale were the first to recover coming out of COVID. And we know that at some point, domestic RevPAR is going to return to that 2% to 3% long-term CAGR that it's always averaged, and especially given the earlier comments, everything that's out there from a macro setup on the infrastructure and private investment side, the historically low levels of supply and moreover on the leisure side, I mean, we've got a lot to look forward to next year, like America 250, the FIFA World Cup, which is a $20 billion impact in markets like STR says Atlanta's impact is $2.1 billion. We've got a lot of hotels in Atlanta, along with Dallas and Houston, right, which right now, with all of the consumer uncertainty and immigration activity is stressed, but Dallas and Houston are both going to benefit from that next year. L.A. and California, where we're down, is going to benefit. Miami is going to benefit from FIFA World Cup next year, where we've got a lot of hotels in Florida, 300 in Florida, 400 in California, 700 hotels in Texas, our 3 largest states, and we've got half a dozen other cities that this FIFA World Cup is going to play in where we've got collectively about 1,000 hotels. So it's an interesting observation. Operator: We'll go next now to Meredith Jensen with HSBC. Meredith Prichard Jensen: So many questions, I don't know where to start. So I was thinking about something touching upon what Stephen mentioned. So realizing how the lodging sector supply continues to evolve and there's a wider array of options for consumers, including short-term rental and distribution shifting, all these moving parts. Of course, this is nothing new to Wyndham. But it is something we're increasingly fielding questions on given the push from OTAs like Booking and Expedia and Airbnb to get into the lodging sector. So I was really hoping you might be able to speak a little bit about how Wyndham views these opportunities and how you're going up against some of these challenges in nontraditional or as some might label it shadow supply. So that would be really helpful. Geoffrey Ballotti: Yes. It's an interesting question. Our teams think about a lot, Meredith. Agentic AI, the possibility of STRs, short-term rentals coming into the space from a distribution standpoint is they're all certainly bringing a different rhythm to search that's more frequent and more automated. AI is really moving the traditional SEO to GEO, which we talk a lot about that generative engine optimization with these new channels searching for more trust and more contextual relevance. And so how we think about it is all about with our franchisees and our teams and our brand teams is our reputation and the confidence, which is always the top signal in any search. Whenever you go on vacation, you're doing your own research. And we're trying to find ways, and we are finding ways through Wyndham Connect, which we've talked a lot about and Matt put in the deck. It's improving that confidence with guests and more frequent reviews from our guests. We're engaging more frequently and more immediately through so many different ways, SMS messaging, voice and digital to add context to your search. And we're boosting higher online review scores. because immediately, when Meredith Jensen checks out now from one of our hotels, we're asking you for review on TripAdvisor, on Google Reviews, on all of the major OTAs because we want your feedback, and we want to improve that feedback because we know it's the key indicator of quality. And it's the whole point of consistency for overall satisfaction in those large language model searches. Operator: And Mr. Ballotti, it appears we have no further questions this morning. So I'd like to turn things back to you for any closing comments. Geoffrey Ballotti: All right. As always, Leo, thank you very much, and thanks, everybody, for your questions and your interest in Wyndham. Michele, Matt and I look forward to talking to and seeing many of you in the weeks ahead at several of the upcoming investor lodging conferences that we'll be attending. In the meantime, have a great weekend ahead, and happy Halloween, everyone. Thanks again for joining us today. Operator: Thank you, Mr. Ballotti, and thank you, Ms. Allen. Again, ladies and gentlemen, that will bring us to the conclusion of today's Wyndham Hotels & Resorts Third Quarter 2025 Earnings Conference Call. Again, thank you so much for joining us, everyone, and we wish you all a great day. Goodbye.
Jean Poitou: Good morning, good afternoon, good evening. I'm Jean Laurent Poitou, the Chief Executive Officer of Ipsos, and I'm delighted to be joined by you in presenting our third quarter results for the year 2025. I'm joined by Dan Levy, our Chief Financial Officer. Over the next 45 minutes or so, I will start by sharing a few observations about what I've seen since joining Ipsos last month. I'll share a little bit about myself, my background, and I'll talk about a few of the beliefs on which we will ground our strategy for the next few years. Dan will present our results, and we will open up, of course, for questions-and-answer session. Let me start with a few observations regarding what I've seen since joining Ipsos and spending time across various geographies with our clients, with our technology and digital partners and most importantly, with our teams. First of all, Ipsos has a unique position as an independent leader in market research. One of the characteristics that struck me most is the global reach and diversity of geographies, of sectors, of services we offer. No other firm have this combination of looking at, in particular, the people as citizens, as patients, as clients or customers who experience the channels and products of the companies we serve. That is combined with a long history. Ipsos is actually celebrating its 50th anniversary this year, which on top of the legacy it gives us, provides us with unmatched depth, breadth and length of data, which is the fuel without which no technology, digital and particularly artificial intelligence-based solution can be trained. The other thing I've been very impressed with is the robustness and diversity of our cadre of close to 20,000 people ranging from sociologists, project managers, researchers, data engineers, data scientists, field interviewers and all the support functions. Ipsos has a unique diversity of talent. I've also been impressed in discussing with clients, also with technology partners, digital solution providers that we work with and leverage with the trust and respect that Ipsos has in our industry. And that trust, particularly the trust from our clients, which materializes in the long-term relationship we have with many of our largest customers, is one of the foundations on which to build our future sustainable profitable growth. And then finally, we have the means to our ambitions. We have the financial profile with growth, and we will talk about that some more as we talk about our results; profits and cash, which are allowing us to have the wiggle room to invest or repurpose some of the existing investments into what we believe is critical to accelerate our organic growth in particular. So we have the means of our ambitions. However, we cannot rely on what got us there. My experience, which I'll talk about in a minute, shows me that it always is critical to be able to change and have the courage to change, in fact, at the moments when we are successful. There's no room for complacency in this rapidly evolving market. And in particular, as I think about the main 2 things I want to focus on, one, while our growth has been steady, the organic component of that growth does need to accelerate. It is absolutely critical. Second, I strongly believe that being a technology-enhanced professional services firm means that we need at this point of inflection in how technology, digital solution, artificial intelligence change the way many industries evolve. We must embrace this even more. There are very solid foundations on which to build, and we need to accelerate. We need to accelerate with speed as the main thing our clients are demanding of us and scientific rigor as the absolute mandatory ingredient. Without which, our clients won't trust the insights that we provide them based on the combination of what we learn from the real-world respondents we interview and mobilize and the data, including synthetic respondent that we leverage. So my beliefs in what will guide our direction moving forward. We will continue to be the diversified firm we are. We will have this unique advantage of leveraging the history of data that we can rely on and the breadth and depth of data so that we can train models and provide insights that are usable and actionable at speed with scientific rigor. And then we will continue to leverage the fundamentals of rigor and discipline, which I'm very clear are needed more than ever to drive the sustainable profitable growth I mentioned. I have the background to deliver on these ambitions. I come from over 3 decades of being a consultant, but more importantly and significantly over 2 decades being a leader in the professional services industry. I have a very international profile and background. I spent some of my youth in the U.S. I was an expatriate in Asia, based in Tokyo over a number of years. I've worked and lived across a variety of European countries. I understand the differences in the markets we serve from the U.S. to China, from Europe to Asia Pacific. I'm also a very growth and innovation-focused leader. And I believe that growth through innovation is, as I just touched on briefly, a key ingredient of what is going to drive Ipsos moving forward. Now I will be able to talk more about how those ingredients materialize in a strategy and financial trajectory for the years ahead. In January as it's pretty clear that with just a month or just over a month, in fact, under my belt at this point, it would be unreasonable to do it right now, even though I have the luck to be leveraging a lot of work that has gone on into building the strategy that I will disclose on January 22. In terms of what I will do over the next few weeks, I just mentioned that finalizing the strategy is absolutely critical. You all want to understand what we will be investing in, how we will continue to leverage mergers, acquisitions, but also partnerships as a way to fuel our growth as Ipsos historically has with over 100 acquisitions throughout its 50 years of history. I will be spending a lot of time, as I've already started to, in the field, meeting with the people, meeting with the clients where the action actually means that I will be able to get the best sense for what is critical in our future success. And then while we work on the long-term strategy, I will be raising the bar on execution on a few areas of rigor and execution discipline where it is absolutely critical that we get it right now and not later. So with that, let me hand it over to Dan, who will present our results for the quarter. Dan? Dan Levy: Thank you very much, Jean Laurent. So Ipsos posted a good performance in Q3 with a total growth in Q3 of 7.6%. And as you can see, an improvement in organic growth, 2.9%, compared to Q1, which was minus 1.8% and Q2, 0.7%. If we look at the first 9 months of the year, we posted a EUR 1.8 billion -- nearly EUR 1.8 billion revenue since the beginning of the year with a total growth of 3.6%, organic growth of 0.7%. Obviously, FX effect with negative impact, which is mainly linked to the depreciation of the dollar and a few other currencies against euro and the scope effect of around 5%, which is mainly coming from the acquisition of BVA of infas that we did since the beginning of the year. The situation is improving in the U.S., where organic growth since the beginning of the year amounts to 0.9%. And the U.S. is still a bit of a tale of 2 cities. Excluding Public Affairs, we are growing organically by 3% since the beginning of the year, and this is on the back of improvement in the pharma sector, good performance with CPG clients. But on the other hand, we do have a tough political context in the U.S., as you all know, with the DOGE at the beginning of the year and the shutdown that has now happened a few weeks ago, and we don't know how long it is going to last. And all of this, obviously, is continuing to impact our Public Affairs business, which is down by 15% since the beginning of the year. We see a good improvement and growth improvement across all regions in the third quarter. I've already spoken about Americas. But if you take EMEA, EMEA is growing by 10% as a total growth on the back of the acquisition of infas and BVA. Organic growth at the end of September is 1.6%, which is a good performance given the tough comparative that we had last year. And only on the third quarter, we are growing by 3.2% in EMEA. We see good performance in Continental Europe but also in Middle East, but this is partly offset by the situation in France, where, as you know, there is a lot of political instability. France is down because of this political instability and Public Affairs by 4%. If we were to strip out the Public Affairs business, France would be in slight positive growth. In Asia Pacific, we see a slight positive growth in China. But again, this is offset by the Public Affairs business in several countries in Asia Pacific, particularly in Australia, New Zealand and India, where there have been, either in '24 and '25, general elections and sometimes tough budget constraints. If we now move to the performance by audience, we see good performance across most audiences, but obviously, the performance is held back by our Public Affairs business. Our service line, which are dedicated to consumers, clients and employees are growing by 2% since the beginning of the year. This performance is driven by our activities relating to ad testing to marketing spending optimization and to mystery shopping. The Doctors & Patients audience is growing and is recovering compared to what we saw last year in 2024. It is growing by 5% since the beginning of the year organically. This is on the back of coming -- recoming innovation on a lot of several of pathologies. But on the other hand, there are risks on these audiences, which are coming from the current discussions in the U.S. on drug pricing and also the slowdown in the drug approvals by the FDA after there has been a few thousand layoffs in the FDA with the DOGE action. As you see, the Citizens business is really driving down the performance, minus 9.2% since the beginning of the year organically. It continues to impact by political instability, and this is the case in the U.S., in France and again, in several countries in Asia. If you strip out the Public Affairs business, our organic growth at the end of September would stand at 2.3% instead of 0.7%. And if we strip it out on the third quarter, we would grow by 4.2%, excluding Public Affairs, which shows how our performance is weighing down by Public Affairs and the rest of the business is doing well. We continue to see very good momentum on Ipsos.Digital. Over the first 9 months of the year, we are growing organically by 28%, mainly on product testing and ad testing. The profitability of Ipsos.Digital is twice the profitability of the group, and we target around EUR 140 million of revenue on Ipsos.Digital for 2025. So at the end of the third quarter, you have understood that the group posted a solid performance among the private sector clients, but the group organic growth is being impacted by our business on Public Affairs on the back of political instabilities, many general elections, budget constraints. And as a consequence, we revised our organic growth target to around 0.7% for 2025. Our operational discipline and financial discipline enables us to maintain and confirm our operating margin at around 13% at constant scope. This is excluding the temporary dilutive effect of the acquisitions of BVA of infas, which are estimated at around 60 basis points for 2025. I thank you for your attention. And now I hand over to Jean Laurent for some concluding remarks. Jean Poitou: Thank you, Dan. And I would like to emphasize what impresses me most in today's discussion, which is the growth trajectory, starting the year with minus 1.8% in the first quarter all the way to 2.9% in the quarter we're announcing today, which is a number that Ipsos hasn't reached in quite a while. And I think it's important to note that. And the other thing that is very important, as we all think about the impact that several disruptions, particularly digital AI and technology disruption may have in our markets. Our private sector activities, the ones where probably the innovation intensity is one of the highest, continues to grow quite significantly with 2.3% year-to-date and most importantly, 4.2% over the quarter we're announcing today. So those are some of my takeaways and things that I wanted to emphasize. Now I have to invite you to the very important Investor Day we intend to hold in January. That was initially scheduled to be in November. But as I alluded to in my introductory comments, it's quite clear that we need a couple of months to actually make this strategy mine and finalize it with the many people who are working on it together with me at the Ipsos management and in the teams. And then there will be the announcement of our annual results on February 25. Let me now open it for questions and answers. Operator: [Operator Instructions] The first question is from Conor O'Shea at Kepler Cheuvreux. Conor O'Shea: A couple of questions from my side. Just in terms of the lower guidance in the fourth quarter, could you give us a little bit more color in terms of the -- is this all Public Affairs related? And if so, in which markets? In particular, is it mainly the U.S. because of the shutdown? Or is it also in the French and U.K. markets? And also a broader question in terms of the sort of below par growth and maybe a bit early for you, Jean Laurent, to say, but do you see any kind of deflationary kind of drag on growth from AI, from generative AI so far? Or is the weaker growth only coming from -- or mainly coming from Public Affairs? Jean Poitou: So maybe on the last question, of course, this is not the time for growth outlook in '26, and we will talk about that some more early '26. But looking back, though, what I mentioned in my closing comments is the fact that in the private sector, where we are seeing probably some of the most intense AI-driven potential disruption, it hasn't been visible in our activity levels or in the deflationary impact you mentioned. That's one thing that I want to observe. Now obviously, we are watching that space and both looking at how our unique positioning in the market with the breadth of data will actually allow us to leverage what you just alluded to rather than be the victims of it. So that I'm very convinced is going to be a very important part of the strategy we announced in January. Now... Dan Levy: Yes. On the guidance, so it's true that we have seen an order book in Q3 and particularly in September, which was lower than expected during the summer. It is mainly coming from Public Affairs. And as you say, it's mainly U.S. and France, plus a few other countries that I mentioned during the presentation in Asia and particularly Australia, New Zealand and India. And not only have we seen lower order book than expected in Q3, but obviously, we also do the consequences on that in Q4 because we can imagine that given the political instability in France, for instance. And given the shutdown in the U.S., this is unlikely to improve significantly in Q4. So at the end of the day, the lower guidance is a consequence of not as good as expected situation on Public Affairs, particularly in the U.S. and France. Operator: The next question is from Marie-Line Fort, Bernstein. Marie-Line Fort: I've got two questions. The first one is about the Public Affairs segment, very naive question. The Public Affairs that still a real future given the increasing budgetary constraints? And how in the future will you deal with the restriction in the budget? The second question is about the BVA integration, how it's going on? And are you still targeting breakeven 2026, 2027? Could you give us an idea about that? Dan Levy: So maybe I can take the one on the Public Affairs. I think we should not be too much focused on the present. It is true that Public Affairs business has been difficult in 2024 and in 2025 for reasons that we clearly understand. There has been a lot of general elections. And we know that when there are general elections, there are patterns of electoral cycle, which tends most of the time to slow down the Public Affairs [ comments ]. On top of that, there has been some political instability in many countries and some budget constraints. It is true. On the other hand, we need also to remind us that Public Affairs started to use market research very late compared to private sector, and there is a catch-up that could keep on going in the next few years. And we are, at Ipsos, probably the only large actor on Public Affairs. Public Affairs tends to be a local market. We are the only large actors. Most of our competitors have divested their Public Affairs business. So there is a case, I mean, for growth in Public Affairs in the future, and we will -- when we will announce our strategy in January, decide whether this is a pillar of our strategy. But I think we should not remain too focused on the last 2 years, which it is true had been tough for Public Affairs, but which doesn't mean that it will be the case in the future. Jean Poitou: Regarding the integration status of the acquisitions, and I'll focus probably on the largest one because it's a large one and the largest one Ipsos has done since 2018, the BVA Family. It is proceeding. I'm coming from a history of having worked with companies that go through M&A transactions, I must say that the speed at which it is happening is a proof of the muscle memory of the ability that Ipsos has to acquire and integrate rapidly, particularly with the strength of its operations and financial and processes that are absolutely the same everywhere, which allows for these integrations to go relatively quickly and smoothly. We are already leveraging synergies. The organizations are aligned. We are also scaling the very important asset of the package testing, PRS IN VIVO, which was one of the key ingredients. And I must say, having been with the BVA teams in France and in Italy with DOA, it's a very cultural integration that is going on at the moment. Of course, it takes a bit of time. We're only 4 months into it. So I believe that it will take the usual 18 to 24 months to completely be less dilutive than it is today. And so we confirm that there is a transitional profitability dilution of around 60 basis points on this year's results. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any -- excuse me. We do have one further question from Anna Patrice, Berenberg. Anna Patrice: Yes. Thank you very much for the introduction and all the information provided. Could you comment a little bit more on where you have seen acceleration because you had quite a good performance in Europe and in America in Q3? So a bit more specific, what has been driving this improvement? And why you think it will be accelerating in Q4 apart from Public Affairs? Dan Levy: Yes. So we have seen acceleration in Q3 on the back of a few service lines that I mentioned before, which are the consumers and clients audiences and particularly on things like ad testing and also mystery shopping. And as I said before, the profile of Q3, Q4 is mainly coming and the fact that as a consequence, we might see some slowdown in Q4 as a consequence of the guidance we just revised is again mainly coming from Public Affairs. Anna Patrice: Okay. But then the weight of the [indiscernible] is it more Q4 or Q3 or it's much the same thing? And does it mean that the Public Affairs will further decline. So it is minus 15% year-to-date. Do you expect that it will further decline in Q4? So more than 15%? Dan Levy: Yes. So again, as I said before, we have seen a lower-than-expected order book in the summer, particularly on Public Affairs with some delays in the decision-making, sometimes some cancellation of projects, particularly in the U.S. with the DOGE. And we have also drawn the conclusions in the Q4 forecast to an extent. So we have done very recently a new forecast with our countries to see where we stand when we look towards the end of the year. So the revision of the guidance, again, is coming mainly from lower-than-expected order book in Public Affairs in Q3 and the consequence we draw for Q4, given the fact that it's probably unlikely to improve in Q4. Now I'm not going to give specific numbers, but obviously, the numbers that we see on Public Affairs in Q3 and Q4, and the fact that we are doing good performance on the private sector on the private client sector is consistent with the new guidance of 0.7% organic growth for 2025. Anna Patrice: Okay. Understood. Another question to Dan, please. Before you were also communicating the growth by the client sectors like CPG, telecom, financial services, automotive, et cetera. So can you provide a bit more details how the growth was across the client sectors, please? Dan Levy: Yes, sure. So on the CPG clients, we are growing, and that's a good performance despite the tough comparison that we had last year. On CPG, we grew by 6% last year. I think, again, this reflects the fact that the CPG clients in a very evolving world needs to know a lot about change in consumer behavior, market and pricing optimization, measure of the impact of their advertising campaign. We see also very good performance on IDP, our DIY platform. Obviously, in the CPG, the situation is quite different across the different players. There are players where the growth is high and other players, a few of them, which are implementing currently some cost-saving measures. So this is what we see on the CPG. On the health care, I've already commentated what's going on. Public Affairs, we discussed it quite a lot. Maybe a few words on the big tech clients. On the big tech clients, we see, as you know, a very fierce competition among the different clients, the different big tech clients on AI, which are -- who are investing billions and billions to build new models and to build new apps using generative AI. As a consequence of this, these big tech clients tend to have shifted their market research demand from the marketing use and the marketing teams to the product development teams because they are investing a lot quite ahead of the innovation cycle, and we are clearly adapting to that. We also see, and Jean Laurent has mentioned that, that speed is absolutely key for these big tech clients. They need to have faster insights and they need to have also AI-integrated solutions. And again, a bit like in the CPG client, the situation is quite diverse among the different players. We see very strong growth with some of the big tech clients and lower demand with others. Operator: And the last question is coming from Marie-Line Fort, Bernstein. Marie-Line Fort: I just want to understand what is really missing to Ipsos to deliver stronger organic sales growth. It is a question of mix, technological tools, speed to market, execution. Could you classify what the importance in terms of these topics? Jean Poitou: Yes. Of course, a lot more will be shared as we finalize the strategy and discuss it with you on January 22. But you mentioned some of the key ingredients. Speed is absolutely the thing that clients are demanding of us. And the fact that we have solutions ranging from Ipsos.Digital to some of the solutions we have in, for example, creative or in product innovation are foundations, but we need to continue and accelerate, and that will be a big part of our prioritized investment and focused investments that we will spend more time disclosing in January 22. But we will be leveraging both for the processing chain. Everything from automated scripting to integrated and automated data processing all the way to more interactive and real-time data insights provisioning to our clients through the dashboard and the interactive tools we will put in their hands. So that has a significant impact both on speed and on the richness of usage and actionable insights that can be provided to our clients. And then we will also be using AI a lot more in the years ahead to create differentiated solutions, whether it is to generate more insights in the product innovation space, whether it is to accelerate it in creative or in market research for market and society understanding. So 2 main areas of focus. One is speed through accelerated and automated delivery of our research activities. The second one is a lot more customized and easy to use for our clients, parts of the technology stack on the client-facing activities that we do for them. Operator: Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Jean Poitou: Thank you very much. Thank you very much for attending today. I will be very happy to spend time with you again on January 22 for our Investor Day and then on February 25 for our annual results. Thank you very much.
