加载中...
共找到 6,596 条相关资讯
Anna Tuominen: Good afternoon. My name is Anna Tuominen, and it is my pleasure to welcome you to Marimekko's Q3 results webcast today. With me, I have our President and CEO, Tiina Alahuhta-Kasko. And in a short while, she will tell you in detail about our results. After that, we have time for your questions with Tiina and our CFO, Elina Anckar, answering. I would like to invite you to already during the presentation to use the chat function to record your questions for the Q&A session. Without further ado, Tiina, please go ahead. Tiina Alahuhta-Kasko: Thank you, Anna. And good afternoon also on my behalf, and it is my pleasure and honor to share with you our third quarter interim report results. So how did we do in the third quarter? The answer is we did well. And namely despite the continued challenging macroeconomic environment, Marimekko's net sales and operating profit increased in the third quarter. Our net sales in total grew by 8%, landing to EUR 50.8 million. Our net sales were driven and boosted in particular by the increased wholesale sales, both in Finland and abroad. And in total, our net sales in the domestic market, Finland increased by 7% and our international sales increased by 8%. Driven by the growth in net sales, our comparable operating profit improved by 14% to EUR 12.7 million, representing 24.9% of net sales. Overall, we can see at Marimekko that our continued strong development in our business paired with our good financial position give us good premises to continue our efforts and investments to scale up both the global Marimekko brand phenomenon as well as our profitable growth. We firmly believe that the winning brands of the future are determined in the more challenging market environment. But let's look at the drivers behind our results in more detail. Starting from net sales. As mentioned in the third quarter, our net sales grew by 8%, and they were boosted especially by the increased wholesale sales, both in Finland and internationally. In our important domestic market, Finland, our net sales grew by 7%, boosted especially by these increased wholesale sales, which were partly attributable to the domestic nonrecurring promotional deliveries. Then our retail sales in Finland fell short of the strong comparison period. But what is good to remember is that when we look at cumulatively in the first 9 months, also the retail sales in Finland grew. Then in our company's second largest market, the Asia Pacific region, our net sales increased by 8% due to growth in wholesale sales. And namely, our wholesale sales actually grew in Asia Pacific region. And this, of course, includes our sales to our loose franchise partners by 10%. Retail sales in the Asia Pacific region were on par with the comparison period. And in total, our international sales grew by 8%, and we saw net sales increasing in nearly all of our international market areas. Then when we look at the first 9 months of the year, our net sales increased by 5% to EUR 134.8 million, boosted especially by the growth in wholesale sales, both in Europe and in the Asia Pacific region as well as the growth in retail sales in Scandinavia and in Finland. Our net sales in Finland grew by 3% due to -- especially by the positive development of our omnichannel retail sales. What we're also happy about is that our wholesale sales in Finland grew in the first 9 months, even with the nonrecurring promotional deliveries in domestic wholesale sales being considerably below the comparable year. Then when we look at the international markets, our international net sales increased by a nice 8% when both wholesale sales and omnichannel retail sales grew in almost all international market areas. Our wholesale sales also increased in the Asia Pacific region with our retail sales being on par with the same period the year before. However, the market areas net sales decreased as no licensing income was recorded in the period under review, unlike in the strong comparison year. What is good to remember, though, is that at Marimekko, we recognize the net sales from licensing income according to the geographical location of our contractual licensing partners, Domicile. Then if we exclude licensing, in the first 9 months of the year, our net sales in Asia Pacific region would have grown by 4%. Then when we look at our net sales development based on market area or by product line, there are no major differences here. However, what I would like to lift is that in the first 9 months, the particularly strong growth was seen in the ready-to-wear category, namely in the first 9 months of the year, our ready-to-wear fashion segment grew by 17%, which then meant that the share of fashion of all our net sales in terms of the product lines grew to 38%. Our omnichannel store network, of course, constantly develops. And today, 169 Marimekko stores serve our customers in addition to our online stores serving already in 39 countries. And in terms of the number, the highest number of Marimekko stores has already long been in the Asia Pacific region. Our brand sales in the first 9 months amounted to EUR 286.9 million. And then if we look at our profitability and how it has developed in the third quarter, as mentioned at the start of this presentation, our comparable operating profit improved by a strong 14%, amounting to 24.9% of net sales, which is a very high level. Our operating profit was EUR 12.5 million and the comparable operating profit totaled EUR 12.7 million. Of course, it was the increased net sales that supported the strong operating profit, while then on the other hand, the lower relative sales margin as well as the higher fixed costs had a negative impact on our operating profit. When we look at the drivers behind the different factors, so the relative sales margin was weakened by the higher discounts than in the comparison period. While on the other hand, then what supported the relative sales margin was the strong product margins. Fixed costs grew to increased personnel expenses, and there are two main reasons behind those. One is the general pay increases in different markets and the other one is the increased salary cost in stores to support the retail growth. Then when we look at the profitability development from a cumulative viewpoint in the first 9 months, our cumulative operating profit grew by 4% and landed to EUR 23.1 million. The comparable operating profit number was EUR 23.5 million, representing 17.5% of our net sales. Again, very similar drivers behind us in the third quarter. So of course, it was the increased net sales that strengthened the operating profit, while then on the other hand, it was the weakened relative sales margin and the higher fixed cost that had a negative impact on the operating profit development. In the first 9 months, the relative sales margin was negatively affected, in particular, by the higher discounts than in the comparison period and as earlier estimated by the significantly lower licensing income, but also by unrealized exchange rate differences. Then again, the operating profit was supported by -- or the relative sales margin was supported by strong product margins. Fixed cost, similarly as in the third quarter increased due to personnel expenses, but also in addition, due to investments in the digital development. In the third quarter, we continued our determined efforts to build our international brand and to grow and nurture our international customer community. A lot of exciting events took place in the third quarter. For example, we launched collaboration collections with the iconic Finnish brands, Artek and Kalevala jewelry. And these collaborations provided yet again new perspectives or rather new -- provided new forms of timeless art of print making to our customers around the world. In the third quarter, we also organized 2 fashion shows in Copenhagen Fashion Week, we showcased our creative vision and new collections for summer 2026. And in Bangkok, we celebrated the 10th anniversary of Marimekko in Thailand via a fashion show that showcased our fall collection to our Marimekko community. We also organized various events around the world, really building up and reinforcing our brand desirability and growing our awareness. For instance, the Field of Flowers touring exhibition that showcases 25 new Marimekko floral print icons of Tomorrow that started its tour from Japan early in the year, started -- continued its journey in the third quarter to Taipei, to Tokyo to Ho Chi Minh City and to Osaka. Then at the same time, of course, the Marimekko omnichannel store network was developed and a completely new Marimekko store opened in Taipei. And in addition to that, 7 Marimekko pop-up stores, mostly in Asia, delighted our customers and grew our awareness. After the review period, we also celebrated the opening of a new Marimekko flagship store in Hong Kong when a Marimekko store opened on Leighton Road in the busy Causeway Bay area back in 2012, found its new home in a renewed space on the same Leighton Road street. Asia, of course, plays a really important role in Marimekko's internationalization and growth strategy, and we certainly see a significant growth opportunities in Asia for Marimekko in the long term. Something exciting that took place also in the third quarter was, of course, the lead up to the launch of Marimekko in Paris, namely, we opened our French language version of our pop-up -- of our online store in August and then started to build up our presence in Paris, the most important fashion capital in the world through a pop-up store in Le Bon Marché. And then after the review period, we launched a new pop-up store also in Galeries Lafayette. And finally, just last week, we celebrated the historical opening of the first ever Marimekko Paris flagship store in Le Marais. Paris, of course, being such an important fashion capital plays an even bigger role in the global Marimekko ecosystem, namely its kind of impact in terms of brand positioning and awareness creation span beyond Europe to also Asia and North America, this way, supporting our wider international growth efforts. Then moving on to our outlook for 2025. First, a few words in general. So of course, there are still significant uncertainties related to the development of global economy, such as the tensions related to geopolitics and trade relations and the indirect impacts of these tensions and other uncertainties as well as increasing tariffs on the general economic situation may be reflected in consumer confidence, purchasing power and behavior and this way can have a weakening impact on Marimekko. We're, of course, all the time as part of our normal ways of working, monitoring the development of all these situations and circumstances and we'll adjust our operations and plans if or when needed. Then a few words about seasonality. So due to the seasonal nature of our business, a major portion of our company's euro-denominated net sales and operating results are traditionally generated during the second half of the year. What is good to always remember is that the timing between the quarters of the nonrecurring promotional deliveries in Finnish wholesale sales and their size typically vary on an annual basis. And good to remember again that as we have been communicating since the beginning of this year, the licensing income in 2025 is forecasted to be significantly below the previous year's record level. Then moving on to net sales development, starting from Finland, our important home market. Despite the weak market situation, the net sales in our important home market, Finland, are expected to be approximately at the level of the previous year or increase slightly. The sales in Finland are impacted by the weak general economy and low consumer confidence as well as the development of purchasing power and behavior. In addition, also the tactical operating environment continues to have an impact. In 2025, so this year, the nonrecurring promotional deliveries in wholesale sales are estimated to be significantly lower than in the comparable year and weighted clearly in the second half of the year. Then moving on to the international sales. So altogether, we estimate our international sales to grow in 2025. Then when we look at our second largest region, the Asia Pacific region more closely. In the Asia Pacific region, this year, we expect our net sales to be approximately at the level of the previous year or increase slightly. What is good to note is that a significant part of our licensing income in 2024 was recorded as net sales in the Asia Pacific region. And therefore, as a result, the forecast decrease in licensing income in 2025 is estimated to have a weakening impact on net sales in this market area. Wholesale sales in the Asia Pacific region, which includes our sales to our loose franchise partners, are expected to also increase in 2025 despite the private consumption in China becoming more cautious during the year following the general economic uncertainties. Our long-term growth prospects in the Asia Pacific region remain unchanged. All the brick-and-mortar Marimekko stores and most online stores in Asia are partner-owned. And this year, our aim continues to be to open approximately 10 to 15 new Marimekko stores and shop-in-shops and most of the planned openings will be in Asia as in the many of our -- the preceding years. Then a few words still about growth investments and costs. So we, of course, develop our business with a long-term view, and our plan is to continue scaling our profitable growth in the upcoming years. Thus, our fixed costs are expected to be up on the previous year and also our marketing are expected to increase. The increased tariffs in the U.S. have a direct impact on only a small part of our business as the entire North American market accounted for 6% of our group's net sales in '24. And overall, our company has initiated diverse measures to mitigate the negative impacts of the tariffs. The early commitments of product orders from partner suppliers, which is typical of our industry and partly further accentuated due to the different factors, weakens our ability to optimize product orders and respond to rapid changes in demand and supply environment, which also increases risks. We, of course, work actively in all fronts to ensure functioning production and logistics chains to mitigate increased costs and other negative impacts and to avoid delays and to enhance inventory management. And finally, we reiterate our financial guidance for 2025. So our net sales for 2025 are expected to grow from the previous year, and our comparable operating profit margin is estimated to be approximately some 16% to 19%. Of course, the rapid changes and uncertainties in the global trade policy, the development of consumer confidence and purchasing power in our key markets as well as possible disruptions in global supply chains, among others, cause volatility to the outlook for 2025. But with these words, I would like to end my presentation and open up for the Q&A and invite Anna and Elina to join me here on the stage. Anna Tuominen: Thank you, Tiina. Let's start with sort of setting the scene more. So you mentioned the challenging market environment. Can you sort of describe that a bit more? Or are there some specific geographical areas or countries where you can see more difficulties maybe or more generally? Tiina Alahuhta-Kasko: I think this is referring to what we all read in the news every day. So the overall uncertainties impacting the global economy, the tensions in the trade policies, the tariffs and how they may impact the consumer confidence and this way, consumer behavior. So this is what we're referring to when it comes to the more challenging market environment. And then, of course, specifically, we have mentioned that in our important home market in Finland, of course, the weak consumer confidence and overall the tactical nature of the operating environment continues to impact. And that, of course, has a more direct impact to retail sales. Anna Tuominen: We have a few questions related to retail sales. If one looks at the omnichannel retail sales in total, they were flat year-on-year on Q3. Is there something timing related here? Or should one rather look for country by country, the development or so at least in Finland, there was a small decrease, but in many countries, the retail sales grew also. Tiina Alahuhta-Kasko: Yes. And I think that what I would here highlight is that when we look at the third quarter, our retail sales in the international markets actually increased by 13%. So very strong omnichannel retail development. And actually, the retail sales they developed very positively in most of the international markets. Then in Finland, they fell short in the third quarter of a very strong comparison period. But what is good to remember that also in Finland, when you look at the first 9 months, the omnichannel retail sales grew. Anna Tuominen: Yes. There was also a slight decrease in the North American figures, both in retail sales and in wholesale sales in the Q3. Should one look there more at the cumulative figures as well? Or is there something specific for Q3? Tiina Alahuhta-Kasko: As we've explained that when it comes to -- when it comes to certain markets like North America and like Europe, where the role of wholesale is particularly important out of the total. There also -- there might be seasonal fluctuations that may impact. So I think that overall, not specifically now, but overall, it's always good to look at the longer-term development, cumulative development. So for example, in North America, cumulatively, our net sales have increased by 5% and there our cumulative retail sales development has been actually double digits, so 10% growth in the first 9 months of the year. Anna Tuominen: Thanks, Tiina. Maybe I can invite Elina to discuss a bit brand sales. We have a few questions around them. So first of all, overall, why are brand sales down both Q3 and year-to-date, especially outside Finland? And in more specifically in Asia Pacific. Is there something behind this? Or will that pick up at the latter part of the year, the remaining months? Elina Anckar: Okay. So let me start from explaining first like why do we actually report this kind of KPI as brand sales. So we actually want to show the reach of the brand by announcing this kind of brand sales KPI. And this is illustrating how much estimated retail value sales do we have in each of the periods. And that is calculated by adding to our retail sales, sales, the estimated value of our wholesale channels sales in their retail value. And then in addition to that, we also the estimated value of the licensed products in their retail value. And regarding licensed products, they are then recorded while the products are sold in the world. So that is different a little bit from the -- how do we actually otherwise book the license income, which is then, of course, booked as according to the normal revenue recognition. But here, we want to really show the reach of the Marimekko products in a larger context. So actually, you can see that there can be quite a deviations also between the net sales and the brand sales, but that is related for the different timings of the retail sales. So I'm not like -- you shouldn't think too much about this sort of minus numbers here. And regarding licensing, maybe I could also continue a little bit from that perspective that, of course, like as we've talked many times, we've got like 2 different kinds of licensing, more kind of traditional licensing, where we have like more, so to say, contracts which are like continuing, but then we have this brand collaboration licensing contracts, which are not something that will be similar every year. And that is also related also for the negotiation rhythms and that's different with different companies. So we don't know at the start of the year exactly how much licensing income we will get during that year. So that is one of the income streams as well that we need to partially forecast ourselves. And they are also linked partially with the licensing partner sales volumes as well. Anna Tuominen: We could actually continue with as there are a couple of questions related to licensing income and the outlook for this year. Elina Anckar: Yes. Anna Tuominen: As you said, those are sort of partly they are estimated revenues. And at the beginning of the year, Marimekko guided that the licensing income will be considerably lower this year. And at that time, it was also estimated that the net sales in the Asia Pacific region would grow. And now the outlook for the Asia Pacific region is to be somewhat slightly above or at the previous year's level. So what has changed from the end of June or August period when Q2 results were published until now? Elina Anckar: So of course, like the -- it's like a couple of months since we released the Q2 results, but exactly like certain things like when we do the sales forecasting for all of the channels and then we gather all our like best understanding how the sales will develop. So that is covering all of the channels. But then, of course, we have mentioned something about regarding the China in special, like the consumer sentiment there. But I would say that it's coming from different streams. Tiina Alahuhta-Kasko: And I think in the early part of the year, when we gave the market outlook, we already then estimated that this year, after the 2 record level years in licensing, this year will be significantly lower. Then it's good to remember that licensing income consists of several different kinds of agreements, traditional licensing, brand collaboration, so forth. And at this point in time of the year, as we're starting to be in the year-end, we have now specified the impact of the licensing income to have a weakening impact on the Asia Pacific net sales. So it's natural for us at this point in time of the year to specify it. Anna Tuominen: Looking at the Asia region, are there some countries that you've seen a weaker development than you expected, for example, in China? Or has the demand overall there decreased since the August or is there something else that one should be looked at in the Asia Pacific region? Tiina Alahuhta-Kasko: So actually, when we look at the Asia Pacific region, so if we look at the retail, wholesale and licensing, in wholesale sales in the Asia Pacific region, we have our sales to our loose franchise partners in Asia that operate the Marimekko omnichannel retail there in the most parts. And what we have also specified today that also in 2025, our wholesale sales in the Asia Pacific region is estimated to grow even despite the fact that we can see that during the course of the year, the private consumption in China has become more cautious due to the general macroeconomic uncertainty. So I think good development there despite all the uncertainties in the world. Anna Tuominen: There are still a couple of questions here. But if you have questions in mind, now would be a good time to type them in. One question related to Paris flagship store. Were you satisfied with the launch? How has it performed? And can one expect it to contribute to the sales already in Q4? Tiina Alahuhta-Kasko: So first of all, I had the pleasure to be in Paris for the launch of the historical first-ever Marimekko Paris flagship store. So I can say that having experienced a more than 100-meter queue of friends of the brand lining up to the store before we opened it, I think that really symbolized a very strong start and successful start for starting to really evolve our presence in the most important fashion capital of the year. As mentioned already in my presentation, Paris has a much bigger impact or presence in Paris has a much bigger impact than just impact in Paris or in France, namely because of the role of the city and its attraction both to the local customers, but to a very global audience of tourists, we can see that the positioning and the brand awareness effects of our presence in Paris can expand even to Asia and even to North America. And this way, through the awareness, through the positioning, through the strengthening of the Marimekko message and the differentiating message, we can see that it will support our long-term scaling efforts in a much wider area. Anna Tuominen: Marimekko is currently on its scale strategy period, where one of the objectives is, of course, the international expansion. And we are now at halfway point sort of. So are you happy with how things are progressing? Or are there any planned adjustments for the upcoming years? And as a final question, is it possible to mention also are some of the 5 key success factors in the strategy? Are some of those sort of more critical to Marimekko than the others, for example? Tiina Alahuhta-Kasko: So first of all, we are very happy about how we have been progressing in our scale strategy term that is from 2023 to 2027. And even despite the volatilities happening in the world, in the macroeconomy, the headwinds, we have been successfully continuously able to positively develop and grow our business and the brand phenomenon. And for example, in the first 9 months of this year, grow our international sales by 8%. So I'm very happy with that development, and we're very eager and excited and committed to continue our determined efforts and investments to scale up our growth. And then to the follow-up question with regards to the -- whether some of the key success factors, strategic success factors in the scale strategy are more important than others. Actually, these 5 key strategic success factors from sustainability, creative vision, accelerating growth, especially in Asia, the love for Marimekko Life and the NTN digitality, they form one entity. So we -- it's important that we develop and progress in all of them. Then if I had to name one thing that typically is the most important of it all, it is, of course, the brand and the product. So the creative vision to speak to an even wider audience. In the end, that's the heart of it all. And then everything else is there to support in kind of making Marimekko more accessible and spreading our Marimekko phenomenon all around the world. Anna Tuominen: Thank you, Tiina. Thank you, Elina. Thank you for joining us, and we hope to see you again in February to discuss the full year results from 2025.
Masaomi Gomi: Good evening. This is Gomi, Head of Investor Relations for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our third quarter 2025 earnings presentation for analysts and investors. Today, we have our President, Calin Dragan; and CFO, Bjorn Ulgenes. We are also joined by Executive Officer and President of the Retail Company, Alex Gonzalez; Executive Officer, President of the Food Service Company and Chief Business Strategy Officer, Maki Kado; Executive Officer, Chief Supply Chain Officer and Chief Sustainability Officer, Andrew Ferrett. Following prepared remarks, we will be happy to take questions. Simultaneous interpretation is both -- in both Japanese and English is being provided for both today's call and the Q&A. Before we begin, let me remind you that today's presentation contains forward-looking statements and should be considered together with cautionary statements contained in our presentation. With that, I'd like to turn the call over to Calin Dragan, Calin-san, please. Calin Dragan: Good evening, everyone. This is Calin Dragan. And thank you for joining our earnings call. Before I share details of our financial results, this time, we are announcing earnings about 1 week earlier than before and compared to any other major company in the domestic beverage industry. This progress reflects our efforts to standardize and streamline our operations through process reengineering and digitalization. It shows that our transformation initiatives are delivering positive results in this area as well. Now, let's move on to the financial results. First, I would like to explain the positive trend in our current performance improvement. Please turn to Slide 3. Over the past 4 years, we achieved a robust increase in business income of JPY 39 billion. We highly value this and are very satisfied with this trend of profit growth. Now looking back in 2021 under the severe business environment, our business income was at a loss of approximately JPY 15 billion. Since then, we focused on profitability-driven commercial activities and transformation of our business, achieving significant results and remarkable performance improvement. Regarding price revisions, one measure for improving our profitability, we have implemented 8 revisions since 2022, driven by our strong commitment to enhancing profitability. And as a result, this year's business income is expected to reach JPY 24 billion following this upward revision. This JPY 24 billion business income includes the impact of significant cost increases due to external factors not in our control, such as ForEx and commodities. If would be to exclude this impact, the adjusted business income would exceed JPY 50 billion, reaching the highest level in the history of our company. Overall, business restructuring has led to this very strong performance. We achieved this business growth together with our customers and partners. In our customer survey satisfaction survey conducted by Advantage, we are recognized as the most highly valued partner within the consumer goods industry and the domestic beverage industry, which includes many local and global companies. This demonstrates that we have built a solid growth foundation and a great partnership. Our achievement of improved performance based on this robust growth foundation proves the correctness of our strategic direction and gives us great confidence in achieving our upcoming strategic business plan, Vision 2030. Slide 4 details the largest shareholder return program in our company history announced in Vision 2030. Alongside ambitious growth in business income, we plan to significantly accelerate the pace of expanding shareholder returns in line with our Vision 2030. The JPY 150 billion planned for share buybacks announced in Vision 2030 represents approximately 35% of our market capitalization. We are pleased to note that, this represents one of the largest buyback amounts relative to market capitalization in the Japan market. Our company has thus created a positive cycle linking improved performance with enhanced shareholder returns, and this announcement is consistent with that approach. Now, let's turn to today's highlights. Please take a look at Slide 5. I'm very pleased to share another set of strong results with you all. This year, third quarter delivered financial results that demonstrate the steady success of our ongoing initiatives. The third quarter year-to-date business income reached JPY 24.5 billion, 1.7x higher than last year, exceeding the plan that had been revised upwards in August. This strong performance was the solid result of profitability-focused commercial activities and cost savings achieved through transformation and other measures during the peak demand third quarter delivering above plan. Sales volume also stayed strong in the third quarter, exceeding the growth rate of the overall market. So based on this strong performance, we have decided to further raise our full year business income forecast once again. We are now targeting JPY 24 billion in business income for the full year. This is double of the last year results and 20% above our original plan. Along with this upward revision, we are enhancing shareholder returns in line with our shareholder value enhancement policy outlined in Vision 2030. Further details will be provided later, but as part of the initiatives, we will implement the cancellation of treasury shares equivalent to 6.5% of the total share issues and increase the year-on-year dividend by 10% compared to the initial plan. Additionally, as previously announced, we will continue to share buyback program starting in November, targeting JPY 30 billion to further enhance shareholder value. Now, our CFO, Bjorn Ulgenes, will walk you through our financial results in more details. Bjorn Ulgenes: Thank you, Calin. Good evening, everyone. This is Bjorn. Slide 7 shows the P&L statement for the third quarter year-to-date. Revenue continued to grow and business income gained momentum, resulting in a larger profit increase. Revenue increased by 1% year-on-year. This was driven by higher wholesale revenue per case of the price revisions despite lower sales volume and weaker channel mix. Gross profit increased by JPY 2.4 billion year-on-year, driven by the benefit of price revisions despite being affected by deteriorating channel mix and rising costs due to external factors. Business income rose by JPY 9.8 billion year-on-year, driven by higher revenues and cost savings from our transformation initiatives. The third quarter profit increase was the largest among the year's quarters, accelerating the trend of quarterly profit growth. The next slide explains the main factors behind this change in business income. Operating income and net income decreased year-on-year due to the recording of an impairment loss of JPY 88.1 billion in the vending business during the second quarter, as previously explained. Now please turn to Slide 8 for factors behind the change in business income. Starting from the left, we can see the impact of volume, price and mix. These reflect changes in marginal profit from our commercial activities, contributing a positive JPY 6.9 billion year-on-year. The main factors were a negative impact of JPY 6.3 billion from volume, including channel mix and a positive impact of JPY 15.1 billion from unit price and a negative impact of JPY 1.9 billion from other factors. Although, lower volume and an unfavorable channel mix affected results due to changing consumption trends, improved wholesale revenue per case from price revisions made a strong positive contribution. Transformation benefits totaled JPY 4.6 billion. This is mainly driven by strong results from vending transformation and improved efficiency in our supply chain network. In particular, the vending transformation is progressing ahead of our original plan. Marketing expenses increased by JPY 1.2 billion compared to the previous year. This increase reflected strengthening activities in the third quarter to capture peak season demand and secure shelf space ahead of price revisions in October. However, spending remained below the initial plan, thanks to careful investments based on return on investments and market conditions. Manufacturing costs fell by JPY 1.7 billion compared to the previous year. This was the result of cost-saving measures implemented at our production sites and through more efficient procurement processes. Other costs increased by JPY 700 million year-on-year. This was mainly due to higher outsource fees, logistics costs and vehicle and facility expenses despite reduced personnel costs. This figure also reflects special factors, including lower depreciation expenses following the impairment loss of the vending business. Commodity and utility costs increased by JPY 1.5 billion. Market conditions and exchange rate impacts accounted for JPY 1.4 billion of this increase, while higher energy costs added a further JPY 100 million. Next is Slide 9, outlining sales volume performance by channel and category. Third quarter year-to-date sales volume was impacted by past price revisions. The cycling impact of last year's strong Ayataka renewal and the temporary surge in demand following the Nankai Trough emergency notice. However, contributions from strengthening core categories, expanded sales force base and effective marketing helped limit the decline to 1%, outperforming the overall market. Wholesale revenue per case achieved a double-digit yen improvement year-on-year across all channels, reflecting the impact of price revisions. Supermarket sales volume decreased by 4%, primarily due to lower volumes of tea beverages and large PET water bottles, influenced by price changes and the cycling of last year's performance. At drugstores and discounters, growth in medium-sized PET coffee bottles helped limit the volume decline to 1%. At convenience stores, volume decreased by 5%, but profit rose, thanks to a profit-focused strategy that included optimization of promotions. In vending, market conditions remain tough with volume down 5%. However, price revisions continue to have a positive impact, improving wholesale revenue per case by JPY 98. In Retail and Foodservice, volume increased by 6%, supporting by new customer acquisitions and stronger sales in the sparkling category. Online volume grew by 17%, driven by growth in the tea category and the launch of channel exclusive products. By category, Sparkling grew 3%, driven by contributions from Coca-Cola and Coca-Cola Zero. Tea volume held was flat year-on-year, supported by Ayataka's solid sales after last year's successful renewal and the strong performance of KochaKaden. Sports drinks and water saw a decline due to factors, including price revisions and cycling of the Nankai Trough emergency notice. Coffee volume remained at last year's levels, supported by contributions from medium-sized PET bottles despite tough competition. Slide 10 shows market share and retail price trends. Profitability focused sales activities helped us grow our value share and maintain price premiums. Market share increased by 0.1 points in the total channel value share and by 0.4 points in volume share. We are very pleased that we achieved both higher volume share and positive value share growth even while implementing price revisions. Vending volume share increased by 0.3 points even as the overall market continued to shrink. The strong growth in volume share compared to value share reflects the impact of product mix, while our wholesale revenue per