Operator: Thank you for attending the OceanFirst Financial Corp. Third Quarter 202 Earnings Call. My name is Brika and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Alfred Goon, Investor Relations. Thank you. You may proceed, Alfred. Thank you all for attending the OceanFirst Financial Corp. Third Quarter 2025 Earnings Call. My name is Brika and I will be your operator for today. [Operator Instructions] [Technical Difficulty] We now have the speaker line reconnected. And I would like to thank you all for attending the OceanFirst Financial Corp. Third Quarter 2025 Earnings Call. My name is Brika and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Alfred Goon, Investor Relations. So thank you. You may proceed, Alfred. Alfred Goon: Thank you, Brika. Good morning and welcome to the OceanFirst Third Quarter 2025 Earnings Call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you. And now I will turn the call over to Christopher Maher, Chairman and CEO. Christopher Maher: Thank you, Alfred. Good morning and thank you to all who've been able to join our third quarter 2025 earnings conference call. This morning, I'm joined by our President, Joe Lebel; and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions. We reported our financial results for the third quarter, which included earnings per share of $0.30 on a fully diluted GAAP basis and $0.36 on a core basis. In terms of performance indicators, we are pleased to report a fourth consecutive quarter of growth of net interest income, which increased by $3 million as compared to the prior quarter and was fueled by an increase in average net loans of $242 million. Net interest margin of 2.91% remained stable compared to the second quarter. Total loans for the quarter increased to $373 million, representing a 14% annualized growth rate, driven by strong originations of $1 billion. Joe will have more to add regarding our growth strategy in a few minutes. Asset quality remained very strong as total loans classified as special mention and substandard decreased 15% to just $124 million or 1.2% of total loans. This places us among the top decile of our peer group. The quarterly provision was primarily driven by net loan growth and an increase in unfunded loan balances and commitments. Operating expenses for the quarter were $76 million, which includes $4 million of restructuring charges related to our strategic decision to outsource residential loan originations and underwriting functions. This initiative is expected to meaningfully improve operating leverage and earnings in 2026. Pat will provide a detailed update on our financial outlook in a moment. Lastly, capital levels remain robust with an estimated common equity Tier 1 capital ratio of 10.6% and tangible book value per share of $19.52. We did not repurchase any shares this quarter under the existing plan as our capital was deployed for loan growth. This week, our Board also approved the quarterly cash dividend of $0.20 per common share. This is the company's 115th consecutive quarterly cash dividend. At this point, I'll turn the call over to Joe for additional color on these businesses. Joseph Lebel: Thanks, Chris. I'll start with loan originations for the quarter, which totaled $1 billion and resulted in loan growth of $373 million. The value of our continued recruitment of talent, coupled with favorable conditions for many of our borrowers has resulted in momentum in commercial and industrial, which increased 12% for the quarter. Despite the large origination and loan growth for the quarter, the commercial pipeline continues to be strong at over $700 million, only 10% below the high from the linked quarter. Turning to our residential business. During the quarter, we made the decision to outsource this business line. As we wind down the existing pipeline, we expect to see some modest growth in the fourth quarter before the portfolio begins to run off. Total deposits in the third quarter increased $203 million, although organic growth was higher at $321 million before decreases in brokered CDs, which declined by $118 million. Growth was primarily driven by government banking and Premier banking. Premier bankers contributed $128 million of new deposits for the quarter. The Premier banking teams, all of which we onboarded in April, remain on track to achieve our 2025 target of $500 million by the end of the year. Deposit balances as of September 30 totaled $242 million across more than 1,100 accounts, representing nearly 300 new customer relationships to date. Approximately 20% of those balances are in noninterest-bearing DDA and the overall weighted average costs of those deposits was 2.6%. The percentage of DDA is increasing as these accounts become fully operational, which should continue to offset new customer acquisition costs. We remain pleased with their results thus far. Also of note is the Premier Bank's contribution to commercial lending. Premier clients represent $85 million of commercial originations this year and the Premier commercial pipeline totals $50 million. Lastly, noninterest income increased 5% to $12.3 million during the quarter, primarily driven by strong swap demand linked to our commercial growth. With the outsourcing of our residential and title platforms, we anticipate a reduction in fee and service income of approximately $2 million in the fourth quarter and a modest gain on sale of loans in the fourth quarter as we close out the remaining pipeline. With that, I'll turn the call over to Pat to review the remaining areas for the quarter. Patrick Barrett: Thanks, Joe. And we've got a lot of good stuff going on but a little noisy. So apologies in advance for taking a little bit longer with my prepared remarks. So as Chris noted, net interest income grew and margin remained stable this quarter. Furthermore, pretax pre-provision core earnings grew 15% or $4 million linked quarter with the addition of earning assets at the end of the second quarter and through the third quarter, improving earnings power. On the rate side, loan yields increased 8 basis points, while total deposit costs remained flat. While our core NIM remained flat, it was negatively impacted by lower loan fees and a full quarter of higher interest costs on our subordinated debt. Absent these 2 factors, our overall NIM would have improved to 2.95%. Borrowing costs increased 12 basis points, primarily due to the second quarter repricing of our subordinated debt. Average interest-earning assets increased during the quarter, reflecting increases in both the securities and loan portfolios. Chris and Joe have already spoken about the loan growth but I'll add that we took advantage of market conditions to essentially prefund next year's anticipated growth in the securities book with highly liquid, very low credit risk and capital-efficient securities that will be accretive to our ROA, all without meaningfully affecting our neutral interest rate positioning. Looking ahead, we expect positive expansion in net interest income in line with or higher than loan growth but modest short-term compression on margin in the fourth quarter due to seasonality and some residual repricing of a handful of large legacy deposit relationships. Asset quality remained strong with nonperforming loans to total loans at 0.39% and NPAs to total assets at 0.34%. Delinquency levels continued to remain at the low end of historical levels, while criticized and classified loans declined noticeably. Risk ratings across our commercial portfolio were stable, while net charge-offs of $617,000 were benign and represented only 2 basis points of total loans, bringing our year-to-date net charge-off run rate to only 5 basis points. Overall, credit quality continued to perform in line with our company's strong historical experience and remains among one of the best in our peer group. Our provision for credit losses in the quarter was driven by both on and off-balance sheet loan growth, partly offset by overall improvements in asset quality levels. Core noninterest expenses increased from $71.5 million to $72.4 million, driven by increased comp and occupancy expenses. This excludes the impact of noncore restructuring charges totaling $4.1 million in the third quarter. The increase in comp expenses and occupancy expenses were driven by recent commercial banking hires, combined with modest increased variable spend during the quarter. Looking ahead, we expect our fourth quarter core operating expense run rate to move downward slightly to the $70 million to $71 million range. Turning to the noncore charges. We do anticipate a final $8 million in nonrecurring restructuring charges in the fourth quarter related to our outsourcing initiatives. Note that the reduction in headcount associated with the residential outsourcing will not be completed until late in the year, pushing the operating expense benefit from that initiative into the beginning of 2026. To be clear, we expect the pretax improvement in annual operating results to be approximately $10 million. Capital levels remain robust with our CET1 ratio moving down to 10.6%, driven by loan growth during the quarter. While the CET1 ratio remains strong, we continue to evaluate opportunities to further optimize our capital in the near term as we wait for the earnings from newly added earning assets to increase internal capital generation rates. We continue to focus capital priorities on supporting loan growth in the near term and do not expect to prioritize share repurchases. Finally, we've resumed our annual guidance, as you can see in our supplemental earnings materials. At this time, for the full year 2026, we expect 7% to 9% annualized loan growth for the year, predominantly driven by growth in C&I, which will be partly offset by runoff in our residential portfolio. We expect deposits to grow in line with loans as we continue to maintain a loan-to-deposit ratio of approximately 100%. The continued growth in earning assets should drive steady net interest income growth in line with or exceeding high single-digit growth rate, while our modeled 3 rate cuts of 25 basis points each throughout the year could drive a NIM trajectory well above 3% by mid-2026. Other income is expected to be $25 million to $35 million, reflecting reduced gain on sale and title revenues resulting from our outsourcing initiatives. 2026 operating expenses should range between $275 million to $285 million, reflecting the impact of our focus on expense discipline to offset any inflationary pressures. Capital should remain strong with our CET1 ratio at or above 10.5% for the year. These firm-wide targets should result in an annualized return on average assets of 90-plus basis points by the fourth quarter of 2026, with a glide path to achieving a 1% return on assets in early 2027, continuing to improve thereafter. At this point, we'll begin the question-and-answer portion of the call. Operator: [Operator Instructions] The first question we have comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Yes. Maybe we could just start on the net interest income guidance. Just to clarify because there's a few things happening. I think in the slide deck, there was a comment about reaching 3% by the end of -- or maybe it was a terminal 3% rate in 2026. And then, Pat, you just mentioned potentially reaching 3% by mid-2026. The 8%-ish guidance for NII growth in 2026 pretty much implies that, that would be more of an end of the year story. And then that also implies kind of a reduction in the balance sheet from the end of the year. So sorry to pile all that into one question but maybe you can just unpack the NII guidance from a balance sheet compared to a margin story for next year, would be helpful. Patrick Barrett: Sure. So I'll do my best. So hang with me on this. But the 3% terminal rate was referring to our assumption around Fed rate cuts, not our NIM margin. So that's assuming 2 more rate cuts during the rest of this year and 3 next year. So just to kind of take that off the table. We do expect that we will approach or breach a 3% NIM sometime in the first, second quarter of next year, so in the near -- very near term and continue to expand with a pretty modest but steady expansion as we move forward. We expect the balance sheet to continue to grow in the high single-digit levels, almost entirely from loan growth. And that should result -- look, this is all things being equal, so deposit costs, a big question mark, competition, yields and spreads, a big question mark. But our best estimate right now is that, that should result in steady revenue growth, at least commensurate with the loan growth, high single digits. So by revenue, I'm really talking about net interest income. So we see that growing at or better than the pace of loan growth, which is high single digit. Daniel Tamayo: Okay. I appreciate what you said on the terminal rate. First of all, that was obviously a mistake on my side. But -- so that -- I guess if the margin is up at that level, that would imply the balance sheet is going to come down, not down in the fourth quarter but down relative. There were some pretty significant growth on overall balances in assets in the third quarter. It sounds like you prefunded some growth with securities for next year. So there's some dynamic with the average earning assets coming down relative to the size of the overall balance sheet in the fourth quarter. Is that the way to think about it? Christopher Maher: Maybe. It's Chris. Maybe I'll just kind of try and draw a clear path. So to take the noise out of the third quarter, we did buy some securities and we don't anticipate doing that again. It was a pretty unique opportunity to prefund 2026. So the securities portfolio, you should consider being relatively stable as we go into '26 and throughout '26. On the loan side, though, we expect to continue to see growth. So very good quarter this quarter, $373 million. That was a particularly strong quarter. Maybe I would think closer to $250 million, plus or minus. Some quarters better, some quarters worse. But as Joe mentioned, his pipeline is very strong. We've got a lot of momentum. The new bankers are producing. So if you were to just use kind of back of the envelope and assume that over the course of '26, we're growing plus or minus $1 billion on the balance sheet, driven by loan growth, coupled with deposit growth. So that's the part of the balance sheet that would move. And then as we pointed out earlier, NIM crossing over that 3% in the first half of the year and you put those 2 things together and that's how you kind of get the glide path to the 90 basis point or better ROA by Q4. Daniel Tamayo: That's helpful. Okay. But ultimately, the NII numbers that you guys are talking about, just putting the guidance together, is my math correct here, it gets me to kind of the [ 3 80s ] range for 2026 for net interest income. Is that what we should be looking at? Patrick Barrett: Or better, maybe a little bit higher. Daniel Tamayo: Okay. Okay. So that -- the -- this 7% to 9% NII off of 2025 is kind of a floor. Is that the way, that or better? Patrick Barrett: Yes. Look, we haven't had annual guidance in a while, quite frankly, the uncertainty in the environment, the funding environment and the growth environment being a big part of that. So this is our best estimate now and we're trying to probably err on the conservative side. And I know it's frustrating for us to give ranges of things. But we know we'll probably be wrong in our estimates but this is our best estimate today. And so we're trying to be a bit on the conservative side from a growth perspective, given that this is our first quarter of really meaningful growth in 2 to 3 years. Operator: Your next question comes from Tim Switzer with KBW. Timothy Switzer: So the first question I have is around the Premier Bank. And sorry if you guys touched on this on the call but you doubled deposits this quarter. It looks like you got to double it again from a larger base for Q4. What's driving the acceleration there? And I'm sure you already have a good amount in the pipeline kind of embedded for you but just curious what's driving that? And is there any color you can provide on this trajectory as you try to get that $2 billion to $3 billion by the end of [ '27 ]? Joseph Lebel: So Tim, it's Joe. I'll answer the first part of the question relative to what's driving deposit growth. It's the teams we've hired and their acclimation not only to the bank but their customers' acclimation to the bank. I think we referenced the 1,100-plus new accounts that have been opened. A lot of those operational accounts are in the process of being converted to funding. So what we've seen early on is the excess cash come across paying a little bit higher rate for those dollars. And as the actual operational balances start to come, we'll start to see more of that transactional opportunity come across at lower dollar cost. So that's really the value short term. And then, of course, long term, clients come in pieces, right? They don't come altogether and they don't come all at once. So as these teams mature, they'll generate more and more activity from their former book, hence, the value of those deposits over the last couple of years -- over the next couple of years, getting to that $1.5 billion, $2 billion, $2.5 billion, $3 billion number. Timothy Switzer: I'm sorry, I was on mute. It was also great to see the $85 million of loan originations related to Premier Bank. That seems like that's a bit above kind of what you guys are expecting, at least in terms of like an LDR. But it's early -- it certainly can move around but can you maybe provide an update on your expectations there? Joseph Lebel: Yes. Actually, we've been really pleased with the activity of the Premier bankers so far. And Tim, I expect that we'll see more of that. I think it's a little too early to try to forecast what the percentage of loans versus their deposits will be. Obviously, historically, it's been a pretty low number. But we have some seasoned folks that have been around a long period of time and I think we're going to do pretty well in that space. And that sort of goes across some of the CRE space, some of the C&I space. So I think we'll be pleased with the outcomes as we go forward. Timothy Switzer: Okay. Great. And then I want to make sure I heard this correctly. I think you guys said the restructuring of the residential mortgage business will provide about a $10 million pretax benefit. So if that's a $14 million expense savings, that implies about a $4 million headwind to revenue. Are there other headwinds expected in noninterest income that gets you that $25 million to $35 million guide because that's obviously a bit below where you guys are trending for this year. Christopher Maher: Yes. Let me just -- Tim, I'll mention a couple of things on residential and then Pat will get to the noninterest income. Just on residential, this is a business that we were in since 1902. So restructuring it is something we're doing very carefully. We're making sure that we meet and support all of our customers in the transition. We've made sure that we have an ability to produce residential loans for those customers going forward. And then because of the size of the reduction in force, which is about 10% of our headcount, we have modification requirements at the state level. So that all kind of combines for a transition period that's going between [Technical Difficulty]. So you saw some of those onetime expenses for everything from severance to contract terminations and all that. That will all be wrapped up by December. So the benefit will really show beginning in January. We'll get that full benefit. And you're right about the $4 million headwind in residential. So all your numbers are right with that. And Pat, maybe you could talk about the noninterest income. Patrick Barrett: Yes. So the piece that's missing from what Chris just said, which is really focused on our operating residential origination and underwriting platform, the people, the severance associated with it, the costs of paying the people, et cetera, is what generates the $10 million net, $14 million of expense reduction, $4 million of kind of our current run rate of gain on sale per quarter of $1 million, times 4 quarters. So that's your $10 million. The piece that's missing from this that maybe hangs in your models a little bit awkwardly is our majority ownership in the title company that we had acquired about 3 years ago. That hasn't been material from a bottom line perspective. But it did contribute somewhere in the neighborhood of $10 million of consolidated expenses and about $10 million of consolidated title fee revenues annually in our run rates. It just didn't pop up from a discussion standpoint because it was essentially a conduit to facilitate origination business more than it was a profit earner. So that will bring down -- those are headwinds in the revenue side but also positive benefit in the expense side that will come out of it. Operator: Your next question comes from David Bishop with Hovde Group. David Bishop: Chris, Joe, appreciate the color on the NDFI exposure there. Obviously, that's been in the headlines a bit. Any color you can provide there in terms of the nature of that lending, how it sort of bifurcates with the sort of the regulatory guidelines? And then secondly, on the loan side, any update on [ gov con ] exposure with the shutdown, how that portfolio might be holding up on the -- on a credit perspective? Christopher Maher: Sure, Dave. Just on the NDFI, probably the most important distinction I'd make other than it's a very small piece of what we do is that we really aren't engaged in NDFIs that lend to the consumer. So we're -- these are more NDFIs that do commercial lending. So if you think about our Auxilior Capital, for example, which is an equipment finance business that we have an equity ownership in but we also use within the company and we provide some credit facilities to. So stuff that is very closely followed and where we've got our hands on things. So we're not concerned about any of those and those exposures, I think, are all in pretty good shape. Obviously, given the other experience this quarter, we went out and just brushed up and made sure there's nothing there to be concerned about. So does that answer that part of the question? David Bishop: Yes. Unknown Executive: All right. Christopher Maher: I'm sorry, the second -- that was. David Bishop: On the [ gov con ] exposure. Christopher Maher: [ Gov con ], not a big exposure for us today. Today, it's about $100 million worth of exposure and that is squarely focused on mission-critical contractors and decisions we've made over the course of the last year. So we were really thoughtful about entering those kind of relationships with folks that understand government shutdowns. They've been through this before. They've got plenty of liquidity. So we feel pretty comfortable about that. But we stay in close touch with that and Joe, anything you've heard from clients you might pass along? Joseph Lebel: No, I think you summarized it well, Chris. I'd just add the comment that we've been pretty close to it. We didn't have historical exposure and presence there. So a lot of our stuff, as Chris mentioned, has been in the last 12 to 14 months. So that's been a benefit to us because we don't have any legacy risk. David Bishop: Got it. And maybe, Pat, an update in terms of thoughts on the sub debt and that sort of reset. Any thoughts on sort of refi-ing or paying off? Patrick Barrett: Yes. We're not going to really go into the details of that on the call today but those details are available to anybody that's interested elsewhere. Operator: Your next question comes from Tyler Cacciatori with Stephens Inc. Tyler Cacciatori: This is Tyler on for Matt Breese. The cost of deposits were stable again quarter-over-quarter despite strong deposit growth, including demand deposits. And I know you talked about competition a little bit but when do you think we start seeing some of the benefits from the team in terms of lower all-in costs there? Christopher Maher: On the Premier side, you'll see that kind of go down gradually, as Joe said, as those noninterest accounts become activated and balances come in, the mix will shift a little bit but I would think a pretty gradual change there. And then in terms of the rest of the base, deposit betas and the Fed rate cut, there's a lag in the -- or kind of roll-through of deposit rates because we have some contractual agreements with various commercial accounts and things like that. So if you think about what happened last year, rates came down towards the end of the year. We didn't really see the benefit until the first quarter of '25. So sometimes there's about a 90-day lag and that contributes to Pat's guidance that NIM would be flattish, maybe even down a little bit in Q4. And we did have some contractual repricings of accounts that were pretty much at or near 0. So that kind of counterbalanced some of the positive movement elsewhere. So I think flattish, maybe down a little bit in -- for NIM in Q4 but then returning to expansion in Q1 and kind of sequentially thereafter. Patrick Barrett: Yes, that's a little -- this is Pat, Tyler. This is -- that's a little bit of the other side of the double-edged sword of growth, which we're very happy to deal with is that we need to raise deposit funding to fund loan growth. And so we're kind of a little bit bound by whatever the competition in the markets are today. We're seeing the same kind of lag though on deposit cost declines that we saw with increases when we were in the upgrade cycle. It was slow to get going and then it kind of picked up pace as the Fed continued to raise interest rates. We're expecting to see the same kind of behavior, slow, unfortunately, slower to come down initially and then picking up pace as we kind of move into the down rate cycle into next year. Christopher Maher: Also the CD book is pretty short duration. So it's under 6 months. So we'll see a lot of that repricing roll through the CD book in the coming months. Tyler Cacciatori: Great. And then my next question is about the ROA. When do you guys think you can hit a 1% ROA here? Christopher Maher: So I think to kind of knit together our comments earlier, we think we're better than 0.9% by the end of next year, fourth quarter '26, crossing over above 1% in the first quarter of '27 and then for the full year, continuing to grow throughout that year. So it's going to be at or around fourth quarter next year, first quarter '27. And as Pat said, there's a lot of unknowns out there about Fed policy and rates and all that but that's our best guess today. Tyler Cacciatori: Great. And then just my last question here. I think you said it in the prepared remarks, sorry if I missed it, about the deposit composition of the deposits the Premier team is bringing on and if the expectations of that 30% DDA target has changed at all? Unknown Executive: They're about 20% today and the expectations haven't changed. Operator: [Operator Instructions] And we now have a question from Christopher Marinac with Janney Montgomery Scott. Christopher Marinac: Just a quick one on the allowance. If you were to see an increase in criticized loans still not big in the scheme of things, would that drive a change in the reserve? Or does that sort of have tolerance? I mean it's been low on criticized for several quarters. I'm just curious if that were to go back up a little bit, that would be anything material to how you provision? Christopher Maher: Chris, you're right. The model is sensitive to the levels of criticized and classified. So if we saw a material movement in those numbers. We have a little bit of pressure on the ACL. In fact, if we had just taken the mechanics this past quarter, the decrease in criticized and classified would have caused a reserve release. We didn't think that was the right decision given the external environment and our shift over to C&I. So the model may say that on the way down or on the way up but we try and use our qualitative assessment and the exterior -- the indications of the economy that we get from, say, Moody's and others to drive our final decisions. So there's a little bit of sensitivity there but we've been trying to be thoughtful about the provision to reserve using our qualitative factors. Christopher Marinac: Perfect. No, that's great, Chris. And a separate follow-up question just is, if we see more changes among some of the regional bank competitors in your footprint, would that change the hiring? And I'm thinking above and beyond the Premier initiative. Or could -- would you just want to go after more business with the existing team? Christopher Maher: It's always a balance. We -- look, whenever we find great talent, we don't want to pass it up because that's what drives our business. On the other hand, we're very much focused on hitting the return hurdles that we've outlined today. So it's a trade-off. You've got to have -- if you find very good people, you don't want to pass them up. But we're very mindful that we need to get our return on tangible common equity into the double digits. We see doing that next year and we want to stay on course to do that. So we'll be balancing out the quality of opportunities to bring on bank [Technical Difficulty]. We love the bankers we brought on. We will probably always add bankers from time to time but the number of bankers will be determined by us continuing our steady march in improvements to profitability. Operator: [Operator Instructions] I can confirm that does conclude the question-and-answer session here. And I would like to hand it back to Chris Maher for some final closing comments. Christopher Maher: Thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you in January. And as we kind of head off into the holiday season, we wish you and your families all the best. Thank you. Operator: Thank you. That does conclude the OceanFirst Financial Corp.'s Third Quarter 2025 Earnings Call. Thank you all for your participation. You may now disconnect and please enjoy the rest of your day.
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.