case showing solid improvement, as mentioned earlier. In the OTC channel, share declined due to lower volume and changes in channel and package mix. However, profitability is improving steadily here as well, supported by higher wholesale revenue per case. Our retail prices maintained a premium relative to the industry average. We have applied price revisions with discipline and retail prices for both small and large PET bottles have improved compared to last year. Now on the next slide, Alex will explain the status of our commercial activities. Alex, over to you. Alejandro Gonzalez Gonzalez: Good evening. This is Alex. Slide 12 covers the status of our commercial activities. In the third quarter, we continued to execute our profitability-focused commercial strategy while also building a stronger foundation for future growth. We are proud that our sales volume outperformed the overall market growth rate during the third quarter peak demand period while focusing on profitability. Our targeted summer sales initiatives helped boost volume. By focusing on our core categories and leveraging marketing that connected with drinking occasions, along with effective digital promotions, we maximize in-store exposure. We also offset last year's cycling effect of the Ayataka renewal by introducing new products like Ayataka Koi Ryokucha was a key point. In addition, we expanded sales opportunities by rolling out packaging tailored to consumer needs and by executing growth strategies aligned with each channel, supported volumes. Our efforts to build a foundation for further profit growth also moved forward steadily. Price revisions, which are key to profit growth are progressing smoothly. We're maintaining improved shipment prices achieved through previous revisions, and these are contributing to improved profitability as planned. We have also been preparing for the price revisions that began in October. Looking ahead, we aim to implement further price revisions for our green cheese products, market suggested retail price by up to JPY 20 per bottle by the first quarter of next year. Tea leaf prices have continued to rise since the second half of this year and expected to reach a level of 3 to 5x from last year. We expect this trend to significantly impact the entire industry. We see this action as a necessary response to cost increases within the Coca-Cola system. From the perspective of both growth investment and cost control, we made appropriate marketing investments during the third quarter peak season while keeping annual sales promotions expenses below plan. We also focus on strengthening our growth foundation through customer engagement and vending transformation, further reinforcing the foundation for future expansion. As Calin explained earlier, our commercial capabilities are highly valued by our customers and represent a key strength of our company. Moving forward, we will continue to enhance our market execution capabilities on this solid foundation of engagement and pursue further growth. Slide 13 covers our third quarter marketing activities. To strengthen our core brand, we launched the CoChiLu campaign, encouraging consumers to enjoy Coca-Cola wood chicken through joint promotions that lever our strong partnership with McDonald's. We also partnered with Star Wars, releasing limited edition products and boosting in-store visibility using the campaign as a hook to successfully attract a wide range of consumers. As for new products, we introduced FANTA Amazuppai Lemon and brought FANTA Fruit Punch, an iconic FANTA flavor from the 1980s and 1990s for a limited time to strengthen the sparkling beverage category. As part of our experiential marketing, we ran a campaign where customers could enter a code found inside their bottle cap for a chance to win tickets to Coca-Cola X Fes 2025. We also rolled out vending machines across Japan set 2 degrees colder than usual to capture demand during the intense summer heat. Next is highlights of our fourth quarter marketing activities. Coca-Cola launched its winter campaign in October, featuring promotions with exclusive Coca-Cola gifts to boost brand engagement. Georgia will also run gift campaigns, including invitations to live concerts by our brand ambassador, Adam. As for new products, this month, we have launched Kochakaden CRAFTEA Grape mix tea from the popular Kochakaden series. In November, we will release FANTA Golden Apple, a flavor loved across generations and highly requested by consumers. As part of our experiential marketing, we will partner with Japan's national baseball team, Samurai Japan for a campaign on the Coke ON app. Users will have the chance to win tickets to the WBSC Premier 12 tournament as well as original Samurai Japan merchandise. Additionally, for the consistently strong Ayataka brand, we will also launch a winter campaign to further boost engagement and sales. Now for the further future outlook, I'll hand back to Bjorn. Bjorn Ulgenes: Thank you, Alex. This is Bjorn again. From here, we will cover the revised full year earnings forecast for 2025 and the expansion of shareholder returns. So please turn to slide 16. This is our second upward revision of the full year earnings forecast this year. Business income has been revised upward once again, showing robust progress in our core performance. This revision reflects the fact that year-to-date business income exceeded the plan, supported by profitability-focused commercial activities and transformation benefits. As a result, we are raising the full year business income target to JPY 24 billion, which is 20% above the initial plan and double the previous year's figure. Regarding sales volume and revenue, the previous revision was made prior to the peak demand period, and so detailed updates were not provided. This time, we are revising our plans based on the latest market conditions. In the fourth quarter, we will focus on achieving the revised full year business income target of JPY 24 billion, while continuing to strengthen our foundation for profit growth beyond 2026. This includes implementing price revisions in October, making mid- to long-term marketing investments and driving further transformation. As Alex mentioned, we are also preparing additional price revision for green tea products in the first quarter of 2026. Our October sales volume showed mid-single-digit growth, maintaining a strong trend. We will leverage this momentum to achieve our full year business income target of JPY 24 billion. Slide 17 shows the revised full year 2025 profit and loss plan following the upward revision. Full year revenue is now projected at JPY 887.9 billion, a 0.5% decrease year-on-year. While we expect the positive effects of price revisions as planned, revenue will be impacted by volume declines and channel mix. Reflecting the current market environment, sales volumes is expected to decrease by 1.4% year-on-year. Full year business income is targeted at JPY 24 billion, double the previous year's figures, driven by profitability-focused commercial activities and transformation benefits. This represents an even more ambitious target and is a JPY 4 billion upward revision from the initial plan. Key factors affecting business income will be explained on the next slide. The main factors contributing to lower operating income and net income remain largely the same as in the previous revision, such as the impairment loss of the vending business recorded in the second quarter. However, this time, we have newly factored in the additional impact from the revised timing on fixed asset sales. Slide 18 explains the factors behind the change in business income under the revised plan. For the fiscal year 2025, we are targeting a significant increase of JPY 12 billion in business income compared to last year. This growth will be driven by profitability-focused commercial activities and cost savings from transformation. On the left side, under volume price/mix, we expect a positive impact of JPY 8.7 billion, driven by increased profit from improved wholesale revenue per case following price revisions. This also reflects the impact of volume declines and channel mix trends in the current market environment. Transformation-led cost savings aim to contribute JPY 6.7 billion to profit. Transformation benefits have exceeded expectations and initiatives in other areas are also progressing smoothly. This represents an additional JPY 1.5 billion benefit compared to the initial plan. Marketing expenses are expected to rise by JPY 800 million as we optimize spending in line with marketing market conditions. However, this still represents an improvement of JPY 3.7 billion compared to the initial plan. Manufacturing efficiency has progressed beyond expectations. Cost-saving measures at our manufacturing sites and in procurement are delivering results, contributing JPY 1.3 billion in profit. Other costs are projected to increase by JPY 2.6 billion as we continue to make strategic investments for future profit growth. This figure also includes factors such as the approximate JPY 5 billion reduction in depreciation expenses from the vending business impairment in the second quarter and the profit impact associated with changes in Coca-Cola Japan's marketing methods. Commodity and utility costs are expected to worsen by JPY 1.3 billion due to the impact of higher raw material prices. These are the main factors affecting business income in the revised plan. On the next slide, Maki will explain the expansion of shareholder returns. Maki? Maki Kado: Hello. This is Maki Kado. Please turn to Slide 19. From here, I will provide the explanations. Along with the upward revision of our full year earnings forecast, we have also decided to enhance shareholder returns in line with the shareholder value enhancement policy outlined in Vision 2030. As new additional measures, we are announcing the cancellation of treasury shares and an upward revision of the dividend forecast. First, regarding the cancellation of treasury shares, we will cancel 12 million shares in November, equivalent to 6.5% of total shares outstanding. This represents nearly all of the treasury stock acquired over the past year. We believe that appropriately canceling treasury shares is an important action that enhances shareholder value. While our Vision 2030 plan calls for cumulative share buyback totaling JPY 150 billion, we will continue to cancel acquired treasury shares at appropriate times going forward. Next, regarding the upward revision of dividend forecast, we have raised the year-end dividend per share by 10% from the initial plan, revising the full year dividend forecast for 2025 to JPY 60 per share, representing a JPY 7 increase from last year. We will also continue our share buyback program. The JPY 30 billion share buyback announced last November was completed yesterday as planned and another JPY 30 billion buyback will begin this November. By implementing this comprehensive shareholder return program, we aim to further enhance shareholder value. Regarding shareholder returns, over the past 2 years, we have significantly accelerated efforts to strengthen shareholder returns. This includes our comprehensive shareholder returns announced in November last year and our largest ever shareholder return program included in Vision 2030 this August. We see it as a major achievement that improved performance and has enabled us to expand shareholder returns, creating a positive cycle. We will continue to build on this positive momentum going forward. Finally, let me summarize today's presentation. Please turn to Slide 20. This year, we have pursued both profit growth and strengthening foundations for sustainable profit growth, positioning the year as a year to achieve both profit growth and strengthening foundation. I am very pleased to share this strong update with you today. We have achieved business income growth that exceeded the upward revision announced in August. As a result, we are announcing our second upward revision of the business income plan this year. Furthermore, we have decided to enhance shareholder returns based on these improved results. I firmly believe this success reflects our ongoing profit focused activities even in a challenging environment and our commitment to the shareholder value enhancement policy outlined in Vision 2030. We will maintain this positive momentum through the fourth quarter and beyond, working to achieve our full year business income target of JPY 24 billion, double of last year's result. At the same time, we will diligently strengthen our foundation for future growth, including preparations for further price revisions on green tea products to ensure a strong start in 2026. Next year marks the launch of our ambitious Vision 2030. Building on our solid business momentum and strong track record, we will continue to commit to further improvement performance and expand shareholder returns. We will also keep driving our key initiatives with a mid- to long-term perspective. This concludes today's presentation. Thank you very much for your attention. With that, I will hand it over to Gomi-san for the Q&A session. Masaomi Gomi: Thank you, Kado-san. This Q&A session is for analysts and investors. For members of the media, please refrain from asking questions as this time as we will have a separate session later today. Due to interpretation please ask only 1 question at a time. Now, I would like to start the Q&A session. Operator, please begin. Operator: [Interpreted] [Operator Instructions] From UBS Securities, this is Ihara-san. Rei Ihara: [Interpreted] This is Ihara from UBS Securities. I have 2 questions I would like to ask. First question is about the third quarter performance. I want to know more details. So, I thought the profitability, you might be struggling a bit more -- a little bit more. So, I was really surprised for the really strong performance. Looking at the third quarter, it seems that the volume is negative for the third quarter actually. And if you go into the details, the manufacturing cost, maybe that is really showing a strong impact. So, what is the background of seeing a drop in the manufacturing cost because it seems that, that is one of the drivers for the good Q3 performance. Masaomi Gomi: Thank you Ihara-san. So, the third quarter profit, you thought that it will be very tough, but it actually seems that we're enjoying lots of profit in the manufacturing side. And what is the background? So Bjorn-san, would you like to answer this question? Bjorn Ulgenes: Thank you, Ihara-san, for the question. We are, as you heard from the prepared remarks, extremely pleased with the Q3 performance, where we are, as we also heard, outperforming the market. And when it comes to the details behind it, I think it's very important to see we had -- if you look at the waterfall that we provided, we have a very balanced and I think very strong performance delivery across all the levers of the business. First and foremost, we're growing commercial profits, which is important. We continue to drive transformation savings in the business, again, pushing -- changing how we work and investing in future digitization. You also mentioned the manufacturing cost, which, of course, helps, which also includes procurement benefits that we have implemented in the quarter, and also how we utilize utilities, for instance, inside manufacturing. So overall, very pleased with the quarter and the overall performance of our profit delivery. Rei Ihara: [Interpreted] And I want to focus on the manufacturing cost actually. More details there will be helpful. So looking at the full year number, the manufacturing cost reduction, there was a certain number. But is this like a onetime thing? Or are you going to expect more savings in the manufacturing area next fiscal year? Masaomi Gomi: So Ihara-san, thank you very much for the additional question. So, you are wondering about Q4. And if you calculate backwards from the full year number, it seems that Q4 will be a little bit shy in the numbers. So, you're wondering about the background for that. Bjorn-san, do you want to answer again? Bjorn Ulgenes: Thank you, Ihara-san. Bjorn again. Manufacturing cost, remember, is a function of several things. One is the volume that supply chain is producing and putting through our network. And secondly, you have the impacts of how they utilize the resources, as I said earlier, for instance, water and energy. And then you have the procurement part. So you always see variations in manufacturing costs going up and down basically daily, weekly, monthly and quarterly. However, when it comes to transformations, the supply chain is really pushing forward. And as you heard in my earlier parts of the prepared remarks, supply chain is the second driver of our transformation savings year-to-date, and it will continue to be so as we go into the future. So we're very pleased, as we said earlier, with the transformation efforts, you will see these continue to flow through into the P&L, including manufacturing, but also vending and back office as we have talked about earlier. So, thank you for that. Rei Ihara: [Interpreted] So, if I could move on to my second question. So, the price revision from October, I want to know more details. So, in the third quarter, looking at the revenue per case compared to the second quarter, I think the impact is smaller. In the fourth quarter, looking at your plan, the revenue per case, it seems that it's getting deteriorated by like 3% or so. You mentioned that you have mid-single-digit growth in October, but I'm not really sure if that is the case. So, I'm just wondering what is going to be the situation after October after you fully kick in the price revision? Masaomi Gomi: Well, thank you very much. So, we have revised the price from October. So, I would like Alex-san to provide a little bit more detail on that. Alejandro Gonzalez Gonzalez: This is Alex. First and foremost, I think it's clear, we evaluate the series of price revisions positively overall contributing to profitability. The price revisions are being implemented as scheduled starting October 1. It's too early to evaluate as they have been implemented. I think it's important we're strategically raising the shipment prices in consideration of the market conditions with implementation expected to be mostly completed within this year. I think also just want to reiterate what I also said in the prepared remarks, looking ahead, we aim to implement additional price increases of up to JPY 20 per bottle for green tea as by the first quarter of 2026. The increasing costs are putting pressure on the beverage industry, make it urgently for the industry to secure profitability. And this decision to implement additional price revisions proves again that we at CCBI, we walk the talk, and we lead the industry towards more rational pricing in order to shape healthier industry dynamics. Masaomi Gomi: Operator, we would like to move on to the next question. Operator: [Interpreted] Next person is Morita-san from Nomura Securities. Makoto Morita: [Interpreted] This is Morita from Nomura Securities. I have 2 questions. First is about the tea leaves costs. So, with regard to this cost increase, is this more to do with the lower cost that CCJC should bear? Am I understanding it right? Because if the inflation happens for the tea leaves, it means that the cost is going up as in like you are going to pay more to the CCJC -- or are you paying more to the outsiders? Masaomi Gomi: Thank you, Morita-san, for your question. If we see further increase in tea leaves cost, I would like to ask Bjorn-san to take this question. Bjorn Ulgenes: Thank you, Morita-san. So first and foremost, yes, we're seeing market movements in the cost of green tea leaves, which are quite significant. And you also heard Alex and Maki in the prepared remarks underscoring the opportunity for the industry to take price across as we have done now in October, and also for specifically the green tea business. So we believe this is something that's going to hit the industry overall. And again, it's a great opportunity to again look at pricing. we're not seeing any changes in the incidence model you're referring to with CCJC. But as, of course, we take up price in the market, a percentage of that will naturally go to CCJC. But overall, very confident with the price increases we're pulling through and looking forward to see it happening in the marketplace. Makoto Morita: [Interpreted] So going forward, do you -- are you -- is there any potential that you will see this incidence-based model will change over time? Masaomi Gomi: Thank you for your question. Your question is, is there any possibility that the CCJC will revise the pricing for the incidence pricing model? So Bjorn-san, would you like to answer this question? Bjorn Ulgenes: Thank you, Morita-san. There is no indications of anything like that happening. We are on an incidence-based pricing model with the Coca-Cola Company as we have spoken about many times, and we do not expect any changes to that. So, the answer is no. Makoto Morita: [Interpreted] So, my second question is, so you are going to stock up JPY 1 billion on the BI, so it's wonderful. So, I was just understanding that SG&A is going to be reduced by JPY 18.1 billion. So, when it comes to this reduction of JPY 18.1 billion in SG&A, what is the factors behind it? Masaomi Gomi: Thank you, Morita-san, for your question. So, within our revision on the BI, your question is how we reduce the SG&A to the tune of 18.8%. Bjorn-san, would you like to answer this question, please? Bjorn Ulgenes: Thank you, Morita-san. In our P&L management, first and foremost, very happy again to report the second increase in our profit target for this year. When you look at the overall SG&A for our business, I think it's very important to look at it from many angles. One, we continue the transformation efforts across the board in our business. I mentioned that both in the prepared remarks and in the prior question from Ihara-san. That is impacting everything that we do in this business, as we said, across the 3 business units and in the functions that I referred to. Secondly, we are also doing heavy cost control, again, across the business units and the different functions. And overall, by doing that, we are able to deliver good cost trajectories while we improve the commercial profit in our business. Therefore, we're able to deliver the strong results you saw in Q3. and we continue or plan to continue that into the full year. Thank you. Makoto Morita: [Interpreted] So what are the breakdown? Is this going to be a marketing or any other item? So, what are the plan? And what are the planned items inside that reduction plan? Masaomi Gomi: Thank you, Morita-san, for your follow-up question. So, your question is about the specific items that we are looking to reduce the cost. So Bjorn-san, would you like to follow up, please? Bjorn Ulgenes: Thank you, Morita-san. There's many elements coming into it. And I think you will appreciate that I can't give you all of the details there in our management accounts. But think of it as overall in the enterprise, as I said earlier, we're cutting back and using return on investments, as we said earlier, as a measure for all our spend. Secondly, as I said, we're focusing on optimization. That includes people costs, for instance, and other budgetary elements. We also have the effect of the depreciation that is reduced from the vending impairment. You remember, we posted in Q2 and overall, a very, very strong budget and cost control regime that we have in the company. So overall, that gives us a very good trajectory on the cost management side. Masaomi Gomi: Thank you very much, Morita-san. Operator, proceed with the next question. Operator: [Interpreted] Next, we have Miyake-san from Morgan Stanley MUFG. Haruka Miyake: [Interpreted] This is Miyake from Morgan Stanley. And may be overlapping with the previous questions, but let me ask my question. Up to Q3, BI progress Q3 YTD versus your initial plan, how you can compare? How much is the upside compared to the initial plan? And when you announced your first half results, -- from the initial plan, you said that most of the items in your financial reporting are almost in line with the initial plan. That's what you said at the end of Q2. But you mentioned the effect from vending transformations and so on. So from Q2 to Q3, why you were able to accelerate the performance or how did you accelerate outperformance versus in Japan? Masaomi Gomi: Thank you very much, Miyake-san, for your question. So as for the upward revision you announced this time from Q2 to Q3, how you were able to accelerate the change -- positive change? That was the question. That led to the -- another upward revision. Bjorn-san, please take this question. Bjorn Ulgenes: Thank you, Miyake-san. So we are, as we said in the prepared remarks, extremely pleased with our Q3 performance. And when we announced back, as you said, in Q2, our performance, we were still ahead of the -- or entering into our peak season, which is the summer period. During the summer period, as you can see from the Q3 performance and then as I also said earlier, we delivered a very, very balanced and strong profit improvement across all the levers that we can control in the business. We had good commercial growth in the period, even though at certain points, there were some weather challenges, et cetera, and cycling of the Nankai Trough as of last year that you all remember. We continued the transformation. We managed our marketing spend, and we also start flowing through, as you know, the impact of the depreciation of the vending and all the other cost measures we are doing. So therefore, we accelerated into Q3, which, as I said, we're very pleased with. Thank you. Haruka Miyake: [Interpreted] And you mentioned the depreciation of lending business and the payment to the Coca-Cola Japan company are included in others. And you also mentioned the DME or depreciation. So, what are the major changes from Q2 to Q3 that led to the upward revision this time? Masaomi Gomi: Thank you for your additional questions. From Q2 to Q3, transformation, DME, what exactly have changed from Q2 to Q3? Bjorn-san, please take this question. Bjorn Ulgenes: Miyake-san, I'll probably repeat some of the items that I answered to your first question because they're very, very much linked. So, inside the cost part that I mentioned, leading to the excellent performance in Q3, we continued the transformation and accelerated it. You saw that also flowing through very nicely in Q3 and the full year. We are also seeing other cost measures that I referenced earlier, both to Ihara-san, Morita-san and yourself, therefore, coming out of the strong cost control. And overall, we're also seeing the benefits then, as I said, of the depreciation flowing through. So overall, that delivers very, very strong performance for the quarter. Calin Dragan: I'm sorry -- if I may continue with a little bit of stressing a little bit more, if I may, on the tones of the questions today. I am Calin Dragan trying to add here, just a bit of nuance. My colleagues here are trying to answer about almost any questions since the beginning of the call, all related to our performance. And I cannot say anything else other than we are extremely pleased with our performance over the quarter 3 and as well year-to-date. But I'm -- as I said earlier, I'm a bit surprised about the tone of the questions that are coming. And it's referring to the start of -- and the reason why I put it at the beginning of the deck today, the first 2 slides and primarily the first slide, which reminds everyone the transformation and the swing in performance of this company. By now, I was expecting that it is going to drive way more confidence in what we are doing. We are coming out of 9 or 10 quarters, successive quarters of overdelivering our performance. we are producing a swing of almost JPY 40 billion in performance over 36 months or 40 months or so in total. And pretty much we were discussing in this -- in the meetings in the same forum here with all of us, meaning after 3 or 4 years of overdelivering quarter-over-quarter, meaning I'm a little bit surprised about the tone of the question and the misbelief in the performance. So -- and I'm sorry to say that bluntly at this moment in time. I was thinking that by now, after we led about 8 wave of price increases and every time they were concerned, so is it going to be able to do another one? Well, I always answer, I don't know, but we are going to drive it, and we drove it 8 times so far. and we always overdelivered. What I'm trying to say here, I think it is a moment of a reset in evaluation of Coca-Cola Bottlers Japan performance. It is quarter-after-quarter delivery, leading industry in initiatives like digitalization, like transformation, cost savings, if you measure our cost savings in one company compared with the entire beverage industry, I think you would be really surprised about the outcomes that will come there. If you measure our performance in terms of pricing in the market over the last years and the moments when we took price, I think you understand as well that we are leading the industry. And of course, in the circumstances on which we are operating exclusively in Japan, and we are not an integrated company like all the other players in the Japan industry. I think the performance needs to be evaluated in a way more positive way and should be less surprised when Coca-Cola Bottlers Japan deliver performance, especially in a very big quarter like quarter 3. So the numbers that you are seeing are significant because we are generating a lot of our profitability in quarter 3 every year historically. So that's why probably JPY 1 billion up or down shouldn't be that much of a surprise. I hope that I'm not going to shock you with my very bold statements today. Apologize if I do that. And I'm very happy to take questions if something of what I said is not clear. If everything is okay, I'm happy to continue to take questions and answers on topics that you might be interested in. Thank you so much. Haruka Miyake: [Interpreted] So as Coca-Cola Bottlers Japan, so you said that you were able to deliver a very strong result by Q3 YTD and you were able to deliver very strong profits even after price revision. So, I'd like to understand why or exactly why that is why we are repeating the similar question. So, my second question is also referring to the price revisions. And you said that, you are thinking about the ninth wave by the end of Q1. That why are you considering another price increase? And of course, other beverage companies are increasing their prices as well. But -- when we look at other channels except from CVS or vending, I've observed your Ayataka prices are relatively lower priced than your suggested price. So, I understand that price revisions, if there is a justification is a good thing for the industry. But it seems -- so I'd like to understand what is the right approach because when I look at the actual selling prices in the market, it may not be fully reflected. And what are the premises needed for another price hike? As for the green tea price division, that was mentioned in the prepared remarks. So, what is the situation now? Alejandro Gonzalez Gonzalez: Miyake-san, Alex here. Just probably repeating myself, price revisions, we see it as one of the key levers in driving overall contribution to profitable growth. I think when you step back and look why price increases, the fact is the cost of doing business, the cost of commodities is -- we need to see the Japanese yen to the dollar exchange rate depreciation and with U.S. dollar-denominated commodities, it's natural that the cost, not only for CCBJI but for the industry in general is pressed for price increases to help offset commodities. So, what we're doing here is we are essentially driving price increases to capture the value from the market and creating that value to consumers and customers. And that's what we will continue to be doing. We are growing our consumer base -- we are delivering on our profitability targets sustained quarter-over-quarter. And we are working to continue to earn the right to price by creating and adding that value to consumers. So that is at the essence of what we need to do to win in the long term in Japan. Haruka Miyake: [Interpreted] So, you continue to observe how the October Wave 8 will be responded or reacted in the market. So, you continue to look at the market reaction of Wave X and make the final decision about Wave 9, understood. Masaomi Gomi: And our scheduled time has already passed, but we still have some people waiting in the queue. So, I'd like to put through the next question. Operator: [Interpreted] Saji-san from Mizuho Securities. Hiroshi Saji: [Interpreted] So I would like to ask a question about the gross profit. For the third quarter, July to September, it's almost flat. And accumulative is minus 0.3% drop and the gross profit rate is about JPY 200 billion increase. So mostly is the S&GA drop. and the channel mix decline, I think this will continue for the future. But this gross profit improvement, how are you planning to improve the gross profit? Cost inflation is continuing and the price hike or price revision is continuing, but the gross profit rate estimate for the future, I would like to ask your estimate for the gross profit. Masaomi Gomi: Saji-san, thank you for your question. The plans for the future for the gross profit. Bjorn-san like to answer this question. Bjorn Ulgenes: Thank you for the question. Overall, remember for the Q3 that we delivered a very strong profit overall, including the commercial profit, which is, of course, heavily impacted by the gross profit. Inside gross profit, there's many parts that we can influence directly when it comes to improvement. One is the element you heard us talking about at [ OCM ], which is pricing. We are now executing our eighth price increase and the gross margins, of course, include the effects of the prior 7 ones. That is the major determinant. The other parts that we are also impacting, again, the controllable elements is how we execute in the marketplace. And you have seen us running the business in 3 business units or 3 segments, which is a major ability to focus and deliver targeted activities to our customers and our consumers. So therefore, how we balance the mix between the business units and the subchannels is also an important way to improve gross margin. Overall, you also have what we call revenue growth management, which is a very, very important part for any consumer goods company. It includes pure pricing increases, but it's also about how you manage, for instance, terms and conditions with your customers. So overall, going forward, we will continue, just as you heard Calin mentioned earlier, we are continuing to drive price in the industry. We are continuing to execute revenue growth management. We are continuing to have BU and channel-focused execution and brand programs, and we will continue the transformation. So hopefully, that gives you some comfort how we will work on it. Thank you. Hiroshi Saji: [Interpreted] So the mix improvement, you are going to -- the gross profit margin is going to be improved, and that is how we are paying attention to. And in the future, if you -- if we can confirm that in some of the opportunities, I'd like to know that. Masaomi Gomi: Thank you for your question. Operator, please move on to the next question. Operator: [Interpreted] So this is Igarashi-san from Daiwa Securities. Shun Igarashi: [Interpreted] This is Igarashi from Daiwa Securities. So, I would like to ask about the sales trend from October on. I want to check once again actually. And from October, you have revised the price is executed. And on the other hand, the sales has gone up as a downward revision. So, I'm just wondering about the sales like volume, et cetera, from October on. So, the upside potential downside risk, which is going to be stronger in the fourth quarter? And are you going to invest strongly for the following year as well? This is another question. Masaomi Gomi: Well, thank you very much for the question. So, the sales trend after October is one of the questions. So, I would like to ask Alex-san to answer, please. Alejandro Gonzalez Gonzalez: Alex here, the October, although it's preliminary sales figures, October volumes is in the mid-single digits, although it's very preliminary, we have preliminary indications that we're outpacing the market, but we will continue to observe and monitor the trends as the retail prices in the market are materialized and we continue to increase our wholesale price in an agile and monitor and flex all the muscles behind our revenue growth management algorithm. Shun Igarashi: [Interpreted] In November and December, is it going to be negative? Is that your plan? Masaomi Gomi: Well, thank you for the additional question. So, November and December, our volume, is it negative or not? Alex-san, please? Alejandro Gonzalez Gonzalez: At this point, the numbers that we have reflected in the guidance is our best estimate of what the quarter 4 figures will do, and we will continue to monitor the situation as it progresses. Masaomi Gomi: And we would like to move on to the next question. Next question will be the last question. Operator: [Interpreted] Sumoge-san from BofA Securities. Manabu Sumoge: [Interpreted] This is Sumoge speaking. I hope I'm audible. Masaomi Gomi: Yes, you are. So please go ahead with your question. Manabu Sumoge: [Interpreted] So, I would like to look into more to the midterm vision. So, you mentioned about like JPY 50 billion to JPY 55 billion as a target for 2028. Masaomi Gomi: Sorry, you are very intermittent and sound. Can you repeat that? Manabu Sumoge: [Interpreted] I would like to question about how your vision about the midterm plan. So, in 2028 target, you mentioned about like JPY 50 billion to JPY 55 billion, right? So, every year, you have to stock up like JPY 10 billion and above. So, in the previous quarter, you mentioned about the business unit separation, right? So, you have a vending, OTC and food service. And you mentioned about how you're going to execute separately in this segment. But what is your vision in each segment? For example, OTC and foodservice, they have a high profitability. So, are you going to hike the pricing there? Or are you going to improve the profitability in the vending because they have a lower profitability? So, what would be the approach going forward in each segment in midterm? And maybe the projection of each profitability in 3 segments? Masaomi Gomi: Thank you, Sumoge-san, for your question. Your question is about the growth trajectory and the forecast of our 3 segments going forward. So, Bjorn, would you like to take this question, please? Bjorn Ulgenes: Thank you, Sumoge-san. Very good, a more long-term question. Very happy to answer that. First and foremost, we are very confident that we can deliver these targets, whether it's the 2028 that we revised up or the 2030. And you can see that confidence coming through in the revisions we have done for this year. Going into more specifics of your question, yes, overall, the performance will be driven by, first, the 3 business units or segments as we also call them. And secondly, they will be supported by transformation initiatives in supply chain and back office. If we take or step back, if you remember what we spoke about in our update in August, sorry, late July. We said the different business units have different job tickets. So, OTC clearly will be delivering top line growth and profit growth, and that is by far our biggest channel and segment. And the pricing you heard about in the prepared remarks and the comments by Alex earlier are paramount inside that. Foodservice remains a growth engine, both for top line and for profitability. And you also heard in the prepared remarks that we're doing exceedingly well in this business unit, capturing new customers while driving profitability and pricing. Vending, the higher focus will be on profitability because as you also mentioned, the profitability or relative profitability there is lower than the other segments. And overall, all of them coming back to my question about supply chain and back office will support through efficiency programs, digital programs, et cetera, to improve the overall profitability for the company. So that's why we're saying with confidence, we believe in our plan, and we're executing it right on the mark on how we envision it. Thank you. Manabu Sumoge: [Interpreted] With regard to the vending business, I would like to dig a little bit deeper here. I know the marginal profit is really high in here, but the -- I know the volumes are kind of struggling in here in this business segment, and you don't really expect it to jump so easily. So, if the volume goes down, maybe you can think about the price hike or reducing the fixed costs to secure the profitability. But is that the kind of idea that you have with the vending business right now? Masaomi Gomi: Thank you for the follow-up question. So, your question is about more detail about the vending business. So, we have a high GP in vending business, but what are our forecast on how we are going to generate the profit in vending business. So Bjorn, would you like to take this question, please? Bjorn Ulgenes: Love to take it. Thank you, Sumoge-san. You kind of answered your question. So, I'll try to just say it a little bit different words. Yes, the marginal profit is the highest in vending, but also it has the highest operating cost given the nature of this retail business. So, when it comes to balancing volume and profitable growth, we will balance definitely how we execute in vending, which you have heard about in earlier investment calls, we have said we're getting more and more data-driven. It's a key element on how we're going to improve vending performance overall and by machine. We are also focusing a lot on operating efficiencies in vending, again, with the nature of the retail business. And pricing, as you also mentioned, will, of course, play a part in that retail landscape. So, in the end, you summarized it well. It's a balance of initiatives that we are in control of that we will execute across the board for vending. So, looking forward to the next steps. Thank you. Masaomi Gomi: Thank you , Sumoge-san for your question. Sorry for running over time. I would like to now close the Q&A session for today. So, today's materials will be posted on our website. So, if there is any follow-up question that you would like to ask, please get in touch with the IR team. Thank you very much for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, welcome to the Erste Group Third Quarter 2025 Results Conference Call. 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 Thomas Sommerauer, our Head, Group Investor Relations. Please go ahead, sir. Thomas Sommerauer: Thank you very much, Sandra, for the kind introduction and also a warm welcome from my end to this third quarter conference call of Erste Group. We follow our usual procedure according to which Peter Bosek, our Chief Executive Officer; Stefan Dorfler, our Chief Financial Officer; and Alexandra Habeler-Drabek, our Chief Risk Officer, will lead you through a brief presentation highlighting the financial achievements of the third quarter and year-to-date. After which time, we will be ready to take your questions. Before I hand over to Peter Bosek, the usual highlighting of the disclaimer on Page 2 in regard to forward-looking statements. And with this, I hand over to Peter. Peter Bosek: Good morning, ladies and gentlemen. Welcome again to our third quarter 2025 conference call. Let me place 2 messages right at the start. First, we are progressing well towards first-time consolidation of Santander Polska around year-end 2025. We received all competition authority approvals, and it's our current expectation that we will get the nod of the Polish regulator KNF by year-end. The integration work streams with our future colleagues are also right on track as is our capital build. Actually, it's progressing even better than we have planned. And this brings me right to my second message, and this is our existing business is doing exceptionally well. We benefit from strong volume growth dynamics across our region, which translates into healthy top line performance and good bottom line profitability. And if you add these 2 things up, the strength of our existing business and the integration of a leading bank in the largest CEE market, Erste will become a real powerhouse in CEE banking with an unrivaled profitability and growth profile. And while it's unlikely that we hit the EUR 4 billion profit mark in 2026 on a reported basis due to the booking of customary onetime items that have to be absorbed with first-time consolidation of such transaction, this doesn't change anything in our ambition to get there on a clean basis already in 2026. Such onetime items include purely technical and overtime P&L-neutral IFRS effects such as the measurement of acquired assets at fair value and the resulting immediate recognition of expected credit losses on the newly acquired portfolio and certainly, also one-off integration costs, which we still see around EUR 200 million. With this, let me highlight a couple of points of our third quarter performance. For the first time ever, we posted quarterly revenues north of EUR 2.9 billion. This resulted from a record net interest income of close to EUR 2 billion, supported by strong loan growth, a stable interest rate environment and continued deposit pricing strengths. In addition, we printed fees of almost EUR 800 million, also a quarterly record. On the cost side, we probably could have done a touch better, but this is definitely an area where we still have a potential going into the fourth quarter. But despite elevated costs, quarterly operating profit was also in record territory by a comfortable margin. Risk costs remained moderate, and we are fully in line with our guidance. And we again benefited from a positive one-off in the other operating result despite higher banking taxes. Altogether, we achieved an excellent return on tangible equity of 18% flat in the third quarter. Based on these numbers, we slightly tweaked our 2025 guidance. We now see net interest income growing by more than 2% instead of more than 0%. And consequently, we rather see the cost/income ratio at around 48% instead of below 50%. Furthermore, we are raising our year-end CET1 ratio projection to higher than 18.5% due to continued strong capital build in the case first-time consolidation has not happened by this time. All other '25 guidance items, most of which we already upgraded a quarter ago, are hereby confirmed. When analyzing our P&L metrics, I'm on Page 5. In the meantime, we see continued net interest margin recovery. This was not necessarily driven by an expansion of product spreads, but rather by the factors I already mentioned like higher NII on the back of loan growth and strong deposit pricing power in addition to still muted interest-bearing asset inflation. The latter was supported by limited growth in financial assets and interbank assets in the past quarter. Operating efficiency also remained at a sound level, just shy of 47% as did risk costs at somewhat above 20 basis points. Banking taxes went up in the past quarter due to doubling of the tax rate in Romania starting in July. Quarterly earnings per share also rose despite reported net profit being down slightly quarter-on-quarter due to the nondeduction of AT1 dividends in the third quarter. The same effects also explain the rise of the return on tangible equity to 8%. I don't want to sound repetitive, but clearly, what the positive effect in our P&L is also reflected in the year-to-date balance sheet development. On Page 6, you can see the main driver of asset side growth was higher customer loan volumes. In fact, since the start of the year, added almost EUR 10 billion to our loan stock. Stefan will tell you more where it exactly came from later. So for now, I will only say that the positive trends of the previous quarters, good growth across Central and Eastern Europe and solid growth in Austria and better growth in retail and corporate business continued in the third quarter. Total customer deposits grew by 2.5% year-to-date, while core retail and SME deposits, which includes deposits held in the savings banks increased by 2.4% over the same time frame. The Retail segment on its own saw deposit growth by 3.5% since the start of the year. All in all, we are seeing healthy volume growth for the past couple of quarters now and the third quarter was no exception. So this increasingly looks like a sustainable trend. This makes us confident that we will comfortably deliver our full year guidance of growing customer loans by more than 5%. Looking at the same key balance sheet metrics on Slide 7. My key message to you is that all of them are pretty much in a sweet spot territory. The loan-to-deposit ratio stands at 92%. Here, we saw a little bit of an uptick since the start of the year due to strong loan growth dynamics and compared to that somewhat slower growth in deposits. The asset quality backdrop remained excellent in the third quarter with a stable NPL ratio of 2.5% and unchanged coverage versus the previous quarter of about 74%. Importantly, the asset quality situation in Austria remained stable despite the weak economic backdrop. Asset quality across Central and Eastern Europe remained very strong and the Czech Republic and Hungary doing particularly well. As usual, Alexandra will provide you further details on credit risk later. Our capital position continued to expand in the run-up for the first time consolidation of our Polish acquisition expected for around year-end of 2025. On a pro forma basis, we added another 74 basis points to our CET1 ratio in the third quarter, which now stands at 18.2%. Quarterly profit inclusion, the lack of any dividend accrual and the first positive impact from securitization were key drivers of this strong print. While the lower left-hand chart on the slide shows the reported CET1 number where third quarter profit is not included due to not being audited -- reviewed. And with this, let's now examine the macroeconomic environment and in particular, the outlook for 2026. I'm on Slide 9 now. In the past quarter, we saw a continuation of geopolitical and trade tensions, which prolonged the weakness of German industry. The fiscal spending plans announced in spring of this year didn't yet show any noticeable positive effect to date other than a slight improvement in sentiment. Accordingly, the German economy is expected to flatline in 2025. Due to this and necessary fiscal consolidation measures, the Austrian economy also struggled to produce growth. The situation was different in Central and Eastern Europe, where moderate growth in the range of 1% to 3% is expected in 2025. And I would like to highlight the good economic performance of the Czech Republic in this context, which is still our most important CEE market. A key pillar of strength was the healthy labor market across our region, and that includes Austria. Consumer price inflation remained relatively elevated in our region, impacted by high energy prices, but also good domestic demand. Fiscal and external balances were mixed with once again the Czech Republic standing out in terms of fiscal prudence and a positive external balance. When looking forward to 2026, current forecast project higher growth rates in most of our markets and adverse a stable growth performance. Consumer price inflation should ease somewhat and the labor markets are expected to remain in good shape. Fiscal deficit should improve, especially in Romania and overall indebtedness should also remain at sustainable levels. This is an environment that works well for us and should ensure that we will continue to grow profitably in 2026 despite all uncertainties that unfortunately more than ever are a feature of doing business. Despite the mixed macro backdrop, retail business continued to do very well in the third quarter. I'm on Page 10 now. We saw balanced growth in retail loans with housing and consumer finance contributing to growth in equal measure, both rising in high single digits year-on-year. Asset quality remained stable at low levels. When it comes to retail liabilities, deposits also grew by a significant 6.4% year-on-year, mainly due to the increase in current account and saving deposits, while term deposits were down year-on-year as well as quarter-on-quarter, in line with trends we have already observed for a couple of quarters now. From the bank's point of view, this trend is positive as the shift towards lower-priced deposits decreased funding costs and supports net interest income. But the good news don't stop here. We also saw continuous growth in our balance sheet -- in off-balance sheet customer funds, security savings plans that enable customers to build long-term wealth in an easy-to-manage digital format topped EUR 1.9 million at the end of the third quarter, and they have generated gross fund sales in excess of EUR 1.1 billion year-to-date. George, our digital platform for retail clients, continued on its growth path. The number of onboarded users reached 11.2 million in the third quarter and the digital sales ratio in the retail business equaled 65.8%. Going forward, our ambition is unchanged to develop George into a fully fledged financial adviser in order to give even larger parts of our client population access to high-quality financial advice. In the Corporate segment, I'm on Page 11 already. Loans were up 6.9% year-on-year and 1.3% quarter-on-quarter. Growth was well distributed among all 4 business lines in the third quarter, while year-on-year, the large corporate business made the best contribution, expanding by 10.4%. In terms of products, there was definitely more demand for investment loans than in the third quarter. While year-on-year, there was a good balance between investments and working capital loans. The markets business built on its strong start in 2025 with our ECM and DCM teams successfully executing 236 transactions with an issuance volume of EUR 173 billion year-to-date. In Asset Management business, we reached a historical milestone in the third quarter with assets under management topping EUR 100 billion for the first time ever. This achievement will support future fee growth. And with that, I hand over to Stefan for the presentation of the quarterly operating trends. Stefan Dörfler: Thanks very much, Peter, and also a warm welcome to this call from my side. Please follow me to Page 13. When analyzing the loan volume performance by country, I would also single out the Czech business in the same way as Peter did in the context of macro. Not only is it our largest and most profitable market in Central Eastern Europe, but it's also the most consistent performer when it comes to loan growth. In the third quarter, we continued to see growth across the board there. Demand was strong across all product categories with good balance between investment loans and working capital facilities in the corporate business, while mortgages continued to lead the way in the retail space with annual growth in the mid-teens. Mortgages were also the key growth driver in Slovakia, increasing by almost 10% year-on-year. Corporate loan demand was heavily tilted towards working capital facilities there. In Hungary, the retail business clearly outperformed the corporate business with both mortgages and consumer loans growing in the mid-teens year-on-year. Please bear in mind that euro growth rates are somewhat flattered by the strong appreciation of Hungarian forint over the past months. But even when adjusting for this, retail growth was really strong. In Croatia, the development was similar to that in Hungary with growth being better in retail and in corporate business. And within retail, mortgages were ahead. So when we said in July that mortgage lending in Central Eastern Europe is back, third quarter data provides further evidence that this trend is strong and has legs. In our Austrian retail and SME operations, Erste Bank Österreichs and the savings banks, volume growth is slowly but surely approaching the mid-single digits, actually not bad given the lackluster economic backdrop. Interestingly, growth was somewhat better in the corporate business than in retail with especially good demand for investment loans. Given the strong loan growth year-to-date, we feel very comfortable with our greater than 5% guidance for 2025. On the liability side, see Page 14, the trends we have observed for the past couple of quarters also continued in the third quarter of 2025. Importantly, the favorable structural shift in our West retail deposit base of almost EUR 170 billion from term deposits back to current account deposits and savings accounts or put differently, from the most expensive to cheaper retail deposits showed no signs of slowing. A similar trend was visible in the corporate business with overnight deposits increasing, while term deposits declined year-on-year. Consequently, the cost of deposits has declined to the lowest level in almost 3 years with corresponding positive read across to net interest income, as we will see shortly. In terms of total deposit volumes, we are up 3.4% year-on-year and flat compared to the second quarter. Growth was driven by core retail, SME and savings banks deposits, up 5.2% over the past 12 months, while deposits in the Corporate segment flatlined over the same period, due in particular to offsetting volatility in the large corporate and public sector subsegments. In terms of geographic segment highlights, annual growth was satisfactory across the retail and SME businesses in Austria and Central and Eastern Europe, while the year-on-year decline in the other Austria segment was entirely attributable to lower noncore financial institution deposits. Let me now move to net interest income on Page 15. We have already talked about many NII drivers, be it strong loan growth, lower cost of deposits or a stabilization in the interest rate environment. Add to that, a steepening of yield curves, allowing for better reinvestment opportunities and tighter funding spreads. And you have all ingredients for posting record quarterly net interest income. Record NII of close to EUR 2 billion, in fact, up 3.7% year-on-year and also up 3.1% quarter-on-quarter. Net interest margin also edged up quarter-on-quarter, thanks to a muted increase in interest-bearing assets on the back of lower interbank business volumes. In terms of geographic highlights, net interest income at the Austrian retail and SME business continued to stabilize on the back of significant downward repricing of deposits, while downward repricing of variable rate loans came almost to a standstill. In Czech Republic and Slovakia, continued deposit repricing also had a positive impact year-on-year compounded by the continued upward repricing of mortgage loans due to refixations at higher levels. The Other segment, which includes holding asset liability management operations benefited from higher income mainly from government bond investments. And a final comment on NII. Our sensitivity to rate cuts is more or less unchanged at about or even slightly below EUR 200 million for a 100 basis point instant downward rate shock with the bulk of the impact expected at the minority-owned savings bank, so no big deal for shareholders. As a result of all of this, we are upgrading again our 2025 outlook for net interest income from previously growth at higher than 0% to growth of higher than 2%. Flipping to fees on Page 16 and on to a blockbuster, sorry, fee quarter. Net fee income rose by a massive 8.6% year-on-year and increased by 4.8% quarter-on-quarter. With this, we set a new quarterly record of almost EUR 800 million. In terms of growth drivers, the story is by and large unchanged. Year-on-year fees generated by payment services and securities business led the way, even though the increase in payment fees is understated by the shift of loan account fees from payment to lending as of first quarter 2025. I would not like to highlight individual countries in this context as we saw encouraging trends across the board, but rather add a comment to the other Austria segment. In addition to good asset management sales, the year-on-year jump there is also explained by the integration of new asset management companies, so bolt-on acquisitions have worked very well there. Quarter-on-quarter, the drivers were pretty much the same as year-on-year with excellent performances registered in Payment Services as well as Securities business. Based on the strong year-to-date performance, we confirm our full year guidance of growth comfortably exceeding 5% in 2025. Let me turn to operating expenses on Slide 17. Quarter-on-quarter costs were unchanged, both in terms of absolute amount and structure. Somewhat higher IT expenses were offset by lower personnel costs. Other than that, there were no major developments. Year-on-year cost inflation remained elevated at 8% compared to the third quarters of 2024 and 2025 and at 6.8% looking at the first 3 quarters, respectively. The reasons are well known, ranging from higher staff costs to higher IT and consulting expenses. Very importantly, we do believe that with this, we have seen the peak of cost inflation. And in the fourth quarter of 2025, the year-on-year cost uplift will decline significantly. Consequently, it is still our ambition to get as close to the 5% guidance in 2025 as possible. Actually, the only moving target in this context is the size and timing of the booking of integration costs related to the Santander Polska acquisition. Looking further out and limiting my comments to existing Erste operations, we do believe that cost growth will decline materially from 2025 levels in 2026, which bodes well for positive operating leverage given that we also have a strong top line momentum. Talking about operating performance, we move to Page 18 and can conclude that the top line performance is the story of the third quarter. We posted record quarterly revenues, which fully offset elevated costs, resulting in record operating profit. The cost/income ratio also improved to 46.7% for the quarter. Based on the strong year-to-date operating performance, we are upgrading the full year cost/income ratio guidance for 2025 to about 48%. And as I mentioned before, we have a constructive stance when it comes to the 2026 operating result outlook of our existing Erste operations due to strong top line momentum and moderating cost inflation in 2026. And with this, over to you, Alexandra, for more details on credit risk. Alexandra Habeler-Drabek: Thank you, Stefan, and good morning, and welcome to this call also from my end. I'm on Page 19. In the third quarter of 2025, we booked risk costs of EUR 136 million or 24 basis points. A year ago, risk costs were lower, but back then, we benefited from FLI and overlay releases in the amount of EUR 101 million as opposed to only EUR 19 million this quarter. So net-net, we actually saw an improvement year-on-year. As is visible on the left-hand chart, we continue to book risk costs in our Austrian retail and SME operations, but the asset quality situation in Austria has definitely stabilized, thanks to lower NPL inflows year-to-date. The third quarter bookings in Romania and Slovakia were mostly attributable to the retail business. And like Stefan and Peter, I also would like to explicitly mention the Czech Republic, which continued to excel also in terms of risk performance. As far as FLI and industry overlay provisions are concerned, we now hold the stock of about EUR 460 million, slightly down compared to the second quarter on the back of the already mentioned only minor FLI releases. Accordingly, we are again adjusting our forecast of such provision release in the remainder of 2025 to about EUR 70 million. Let me also come back to a point that Peter mentioned in his comments on onetime effects related to the first-time consolidation of Santander Polska. According to IFRS 3 and IFRS 9, we are required to measure all acquired assets at fair value on the date of acquisition and immediately provide for performing ECL of the acquired portfolio on parent company level. Purely technical IFRS bookings that will make our risk cost line look worse by up to EUR 300 million in 2026, but are P&L neutral over time. And importantly, this is not a reflection of any underlying portfolio deterioration of the acquired assets. Moving back to 2025 and given our strong year-to-date credit risk performance, which, as said, benefited much less from FLI and overlay releases than in previous years, we confirm our full year risk cost outlook of about 20 basis points. Let's now turn to asset quality on Page 20. With a consolidated NPL ratio of 2.5% and an NPL coverage ratio, excluding collateral, as always, of 74%, asset quality metrics remain strong and this across our footprint. Overall, the NPL ratio benefited from somewhat lower NPL inflows and significantly higher recoveries year-to-date. Central and Eastern Europe and again, especially the Czech Republic, continued to do very well with only Romania and Slovakia showing a small deterioration. In Romania, NPL inflows were registered in the third quarter in retail as well as in the corporate business, while in Slovakia, this was due to some inflows in the retail space. In Austria, the situation was broadly stable with most of the NPL inflows being tied to the real estate segment as we have already observed over the past couple of quarters. Nonetheless, and let me stress this once again, the asset quality situation in this segment has definitely not deteriorated, but rather continues to consolidate at somewhat elevated levels. So I still maintain my comments from the second quarter that we have seen the peak in defaults in Austria, but that at the same time, you should not overestimate the speed of recovery given the still challenging economic environment. In terms of projections for year-end 2025, we expect the group NPL ratio to stay more or less at current levels. Similarly, coverage is expected to remain broadly unchanged, subject to the structure of new defaults and the magnitude of further FLI and overlay releases. And with this, I already hand back to Stefan. Stefan Dörfler: Thanks, Alexandra. Let's briefly look at how the other result performed this quarter on Page 21. In short, other result once again benefited from a positive one-off. After posting a positive one-off of EUR 88 million in the second quarter, the third quarter saw a positive one-off in the form of a provision release related to a legal case in Romania in the amount of EUR 77 million, which also explains the quarter-on-quarter deterioration to which the increased banking tax in Romania from July also contributed. Year-on-year, the comparison looks more favorable, even though the tripling of the Austrian banking tax since the start of 2025 did not help in this context. In terms of guidance for the fourth quarter of 2025, we would definitely expect to come in significantly better than for the last quarter a year ago. On Page 22 and summing up the P&L for third quarter of 2025. The record operating performance, combined with moderate, however, year-on-year and quarter-on-quarter slightly higher risk costs resulted in a quarterly net profit of EUR 901 million, earnings per share of EUR 2.2 and a return on tangible equity of 18%. As Peter mentioned already, the reason why earnings per share and return on tangible equity both improved quarter-on-quarter despite reported net profit trailing the second quarter figure has exclusively to do with the timing of AT1 dividend payments. In the second quarter, we had some deductions due to this, while in the third quarter, there were no such payments. Overall, we are fully on track to deliver a return on tangible equity of greater than 15% in 2025. With this, let's spend a few minutes on wholesale funding and capital. Page 24 shows that our highly granular and well-diversified retail and SME deposit base, of course, remains the key source of long-term funding. Wholesale funding volumes decreased year-to-date as higher stock of debt securities was more than offset by decline in interbank deposits, mainly repos. The stock of debt securities was pushed up primarily by issuance of covered bonds and senior preferred bonds, characterizing a very successful issuance year for Erste Group, resulting in the updated maturity profile on Page 25. My very short summary would be that we successfully completed our 2025 funding plan well ahead of time. Third quarter issuance highlights included a EUR 750 million Tier 2 note on holding level as well as senior nonpreferred paper and a covered bond in the amount of EUR 500 million each issued by our Czech and Slovak subsidiaries, respectively. And finally, for my part, let's look at capital, starting on Page 26. Our first half 2025 performance when it comes to regulatory capital and risk-weighted assets was exceptional, and the third quarter was no different. While this is not visible in reported CET1 capital, which is almost entirely attributable to the noninclusion of third quarter profit, it's all the more visible in risk-weighted assets on the right-hand chart on this slide. The increase in risk-weighted assets from strong business growth was more than offset by asset quality-related portfolio effects as well as the successful execution of optimization measures such as securitizations. The former cover such factors as rating upgrades and downgrades, migrations to default and parameter updates. The later, thanks to small securitization transactions in Slovakia and Hungary, also reduced risk-weighted assets by almost EUR 1 billion. And consequently, risk-weighted assets overall declined by another EUR 1.5 billion in the third quarter. Let's now turn to the important pro forma view of our CET1 ratio on Page 27. If we focus on pro forma, we can see that we are pretty much where we targeted to be at year-end already now after the third quarter. At 18.2%, we could have closed the Polish transaction already in September without falling below our minimum threshold of 13.5% announced at the time of acquisition or signing of the SPA in May. Now the fourth quarter profit and most of the balance sheet optimization are still to come. So far, securitizations contributed only 12 basis points and asset sales another 11 basis points roundabout. All the rest came from organic capital generation, obviously supported by the temporarily reduced shareholder distributions. Consequently, we now project the year-end 2025 CET1 ratios of higher than 18.5% should the Santander Bank Polska acquisition close in early 2026 or alternatively of higher than 14% should the transaction be completed inside this year. And with the assumption of RWA drawdown unchanged at about 460 basis points as a result of first-time consolidation of Santander Bank Polska, we should be well on our way to exceed our post-consolidation CET1 ratio target of 14.25% during the course of 2026. And at the same time, return to our dividend payout policy of 40% to 50%. And with this, over to you, Peter, for the outlook. Peter Bosek: Thank you, Stefan. Thank you, Alexandra. I'm concluding the presentation with our detailed financial outlook for 2025 on Page 29. In addition, I will sketch out how I see 2026 shaping up, but let's start with 2025. As is evident from the numbers presented today, 2025 is already a strong year, and we have no reason to believe that the fourth quarter will be any different. We have healthy customer volume growth. We have a reasonable favorable interest rate environment. And as market leader, we have a pricing power, all of which support an upgrade in our NII outlook for 2025. We now expect growth of more than 2%. Fees continue to do very well for us. So the guidance of greater than 5% is probably on the conservative end. With this, our top line should grow nicely in 2025. On the cost side, we stick to our guidance of roughly 5% increase in 2025, even though we do realize that the year-end-to-date performance and the possible front-loading of some integration costs related to Poland might push this figure slightly higher. Even factoring some cost volatility in, we believe that we have a good shot of printing a 48% handle when it comes to the 2025 cost/income ratio, supported by a strong top line. Risk costs should be in line with our existing guidance of about 20 basis points and return on tangible equity should be comfortably above 15%, also fully in line with guidance. Let's now to the more interesting part in this 2026. First of all, we entered 2026 from a position of strength. Erste, as we know it today, enjoys strong growth dynamics. Add to that, that 2026 economic outlook for our region is somewhat better than it was for 2025. So volume growth should continue to be healthy. And if we don't see big shifts in the interest rate environment, which is the current expectation, then our top line in 2026 should grow faster than it did in 2025. At the same time, cost inflation should definitely come down next year. So positive operating leverage is not unrealistic for 2026. And with a continued solid credit risk backdrop, we would expect to print a return on tangible equity north of 15%. That's the existing Erste business. We are talking about a business that even prior to the acquisition of Santander Polska is in excellent shape in terms of growth and profitability. If we now add Poland to the 2026 equation and leave one-offs aside, our profit and capital generation capacity will only improve from here. In terms of level 2026 guidance for the combined entity, we, therefore, feel comfortable with confirming our targets made at the time of transaction announcement, and that's a return on tangible equity of about 19% and EPS uplift of higher than 20% based on current market consensus expectations for 2025. And to be absolutely clear about it, the guidance relates to reported figures rather than figures adjusted for onetime items. And this, ladies and gentlemen, concludes our presentation remarks. Thank you for your attention. We are now ready to take your questions. Operator: [Operator Instructions] Our first question comes from Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: So a question on costs. You noted that the cost growth is expected to decline materially in 2026. Could you provide additional color on the cost outlook for the coming year and the key factors influencing the cost dynamics across your various markets? Where do you see and expect the most significant cost savings to come from and maybe potential areas of pressure? And how are you planning to manage these developments? Stefan Dörfler: All right. That's it. Okay. Very good. Thank you very much for the question. Now look, let's start with the environment. I think what we have seen was -- and that's, of course, the flip side of the coin of stable rate environment. We have seen that the inflation while coming down from the super elevated levels over the cycle, has still been at quite elevated level above the average of Euroland. And equally so, we have a couple of high inflation countries, to name Hungary or Romania. This, combined with the very tight labor markets, definitely has been keeping the pressure on wage inflation up. On the flip side of that is, of course, a very, very strong retail business, strong [indiscernible] business, very good asset quality. So that all, of course, is connected to each