Gerardo Lapati: Good morning, everyone, and welcome to Alsea's Third Quarter 2025 Earnings Media Conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. Today, you will hear from our Chief Executive Officer, Christian Gurría; and Federico Rodríguez, our Chief Financial Officer. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and that future results may differ materially from these statements. Today's call should be considered in conjunction with disclaimers in our earnings release and our most recent Bolsa Mexicana de Valores report. The company is not obliged to update or revise any such forward-looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on the pre-IFRS 16 standards. I will now hand it over to Christian for his initial remarks. Please go ahead, Chris. Christian Dubernard: Thank you, Gerardo. Good morning, everyone, and thank you for being with us today. Thank you. Today, I'll provide an overview of our third quarter results, covering our financial earnings, regional highlights and key brand developments. I will also highlight our progress on digital transformation, ESG initiatives and expansion strategy. Federico, our CFO, will follow me with an analysis of our results, including revisions to our 2025 guidance. Before we turn to the quarterly results, I want to remind everyone of the continued focus on our strategic priorities that will guide us moving forward. As we mentioned last quarter, our first priority is to continue driving disciplined organic growth. We remain focused on expansion and innovation to drive same-store sales growth, prioritizing traffic over price increases. We will also improve our customer experience and advance our digital capabilities. In addition, we will continue rolling out successful commercial campaigns such as Menu Del Dia from Vips in Mexico and Spain, Tres para mi or three for me in Chili's in Mexico, Paradiso Italiano with Italiannis in Mexico and Gourmet Burgers from Foster's Hollywood, among others, other initiatives, which have consistently improved our product offering and reflect our commitment on innovation. Our second priority is to optimize our brand portfolio. We will prioritize return on investment by ensuring that each brand and store format is aligned with the needs of each regional market. Also, scalability and growth across all brands remain a core focus to unlock their full potential. We are also addressing and analyzing potential divestments on non-core assets to concentrate on the business with the greatest strategic and financial value. Our third priority is to enhance profitability. More value is being generated in our existing stores portfolio through consistent operational improvements by leveraging the strength of what we call high-impact operational talent. Organic growth is supported by strategic new store openings and the remodeling of key locations. As mentioned, 2 stores are being remodeled for every opening as refreshing the existing base delivers faster and more efficient returns on capital. Finally, our fourth priority consists on discipline and strategic capital allocation. We will prioritize growth and productivity initiatives with clear return thresholds. Also, vertical integration and long-term sustainability continue to be central to our strategy. Our CapEx plan is being optimized, adjusting long-term investments to become even more efficient and ensuring every peso invested aligns with our capital allocation priorities as well as different G&A efficiencies that we have been consolidating and working through the year. Now I'll provide an overview of our quarterly performance, including our financial results, regional highlights and key brand developments, along with updates on our digital advancement ESG initiatives and expansion strategy. In the third quarter, we reported a 5.7% year-over-year increase in total sales, reaching MXN 21 billion or a 6.7% increase, excluding foreign exchange effects, same-store sales grew by 4.1%. EBITDA increased 1.8% in the third quarter, reaching MXN 2.9 billion with a margin of 13.7%, decreasing by 50 basis points year-over-year. Regarding brand performance during the third quarter, Starbucks Alsea same-store sales increased by 3.9%. For Starbucks Mexico, same-store sales grew by 3.3%, demonstrating solid in-store performance backed by our loyal customer base. For Starbucks Europe, same-store sales increased by 1.6%, reflecting a challenging environment in France, offset by continued strong momentum in Spain, driven by effective commercial initiatives. Given the strong results in Spain and the importance of the brand in the country, we are very excited about the latest opening of our flagship store in the Santiago Bernabeu Stadium, Starbucks Bernabeu. Finally, in South America, same-store sales rose 9.6%, driven primarily by Argentina. Excluding Argentina, same-store sales declined 1.3%. Nonetheless, there is a sequential improvement in Chile despite lower traffic. Domino's Pizza Alsea posted 2.6% increase in same-store sales. In Mexico, Domino's same-store sales increased 1.6%, driven by our continued efforts in product innovation. In Spain, same-store sales increased by 2.9%, reflecting the ongoing effective promotional efforts and positive customer response to product innovation. In Colombia, Domino's delivered strong results. Same-store sales increased by 9.1%, supported by successful marketing initiatives. Burger King's Alsea same-store sales, excluding Argentina, decreased 1.4%. In Mexico, Burger King reported a decrease in same-store sales of 1.7%. This was driven by a shift of mix towards low price and discount items, combined with a decrease in premium innovation and digital coupon. The full-service restaurant segment delivered a 4% same-store sales growth. This segment remains strong and resilient, supported by marketing campaigns that enhance our product offering and demonstrates our commitment to innovation. Full-service restaurants in Mexico increased by 5.3%, with most brands growing at mid-single-digit pace with Chili's and Italiannis, while Chili's and Italiannis stood out by achieving high single-digit growth. The performance was driven by the strength of our value product menu offering, product innovation and launches. Same-store sales for full-service restaurants in Spain grew 2.4% with Foster Hollywood and Gino's delivering solid growth of 5.5% and 4%, respectively. We are focusing on introducing new and premium products to attract new guests, capitalize on existing traffic and strengthening our customer loyalty. Our global expansion strategy remains focused on prioritizing quality over quantity, targeting the most profitable opportunities across our key markets. We remain committed to delivering strong value to our customers, maintaining our pricing strategy and customer loyalty through our resilient brand offering. In the third quarter, we opened 46 new stores, 35 corporate units and 11 franchises with an emphasis on high traffic and high potential locations. We expect the pace of openings to pick up on the fourth quarter to meet our full year goal for net stores. This approach reflects our commitment to long-term brand positioning and disciplined strategic growth through flagship developments and selective market expansion. Given the profitability and payback of store remodeling, such as increased customer satisfaction and higher sales, we will continue prioritizing a refresh and modernized look across all our locations. Our digital platforms continue to be key drivers of growth. By the end of the quarter, loyalty sales increased 7.9%, reaching MXN 5.1 billion, representing 24.6 million orders and contributing 26.1% of total sales. We also surpassed 8 million active users across our loyalty programs, confirming the strength of our digital engagement. Additionally, we served nearly 33.6 million digital orders in the quarter, totaling MXN 7.3 billion, which represents 37.4% of our total sales. This quarter, we continue to strengthen our sustainability model by aligning our purpose with every aspect of our operations. As part of this effort, we made significant strides towards reducing CO2 emissions, installing over 215 solar panels in Europe and installing 159 kilowatt per hour of power in Europe in Spain. In Mexico, Starbucks served over 1 million beverage in reusable cups and granted 3.9 million -- 3.2 disposable cups as part of our efforts to reduce waste. We also continue to strengthen our social impact through Fundación Alsea and Movimento Va por mi Cuenta, supporting vulnerable communities and driving positive change. As we launch new fundraising campaign, we expect to surpass previous year's results, reinforcing our long-term commitment to responsible, purpose-driven growth. Let me now turn it over to Federico, our CFO, who will provide further insight and financial performance. Thank you. Federico Rodriguez: Thank you, Christian. Good morning, everyone. During the quarter, the sales increased by 5.7%, supported by the brand resilience and a strong performance in Mexico, Spain and Colombia. Excluding foreign exchange effects, sales increased 6.7%. In the third quarter, sales in Mexico were up 7.5% to MXN 11.5 billion. In Europe, sales increased by 8.2% to MXN 6.5 billion, while in euro terms, sales increased by 3.8%. Finally, South America sales fell 4.7% to MXN 3.1 billion. The EBITDA increased by 1.8% with a margin contraction of 50 basis points, mainly due to a loss of operating leverage given the lower consumer environment in the month of September. These impacts were partially offset by the resilience of the brands across most regions, disciplined revenue management and improved SG&A efficiency. In this context, we chose to limit price increases to protect traffic and sustain brand competitiveness with consumer demand slowdown. In Mexico, adjusted EBITDA remained flat as there was lower operating leverage given the softer consumer environment in the month of September. In Europe, adjusted EBITDA increased by 6.2% year-over-year, primarily due to an increase in same-store sales of 2.3%, driven by new products and campaign launches that led to improvements in all brands, offsetting higher labor costs. In South America, adjusted EBITDA decreased by 14.2%, reflecting a lower consumption environment in the region, except for Colombia. A slowdown in consumer activity weighted on operating leverage and contributed to the slow recovery in the region. The net income for the quarter increased 559% year-over-year, reaching MXN 512 million, reflecting a positive noncash effect, which reduced the cost of our U.S.-denominated debt in Mexican pesos terms. The next slide, please. The CapEx for the first 9 months of the year totaled MXN 3.8 billion. Of this total, 77% was allocated to store development initiatives, including the opening of 35 new corporate units, the renovation and remodeling of existing locations and equipment replacement across the brands. The remaining 23% was directed at the strategic projects such as the distribution center in Guadalajara, technological upgrades, process improvements and software licenses, all reinforcing the long-term competitiveness and operational efficiency. At the end of the third quarter, the pre-IFRS 16 [Foreign Language] thank you. The pre-IFRS 16 gross debt decreased by MXN 1.8 billion year-over-year, reaching MXN 51.8 billion. The company's net debt, not counting the impact of IFRS 16 was MXN 34.5 billion, which is MXN 2.5 billion more than it was at the same time last year. This increase reflects the bank loans used to settle the minority stake in the European operations, short-term debt for working capital and CapEx needs. Consolidated net debt reached MXN 47.1 billion, including lease liabilities. At the end of the quarter, 74% of the debt was long term with 67% denominated in Mexican pesos and 33% in euros. We remain focused on maintaining a healthy capital structure supported by prudent financial management. At the end of the quarter, the cash position stood at MXN 4.7 billion. Turning to financial ratios. The total debt to post-IFRS 16 EBITDA ratio closed the quarter at 2.9x, while the net debt-to-EBITDA ratio stood at 2.6x. While we are still committed, we have adjusted the 2025 guidance given the negative impact generated by a lower-than-expected consumption dynamics during the month of September and the ongoing impact of the appreciation of the Mexican peso affecting the top line. Now we expect a high single-digit top line growth and a low single-digit EBITDA growth for the year. I will now pass you over to the operator for the Q&A session. Thank you very much. Operator: [Operator Instructions] The first question is from Mr. Ben Theurer from Barclays. Benjamin Theurer: So 2 ones real quick, just following up on some of the commentary you had about the softness towards the end of the quarter in September and obviously, the guidance adjustment as you look now for slightly lower top line. If you think about the weakness, how has that potentially carried into the fourth quarter in October? And are you seeing any difference between the formats? So thinking coffee versus pizza versus burger versus food service across the board? Are there certain areas that are a little more affected versus others? So just a little more granularity as to the weakness in September, maybe over the last couple of weeks to understand what's driving the guidance revision. Christian Dubernard: Thank you for your question. No, the reality is that, as we mentioned, the third quarter was -- we saw July and August pretty balanced. And then we have an important drop in September. And this was across, in general, brands and geographies. It's not specific to a particular brand. Obviously, as we mentioned in the report, some of the South American countries, we have a slower -- a higher impact in those countries due to the deceleration of consumption. But in general, was across all geographies and markets. And as you asked going into Q4, it's too early. It's been 2 weeks in October. We see a similar trend in October. Nevertheless, we have very strong commercial initiatives in all of our brands and across all of our geographies for Q4, focusing on mainly 3 particular aspects. One is product and customer experience innovation. The second one, value. We can share some examples of some of the initiatives that have been paying off across the year regarding value like Tres para mi in Chili's in Mexico, Paradiso Italiano with Italiannis in Mexico, not just Magic Magicas or Magical Nights in Ginos in Spain and Gourmet Burgers in Fosters and many of the day in some of our brands. which have been continued driving traffic and that. Nevertheless, for Q4, we have very, very strong and powerful innovative and customer experience-driven campaigns that we are confident that will help us drive the traffic during this quarter. But something very important to highlight is always protecting this gross margin while we preserve traffic. We know that during these times of lower consumption or slowdown, the brands that remain loyal to their customers are recognized when traffic comes back. So that's what we are focusing on. Benjamin Theurer: Perfect. And then my second question is you mentioned potential asset disposal. Could you just elaborate, is that more like regions you think of not being worth maintaining? Or is it brands in particular? I mean we've seen, for example, the Burger King transaction in Spain. So is that something maybe in other regions to follow? How should we think about this? Federico Rodriguez: We have been very vocal, Ben, regarding divesting processes that we are setting in different noncore units. I would say that is one of the main priorities, not only for this year, but for the future. And we're still dealing with more than -- for potential buyers for different business units. It is not going to be relevant in terms of the contribution to the top line or to the EBITDA -- but obviously, what we want to address us to all the investors community is the focus that we want to deliver to the main brands such as Starbucks, Domino's Pizza, et cetera. We are still moving forward. Sorry, we cannot elaborate on rumors. But once we have said and we have completed this M&A activity, we'll give you more news. Operator: Our next question is from Mr. Thiago Bortoluci from Goldman Sachs. Thiago Bortoluci: I'd like to understand a little bit more the add up of the revised guidance, right? And this is on top of one very particular moving part that is FX. You cut revenue and EBITDA similarly, which could suggest as your broad expectations for margins are virtually unchanged. Obviously, we know that the stronger currency, the translation from Europe is a headwind, but gross margin could actually benefit from that going forward, right? So this is just to see if you could elaborate a little bit more on how you're seeing FX translation versus transaction FX, how your hedging positions are, how you're thinking about pricing and cost and more importantly, what is your underlying assumptions for margins going forward? Federico Rodriguez: Thank you, Thiago. I will answer the first part of the question regarding the cutoff of the guidance in top line and in EBITDA growth. Obviously, we are losing operating leverage and even what we have -- and we are having some help in terms of EBITDA margin from Europe because of the appreciation of the peso in comparison with the euro. We are losing some kind of operating leverage in Mexico, too. We had a really weird quarter. We have a good July and a strange August with one strongest week and a terrible September. So that's the reason that we are cutting up all the guidance for the rest of the year. And I would say it is only operating leverage. We are having tailwinds from the FX. You know that we delivered a guidance with a forecast of MXN 20.8 per dollar, we're having a good gross margin. And in fact, you will see a lower-than-expected loss of margin EBITDA. But having said this, obviously, we have to bring you the reality of what we saw in the quarter. And as Christian have just mentioned, with 3 quarters out of the 13 weeks of the last quarter, it is pretty early to say what is going to happen. That's the reason of the [indiscernible] of the guidance. So if you want to complement? Christian Dubernard: Yes. And also regarding gross margin, we have seen positive tailwinds regarding COGS. As you know, there was a lot of pressure on cost of goods, particularly with some commodities based on the FX -- now we are seeing that both the internal initiatives that we shared some of them last quarter are starting to pay off. There's normally 3 to 5 months of time when you start seeing the different initiatives to pay off. We are seeing that. And also, on the other hand, the initiatives that we had implemented and consolidated around productivity and labor, we have seen them to start to pay off. So in these terms, we are seeing a steady -- slow but steady margin recovery in our brands through these initiatives and still have had some increments on beef, but we are -- again, it's part of our business, we are managing every year as they come and through different platforms. Thiago Bortoluci: This is helpful. And if I may, a quick follow-up. We have been discussing on our opening remarks and now the drag in September, right? Anything you could share to help us calibrate the magnitude of the pressure that you saw particularly in that month? Federico Rodriguez: We do not disclose the transactions by brand, but obviously, there are some brands where we had a contraction of around 100 basis points in terms of the same-store sales in comparison with the previous 2 months. And that's the reason. As I said before, Thiago, it was only 1 month. Unfortunately, when we take a look at the guidance, we prefer to be really honest of what we're looking for the remaining part of the year. You know the seasonality of this business in November and December, maybe we'll have a positive news. But as of today, I cannot say that. Sorry. Operator: Our next question is from Mr. Alejandro Fuchs from Itau BBA. Our next question is from Antonio Hernandez from Actinver. Antonio Hernandez: Just I mean, very good color that you provided regarding the different performance in the 3 months. Just wanted to see if you could provide more color on September. If there were -- how much of that underperformance was because of external factors, maybe competition or anything specifically that you could provide on that, that will be very helpful. Federico Rodriguez: I would say it's really macroeconomical factors, Antonio. I cannot say that we are dealing with something different from a cost of food point of view or something internal. I would say that we are delivering the same campaigns. Obviously, most of the value coming from traffic. We have been telling you these guys. We are not doing a 100% pass-through coming from ticket. We have positive tailwinds regarding FX. Obviously, we have 30% of the food basket dollar index. And I would say that everything is not from competitors. We know that the competitors are slowing down the pace of openings, especially in coffee and pizza. But having said this, we are not dealing with something different from a commercial point of view. Do you want to add. Christian Dubernard: To avoid being repetitive, it's more -- we have seen, in general, a deceleration on consumption, particularly after the end of the summer, which had the highest peak in September. We know that normally every September slows down. Nevertheless, this was a little bit more -- the peak or the value was higher. So again, this has to do more to a macroeconomic environment. And in general, we see less thrust on the consumers in certain geographies as Europe, certain economy slowdown in South America and likewise in Mexico. But we are expecting to have, as you know, most of our -- almost 30% of our revenue EBITDA comes on the last of the quarter. So we are, as I mentioned, with strong campaigns and strong value-driven and innovation campaigns for Q4 in all of our brands and geographies. Antonio Hernandez: And just to clarify that terrible September or bad performance in September is all over the place. I mean, not only in one specific geography? Federico Rodriguez: Yes, it was in the 3 regions. Operator: Our next question is from Ms. Renata Cabral from Citi. Gerardo Lapati: You opened your camera? Renata Fonseca Cabral Sturani: Yes, I did. Christian Dubernard: No worry. Go forward with your question, Renata. Renata Fonseca Cabral Sturani: Sorry for the problem with the connection. My question is regarding Europe and the improvement that we are seeing there. 2024, we know that it was a challenging year in terms of same-store sales, and we are seeing now a stabilization in the region contributing to the company's results. So my question is, what were the main changes that you have implemented to reach to the current results and still the opportunities that you see to further improve the results on Europe. Christian Dubernard: Thank you for your question. Let me take this one. I believe what we have seen in terms of the recovery that you mentioned, particularly driven by Spain. We've seen very -- the customer reacting to the different campaigns in terms of innovation and value-driven campaigns as well as improved portfolios in terms of core offering like our brands in Starbucks, value-driven initiatives in Vips and Ginos, new very innovative campaigns around chicken and burgers in terms of -- in the case of Foster's Hollywood and particularly Domino's also the first half of the year, they were very much driven in having more, let's say, less traffic-driven and promotional activity which brought us good margins. And now we -- second half for Domino's will be more driven on achieving traffic, obviously, protecting the margin. So I would say to make the answer short, is the consolidation and the understanding and reading of the environment and looking forward of how the customer is behaving that we were able to adjust and adapt our different initiatives to respond to the customer needs. For Q4 and looking forward, as I mentioned before, innovation is going to be one of our main drivers. And likewise, as protecting value and margin for the customer -- value driven -- to protect value for the customer to drive traffic, but at the same time, in a smart way to protect our margins. So I believe understanding what is the behavior and what the customer is looking for is what's been paying off particularly driven by Spain. Federico Rodriguez: Additionally, Renata, in the bottom part of the P&L, we are implementing a lot of different strategies. In the stores, for example, we are increasing the productivity, trying to measure what are the peak hours of the day to have a better deployment of the workforce, and we are having terrific results. Additionally, in all the headquarter offices, obviously, we are stopping with doing non-core activities. We have been growing really -- we had a relevant growth during the last 10 years in Alsea. So we are going back to basis to consolidate synergies, moving different areas to where we are performing the best tasks. So we are having a lot of efficiencies in the bottom. But obviously, when we are losing the leverage as we have seen in September, it is impossible to offset only with these efficiencies, the loss of sales. Christian Dubernard: And to complement this last that you mentioned, Renata, also, we have seen this, let's say, approach where we consolidate the brands and when we are capturing opportunities like in the FSR segment where we are creating and generating a lot of synergies, it's paying off. So in a way, the strategy that we started at the beginning of the year in these terms is maturing, and we are already seeing part of the benefits of this strategy. Operator: Our next question is from Mr. Ulises Argote from Santander. Ulises Argote Bolio: I just wanted to understand a little bit better here on the pace of remodeling. Is this something we can expect going forward for the next couple of years? Or what's more or less the time line that you guys have in mind for this? And also to understand if this is focused on any specific format or region or if it's more across the board. Then a follow-up to that is if you guys have any color that you can share maybe on the sales lift that you're seeing on these remodeled stores. Christian Dubernard: Yes, I will take that one. Yes, as I mentioned in our first call, one of our main priorities is how do we make our existing portfolio more profitable. through driving same-store sales and basically driven by traffic. And remodeling is clearly a very strategic lever that allows us to drive this additional traffic, both one way through having better-looking stores, but also more efficient stores. When you have a remodel a store that has been operating for 5, 7, 10 years, you already know how the store behaves, what type of customers you get in those stores. So when we do these types of renovations or remodelings, we are just adapt to the reality of each one of the stores and the needs of each one of the stores. So as we mentioned in the first -- in our last call, we are in an average of 2: 1, 2 remodelings or renovations for each opening. That shifts between different brands, some brands or some geographies, we are 3:1. In some cases, we are 1:1. But clearly, the renovation of our existing portfolio is one of the key drivers of traffic together with having the best operational talent in each one of our stores, which is also one of our key strategies where we are focusing. Regarding payoff, where we have seen the highest impact in terms of payoff is in the FSR or casual dining segment and in Starbucks because obviously, different from Domino's or the customer doesn't necessarily stay in the store for a long period of time. In the case of Starbucks and our food service restaurant segment in both geographies, we clearly see that the customer really appreciates these types of renovation. So we've seen between mid- to high single-digit growth in some of the segments and to double -- I would say double. Low teens in the case of FSR. So it's a core -- it's part of now a clear strategy for us and a clear priority. Operator: Our next question is from Ms. Isabella Lamas from UBS. Isabella Pinheiro F. Lamas: I have 2 here. So firstly, could you discuss a little bit more about the input costs, particularly in the scenario of the peso appreciation. We were kind of wanted to get a sense of how you're thinking about your cost inflation going forward and how that compares to what you have experienced for this year? And how should we think about the margin setup for next year? And my second one is a quick one, is regarding leverage ratio. You've just reiterated your guidance for this year. So we were wondering if you have any views you could share for next year, any kind of range or what should be aiming for? That's it. Federico Rodriguez: Okay. Thank you, Isabella. Regarding the input costs, we are not having -- I'm talking only regarding Mexico and South America. We are not having more headwinds regarding FX. I would say that at this point of the year is totally comparable and in some cases, better than in 2024. That's from one side. As you know, we have 30% of the inputs dollar index in Mexico and the rest of South America brands. And additionally, for the next year, we are forecasting mid low single-digit input cost for 2026. And regarding the guidance, we changed the guidance for 2025 from a low teens in top line to high single digit and regarding EBITDA growth from a mid-single digit to a low single digit. Regarding 2026, it is too early. We are building our budget with the different variables. So we'll tell you something in the next conference in the month of February. Operator: Our next question is from Ms. Julia Rizzo from Morgan Stanley. Julia Rizzo: I have 3 actually. One, could you -- I noticed a sharp increase in the leasing expense on the cash flow from MXN 4.6 billion from MXN 3.6 billion, 26% increase actually, which is quite high compared to your sales and also to the store base. Is there anything here was a renegotiation in some regions, specific some brand? Is there something that is not perhaps recurring or it is related with some stores that you're already opening under construction and paying but not open. Can you give me a little bit of sense of how we should interpret this, especially looking forward, right? Because it increases from 6.3% of sales to 7.4% of sales in 1 year. Federico Rodriguez: Okay, Julia. Yes, Julia. We have been very vocal from December on regarding the lease change that we do from a post-IFRS 16 perspective. As you know, we manage the business on pre-IFRS 16 figures and -- but the change was because we standardized the criteria of all the leasing contracts across the geographies to have a single one company-wide. For example, we had a different policy in Europe from a bps perspective, that bps here in Mexico, while it's the same business, et cetera. So it is more an accounting perspective than a real change on the lease payment that we do on a monthly basis. This does not imply -- and just to be repetitive, an increase in the rental expense, but in the way that we account these leases. This is an effect we'll have until the last quarter of 2025. And from the first quarter of 2026, it is not going to be a relevant change. I don't know if you had another question, Julia. Julia Rizzo: Yes. Just as a follow-up. I'm not talking about the depreciation and amortization. I'm talking about the cash flow payment on the free cash flow generation. Federico Rodriguez: No changes. From a free cash flow payment, it is pretty much the same. We have around 35% of the lease contracts on a variable base totally linked to the gross revenues and the remaining 65%, 70%, depending on the region is totally fixed and increased with half of the inflation of each one of the countries. So we do not have a relevant change from a cash flow perspective into the lease part. Julia Rizzo: Okay. So we follow up later. And also on the interest expenses, also when we annualize the rate of how much you paid, again, on a cash basis, the MXN 2.9 billion was MXN 3 billion compared to the average net debt of the period. We have kind of a rate around 14% roughly, which is well above the base rate. Is there anything here that is nonrecurring? Again, looking forward, how we should expect the cost of that or interest expenses to be? Federico Rodriguez: Well, unfortunately, it was like that because even while we had -- well, we have the $500 million bonds at 7.750%, it is swap. So we pay a rate above 13% from the dollar bonds. And that's the reason, and I want to link to what are we doing with the LT with the liabilities management for 2026. We are moving forward accordingly to the plan. We are almost ending with the refinancing of the 100% of the liabilities, the financial liabilities in the balance sheet, and we'll have savings above $20 million for 2026. We're still dealing with it. That's the reason I do not want to give you more details, but we will change from bonds in dollars and in euros to bank debt, which is cheaper and that will improve the average duration that we have into the balance sheet. But you will see savings on the 2026. Julia Rizzo: Fantastic. Last one would be on the remodeling, the focus -- the increased focus of the company on the remodeling. Can you -- is there any specific brand or region that are you going to allocate resources more or less? And can you give me a rough sense of how much it costs a remodeling Starbucks versus one opening? Just we can make some calculations here of how that would be. Federico Rodriguez: Regarding the cost, it's around 1/3 of the cost of a new opening and regarding the regions and the. Christian Dubernard: Yes. Regarding the regions and the brands, as I was sharing before, Julia, we are -- the brands where we see that are -- that react most -- the best when we do a remodeling are Starbucks and all the FSR segment. So we also do remodelings in some of the other brands, but we are focusing mainly on the brands where we have the best reaction from our customers in terms of traffic, which are the casual dining segment and Starbucks. Regarding the geographies, it's a strategic approach. It depends on the aging of the portfolio in some cases, depends on the -- if there is a particular region, area, city where we see that we have an opportunity to drive additional traffic. And I can tell you that -- or in the case where we see some additional competition coming in. So there is a different -- a very strategic approach to this. And as I mentioned before, we are privileging remodeling our openings with a much more focused and disciplined growth. Julia Rizzo: So it's mostly Starbucks and casual dining. Region, you don't have a specific targeted. Christian Dubernard: It's in general, obviously, where we have a higher number of store or a bigger portfolio like we do in Mexico with more than 900 Starbucks stores, you will see a bigger number of renovations, likewise, with the FSR or casual dining segment in Mexico and Spain, where we have also an important portfolio there. So that depends more on the size of your existing portfolio. But this is a very -- it's a high priority for us and with a good ROI every time we do, as Federico was saying, it's 1/3 of what we do in a new store and the ROI is very, very good. Operator: Our next question is from Mr. Bruno Ramirez from JPMorgan. Bruno Gabriel Ramírez Fernández: So question would be regarding full-service restaurants. How sustainable is to keep seeing this performance as it has been in the past quarters? And second question would be about the run rate for CapEx levels. Federico Rodriguez: I will go with the second one regarding the CapEx. This year, we will be spending around MXN 6 billion, MXN 6.1 billion for CapEx. We are turning things into the company. So only we have non-[indiscernible] projects. As you know, we have recently opened the facility of the distribution center in Guadalajara. It was on Tuesday, and we'll have a lot of profitability and diversification to all the different routes. So for 2026, I think that the guidance, as I said before, it is too early, but should be in the range of MXN 5.5 billion, at least for 2026. And the openings should be a similar figure to what we have seen during 2025 of around 200 openings, taking into consideration not only corporate stores, but franchisees and sub franchisees too. Christian Dubernard: Yes, I'm taking this one. As you have seen in the past, I would say, 24 months, we have seen a very steady growth in the performance of our FSR segment, both in Spain and Mexico. We continue delivering with a lot of innovation and very disciplined and focused growth on each one of the brands, both our own brands like we do in Europe and with our franchisors from the other brands in our portfolio, where we are working -- we have seen clearly brands like Chili's doing an extraordinary -- with an extraordinary performance in the U.S. So we learn a lot from that. We continue holding hands with our franchisors and seeing how this is really being executed and transferred with some value-driven initiatives in Mexico, likewise with the Cheesecake Factory. So I believe the preference of the consumer of our brands. And I would say the consistency that we have been able to deliver in the last years is clearly paying us and showing us that the customer wants to be in our stores and the quality of our products has continues to be a big differentiator. We have not fallen into this attractive or sexy approach into trying to reduce costs through -- by reducing portions or things like that. We are clearly going the other way. We are very disciplined in maintaining our value-driven initiatives that have been there for more than 3 years now, and we keep refreshing them with innovation and new products. So again, this is a segment that we are very happy with the performance. At the same time, we are very -- obviously, the investment in these types of stores or restaurants is an important investment. So we are always very cautious and careful on going for the no-brainer and locations that we know we're going to do well. And as I said before, Bruno we still have an important number of stores to renovate, and we know that this is going to drive and continue driving additional traffic. And also in some cases, growing through our franchisees is a very important part of our strategy. Our franchisees are very happy and confident with the performance of this brand. So we continue getting demands on trying to continue developing the brand through franchisees, particularly in Europe and in some of our brands in Mexico. Bruno Gabriel Ramírez Fernández: And just a follow-up question in the -- regarding CapEx. So beyond 2026, what percentage of sales should we expect? Is 2026 levels a good proxy between 2026? Federico Rodriguez: I would say it should be around 1.5% as a perpetuity rate, the CapEx. But it is better to have the guidance, and I will deliver both answers what to model in 2026 and what is happening in the next 10 years. Operator: Our next question is from Mr. Nicolas Riva from Bank of America. Our next question is from Thiago Bortoluci from Goldman Sachs. Thiago Bortoluci: I don't know, but I think I'm double counted here. No further questions on my end. Operator: That was the last question. I will now hand over to Mr. Christian Gurría for final comments. Christian Dubernard: First of all, I want to thank everyone for being here today and the interest and for your questions. Thank you very much. Before we conclude, we would like to thank you for your participation and interest in our quarterly conference call. If you have any additional questions or require further information, our Investor Relations team is always available to assist you. We wish you an excellent day and look forward to having you join us for our next quarterly update and the best holidays and the best holiday season and best wishes for you for this last quarter. Thank you, everyone. Thank you. Operator: Alsea would like to thank you for participating in today's video conference. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kerry Group Third Quarter 2025 Results Webcast. [Operator Instructions] I would now like to turn the conference over to William Lynch, Head of Investor Relations. Please go ahead. William Lynch: Thank you, operator. Good morning, and welcome to our Q3 2025 trading update call. I'm joined on the call by our CEO, Edmond Scanlon; and our CFO, Marguerite Larkin. As usual, Edmond and Marguerite will take you through our presentation, and we will then open the lines up for your questions. Before we begin, please note the usual disclaimer on our presentation regarding forward-looking statements. I will now hand over to Edmond. Edmond Scanlon: Thanks, William, and good morning, everyone, and thank you for joining our call. So moving first to Slide 4 and my overview comments. We delivered a good performance across the first 9 months of the year with volume growth well ahead of our markets, combined with strong EBITDA margin expansion. Beginning with revenue, volume growth for Q3 and year-to-date was 3%, which represented a strong end market outperformance. Looking at this firstly by region, we achieved good growth in the Americas, supported by new product launch activity with both Europe and APMEA delivering sequential volume growth improvements in the third quarter. From a channel perspective, foodservice growth of 4.1% was driven by good innovation activity across new menu items, seasonal launches and LTOs. Growth in the retail channel was supported by increased retailer brand innovation and nutritional enhancement renovation. And by technology, we had strong performances across savory taste and Tastesense Salt and sugar reduction technologies as well as enzymes, natural extracts and proactive health technologies. Moving to margins. We delivered strong EBITDA margin expansion of 90 basis points in the period, primarily driven by Accelerate Operational Excellence, and we continue to see good margin expansion opportunity in front of us. On guidance, we remain on track to deliver our full year guidance. And finally, before we move to the performance review, I'd just like to update you on a few key strategic developments during the period. In recent weeks, we opened our new state-of-the-art Biotechnology Centre in Leipzig, Germany, which will play an important role in supporting future, fermentation and biotransformation innovation for the food and beverage industry. In the period, we initiated our Accelerate 2.0 program, which will focus on footprint optimization and enabling digital excellence across the organization. And we also continued to invest and develop our footprints, capacity and capabilities across our regions through the period. I'll now hand you over to Marguerite for the business review. Marguerite Larkin: Thanks, Edmond, and good morning, everyone. Moving to Slide 5 and the business review. Firstly, volume growth in the period of 3% represented continued strong end market outperformance, as Edmond mentioned. Pricing of 0.2% reflected overall input cost inflation. On the EBITDA margins, we delivered strong margin progression of 90 basis points in the period and 80 basis points in the quarter, primarily driven by cost efficiency, operating leverage and product mix, along with the contribution from acquisitions and disposals. Growth in our end-use markets was led by the Bakery, Snacks and Dairy end markets. Foodservice delivered growth of 4.1% despite soft traffic in places. Retail performed well overall, given increased customer focus on improving the nutritional profiles of their products. And volumes in emerging markets increased by 5.3% in the period, led by a strong performance in Southeast Asia. Turning to Slide 6 now and our performance by region. Firstly, in the Americas, where we had good performance across the region with volume growth of 3.6% year-to-date and 3.5% in the third quarter. Within North America, growth was led by snacks through Kerry's range of savory taste profiles and Tastesense Salt reduction technology. Growth in the retail channel was supported by renovation activity across global, regional and retailer brands with growth in foodservice led by good innovation activity with quick service and fast casual restaurants. And in LatAm, we had strong growth in Brazil and Central America, led by snacks. In Europe, volume growth was 0.7% in the third quarter, 0.4% year-to-date. This included a good performance in foodservice through seasonal and new launch activity with retail volumes reflecting soft market dynamics in Western Europe. Growth in the region was led by beverage through Kerry's integrated taste technologies and proactive health ingredients. Turning to APMEA, where our volume growth was 4.1% in the third quarter. This was primarily driven by strong growth in Southeast Asia with solid growth in the Middle East and Africa and volumes in China remaining challenged. Foodservice delivered strong volume growth with coffee chains and quick service restaurants and retail channel volume growth was driven by Kerry's authentic savory taste profile. Growth in our end market was led by bakery through food protection and preservation systems as well as reformulation activity in areas, including cocoa. Turning to the components of our reported year-to-date revenue bridge on Slide 7. Volume growth, as I mentioned, was 3%, with pricing up 0.2%. Transaction currency was favorable 0.2%. Translation currency was adverse 3.6% given the movements in the U.S. dollar and emerging market currencies versus the euro. And the acquisitions net of disposals was a net decrease of 0.8% in the period. Finally, to cover off a number of other matters on Slide 8. Net debt at the end of the period was EUR 2.2 billion, reflecting cash generation, capital investments and the share buyback program. We initiated Accelerate 2.0 as planned during the period, and we are pleased with the progress made. Firstly, in executing the footprint optimization strategy across Europe and North America, including the commencement of some site closures and the disposal of some associated business activities. And secondly, we have started the rollout of a number of digital initiatives we have been piloting over the last 18 months within our manufacturing operations and commercial activities. On input costs, while there is overall variation within our input cost basket, we are currently looking at limited input cost inflation for the full year. On currency, our outlook remains unchanged for a 4% to 5% translation currency headwind in the full year. To summarize, we delivered a good overall financial performance in the period with volume growth combined with strong margin expansion. And with that, I'll pass you back to Edmond. Edmond Scanlon: Thanks, Marguerite. So moving to our full year outlook on Slide 9. Our strong end market volume outperformance in the period demonstrates the strength of our strategic positioning across our markets, channels and customer base. And looking to the remainder of the year, while recognizing a heightened level of market uncertainty, we remain well positioned for volume growth and strong margin expansion as we continue to support our customers as an innovation and renovation partner. As I noted earlier, we're maintaining our full year adjusted earnings per share guidance of 7% to 11% constant currency growth. And with that, I'll now hand you back to the operator, and we look forward to taking your questions. Operator: [Operator Instructions] Your first question comes from the line of Patrick Higgins with Goodbody. Patrick Higgins: A couple of questions, if that's okay. Firstly, just in terms of, I guess, guidance, obviously, you reiterated the 7% to 11% on EPS. But just in terms of volumes, I think at H1, you said around 3%. Is that kind of reiterated as well? And I guess following on from that, at the H1 point, you noted end markets were broadly expected to be broadly flat this year. How has that developed since then? Could you maybe talk through the moving parts by region? And then my next question is just around the innovation pipeline. Obviously, you've been pretty consistent about the strength of that through this year. How has that developed since H1? Have you seen any delays or kind of smaller-than-expected launches just given the challenging kind of consumer backdrop? I'll leave it there. Edmond Scanlon: Thanks, Patrick. Firstly, on the volume outlook for the remaining of the year, no change to what we said at the half year. So we're expecting volume growth to be circa 3% in the full year. In terms of, let's say, market kind of, let's say, conditions or kind of what we're seeing by region maybe. The reality is there is a lot of variability out there at the moment. North America, the consumer backdrop has remained challenging. And I think we can all see that from different kind of market data out there or traffic data on the foodservice channel being slightly back year-on-year. In LatAm, the market in Brazil has improved versus last year, but we've seen the opposite in Mexico. And in the APMEA region, market demand in Southeast Asia has been healthy for us. I think it's fair to say Indonesia has been the standout performer for us. But when we look right across Southeast Asia, it's been quite strong, maybe the only exception being Vietnam. And I think what's really important for us is our ability to be able to pivot resources at pace and at scale. Then in terms of innovation, I guess, look, we called out a year ago that penetration opportunity and the scale of that penetration opportunity is quite significant. And as we look at the progression of our project pipeline between then and now, we've seen the impact of that penetration opportunity really, I suppose, contributing to our pipeline and contributing to the increase in scale in our pipeline over the course of the last 12 months. There has been quite a bit of launch activity in Q3, that will continue into Q4. Some of the performance of that launch activity in the market has been mixed in places. But overall, I would say the level of innovation that we have seen come through both on the retail channel and the foodservice channel is quite strong overall. The main driver being the penetration opportunity, but we've also seen customers, let's say, for instance in foodservice, be it the larger players or the smaller players step up the level of innovation with the larger players more focused on protecting market share and securing market share and bringing innovation to the menu to do that, whereas the smaller players have been, let's say, more into the zone of scaling their businesses and expanding their businesses through store openings. And on the retail side, we've seen significant step-up in activity on private label, which drives, I guess, the local and regional customer segment within our customer segmentation overall. Operator: Your next question comes from the line of Alex Sloane with Barclays. Alexander Sloane: Two questions from me, if that's okay. Clearly, it's too early to talk about '26 precisely. But relative to where we are today, would it be fair to assume that APMEA growth next year can be closer to the medium-term target if China improves? And perhaps you could give a bit more color on the trends and outlook that you're seeing in China, obviously, still challenged in quarter 3. The second one, in quarter 3, you had sort of more balanced growth between foodservice, which obviously slowed a touch on the traffic, but improved growth in retail. Would you expect that sort of balance to remain the case for the remainder of the year and into '26? Or should we expect foodservice to resume its historical outperformance? Edmond Scanlon: Maybe taking the second part of your question first. As you say, let's say, the performance across foodservice and retail has been, let's say, foodservice is slightly ahead of retail as we sit here at the moment. But as we look out, we would feel that foodservice will still continue to outperform retail like it has in the past. I guess the headlines that we're seeing maybe coming from the larger players or the traffic doesn't reflect the level of activity that's going on within the channel. I would say, from an innovation perspective, whether it's LTO, seasonal offerings, whether it's new taste profiles being launched onto the menus, a lot of innovation around chicken and pork, let's say, the whole poultry category, beverage continuing to be quite strong. Yes, the message really on foodservice is the headlines probably doesn't just capture the level of activity that's going on right across the channel. Then maybe on APMEA for a minute. Look, our expectations here going forward over the coming, let's say, quarters and over the medium term is that the APMEA region will continue -- our expectation is that the APMEA region will continue to be in that high single-digit volume growth zone. Obviously, we're not there at the moment but we do remain very positive on the region. We have developed our business significantly there in recent years, particularly in the Middle East and Africa. We continue to invest in that region with new capacity coming on in Jeddah. We brought new ground in the manufacturing facility in Turkey. We're opening a new state-of-the-art technology and innovation center in Dubai. And that's really our expected standout performer here going out into the future in the Middle East and Africa. China has been more challenging in recent times. Absolutely no doubt about that. We have, let's say, slightly adjusted our strategy in China in that we have seen some of our customer base in China look more to regions outside of China to grow their business. So we have made a slight pivot there from a personnel perspective and from a strategic customer engagement perspective, bringing them proactive concepts whereby they can target regions outside of China to grow their business and specifically develop products for, let's say, Southeast Asia and the Middle East and Africa, albeit these products will be produced in China. So a slight pivot there. We're not sitting back waiting for the market to change in China. We're being very proactive really to try and drive our business forward there and to get as proactive as we possibly can with our customer base. Operator: [Operator Instructions] Our next question comes from the line of Ed Hockin with JPMorgan. Edward Hockin: I've got 2, please. My first one is on Europe. So you saw a bit of an improvement in volumes growth in Q3, whether you could outline what drove that uptick and how durable it is as we think about Q4 and next year? And also with the appointment of Marcelo as the Head of that region, what is it do you think needs to be changed or developed or fixed within the region to get it on a more sustainable growth footing, after a couple of years that have been close to flat? And my second question, at the group level, as we think about 2026, and obviously, it's early days to be talking about. But in the absence of an end market improvement, supposing end markets remain flat, what kind of levers do you see or what kind of areas to draw our attention to that could drive growth improvement versus this year? Or is it your view that in a flat market then a circa 3% is the right level for 2026 volumes as well? Edmond Scanlon: Yes. Maybe first on the Europe question. I would say, look, our expectations for Europe and bear in mind, when we talk about Europe, we're talking about the developed Europe situation. Basically, our expectation is to be in that 1% to 2% volume growth range. And we are -- and we will progress towards that range in the, let's say, upcoming quarters. It's going to be a slow burn in Europe, though, nonetheless. I mean the market is, let's say, fairly challenged. It is a market that we're expecting to have a more proactive approach in that market. We've always been proactive in Europe, but we're expecting Marcelo to bring that level of pro-activity that we would typically have in emerging markets into Europe and to build on the good work that's already been going on in Europe. We're not calling out any change in strategy in Europe. It's a continuation of the strategy. We believe we have absolutely the right strategy for our customer base in Europe and to grow our business in Europe. It's about, let's say, doing a refresh in terms of our approach to the market, bringing that emerging market mindset of intense productivity to the customer base. Then in terms of maybe the outlook, I would go back to the point, Ed of, let's say, the market is going to do what the market is going to do. I guess we're really focused on driving our business forward. When I look at the scale of our pipeline versus where it was a year ago, it is significantly ahead of where it was a year ago. And I would call out maybe 3 big areas. The penetration opportunity that I've talked about many times in the past, that reformulation from a nutrition perspective, from a cost perspective and even from a sustainability perspective, these are all factors that are driving our business forward. There are challenges around availability of raw materials, et cetera, et cetera. All these things are driving our business forward, driving penetration, contributing to the growth that we're getting in the business. And the major, I suppose, reformulation opportunities, specifically in North America are in front of us. The entire discussion around, I would say, the [ maha ] or the potential front-to-pack labeling or let's see how things play out in North America. But that's still very much in front of us. States are doing their own things, but there hasn't been a federal intervention yet in North America in terms of exactly the direction of travel. If and when that happens, we feel that's a further underpin of growth and a further underpin of opportunity for us going forward into the future. Foodservice, there's -- we've seen a significant step-up in the level of value offerings and value meals and just our customer base being hyper focused and they're doing that through the lens of new launches, be it LTOs or seasonal offerings, but they've also stepped up their value offerings. And we expect that to continue over the coming quarters, and we're extremely well positioned as it relates to that channel. And the third area I'd call out is, let's say, that private label opportunity, whereby retailers are being quite aggressive in terms of trying to bring new products to the market that are not just national brand equivalents. They are trying to bring high-quality products to the market to grow categories. So I guess as we look out into the future, we feel that despite the challenging market, there are several factors there that we feel quite good about as we look out into the quarters in front of us. Operator: Your next question comes from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: My question is really on the EBITDA margin, which is up 90 basis points in the first 9 months, up 80 basis points for the third quarter. So my question around that is, well clearly, it's developing probably better than what you would have anticipated at the start of the year, whether you can confirm that? And if that's the case, could you maybe just highlight for us what's driving this? Is it that you're seeing incremental cost-saving opportunities that you're unlocking? Or are you just executing faster some of the efficiencies? In other words, the 19% to 20% target that you've got for 2028, are you likely to achieve that earlier? Or is there going to be a bigger potential upside on the EBITDA margins? Marguerite Larkin: Maybe I'll take that question. So firstly, we are pleased with the strong margin expansion of 80 basis points in the quarter. In terms of the stronger performance in the quarter, it's mainly due to the phasing of benefits from Accelerate Operational Excellence and portfolio developments, so slightly ahead of our expectation. I would say, though, there is no change to the full year expectation for margin expansion of 70 basis points or greater. We are well on track to deliver that margin expansion in the current year. And then in terms of the -- looking forward to the margin expansion over the next number of years, we are happy that we have outlined a clear margin target of 19% to 20% by 2028. We have a clear pathway in terms of delivery of that target, and we're pleased with the progress that we've made in terms of commencing the Accelerate 2.0 program, which will be a strong underpin of delivery of that margin expansion over the next couple of years as well as continued expansion from mix and operating leverage. Operator: Our final question comes from the line of Cathal Kenny with Davy, Research. Cathal Kenny: Two questions from my side. Firstly, just going back to private label, Edmond. Just want to delve into that a little bit more. Which region are you seeing most activity on innovation? And which region are you best placed to execute on that opportunity? And then the second one is just on enzymes. I see it comes up in the press release a couple of times. Just wondering in terms of the end market applications you're focused on in terms of bringing that technology to bear. Edmond Scanlon: Maybe talking about enzymes first. I mean I think the 2 end-use markets that we are seeing, I would say, performance that is maybe even slightly ahead of expectations is on dairy and bakery. Firstly, on dairy, we have quite a strong offering into the dairy channel, let's say, historically, but lactose intolerance is a growing kind of need out there in the market, and we are extremely well positioned to be able to take advantage of that opportunity, and that opportunity is quite global. The second area is in bakery, whereby enzymes and our enzyme capability is a key tool to the toolbox, in our toolbox in terms of freshness and food protection and preservation. And again, that is a demand from our customer base across both foodservice and retail channels. And that is about basically bringing freshness and food protection and preservation in a clean label way to the bakery end-use market. And yes, we recently announced a new Biotechnology Centre in Leipzig, Germany, and we're expanding our footprint in Ireland as it relates to manufacturing enzymes, both on the fermentation side and on the packaging side. Then on private label. Private label is not new to us here in Europe or, let's say, in Ireland and the U.K. We have, let's say, a strong track record in private label, let's say, emanating from this region. And we have, I suppose, with that level of experience we have and expertise that we have in private label, we've deployed those capabilities into North America. It is in North America that we have seen a step change in terms of engagement with retailers around targeting certain categories where actually they want to take a leadership position in certain categories where they feel there's been a lack of innovation in recent years and they feel that there's, let's say, plenty of scope from a pricing perspective to bring really high-quality clean label, more nutritious food and beverage products into categories that they want to lead, and we're very well positioned to be able to actually enable them. From an overall, I suppose, business model perspective, it is quite similar in terms of approach as we take for foodservice. So we feel well positioned to be able to take advantage of this opportunity and expect that private label performance and private label, I suppose, market expansion will continue in North America. And yes, we feel good about that as we look forward into the coming quarters. Operator: And that concludes the question-and-answer session. I would like to turn the call back over to Kerry for closing remarks. William Lynch: Thank you, everyone, for joining us on the call today. If you do have any follow-ups, please do reach out, and we just want to wish you a good day.
Operator: Hello, everyone, and welcome to the Southwest Airlines Third Quarter 2025 Conference Call. I'm Gary, and I'll be moderating today's call, which is being recorded. A replay will be available on southwest.com in the Investor Relations section. [Operator Instructions] Now Lauren Yett from Investor Relations, will begin the discussion. Please go ahead, Lauren. Lauren Yett: Thank you. Hello, everyone, and welcome to Southwest Airlines Third Quarter 2025 Earnings Call. In just a moment, we will share our prepared remarks, after which we will move into Q&A. I am joined today by our President, CEO and Vice Chairman of the Board, Bob Jordan; Chief Operating Officer, Andrew Watterson; and Chief Financial Officer, Tom Doxey. A quick reminder that we will make forward-looking statements, which are based on our current expectations of future performance, and our actual results could differ materially from expectations. Also, we will reference our non-GAAP results which excludes special items that are called out and reconciled to GAAP results in our earnings press release. Our press release for the third quarter 2025 results and supplemental information, including our initiative highlights, were both issued yesterday afternoon and are available on our Investor Relations website. And now I am pleased to turn the call over to you, Bob. Robert Jordan: Thank you, Lauren, and thanks, everyone, for joining us today. Third quarter was another story of continued strong execution across the board. Operational reliability, cost discipline and the delivery of initiatives against our transformational plan. Southwest continues to transform at a faster pace than ever before, and I'm pleased with the results of our strategic transformation that we saw during the third quarter and the quality of the initiatives delivered. Both costs and revenue finished meaningfully ahead of expectations and the rollout and impact of our initiatives remain firmly on track. We began selling assigned an extra legroom seating in July, a major milestone for our customer experience and product changes. The rollout was smooth and while still early, we're right on track with our expectations and we're already seeing a 4-point improvement in customer Net Promoter Score on aircraft with this new configuration. Additionally, we have continued to launch new products and services showing our commitment to meeting the needs of our customers, and our ability to execute quickly. Starting tomorrow, we will be offering free WiFi sponsored by our partner, T-Mobile, for our Rapid Rewards members. We continue to roll out our updated cabins with larger overhead bins, In-seat power, upgraded lighting and more. We expanded our distribution channels, launching a partnership with Priceline. We launched our new in-house vacation product, Getaways by Southwest. We announced a new partnership with EVA Air to provide customers more connection opportunities. We announced new markets, including the additions of Knoxville, Tennessee, St. Maarten, Santa Rosa, California and our first ever flights to Alaska, servicing Anchorage all to start in 2026 and we aren't done. While we don't have specifics to share today, we're actively looking at continued changes to widen our product offering for our customers, provide additional premium revenue opportunities and further enhance our Rapid Rewards loyalty program and co-brand economics, including things like premium seating, airport lounges and long-haul international destinations served by Southwest Airlines. And our customers are responding to these enhancements. Our brand Net Promoter Score has returned to the level seen prior to our policy changes announced in March and we are excited to deliver further enhancements as we improve the customer experience. Our strategic plan continues to progress well, and we're encouraged by the sustained outperformance of bag fee revenue and the momentum across other key revenue and cost initiatives. We saw a clear positive inflection in the demand environment beginning in early July, which continued throughout the quarter, and we are proud to report record third quarter revenue performance. Looking to fourth quarter, we expect to deliver an all-time quarterly record revenue performance. We maintained strong cost discipline across the organization, significantly beating our CASM-X guide for the quarter. We have identified additional cost-saving opportunities in the back half of the year and remain confident in our full year EBIT guidance range of $600 million to $800 million. We are entering the fourth quarter with confidence and anticipate meaningful margin expansion as the benefit from our initiatives continues to mature as we execute our transformational plan. Our people delivered a strong operational performance throughout the quarter. Their dedication, their resilience and the world-class hospitality continue to set Southwest apart. We've made measurable progress across nearly every key operational metrics since January, and we continue to lead the industry as we track our performance against the Wall Street Journal airline's scorecard. These results stand out even more given the hurdles that we faced, including summer weather, ongoing ATC constraints and the full rollout of reduced turn times across many of our stations, and it's a testament to our operational excellence and the heart of our company. While we're not providing 2026 guidance today, we're excited about the opportunities ahead and confident in our strategy. In 2026, we expect to recognize even greater benefits from our portfolio of Southwest specific initiatives, including a full year of revenue from bag fees. We expect to deliver more than $1 billion of incremental EBIT from assigned an extra legroom seating in 2026 and hit full run rate of approximately $1.5 billion in 2027. We will continue to be disciplined in our cost execution across the organization and expect that momentum to continue into 2026. It's just an exciting time at Southwest Airlines. We're transforming faster than ever before and the momentum is real. And with that, I'll turn it over to Andrew to share more on our revenue and operational performance. Andrew Watterson: Thanks, Bob. I want to echo Bob's appreciation for our people. Their hard work and commitment enabled us to deliver an outstanding operation this quarter even in the face of early July weather challenges. We've come a long way over the past couple of years, working to enhance processes and technology and improve daily operations and better managed disruptions. A great example of this was in September when an external telecommunications issue in Dallas, impacted radar, radio and computer systems, triggering FAA ground stops at local airports. . Despite our significant presence at Dallas Love Field Airport, we had just one cancellation, finishing second among all U.S. airlines for the day, including many that weren't directly affected by the issue. Our teams particularly those in the NOC and at the station, responded quickly and effectively, keeping our operation running smoothly and reliably. We know reliability is one of the biggest drivers of customer Net Promoter Scores and a primary driver of loyalty so it's critical that we continue to innovate and invest in both our operations and our people. The demand environment inflected up in early July and sustained momentum throughout the quarter. The improved demand environment and our execution of our initiatives contributed to our record third quarter revenue and to be in the midpoint of our third quarter guide with RASM coming in at up 0.4%. Even with increased capacity from our strong operational results and our ability to prolong the filling of the 6, [ 2 ]be-removed seats on our 737-700 aircraft. We were pleased to see load factor up year-over-year in August, September and so far in October. And corporate travel demand improved sequentially with a particularly strong September where we saw multipoint passenger growth. We're also seeing great traction with our loyalty program and co-brand credit card enhancements, which align with our new product offerings and incentivize everyday spending. Third quarter royalty revenue was up 7% and we saw double-digit growth in co-brand card acquisitions year-over-year. Our recent 100,000 point promotion saw the highest acquisition activity in over 5 years, signaling that these enhancements are resonating with customers and driving increased engagement. Looking ahead to the fourth quarter, we expect RASM to be in the range of up 1% to 3%. This outlook assumes the positive inflection in demand we've seen across the industry since early July remains at current levels through the end of the quarter. It also reflects the planned acceleration from our initiatives, the approximate 2-point year-over-year increase in fourth quarter capacity since July and the recent observed impact of the government shutdown. To the extent the demand strengthens beyond current levels, it will provide upside potential to our full year EBIT guide of $600 million to $800 million. We're planning for fourth quarter year-over-year capacity growth of approximately 6% which compares to a relatively low base in fourth quarter 2024 compared with fourth quarter 2023, plant capacity is up about 1%. This capacity level now contemplates further pushing out the retrofit timing of our entire 737-700 fleet to be completed in January without any impact to the planned operate date for seat assignments and extra legroom seating on January '27. A big shout out goes to our tech ops team for streamlining the time line to complete this work. Allowing us to capture additional revenue in those 6 seats during the entire holiday period at almost no incremental cost. On the product side, we launched the sale of assigned an extra legroom seating on July 29. While early bookings are in line with our expectations. We're seeing strong interest from customers and the trends are encouraging, including demand for our new products, fair product buy-up and ancillary seat sales. These offerings are helping us differentiate and enhance our products and drive incremental revenue. We feel confident in our ability to deliver more than $1 billion of incremental EBIT from assigned and extra legroom seating in 2026 and hit full run rate of $1.5 billion in 2027. We're proud of the progress we've made and excited about what's ahead. With that, I'll turn it over to Tom. Tom Doxey: Thanks, Andrew, and hello, everyone. As you've heard from both Bob and Andrew, our initiatives are on track for this year, and we expect further acceleration in contribution from these initiatives into the fourth quarter and into next year according to our plan. As you know, our continued performance on costs is a key element of our transformation, and I am pleased to once again report that we delivered strong cost performance this quarter, with CASM-X coming in at up 2.5%, beating the midpoint of our guide by 2 points, a strong beat with or without the capacity increase we saw in the quarter. We continue to see broad-based cost discipline across the entire business. I should also emphasize that this is more about spending smartly than it is about simply cutting costs. We're simply pushing costs forward as evidenced by the customer, technology and operational investments being made across Southwest Airlines. This was a company-wide effort, and I want to thank our teams for their focus and execution. Looking to the fourth quarter, we are expecting strong continued cost execution with CASM-X up in the range of 1.5% to 2.5% on capacity of approximately 6%, both on a year-over-year basis. Excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, which gives a more accurate view of the cost performance of the underlying base business, we expect CASM-X to be in the range of flat to up 1% year-over-year. Turning to fleet. Boeing continues to hit their delivery plan, and we've increased our 2025 delivery assumptions from 47 to 53 Boeing 737-8 aircraft. We received 8 aircraft deliveries in the third quarter and retired 16 aircraft from our fleet, including the sale of one 737-800 aircraft and plan to sell 4 additional 737-800 aircraft in the fourth quarter. We will continue to be opportunistic as we evaluate potential sale transactions from our existing fleet. We continue to expect full year 2025 capital spending to be in the range of $2.5 billion to $3 billion, which includes the additional aircraft deliveries expected this year as well as the expected proceeds from aircraft sales. We finished the quarter with $3 billion in cash, in line with our liquidity target of $4.5 billion, including our revolver and with a gross leverage ratio of 2.1x within our target range of 1 to 2.5x. We also executed an accelerated share repurchase program in the amount of $250 million under the previously announced $2 billion authorization. We intend to continue opportunistically repurchasing shares based on market conditions. This reflects our continued confidence in our strategy and our commitment to returning value to shareholders. Overall, our third quarter performance was ahead of our expectations for cost, revenue and net income which is another key milestone as we execute our transformational plan. We're managing costs well, executing our initiatives, investing in our product and customer experience, running an industry-leading operation, maintaining a strong and efficient investment-grade balance sheet, and we remain confident in our ability to achieve our full year EBIT guide of $600 million to $800 million. And with that, I'll hand it back to Bob. Robert Jordan: Thanks, Tom. As we wrap up, I want to leave you with a few key thoughts. First, the pace of change at Southwest is accelerating and at the same time, our execution has never been stronger. We're transforming our product, enhancing the customer experience and delivering meaningful financial improvement, all thanks to the incredible work of our people. Second, we're confident in our ability to hit our fourth quarter and our full year guide. We built a strong foundation, and our initiatives are ramping as planned. The operational rollout of assigned an extra legroom seating has been smooth, and we're seeing encouraging early results. Third, we're not stopping here. We've continued to evolve our product, expand our network and lean into the customer experience. Free WiFi for Rapid Rewards members starts tomorrow. New markets are launching, and we're building momentum across the business. And while we aren't ready to share specifics just yet, work on the longer-term strategy to meet evolving customer preferences is well underway. Finally, I want to thank our employees once again. Their excellence and hospitality are unmatched, and they are the driving force behind our success. It's a very exciting time at Southwest Airlines. We're executing with urgency and purpose, and we're confident in the future we're building and the benefit it will provide for our shareholders. Thank you all for joining us today. And with that, I'll pass it back to Lauren to start our Q&A. Lauren Woods: Thank you, Bob. This completes our prepared remarks. [Operator Instructions] Operator: Thank you, Lauren. [Operator Instructions] Our first question today comes from Conor Cunningham with Melius Research. Conor Cunningham: I was hoping you could frame up the sequential improvement that you're seeing into the fourth quarter versus what you were messaging in September. I'm just trying to understand the building box there. I realize that capacity is a little bit higher, but I think you knew that, that was going to be happening. And just if you could just talk about specifically around the new initiatives. Is that still 2 points? And does that carry into the first quarter of next year, just thoughts around the moving parts on unit revenue? Robert Jordan: Yes, Conor. It's Bob. I'll give it a start. I think it's pretty simple, and it's a couple of things. We have the 2 points of added capacity that you referenced, and that's just delaying the retrofits of the 700s into January that allows us to fly those extra 6 seats through the holidays and just capture extra revenue and peak demand period. Real proud of our tech ops folks because they can get all those retrofits done now in January. So that's the 2 points of capacity. And then we've got 2 other points and it's -- really, we just chose to not assume that the macro would inflect further from where we are. You heard we had a solid inflection in July that has maintained itself. But we didn't want to assume further macro inflection simply because you've got some uncertainty and in particular, it's uncertainty around the government shutdown its impact and then obviously, it's duration. So we felt it was prudent to guide assuming that things are stable from here, that the demand does not inflect further. And then yes, you've got, on the RASM front, you've got a tailwind as the initiatives continue to kick in. All of the initiatives are on track. They're on track from a benefit perspective, they are on track from a timing of delivery perspective. But it's really just those 2 points of not assuming that the macro would continue to inflect further. Andrew Watterson: Yes. I'd say, Bob, the -- we've seen past government shutdowns, right? And we know what happens when they go on. First, you see government travel -- goes to 0 very quickly. Then it goes to government adjacent than overall business travel then leisure travel as we saw in 2018, 2019. Obviously, like everyone else, we experienced, the government stopping travel very quickly. But last week, we did see government adjacent. This is state and local governments, depending upon government reimbursement. These are defense contractors. These are companies that kind of do business with the government and they held up until last week, and they went down sequentially. So through that more as a canary in coal mine, it's not material numbers that we're talking about between those 2 categories that we observed but we know what happens in the future. So if you're uncertain about when the government shut down ends, that makes you less able to assume an economic inflection. And so it all is tied up, I think, when the government shutdown ends. Robert Jordan: And Conor, just the last kind of maybe connect your tangent to that is either way, whatever happens to the macro or whatever happens with the shutdown, we're committed to hitting our 2025 reaffirmed EBIT guide. We're not sitting around waiting for the macro to show up as an example. We're going to continue to press on other areas, in particular, costs like you saw with press and [ beat ] on CASM-X in Q3 that just add more assurance around meeting that full year guide. So don't -- I wouldn't take that as we're just waiting to see. We're absolutely working proactively put some insurance around the guide irrespective of what the macro does, what the government shutdown does. Conor Cunningham: Am I allowed to follow up? Can I just follow up to that? Just on -- so I guess the pushback that I've heard is that basically, you've added 2 points to incremental capacity. And it's basically -- it's almost like that's almost a 0 revenue contribution. I mean, you're going to get a natural uplift in overall growth. I just like -- maybe you -- could you just frame up like why was it the right decision to add that incremental growth? I understand that there's a cost benefit. I would have thought costs would have moved down a little bit more. So just how you're balancing that in general on that decision? Andrew Watterson: Sure. I mean, first of all, it's an EBIT guide, not a RASM guide. It did imply a RASM, what you're asking about but the decision, because the tech ops team has been much more productive, we will be doing them faster. So when you do it faster, it overall costs less money and then also that lower number shifts into Q1. And then for the seats, there is incremental and the high periods during the holidays. Now we did this late in the curve, so you won't -- the non-holiday portion won't benefit that much. So it is very RASM-dilutive, but it's very EBIT accretive because that little bit of revenue plus the cost going down, make it EBIT positive to do that, which is what our guidance is about and what our objective is about is EBIT even though it will make RASM look on flattering in Q4. And so that was the decision making behind it. Operator: The next question is from Mike Linenberg with Deutsche Bank. Michael Linenberg: Just some questions maybe, Andrew or Tom, just some stats on some of the initiatives, even rough numbers. What we could see in the quarter we did see an inflection on at least connections. It looked like your enplanements outpaced passengers. And presumably, that helped your load factor, which was much better this quarter than where we were in the beginning of the year. And how -- and also on the basic economy rollout, what are you seeing on the buy-up? I think there was a point where maybe the majority of Southwest tickets were sold in the bottom fair bucket. I suspect that -- that's been moving up. Any color or stats that you can provide on some of the initiatives that you put in with respect to those? Andrew Watterson: Yes, I'd be happy to. So yes, as I mentioned in my prepared remarks, we did see, as we had predicted, that load factor would inflect positive post summer. So August, September, October had year-over-year increases in a load factor that came from the enhanced connectivity we talked about. It came from the third-party channels and also I think some of the basic rollout, which allows you to kind of have a more segmented offering, which means your highs get higher and your lows get lower. So that allows for good targeted volume. So we're on track as far as that goes. So switching from yield driving our RASM to load factor driving our RASM, which is kind of what we indicated earlier in the year. As far as the buy-up, the buy-up out of the bottom basic, we need that to inflect really positively with seats. In the interim, we have improvements that go about mid-single-digit points of increase in optional buyout, those who decide to buy-up to the second, third or fourth, we did see a good traction with that. The big step-up will come in Q1. But in the interim, it is a positive move. Tom Doxey: And from a financial standpoint, everything is on track for the initiatives. And so everything that we're seeing for assigned seats and extra legroom is very much on track to -- still relatively early for the late January start for operating that. But all the data that we have so far shows that, that's still on track. And the other suite of initiatives, as Bob said, is also on track. Robert Jordan: And if you look sort of getting into maybe granular, what Tom was saying, again, it's early, there are limited bookings in place post January '26 when the -- when bookings started for travel for the new assigned seating extra legroom. But both volume -- the mix of fair products is what Andrew was referencing -- basic, [ should ] fall further as an example. And then what we're seeing in terms of ancillary seat buy-up, all of those things are encouraging and on track. Again, it's early, but I'm really pleased with that. And then again, while we're not literally selling extra legroom for assigned seating. We're selling it for after January, but we have aircraft out there that have the extra-legroom retrofit configuration and folks flying on those aircraft, we have more than 400 converted, are giving us a 4-point higher NPS score than those without and that's without being able to book yourself into extra leg room. That's just they're flying on an aircraft that has that section reconfigured. So that's very encouraging as well from a customer experience perspective. Andrew Watterson: And I guess to put an exclamation point to that, Bob, we see literally a knife edge on January '27 in our bookings of pre and post assigned seating, we see a knife edge yield improvement. So clearly, customers are voting with their wallet as well as the surveys that they like assigned seating extra legroom. Robert Jordan: And what's great this time around versus bags where we started selling and operating on the same day, and then you were ramping up from then we've been selling the assigned seat and extra legroom since July. So when we hit the end of January will effectively be at that run rate. Operator: The next question is from Savi Syth with Raymond James. Savanthi Syth: If I might, just on the initiatives and kind of the unit revenue trends ask a little bit of a question on how we should think about as you head into 1Q. Just not assuming any kind of demand environment change just based on that initiative ramp-up and capacity plans. Like how should we think about the progression of year-over-year RASM? I'm not looking for a guide, but just trying to understand kind of the magnitude of how that moves from 4Q to 1Q? Robert Jordan: Yes. So what we have talked about is a $1 billion number for the extra legroom and the seat assignments. And as you think about the other initiatives, by and large, by the time you get to 1Q, those will be approaching run rate. There's some of them that still have some ramp that occurs during the first half of the year. The loyalty program, for example, continues to ramp along with the benefits that come with seating. . But I think you can think about it in those terms. We're not guiding 2026 yet, but that $1 billion number that we've talked about for next year and the ability for that to then grow to $1.5 billion as we move to the following year is still very much intact. Andrew Watterson: And if you look at Q1 capacity, that's already published, now we're not saying it's final, but we know that when we published, we don't move it that much. It's a modest year-over-year increase. We have not -- we will still be lapping our load factor initiatives that started really in August and beyond. So that will be -- benefit should still carry on into Q1. And as I mentioned, the knife edge improvement yield starting 127 coming from seat fees and buy-up to extra to higher fare products, those, I think, 3 combinations of low capacity growth, load factor improvements going and still tracking and extra yield mix for interesting Q1. Robert Jordan: Well, just for full year. I know we're going on a long time about this kind of a combination of what both we're talking about. If you just take the midpoint of our guide that was reaffirmed for EBIT for the year, $600 million to $800 million and then you stack on top of that the $1 billion that Tom referenced around the benefit of assigned seating and extra leg room and then you stack on top of that, the incremental value of a full annualized year of bag fees, which I think is roughly $700 million. And then we have obviously rewards improvements in a number of other initiatives that are all maturing -- just gives you an idea of kind of the EBIT stack for the -- just sort of the EBIT stack for the year, not trying -- certainly, we're not guiding 2026 today, but it just gives you an idea of how to think basically about that EBIT stack. Operator: The next question is from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe if I could ask on -- just if you could fill in the details on the corporate growth, how you're thinking about that filtering into your sales numbers and changes on that growth formula going forward given the -- given you're selling forward into January, and you're seeing a knife edge in that yield premium coming through? Andrew Watterson: Yes. The corporate for the new year is extraordinarily low right now. So I wouldn't give a read into that, I will say, for Q3 corporate sales for future travel kind of excluding the government and inflect it up to plus 5% year-over-year. So we're seeing corporates improving. Our trip growth was down, as I said, we shrink trips where our competitors increased. So normally, since corporate is schedule-sensitive, not price sensitive, that should have led to kind of a reduction in share and we didn't necessarily see that. And so we see good solid trends with demand for Southwest business. But we expect, as you hint that in Q1 with assigned seating, that will unlock additional growth. Right now, through various different measures, we think our domestic managed business share is in the mid-teens, which is below our overall capacity share. And we think extra legroom assigned seating should give us tailwinds in our corporate share, and that is not to quantify the numbers that we just gave you. Operator: The next question is from Jamie Baker with JPMorgan. Jamie Baker: So I suppose the definition of sell-side and sanity is asking the same question over and over and expecting a different response, but here it goes. Fourth quarter RASM guide, up 2% at the midpoint. But all of the tactical improvements in the bag fees, royalties and flight credit noise, that's what, 8 points of benefit. So that suggests RASM at your core. . So excluding the good stuff, is down mid-single digits. Why is this not the right way to think about it that the core is deteriorating, but new initiatives are making up for it for now. But of course, that could prove challenging when you begin to anniversary those initiatives. Andrew Watterson: Yes, I don't know where you're getting the 8, Jamie. I apologize not following your math. You did mention the flight credits. The way the flight credit breakage works is that when customers cancel flight or it drops to a residual travel fund than those break prospectively. So the breakage rate changing is not something that you kind of will see changing until next year. So we expect 2026 to have -- to show breakage benefits from the change in policies. So that one is coming. But the bag fees, obviously, are a, let's call it, a 3-point benefit year-over-year. Sequential, it's less than one because most of the policy was already in place for Q3. We do have on a year-over-year basis, if you're doing that our stages engage is growing year-over-year, whereas our competitors, that's going down as they restore regional. So that's about a 2-point headwind for RASM, if you did normal stage length adjusting. So I'm just not getting your 8 -- kind of walk us on it, maybe we can answer it. Jamie Baker: Well, let me ask it differently. In the fourth quarter guide, how much -- what is your initiative RASM then? And if we take -- so whatever your answer is, maybe it's plus 3, maybe plus 11. I mean it's not going to be. But whatever the initiative-related RASM contribution is, shouldn't we think of the difference relative to the 2% midpoint as the core and is that deteriorating? Andrew Watterson: I think if we look at -- I'm not sure maybe Tom can help with the initiative stuff. But if you look at other domestic main cabin, which is clearly not their strongest, our -- you look at us as a proxy for a pure-play domestic main cabin, we see sequential improvement and theirs doesn't necessarily imply that either. And we see -- as far as the core, if you look at our core customers, as we mentioned, we see our credit card applications have accelerated with the new products and the new features. We're seeing Rapid Reward sign-ups accelerate and we're seeing the kind of our road warrior travel also improved. So our core customers are responding back. Our brand -- our Net Promoter Scores from our customers did dip post your conference and kind of went to the bottom in June and now have returned to where they were pre year conferences. So all the kind of tail, tail signs on the micro level show our customers increasingly engage, increasingly using Southwest Airlines, whether it's a credit card or -- are traveling with us. So we see good trends in the core. Robert Jordan: And maybe what I'd add there, Jamie, as well, is as far as where you draw the line between an initiative versus the base business is not always a clear line. We knew as we announced actually at your conference, several of these initiatives, there would be an offset. And so as we guided these things, we guided them and we gave estimates for some of them, we guided those or gave those estimates as a net. And so it's not always a clear line on where you drop between base business or the initiatives. Jamie Baker: And then a quick second one for Bob. And thank you for all that color, by the way. So in that lounge survey that you sent around, Southwest used the word hub for what I think might be the first time in history and correct me if I'm wrong. What do you consider your hubs to be? I mean, I guess I could just look at some base level of departures, but that doesn't necessarily speak to connectivity. Robert Jordan: Yes, I think that -- it's just -- it's more choice rather than intended to imply some kind of strategy change or change the way we think about cities. We have -- depending on how you count them, we have roughly 15 to 17, what we call, mega cities and they do some things that traditional hubs do. They have what we call intentional connections or banking opportunities throughout the day they are not full banks, but they also have a lot of non-banking -- banking of aircraft activity. And again, those additional connections are just to drive connectivity across the network. So I wouldn't confuse that word choice as any change in Southwest Airlines network strategy. Now back to the survey. Obviously, if we were to choose to go forward with lounges and we've been talking about where do we go next strategically to continue to widen our offering for our customers to continue to widen our offering of things that they desire in particular premium and then how do we do all that to impact the economics of the Rapid Rewards program and the co-brand card, we're looking at what would our customers want in a lounge, where would those lounges be located relative to where we have strong passenger strength and demand. So that's really what it was about. And we're hopeful to -- and again, this work is not just thinking about it. There's active work in terms of developing the next strategy. And I'm hopeful to be able to lay parts of that out early in 2026. Andrew Watterson: I think, Bob, to put a point on that. If you -- domestic RASM, if you index that to 2018, we're getting very close to our competitors here in Q3 and Q4 may close the gap. But what we have still a gap is the other revenue -- is our credit card hasn't done as well as others in recent times. . Credit cards, these days, you've probably seen from your own bank and from other newspapers that it's driven by high-end, high fee credit cards that come with lounge access. So our gap and RASM is turning into now more "other revenue" driven by high-end credit cards that is what drives us to look at it as well as the customer desires that Bob talked about. Operator: The next question is from Catherine O'Brien with Goldman Sachs. Catherine O'Brien: Maybe just a quick first one on a shareholder returns. Can you walk us through how you think about the