other. So that much to the overall backdrop. On the internal, so to say, view, we have always been pointing out that the investments that we started in the second half of 2024 and have been ramping up throughout 2025 in order to improve our process efficiency, are clearly seen in our cost line. So we always have been flagging that as around 1.5 percentage points. And that is, of course, now also part of the slightly elevated cost numbers in 2025. What of this will come down in 2026? First of all, we see significantly reducing wage inflation pressure all across countries. Actually, I don't need to be specific anywhere. Of course, the absolute levels are different. But all of them have been coming down by, let's say, 1 to 3 percentage points from what we saw in '24 and '25. That's point number one. Point number two, the index adjustments of, let's say, the broad IT spending and so on are hopefully mostly finalized, and there definitely is an easing effect. And thirdly, and that's, of course, most important for you to see how we work on the matters. We will already and we have seen already significant achievements in the process efficiency and the automation. That means that especially in the operations area and the typical mid- to back office areas, you will see reduction of staff here and there, not a huge reduction, but a significant one in order to bring down the cost inflation substantially, i.e., as Peter, Alexandra and myself have described, we see a very good chance to come up with a positive operating jaws in 2026 altogether. Operator: The next question comes from Amit Ranjan from JPMorgan. Amit Ranjan: The first one is on capital. Can you please talk about how much of the 40 bps optimization measures are now in the numbers? I think, Stefan, you mentioned around 12 basis points. If you could confirm that, please? And what's the outlook for these benefits in the fourth quarter, please? And the second one is on capital return outlook from 2026 onwards. The 40% to 50% dividend payout range, could there be upside to this range given the pace of capital build so far? Would it be dividends, more share -- could there be share buybacks part of the equation as well, please? And the payout, would it be based on stated net income? Or would it exclude the one-off from its list? Stefan Dörfler: All right. So one after the other. First question, how much is in? Less than half of the 40 bps. However, given the very successful progress all across the measures we are taking, let's not forget, the market was quite supportive, very tight spreads. So we could do a little bit more of asset sales. Securitizations are on a very good track, as you saw also in one or the other, let me say, statement reported around it. we believe it's going to be above 40 bps at the end of the year and some of the measures might still happen in Q1. So in other words, so far, only around about half of the 30 basis points of particular measures are in. But towards the end of the year, it will be more than 40 bps. That's why we are overall, in general, on better track with CET1 ratio. So that's point number one. I think you were asking about dividend EUR 0.25 -- so EUR 0.25 very simply put. We will not change anything here. It's going to be 10% of the net profit. Obviously, with the net profit, there is certain fluctuations. So if you put the numbers together, the best guess is somewhere between EUR 0.50 and EUR 0.75 to the euro. But that's just, so to say, simply calculated, nothing to be changed there because our clear commitment and goal is that in 2026, shareholder returns on dividend payouts should be very much in the focus. I said it in the presentation that 40% to 50% net profit after AT1 deduction is our dividend policy. I think if we get back to that, given good profitability expectations for '26, a very interesting and attractive dividend for '26 should be expected. Operator: The next question comes from Máté Nemes from UBS. Mate Nemes: I have three of them. The first one would be on the Czech Republic. You're showing really strong 5% sequential NII growth. It seems like you are outperforming this sector, both in retail lending and in corporate lending. Could you talk a little bit about the drivers of that? What's behind this? And how sustainable do you see this double-digit retail loan growth in the country? How long this could continue? The second question would be on the NII guidance north of 2% for this year. If I look at the quarterly developments and only assume a flattish sequential development in Q4, you already are at 2.8% up year-on-year. And again, you are showing really good growth in a number of markets, NII or net interest margin showing a trough perhaps in Austria and a clear expansion in a number of other markets. What prevents you actually to become more positive? What are the potential one-offs or other risks to that guidance? And the last question would be on Q4 costs. In the first 9 months, you are 6.8% up year-on-year. Can you comment on what exactly in Q4 will help you to get to around about 5% or 5%-ish level on a full year basis? Any specific one-offs that you booked in the second half of '24 or any potential relief you're getting specifically this quarter? Peter Bosek: Okay. Let me start to answer your first question about Czech Republic and our mortgage lending, consumer lending and corporate lending. Point number one, this trend is going on since more than 80 months -- 18 months, right? There was a kind of hangover from COVID times in terms of demand. Now it seems to us that this demand looks like quite sustainable. And we are just taking out advantage of being market leader there. So we are very well positioned in mortgage lending. And that's also true for consumer lending, but demand in mortgage lending is bigger than in consumer lending. And on the other hand, I think it's fair to say that we have a very balanced loan growth in the Czech Republic. It's not only about retail, it's also about corporate banking. We're doing very well in SME lending in corporate banking in the Czech Republic. So we are quite happy with what we have achieved so far, and we are deeply convinced that the demand in corporate and retail lending is a sustainable one. Stefan Dörfler: On NII guidance, look, I can keep it very short. We don't have any whatsoever one-offs or so in mind. And greater than 2% can also be greater than 3%, right? But we simply wanted to leave a certain room of, so to say, caution in. That's all I can say. We are super confident to beat the 2%. We are reasonably confident to beat the 3%, but that's pretty much it. Nothing more to say here. Q4 costs, very interesting point. Please have a -- if you look at the quarterly cost chart in the presentation, you will very clearly see that the '24 Q4 was elevated even more than usually the Q4 bookings are elevated. There are various reasons for that. Some of these effects will repeat, to be very honest with you. For example, we have a component for our employees and managers in the bonus payments, which is tied to share performance, and that obviously has to be provisioned in the cost. So that's one element which we repeat. I was already mentioning in my presentation that there is a small but not completely immaterial part of the Polish integration costs that we will book. So we will see some effects in Q4, but certainly not such a jump up like in 2024. That's why the year-on-year quarter 4 comparison will come down quite substantially, and that helps us come much closer to the 5% than we are in so far in the first 3 quarters. I think that's the explanation for Q4. But let me -- allow me please also to make a statement for '26. As I already answered in the former question, that's really critical that we bring down the cost inflation in 2026. Even if we have fantastic top line, it's important for us to come to, let me say, at or even below inflation levels in order to support the overall operating performance and that we definitely have in the cards for 2026. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So the first question on my side is on the earnings power for Poland. Just wondering what you see operationally in Poland and also looking at several factors like rate outlook and bank tax, if you could refresh us on your guidance for Poland for '26. Then second question is, again, on NII. Yes, what can stop NII to further increase in the coming quarters, basically? I mean you have NIM stabilization, a very strong loan growth across the board, positive mix effect. So I think in your slide, you mentioned potentially flattening of the curve or ECB rate cuts, but it sounds like NII momentum will remain strong in the coming quarters. And just wanted to confirm again that with NIM stabilization, it's going to be a function of loan growth as far as NII is concerned. And then last one, just on the loan-to-deposit ratio, which is deteriorating a bit for several quarters. Do you plan any specific steering actions to, well, rebalance deposit growth versus loan growth because loan growth will probably stay strong next year. So any planned actions there? Peter Bosek: If I may start to answer your question. So the first part about Poland, I think yesterday or the day before yesterday, hopefully, future colleagues in Poland announced their third quarter results. So you can see they are still going very, very strong. And also the forecast for next year when it comes to economic development is the highest in the whole region, will be definitely above 3%. When it comes to NII, in general, before I hand over to Stefan, this is exactly what we tried to explain that when we assume that interest rates will more or less stay at the same level as they are today, where this is also our forecast, then there should be much more correlation between volume growth and NII growth compared to this year because we are quite happy that we succeeded to increase NII this year. And we should not forget that this year, we have seen a decrease in interest rate environment. So it's just given the demand in our region. And again, this is the only region in Europe which is still growing. So the demand in loan growth and our capability to fulfill this demand led to a situation that our NII is growing, although interest rates are coming down. If you put this in perspective for next year, and let's assume again that interest rate level will stay where it is, then our loan growth should be even further -- NII growth should be even better. Stefan Dörfler: I completely agree. That's exactly how we explain the situation. And I have absolutely no disagreement with your statement that further on in the upcoming quarters, we could also see a further growth in NII. There is nothing in our statements that would contradict that. It was only the discussion about Q4, and you know exactly that there can always be a couple of effects that drive it a little bit more up and down. I think our guidance for Q4 is also open on the upper side. So no problem with that. One reminder, just not to get too overly excited. Of course, certain measures that we took very successfully also have a certain limit. So in other words, deposit repricing doesn't go on forever, and we have been very successful in that across the markets, as we explained. Also, let's not forget that the funding -- so for example, wholesale funding levels, which we were perfectly making use of in 2025, there is no guarantee that those funding spreads remain at tight levels. So I mean, we are super optimistic, but we also should remain realistic and not expect that things go through the roof. On your loan-to-deposit statement, I have a completely different opinion here, very simply put, I think we are in a perfect sweet spot. We're in a perfect sweet spot, anything around this 90% loan-to-deposit ratio across the group, I feel super comfortable with. Of course, there are big differences between the markets. I'm happy to go in a different session into the details market by market. But overall, the loan-to-deposit ratio is exactly where we like it to be in this rate environment. And we will, of course, very closely watch all the indicators on the liquidity and deposit front. But so far, could hardly be better. Operator: The next question comes from Gabor Kemeny from Autonomous Research. Gabor Kemeny: One question on Poland, please, on the bank tax, in particular, the bank tax proposal, I believe this is still a proposal. If this gets implemented, how would that impact the operations of Santander Polska? I believe you are expecting to create significant goodwill with the deal. Could the bank tax impact the valuation and with that, the capital impact from this acquisition? That was the first question. Secondly, on the NII outlook, thank you for all the clarifications. Just numbers-wise, I believe you are annualizing close to the EUR 8 billion mark in Q3 or perhaps H2. And then I believe you guided around EUR 3 billion from Santander Polska, which together gets us to EUR 11 billion before considering growth. Are there any trends, any deviations you would like to highlight for our modeling the 2026 NII outlook, please? And the final one would be, Czechia is about to, let's say, getting a new government or forming a new government. Do you have any views on the likelihood of the new government introducing another bank tax? Peter Bosek: Gabor, let me start with the last part of your question about Czech Republic. So far and also not during the election campaigns, there was anything mentioned when it comes to banking tax. Of course, we know that all over Europe, banking taxes are an issue because a lot of countries have an issue with the public debt levels, which is not so much the case for the Czech Republic. I think therefore, this is not such a hot topic in Czech Republic. So from today's perspective, we don't expect the banking tax in Czech Republic. But of course, I need a political disclaimer, you never know when it comes to politics. Stefan Dörfler: On NII, Gabor, very briefly. I mean, I think your statement on the existing parameter of Erste Group can only be signed off, if that's correct. That's all fine. I'm not in a position to comment yet on detailed outlook for our future Polish subsidiaries. First of all, we don't know the detailed internal drivers, the hedges, all of that. So please ask you for understanding that we can only talk about that really after closing. And certainly, you can read a lot out of this from the reporting of future Polish colleagues. On the banking tax, look, I completely agree. It's still in the political decision process. There are all kinds of discussions around that. I don't want to, and I cannot comment on that in more detail. What is very important to understand, even if the government proposal goes through one-to-one, we are talking about a onetime lift up to 31% in 2026, then 26% and then 23% as, so to say, the new level, which, of course, eases substantially your assumption in terms of the terminal value and stuff like impairment tests and goodwill assumptions. So we have been doing the numbers, obviously, and we don't see any whatsoever reason to adjust them now. But of course, we will do this ongoingly. We are in constant contact, of course, already today with our auditors in assessing the situation. But so far, we don't see any changes on that. Adding to this, of course, and Peter said it in a couple of statements also publicly, the strategic rationale as well as the overall, so to say, profitability, long-term outlook doesn't change at all. We are used to those kind of measures. Do we like them? Obviously not. Do we have to live with them? Certainly, yes. Operator: The next question comes from Ben Maher from KBW. Benjamin Maher: Two quick ones. First one is just on the cost growth we're seeing in Czechia. That's obviously accelerated a fair bit in the quarter, but inflation has been quite low there for a while. So just interested to see what the main driver of that is. And then my second question is just on the overlay releases. I think you did mention it before that you're guiding to, I guess, fewer releases than what you were guiding to last quarter. I was wondering if you could give any color on the potential releases for next year? And do you have a view on the terminal stock that you're targeting? Or is this something that you don't really target? Alexandra Habeler-Drabek: I'll start with your question on the releases of FLI overlays. So as I said, for this year -- for the remainder of this year, it's roughly EUR 70 million, which we expect and going forward with even somewhat lower levels, yes. So maybe around EUR 50 million releases next year, and then we would rather expect to have come to a certain stock of FLI, which we would also then carry forward. So this is the current expectation. So no huge releases, but some... Stefan Dörfler: Okay. I think your question -- we had a bad line at this moment, but I think your question was around Czech costs, right? Benjamin Maher: Just the acceleration in the cost growth in Czechia during the quarter. Stefan Dörfler: No, I think -- I mean, look, I just looked up a couple of numbers with my colleagues. I don't see any specific -- look, the wage inflation level around about is in the mid-single digits. So we had adjustments of salaries around 5%. We had a couple of very good and forward-looking initiatives on IT side, AI and so on in Czech Republic, which also played to it. But maybe if you can be more specific, I don't see any outlier whatsoever in Czech Republic, by no means on the cost side. So it's business as usual, I would say. And comparing to the market, I think we are at average. But maybe you spotted something, then let us know. Operator: The next question comes from Krishnendra Dubey from Barclays. Krishnendra Dubey: I just wanted to check on the fee guidance actually. So as of -- till 9 months, you're trading at 8% y-o-y, I know you say more than 5%, so it could be 5%, 6%, 7%, consensus at 6.5%. How do you see that trend developing? And the second question was on the 2026 net profit guidance. When you talk about adjusted EUR 4 billion, is it pre-AT1? Or is it post-AT1? And lastly, you talked about EUR 200 million of one-offs. Are those tax deductible or those are not tax deductible? Stefan Dörfler: Okay. The second one is easy. Everything that we talk about is pre-AT1. So if you do, so to say, your math around, for example, dividend calculation or the like, and we can provide you with the AT1 payments, absolutely no problem. So that's all the numbers that Peter and myself were using are pre-AT1 dividend or, so to say, AT1 costs. On the fee trends, look, yes, you're perfectly right that we had these discussions, as you can imagine. Given the Q3 or year-to-date numbers, the greater than 5% looks a bit conservative. On the other hand, we all know that on fees, 1 percentage point is something around EUR 25 million, EUR 30 million. So that can easily jump up and down. So what value is there if you go to mid-single upper-digit [indiscernible]. So in that sense, there is no break in whatsoever. Q4 usually is very strong, always subject to, for example, capital markets and so on in terms of asset management fees and so on. But there is no whatsoever slowdown, as I said in the presentation, already visible. What will be interesting, of course, to see on the back of [indiscernible], again, the similar effect in the other direction. If inflation constantly comes down and slows down and obviously, some of the fee drivers might slow. But nonetheless, with our strategic focus, we are super optimistic, by the way, also for Poland that we can improve some of the fee-generating activities substantially. Peter Bosek: And maybe if I may add some kind of sentiment from a business point of view. As Stefan absolutely rightly mentioned, I mean, inflation was already coming down this year. So what we have expected for this year was a little bit more decrease in the related payments, which didn't happen so far. So I think our capability to generate new clients is supporting us there to compensate the decrease in inflation and the potential impact on the payment fees. When it comes to asset management, it's clear that the volatility can increase, of course, in the upcoming months, which will be mainly reflected in the volume of our assets under management in Asset Management. When it comes to fee income generation, the way how we have built up or continue to build up our asset management proposition in most of our countries is this monthly regular investments in asset management products, which makes us not so much dependent on volatility in the market because it's kind of cost average principle which is supporting our clients to build up wheels in a very stable way. And last but not least, also coming back to Stefan's remarks, we see a huge potential in terms of fee income in the Asset Management in Poland because we believe that this market is somehow underpenetrated when it comes to asset management, which is not a surprise because there was a different history in interest rates compared to other countries we are operating in. So if I remember correctly, we have never seen negative interest rates in Poland. So the engagement or the love to term deposits is a little bit higher compared to other countries. But when you look at the volumes of asset management and given the size of the market and given the proposition of our bank, we see a lot of opportunities. Stefan Dörfler: And we were -- thanks, Peter. We were speculating. I think you asked about the tax deductibility and integration costs and so on. This is a very important information. The lion's share of it certainly is tax deductible. That's absolutely clear. Details can be given once we are more specific and have the detailed costs and everything on the table. But the general answer is yes. Operator: The next question comes from Riccardo Rovere from Mediobanca. Riccardo Rovere: First of all is on the -- if I'm not mistaken, EUR 300 million credit losses that may burden your profit and loss in 2026. Just to be clear, this is the purchase price allocation when you're measuring all the assets and all the liabilities of Santander Bank Polska at market prices. So this eventually should lower the goodwill that you will book out of the transaction. So it should be kind of capital neutral if I understand it Correctly, So Completely Irrelevant from That Standpoint. . The second question is just a clarification from Alexandra. If I'm not mistaken, I understand that in 2026, you expect to use only EUR 50 million of FLIs, just a confirmation of this number. Then if possible, I would love to hear your thoughts if the SRTs that you have done and that you plan to do as far as I understand, will have a revenue impact at some point or in case how much it could be? Then I have a question on Poland and the Advocate General a month ago or whenever it was, talked about -- said that the, let's say, the Polish court have the right to look into the VIBOR -- using VIBOR as a benchmark. Is this something that you're looking in us? Is it something that worries you? Is it something that should be -- is not a matter of concern for you? And then I have another question on deposits, if I may. I mean, wage growth in all the countries where you operate is running above GDP growth. And I guess this is the reason why the deposit growth outpacing at least in some countries loan growth. Is that supposed to continue, you think? And if that continues, do you see reason or ways to move some of these deposits considering 90% loan-to-deposit ratio or something like that into the Asset Management, which, if I'm not mistaken, hit EUR 100 billion. So those have been growing pretty fast. And you are happy with the amount of asset management fees, wealth management fees within your revenue base. Or is this something that you could consider expand? Alexandra Habeler-Drabek: Okay. Let me start. So first, very short, yes, I can confirm we expect currently EUR 50 million release for 2026, but not only from FLI, this also includes some releases from the current overlays that we have for the cyclicals. Now the second one, this I cannot confirm. So this up to maximum EUR 300 million that I was mentioning, day 1 ECL recognition is not the PPA effect. So IFRS, there are 2 topics. The one is IFRS 3, where we are obliged to measure the financial assets at fair value on the acquisition date. And on top comes IFRS 9, subsequent measurement, where we are forced to book the performing ECL of the acquired portfolio on the level of the mother company immediately. So it's not a PPA effect. It's a combination of IFRS 3 fair valuation and additionally IFRS 9 requirements. We also have -- if you're interested, the paragraphs for you to look it up, but I'm sure Thomas will be happy to take this up afterwards. Stefan Dörfler: All right. On to SRTs, and thanks for the question because it gives me opportunity to answer a few points. Of course, the ones you were asking about, but also some you have not been asking for. So first, what costs are associated with the SRTs. Obviously, there is no free lunch anywhere. Therefore, very clearly, if we conclude all the SRTs currently foreseen for the rest of the year or latest in Q1, then you have around about for the next 2, 3 years, a fee expense of EUR 50 million. So that's exactly the cost. It's booked in the fee expenses since they are kind of considered as insurance payments if you want to have a comparison, but you know that anyway. What is very important to mention is that we have an extremely well-diversified portfolio of SRTs in planning, both in terms of geographies as well as in terms of areas, so to say, of business. And forward-looking, and Alexandra and myself have discussed this in very much detail with our teams, we want to use SRTs not only as a capital optimization measure, but also as a kind of portfolio optimization tool. And I think it's both in terms of segment risk as well as optimization on pockets right and left. And we learned a lot in the last 2 years again, and we are super happy to have this tool at hand. And in terms of, so to say, cost and capital relief, I think it's a fantastic tool for our current tasks and for our current goals. Maybe last comment to put these things in perspective. If you look at the overall European landscape of banks and comparable players in the market, we have been way below the utilization of SRTs so far. And with all the executions that we are aiming for, we should land somewhere at the average of European banks comparable to ourselves. That's also where we feel very comfortable. Peter Bosek: And if I may answer [indiscernible] the law lecture you when it comes to VIBOR, so not too much news since we talked last time. So there is this preparation of the decision of the European Court, which is saying that the usage of VIBOR in a contract is compliant in loan contracts. So there are also some decisions in Poland from local courts, which are in favor of banks. So I don't want to downplay it too much because it's drilling down that this seems to be not a systemic problem like the Swiss franc topic was several years ago, but it seems to be a topic which is drilling down to the concrete advice, which was given to clients if advisers have made clients aware that they have floating rates. So I think this is a completely different situation. But to sum it up, I mean, we are fully aware that consumer protection is here to stay, and this is something we are dealing with in all our markets. And just to remember, everyone started in Austria roughly 20 years ago. So it's not only about countries like Hungary or Poland or so. This is a topic where we are dealing with all the time. And the easiest way to be compliant is to come up with compliant products. Stefan Dörfler: Yes. I think, Peter, do you want to -- I think I take the first part of the deposit question. With regard to growth, yes, well spotted. Of course, there are short term -- there are deviations from GDP growth, deposit growth, both on individual level for us, but also in the respective markets that stems from various matters, as you perfectly know, it's Central Bank liquidity as well as money supply overall. I think that in general, we are an extremely attractive bank to our depositors. The trust is that we have been gaining and we are working on every single day is a factor. We are a big player in all the markets. All of that plays into this. On your other question, and I think that's obvious, we want to have a very good balance between keeping a strong deposit base, but of course, advising our clients for a right balance of asset management products, long-term savings and better yielding products. And I think it's all about the balance. It's all about good advice. And if you look at also the feedback of the market and all these measures like NPS, CXI, I think our colleagues are doing an outstanding job there. And that's also the goal for the future. Money which is available for a longer-term saving, of course, should not be kept necessarily on the lowest dealings. That's the way we are advising our clients, and that's how we want to help them build their wealth for their long-term future. Riccardo Rovere: Thanks, Stefan. If I may follow up one second on this topic. At the moment, with the current pricing at the moment of the deposit, is it better to have the deposits on balance sheet. So feeding NII or off balance sheet in asset management? What is the margin better now? Peter Bosek: I think there's no -- if I may jump in, there is no clear answer to it. It's very much depending on client situation, of course. And on the other hand, it's also fair to say that I think we have proven over the last, let's say, '24 or even longer period of time that our capability to manage interest rates on deposits in both kind of environments, increasing interest rates and decreasing interest rates, we are doing very well, point number one. Point number two, as Stefan rightly mentioned, for long-term investments, we are very much in favor of our clients to invest in asset management products because we still believe that this is an area not only in countries like Poland, where we see room for improvement. This is true for all over Europe. Look at the [indiscernible] report, look at the [indiscernible] report, look at every kind of speech politicians are giving typically on Sunday, not obviously me impacted, of course. But this is very obvious that there will be a strong tendency over the upcoming 20 to 30 years that people in Europe will invest much more in asset management products. So there is no clear guidance between technical P&L measures. We are doing very well in managing interest rate levels and of course, giving advice to the right -- proper advice to our clients when it comes to asset management. Operator: The next question comes from [ Seamus Murphy from Carraighill ]. Unknown Analyst: Two questions, please. Just -- I suppose one of the major positives for Erste when we look across Europe is that relative to most of your peers who are also growing is that you've kept your FTEs or your employee numbers pretty constant since '22 despite the balance sheet growth. I suppose my question is how long can this be sustained? And should we consider that the employee numbers will grow into '27? Or how are you thinking about the growth in employee numbers? And secondly, just very briefly on NII. I suppose when I think about NII, there's 2 components to it. Obviously, we have the structural element to it, which is the potential yield uplift, still to come from your current account reinvestment of your maturing fixed rate products. So I mean, in this quarter, I think you mentioned Slovakia in particular, for this in terms of uplift that came this quarter. But assuming that this is happening across the group, I suppose it would be great to know the size of the fixed rate mortgage pool back in your current accounts and also what the current back book yield is on those products versus the front book, so we can have some estimate of how this component of NII evolves kind of like in the next 3 to 4 years. And I suppose the last component of that question is just, obviously, we've seen this move into current accounts. And as the curve steepens from here in the risk that you do believe the curves to steepen, how quickly do you -- or how do you decide between the reinvestment rate, whether you put it in cash at Central Bank or whether you again reinvest in your own fixed rate mortgage products? Peter Bosek: If I may start. Let me answer your question related to FTE development. Of course, we try to keep the numbers of FTEs flat in a way that we -- the way how we look at our business is, it should be a scalable business, which is anyhow not an easy task because we are in the same situation like all other European banks when it comes to IT legacy. So it's a lot of work to further improve efficiency in terms of technology. But this is a clear part of our strategy and you have seen some investments this year already, really what we always call investments related to our strategy that we want to achieve a level of end-to-end processes, which should help us to keep FTE development stable in the future, even adding additional business on our balance sheet. This is a very clear goal. And of course, putting aside that we will have roughly 10,000 employees more after the acquisition of Poland. Stefan Dörfler: Let me take up your question, which is a very interesting one. And let me say at the start that some of the details, I would kindly ask you to take offline with Thomas because, of course, we could talk about overall interest rate strategy for at least an hour or so. But let me state a few of the most important matters. I think what is helping us at this very point in time, and that's why, for example, Slovakia is outperforming so much, Czech Republic to part as well is that we have refixations in durations, which are now upward pricing. So mortgages in Slovakia, for example, have a typical fixation period of 5 years, right? So we are now still fixing substantially upwards. And in the same moment, deposits are coming down. That's why a country -- a euro country like Slovakia is so well performing apart from their excellent new production. That's one effect. The other one, if you look at the details of the NII results of the last couple of quarters, you see that other Austria, typically where we have the ALM investments, where we have been booking, of course, also kind of investments going against the sensitivities of the Austrian/euro, sensitivity for downward pressure have been gaining substantially. So these are big bond investments, which are in amortized costs, but of course, are benefiting from the high investment yields, which leads me to your third point, and that's the steeper curve. Now look, I mean, this on the trading book, having been a trader myself in the past, it is not a trading book where we are reacting on a day, on a weekly basis. But of course, we are very closely looking into the shapes of the yield curves, okay. Sometimes you get it better, sometimes not as good. But I think the last 18, 24 months, we were anticipating the shape of the yield curve and the spots in the curve where we thought the duration is the best, very well. And currently, we have a duration on the overall investment book of around about 4.5 years, a little bit different from country to country. But overall, the yield has, of course, been shifting upwards. For those who know us for a long time, the investment book has been coming down substantially for many, many years and now has been going further up for, Thomas, I think, 5 years, right, 5 years upward trending. And this -- on Page 43 of the presentation, you'll find a very good description of how the allocation looks like in terms of geographies as well as, so to say, accounting logic. Unknown Analyst: Can I -- just a very brief follow-up, if you don't mind. I suppose that what I'm just trying to figure out, is it still a couple of hundred basis points or more in terms of the refixations that we will see over the next few years? Or I mean, some quantum would be super beneficial. Stefan Dörfler: What I can say from top of my head, in Slovakia, for example, since I was talking about Slovakia, we have another 2 years to go roughly in terms of positive refixations. Austria is different, as you know, because there is a different mix between variable and fixed loans on the Austrian [indiscernible], it's more fixed. On the [indiscernible], it's more variable. That's why we always have a bigger sensitivity there. In terms of absolute numbers, I kindly ask Thomas to follow up with you to give you the breakdown of volumes country by country. There's no problem. We have all of that. Operator: The next question comes from Robert Brzoza from PKO BP Securities. Robert Brzoza: I want to revisit the adjusted profit guidance for '26 to see if I got it correctly. Am I right that you see this in adjusted terms at around EUR 4 billion level? And then if you could provide sort of a rough bridge between the adjusted and reported. Should we assume that the potential IFRS 9, EUR 300 million would be sort of included in that bridge plus the potential EUR 100 million to EUR 200 million additional reorganization and post-acquisition costs. So that's on adjusted versus reported '26 outlook. And related to that, can you reiterate what's your post-acquisition RoTE guidance? Is this guidance based on the adjusted or reported figure? Stefan Dörfler: Okay. So thanks very much. So again, clarifying what Peter and myself said and also Alexandra was perfectly explaining the IFRS 3 and IFRS 9 effects and so on. First of all, we don't talk about the guidance here to be very precise. We talk about our ambition levels. And once we have finalized the closing successfully, then certainly, when we talk to the market to you again, end of February, then we will translate everything into a real guidance. So just to be precise here. We are always talking about the difference between adjusted -- sorry, adjusted and reported. You're perfectly right in your description. When we talk about the ballpark EUR 200 million integration costs and the estimated EUR 300 million of the FX, which are long-term P&L neutral that Alexandra and Peter explained, we are looking at a reported matter for 2026. But again, guidance and more detailed insights, we will then be providing with the, hopefully, end of February reporting for the full year 2025. Robert Brzoza: Right. And then the post-acquisition, RoTE, I assume that would also be sort of highlighted in February, correct? Stefan Dörfler: 19%, unchanged. Absolutely correct, on reported basis. Operator: We have a follow-up question from Riccardo Rovere from Mediobanca. Riccardo Rovere: When it comes to the EUR 462 million of overlays and FLIs, Alexandra, is it possible to have a split between the 2, how much is the overlays? And could the overlays be used against the EUR 300 million that you expect on performing loans in Poland? The other question I have is, how do you think about the fiscal boost from the debt break relaxation in Germany? Do you see any potential positive spillover in Austria and in -- do you have any idea how this could eventually play out? Alexandra Habeler-Drabek: Okay. So the breakdown as of Q3, we are talking about EUR 462 million of stock. Thereof, EUR 323 million FLI, EUR 122 million overlays cyclicals and some minor other overlays. So this is the breakdown. And we expect -- but this is really only an expectation. So in case we can release or can have to, it's both, EUR 70 million released until end of 2025, this would be a split of the EUR 70 million between FLI and [indiscernible] overlays. To your question, if we can use going forward for '26, so this is against this ECL day 1 booking, we cannot. These are 2 completely different concepts. But yes, but of course, the release is always a release. And if you add provisions, but we cannot net it in the sense of a methodological netting. This is not possible. Peter Bosek: And if I may take the question about Germany. To be clear, we expected a positive impact even a little bit earlier, but it's taking longer due to different reasons. But let me share with you -- I had a discussion with the CEO of a construction company, one of our bigger clients, and he is doing roughly 50% of his turnover in Germany. And they are building a street in Romania at the moment, in Bucharest, and they are able to build the street for 30 kilometers in one shot. In Germany, it's a different frame and a different scheme, how things are operated. There you have to tender every 5 kilometers. And I don't want to judge it. It makes very much sense how they do it in Germany, but it just takes longer. On the other hand, it should be much more sustainable because it's -- to spend this EUR 500 billion, it will take some time. There should be a positive support for economic development. And yes, of course, we are expecting positive impact in countries like Poland, but also Czech Republic, maybe Slovakia. But this is something we expect for 2026. And I personally expect it in the second half of 2025. So you see a slight increase in the economic sentiment in Germany, but so far not the super bazooka boost as it was announced at the beginning. Riccardo Rovere: Peter, if I understand you correctly, you expect to see something in '26 on the back of that? Peter Bosek: Yes, exactly. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Peter Bosek for any closing remarks. Peter Bosek: So then let me say thank you to all of you. Thank you for listening to us. Thank you for your questions. Stefan and I are very much looking forward to see some of you at least in person next week during our roadshow. And let me tell you that we will come up with the full year results 2025 on the 26th of February 2026. Very much looking forward to it. Thank you. Thomas Sommerauer: 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, ladies and gentlemen, and welcome to Gran Tierra Energy's Conference Call for Third Quarter 2025 Results. My name is Shannon, and I will be your coordinator for today. [Operator Instructions] I would like to remind everyone that this conference call is being webcast and recorded today, Friday, October 31, 2025, at 11:00 a.m. Eastern Time. Today's discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important advisories and disclaimers with regard to this information and for reconciliations of any non-GAAP measures discussed on today's call. Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead. Gary Guidry: Thank you, Shannon. Good morning, and welcome to Gran Tierra's Third Quarter 2025 Results Conference Call. My name is Gary Guidry, Gran Tierra's President and Chief Executive Officer. And with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Sebastien Morin, our Chief Operating Officer. On Thursday, October 30, 2025, we issued a press release that included detailed information about our third quarter 2025 results, which is available on our website. Ryan and Sebastien will make a few brief comments, and then we will open the line for questions. I'll now turn the call over to Ryan to discuss our financial results. Ryan Ellson: Thanks, Gary. Good morning, everyone. First, I would like to highlight an announcement made last week relating to the prepayment agreement we closed, which represents a new prepayment facility backed by our Ecuadorian crude production. The initial advance will be $150 million with the potential for another $50 million once our Ecuador acquisition closes and we reach 10,000 BOE per day in Ecuador. It's a 4-year structure price of SOFR plus 3.8% and includes a 3-month grace period on principal before amortizing evenly over the remaining term. Importantly, the commercial terms or sales price are an improvement to our previous crude oil sales contract. Overall, this agreement strengthens our balance sheet and gives us added financial flexibility at a very competitive cost. In addition, we increased our current facility secured by our Canadian assets to $75 million and equally important, moved from a 1.1 structure to a 2-year structure with maturity in October 2027. Now on to the quarter. During the third quarter of 2025, Gran Tierra averaged 42,685 BOE per day. That's up roughly 30% from a year ago, driven by our Canadian acquisition and continued success from our exploration in Ecuador. Production during the quarter was temporarily impacted by unusual and externally driven events across our operations, including the land slide in Ecuador, which impacted the main export pipelines in the country, requiring us to shut in production and trunk line repairs at the Moqueta field group, which resulted in the field being shut in for the quarter. The pipeline repairs took longer than anticipated due to ongoing heavy rains through July and August. All pipelines are restored as of October 10. We want to emphasize that these volumes represent deferred barrels rather than lost production, and we already are seeing a strong recovery with current production averaging 45,200 barrels of oil equivalent per day. Based on the deferrals, we are forecasting the lower end of our production guidance range. The underlying assets continue to perform well, and our teams remain focused on ongoing optimization and maximizing production efficiency and cash flow with an expected exit rate of 47,000 to 50,000 BOE per day. From a cash perspective, it was a solid quarter where we generated $48 million of operating cash flow, up 39% from Q2. We ended the quarter with $49 million in cash and net debt position of approximately $755 million. In terms of pricing, we saw improving differentials across South America, especially in Ecuador, which helped offset some of the impact from temporary facility downtime and pipeline outages. On the capital side, we invested $57 million that focused mainly on high-return projects in Colombia, Ecuador and Canada. So overall, despite some temporary production headwinds this quarter, we're expecting a strong finish to the year, which sets up for a strong 2026. With production already back above 45,200 barrels a day and the added liquidity from our new prepayment agreement and increase and extension of our Canadian credit facility, we're in a great position to finish 2025. The 2025 capital program was primarily focused on fulfilling exploration commitments, which resulted in numerous material discoveries. We also invested in facility expansion in Suroriente, including gas to power, which provides us with sufficient process capacity to increase production in the field and lower costs. With substantially all commitments behind us, the focus turns to free cash flow and deleveraging from our large diversified resource base. We released our 2026 budget in mid-December, which will include a decrease in capital expenditures and emphasis on free cash flow generation. I'll now turn the call over to Sebastien to discuss some of the highlights of our current operations. Sebastien Morin: Good morning, everyone, and thank you, Ryan. The third quarter highlighted continued operational strength across our entire portfolio with solid execution in Ecuador, Colombia and Canada despite some temporary external challenges. In Ecuador, we had another strong quarter, achieving record production greater than 5,000 barrels of oil per day in August and greater than 6,000 barrels of oil per day in early October with the delivery of the Conejo A-1 exploration well, which was drilled on budget and successfully tested both the Hollin and Basal Tena sands, flowing over 1,300 barrels a day of 26.9 degree API oil under normal natural flow conditions. We plan to reenter Conejo A-1 later this quarter and install the final completion and selectively test each zone to optimize long-term production. We also recently cased and cemented the Conejo A-2 well, targeting multiple prospective reservoirs, including the Basal Tena and Hollin. The well discovered 41 feet of net reservoir with an average porosity of 14% in the Hollin formation, suggesting a well-connected reservoir with high deliverability potential over the full Conejo structural trap. In addition, we also confirmed a new oil discovery at Chanangue-1, which was a legacy well drilled in 1990 and suspended in 1992 that we reentered to test the bypass Basal Tena interval. It's currently producing 600 barrels a day on jet pumps and has opened up a new follow-up drilling opportunities on the eastern side of the block. With the delivery of the Conejo A-2 well, Gran Tierra has completed all of the exploration commitments in Ecuador, and we are now well positioned to continue to increase production into the development phase and establish [Audio Gap] and help sustain stable field output. At Cohembi, the waterflood continues to deliver excellent results. The production from the northern area has more than doubled, up roughly 135% from 2,800 barrels to 6,700 barrels a day. Total field production recently reached over 9,000 barrels a day, the highest since 2014. We are now executing the final 6-well drilling program to continue to ramp the field production and extend the Cohembi field boundary, including an exploration well to the north as part of the agreed carry program under our contract extension, which we expect to complete by the end of the first half of 2026. In Canada, we drilled and brought 2 additional Lower Montney wells on stream in September, both performing at or above expectations. That brings our 2025 activity at Simonette to 4.0 gross or 2.0 net wells. Stepping back, what really stands out this quarter is the progress we've made in advancing our technical capabilities and field execution from the exploration success we had in Ecuador to optimizing mature waterfloods in Colombia and efficiently scaling our Canadian program. Our focus remains on disciplined execution and continuous improvement to ensure our assets deliver strong value over time. As Ryan summarized, we had several unplanned production deferrals. Although our average production for the year will be at the lower end of our annual guidance, we'll finish the year strong with an expected exit rate between 47,000 and 50,000 barrels of oil per day. I will now turn the call back to the operator, and Gary, Ryan and I will be happy to take questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of David Round with Stifel. David Round: First one, just on Suroriente, please. You seem to have seen and experienced a very sudden production response there, I mean, positively. So great to see. Can you just talk about though, please, just sort of what exactly has happened as that program has been going on over the course of this year? What of the new production is due to new wells? What is waterflood? And how sustainable is it, please? Sebastien Morin: Yes, I'll take that one. So in a phasing approach, really, it was the start of injection on the North pattern, where we're injecting essentially 5,000 barrels of water per day in that North pattern on Cohembi-25. The other catalyst was well upside. So we had a few really key workovers. The one well just south of the pattern in Cohembi 20 was upsized, and that went from 500 barrels a day gross to over 2,000. So that one is included in the North pattern. So now as pressure comes up and we continue to increase our injection, we're seeing some really amazing performance from that sand. Just to recall, those are essentially Darcy sand. So the response is very quick. David Round: Okay. And then if I think about the production number you've put out there at the moment, I mean, how do we think about that sort of just conceptually going into next year with continual drilling? I mean, is that sort of a base and we should be looking at higher than that? Sebastien Morin: I think that's extremely fair what you just described. That's exactly where we're going. So with the extra 6 wells that we're putting into the field, we expect to continue to increment that production from here. Gary Guidry: Production and reserves. David Round: Okay. Great. And then just the second one, please. Just on the prepayment facility, how does that work in terms of availability once the repayments start? Ryan Ellson: Yes. It's -- so effectively, you draw the cash at the beginning of the entire amount, the $150 million and then just repay those funds over the course of the 4 years. David Round: Okay. Over the course of 4 years. And is it fairly linear in terms of how... Ryan Ellson: It is. It is. So effectively, every time we do a lifting in Ecuador, we'll pay back a portion of the money borrowed. Operator: Our next question comes from the line of Joseph Schachter with SER. Josef Schachter: A couple of questions for me. Congratulations on getting Ecuador up to 6,000 in October. You have on Slide 26 of your presentation that the potential could be between 11,000 and 19,000. Does that include the last 2 wells, which have been very encouraging? So guidance potentially would be to the higher end. And the question is what time line were you using to get to that? And do you need to put waterflood in? Do you have enough water? Maybe just give me a guidance of how Ecuador grows. Gary Guidry: Yes. Joseph, the answer to your question is the guidance on that slide does not include the Conejo discovery to the Northwest. And the guidance is based on waterflood of the Bassal Tena. We're in a very good position here that we have a water source in the stacked pays that we have in the Hollin and the T Sand. And so everything is in place to do that. We're working through the field development plans with the ministry in Ecuador. And now that we fulfilled all of our commitments this year on exploration in Ecuador, we're moving to the development phase. And so that will start occurring next year, during 2026. Josef Schachter: Okay. The debt issue, it fore seems to be the overhang, the market's reaction today down to a new 52 low disappointingly. Just for the levers, maybe, Ryan, do we need $75, $80 Brent? Do we need Ecuador over 10,000, 11,000 BOE a day? Do we need some noncore sales of your nonoperated assets in Canada? Where do you see getting that debt? Is a debt to 1 target something that will happen before the end of the decade? And how do you see the levers to get there? Ryan Ellson: Yes. No, that's a great question. And I think one of the things we want to emphasize in the press release and our opening remarks is now with the exploration commitments and a lot of the Suroriente commitments behind us, it really sets us up the stage for generating free cash flow. We're laser-focused on generating free cash flow in 2026 and beyond. I think if you look at this year's capital program, there's about $150 million in there between exploration and facility expansion and gas to power, et cetera. So I think with that behind us, when we come up with our budget in mid-December, you'll see the focus on free cash flow. We'll continue to look at how to optimize the portfolio as far as asset sales and whatnot, but that will just be incremental deleveraging. Our base plan is deleveraging as much as possible through our base operations. Josef Schachter: Okay. In some of the cases like the drillers, [ Precision and Ensign, they kind of gave targets to the market and to investors, we're going to knock off $100 million, $150 million, and they brag when they get there. Are you guys going to be willing to start throwing numbers like that so that people can see guideposts? And yes, you're heading in the right direction. Therefore, your valuation, which is trading at less than 1x cash flow in Canadian dollars and much below your 1PPD -- 1P reserves that you show in your presentation, the new one at USD 19.51. Is that the kind of thing where we can show the debt holders are now giving the equity value to the shareholders by doing something like that? Ryan Ellson: Absolutely. When we come out with our budget in '20 -- December, there will be a clear road map. Operator: Gentlemen, there are no further questions at this time. Please continue. Gary Guidry: Thank you, Shannon. I'd once again like to thank everyone for joining us today. We look forward to speaking with you next quarter and update you on our ongoing progress. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Well, thank you, Michael. Good morning, and welcome to Baytex's Third Quarter 2025 Earnings Call. I am joined today by Eric Greager, our President and Chief Executive Officer; Chad Kalmakoff, our Chief Financial Officer; and Chad Lundberg, our Chief Operating Officer. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information and non-GAAP financial and capital management measures in yesterday's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And after our prepared remarks, we'll open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric. Eric Greager: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex. We delivered record production in the Pembina Duvernay, generated robust free cash flow, supported by the strength and reliability of our Canadian heavy oil and U.S. Eagle Ford operations and made further progress on debt reduction. Pembina Duvernay set a new quarterly production record averaging just over 10,000 BOE per day, driven by strong well performance from the third pad we brought on stream in September. We also completed a land swap to consolidate our Southern Duvernay acreage and commission new gathering and midstream infrastructure with Gibson Energy, both of which will support more efficient development as we scale up. Our heavy oil and Eagle Ford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter-over-quarter, while volumes in the Eagle Ford were up 3%. Commodity prices remained soft in the third quarter with WTI averaging approximately USD 65 per barrel, but our strong operational execution and cost discipline enabled us to generate $143 million in free cash flow and reduce net debt to $2.2 billion. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results. Chad Kalmakoff: Thanks, Eric. Third quarter financial results were solid. Adjusted funds flow was $422 million or $0.55 per basic share. Net income for the quarter was $32 million, and we generated $143 million in free cash flow after $270 million in exploration and development expenditures. We returned $17 million to shareholders through our quarterly dividend and reduced net debt by $50 million, bringing net debt at quarter end to $2.2 billion, as Eric noted. Our financial position remains strong. We have significant financial liquidity with over $1.3 billion in undrawn credit capacity on our credit facilities and our first note not maturing until April 2030. Our capital allocation framework remains unchanged. 100% of our free cash flow is directed to debt repayment after funding our dividend. Based on year-to-date results and the forward strip for Q4, we now expect to generate approximately $300 million in free cash flow for 2025. This compares to our previous forecast of $400 million, with the change largely attributed to lower commodity prices during the second half of the year. There is no change to our production guidance, and we expect to reach $2.1 billion of net debt at year-end. I'll pass it on to Lundberg -- Chad Lundberg to provide more details on our operating results. Chad Lundberg: Thanks, Chad. We saw strong operating performance in Q3. Production averaged 151,000 BOE per day, with liquids making up 86% of the mix. We invested $270 million in exploration and development and brought 69 wells on stream, keeping us on track with our plan. In the Pembina Duvernay, production averaged 10,200 BOE per day, up 53% from last quarter. The third pad from our 2025 program came online in September with 2 wells delivering strong 30-day peak rates averaging 1,300 BOE per day per well. The third well encountered casing issues during completion and was subsequently abandoned. We are committed to accelerating full commercialization of the asset, targeting 18 to 20 wells per year by 2027 and ramping production to 20,000 BOE per day by 2029. In addition to our progress in the Duvernay, we continued to expand our heavy oil platform. Heavy oil averaged 47,300 BOE per day, up 5% from Q2. We brought 20 net wells on stream and expanded our core land base in Peace River and northeast Alberta. Our heavy oil inventory now totals approximately 1,100 locations, supporting approximately 10 years of drilling at our current pace. Eagle Ford production remained steady at 82,800 BOE per day, with oil production up 3% from last quarter. We brought 15.6 wells on stream while achieving a 12% improvement in drilling and completions costs. We continue to see strong results from the refracs completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refrac program in 2026. Overall, operational execution across the asset base remains strong, underpinned by our commitment to health and safety of our workers and the communities in which we operate. Let me turn the call back to Eric for his closing remarks. Eric Greager: Thanks, Chad. Our third quarter results demonstrate Baytex's ability to create value across commodity price cycles. The Pembina Duvernay continues to drive our Canadian growth potential, bolstered by recent consolidation efforts and infrastructure advancements that support future development and operational flexibility. At the same time, our heavy oil and Eagle Ford assets continue to deliver reliable results and cash flow. Our capital discipline and our consistent performance demonstrate our ability to execute through market volatility, maintain financial flexibility and position our company for long-term value creation. Brian, back to you. Brian Ector: All right. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagle Ford assets. As a matter of policy, we do not comment on speculation. Our focus remains on consistent operational execution, capital discipline and maximizing value. We ask that analysts' questions remain focused on our third quarter results and published guidance. And operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Phillips Johnston with Capital One. Phillips Johnston: My first question is on the $24 million of acquisitions that you executed here in Q3. I'm guessing that was spread out across the 3 areas mentioned in the release. Should we assume that -- I guess, the question is, was there any material production that came with the transactions? Or was it all undeveloped acreage? Eric Greager: Phillips, it's Eric Greager here. Thanks for the question. It was all undeveloped land, focused in the Ardmore area, that's Cold Lake oil sands Mannville stack development; in the Peace River oil sands Pekisko area, that one is quite a bit bigger. So the Ardmore was about 4.5 net sections, and the Peace River oil sands at Pekisko area, about 40.5 net sections. That's in the heavy oil business. And then, in Spartan, likewise, focus just -- sorry, in Pembina Duvernay, likewise, it's just our areas in the South in what we call Gilby, and that was an area that was prior checkerboarded. Phillips Johnston: Okay. Great. Makes sense. And as you mentioned, we saw a nice uptick in your heavy oil production. It was up 7% in Q2, and then, up another 5% or so here in Q3, and that was after 3 sequential quarterly declines. Can you talk about what's driven that growth? And what we should expect for Q4 and into 2026? Eric Greager: Yes. It's a little early for 2026, but what I would say is we continue to execute the 2025 plan. It's really been, but for the change we made in May after -- in April, May, after Liberation Day after our Q1 announcement, it's really been executing our plan. So we lay out our capital profile based on breakup and anticipation of some breakup impacts to access. And if breakup is light, then that creates optionality in the plan. But we're really simply executing the plan, and we're seeing stronger performance across all of the assets really based on the capital investments we're making. So it's really steady execution of the plan, Phillips, with a little bit better performance than maybe we had originally communicated to the market, which is pretty consistent with our conservative guidance style. Operator: And your next question comes from Luke Davis with Raymond James. Luke Davis: Doing some good work in Canada. I'm wondering if can you just provide some parameters sort of by asset in terms of what you expect those to look like, say, over the next 3 to 5 years. And have you kind of contextualized that in the current commodity price environment versus something a little bit more favorable, call it, mid-cycle price? Eric Greager: Sorry, what assets did you say? Brian Ector: Canadian, general. Eric Greager: Okay. Yes. Luke, it's Eric again. Yes. So look, I think 2026 commodity pricing is anyone's guess, but if things go into the 50s, we're probably looking at a plan that is more conservative. That is what you would expect, and I think what any producer of a commodity would do, something that's probably closer to flat. If prices move higher toward mid-cycle through 2026 and into 2027, then naturally, we would lean in because there's a lot of value to pull forward for shareholders. I'm sure that's what you would expect me to say. The assets are just performing really well. I mean, we've got strong geology teams working all across our heavy oil fairway, the engineering teams and our long history across our large heavy oil fairway means the hit rate is pretty good on exploration and development. And in Duvernay, it's just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole, and we couldn't be more pleased with the results across our Duvernay as well. So across the Canadian portfolio, it just feels really good. Our Viking assets run steady and flat and are extremely reliable in terms of their input and output factors. So that's the way I would characterize it. Luke Davis: All right. That's helpful. I'm wondering also if you could just dig into the Duvernay a little bit more. Well performance looks very good. I'm wondering if there's anything that you can tweak going forward, and how you'd expect sort of the productivity parameters to change? And then, you did abandon 1 well, so I'm wondering if you can just flesh out some of the issues you had and maybe some learnings coming out of that. Eric Greager: You bet, Luke. I'm going to pitch it over to Chad Lundberg here for that one. Chad Lundberg: Great. Thanks. Two parts to your question, so I'll address the hole first. This was an issue that resulted from the construction of the well really on the upfront drilling. So it's something to do with the casing and the cement. We believe it's an isolated incident and that we will have it resolved for our programs forward. So I think that's the key thing is we believe it's isolated, and go forward, we've figured it out. Your second question, just on Duvernay performance, so yes, year-over-year, we've seen a strong improvement in IPs. As everybody knows, we're curiously declining the wells to try to understand how that relates to EURs. We think we have a high chance of seeing an improvement in EURs as well. When you really think about how we constructed this year, we're trying to understand completion efficiency and just our ability to deliver sand and energy into the formation. We think we made big strides this year and that, that some of these results are a direct result of that. As we think about programs forward, we're not done. And I don't know if we'll ever be done. These things are a continuous improvement cycle. But we do have more improvements that we're working through at this point in time that we're excited to deploy through 2026 and see where the results take us. Operator: This concludes the question-and-answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Thanks, Michael. We had a couple of questions come in on the webcast, but I do believe they've been addressed through the analysts' Q&A already. So I think with that, we are going to wrap up today's call. I'd like to thank everyone for joining. And thanks again for your time, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and welcome to Zillow Group's Third Quarter 2025 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin. Bradley Berning: Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our shareholder letter and earnings release, both of which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Jeremy Wacksman: Good afternoon, everyone, and thank you for joining us. I'm pleased to share that Zillow delivered another excellent quarter, thanks to continued momentum across both our For Sale and Rentals operations. For Q3, we reported strong revenue growth, EBITDA margin expansion and positive GAAP net income. In the housing market that's bouncing along the bottom, Zillow continues to outperform both our outlook and the broader industry, showing the strength of our execution and the durability of our strategy. Delivering growth while managing costs keeps us on track toward our 2025 targets of mid-teens revenue growth, expanding EBITDA margins and positive full year GAAP net income. Zillow has earned its success because we are a consumer-focused product-led company transforming the way people move. For consumers, that means a simpler, faster, more transparent way to buy, sell or rent a home. For real estate professionals, it means more effective tools to grow their businesses. And for our shareholders, it means sustained growth driven by innovation regardless of where we are in the housing cycle. We are delivering the seamless digital end-to-end experience that consumers and increasingly the real estate industry expect and depend on. And we deliver innovation quickly across our ecosystem and across the customer journey. In Q3 alone, that included adding virtual staging to the super listening experience in Zillow Showcase, enhancing messaging functionality and debuting the Zillow app inside ChatGPT. I will dig into our latest launches in a few moments, but first, I'll walk you through our Q3 results, which show how well our strategy is working. Total revenue increased 16% year-over-year to $676 million in Q3, exceeding the high end of our outlook range. For Sale revenue increased 10%, outperforming the broader housing and mortgage markets, which continue to bounce along the bottom. Within For Sale, residential revenue grew 7% and mortgage revenue grew 36%. Rentals revenue grew 41% year-over-year with 62% year-over-year revenue growth in multifamily. Together, this revenue growth, along with effective cost management helped us generate EBITDA of $165 million, above the high end of our outlook range and EBITDA margin expanded more than 200 basis points year-over-year. The combination of revenue growth and cost discipline also resulted in positive net income of $10 million in Q3. Our consistently strong performance reinforces the fact that Zillow can grow regardless of what the market is doing. What drives our success and differentiates Zillow from everyone else in our category is consistent execution on our integrated transaction strategy, relentless product innovation and a focus on consumer and partner experiences. Our success starts with our brand, which is loved and trusted by both consumers and real estate professionals. Our apps and sites had 250 million average monthly unique users in Q3, and we are a strong partner for the residential real estate industry. Agents who use at least one of our products, whether that's Premier Agent, Follow Up Boss, ShowingTime+, Showcase or dotloop, are responsible for an estimated 80% of U.S. residential real estate transactions. Our brand strength and quality product offerings feed our broader Zillow ecosystem and give our partners a powerful edge in building their businesses as they operate where consumers are and deliver the experience consumers want. We take the strength of our brand and audience seriously, always looking for ways to meet consumer needs in an ever-evolving and competitive landscape. The latest demonstration of that principle launched this month, the Zillow app in ChatGPT. Consumers searching for homes in ChatGPT can explore listings, maps, photos and pricing directly in the Zillow experience and can seamlessly continue on to Zillow's website or mobile app to book a tour, connect with an agent or learn about financing. It's another new doorway directly into our ecosystem, just like when we built one of the first apps for mobile. Being early matters. And as we learned then, first-mover advantage pays off when technology transforms how people use the Internet. We are currently the only real estate app inside ChatGPT, a testament to the speed and technical depth of our teams as well as our near 20-year track record of using AI to build innovative, data-driven consumer-first products responsibly. We are still in the very early innings of how AI will transform consumer experiences, but we strongly believe that the critical differentiators between those that succeed and those that get left behind in our category will be user experience, quality of audience, unique insights and providing integrated transaction services instead of just top-of-funnel lead generation. We feel incredibly well positioned to take advantage of the AI transformation given how unique our strategy is. Now I'll dive deeper into how our consumer-first product forward thinking has shown up across our business and helped us grow in Q3, starting with For Sale. Our For Sale revenue is consistently outperforming the broader market as we deliver strong revenue growth and continue to drive share growth relative to the total industry transaction value. We're executing well on our For Sale strategy to make buying, selling and financing easier for consumers and agents alike. Zillow is built for where the industry is going, not where it's been. We've moved beyond home search and become a diversified transaction-focused platform that integrates the disparate steps of the housing journey, connecting with an agent, touring, exploring financing options and more and equips agents to successfully guide consumers through it. We continue to scale our immersive listing experience, Zillow Showcase. More than 50 brokerages have adopted Showcase as a go-to marketing solution to help agents win more listings and sell homes faster. These enterprise partnerships spanning leading national brands, regional powerhouses and innovative independents reflect industry recognition that Showcase gives agents and sellers a measurable edge in today's housing market. As of the end of Q3, Showcase was on 3.2% of all new listings in the U.S., up from 2.5% last quarter and more than double our share versus a year ago. And in Q3, we launched AI-powered virtual staging on Showcase listings. This new feature uses computer vision to restyle rooms instantly with just a tap, letting buyers picture a home's potential while giving agents who use Showcase another way to make listings stand out. Whether a buyer starts by virtually walking around homes with Showcase, instantly booking an in-person tour and connecting with an agent or exploring their financing options, Zillow provides the right support at the right moment in their journey. With products like BuyAbility, a powerful tool from Zillow Home Loans that helps buyers shop based on what they can afford, we're making financing simpler and more transparent and improving how we identify high-intent buyers in the process. BuyAbility has enrolled 2.9 million people since it launched after surpassing 2 million last quarter. These buyers are more knowledgeable and ready to act when they connect with an agent through Zillow. In addition, we introduced a verified digital pre-approval and began rolling out a new borrower application designed to get shoppers quickly to a real decision and improve loan officer efficiency. These updates are live now on our website and coming soon to our apps. We also just rolled out major enhancements to our proprietary messaging system that lets buyers communicate directly with their agent and with loan officers from Zillow Home Loans within the Zillow app, thanks to an integration with Follow Up Boss. Buyers can now co-shop with a partner or co-buyer right inside Zillow, sharing homes, comparing favorites and staying aligned in one place. We expect keeping homebuyers better connected will deepen engagement, help real estate professionals provide better service to their clients and ultimately boost transaction rates. We are the company that is innovating rapidly to apply new technology where it matters most, improving the customer journey and helping real estate professionals succeed in the age of AI by giving them the tools and insights they need to serve clients better, work more efficiently and grow their businesses. As part of that effort, we've continued to invest in a growing set of features within Follow Up Boss. Recent updates include real-time call transcripts, smart summaries that recap each connection's recent communication with suggested next steps and custom Zillow Home Loans pre-approval letters for buyers who request one, each integrated directly in the Follow Up Boss system, giving agents richer context and helping them communicate faster. All of this innovation comes together and brings our For Sale strategy to life in our enhanced markets, where we're connecting high-intent movers with high-performing professionals and delivering a more integrated transaction. In Q3, 34% of connections came through the enhanced market experience, up from 27% last quarter and on our way to our midterm goal of at least 75%. Virtually all Zillow connections in the enhanced market experience are now managed through Follow Up Boss, enabling better collaboration amongst buyers, agents and loan officers. We're also seeing double-digit adoption of Zillow Home Loans across enhanced markets, a clear sign the integrated experience is delivering value as we help consumers get home. As that integrated experience expands, we're updating our invite-only pay when you close program for top-performing teams. This month, we announced Zillow Preferred, the next chapter for our Flex program that recognizes partners for delivering outstanding customer experiences and provides them access to dedicated support and growth tools. Zillow Preferred builds on the foundation of Flex and the new name helps ensure shoppers know they are connecting with a preferred partner of ours. As we expand the integrated experience in our enhanced markets to the majority of our connections, we expect our preferred program to grow in tandem. Earlier this month, we also introduced Zillow Pro, a membership that brings together Zillow's most impactful tools and services into an integrated AI-powered suite that helps growth-oriented agents scale their businesses. Zillow Pro helps agents more effectively serve all their clients in their sphere, not just those they connect with on Zillow. With features like My Agent, client insights flow into Follow Up Boss and agents can see what their buyers are eyeing on Zillow, invite any customer to connect on Zillow and keep their branding visible across Zillow as those clients shop. Zillow Pro also enables real-time touring for clients an agent found off of Zillow, unified messaging and property sharing among co-shoppers and premium profiles that let agents customize how they show up on Zillow. Over time, top-performing Pro users become eligible for Zillow Preferred. Zillow Pro gives agents the data, tools and brand reach they need to uncover opportunities, work smarter, deepen relationships and drive more transactions. It also expands the serviceable addressable market of our housing super app to more agents and all consumers. Given that agents who use our products touch an estimated 80% of U.S. residential real estate transactions, we have a strong partner base to sell Zillow Pro into. We look forward to rolling it out across the country throughout 2026. Now I'll update you on rentals, where we're seeing some of the strongest growth and momentum across Zillow. Just like in For Sale, we're focused on speed, transparency and innovation on behalf of consumers and partners. As a reminder, our strategy in rentals is twofold. First, we are building a comprehensive 2-sided marketplace of homes for rent, giving renters a single trusted destination to find every type of property from single-family homes to large apartment complexes. Second, we are modernizing the transaction experience for renters and property managers alike, streamlining how they connect and handle applications, leases and payments. This strategy works because it solves real pain points. Renters get transparency, efficiency and trust, property managers get better qualified applicants and higher ROI. And because renting is where nearly every mover starts, our progress here is expanding the top of Zillow's housing funnel and creating durable growth across the business. We are executing well on this strategy and accelerating revenue growth as a result. Rentals revenue increased 41% year-over-year in Q3, primarily due to a 62% increase in multifamily revenue. In Q3, Zillow Rentals had 2.5 million average monthly active rental listings, ranging from single-family homes to large apartment complexes. This includes 69,000 multifamily properties listed on Zillow. That's almost double the 35,000 we had 2 years ago, and there is room to expand with an estimated 140,000 total multifamily properties across the country. Multifamily is a key growth driver, and we're expanding both our property count and wallet share as more large property managers choose to upgrade to more comprehensive advertising packages with us. As proof of the real value we add for our multifamily partners as we deliver high-intent qualified renters to fill their vacancies, Zillow Rentals ranks #1 in partner satisfaction in our category for return on marketing investment. Our multifamily listing syndication agreements with Redfin and Realtor.com are benefiting consumers and property managers by expanding the reach and visibility of rental listings online, helping more renters see more available units on more sites and helping property managers connect with qualified applicants more efficiently. Beyond cultivating a comprehensive marketplace, we're innovating quickly to make renting simpler, fairer, more transparent and more affordable. This quarter, we expanded our cost transparency features across the Zillow Rentals network, showing renters a full breakdown of move-in and monthly costs and providing calculators to help them estimate total expenses before applying. This helps cost burden renters plan accurately and in turn, property managers get more qualified serious applicants. Many renters on Zillow can also reuse a single secure rental application across listings, saving time and cutting repeated fees, an example of how Zillow reduces friction and makes renting fair. We also announced a new partnership with Esusu, the leading rent reporting platform to help renters build credit through on-time rent payments. This collaboration expands credit building access nationwide, allowing any renter, not just those who pay rent through Zillow, to have their payments reported to major credit bureaus, strengthening their financial footing as they prepare for the next step. This partnership is another example of Zillow's broader effort to help renters and buyers access and afford housing. Finally, we recently launched Listing Spotlight, a premium listing option that gives single-family rentals and smaller buildings the highest exposure to this category available on Zillow. Building a better experience for renters and property managers has earned us strong rental traffic over the past few years with about 35 million average monthly unique visitors in Q3. As we execute on our twofold strategy in Rentals, we expect continued acceleration in year-over-year revenue growth in Q4, supported by growing inventory and partner adoption. The path to our $1 billion-plus annual rental revenues opportunity is clear, and we're confident in our ability to keep delivering value for consumers and partners. Our strong results in both For Sale and Rentals show how Zillow is successfully innovating on behalf of consumers and real estate professionals across the housing journey. As we continue delivering excellent results, we're also aware of the external noise that has gotten louder in recent months, and we're confident in our ability to execute through it just as we have the past few years whenever the volume has turned up. We're all eyes forward on building a marketplace that expands visibility and choice, promotes fairness and broad access and empowers consumers and the real estate professionals who serve them. Solving their problems is what ultimately matters. That's what enables success in the modern era and the AI-driven future. That's what drives results, and that's exactly what Zillow is doing with this quarter as the most recent example. We'll keep executing with discipline, delivering value for consumers and partners and leading the industry toward a more transparent consumer-first future. We have a strong brand, a lightning fast innovation cycle and consistently excellent execution. Thanks to that steady focus and execution, we are on track toward our full year 2025 goals of mid-teens revenue growth, expanding EBITDA margins and GAAP profitability with year-over-year revenue growth expected to accelerate in Q4. 2024 and 2025 have proven our strategy works, and we are proud of our ability to grow our revenue while also expanding margins. What's most encouraging is that our execution is setting us up for what we believe will be sustainable, profitable growth well into the future. We're excited about our opportunity to unlock $1 billion of anticipated incremental revenue in For Sale just by rolling out our integrated transaction playbook to more people in more places, even in a flat macro housing environment. The momentum we're seeing in enhanced markets indicates we're on the right track towards capturing that opportunity. And Zillow Pro is well positioned to meaningfully expand our potential for growth in For Sale. We also see a clear path toward our $1 billion-plus annual Rentals revenue target and a much larger business beyond that as we build our comprehensive 2-sided marketplace. Behind our strong financial performance is a clear mission, helping millions of people get home and supporting the professionals who make that possible. As a beloved consumer brand and a trusted partner platform, we're proud of the work we're doing to make the housing journey simpler, more transparent and more integrated. With that, I'll turn the call over to our CFO, Jeremy Hofmann. Jeremy Hofmann: Thanks, Jeremy, and good afternoon, everyone. We delivered strong results in Q3 that exceeded our expectations and are well positioned to continue delivering strong performance as we execute on our strategy in 2025 and beyond. Q3 revenue was up 16% year-over-year to $676 million, which was above the high end of our outlook range. Our better-than-expected revenue performance, combined with effective cost management, delivered EBITDA of $165 million also above the high end of our outlook range. Q3 EBITDA margin was 24%, more than 200 basis points higher than a year ago. Our trailing 12-month EBITDA as of the end of Q3 grew 29% year-over-year as we continue to scale revenue and control costs. We reported GAAP net income of $10 million in Q3 as a result of these efforts. For Sale revenue grew 10% year-over-year in Q3 to $488 million, roughly 500 basis points above the mid-single-digit residential real estate industry growth as reported by the NAR and tracked by Zillow. This was also well above the purchase mortgage origination volume growth for the industry, which we estimate was roughly flat. Purchase mortgage origination volume is noteworthy because the majority of Zillow buyers purchase their home with a mortgage. Within the For Sale category, residential revenue grew 7% to $435 million. Of note, residential revenue year-over-year growth accelerated 100 basis points from Q2 to Q3 despite a 400 basis point tougher comparable quarter-over-quarter. We saw contributions to this growth broadly across our agent and software offerings and within our new construction marketplace. Agent offerings include Zillow Preferred, formerly Flex, market-based pricing and Zillow Showcase. Software offerings primarily include Follow Up Boss, dotloop and ShowingTime+. Within the For Sale revenue category, mortgages revenue was up 36% year-over-year in Q3 to $53 million. Our mortgages strategy is making it easier for more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue. Purchase loan origination volume grew 57% year-over-year to $1.3 billion. Turning to Rentals. Q3 revenue was $174 million, with growth accelerating to 41% year-over-year. Rentals revenue comprised 26% of our total company revenue in Q3, up from 21% a year ago. This increase was driven primarily by our multifamily revenue, which grew 62% year-over-year, up from 56% year-over-year growth in Q2. Our value proposition to multifamily property managers and execution by our sales force to both win new properties and upgrade to more comprehensive packages is evident in our Q3 results. We increased the number of multifamily properties on our apps and sites by 47% year-over-year, reaching an all-time high of 69,000 multifamily properties as of the end of Q3, up from 64,000 properties at the end of Q2. As a reminder, we measure our multifamily property count as 25-plus unit buildings and do not include our industry-leading long-tail properties, which is a significantly larger count. When you include these long-tail properties, Zillow Rentals had 2.5 million average monthly active rental listings in Q3, the most in the category. Our Rentals offering is clearly resonating in the market today. By expanding our listings across more sites and apps through trusted platforms, including Redfin and Realtor.com, we are helping provide more visibility into available properties, a simpler search experience and the option to shop on the platform of renters' choice. For multifamily operators, we offer a compelling value proposition by providing efficient and cost-effective alternatives to reach more potential renters through the largest rental audience. The quantity and quality of high-intent renters on our platform has allowed us to expand our wallet share with property managers. We expect this formula to continue to drive growth in Rentals towards our $1 billion-plus annual revenue target. Q3 EBITDA expenses of $511 million were slightly favorable compared to our outlook. We drove leverage on our total fixed costs, which grew 5% year-over-year compared to total revenue growth of 16%. This includes share-based compensation expense, which was down 8% year-over-year in Q3. The results of our cost discipline continue to be evident as we expanded our EBITDA margins by more than 200 basis points year-over-year. The combination of revenue growth and cost discipline is also yielding robust cash flows. During the first 9 months of 2025, we generated $295 million of free cash flow, a 28% increase compared to the same period a year ago. We began reporting free cash flow as a new metric this quarter. We plan to do so going forward to help you all better understand the effectiveness of our strategy and execution and our ability to consistently generate cash from our core operations. We ended Q3 with $1.4 billion of cash and investments, up from $1.2 billion at the end of Q2. Program to date share repurchases have been $2.4 billion at a weighted average price of $48. We are very pleased with the program and expect to be opportunistic in share repurchases going forward. Turning to our Q4 outlook. We expect total revenue to be between $645 million and $655 million, implying a year-over-year increase of 16% to 18%. We expect For Sale year-over-year revenue growth in Q4 to be in the high single digits. We expect residential revenue growth similar to Q3 and mortgages revenue growth of approximately 20% with continued purchase origination volume growth of over 40%. We saw an accelerated number of loans that closed in late September, resulting in outperformance in Q3 mortgages revenue versus our expectations. In aggregate, we expect mortgages revenue to grow roughly 30% for the second half of 2025. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q4, increasing more than 45% year-over-year, driven by further multifamily revenue growth acceleration. We continue to expect the Redfin partnership to be accretive to EBITDA dollars in the second half of 2025. For the full year, we continue to expect Rentals revenue growth to be approximately 40% for Q4, we expect EBITDA to be between $145 million and $155 million, representing a 23% margin at the midpoint of our outlook range. EBITDA expenses will decrease from $511 million in Q3 to an estimated $500 million in Q4 due to normal seasonality. For full year 2025, we continue to expect to deliver mid-teens revenue growth. We expect fixed cost investments to grow modestly with inflation while investing in variable costs ahead of revenue to drive future growth, primarily in Rentals and additional loan officers and Zillow Home Loans. We are on track to deliver expanded EBITDA margins and positive net income for the full year 2025. As an early read, we expect 2026 to have similar growth and EBITDA margin expansion as we have had the last 2 years. We are planning for the macro housing environment to continue to bounce along the bottom in 2026 as well. As we look even further out, we are confident in our mid-cycle targets for $5 billion in revenue and 45% EBITDA margins in a normalized housing market. We have continued to execute on the integrated transaction experience for both consumers and agents. As of Q3, this includes continued expansion of our enhanced markets with 34% of connections now going through the experience and increasing showcase adoption to 3.2% of all new listings. This also includes rapid growth in Rentals with 69,000 multifamily properties advertising with us as of the end of Q3. As Jeremy mentioned earlier, we recently announced the upcoming launch of our Zillow Pro offering. Through Zillow Pro, the expansion of our serviceable addressable market sets us on a path to engage more customers and more agents. We plan to beta test Zillow Pro in the first half of 2026 and to expand nationwide over the second half of next year. We expect a very modest incremental contribution to revenue from Zillow Pro in 2026. In the near term, we will focus on demonstrating value for the product and incorporating learnings to support continued innovation. To close, we are successfully executing on our strategy, are on track to meet our full year goals and are very excited about the opportunity ahead of us. We believe we have the right investments in place to support our strategy and are delivering strong growth while maintaining a disciplined cost structure. That formula is driving expanding margins and positive GAAP net income. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from Ron Josey with Citi. Ronald Josey: Maybe, Jeremy Wacksman, I wanted to ask a bigger picture question for you just on all the news around AI and commentary around Zillow apps on ChatGPT. You talked about ChatGPT and app just being a new doorway to Zillow. And what I wanted to hear a little bit more is just the integration here, the risk, the opportunities of being that first mover on newer platforms. And then as newer doorways open, Zillow does have 250 million uniques, obviously, right? And so how do you balance your current traffic with these newer doorways with potentially having to spend more on brand awareness? Jeremy Wacksman: Yes. Thanks for the question, Ron. I mean we think about this as really pure opportunity. We're excited about the partnership integration we did with OpenAI to be the first real estate app and one of the first apps in this new paradigm. I think you should expect other providers to build out similar ecosystems. And this is really similar to other platform shifts that create expansion into leading brands. Think about as search exploded, think about as mobile exploded, and we were early on to the mobile platform as well. And just look at how brands like ours developed in those shifts, right? Mobile wasn't a replacement. It was additive. It was more time spent. It was incremental use cases. It was easier for us to start to build a more digital transaction than you had in desktop search and the browser only. So we think of it the same way. That's why we kind of call it another new doorway directly in. And then to your question on brand, I mean, I think that's why we feel so fortunate we have a great strong brand that consumers want whenever you get these new opportunities, it's an opportunity to be additive to that. And when our core base, 80% of our traffic comes to us brand direct. And the data and the platform and the software that we offer, those differentiators to create this really unique experience, I think, get strengthened by these platform shifts. So I know there's a lot that is written about, well, what does this mean for acquisition? It will, for sure, be an opportunity for all of us to tap into more customer demand in more new ways. But we're also equally excited about the ability to build AI into Zillow. As you know, we've been doing that for the last 20 years and really accelerate that effort the last 3 or 4 as these capabilities have come online. And so building more native capabilities into the software for our consumers and for our agents to make the transaction experience better, to make it more seamless to create more of that one-stop shop for buyers and sellers and for their agents, that's really the opportunity. So you're always going to see us lean in and be early. We're really fortunate that we can do that, and it's a tremendous testament to the technology teams we have at Zillow that we were able to do that here. And we think this is a really, really great platform shift for us to take advantage of. Operator: Our next question will come from Dan Kurnos with Benchmark. Daniel Kurnos: A couple. We've obviously done a lot of work on the Marriott court cases. Clients are particularly focused on the recent FTC suit. So maybe it would just be great to get your perspective on any impacts and how you think it plays out? And then separately, the other hot topic with investors is somewhat related, Compass proposed acquisition of Anywhere. So antitrust concerns aside, maybe your views on any potential disruption if agents choose or are forced to take their 3-phase marketing program or if anyone else bandwagons on their efforts to grow the private marketplace listings. Jeremy Wacksman: Yes. Maybe I'll try and hit both of those, and Jeremy hop on with anything I missed. With respect to the FTC case, we've been syndicating multifamily property listings to Redfin for about 6 months now. We're seeing the benefits to both consumers and property managers. You see more consumers can see more listings on all of our sites. An interesting stat is renters on Redfin now have access to 3x the number of rental properties they had when Redfin was trying to acquire those on their own. So it's very pro consumer. And then it's also very pro property manager. As a result of the syndication agreement, property managers are seeing increased ROI. As we said earlier, we're #1 in partner satisfaction for return on investment. And while we are excited about that ROI we deliver today, there's a ton of room for growth. We hear regularly from our large property managers that we are the strongest advertising channel, as they're thinking about their very complicated advertising mix, yes, they advertise on Zillow, other apartment sites, but they also advertise on Google, on Facebook, on Instagram, on TikTok, they market their own property websites. And so being a growing source of high ROI advertising for them, we feel great about that. So to us, it's obviously pro consumer and pro property manager, which makes it pro competitive, and we look forward to making that case as the process plays out. And then on the proposed merger, we don't really see any concerns to our business. We do see maybe more noise around hidden listings and the potential to push more hidden listings on to sellers and to buyers and to harm consumers. And so for us, our listing standards which help ensure that agents do right by their sellers. And if they're going to market a listing, they make that listing broadly available to all buyers. We continue to see the vast majority of the industry align with those standards. And we've always advocated for open, fair and transparent access. That's why we always have the most listings. Most folks want their listings on the Internet. They don't want to put the Internet back in the box. And we expect that behavior to continue because agents are trying to do right by their sellers and help their sellers sell their home. Operator: Our next question will come from Brad Erickson with RBC. Bradley Erickson: I have 2. First, I guess, the residential business looks like it outgrew the market by a couple of points in Q3. Can you just lay out maybe any market forces that leaned one way or the other on the resi business during the quarter that netted out to that number? And then second, can you just talk about what's embedded from a market growth perspective in the Q4 guide? And then I have a follow-up. Jeremy Hofmann: Yes, Brad, it's Jeremy Hofmann. I'll take that one. Yes, we were definitely pleased with the outperformance in Q3. For Sale grew 10%, which outperformed the housing market by about 5%. And then obviously, the mortgage market was flat. So pleased to be able to keep taking share. When we zoom out, our For Sale line has outperformed the industry by 20% over the last 2 years on a 2-year stack. So that's great as well because that's what we tend to focus on more than quarterly fluctuations. On the residential front within For Sale, I'd note that the revenue accelerated from Q2 to Q3. So we went from 6% growth in Q2 to 7% growth in Q3 despite a 400 basis point more difficult comp. So I think that's an interesting thing for you all to just keep eyes on and part of the market dynamics. And obviously, Q4 is probably an easier comp for the housing market comparatively. So when we look at what we're doing, we're pretty consistently outperforming the market. We're doing it over multiple periods and feel like the way in which we're doing so is pretty consistent. The enhanced markets are performing well. Zillow Home Loans continues to grow share alongside that enhanced market expansion. Showcase is expanding really nicely. Follow-up Boss is getting in the hands of more people across our agent base. New construction is doing well as well. So it's a really nice formula, and it's one that we're looking forward to continuing to roll out in Q4 and then into 2026. Bradley Erickson: Great. And then just a follow-up on Zillow Pro. You mentioned in the prepared remarks just several points of kind of value add. Can you maybe just expand a bit on kind of where the biggest sort of value unlocks come from with Pro? And then also just how does that get monetized? Or how do you envision that getting monetized over time? Jeremy Wacksman: Yes, I can take that. I mean I think, first, just to outline what Zillow Pro is because it is new, and we just did announce it. it's effectively an evolution of our software platform for agents. So it's a membership, it's a bundle so they can get access to all of our software. And that includes Follow Up Boss, right, the software that almost every preferred agent is using now. That includes premium branding on Zillow so premium profiles and consistent branding. That includes expansion of a feature called My Agent, which allows them to connect with all of their clients. And so previously, agents could use My Agent for Zillow clients that they had on Zillow, but now they can invite their clients from their database or their sphere of influence to connect with them and become their My Agent on Zillow and get access to great real-time client insights from us about those customers. So it really bundles all this together, and you want to think about that as a way we are trying to help them just run their business better, right? We're always going to try and help them deliver for our customers, right? But we want to help them deliver for all their customers. And then the last piece on Pro is it ends up being the pathway to Zillow Preferred, right? Zillow Preferred is the subset of agents and teams that we're trusting to handle our customers. We're going to continue to grow that audience of agents and teams as we go from 34% of our customers getting that experience to 75% plus. And this is the great way in. Many folks who are on Zillow Pro and using this stack of software will become eligible to be part of Zillow Preferred as well. So we see these things working really well together. And we're really excited, as Jeremy said, to test and learn with our initial beta customers early in the year and then roll it out throughout '26. Operator: Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: When you step back and you think about the longer-term opportunity with the Zillow Preferred program, how do you think about the impact on your share spread over time? Would you expect to see a widening gap as these markets scale and the cohorts mature there? And specifically, I'm thinking about the delta between residential and TTV. Jeremy Hofmann: Yes, I'll take that. Thanks, Nikhil. I would think about it as the expansion of Zillow Preferred is really a testament to what we're doing in the enhanced markets and how well we feel like those are going. So as we expand the enhanced markets, we will expand Zillow Preferred in tandem. And then with respect to outperformance, I think the outperformance has been strong. We expect it to continue to be strong. I would expect it from both the residential perspective and from the For Sale category as well. So much of the enhanced market experience really comes from that integration of our preferred agent base and Zillow Home Loans. And when we think about the customer experience we're building, the ability to drive conversion, the ability to drive adoption and ultimately take share, that's where we have so much confidence in not only 2025, but really towards that mid-cycle target of $1 billion of incremental revenue regardless of what the housing market does. Nikhil Devnani: And maybe if I could follow up on Rentals. You've talked about wallet share gains on the back of the increased distribution with Redfin and Realtor. It makes for a compelling sales pitch as well for your customer base. So do you think about needing to run that business any differently from a sales strategy perspective next year if this arrangement is being kind of questioned by the case? Or is it business as usual? Just wondering how we should think about how you guys run the business in Rentals in 2026. Jeremy Hofmann: Yes. I'll take that one as well. It's business as usual. Jeremy laid out how we feel about the defenses we have, and we're looking forward to sharing those perspectives. But in the meantime, business as usual, I think we're really proud of what we've done in Rentals over the past couple of years, and we're confident in our ability to grow strongly in 2026. One of the questions would be why do we feel good? I think 2025 just set us up really well, right? Property growth has been strong. We grew properties in Q1 and Q3 by 5,000 a quarter. We had that spike of about 9,000 added in Q2, and we expect to grow properties nicely in Q4 even with typical seasonal patterns. And we're actually translating all that supply growth into accelerated revenue growth throughout the year. So we grew revenue 33% in Q1, 36% in Q2, 41% in Q3, expect 45% plus growth in Q4. Supply is in a great spot. And then you're right, we've added a lot of value to property managers on the demand side because of our organic traffic and those syndication agreements, right? Each of the 69,000 properties is getting more exposure across Zillow Rentals, Trulia, HotPads, StreetEasy, Realtor.com, Redfin, ApartmentGuide and Rent. So that just puts us in this really nice position to continue to grow properties, continue to see advertisers upgrade to higher packages and continue to drive really, really good ROI. Jeremy Wacksman: And. Yes maybe just to add to that as like to zoom out and Jeremy touched on multifamily. If you think about the Rentals marketplace overall, obviously, multifamily is a big part of the revenue growth driver right now. But the strategy of building this 2-sided marketplace with all available listings or as much as we can and building the transaction experience for the renter, there's a ton of opportunity beyond that $1 billion-plus revenue target we've talked to you all about as you think about attracting even more renters and having them consume more content from, yes, multifamily, but also long tail. So I think if you zoom out and look over the last couple of years, that strategy has been working incredibly well. We were growing building count and growing audience all along the way, and it's obviously accelerated this year. But we feel great about that strategy. And yes, we feel great about multifamily revenue growth and its contributor to the midterm target, but we're not done there. We see a fantastic business beyond that as we layer on more value for the renter and for the property manager and the long-tail landlord. Operator: Our next question from Tom Champion with Piper Sandler. Thomas Champion: One question we get a lot is on the various components of residential revenue. And I'm wondering if you could just talk about the segment, the broad categories around agent software, new construction marketplace, what kind of rolls up into that number? And Jeremy, your point on the revenue acceleration was very interesting. So just curious if there was any 1 or 2 components that might have driven that. And then just really super quick, Jeremy Hofmann, if you could talk about headcount and investment into next year. I understand it's probably still in planning process, but I think you provided some early comments on '26. Just any preliminary thoughts there. Jeremy Hofmann: Yes. Thanks, Tom. I'll take both of those. So I'll take the For Sale relative outperformance first. Yes, it was a really good quarter. I think we've had a really good year so far. I'm really quite pleased with the team's ability to accelerate revenue into a tougher comp. So all of that does feel quite good. With respect to drivers, I would think of them as the enhanced markets are performing well. So we went to 34% of all connections at Zillow are now in these enhanced markets, and that's well on our way to the 75% target that we are marching towards in those mid-cycle targets. Zillow Home Loans is growing really nicely, grew nearly 60% in Q3, and we're seeing double-digit adoption of Zillow Home Loans across the enhanced markets. So that feels quite good. And then you couple it with Showcase expanding nicely. Showcase is 3.2% of all new listings today. That's more than double a year ago. And obviously, it's still early. We're learning a ton. We've only been selling the product for about 18, 20 months at this point, but plenty more to come there. And then Follow Up Boss, just getting in the hands of more people, and we just keep building better and better features to make the software more and more interesting to agents. In our Preferred base, it's in nearly everybody's hands, and the business has just done really well since we acquired it. So we're really pleased there. That's all doing quite well on the existing homes front. And then new construction team has just executed nicely. They've been able to show up for partners quite well in a challenging time and really nicely complement the rest of the For Sale business. So that's really a good formula. And then with respect to costs in 2026, the way we're thinking about it is actually pretty similar to '24 and '25. I think revenue growth formula is pretty similar. We grew 15% in '24. We're on pace for mid-teens in 2025. We think that's a good way to think about '26. And we think the expansion of margins in '24 of 200 basis points, '25, we're on track for solid margin expansion, and we think that's a good way to think about '26 as well. With respect to the cost base, you're going to hear more of the same from us. We are planning to keep fixed as flat as possible and fight inflation, but there will obviously be some inflation and headcount is going to stay pretty flat on the fixed side. And then on variable, where we see opportunities, we will invest. We've done that in Rentals, I think, quite nicely. I think we've done it well in Zillow Home Loans. And where we see these really outsized growth opportunities, we will go run at those. But the fixed cost discipline allows us to really get leverage and grow profits faster than revenue. And when you think about that together with marketing, which we dial up and down based on what we see in the market, it all nets out pretty nicely to solid revenue growth, ability to expand margins and then GAAP net income comes in there as well because as we hold our fixed costs flat with inflation, we get a lot of leverage on stock-based comp. So stock-based comp was down 8% year-over-year this quarter. We expect it to be down 10% year-over-year for 2025. And that's just a function of the fact that 90% of our stock-based comp charge really sits in that fixed bucket. So you'll hear