guardrails to shareholder returns? You're within your 1 to 2.5x leverage target, 2.1x at the end of 3Q. How much headroom do you want to leave yourself on the high end of that leverage target, given there's still some uncertainty out there? I do have one quick follow-up. Tom Doxey: Yes. Thanks for the question, Catie. Yes, as we look at that, it is, I think, important to us that we do leave a little bit of headroom there, knowing that there's some uncertainty out there. And so as we look at that range of the 1 to 2 to 2.5, we continue to believe that keeps us squarely in the investment grade and strongly within investment grade. And then we've got the $3 billion plus $1.5 billion revolver liquidity target as well, which we were right on for the quarter. And so as we think of shareholder returns, it's about ensuring that we're staying within those guardrails. And then as we look at the variability that might be there within the guide that we leave room to stay within that under those different scenarios. Catherine O'Brien: Okay. Great. And then I had to laugh at Jamie's cell site insanity, but I'm going to keep going on in the past, so forgive me. But I just -- I think it just may be helpful to understand a little bit more as we think about next year and the initiative ramp this year. And so maybe just a question on the EBIT target rather than RASM super specifically. You reiterated your EBIT target from last quarter, but fuel is down a bit and capacity is a bit higher. Are you able to share the EBIT contribution from the initiatives that you already booked in the third quarter? And then what you're incorporating in fourth quarter? And how much of that fourth quarter figure is already on the books? Tom Doxey: Thanks, Catie. Yes, I don't know that we'll go into that level of detail with it. I think Bob laid it out pretty well as far as the initiatives that we have this year and the increment that we expect to see next year. Robert Jordan: Yes. I think you can think of the -- I believe the bag -- the largest, of course, right now is bag fees and that sequential incremental improvement from third quarter to the fourth quarter's contribution is about one point or maybe a little bit less than one point. Obviously, as you get into 2026, all of the EBIT associated with assigned seating extra legroom is fully -- there's nothing today. It's a fully 2026 value then wraps to $1.5 billion in 2027 as it matures. You've got some smaller things, as Andrew talked about, the Rapid Rewards optimization, flight credits, which that will come home as they break, which tends to be later. But yes, we'll lay all that out as we stack up the EBIT guide for 2026, we're just not ready to do that today. Andrew Watterson: And there's, of course, the continued cost savings as well. I think your question was a little more focused on the revenue-related initiatives, but we've got the cost initiative that will continue to ramp up and is also on track for next year. . Operator: The next question is from Brandon Oglenski with Barclays. Brandon Oglenski: And Tom, maybe I'll just follow up there. You guys did reiterate $4.3 billion, I think, in total initiatives next year, but you guys keep talking about the $1 billion from assigned seat and premium. I get that. So maybe can you talk to the totality of the $4.3 billion, is that still valid? And I want to keep it to one question, but I guess 2 parts here. Can you give us a better understanding of how the buyout process is working today in the fourth quarter? And then how that potentially changes from like a basic fare to plus fair just based on seat assignments and premium availability? Tom Doxey: Thanks, Brandon. I'll start and then Andrew will take the second part of your question. The $4.3 billion is very much still intact. We've talked about $780-or-so million in cost savings. We've talked about $1 billion that would come from bags. We've talked about $1 billion that would come from extra legroom and seat assignments, which will start operating in January. We've got the earn and burn on the frequent flyer. We've got the amendments that we've made and the enhancements that we've made to the Chase program, all of these things stack together. And what's great is we're seeing these continue to be on track as we're ramping through this year and especially as we get into the fourth quarter and into the first quarter of next year, as you see these continue to ramp. So yes, very much still intact for the $4.3 billion. Andrew Watterson: And as far as the bio process goes, right now, the buyout process is mostly about flexibility. Going from basic to choice, the primary differences or flexibility and Rapid Rewards accrual that kind of entice customers to buy up the very highest kind of entry fares are no longer basic. So if you think about a $350 fare as an entry point for flight, that's not basic because it's a pretty high fare to be basic. And so all that to say that about 80% of our tickets were Wanna Get Away last year and a little bit less than 50% are buying basic. A portion of the remainder are people who have choices like a stand-alone, that's the first entry point for them. And then you have, as I mentioned, a mid-single-digit composition increase of those who voluntary who presented with a low fare and can buy up for the additional features, those is a mid-single-digit increase right now. Now we go into next year with seat assignments, that is much bigger. The booking curve is such that people buy early or generally less elastic. As the booking growth go goes along, you have more elastic demand at the end, it's also again inelastic. And so right now, we're seeing strong buy-up in fare products in the kind of Q1 period with seat assignments. We expect, as we get into the mid of the booking curve for Q1 that we have more and more seat only sales that people add in as well. So that composition will mix a little bit. But given the different entry points customers and have into it is all about giving choice as our fair product indicates and that's led to, as I said, a quite strong increase in yields this part of the booking curve. Robert Jordan: Well, I think the other thing to note, I know we've said many, many times, is -- there are so many transformational initiatives that are underway. And between what we laid out in September, a little more than a year ago, what we laid out in March, all of that stuff is complete. The only thing that is still to come home is the operation of assigned seats, but we're selling those, and that huge change has been really, really smooth. So number one, everything that we laid out as a contributing initiative is done. Second, they're done as in high-quality, ready to go and on time and is expected to or already showing signs that is contributing the value that was expected or in the case of bags even greater. So you've got initiatives on time, they'll start as planned, and they are in line right now to deliver the value that we expect as we have high confidence in both the -- in both that total value of EBIT to be delivered through initiatives and then our EBIT guide in the fourth quarter of this year and for the full year and then our -- the EBIT guide that we'll put in front of you in 2026. But the -- I mean, the execution of all this has just been stellar. Operator: The next question is from Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: I'm going to keep it to one, I think we're struggling a little bit with that request. So anyway, I assume some of these initiatives have a learning curve associated with them from a revenue management perspective. And I wonder if you have any anecdotes about early learnings or tweaks you have made since the early rollout? Maybe some of these items were disruptive initially but are settling down as we get more fully baked into the booking curve? Andrew Watterson: Certainly, I think Tom made a good contrast of bags and basic was kind of all at once because you started selling operating right away, whereas assigned seats, we have a long run out to it. So we mentioned last time that we saw a customer reaction to back to basic, which affected the third quarter by one point. That since has been resolved, and that basically comes down to -- you have a much wider set of price points. As an earlier question implied, the number of people who buying just your lowest entry point used to be so high and now it's a lot wider. And so you did see different reactions from customers in June and July as they've learned it, we saw that stabilize by mid-July, and the customers are kind of buying life normal, if you will, for that. For -- so I consider all the revenue management stuff doing very well on that. And then for Q1, we have a long run up. And so the tweaks are small in nature as you're looking at who buys a seat only, who buys the biops, tweaking those, high-demand, low-demand flights. We have a long runway to do that. So we feel very comfortable about how that's going. Now there still is an overall ramp-up in that -- in my prepared remarks, I told you that the '26 number, the '27 number, the difference is an implied ramp-up in and the value. So to the extent we go faster, obviously, the number gets bigger next year. Robert Jordan: Yes. I think that's a really important point is that the -- Andrew, I don't want to -- sorry to just to say the same thing you just did, but I want to make sure everybody hears that, that the $1 billion contribution from assigned seat and extra legroom next year contemplates time to do exactly what you said, which is ramp up the value. Some of these things like seats are dynamically priced, learn, tweak and so the $1 billion contemplates a ramp-up time versus we've got a guide for EBIT for that initiative and there's risk because there's going to be ramp up. We've actually -- that's contemplated in the value that we've given you. Operator: The next question is from Chris Stathoulopoulos with SIG. Christopher Stathoulopoulos: I'm going to be compliant as well here and keep it to one. United gave a CASM-X algo last week over the midterm to help us think about all the moving pieces here as it relates to capacity and their investment here in the product and other areas here. So I realize you're still in your budgeting plan for next year, but any thoughts on how we should frame that, whether you want to describe that as your mid- to long-term algo versus what you've given, I guess, your guide on low single-digit capacity over the midterm. Just wanted to understand the moving pieces around that, and I think we can all do the math on the EBIT side and what that might mean for unit margins and things like RASM? Tom Doxey: You're right that we're still working through the planning process for 2026. So at our next call, we'll have more detail on next year. What you've seen from us is strong cost performance quarter after quarter, a strong beat this last quarter with or without the incremental capacity that came from operating the 700 seats, it was broad-based. There's work that we're doing on small things and discretionary spending. There's things we're doing on large things around supply chain and optimizing our retirement plan and the component maintenance work that goes along with that, the way we're looking at real estate and technology. So we're looking everywhere. And we've talked about being on track this year, next year and to the $1 billion in 2027 for the cost savings initiatives that we have, and that will roll in and again, we'll put that into the context of 2026 at our next call. Operator: The next question is from Scott Group with Wolfe Research. Scott Group: So when I think about the $1.8 billion of initiatives this year. The guide has $300 million of incremental EBIT. So call it, $1.5 billion gap. Like do you think we should contemplate something similar next year with a sizable gap between the initiatives and the actual EBIT? Or I mean, is there a reason to think the gap widen is there -- could the gap potentially go away? I guess you're not ready to give '26 guidance, but just at a high level, like how do you think about like that gap and how that develops into next year? Robert Jordan: Yes, Scott, you're right. We're not ready to guide 2026. The gap is simply the macro and what happens to the macro inflection like we talked in Q2. And we were down sort of from where we thought the beginning of the year, we would be down roughly 6 points. We've seen, obviously, some of that come back. And it's -- I think absent maybe the uncertainty of the shutdown impact, there would be more certainty that continue to macroeconomic inflection would continue. You've heard some others say that macro inflect back is going to be completely back to pre -- before the issues by the end of this year. You've heard others say close. You just don't know. And so I think that's really what the gap is. It is how much is the macro claw back the gap from where we thought we would start to -- where we thought we would be when we started this year. We got down [ 6% ]. We've come back a material piece of that, but we're not all the way back. Tom Doxey: The other piece of it too, Scott, as you think about the initiatives, what we've done is we have put everything into the initiative bucket that we're doing to counter what would be sort of typical increases in cost in the business. As we move into next year, we've talked a lot about moving more to an EPS guided range. Of course, everything nets into that number. We'll still talk about the initiatives and what they are and what they're doing. But as we guide, likely, we move more toward kind of an EPS range where everything is netted. And as we talk about these initiatives, hey, this particular cost savings initiative kind of in a year where we're not so initiative heavy with the transformation that we have, those types of things just find their way into the sort of typical efficiencies that you're -- that you're building into your budget as you're moving forward. And don't confuse my word typical of anything other than just talking about kind of standard budgeting practices. We're going to continue to be really focused on the efficiency coming out on the cost side. Operator: The next question is from David Vernon with Bernstein. David Vernon: So Andrew, I'd love to kind of narrow in on that comment around the knife edge improvement in yields with bookings for the assigned seating in January. Can you get -- is there a way to dimension it and to talk a little bit about how much of the schedule sold at this point in time whether the sell-through rate is being affected by the higher yields? Or any additional commentary you can give us on what that knife edge comment was would be great? Andrew Watterson: Yes. Well, I apologize in advance, I'm going to do my best not to because it's early -- it's early in the curve and so this is our first time doing the assigned seats and stuff like that. So we have studied others. We've scoured for good industry data. We think we have good compares. We have -- our models are trained on how we sell early burn stuff and upgrade boarding. So we think we have good context. And so I'm not going to give you the number because I don't know how long they'll persist in the booking curve. But when you do see a knife edge, it's clearly a change in customer reaction. You really see knife edges. And when you do see a knife edge, something happen. In this case, we see a disproportionate customer reaction to the ability to buy an assigned seat or upgrade to a fair product that includes it. And so that gives us confidence that we will see a revenue positive customer reaction as we go throughout the booking curve. It's just the amount being different than our business case is something where it's just too early for us to hit that. David Vernon: Okay. And then maybe just as a quick follow-up, Tom. I applaud the desire to get out of initiative jail here because the incremental math from the site is really tough to get to. But if you think about the cadence of what you guys have in your initiative plan, can you tell us kind of what quarter we hit peak initiatives, is it Q1, Q2, Q3? Like where in the way you guys have done the math around the initiatives, do we kind of get the max contribution from the initiatives? Tom Doxey: Yes. And of course, the -- and I'm not sure if your question is the quarter where most of the inflection occurs or if it's when you're hitting peak contribution from? Yes, peak from would be -- tell me your time horizon, it should be the last quarter. We should continue to build and build and build on these. The big inflection that we have as we continue to move forward, of course, is what Andrew just described, as we move into first quarter where you have that big positive inflection where we've had a full booking curve to be able to sell into that again, contrasting that to what we did with bags. But from there, it should continue to build. We have structured the amended Chase agreement around the attributes of this new program. And so as we have bags, as we have seat assignments, these are things that then you have entitlements to as you have the card. And we talked about other -- Andrew and Bob both talked about other things that we're looking at around the potential for clubs and what that might mean for the ability to buy up. And so the short answer to your question is tell me your time period, and it's going to be the last quarter of your time period, we're going to keep building. Robert Jordan: I'm going to do exactly what the Andrew and Tom probably don't want me to do. But if you just sort of speculate on that, I think if given that -- if you just know how the booking curve works, and where the meat of the booking curve [indiscernible] the booking curve for folks that are now booking the new products at assigned an extra legroom of seating, I think that would tell you somewhere around early third quarter that peak would be my guess. The only -- and I think you'll have annualized the ramp-up of the new voucher exploration policies, those kinds of things would. The only thing that I can think of that will continue to ramp, obviously, that the policy changes -- well, and then especially the changes in values of the card related to assigned seating benefits, boarding benefits, those should continue to ramp all year as that causes customers want to get the card, engaged with the card, the co-branded card, spend on the card. So I would think that initiative continues to ramp throughout the entire year. But the big one, which is assigned an extra legroom seating based on the booking curve, that would tell me at somewhere around early third quarter, you get to peak value. Operator: The next question is from Andrew Didora with Bank of America. Andrew Didora: So maybe I'll ask a non-initiatives question to close it out here. But your fuel guidance on -- in this environment was a little bit surprising. I know it's been volatile, but also West Coast crack spreads have been high for several weeks now. I guess a quick 2-parter here. I guess one, Tom, just curious if you're able to give us what your exposure is to West Coast crack spreads? And then two, Bob, what levers do you have in your business that you think could help offset potentially higher fuel from your guidance? Tom Doxey: Yes. For us, West Coast is probably somewhere around 30 or so. Gulf Coast were probably more like about half or so of the exposure. Robert Jordan: And then just on levers, and I think not just fuel I think just -- you saw was -- I think, really good work and have what I think for -- is really good cost discipline in the third quarter. And that cost discipline is not -- it's sustainable. It's not just showing cost out to the future. So we're going to work the same way in the fourth quarter and the first quarter and the second quarter to do exactly the same thing. And that is everything from just managing sort of traditional costs and departments. We have some opportunities to continue to work on fuel efficiency which obviously is material given the amount of fuel. We have efficiency work and a lot of departments that are back office, sort of the everybody is throwing AI around, but it is the ability to automate transactions, that kind of thing, and we're seeing good results there. And then we have large efficiency programs in the operation. Some of those take longer. But my point is that this cost work is really -- it's across the board. It's every discipline within the company and we'll just keep working there. To me, that's the best insurance around whether it's fuel or whether it is the macro or it's the government shutdown impact or whatever it is, the best insurance around hitting our EBIT guide is to just keep putting manic pressure on cost and efficiency and continue to beat those numbers. Julia Landrum: That wraps up the analyst portion of today's call. We appreciate everyone joining. Operator: Ladies and gentlemen, we will now transition to our media portion of today's call. Ms. Whitney Eichinger, Chief Communications Officer, will lead us off. Please go ahead, Whitney. Whitney Eichinger: Thanks, Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, can you please remind us how to queue up for a question? Operator: [Operator Instructions] Our first question comes from Robert Silk with Travel Weekly. Robert Silk: So what I wanted to ask is, during the last quarter, you talked about your check baggage, you made about $300 million -- you were estimating $350 million for this year. Is that number still on course? And in the rate of check bags, how is that weighing in compared to the industry and compared to expectations? Robert Jordan: Yes. The financials are right on top of what we have been giving you a little ahead of what we thought. So it's still -- that's right. And then puts the annualized contribution from check bags at right around $1 billion. And the reduction in lobby bags, so check bags is -- Andrew can give you better -- it's about 30%. We are seeing a modest increase in gate check bags. So gate -- bags that show up at the gates that have to be handled there. But overall, our bags are down and down materially. Robert Silk: So how does it compares to an industry standard? Andrew Watterson: It looks like our check bag revenue per passenger is right along the same lines as the big 3. So it seems like it's a very similar rate that we're getting. Operator: This concludes our question-and-answer session for media. So back over to Whitney now for some closing thoughts. Whitney Eichinger: If you have any further questions, our communications group is standing by. Their contact information and along with today's news release are all available at swamedia.com. Operator: The conference has concluded. Thank you all for attending. We'll meet here again next quarter.
Operator: Good morning and welcome to the Ryder System third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin. Calene Candela: Thank you. Good morning, and welcome to Ryder's Third Quarter 2025 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; John Diez, President and Chief Operating Officer; and Cristina Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert. Robert Sanchez: Good morning, everyone, and thanks for joining us. The Ryder team delivered our fourth consecutive quarter of earnings per share growth. The third quarter earnings were in line with our expectations as the operating performance of our resilient contractual businesses and the benefits from our strategic initiatives more than offset headwinds from freight market conditions. The business continues to outperform prior cycles, demonstrating the impact from actions that we've taken under our balanced growth strategy to derisk the business, increase the return profile and accelerate growth in our asset-light supply chain and dedicated businesses. I'll begin today's call by providing you with a strategic update. Cristy will then take you through our third quarter results, and John will review capital expenditures and our increasing capital deployment capacity. I'll then review our updated outlook for 2025 and discuss how we expect to leverage the strong foundation provided by our transformed business model. Let's begin with a strategic update on Slide 4. We remain focused on creating compelling value for our customers through operational excellence and investment in customer-centric technology while further improving full cycle returns and unlocking long-term value for our shareholders. We expect earnings growth in 2025, driven by the operating performance of our resilient contractual businesses and the execution on our strategic initiatives. We are on track to realize the benefits from the strategic initiatives we outlined at the beginning of the year. These benefits are the key drivers of the year-over-year earnings growth expectations. Long-term secular trends that favor transportation and logistics outsourcing remain strong, and we are well positioned to benefit from increased domestic industrial manufacturing as 93% of our revenue is generated in the U.S. We delivered high teens ROE of 17% for the trailing 12-month period, which is in line with our expectations during a freight cycle downturn. We expect our transformed business model to deliver ROE in the low to mid-20s when market conditions improve for our transactional rental and used vehicle sales businesses, which will enable us to achieve our over-the-cycle ROE target of low 20s. Earnings growth from our high-performing contractual portfolio reflects our value proposition as well as our pricing discipline. Over 90% of our operating revenue is generated by multiyear contracts. Our transformed business model has demonstrated its resiliency over this elongated freight cycle downturn, which is going on its fourth year. We are confident that our cycle-tested business model will continue to outperform prior cycles while providing us with a solid foundation to meaningfully benefit from the eventual cycle upturn. Consistent execution of our balanced growth strategy is increasing the earnings and return profile of our business while also growing our capital deployment capacity. Ample capacity and our strong balance sheet support our capital allocation priorities focused on profitable growth, strategic investments and returning capital to shareholders. Aligned with these priorities, our Board recently authorized a new discretionary 2 million share repurchase program that replaces a program that was largely completed. So far in 2025, we've returned $457 million to shareholders by repurchasing approximately 2.2 million shares and paying our dividend. Since 2021, we have repurchased approximately 22% of our shares outstanding and increased the quarterly dividend by 57%. Our new share repurchase program and the dividend increase announced earlier this year demonstrate our commitment to disciplined capital allocation. Our 2025 forecast range for free cash flow is unchanged at $900 million to $1 billion, which reflects lower year-over-year capital spending and includes an annual cash flow benefit of approximately $200 million from the permanent reinstatement of tax bonus depreciation. Slide 5 illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable earnings per share of $5.95 and ROE of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at what we're expecting from Ryder today. In 2025, a year which freight market conditions remain at or near trough levels, our transformed business model is expected to generate meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix towards Supply Chain and Dedicated with 60% of 2025 revenue expected to come from these asset-light businesses compared to 44% in 2018. 2025 comparable earnings per share is expected to be between $12.85 and $13.05, more than double the 2018 comparable EPS of $5.95. ROE is expected to be approximately 17%, up from the 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, operating cash flow is expected to increase to $2.8 billion, up approximately 65% from 2018. As shown here, in 2025, the business is expected to continue to outperform prior cycles even when comparing the pre-transformation peak to the current market conditions. We're proud of the strong performance of our transformed business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle. I'll now turn the call over to Cristy to review our third quarter performance. Cristina Gallo-Aquino: Thanks, Robert. Total company results for the third quarter are on Page 6. Operating revenue of $2.6 billion in the third quarter, up 1% from prior year, primarily reflects contractual revenue growth in SCS and FMS. Comparable earnings per share from continuing operations were $3.57 in the third quarter, up 4% from $3.44 in the prior year. The increase primarily reflects higher contractual earnings and the benefit from share repurchases. Return on equity, as Robert previously mentioned, our primary financial metric, was 17%, up from prior year, reflecting higher contractual earnings and share repurchases, partially offset by lower rental demand and used vehicle sales results. Year-to-date free cash flow increased to $496 million from $218 million in the prior year due to reduced capital expenditures and lower income tax payments. Turning to fleet management results on Page 7. Fleet Management Solutions operating revenue was in line with prior year. Pretax earnings in Fleet Management were $146 million, up year-over-year, reflecting higher ChoiceLease performance driven by pricing and maintenance cost savings initiatives, partially offset by lower used vehicle sales and rental results. We continue to see progress on our pricing and maintenance cost initiatives and remain on track to achieve the benefits targeted for this year. Rental results for the quarter reflect market conditions that remain weak. Rental demand increased sequentially, but the increase was below historical seasonal demand trends. Rental demand this quarter was also lower than last year. Rental utilization on the Powerfleet was 70%, down slightly from prior year of 71% on an average active Powerfleet that was 6% smaller. Lower rental demand was partially offset by higher rental Powerfleet pricing, which was up 5% year-over-year. Fleet Management EBT as a percent of operating revenue was 11.4% in the third quarter, below our long-term target of low teens over the cycle. Page 8 highlights used vehicle sales results for the quarter. Year-over-year used tractor pricing declined 6% and truck pricing declined 15%. On a sequential basis, pricing for tractors was unchanged and pricing for trucks increased 7%. Sequential pricing benefited from a higher retail mix as we realized better proceeds using the retail sales channel versus the wholesale channel. In the third quarter, 54% of our sales volume went through our retail sales channel, up from 50% in the second quarter. As a reminder, in the second quarter, we exited out of some aged inventory and increased our level of wholesaling activity. Our retail mix is still below prior year levels of 68%, reflecting ongoing weakness in market conditions. Pricing in our retail sales channel declined 4% sequentially for tractors and was unchanged for trucks. During the quarter, we sold 4,900 used vehicles, down sequentially and up versus prior year. The sequential decline was driven by the actions we took in the second quarter to sell aged inventory. Used vehicle inventory of 8,500 vehicles was in our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 19 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. Turning to supply chain on Page 9. Operating revenue increased 4%, driven by new business in omnichannel retail. Supply chain earnings decreased 8% from prior year as the benefits from operating revenue growth were more than offset by e-commerce network performance and higher medical costs. Supply Chain EBT as a percent of operating revenue was 8.3% in the quarter at the segment's long-term target of high single digits. Moving to Dedicated on Page 10. Operating revenue decreased 6% due to lower fleet count, reflecting the prolonged freight downturn. Dedicated EBT was in line with prior year, reflecting acquisition synergies, offset by lower operating revenue. DTS results continued to benefit from strong performance of our legacy Dedicated business, reflecting pricing discipline as well as favorable market conditions for recruiting and retaining professional drivers. DTS remains on track to realize the benefits from the Cardinal acquisition synergies. Dedicated EBT as a percent of operating revenue was 7.8% in the quarter at the segment's long-term high single-digit target. I'll now turn the call over to John to review capital spending and capital deployment capacity. John Diez: Thanks, Cristy. Turning to Slide 11. Year-to-date lease capital spending of $1.2 billion was below prior year. Rental capital spending of $271 million was also below prior year levels, reflecting weaker freight market conditions. For full year 2025, lease spending is expected to be $1.8 billion, reflecting lower lease sales activity. Lease spending is expected to be down approximately $200 million from prior year, reflecting the prior year impact of OEM deliveries from vehicle orders in 2023. We expect the ending lease fleet to remain fairly consistent with current levels by year-end. Forecasted rental capital spending is approximately $300 million, down from prior year. By the end of this year, our ending rental fleet is expected to be down 12% and our average rental fleet is expected to be down 5%. The rental fleet remains well below peak levels as we manage through an extended market downturn. In rental, we've continued to shift capital spending to trucks versus tractors. As of the third quarter, trucks represented approximately 60% of our rental fleet. Our full year 2025 gross capital expenditures forecast of approximately $2.3 billion is below prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2025 and full year net capital expenditures are expected to be approximately $1.8 billion. Turning to Page 12. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile, the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x. As shown on the slide, over a 3-year period, we now expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over that same 3-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends, leaving $5 billion of capital available for flexible deployment to support growth and return capital to shareholders. We estimate about half of this capacity will be used for growth CapEx and the remaining to be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long-term profitable growth and return capital to shareholders. Our top priority is to invest in organic growth. We've taken a balanced approach to investing and since 2021 have invested approximately $1.1 billion in strategic M&A and have deployed approximately $1.2 billion for discretionary share repurchases, reducing our share count by 22%. Our balance sheet remains strong with leverage of 254% at quarter end at the lower end of our target range and continues to provide ample capacity to fund our capital allocation priorities. With that, I'll turn the call back over to Robert to discuss our outlook. Robert Sanchez: Turning to our outlook on Page 13. Our full year 2025 comparable EPS forecast is updated to a range of $12.85 to $13.05, above the prior year of $12 as higher contractual earnings benefits from our strategic initiatives and lower share count more than offset the impact from market conditions in rental and used vehicle sales. Our updated forecast continues to reflect contractual earnings growth as well as a muted environment for used vehicle sales and rental. Although sales pipelines remain strong, the prolonged freight downturn and economic uncertainty continue to cause some customers and prospects in Lease and Dedicated to delay decisions. These near-term contractual sales headwinds are consistent with current freight market conditions. We are, however, encouraged by robust sales and pipeline activity in SCS. Our 2025 ROE forecast is unchanged at 17% and is in line with our expectations given current market conditions. As mentioned earlier, our free cash flow forecast of $900 million to $1 billion is unchanged from the prior forecast and reflects lower capital expenditures in 2025 and an estimated annual benefit of $200 million from the permanent reinstatement of tax bonus depreciation. Our fourth quarter comparable EPS forecast range is $3.50 to $3.70 versus a prior year of $3.45. Turning to Page 14. The key driver of expected earnings growth in 2025 is incremental benefits from multiyear strategic initiatives that are well underway and related to our contractual lease, Dedicated and Supply Chain businesses. They represent structural changes we're making in the business and are not dependent on a cycle upturn. Upon completion, we expect these initiatives to generate annual pretax earnings benefits of approximately $150 million, which will be a key component to achieving our long-term ROE target of low 20s over the cycle. In FMS, we expect to realize an incremental annual benefit of approximately $20 million in 2025 from our lease pricing initiative. This results in a total benefit of $125 million relative to our 2018 run rate, reflecting portfolio pricing under the new model. We expect $50 million in benefits over multiple years from our maintenance cost savings initiative announced in mid-2024. In DTS, we expect to realize $40 million to $60 million in annual synergies from the Cardinal acquisition at full implementation. The majority of these synergies are related to maintenance efficiencies and replacing third-party operating leases with the benefits of Ryder ownership and asset management. In SCS, we are focused on optimizing our omnichannel retail warehouse network through continuous improvement efforts, driving operational efficiencies and better aligning our footprint with the demand environment. During the third quarter, we incurred some incremental costs related to the optimization of our network but expect continued progress on this initiative with incremental benefits expected in 2026. By year-end 2025, we expect to realize approximately $100 million from these initiatives, benefiting all three business segments. Approximately $70 million of these benefits are incremental to 2024. In addition to driving our outperformance relative to prior cycles, our transformed business model also provides a solid foundation for the business to meaningfully benefit from the eventual cycle upturn. As such, we expect an annual pretax earnings benefit of at least $200 million by the next cycle peak. The majority of the $200 million benefit is expected to come from the cyclical recovery of rental and used vehicle sales in FMS. In Dedicated, improved driver availability and lower recruiting and turnover costs are benefiting earnings but have been a headwind for new sales and revenue growth. As freight capacity and driver availability tighten, we expect to see incremental sales opportunities and improved revenue growth in DTS as private fleets seek solutions to address these challenges. In supply chain, muted volumes in our e-commerce network have been a headwind to revenue and earnings. We expect supply chain results to benefit as volumes from these services recover and our optimized warehouse footprint is leveraged. We've been pleased by the business' resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well positioned to benefit from the cycle upturn. Turning to Page 15. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders. That concludes our prepared remarks. Please note that we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions. Operator: [Operator Instructions] And our first question will come from Scott Group with Wolfe Research. Scott Group: I want to ask how you think these CDL regulations impact the business model? What are the puts and takes? I don't know if you have like a sense on your -- on the lease side of the business, like are you more exposed to large fleets, private fleet, small fleets where there may or may not be less exposure? And do you think there is risk that if there's fewer drivers that could pressure used truck pricing? I don't know, just some of the puts and takes. Robert Sanchez: Yes. Scott, I think that's still developing. But I would say that what it's likely to do is tighten the driver market. The drivers that are impacted just for the purposes of our supply chain and dedicated business, we don't have any of those types of drivers in our company. So tighter driver market typically is good news for our dedicated business as you're more likely to have companies looking for help on how to bring those drivers in. As far as our customer base on the lease side, let me hand that over to John, so he can give you a little more color on that. John Diez: Yes, Scott, the majority of our lease portfolio, if you think about it, there are private fleets that are doing specialized deliveries, whether they're food distributors or even local deliveries. Most of what we think is going to get impacted is that over-the-road transport space, which are doing dock-to-dock deliveries that don't require special handling. So I would say the majority of it is not impacted by this. Our estimates based on the number of CDL drivers out there could be as much as 5% impact to the overall capacity. So not expecting a meaningful change there to our customer base but certainly will put pressure on wages over time. And I think that will favor more outsourcing activity for our business, both on the dedicated side as well as individuals looking to cut cost and coming to us for either their fleet maintenance or dedicated solutions. Scott Group: Okay. And Robert, I know you -- usually on the Q3 call, you give at least some thoughts, perspective on the next year. We've had some multiyear initiatives like some of those like the lease pricing kind of -- I think this is the final year of it, the fleets sort of shrinking a little bit as the year plays out. So what are the drivers of earnings growth next year? Are there headwinds to be thinking about just overall puts and takes as you think about '26 earnings growth potential? Robert Sanchez: Yes. As I was going into this call, I thought there would be a lot more clarity this year than there was last year, given we had an election coming up last year. So there's still a lot of uncertainty. But I would tell you it's a very similar story in that you should expect contractual earnings growth. Really, we have $50 million left in our strategic initiatives of $150 million. So you should expect a good chunk of that, if not all of it, to really come in next year. In addition to that, although we've had some muted sales in Lease and Dedicated because of the freight market softness and extended downturn, the really strong part of the story this year is supply chain. We are seeing a very strong sales year in supply chain this year. It's on pace to be one of our best sales years. So those contracts should start coming in as we go into next year. Probably second, third quarter, we'll start to see more of them come in. But I would expect revenue and earnings growth really driven by the supply chain side next year. And then on the transactional side, it's really when do we think the freight cycle is going to turn. And we're now -- we're going to be in our fourth year of a downturn. So at some point, it will. If it happens earlier in the year, we'll get some boost from our rental and used vehicle. If it happens later in the year, we'll get less, but that -- but it's really that $200 million of incremental earnings that we're expecting by the time we hit our next peak. When that turn happens, you'll start seeing some of that. It doesn't all come in the first year, but you'll start seeing some of that. And there's still not a lot of certainty of when we're going to see that. But one of the things you mentioned around tighter market could be more capacity coming out of the spot market, which is probably a good thing for the overall freight market. As you know, we have zero-based budgeting here. So you expect us to continue to manage our overheads and look for cost takeouts there. If it is a slower -- if it is a slow market from a freight market standpoint, so we don't see an upturn, then you should expect another strong free cash flow year. Unless we see a big freight rebound, I think that's probably -- it's probably in the cards for us next year, another strong free cash flow year. And then also continued share repurchase. So really continued execution on our balanced growth strategy, which I think has given us really good results so far, and we'll continue to do so. Operator: [Operator Instructions] And our next question will come from Ben Moore with Citi. Ben Moore: I wanted to touch on more about your used gain being challenged in the quarter. In thinking about 4Q and 2026, can you share how you frame thinking about the truck tariffs? Presumably, you could allocate purchases towards U.S.-made trucks, USMCA compliance can alleviate tariffs on foreign-made trucks. You've got higher new truck pricing that should lift your used truck prices, and you can possibly pass through to customers higher new truck pricing given the strong truck leasing industry pricing discipline and also private fleets would probably want to outsource more to you. It's more economical to lease than buy. Can you walk us through kind of maybe some of these points and what you're thinking the puts and takes, whether it could be an overall benefit? Robert Sanchez: Yes. Ben, first, I'll say that we're still -- we still don't have clarity on what the impact on the pricing is going to be and how much if any of it will be passed through. But I think you hit on some of the key points that, #1, if there is a price increase. And I think there's market dynamics here. So all the OEs, regardless of where they're doing their final manufacturing will have to compete in the marketplace with those that may be doing more domestic versus across the border. But any increase that we see, obviously, we pass through in our lease rate with our customers. We're not buying trucks until we have signed leases. Those increases will likely -- if they do happen, will slow down the purchase of new trucks, I would expect, which should give -- which should accelerate getting the supply of trucks in the market down to where they need to be. So that could be -- help accelerate the balance of the freight market. But for Ryder, just as importantly, the cost of used equipment and the used equipment that was purchased prior to the tariffs should be more valuable. And we should see some help on the used truck side over time as the higher pricing of new trucks comes in. So those are the big ones. I think at the end, complexity at Ryder is our friend. And I think the uncertainty has not been our friend, just like uncertainty is not a friend of any business. But more complexity is good for us. And certainly, we're seeing plenty of it coming down the pipe with some of this tariff talk, also some of the changes in driver regulations and qualifications and who could be a driver. So those things over time really, I think, make the work that we do more complex, which should bode well for outsourcing and should bode well for companies like ours. Ben Moore: Great. Really appreciate that. Maybe as a follow-up, just thinking longer term, capital structure-wise, as you shift your mix to more Supply Chain and Dedicated, how might you think about maybe kind of trending down your leverage target to be more in line with your supply chain and dedicated peers? It looks like most of them have leverage around 0 to 1 to 2x. Robert Sanchez: Yes. Listen, that's a good question. But I think if you look at our balance sheet, you can see that the majority of the capital that we're spending is still heavily weighted towards our FMS business. The good news is the profitability of that business has significantly improved. So the contracts that we've signed over the last now 5, 6 years are certainly more profitable than what we had historically. So that allows us to continue to hold our leverage and keep our leverage where it is, even as there's been a shift in certainly the revenue and earnings for the company. So John, do you want to add something to that? John Diez: Yes. And Ben, I think right now, we're at the lower end of our target range. You should expect once the freight market recovers, we are going to be spending more capital to not only replenish the fleet but grow the fleet both for lease and rental. So you will see our leverage move up within the range as we kind of up cycle the business. So that's kind of one of the dynamics here is we're on the trough end of the cycle, which you're seeing us operate towards the latter end. It will take multiple years, I would say, before we start seeing a meaningful impact to our capital structure from the growth that we're seeing in Supply Chain and Dedicated. Operator: And moving on to David Zazula with Barclays. David Zazula: So Steve or Cristy, Robert's comments suggested a pretty positive outlook for Supply Chain Solutions kind of into the quarter and next year. Can you contrast that with some of the headwinds you saw this quarter? Were they temporary? Is some of the revenue going to be able to offset the poor network performance in e-commerce? Just any color you can provide there. Robert Sanchez: Steve? John Sensing: Yes, David, as you look at it, we had our ninth consecutive quarter of EBT earnings last quarter. We remain in high single digit. I'd really put it in three buckets. We had higher medical costs in the quarter. In e-com, there was a productivity miss really associated with a couple of accounts where volumes were lower than what was forecasted. And then as Robert said, in our strategic initiatives, the continued optimization of our multi-client e-com and Ryder last mile footprint, we did have some customers that requested to move earlier in the year. So we've got some moves going on here in the second half where we had planned those to happen in Q1, but we didn't want to accommodate them. So a little bit of higher move in shutdown costs as well. Cristina Gallo-Aquino: I'll add to that -- David, I was just going to add to that, that in the forecast that we've provided for the fourth quarter, what we're expecting there on the high end of the range is that rental will continue kind of at this flat sequential demand environment. And on the UVS side, on the high end, there would be some market improvement and also some benefit from us shifting to more retail mix on the used vehicle side. And then on the low end, it would just be that demand drops below Q3 levels, so a declining environment and that used vehicles also have a modest decline. David Zazula: Very helpful. And then just if I could squeeze one in on SelectCare. It seems like there's some headwinds in SelectCare there. I guess, one, can you maybe discuss whether we should think of those as temporary? Or is there something going on there? And then should we think of SelectCare as being more volatile than historically has been? It's been a pretty consistent grower over time. So anything you can provide there on the SelectCare line? Robert Sanchez: Yes, I'll let Tom give you color. Remember, SelectCare has a component that's contractual and then another component is more the re-billables or the more transactional part is we've got customers that need body work and other types of work to do but go ahead. Tom Havens: Yes. So I would view it as temporary. As we looked at the quarter, it was just lower activity. And as Robert mentioned, that lower activity in the transactional forms of SelectCare. And we certainly expect that to return to more normal levels in the fourth quarter. Operator: And the next question will come from Ravi Shanker with Morgan Stanley. Ravi Shanker: Just a follow-up on the non-domicile CDL rule. I understand that you said it's a very, very direct impact for you guys. But how do you think about the timing and maybe the indirect impact? If you can kind of rewind a little bit to 2018 with the ELD mandate and the 2020 Drug and Alcohol Clearinghouse kind of when there were regulatory changes in the industry that impacted small truckers, how quickly did that kind of the second derivative flow up to you guys? And also, how -- what's the timing that you think this impact will take place? Is this something going to happen right away? Is it '26? Is it going to take several years? And what are you guys seeing right now? Robert Sanchez: Yes. Those are good questions, but it's hard to tell at this point still, right? We don't know what the timing of this is. But the estimates are that it's 5% of the driver market that could come out over the next couple of years. So it's probably not something that happens overnight. It happens over a period of time. And whenever there's been a tightening of the driver market, it's typically good news for outsourcing. So again, we would expect to see some improvement, much needed improvement, I would tell you, on demand for dedicated services. And that's an area that as the market tightens up, you should see that. You should also see an increase in the transactional parts of our leasing business, rental and used vehicle sales because some of those drivers that are maybe one way and our typical truckload type fleets go down, some of the private fleets are going to have to pick up the slack. And we've seen that tilt over the last couple of years more towards the for-hire driver. You may see that come back towards the private fleet, which would benefit our leasing customers and our dedicated business. Ravi Shanker: Understood. And as a follow-up to that, just on that point of private fleets. I think there's been some speculation about private fleet growth over the years. And yesterday, we may have heard that there are some signs that maybe private fleets may be kind of giving back just given cost inflation and other issues. What do you think are some of the structural trends in private fleet growth right now? And kind of how do you think that lasts through the up cycle? Robert Sanchez: Yes. I think we've seen that in our lease fleet and our dedicated fleet over the last several years as coming out of COVID, there were a lot of trucks that were ordered that came in that probably our customers didn't need them all at that point once the COVID high came down. So you've seen those fleets defleeting over the last 2 to 3 years. And we believe that's probably getting closer to the tail end of it now. But yes, there's no doubt that private fleets have been defleeting over the last 2 to 3 years. Operator: And we'll take a question from Jeff Kauffman with Vertical Research Partners. Jeffrey Kauffman: Congratulations, everybody. I just wanted to focus a little bit on the bonus depreciation. How is that going to funnel into the financial statements? Is it just going to be a cash flow benefit? Is it going to help the operating margins? And how is that going to accelerate? I think you mentioned a $200 million benefit. Maybe I'm wrong, but I just kind of want to get a better idea of how that's going to flow through the financials. Robert Sanchez: Cristy? Cristina Gallo-Aquino: Jeff, so -- yes, the bonus depreciation right now for us is going to be a cash tax benefit, and we are estimating that to be about $200 million. We would expect that at the same level of capital spending in future years, it would continue to be about $200 million in the next several years. So that's the way it's going to flow through our financial statements. There is no tax rate effect of this. And from our operating margins, I mean, we continue to price our leases at market rates. So there really isn't a meaningful impact. It's just a cash timing benefit that we're going to be getting. Jeffrey Kauffman: All right. And the $200 million number is an annual number, correct? Cristina Gallo-Aquino: That is correct, yes. Operator: And our next question comes from Jordan Alliger with Goldman Sachs. Jordan Alliger: Just wanted to come back to supply chain for a second. You mentioned the margins were in the high single-digit target for the third quarter. You mentioned the e-commerce network productivity or performance. Is that something that just is isolated into the third quarter and it drops off and we could get back to some sort of a sequential improvement from here? Or does that sort of linger on? And then secondly, you commented that supply chain sales pipeline has been really strong, and it could start impacting in the 2Q, 3Q next year. You talk a little bit about the trade-off? If you start getting back to the revenue growth targets that you'd like to see longer term, is there a trade-off with margin on start-up? Or can we hold these high single digits as that starts to flow in? Robert Sanchez: Yes, I'll let Steve answer that. I'll tell you the last part of that. I do think we're certainly excited about the growth. We are not changing our earnings leverage targets, though for supply chain, no would expect same earnings leverage targets. Just to be -- it's going to be nice to get back closer to our target growth rates. But go ahead, Steve. John Sensing: Yes. I think in the quarter, as you think about Q4, there's going to be some continued optimization of the footprint, specifically in e-commerce and last mile. So I think that would continue, but it would set us up for a rebound in 2026. We also are seeing in the second half a few more plant shutdowns in automotive as they retool and move models around to different plants. So that's another one. It didn't really stand out in the quarter, but that's some items that we're seeing here in the back half. Operator: And our next question will come from Harrison Bauer with Susquehanna. Harrison Bauer: You've laid out your peak-to-trough market improvement opportunity of around $200 million, and that was off a 2024 base with used vehicle sales down on the gains part or maybe $50 million this year and rental earnings contributions also down notably. Do you think that peak-to-trough opportunity might be close to $300 million if we rebase the transactional earnings contribution to 2025? John Diez: Yes. Harrison, this is John. I think your observations are directionally accurate in that if you think about where we were in '24 from a gains perspective and where we're sitting today, obviously, we've had a pullback in our UBS gains. As a reminder, our expected normalized gains annually are in that range of $75 million. So clearly, more opportunity on the UBS side relative to where we were back in 2024. Rental has also taken a step back since then, which would suggest that it's a little bit more than the $200 million that we originally had calibrated. So we are going to need to make investments to grow the rental fleet and continue to invest in that fleet over time, which factors into that $200 million. But you're absolutely right. The $200 million is maybe not reflective of where we sit today, which is more depressed than where we were a year ago. Harrison Bauer: And as a follow-up to the non-domicile CDL conversation, I appreciate how you mentioned how the removal of drivers would impact different parts of your business. But what do you think the sort of other side of that where there might be additional trucks to the market and how that might affect used vehicle prices? Robert Sanchez: The question is additional trucks as a result of having fewer drivers? Harrison Bauer: Correct. Yes, like the displacement of drivers and what might happen with those trucks and any pressure to used vehicle prices or residual values. Robert Sanchez: So you're saying that -- yes, there'd be more used trucks in the market. Yes, I think that would be -- I mean, time will tell, but I think that would be more than offset by just the benefit of more trucks needing to be there to replace them, right? You're going to have to -- you're going to need more newer trucks or less or newer model year trucks to replace them. So yes, it's hard to tell exactly how it all falls out. But generally, I would tell you that as the market tightens for drivers, that is a good thing for used trucks, and that's a good thing for our rental business. Operator: And our next question will come from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Just wanted to ask for a little bit more specifics on the rental demand. I think you said it was a little bit weaker than seasonal. I don't know if you can call out anything in particular there. And similarly, for the e-com, it sounded like it was a productivity miss on maybe volume. So is there anything within that vertical that you can read into? Or is this more of a one-off from a specific customer and whatever their forecast was and whatever that warehouse was supposed to look like, but definitely didn't deliver? Robert Sanchez: So I'll let Tom address the rental, what we saw in the quarter versus what we expected. Tom Havens: Yes. Cristy mentioned it a little bit in her opening comments, but the third quarter was slightly down from our expectations and slightly worse than what we would typically see from a seasonal demand trend by about 1%. If you look at the trend year-over-year, you can see that. So as you step off into the fourth quarter here on that slightly lower demand, that's reflected into the fourth quarter forecast as well. So it's a little bit worse than what we had expected. Robert Sanchez: And certainly, well off of our target of where we want to be from a utilization standpoint. Steve, do you want to address the e-com? John Sensing: Yes, Brian, I'd say that productivity miss to a forecast was really a one-off situation in the quarter. Brian Ossenbeck: And I guess just on the rental demand, if it was worse, and I appreciate you updating the guidance for the run rate, but what -- is there anything in particular that surprised you to the downside? Was it a combination of things? Anything you can really point to? John Sensing: Yes. I guess there's good and bad in the detail of the data. But the good point is our pure rental business year-over-year, the demand for our non-lease customers renting trucks was flat year-over-year. So what we're seeing is our lease customers haven't picked up their demand. And we certainly haven't signed -- lease sales have been a little bit muted, and we would typically have awaited in leases as we sign new business. So those are the 2 areas that were down in demand. The other good point here, and you saw it in the numbers, the RPD was up about 5%. So we are seeing good rate discipline in rental. So I think when we see our lease customers start to rent again, that will be a really good sign for us. Operator: And we'll take a question from Ben Moore with Citi. Ben Moore: Just looking at the bright side, your strong sales performance in SCS, and you seem very excited about SCS leading growth in 2026. Can you talk more about your recent developments in your incubator for tech that had developed your RyderGyde, RyderShare, RyderShip and tech-driven sales. In our research, it looks like load board and broker apps using AI and supporting one truck owner operators. And I'd be curious to hear about similarity with your tech supporting your logistics managers and the outsourcers that you serve. John Diez: Yes, Ben, John Diez here. Two components to your question. One around tech. Clearly, what we're seeing, the investments we're making in RyderShare, RyderShip and some of the other technologies that are customer-facing is making a difference. That's really a big differentiator in what we're seeing in the sales activity. We are starting to see large customers take action in reshaping their supply chain. So these technologies are making a difference in those opportunities and how we compete. With regards to the second part of your question around AI, clearly, we're deploying some of these technologies, especially around Agentic AI technologies with regards to improving our service levels and improving the effectiveness of some of our solutions, specifically around our transportation management and brokerage part of the business. That's making a difference in optimizing rate for our customers, improving our overall service levels as well as improving our effectiveness around our freight bill audit and pay activity there. So you are seeing that in the supply chain space as well as some of the activities we're deploying to other parts of the business, including fleet management and dedicated. Operator: And our last question comes from Scott Group with Wolfe Research. Scott Group: Just real quick. Can you just let us know what's in the guidance for gains in the fourth quarter? And it's always a little hard to know with that slide on the residual values. Like how much cushion is left to stay within the ranges on residuals before we risk either losses or having to do something with depreciation assumptions? Cristina Gallo-Aquino: Yes. Scott, so on the guidance itself, well, first, let me remind you, in the quarter, pricing was somewhat stable. And at this level, we're still maintaining gains on the P&L. So I would expect the fourth quarter to be similar or somewhat better because we are expecting on the high end, a modest improvement in pricing. So we think that it will be higher than the third quarter results. As far as how much can we sustain, the sensitivity right now is we would need pricing to decline 8% from where it is today in order to hit the bottom end of our residual levels. We are not anticipating a decline. And so right now, that's not what we're forecasting, but that is the amount that it would need to decline to hit the bottom end. Scott Group: Okay. So it doesn't sound like, just to be sure, you're not planning any residual assumption changes or changes in accelerated depreciation or anything like that for next year. Cristina Gallo-Aquino: That's right. Right now, we're comfortable with our residuals where they're at. Operator: At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks. Robert Sanchez: Okay. Well, thank you. We're near the top of the hour. So thanks again for your ongoing interest in Ryder and great questions. Talk to you guys soon. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Good morning, and welcome to the Origin Bancorp, Inc. Third Quarter Earnings Conference Call. My name is Tom, and I'll be your Evercall coordinator. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference call over to Chris Reigelman. Chris, you may proceed. Chris Reigelman: Good morning, and thank you for joining us today. We issued our earnings press release yesterday afternoon, a copy of which is available on our website, along with the slide presentation that we will refer to during this call. Please refer to Page 2 of our slide presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those joining by phone, please note the slide presentation is available on our website at www.ir.origin.bank. Please also note that our safe harbor statements are available on Page 7 of our earnings release filed with the SEC yesterday. All comments made during today's call are subject to safe harbor statements in our slide presentation and earnings release. I'm joined this morning by Origin Bancorp's Chairman, President and CEO, Drake Mills; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; our Chief Accounting Officer, Steve Brolly; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we'll be happy to address any questions you may have. Drake, the call is yours. Drake Mills: Thanks, Chris, and thanks for being with us this morning. Before we discuss our third quarter performance, I want to share my perspective on Tricolor and the related charge-off. We had a 20-year relationship with Tricolor. During that time, Origin has grown into a dynamic company that strategically builds relationships and has a strong system of risk mitigation. For Tricolor, our systems and processes included audited financials, various loan covenants, monthly borrowing base certificates and a third-party trust company as collateral custodian. However, even with the best practices of risk mitigation, losses can occur in the event of a customer fraud. As a leader, it's important to use an event like this as an opportunity to better your organization by diving deep into policies, processes and portfolios to identify lessons learned. Our decision to charge off the entire Tricolor outstanding debt is extremely conservative. We do anticipate recoveries through a combination of no collections, insurance claims and legal recourse. This isolated event does not define Origin. When I think of our long history of success, the depth of our management team, the momentum we have generated with Optimize Origin and the unprecedented opportunities within our markets due to M&A-driven disruption, I am passionate and confident we will achieve our ultimate goal of being a top-quartile performer. Now, I'll turn it over to Lance and the team. Martin Hall: Thanks, Drake, and good morning. I'm extremely proud of how we've executed on Optimize Origin and the momentum that has been created throughout our markets. We are ahead of pace on our stated plan and are creating real traction on our goal of being a top quartile ROA performer. Excluding notable items, our pretax pre-provision ROA increased 48 basis points to 1.63% for the third quarter of 2025 compared to 1.15% in the second quarter of 2024 when we began the planning stages of Optimize Origin. Over the same period, NIM has expanded 48 basis points. Total revenue, excluding notable items, is up 10% and noninterest expense, excluding notable items, is down 3%. We strongly believe the level of paydowns and payoffs that we've seen through the first 3 quarters of this year masks the high level of production we are experiencing. We continue to see positive trends in loan production with loan originations up 19.2% year-to-date compared to the same period last year. At a more granular level, business loan production under $2.5 million across our footprint is up 22.9% during that same period. Through Optimize and through insight into data gleaned from our banker profitability reports, our bankers have heightened their focus on generating ROA lift through relationship expansion. This is highlighted by treasury management fee income increasing 7% year-over-year and loan and swap fees up 62% during the same period. We've seen a strong build on the deposit side in Q3 as noninterest-bearing deposits were up $158.6 million or 8.6% quarter-over-quarter. While we've come a long way with Optimize Origin, I'm very optimistic about what we can continue to accomplish as we close out the remainder of the year and look towards 2026. The hires we have made in our DFW markets in addition to our Southeast team reaching profitability gives me great confidence in our ability to drive long-term value in the most dynamic markets in the country. Now, I'll turn it over to Jim. Jim Crotwell: Thanks, Lance. As Drake mentioned previously, in early September, we became aware of allegation of fraud related to Tricolor. As you are aware, Tricolor filed Chapter 7 bankruptcy last month. As of quarter end, our credit relationship with Tricolor totaled $30.1 million, including $1.5 million in unfunded letters of credit. We are working with a successor servicer to begin the process of not only servicing the notes, but also working closely with the bankruptcy trustee to identify duplicative and any potential fraudulent notes. Given fraud allegations and the inability to clearly establish the level of unduplicated notes supporting our loans to Tricolor, we elected to charge off the entirety of the outstanding Tricolor debt totaling $28.4 million and to fully reserve the $1.5 million in unfunded letters of credit. While we do anticipate there will be some level of recovery from the notes pledged, we are unable to determine the magnitude of the suspected fraud with 100% certainty at this time. We will aggressively pursue all available remedies to protect the bank's interest and maximize recoveries in this matter. As such, net charge-offs for Q3 came in at $31.4 million with $3 million in net charge-offs outside of Tricolor. On an annualized basis, excluding Tricolor, net charge-offs came in at 0.16% for the quarter. Loans past due 30 to 89 days and still accruing reduced from 0.16% last quarter to 0.10% as of 9/30. Classified loans increased $10.7 million and as a percentage of total loans increased to 1.84% at quarter end compared to 1.66% as of June 30, while nonperforming assets increased $1.6 million to 1.18% at quarter end compared to 1.14% as of the prior quarter. For the quarter, our allowance for credit losses increased from 1.29% to 1.35%, net of mortgage warehouse. We did not experience any significant changes in our CECL model assumptions for the quarter, and the increase was primarily driven by increases in the individually evaluated portion of the reserve associated with our nonaccruals. The level of our reserve at 1.35%, net of mortgage warehouse, compares to a level of 1.31% at year-end 2023. Lastly, as to total ADC and CRE, we continue to have ample capacity to meet the needs of our clients and grow this segment of our portfolio, reflecting funding to total risk-based capital of 47% for ADC and 235% for CRE. I'll now turn it over to Wally. William Wallace: Thanks, Jim, and good morning, everyone. Turning to the financial highlights, in Q3, we reported diluted earnings per share of $0.27. As you can see on Slide 26, the combined financial impact of notable items during the quarter equated to a net expense of $23.3 million, equivalent to $0.59 in EPS pressure. On a pretax pre-provision basis, we reported $47.8 million. Excluding $7.9 million in net benefits from notable items in Q3 and $15.6 million net pressures in Q2, pretax pre-provision earnings increased to $39.9 million from $37.1 million. On the balance sheet side, loans decreased 1.9% sequentially and decreased 0.6% when excluding mortgage warehouse. Total deposits increased 2.6% during the quarter and 2.9% excluding brokered. Importantly, noninterest-bearing deposits grew 8.6% sequentially, improving to 24% of total deposits. Both total and noninterest-bearing deposits also increased on an average basis, up 0.9% and 1.1%, respectively. As Lance mentioned, we are excited about the momentum we are seeing from our relationship managers across our markets, and we remain optimistic that loan production is accelerating, though paydowns have remained a near-term headwind to reported loan balances. While we currently are anticipating that loan growth will return in Q4, the continued declines in Q3 lead us to reduce our loan growth guidance from up low single digits to essentially flat for the year. Given the positive momentum we have seen on the deposit side of the balance sheet and the typically strong seasonal inflows in Q4, we are maintaining our deposit growth guidance of low single digits for the year. Turning to the income statement, net interest margin expanded 4 basis points during the quarter to 3.65%, in line with our expectations. Driving most of this expansion was increased interest income from our securities portfolio, in large part due to the portfolio optimization trade executed during Q2. Moving forward, as you can see in our outlook on Slide 4 and due primarily to the expectation of an additional Fed rate cut, we tightened our margin guidance range to 3.65% in Q4 '25 and 3.60% for the full year, plus or minus 3 basis points. Our modeling now considers 25 basis point rate cuts in each of October and December as opposed to only December in our prior guide. Shifting to noninterest income, we reported $26.1 million in Q3. Excluding $9 million in net benefits from notable items in Q3 and $14.6 million in net pressures in Q2, noninterest income increased to $17.1 million from $16 million in Q2, due in large part to the addition of $1.2 million of equity method investment income from increasing our ownership in Argent Financial to over 20%. Our noninterest expense was basically flat at $62 million in Q3. Excluding $1 million of notable items in both Q3 and Q2, noninterest expense increased slightly to $61.1 million from $61.0 million in Q2, in line with our expectations. We are maintaining our guidance for Q4 and lowering our guidance slightly for the full year to down low single digits from flat to down slightly. Lastly, turning to capital, we note that Q3 tangible book value grew sequentially to $33.95, the 12th consecutive quarter of growth. And the TCE ratio ended the quarter at 10.9%, flat from Q2. As shown on Slide 25, all of our regulatory capital levels remain above levels considered well capitalized. As such, we remain confident that we have the capital flexibility to take advantage of any capital deployment opportunities to drive value for our shareholders. In fact, during the quarter, we repurchased 265,248 shares at an average price of $35.85. Furthermore, we anticipate the full redemption of the remaining $74 million of subordinated debt on our balance sheet on November 1, which will allow us to save $3 million in net annual increased interest expense. With that, I will now turn it back to Drake. Drake Mills: Thanks, Wally. As you have heard throughout this call, we have a great deal of momentum heading into the fourth quarter and next year. I referenced in my opening remarks about the opportunities, particularly in our Texas markets, associated with disruption from recent M&A. This year alone, there have been 15 bank acquisitions in Texas, with selling banks totaling $37 billion in deposits. I firmly believe that we have the infrastructure and bankers to win new business and capitalize on this opportunity. Thank you for being on the call today, and thanks to our employees who remain committed to our strategic vision of optimizing origin. We'll open up for questions. Operator: [Operator Instructions]. Our first question comes from Matt with Stephens. Matt Olney: I want to dig a little bit more on credit. Can you just talk about your NBFI exposure about what this does include and maybe what it does not include? And then secondly, any more -- as you scrub the portfolio, anything you want to disclose as far as exposure to other auto lending or subprime credits that would be of interest? Jim Crotwell: Matt, it's Jim. I'll start with a little bit of recap color on subprime and then kind of move through some of the questions you asked. Our subprime portfolio at the end of the quarter was about $92 million that represented about 1.2% of total loans. The breakdown of that would be about 68% would be residential, about 15% RV and about 15% auto. And then kind of moving to your question about subprime auto, reflective, if you kind of do the math on that, it's only 0.2% of our entire portfolio and it consists of 2 relationships, both of which are performing. And on both of those, as the sole lender in both of those relationships, some of the issues that we are experiencing in Tricolor, the double pledging of collateral, is really not an issue in the situation of these 2 relationships. Moving to the total NBFI portfolio, which is excluding mortgage warehouse, our NBFI exposure is approximately 5% of total loans, 61% of that is real estate related, with 15% related to capital call lines of credit. And the remaining 25% is spread across about 6 different categories. We've done a deep dive into this entire segment of the portfolio, and these companies have experienced management teams. The underlying loans have good income and cash flow, and our long-term relationships with the bank. And we have no past dues and no performing loans in the entirety of our NBFI segment. Matt Olney: Drake, I heard you mention the Tricolor and the fraud allegations. Can you just walk us through any insurance that could offset some of these charge-offs? And what does that look like compared to the charge-offs that we just saw? And what are some thoughts on time lines around that insurance? Drake Mills: Matt, as I said, we are aggressively pursuing recovery on these loans. We believe in time that we will see some degree of recovery. But there are -- right now, there's too many variables at present for us to sit here and quantify how much that will be and when that will occur. That's why we took the charge the way we did. It's at this point, we feel very good that we have these avenues of recovery. And as I've told investors and other relationships I have, I am going to be working diligently to ensure that we have recovery, but it's unclear. That's why we took the charge away we did. We feel confident that we will have some recovery. It's just in this Chapter 7 and going through bankruptcy and understanding the timing of this is extremely difficult to quantify anything. Matt Olney: Okay. Appreciate that. And then if I could just shift gears over to the loan growth commentary. I think the updated guidance now calls for flat balances in 2025 year-over-year. If we go back to January earlier this year, I think the guidance was mid- to high single digits, and that was kind of walked down each successive quarter since then. And Origin is certainly not alone in seeing some of the slower loan growth trends this year, but it does feel more acute at Origin than maybe some of your peers. So can we just take a step back and remind us about your loan growth views throughout the year and how that evolves? And then would love to hear any kind of preliminary thoughts you may have on loan growth in 2026. Martin Hall: Matt, it's Lance. I'd be glad to go through it. I'm actually really bullish and optimistic about where loan growth is going in Q4 and next year, but we'll kind of step back and understand why I used the word earlier that I feel like our extraordinary origination and production has really been masked by paydowns and payoffs. So if you think about that, we have actually been averaging the last 4 quarters, $685 million a quarter in paydowns and payoffs, which are extraordinarily high historically for us. Combination of that is slowing things down purposely to stay under $10 billion has led to a little less than $400 million in reduction of our commercial construction and development portfolio. So that takes some time to rebuild that back up. So that is -- a big part of our originations for this year is kind of getting back active and aggressive in that space. And that's one of the reasons we're very bullish on the fundings that will come from that next year. But just to kind of give you a little color, that $685 million per quarter over the last 4 quarters is compared to a little over $500 million, which would be sort of a typical quarter for us. And so part of that is tariffs, part of that is us pushing out credits that Jim has talked about the last few quarters. But again, I think that has sort of covered up what has been pretty extraordinary on the origination side. Our originations for the first 9 months of this year are up almost 20% compared to the 9 months of the year previously. Strong pipeline for Q4. I think we're expecting about 2% growth, ex warehouse, for Q4. So if you annualize that kind of at 8% on an annualized basis, I think our guidance for 2026 would continue to be mid- to high single digits. But we're seeing really positive momentum kind of throughout each of our markets. Texas is starting to come on strong again. Louisiana has been really strong this year. We've had about 5.5% loan and deposit growth in our Louisiana market. Really like seeing what we're seeing out of Nate and the Southeast team, a good year out of Mississippi. So we are well positioned right now. And then, I'm sure later we'll talk about Optimize and kind of say how that's translating into NIM expansion and ROA expansion. And so the engine is running really well now, it's just having to kind of get past this unprecedented level of paydowns and payoffs. Operator: Our next question comes from Woody with KBW. Wood Lay: I wanted to start, I think in the opening comments, you mentioned sort of in wake of this event, you'll be evaluating sort of the processes and systems in place to avoid incidents like this in the future. Do you expect there to be any impact to the expense run rate if there's additional investments that need to be made? Drake Mills: At this point, we don't see any additional impact or an impact to expenses. We are going to be utilizing some -- actually a move with one of our executives to come in and create a new group that is internal at this point to really focus on credit management and credit audit process, looking at the components. And as I think about Tricolor and you can sit here and say what lessons were learned. This is a process that we're undergoing right now, and we've really identified several enhancements that we believe will mitigate risk going forward as we better detect fraud. As an example, we've conducted a deep dive, as Jim said, and have gone through a comprehensive review of the segment in our portfolio. We're enhancing our processes and controls for monitoring and testing our collateral. But outside of that, we're expanding the role, as I said of this executive, who will build out a team of internal resources to provide additional oversight and streamlined collateral protection, monitoring and documentation. So I don't see that creating significant or really any additional expense. Wood Lay: Got it. And then -- so you've essentially charged off the full exposure to Tricolor. Is there any indirect exposure to the company like personal loans made to Mr. Chu or any referrals from insiders in the business? Drake Mills: Yes. While we can't necessarily speak to any specific customer information, I feel very strongly that all the exposure in our portfolio has been properly identified and appropriately accounted for. We do have approximately $500,000 in mortgages with one of the executives, about a 50% LTV and performing. Outside of that, we've disclosed everything, but feel very confident in that we've addressed any type of exposure. Wood Lay: Got it. That's helpful. And then I guess just sort of excluding the impact of Tricolor, just overall thoughts on credit, were there any trends to note in criticized or classified? Drake Mills: Yes, I'm going to let Preston -- Preston and his team have worked diligently through this process to really be able to recap where we are with credit and how we feel. So Preston? Preston Moore: Yes. Clearly, we feel like the Tricolor situation was an isolated and one-off event for Origin Bank. But in terms of the credit trends to get to your question, in my opinion, we saw a normal cycle movement of credits, which in my experience can be lumpy, certainly. We saw an increase in classified loans, nonperforming loans, charge-offs and past dues in the quarter. The increase in classified loans and nonperforming loans was part of our expected credit migration for the quarter. With respect to looking at charge-offs, clearly, we had a very elevated charge-off with Tricolor. But if we exclude that, net charge-offs would have been 16 basis points for the quarter, which is very much in line with our past experiences. And then finally, while total past due loans rose modestly in the quarter, past due 30 to 89 days and still accruing loans declined from 16 basis points last quarter to 10 basis points at the end of the quarter. And I just would say, bottom line, we do not see signs of credit deterioration in our loan portfolio. Operator: [Operator Instructions]. Our next question comes from [ Evan ] with Raymond James. Unknown Analyst: I know it's been a busy year with Optimize Origin. You've added new benefits to the project each quarter. You're staying under $10 billion at year-end. But as we look towards 2026, can we expect that the heavy lifting on Optimize Origin is behind us? And is there -- will there be more balance towards balance sheet growth? Martin Hall: Evan, this is Lance. We have a tremendous amount of opportunities still in front of us around Optimize Origin. I think Drake jokingly said we're in the top of the fourth inning when it comes to opportunities. So yes, we've done a lot of heavy lift early. And you think about the tremendous progress we've made, and we commented on some of this earlier, Optimize was basically crafted in 2Q of '24. And so if you look at that period of time from 2Q '24 to now, as we noted earlier, I mean, ROA is up 48 bps, NIM is up 48 bps. Revenue is up about 10%, expenses are down about 3%. We've executed on what we said we were going to do with Argent Financial, which is a meaningful lift for us. We've recreated our mortgage business. We actually had positive contribution income out of our mortgage business this month for the first time in years. Our Southeast market hit profitability last quarter, which is a great trend for us. We're doing a lot of really cool stuff with data. The use -- and we've talked about this in the past, our banker profitability report since we started Optimize, the ROA of our banker portfolios is up 32 bps on average, and that's really through the identification and understanding of where our revenues are created, where our profits are created. But then just everything seems to be genuine in a positive way from treasury management to fee revenue. But for us, Optimize is a continuous process. There's not a stopping point to this for us. So the way that we're continuing to use third-party benchmarking company, we have actually created an internal group that we call performance optimization partners. They are digging into process improvement, revenue enhancement, expense controls, and the insights that we're getting from that group is setting what's going to be a pretty dynamic strategic planning and budget session for us here in the next 2 weeks. And so from that, I would expect continual projects that we'll be announcing on Optimize that's really going to continue to transform this company as we evolve this into a top-tier ROA producer. Unknown Analyst: Great. Great. That's helpful. And then I just had another question on capital. So you mentioned the buybacks this quarter and then I think the redemption of, I think you said $74 million in sub debt in the fourth quarter. But as we saw most capital ratios tick up, just kind of wondering what your priorities are on capital deployment at this point. William Wallace: Evan, it's Wally. As far as priorities go, I mean, I think that our #1 priority would be to deploy our capital organically through balance sheet growth. We are very focused on trying to take advantage of any and all disruption in our markets. And as you know, that disruption has been increasing as of late, we have a successful history of lifting our teams and growing our balance sheet organically. So that would be priority #1. We recognize the level of capital that we have. We've been in the market the last 2 quarters buying back our own stock, and we will continue to look for opportunities to do that if the stock price remains at levels that we believe are where it's attractive to deploy the capital in the market. And we are aware of M&A as an opportunity to deploy capital. I don't think that's our focus today, given where our stock is trading, but we would not take that off of the list. Operator: Our next question is a follow-up from Matt with Stephens. Matt Olney: Over the last year, we've talked a lot about this fixed loan repricing dynamic that will support the overall loan yields, and we're definitely seeing the benefits of that over the last few quarters. As we look at that into 2026 and 2027, how would you characterize the remaining benefits from this dynamic compared to kind of what we've seen more recently? William Wallace: Matt, it's Wally. So with our with our payoffs and paydowns being elevated, some of that benefit has been pulled forward to this year, which is great for today NIM, but it does take away from a little bit of the tailwind that we have. That said, though, we still right now, as it stands today, have over $300 million of loans that will have planned payoffs in 2026, those loans are yielding in the mid-4s. Today, we're putting on loans in the 6.9% to 7% range. So still plenty of opportunity there, and we have over $1 billion of forecasted principal and payoffs coming for the year. So it's still a tailwind, but we have pulled some of that tailwind forward. If I look at year-over-year, I think our margin is up in the 30 to 35 basis point range. I don't think we'll see that much benefit in 2026. We're putting 4 cuts in our modeling right now and still see 10 to 15 basis points of potential margin expansion from the tailwinds that I just mentioned over the next 5 quarters. Matt Olney: And then just one more point of clarification on the fee income guidance. I think there's some discussion in the deck about -- I see here, kind of a high single-digit -- I'm sorry, low double-digit growth in the fourth quarter. Can you just -- there are several nonrecurring items and some names that are nonoperating. So I'm a little confused as far as kind of what the base is. Can you -- any way you can clarify the fee income expectations in the near term and kind of the puts and takes around the components of that? William Wallace: Sure. If you take out the items that are fee income related from the notable items table at the end of the deck, you get to a third quarter base of about $17.1 million. The fourth quarter is a seasonally light quarter in both insurance and mortgage. So from a sequential basis, that's probably more in the $15.5 million or so million dollars, which is up pretty meaningfully from last year's fourth quarter where the base was about $14 million. So that's where that growth guidance is coming from year-over-year, fourth quarter over fourth quarter, excluding notable items. The benefits coming from swap fees, which have been very strong this year, we don't see the same level of swap fees in the fourth quarter that we saw in the second and third. But we also have the contribution now from Argent as another positive when you look year-over-year. Operator: [Operator Instructions]. It appears there are currently no further questions. Handing it back to Drake Mills for any final remarks. Drake Mills: Yes. I want to thank everyone for being on the call. And just from a recap of why we feel so positive about moving into '26, it's been extremely rewarding to me personally to see a deep commitment throughout our company from all our employees to deliver on Optimize Origin, which continues to build momentum. The momentum in all of our markets from Texas to the Southeast continue to build, the dislocation in the dynamic Texas market and Southeast market is significant for us. So as we add that to the acceleration of production, I love what's going on with our strong pipelines. I currently am very positive and optimistic about our opportunity to reach our ultimate goal of being the top-quartile performer. I appreciate your support. Sincerely appreciate you being on the call. I look forward to seeing each of you soon. Operator: Ladies and gentlemen, this concludes today's Evercall. Thank you, and have a great day.