much of the same for us, I think, in 2026, and it's a testament to the strategy and execution that the team has been able to deliver. Operator: Our next question will come from Lloyd Walmsley with Mizuho. Lloyd Walmsley: I just wanted to ask about sort of the back and forth of the funnel between the agent and Zillow Home Loan side. I think it's clear how in enhanced markets, agents can be helpful in making consumers aware of Zillow Home Loans. Where -- in terms of the other direction, people coming in, whether that's the viability calculator or otherwise, are you seeing a good flow from people who come in through the mortgage funnel and attaching them to an agent? And is that an opportunity you guys are focused on at this point? Jeremy Wacksman: Lloyd, I'll take this, and welcome back to the call. We think about them as more similar than different, to be honest. I mean you hit it right. If a consumer is interested in touring homes, whether that's virtual or booking a real-time tour and they start with an agent, making sure a Zillow Home Loans loan officer is ready for that agent and can be a choice for that customer, that's a big part of the growth. We can do that in enhanced markets, and that's how we're rolling out this formula is giving access to more and more agent teams, a Zillow Home Loans team for them to work with for us to earn their trust as one of their choices for Zillow Home Loans. But that works in reverse, right? So the set of customers that might be shopping financing or asking affordability questions, they're using viability, and that's a good proxy, right? So viability is up to now 2.9 million people have enrolled and used it and found their viability number. That's up from 2 million last quarter. Some of those folks are ready right away to go get preapproved. And we now have a digital preapproval they can do and a loan officer can help them, and that's the path they want to go down. But many of those folks end up doing that and then shopping. And so it really is not that separate funnel, right? So many of those viability customers just go tour. They're just a more high-intent customer, and they're more interested in Zillow Home Loans because they've started the process with us. And so it makes that conversation more natural for that agent to recommend Zillow Home Loans. So we see both those things kind of growing together over time. And if you just put the loan officer hat on, that's how a loan officer would think about it. These are just customers coming to Zillow. They're learning the financing answer, they're finding the home they want to buy and the loan officer is there to help nurture them along in partnership with the agent whenever they're ready and whenever they find the house. So for us, we will work on both products from a consumer experience standpoint, but they really are kind of 2 sides of the same coin more and more. Operator: Our next question will come from Dae K. Lee with JPMorgan. Dae Lee: First one for Jeremy Wacksman. Following up on your comments on the ChatGPT integration, I understand that mobile transition was an incremental for you guys. But with ChatGPT, there is kind of like an intermediary sitting between you and the consumers kind of helping you make that connection. So like when you view the consumer journey for users who start their home search in ChatGPT versus those who start directly on Zillow, are you seeing or are you expecting any differences in engagement or monetization potential? And do you expect these users to eventually come back directly to Zillow or continue engaging through ChatGPT? And I have a follow-up. Jeremy Wacksman: I mean I think it's really early to try and prognosticate how this all plays out. But I will say, if you think about like what framework could you use to think about that question, the actions you want to take in this category typically lend themselves to a very bespoke category experience. It's a very long-duration shopping cycle for a very large emotional asset where you have to make very almost regulated decisions and need regulated help to make that decision, right? If you're going to buy, you have to get in touch with an agent, you have to work with a loan officer or most people will do those things to make a very complicated financial decision. And the complications of the industry itself require a ton of local specific data and a ton of software to work through all those steps. So all of that to us says building GenAI into that platform is how we're going to make it easier, faster, better. Consumers are going to start and ask questions everywhere the way they always have. That's kind of, I think, where the -- does this feel like an app store or does this feel like a search engine question plays out. But once you start browsing and shopping, you ultimately raise your hand to want to transact and having a bespoke native kind of vertical experience is how most people are going to want to transact. They want this one-stop shop, and it's more about how can GenAI help enable that one-stop shop for them when they're ready. So we think about it as increased exposure. And we also think about it as like new ways to build that vertical experience because you now can interact with an intelligent piece of software that listens to you and remembers you and his patient. And so we're very excited to wire that up inside of Zillow. But that's why we're so excited about this. It's yet another way for us to start to build this more integrated transaction, which is what this category has desperately needed. Dae Lee: Got it. And then as a follow-up to Jeremy Hofmann. When you look at Zillow Pro and Zillow Preferred, like how should we think about like how that could change the monetization potential of your platform and profitability potential of your platform? And when you gave us an early view on 2026, does that early view include meaningful contribution from these products? Jeremy Hofmann: Yes, I'll take that. Thanks for the question. I would think about the $1 billion mid-cycle target in For Sale coming from Preferred. Pro is really on top of that. So I don't expect any meaningful changes to the way we monetize in Preferred. I think it's working quite well, and we expect to continue to roll it out steadily over the next couple of years as we march toward those targets. And then with respect to Pro, we don't expect it to be much of a contributor from a revenue perspective in 2026. We think 2026 is a year where we do a bunch of beta testing first half of the year, start to roll it out nationally second half of the year, but we're going to really focus on adoption and learning. And then ultimately, we have, I think, a really interesting opportunity to sell Pro over time and really expand our SAM. But 2026, I wouldn't be expecting huge revenue contribution. Operator: Our last question will come from Ryan McKeveny with Zelman. Ryan McKeveny: One on Showcase. So good growth and expansion of listing share. You also called out the AI-powered virtual staging rollout in 3Q. I guess any initial uplift you would say to the overall listing share based on the virtual staging? And I know that's early days, so maybe not. But maybe you could speak more broadly about virtual staging. And should we think of that offering as somewhat unique to the Showcase offering? Or could that be something of broader application over time? Jeremy Wacksman: Yes, Ryan, I'll take that. So on Showcase broadly, 3.2% of new listings, we feel great about. We're constantly testing ways to drive more adoption and how to help build it into the workflow of teams and agents that are working through listings. You're asking them to capture media differently in many ways. And so that's part of why so much of our tech focus is on how to make that easier. And then you're right to call out, we're also improving the product while we're growing adoption, right? So we added AI-powered virtual staging this quarter. We added SkyTour last quarter, which is this fantastic generative AI ability to fly around with all the drone media we capture. We've added listing dashboards. So we continue to add capabilities. With AI-powered virtual staging specifically, yes, we definitely could see that coming to more types of listings over time. I think we wanted to start with the listing experience where we have the native software built and learn and build from there. But over time, just like we want to see Showcase technology on more than 5% to 10% of listings over time, we've given you all that as intermediate-term targets. But the goal is really to create a more interactive listing experience on all listings. Photos and text are just not going to cut it. And that's what Showcase shows everybody, and that's why you're seeing the rapid growth of Showcase even in these early innings because this is just a better way for buyers to consume content. That's why buyers spend more time with it. That's why sellers and listing agents want it because ultimately, they're trying to get the homes sold faster and they're trying to win the next listing, and they can use Showcase to do both of those things. Ryan McKeveny: That's great. And then just one final one. A couple of questions ago, you were asked about the different mortgage funnels. You called out in the shareholder letter, the loan pre-approvals within Follow Up Boss. That sounds interesting. Should we think of that as kind of additive or new to the potential funnel on the mortgage side? Or is that more -- just a more efficient way of doing things that had historically been done seemingly in a different way? Any thoughts there would be great. Jeremy Hofmann: Yes. Thanks, Ryan. I'll take it. I would think of it as really just making the experience better for the shopper, the agent and the loan officer. It's a really nice integration. And if you think about what a shopper is looking to do, that shopper wants a really tightly coordinated team between its loan officer and real estate agent. And we think building functionality that helps that integration work in Follow Up Boss, which is where these agents tend to run their businesses is beneficial for all parties in the transaction. So that's the way I would be thinking about it. Operator: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks. Jeremy Wacksman: Great. Thank you all for joining us today. We really appreciate your continued support. We are very excited for what's ahead and look forward to speaking with you again next quarter. Operator: Thank you for joining Zillow Group's Third Quarter Financial Results Call. This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oil States International, Inc. Third Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Ellen Pennington, Vice President of Human Resources and Senior Counsel. Please go ahead. Ellen Pennington: Good morning, and welcome to Oil States International, Inc. Third Quarter 2025 Earnings Conference Call. Our call today will be led by our President and CEO, Cynthia B. Taylor, and Lloyd A. Hajdik, Oil States Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2024 Form 10-Ks along with other recent SEC filings. This call is being webcast and can be accessed at Oil States International, Inc.'s website. A replay of the conference call will be available two hours after the completion of this call and will continue to be available for twelve months. I will now turn the call over to Cynthia B. Taylor. Cynthia B. Taylor: Thank you, Ellen. Good morning, and thank you for joining our conference call today where we will discuss our third quarter 2025 results and provide our thoughts on market trends in addition to discussing our company's specific strategy and outlook. In a quarter marked by lower crude oil prices, uncertainty about the oil macro and fluctuating US trade policies, US shale-driven activities slowed further while offshore and international markets demonstrated resilience benefiting from long-cycle project investments. With this backdrop, the company performed well, finishing the quarter within our guided EBITDA range but with weaker contributions from our U.S. operations due to completion activity declines experienced during the quarter. Our consolidated results in the third quarter were driven by backlog growth achieved over recent quarters along with solid execution of projects. Oil States International, Inc. remains well-positioned to benefit going forward as oil and gas operators favor capital allocation to offshore projects with higher production, slower decline curves, and lower breakeven commodity prices. During the third quarter, 75% of our consolidated revenues were generated from offshore and international projects, a percentage that is up both sequentially and year over year. This continued shift in revenue mix reflects our multiyear strategy to grow our offshore and international project-driven content which generally comprises longer cycle higher margin work. Our offshore manufactured products segment continued to deliver strong performance. Revenues increased 2% sequentially while adjusted segment EBITDA rose 6% due to product and service mix. Backlog increased to $399 million, again allowing us to achieve our high levels since June 2015. Robust bookings of $145 million, which represents a 29% quarter-over-quarter increase, was boosted by strong military orders yielding a quarterly book-to-bill ratio of 1.3 times. The strength and diversity of our backlog supports our outlook for total incremental revenue and earnings growth as we move into 2026. US land completion activity declined significantly during the period with the average US frac spread count down 11% sequentially. These US activity reductions stemmed from weaker crude oil prices and OPEC pluses, decision to rapidly unwind over 2 million barrels per day of previous production cuts. Our completion and production services and downhole technology segment, which represent a smaller portion of our business mix, experienced sequential quarter revenue declines of 61%, respectively, primarily due to the significant industry-wide reduction in US land-based activity. Sustained margin benefits stemming from our U.S. land-based optimization efforts, which were initiated in 2024, and have continued in 2025 have led to year-over-year EBITDA growth in our Completion and Production Services segment despite weaker industry activity levels. During the third quarter, we grew our cash flow from operations to $31 million, an increase of 105% sequentially, and we generated $23 million of free cash flow. Our ongoing deleveraging efforts should unlock additional equity value for our stockholders as we pay off our convertible senior notes at their maturity in April 2026. We are committed to optimizing our operations and making targeted investments in our highest-performing businesses while leveraging cutting-edge technologies to drive growth. Our industry-leading managed pressure drilling or MPD system exemplifies this commitment to improve operational safety and performance levels. During the quarter, Oil States International, Inc. was honored with two energy workforce and technology council safety awards, including the president's gold award for health, safety, and environment incident rate improvement during the 2023 to 2024 period, and the FellSafe Technology Award for advanced safer MPD operations in collaboration with Seadrill, a global leader in high-spec offshore drilling rigs. Along with our safety culture, we remain focused on three core priorities: growing our offshore and international presence, managing volatility inherent in US land activity, and driving meaningful cash flow generation. Lloyd will now review our operating results along with our financial position in more detail. Lloyd A. Hajdik: Thanks, Cindy. Good morning, everyone. During the third quarter, we generated revenues of $165 million and adjusted consolidated EBITDA of $21 million. Net income totaled $2 million or $0.03 per share, which included facility exit, severance, and other charges totaling $4 million, the majority of which related to our US land restructuring. Our adjusted net income totaled $5 million or $0.08 per share after excluding these charges. Our Offshore Manufactured Products segment revenues of $109 million and adjusted segment EBITDA of $22 million in the third quarter. Adjusted segment EBITDA margin was 21% in the third quarter. In our Completion and Production Services segment, we generated revenues of $28 million and adjusted segment EBITDA of $8 million in the third quarter. We achieved an adjusted segment EBITDA margin of 29%. During the quarter, the segment recorded facility exit and other restructuring charges totaling $3 million. In our Downhole Technologies segment, we generated revenues of $29 million and an adjusted segment EBITDA loss of $1 million in the quarter due to the impact of higher costs due to tariffs and lower international activity levels. Turning to cash flow, we generated $31 million of cash flow from operations in the third quarter, double the amount we generated in the second quarter. Cash flows were used to fund $8 million of net CapEx. During the quarter, we repurchased $4 million of our common stock under our share repurchase authorization. In addition, we purchased $6 million of our convertible senior notes at a slight discount. Further, as a testament to our strong financial position, as of September 30, we maintain a solid cash on hand position with no borrowings outstanding under our asset-based revolving credit facility. Given our strong free cash flow outlook, we intend to remain opportunistic with additional purchases of our common stock and convertible senior notes, and we will continue to prioritize returns to stockholders. Now Cindy will offer some market outlook and concluding comments. Cynthia B. Taylor: Despite recent economic volatility and continued uncertainty around trade tariffs, we continue to see solid demand for our offshore and international products and services. Our backlog is at a decade-high level, and we anticipate continued strength in future bookings with our fourth quarter book-to-bill ratio again expected to exceed one time. Industry analysts have suggested that while US land-based activity may remain subdued into 2026, offshore and international markets are expected to improve. Analysts point to a growing global focus on exploration and offshore development as operators seek more cost-efficient, lower carbon resources, which place Oil States International, Inc. in the center of this secular growth opportunity given our business mix and global base of operations. Regarding our outlook, based on what we know today, our fourth quarter consolidated revenues should increase 8% to 13% sequentially, and our fourth quarter adjusted EBITDA is expected to range from $21 million to $22 million. Our cash flows from operations were very strong in the third quarter and are expected to improve in the fourth quarter, bringing the annual amount to $100 million plus. Our business mix and capital allocation strategies are purpose-driven. We are investing in innovation that provides meaningful technology advancements to the industry, driving solid results through project execution, generating significant cash flows that strengthen our balance sheet while returning cash to our stockholders through share buybacks. The decisions we make are focused on building a stronger, more resilient company that drives meaningful results for those we serve. Our business mix positions us strategically for market opportunities that develop. We have continued the journey to shift our business mix with a focus on generating differentiated cash flow conversion rates and an industry-leading free cash flow yield. By advancing next-generation technologies, building backlog with strong margins, executing with discipline, reducing debt, and returning cash to stockholders, we believe that we offer a compelling investment opportunity. That completes our prepared comments. Jordan, would you open up the call for questions and answers at this time, please? Operator: Certainly. As a reminder, if you would like to ask a question, press star and 1 on your telephone keypad. The first question comes from the line of James Michael Rollyson from Raymond James. Your line is live. James Michael Rollyson: Hey. Good morning, Cindy and Lloyd. Cynthia B. Taylor: Hi, Jim. Lloyd A. Hajdik: Hey, Jim. James Michael Rollyson: Cindy, as I kind of listened through earnings season so far this quarter, the drillers, offshore drillers, I should say, are all kind of talking about kind of mid to late next year rebound and maybe near-term bottom in activity. The guys in the infrastructure side of things are kind of talking about FID is picking up next year and beyond, and obviously, you guys had a great bookings quarter, and I think your commentary suggests that should continue. But I would love to just get kind of color on how conversations are going, kind of the flow of conversations, the maybe margin profile and the impact of tariffs there, and just kind of timing of how this backlog kind of rolls off as you go forward? Cynthia B. Taylor: Thank you for the question. I think it's a fantastic one. I mean, what you're hearing from offshore exposed companies is that we've had a good year, but throughout the year with lower crude prices, some of the optimizing spending has shifted to the right a bit. That's both for contracting rigs as well as kind of new incremental projects, which you know, hits everybody to a certain degree. And that's why we kind of highlighted that we have a good base bookings quarter, but it was augmented by military. And so I just want to say that's kind of consistent with what you're hearing on the oil and gas side of the market. There is every thought that we're going to have an improved year in 2026, especially because some of this has slipped to the right. As it relates to our fourth quarter, we are going to again, I told you, I think we're going to have a book-to-bill north of one that's predicated on projects that are very close to the award stage, and that is both production infrastructure for us and kind of MPD type systems. Those are the drivers. And so it's always a question of the macro versus company-specific. But our company-specific looks good but maybe not quite as robust as we thought coming into the year with crude prices at sixty. Now all those just shift to the right, and therefore, '26 starts looking better. So I do think that what we're seeing is consistent. We've just had a better bookings year possibly than others for various reasons. Maybe it's the best way I'll look at that. I'm going to pivot to what I think was your second question, which was the tariff situation. And because so much of our projects that are value-add in the US go into international plays, there is less impact on our primary segment, which is the offshore manufacturing products segment, where it hit us harder and you see that in our results this quarter, was on the downhole, the consumable side of the business, the Downhole Technologies, which is largely on the perforating side because we import gun steel like we believe most other companies do in the space from foreign sources, particularly China. You heard, you know, some of the issues that Cactus and others are dealing with. They commented on a 95% tariff rate and big increases that hit in June. The exact same thing happened to us, and somewhat unexpectedly. So the third quarter, unequivocally hit us on the downhole side with higher tariff costs. We, like everybody else, are trying to manage through and understand it, and there was a, you know, kind of a temporary agreement between the US and China yesterday, but it really had a very small impact on the overall tariff rate. We believe our 98% rate came down to 88%. For perspective. And if you go back two or three years, that tariff rate was twenty-five percent. So these are material increases in gun steel cost. Now it is also our belief that everybody has the same supply sources, which are generally foreign. We're all experiencing the same thing. But there's also been a buildup of inventory as activity has slowed. So I think the industry has to work through the pre-tariff inventory, but then it is my view that the tariffs hold, they're going to have to be passed on to customers as one of timing. That's the best impact or information I can give you. Tariffs are really not an issue for the completion and production services segment. So not a great impact to us, but it certainly has hit the consumables side of the Downhole Technologies piece of the business. If that answers your question. James Michael Rollyson: It absolutely does. Appreciate all that color. And maybe just a follow-up there, Cindy, Downhole Technologies. If you kind of back out the tariff impact, would you because it was the first quarter you had negative EBITDA in that segment since COVID. I'm assuming that was almost all activity was lower, sure, but your margins have stayed very strong given all the things you've been working on for the past year plus. I'm assuming the tariffs were almost the entire extent of what drove that EBITDA negative. And so and then maybe any question or thoughts you have on the timing of how long that takes to actually flow through the inventory that's sits there and then pass through. Like, when do you get back to positive EBITDA? Cynthia B. Taylor: Yes. You're absolutely correct in your assessment. Now I will add to that, however, that even our plug demand was very weak in the quarter, not negative EBITDA, there in other words, there was no offset from the other portion of the consumables that we have in the mix. Or not sufficient offset, I'll call it. And we believe we may even see improved demand even in the fourth quarter, which is always weak because of holidays. Everybody knows that. We think we're going to see a little bit of an improved demand on the plug side simply because of inventory drawdowns during the quarter. There's a little bit of a combination, but if I look at a negative impact, yes, I'm going to put it on tariffs. And then to your point, how long it takes, I'm guessing it'll be early next year. You know, I think the strategy for us is the same, which is leverage and grow your international content and, therefore, have greater overall demand and cost absorption. And as you say, we've got to start passing through the tariff impact. If it's not mitigated or reduced from the levels that we have now. And we're like everybody else. We're looking at every source around the world, both domestically and internationally, to get the cost down. You've heard those comments from other people in the space. But it's not immediate. We're also evaluating do we just start doing gun assemblies in our Batam facility in Indonesia so that we can support the international demand that we had with a lower tariff burden. Again, give us probably six months to work through some of these things, but we're doing our best not to allow it to, you know, deter activity too much from a consolidated basis for the company. James Michael Rollyson: Appreciate all that color. Thank you, Cindy. Cynthia B. Taylor: Thank you, Jim. Operator: Your next question comes from the line of Stephen David Gengaro from Stifel. Your line is live. Stephen David Gengaro: Thanks. Good morning, everybody. Cynthia B. Taylor: This is David. Stephen David Gengaro: How are you? I guess two things for me, Cindy. The first, you've done a lot on the US land side to kind of high-grade the portfolio and control and cut costs where necessary. Can you talk about when we think about the margin side of that business, especially C and P, do you think we're seeing the full impact of that in the margins? Yeah. I know it gets masked by kind of underlying activity, etcetera, but do you think you're starting to see the full impact there? How does that unfold over the next twelve months? Cynthia B. Taylor: It's a very good comment. And I, you know, I just tell everybody, I think we'll be through a lot of the transition by the end of the year, which makes the results a little bit cleaner going forward. Once we get the finalization, I'll call it, you realize we're moving equipment all over the place. You know? Going into new basins, new customers, closing facilities, incurring severance, and again, I do pray that we get kind of most of this out of the system by the end of the year and have clean margins going forward. But once we do, we expect depending on timing of work and everything else caveat that goes with it, high twenties to low thirties EBITDA margins. And so again, I think that is in the context of 2024, Lloyd, correct me if I'm not wrong, being in the high teens EBITDA margins? Mid teens. Mid teens. So what you see, yeah, the revenue is going to be a bit lower, and we'll give you very specific guidance on that as we move forward into 2026. But it will be at higher margins. And greater free cash flow because the business is this is part yeah. It's an EBITDA drag, but more importantly, it's a cash flow drag. And so we're really making step changes in that segment focused specifically on free cash flow generation over the long term. Stephen David Gengaro: Thanks. And just two other things. One's a follow-up to that. Have again, outside of underlying activity levels, have we seen the majority of the revenue impact already? Right, from businesses that have been pared down or divested as you high-grade the portfolio? Cynthia B. Taylor: The majority. Yes. Stephen David Gengaro: Okay. Good. The other quick one is I think at the end of last year, I think you said in the K, I think the number was 70% of the backlog was going to convert over the next twelve months. I think that was right from last year. You've had very good order flow this year. Do you expect is it fair to assume that your current backlog is in a similar spot from a realization perspective over the next twelve months? Or is that elongated at all? How should we think about that? Cynthia B. Taylor: It's a little bit elongated with the military awards that we got. Those are typically multiyear kind of delivery that span over a period of time. So awards we expect to get in Q4 will probably leverage that back towards the, you know, longer-term kind of trends that you see on product rollout. If I look at a point in time, the point in time with the military would be down just a little bit in terms of that percentage roll-off in the forward twelve or fifteen months. That can change, obviously, with the mix of things coming in the backlog and what we expect in moves it back the other direction, if that makes sense. Stephen David Gengaro: Yes. Okay. Perfect. I think that's all for me. Thank you. Cynthia B. Taylor: Alright. Thank you, Stephen. Operator: Your final question comes from the line of Joshua James from Daniel Energy Partners. Your line is live. Joshua James: Thanks. Good morning. Cynthia B. Taylor: Good morning. Joshua James: First question for you, and then stick on the offshore theme. A number of the customers you deal with have exposure to both US land and offshore, and as there's been sort of a massive wave of E and P consolidation over the last couple of years. When you talk to those customers about their capital, do you view this as a structural shift offshore versus US land spending? And do you think this consumes a greater share of their budgets moving forward? Or is this just sort of what happens in a weak commodity environment as offshore breakevens have continued to come down? Cynthia B. Taylor: I do think it's more of a secular trend. And, of course, we have a mix of customers that some do have both exposure to US land and offshore, others like Petrobras as an example, is much more just focused on offshore deepwater. And so it's a mix there. I just do there's always different reasons for the investments that are made. But we can all debate whether we're at tier one acreage, tier two acreage. It all comes down to what are the breakevens and how attractive are they at sixty or seventy dollars a barrel, right, which is kind of the environment we see going forward, but you get below sixty. And I think those marginal investments tend to shift just a bit. I made those comments on my call. And the flip side is, you know, there are kind of lower AFE cost, shorter time to first production on land. So there's oftentimes reasons to drill wells on land without question, but they also the decline curves are much higher. So it's really hard to isolate on one versus the other for someone that has dual exposure. I just think that the macro trend with Rider success in deepwater, they are longer-lived reserves. And the time from discovery to first production has shortened, that that just definitely seems to be a trend more of a secular trend in our view. And, of course, a lot of the decisions we make are based on product differentiation, history in the marketplace, technology differentiators, and we just have a lot more quite frankly, that we deliver to the offshore and international market. It's much harder to not have commoditization on US land. That's just reality. And so we are trying to really focus on areas that we think bring value to the company and bring value to our shareholders. Joshua James: So on that point, Cindy, could you expand a little bit more? You highlighted some of the safety awards, at least one of which was around MPD. Could you elaborate a bit more on some of the products that have been driving your backlog build offshore? And I assume a lot of them have to do with not only safety but, you know, making operations more efficient for the customers. We hear about efficiencies a lot in US land, but maybe just speak to the things you're doing there. And the specific products that have really driven this outside of the military towards the strength in the backlog offshore? Cynthia B. Taylor: We have some, honestly, just ongoing recurring backlog that comes from our key connector products in many basins. We have crane operations. There's a number of, I'll call it, just base orders. But what has really augmented our orders of the military awards that really came in Q3 has been production infrastructure, most of which is high technology. It's our key leading flex joint technology you know very well. The industry knows very well. And much of that has gone into the demand environment in Brazil, not surprisingly, Petrobras has by far a leading position in offshore activity and investment. And so that is really kind of what has led. Now we are augmenting that with new technology, the MPD systems we brought to market early last year, it's working well, getting strong customer acceptance. And we expect that to continue to grow. There is the hope that we'll get incremental new demand from things like the mineral recovery that we have in place for subsea minerals recovery. We've had pilots that have been in backlog, but not much this year. And then we as you know, we have that offshore wind kit. We're still bidding and quoting and working with companies on budgets and planning, but nothing's really come into bear at this point in time. So could be some upside outside of our standard oil and gas and military awards long term. But right now, just think ongoing recurring demand that the general industry can consume married with production infrastructure investment. Joshua James: Okay. Thanks. And then, I would like to sneak in one quick US land question if I might. Just thinking about the cycle. So it's been talked about a little bit on the call, but your ability to expand margins in a pretty tough market has been impressive over the last twelve to eighteen months. Michael, just want to think about customers living within cash flow, but at some point, they don't want their production to roll. It'll be interesting to see what level of activity is necessary to maintain production. But how do you view where we are? And how do you avoid cutting too much in the US land business to make sure that when the business improves, you can take advantage of knowing that, you know, there seems to be a structural shift towards natural gas activity over the next three to five years. That's going to be coming. And then I'll turn it back. Thanks. Cynthia B. Taylor: Yeah. No. I think it's a great question. And what we have done is this is not a one-year decision. It's been a multiyear look back. What where have our technology held up? Where have our margins held up and importantly, what has been the free cash flow generation at 560 rigs working or a thousand rigs working. And we are being selective in saying, you know, some of the businesses are so commoditized now. They weren't really generating returns in much higher rig count environments, and they're certainly not doing any in low. It's so the point is, is that trend going to be different if the rig count goes up a 100 rigs or completion count? We concluded the answer is not for selected product lines, so this is not a view of US land never coming back. It is a view of what product lines we want to offer to the US land market long term. And that's really what it was because you can look at our margins at there's really good margins in selected businesses. Most of those are in our extended reach technology, our Gulf Of Mexico operations, our international they were less so around, you know, you all knew we got into flowback thinking it was a cash flow generating return. Well, it turned out not to be a very good business. And we just don't want to be in that. Right? And so I think that's kind of more we're being so not getting out of land, we're just being very selective about the ones we pursue long term. Joshua James: Understood. Thank you. I'll turn it back. Operator: We have our final question from James Michael Rollyson from Raymond James. Your line is live. James Michael Rollyson: To come back in, but Cindy, I want to make sure I heard something right. Did you say with your guidance that you guided 4Q revenues and EBITDA and that was a little bit lower maybe than what the full year original guidance was a lot of guidance that have come down throughout the year. But did I hear you right that your cash flow from operations supposed to be a $100 million for the full year? Cynthia B. Taylor: We had a, in our view, a very strong Q3, and we're going to have an even stronger Q4. You know, we in our project businesses that are long term, the timing of receivables and inventory purchases ebbs and flows. We are confident when we say that it'll be a $100 million plus for the year, which is a very significant number, as you know. James Michael Rollyson: Yeah. So just doing math on that, you've done $55 million year to date, so it's kind of implies a $45 million plus 4Q number. And Lloyd, correct me if I'm wrong, but your CapEx is supposed to be a little bit on the lower end in 4Q. So like, it puts you on track for a very big 4Q free cash flow number and probably something, you know, north of $75 million for the year. Did I have that math right? Lloyd A. Hajdik: You do. James Michael Rollyson: Just want to make sure I wasn't missing something because that didn't register when you first said it, so I went back and looked at the numbers and then I've had a holy cow moment. So appreciate that. Lloyd A. Hajdik: No. James Michael Rollyson: Great question. That is a great question. Thank you. Operator: There are no further questions. I would now like to turn the call back over to Cynthia B. Taylor for closing remarks. Cynthia B. Taylor: Oh, I appreciate it, Jordan, and thanks to all of you for your time today. We believe we are focused on the right end markets. We're getting leaner by design. And we're being more selective about our capital allocation priorities. With that backdrop, we expect to see higher EBITDA margins and enhanced cash flows as we move into 2026. All efforts that should benefit our stockholders. Thanks for dialing in today, and have a great weekend. Operator: This concludes the meeting. You may now disconnect.
Jim Chapman: Good morning, everyone. Welcome to Exxon Mobil Corporation's Third Quarter 2025 Earnings Call. Today's call is being recorded. We appreciate you joining us. I am Jim Chapman, Vice President, Treasurer, and Investor Relations. I am joined by Darren Woods, Chairman and Chief Executive Officer, and Kathy Mikells, Senior Vice President and Chief Financial Officer. This quarter's presentation and prerecorded remarks are available on the Investors section of our website. They are meant to accompany the third quarter earnings press release, which is posted in the same location. During today's presentation, we will make forward-looking remarks, including comments on our long-term plans, which are subject to risks and uncertainties. Please read our cautionary statement on slide two. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. We also provide supplemental information at the end of our earnings slides, which are also posted on our website. I will now turn it over to Darren for opening remarks. Darren Woods: Good morning. Thanks for joining us. Last December, we reviewed our corporate plan under the theme of "A League of Our Own." The results we have delivered since then continue to support that theme. From the technologies we are deploying to the major projects we are delivering to the structural cost savings we are capturing and the value we are creating, our results are truly in a league of their own. In fact, in the third quarter, we delivered our highest earnings per share compared to other quarters in a similar price environment. Let's start with Guyana, where we are breaking records with production of more than 700,000 barrels per day in the quarter. We brought Yellowtail online four months ahead of schedule. It is our fourth and largest development with a production capacity of 250,000 barrels per day. Yellowtail was delivered in nearly the same time as previous FPSOs despite a 70% increase in facility weight from its higher production capacity and improvements in GHG performance. We also sanctioned our seventh development, Hammerhead, which is expected to begin production in 2029. Importantly, we are making a positive and growing local impact. Guyanese now make up over two-thirds of the country's oil and gas workforce, more than 6,000 people, with more than 2,000 local businesses engaged. In the Permian Basin, another advantaged asset, we set yet another production record of nearly 1,700,000 oil-equivalent barrels per day. We also acquired more than 80,000 net high-quality acres in the Midland Basin from Sinakin Petroleum. The transaction provides control of drilling locations and opportunities to further deploy our technology to drive greater returns. It is another example of bringing our portfolio advantages to an acquisition, ensuring that one plus one equals three or more. In addition, during the quarter, multiple third parties published reports validating the benefits of our lightweight proppant. Last December, we shared how we are using low-cost refinery coke as a proppant that penetrates deeper into fracs. This improves access and flow, which increases well recoveries by up to 20%. Wood Mackenzie reported that our proprietary proppant is delivering significant improvements in resource recovery, supporting our own results. They acknowledged that our upstream integration with refining operations creates a strategic advantage that is difficult for others to replicate. That lightweight proppant is just one of many innovations we are developing to maximize upstream recoveries and grow the value of our unconventional business. This year, we expect about a quarter of our wells will use our new patented proppant, and roughly 50% of new wells by 2026. This, along with our cube development, pipeline of new technologies, and deep inventory of quality acreage, is why our Permian production continues to grow well into the next decade. This is an important point, as it clearly differentiates us from our competitors who are talking about reduced investments, peak production, or a shift to harvest mode. In our corporate plan update in December, we will share more on our Permian success and how it is strengthening the value proposition of our broader portfolio. New-to-the-world technologies are also playing a critical role, albeit on a slightly longer time frame. In our product solutions business, we are making solid progress with new products based on our Proxima systems. This year, we are tripling production capacity. At the same time, we are continuing to demonstrate significant value in use. With our Proxima-based rebar, we have demonstrated a 40% improvement in installation efficiency compared to steel. We have also introduced a new one-coat solution for marine cargo tanks that replaces the standard three-coat process. This cuts coating time in half, speeds up return to service, and delivers significant cost savings. These performance gains are helping us penetrate large established markets in key segments, where we are building the foundation of a strong pipeline of opportunities. We have had significant interest in our Proxima battery enclosures from tier-one auto OEM suppliers, based on the fast production speed and light weighting provided by our product. In 2026, we have the opportunity to demonstrate the superior subsea insulation and installation characteristics of our Proxima products in the oil and gas sector on our own Hammerhead FPSO. Our rebar infrastructure opportunities are expected to yield approximately 20,000 tons of sales by 2027. Through our signed MOUs with Masdar and Goel Steel, investments in Proxima-based rebar manufacturing facilities will grow over the next two years. This will allow us to scale quickly into these fast-growing markets. In Singapore, we successfully started up our resid upgrade project and are converting low-value fuel oil into high-value lubricant products and diesel using a proprietary catalyst at scale. Project utilization is currently around 80%, ramping to full capacity by year-end. With our new-to-the-world base stock on grade and delivered to customers, we have also progressed the development of our revolutionary battery anode graphite that can deliver breakthrough improvements in battery performance. Early feedback from leading auto OEMs and battery producers has been promising. Their testing shows the batteries can be charged 30% faster, provide a 30% increase in effective range, and last up to four times longer. This quarter, we also announced the acquisition of key assets from Superior Graphite, a leader in the graphite and specialty carbon market. Working with their team and incorporating their technology, we will develop and scale a differentiated graphitization process that has higher throughput, is 50% more energy-efficient, and significantly lower cost than available industry alternatives today. We also commissioned our newest supercomputer, Discovery Six, developed with Hewlett Packard Enterprise and NVIDIA, delivering a step change in exploration and seismic processing. This is the world's seventeenth most powerful computer. Seismic processing that used to take months now takes just weeks and is already having an impact in Guyana, enabling more than a billion dollars in potential value capture from increased resource recovery at our first six FPSOs in the Stabroek Block. Our longstanding focus on and investment in technical innovation is paying dividends. When coupled with the capabilities we have developed in execution excellence, we deliver results that others cannot match. You have seen it this year with our global projects organization and the eight key startups we have highlighted to date, which include some of the industry's largest and most complex projects. Our Proxima systems expansion and Golden Pass LNG project both remain on track for startup around year-end, completing the last two of our 10 key 2025 startups. Together, these 10 projects establish an important foundation for our 2030 earnings and cash flow growth plans. They are expected to drive more than $3 billion in earnings contributions next year at constant prices and margin. Before closing, I want to briefly touch on a new tool we introduced in the quarter to make it easier for our retail shareholders to support their company and vote their shares. In September, we introduced a first-of-its-kind free opt-in voting program for our millions of retail shareholders. Typically, only about a quarter of them, who own almost 40% of the company, vote at our annual meetings. We think shareholder participation should be the norm, not the exception. Our program, approved by the US Securities and Exchange Commission, allows participants who choose to opt in to have their shares automatically voted to support management's recommendations. The program is completely optional, and participants can easily change their votes or opt out at any time. Since implementing it, we have been very encouraged by the positive feedback we have received, especially from other companies looking to replicate the program and make it easier for the voices of their retail shareholders to be heard. This is just one more example of the work we are doing to grow shareholder benefits and value. Stepping back, looking at the quarter and reflecting on the year-to-date results, we feel good about the progress we are making. We are delivering on all the challenging commitments we made, consistent with our track record since the pandemic, and setting the pace for the industry. We are deploying innovative technologies that are delivering new-to-the-world approaches, processes, and products that drive industry-unique value. We are transforming how and where we work to improve our effectiveness and deliver structural cost reductions that exceed all of our competition. We are defining the industry benchmark in project execution for schedule and cost on an unmatched number of projects. Most importantly, we are strengthening our competitive advantages in all aspects of our business to deliver earnings and cash flow growth now and far into the future. Looking forward, I am confident we will remain in a league of our own. With that, we are happy to answer your questions. Jim Chapman: Thank you, Darren. Before we move to Q&A, I have a quick announcement to share. Please mark your calendar for our annual corporate plan update, a virtual event this year, for Tuesday, December 9, at 9 AM Central Time. With that, we will move to Q&A. Please note that we ask each analyst to limit themselves to one question as a courtesy to others. Operator, please open the line for our first question. Operator: The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your telephone. The first question comes from Neil Mehta of Goldman Sachs. Neil Mehta: Yes. Good morning, Darren, and good morning, team. I just want to pick up on the capital spend point. You are indicating that you are going to be below the range this year, and of course, we will get a little more color on December 9 about how you are thinking about 2026. But could you talk about the moving pieces? Is it about capturing the deflation? Is it about deferring investment, particularly around some of the low carbon solutions? How should we be thinking about the drivers of that? Darren Woods: Sure. Good morning, Neil. Thanks for calling in. I will take you back to the corporate plan presentation we gave last December, where we talked about our CapEx spend, and we broke it down between the base and then some of the things that we were pursuing where we had to develop the markets, had to develop the sales. We were looking at policy coming in place, and we indicated at that time that that capital would move depending on what we saw in the market and how those markets developed. That is exactly what we are seeing as we have gone forward in some of these new ventures, particularly low carbon solutions. The market is not developing as fast as we had planned for, and so we are pacing the spend in that. As consistent with what we talked about. From my perspective, it is much easier to plan on doing something and then pull back than it is to not plan on something and then try to rush into it. So we feel really good about where we are at with that and continue to watch, and we will continue to pace the market as it develops and as we see the demand for some of those products grow. The other point I would just make is we provide that range, going on time, and that reflects really the uncertainty around exactly when all the projects in our portfolio get FIDed or get, as they progress, and when exactly those things happen are hard to call far into the future, but so we give ourselves we recognize that variability and make sure that we encompass that in the range that we provide. I would expect as we go forward, you will see some of that movement just frankly because you cannot predict exactly when that capital spend will happen as you are executing a project. But we feel good about where we are at. We feel good about where that underrun is coming from. I would also say we are getting a really good product on the capital we are spending in the Permian as well, which is a benefit. Kathy Mikells: And then all I would add to that is obviously we had an acquisition, actually a couple of acquisitions this quarter in total, $2.4 billion. So when we gave that guidance that we expect to be a bit below the low end of the $27 to $29 billion cash CapEx, that is excluding those M&A transactions, and we obviously do not plan for those transactions, so that is why we excluded them. Neil Mehta: Thanks, Darren. Thanks, Kathy. Darren Woods: Sure. Thank you, Neil. Operator: The next question is from Devin McDermott of Morgan Stanley. Devin McDermott: Thanks for taking my question. Darren Woods: Sure. Good morning, Devin. Devin McDermott: So I wanted to morning. Wanted to dive into the Permian a bit more. It is record production results in the quarter. You also raised the guide for the full year. I was hoping you could unpack the drivers for us a little bit more. Are we already seeing some outperformance as a result of your advanced proppant rollout? There have been other changes you have made to development or spacing? And how does this all impact how you are thinking about the capital and activity requirements to achieve your multiyear growth target? Darren Woods: Yeah, thanks, Devin. I would say if you look at what we are doing in the Permian, and the innovation that is occurring with that organization, it is hard to predict the improvements when you are planning ahead of time. But what the team is constantly doing is looking for how they can improve and evaluating what they have been doing and then making changes on the fly. We have been testing a whole pipeline of potential technology options that will unlock resource, lower our capital cost, and we are seeing improvements across the range of those technologies as we implement them. So we feel really good about the productivity of what we are seeing in the Permian. I feel really good about what the team is looking at and to grow the production, and when we talk to you in December with the plan, you will see that every year, we are looking to kind of build that improvement into the plan outlook. So it is hard to it is not any one single thing. It is a function of a lot of hard work by the team, a lot of innovation, and the technology organization continuing to bring good ideas into the field. That has resulted in better production and more effective capital deployment. Devin McDermott: Look forward to learning more in December. Thanks. Darren Woods: Thank you. Operator: The next question is from Arun Jayaram of JPMorgan. Arun Jayaram: Little bit of a bigger picture question. Exxon recently published its global outlook through 2050. 20% gas growth and a doubling of LNG demand called over the next twenty-five years. I was wondering if you could talk about how this outlook informs your strategy and how should we think about, you know, where the puck will go in terms of future organic or inorganic opportunities for the company? Darren Woods: Yeah. Thanks for the question, Arun. With respect to the first part of your question, the global outlook is the foundation on which we think about our strategy and then build our plans. Obviously, it is difficult to predict with precision how things are going to move, particularly in the short term. But longer term, we focus on fundamentals where the economic growth is happening, to what level it is happening, how technology is developing, policies are being put in place, and then try to synthesize all that into an outlook and have been doing that as long as I can remember in this company. It does not change a whole lot year to year. But it does form the foundation of how we think about things. You may recall back during the pandemic when people were extrapolating from a very unusual market condition, we remained focused on what our long-term outlook was telling us and continued to make investments when a lot of other people had pulled back during that time. That has proven to be the right approach as time moved on. We think about it in those terms. The growth in LNG is what underpins our continued interest in finding low-cost advantaged LNG production. The recognition of economies growing and people's livelihoods improving and the energy demand required to facilitate that underpins continued growth in oil and gas, and so we continue to look for cost-advantaged oil production as well. I think people often forget that there is a depletion rate here, and so if you are not continuing to invest and find new resources, your supply will rapidly decline, particularly given the role that unconventional production now plays in the global supply. That depletes a lot quicker, therefore, the depletion curve is a lot steeper, therefore, the industry has to bring more barrels on to just stand still. All of that goes into our thinking in terms of what is needed from an investment standpoint. It really keeps our focus on the medium to long term rather than the very short term. Arun Jayaram: Great. Thanks. Darren Woods: You bet. Operator: The next question is from Doug Leggett of Wolfe Research. Doug Leggett: Thank you. Good morning, Darren. You know, I listened to you talk about a class of your own, and I think about all the growth you have had in free cash flow and the reduction in the dividend breakeven, but yet, your dividend growth rate remains quite pedestrian. Frankly, I think that is probably holding back market recognition of value. So I wonder if you can address that. At what point do you think the free cash flow expansion translates to a more competitive, let's say, versus a broader market, dividend growth rate? Kathy Mikells: I am happy to take that question, Doug. You know, we look at our overall dividend growth rate and we constantly think about sustainability, right? We think about growth. When we measure it on those three pretty important qualitative factors, we feel pretty happy with where we have ended up. I would tell you, as we speak to investors, we tend to get positive commentary about our dividend growth rate, about our overall approach to dividend growth, and about our overall approach to not just dividend growth, but, obviously, to a more consistent program with regard to share buybacks as well. We look at the dividend growth rate over a long period of time. We look at it both relative to IOC competitors. We look at it relative to general S&P. We look at it relative to industrials. When we measure it against those criteria, I would say we come up with an answer that says we feel like we are in a pretty good place, and generally speaking, we get positive commentary from investors on our approach with regard to our dividend growth rate. Darren Woods: Yeah. I would add to that, Doug, that we are very mindful of the commitment we have on our dividend and the context in which that commitment will play out over the years. As you move through the commodity cycle, we think it pays to be confident with what we are doing and thinking through where the cycles are going. We all know the prices are going to go up, and we know they are going to go down. Making sure that we build a business that can reliably deliver across any price environment is a critical part of how we think about the things that we do in the company. Kathy Mikells: The last thing I would say is we now have forty-three consecutive years of annual dividend growth that puts us in a category of less than 5% of S&P 500 companies. I would say that is a track record we are quite proud of. Doug Leggett: Thank you, guys. Darren Woods: You bet. Operator: The next question is from Bob Brackett of Bernstein Research. Bob Brackett: Good morning. I would like to talk a bit about Superior Graphite. I am curious what exactly you acquired from them. Was it their facilities in the US and Europe or more technology? I am also curious how tightly integrated would that be into your existing refining petrochemical strategy? Then I will tack on, what do you think that total addressable market might be? Darren Woods: Yeah. Thank you, Bob. Appreciate the question. You know, we have talked about now for some time the work we have been doing from a technology standpoint, leveraging our capabilities to manipulate and transform molecules to make products the world needs, to address gaps and grow value. One of those pieces of work was around what can we do with carbon molecules, particularly given the drive necessary to reduce emissions and the CO2 out of the atmosphere that leads to more and more carbon. So we saw a trend of a cheap feedstock that is growing. What can we make out of it? Our technologists have come up with a unique carbon molecule that we see the opportunity to graphitize and then put into batteries as anodes. As I said in my comments, the work that we have done with our pilot plants has led to or demonstrated significant step change improvements in lithium-ion batteries. 30% faster charging, 30% more range, and then extends the battery life cycle by four times current technology. So we see it as a huge opportunity. The TAM on that could be up to $40 billion. So that is, in our mind, a market worth going after. One of the challenges beyond designing the molecule is the graphitization process. If you look at what the industry norm is in that space, it is a very, very old technology that dates back to the 1800s. It takes close to a month, frankly, to develop the product. We said we have got to bring that into current times, and so we were looking for a technology that really leveraged our process technology capabilities, and Superior Graphite had a technology and some assets that, working with them, we could adapt to this. We think it fundamentally revolutionizes making this material for the battery market. So that is the approach. We purchased the key assets, have the technology rights to those assets, and we will be working with the folks to convert that technology and grow it at scale so we can begin to produce material at a much higher rate and much lower cost. Really, really importantly, outcompete the Chinese. This market is dominated by the Chinese, and so we are very cognizant of anything that we do here for the long run has to be on the very low end of the cost of supply curve. This technology is going to help us achieve that. Bob Brackett: You are very clear. Thanks for that. Darren Woods: You bet. Operator: The next question is from Sam Margolin of Wells Fargo. Jim Chapman: Sam, do we have you? Operator, maybe we should come back to Oh, sorry. Can you hear me now? Here we go. Now we do. Yep. Go ahead. Sam Margolin: I am here. Okay. About that. Thanks for taking the question. Sorry. Darren Woods: Sure. Sam Margolin: So yeah, I wanted to ask about the organic and inorganic strategy a little bit. You know, it seems like it is accommodated kind of by two factors. The first is capital efficiency in the business, and the second is the balance sheet, which is, you know, leading among peers. So the question is, you know, given all these tailwinds in the business and in the capital structure, do you feel like you can step up inorganic activity even more now and, you know, set the table for additional opportunities beyond what is in your pipeline today? Darren Woods: Yeah. Thanks, Sam. What I would tell you, you know, if you go back in time when we first started talking about our strategy, it very much focused on our core competitive advantages. Strengthening those advantages and growing them, in my mind, not only allowed us to improve and drive profit in our base business, but it opened up the opportunity for inorganic transactions where we could take advantage of those core competencies, leverage them in an acquisition, and bring more value than either company could do on its own. That is the foundation of the one plus one equals three, which we have been talking about for quite some time. I think the Pioneer acquisition is a great example of that, where we brought in a very good organization, very good people, very good assets, combined them with our good people, our assets, and technology, and together, we are doing more than either company could have before. That drive and our efforts to find those opportunities do not ebb and flow with the commodity price cycle. It is a constant force, and I made that in the second quarter. I make it here in the third quarter. We are, as we develop these and grow our technology project capabilities, really all the advantages that we bring to the business, how can we leverage those to grow more value organically and inorganically? It is just a function of continuing to look for and find those opportunities. So it is a constant focus of ours, and it is really a question of what presents themselves. That will happen over time. We do not have a specific plan for when things show up. It is this constant effort, which I think any good company with the advantages that we have would be very focused on that. Kathy Mikells: And just the thing I would add to that. We look at a lot of things. A lot of things. As you would expect us to. We transact on very few things because they have to meet our criteria. As we said, one plus one has to equal more than three. Right? We have got to bring advantages to the table, scale, integration, unrivaled technology, things that are going to create synergies, that are going to allow transactions to really generate strong returns. I think Pioneer is a great example of that. So you should expect that we would look at a lot of things, but we transact on very few. It is the ones where we have a high degree of confidence that we can earn very good returns. Darren Woods: Yeah. I think the bottom line in that is we buy value, not volume. I think that differentiates us from many in the industry. If we cannot see the path to very high returns on transactions, we pursue them. Sam Margolin: Thank you so much. Darren Woods: Thank you. Operator: The next question is from Paul Cheng of Scotiabank. Paul Cheng: Good morning. Darren and Kathy, just curious that, I mean, you just have a round of course maybe headcount reduction. But I am trying to understand that you have been doing a lot of different projects. I mean, you are probably doing far more than any of your peers at this point. So should we assume that at this moment, you are pretty running up against your organizational capability limit, or do you think your ability to even increase the pace of investment is just a function of opportunity set and not limited by your capability? Thank you. Darren Woods: Yeah. Thank you, Paul. Just to your point about the reductions that you referenced, you know, that was really the next step in a continuum of work we have been pursuing for some time now. We have worked really hard at transforming the how of what we do, and that has led to much improved effectiveness. It has also led to the efficiencies that we have been racking up. If you look, you know, since 2019 when we started this work on the strategy, implementing the strategy, we are over $14 billion of structural cost reduction. That is on average about $2.5 billion of structural cost reductions every year. My expectation is we will see something similar to that this year. Frankly, going forward, we continue to see additional opportunities to become more effective and through that, then get more efficient. The ability in terms of the capacity we have got now is limited by the opportunity set because of the high criteria that we put on it and the insistence that the projects that we bring in are advantaged versus the low end of the cost of supply curve so it is resilient and delivers robust returns across every part of the commodity cycle. That criteria set tends to narrow the pipeline down pretty quickly as we are looking at things. To date, we have not hit that limit. But I would also tell you that as we continue to learn and sharpen our pencils, the opportunity set that we see across our technology organizations, our project organization, we think there are still untapped opportunity sets to get even better in that space. So not at a limit yet, and frankly, I do not see a limit. Maybe one day we will get there, but when you combine the high hurdle you have to clear in order to get into the portfolio with the existing capabilities we have got, I feel pretty good about the ability to execute. I would point to what we did this year as probably the best example of that. You know, the 10 projects we have been talking about, the eight of them that we have delivered to date, if you look in total, the gross capital associated with those 10 projects is on the order of $50 billion. I do not think there is a company in our industry at any point in history that has successfully delivered that many projects in the time frame that we are doing. I think that is just a great example of what we are capable of. Like I said, we have got a lot of ideas in the hopper in terms of how we can improve the technical aspects of what we are doing along with the execution aspects. Paul Cheng: That is great. I suppose that is why you just bought the Discovery Six. That is part of improving your capability and efficiency. Darren Woods: Absolutely. I mean, that is what I think I said, the seventeenth most powerful computer in the world. If you look at the data that we have to process, if you look at the opportunities that we have, it is allowing us to do things in weeks that used to take us months. So it just speeds that cycle up. Kathy Mikells: I think if you just look at what we are doing in driving efficiencies, right, it is unmatched across the industry. I mean, you look at just what we put up this quarter, $14.3 billion now in structural cost savings compared to 2019. Our track record in this regard, I think, is bar none. We see more opportunity there. Paul Cheng: Thank you. Operator: The next question is from Biraj Borkhataria with RBC. Biraj Borkhataria: Hi. Thanks for taking my question. I wanted to ask about Mozambique. There was a meeting with the government which was then deferred. Could you just talk about where you are with that project? Maybe just the security situation, and then whether an FID in early 2026 is likely? Thank you. Darren Woods: Yeah. Sure. I would say where we are at with Mozambique right now is in a very good place. We have got very strong relationships with the government there. We have got a really good project concept working our way through. The security situation there has improved dramatically. I think Total just lifted their force majeure. We are looking at and are in the process of trying to do the same. So I would say that project is now moving ahead, and we feel really good about that. As does the government of Mozambique. Working very closely with Total on that. So I think it is in a really good place. I think the press reports that you are reading, I would just say you cannot read everything that you believe or infer anything that you take from that. Just this week, we had the president and his team here on the campus and took them through what we are doing here and showed them some of our capabilities. It was a really productive session. I think both of us got a lot out of it. Biraj Borkhataria: Thank you. Operator: The next question is from Ryan Todd of Piper Sandler. Ryan Todd: Thanks. Maybe one on exploration. You have been, I think, increasingly active on this front in recent years. Can you talk about opportunities on the horizon over the next twelve to twenty-four months? How, if at all, do you believe your approach to exploration may have changed relative to maybe times in the past? Darren Woods: Yeah. Sure. Maybe just put exploration in the context. I think you know, when we talk about what we are trying to do in the upstream and grow production in the context of the depletion rate that we see, it is a huge challenge. So we have been very focused on what we see as the three key levers of filling the hole created by depletion and at the same time growing that, which is, you know, for the things that you have, you have got to squeeze more juice out of it. So a lot of work we have been doing around for the fields and the resources that we are currently developing, how do we get more effective at producing more resources from those fields? That is driven a lot by the project's organization, our technology organization, and the hard work of our operations team. You have got to grow your advantages so that you can take, you know, you can buy things and take advantage of the inorganic opportunities that we just talked about. One of the reasons why, as Kathy said, we are constantly looking at a lot of opportunities. We recognize if we can take our advantages and create unique value through inorganic opportunity, that is really important, and it helps us again fill this challenge of the depletion curve. Then the final point is you have got to find new things you can develop. So that is always been a part of the equation for addressing the challenges of the upstream. What we have been very, very focused on is really narrowing what we are doing in the exploration to make sure that things that we are looking for and going after have the opportunity to be material, be commercially attractive, and compete in our portfolios. So we focus that. I think we put a lot of effort into how we interpret the seismic and what we can do there. We feel pretty good about the opportunity set that we have got with Flick. Pretty good about the technology that we are going to bring into that space. But I would also tell you that, you know, it starts with getting the opportunity to go look at things. We still have to demonstrate and translate that into results and success in terms of finding things. Ryan Todd: Thank you. Darren Woods: You bet. Operator: We will take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning. Thank you for taking my question. Darren, so Google just recently signed a power contract with a gas power plant. So really great to see development on that front. Wondering how your conversation is evolving. I know Exxon Mobil Corporation has consistently talked about your only interest in power from a molecule's perspective. But just given how quickly that power demand is growing, and just how quickly that scale is growing as well, I am curious if there is any appetite to start offering maybe traditional power first and then adding on carbon capture capabilities later on. Darren Woods: Yeah. Thank you, Betty. It is an area where there is a lot of interest and activity, and we are very, very engaged with most of the hyperscalers on the opportunity set. But as you pointed out, we are very focused on the carbon capture side, the carbon-abated power side of the equation. The fact that power is growing and there are a lot of opportunities there does not translate into a value proposition unless you can bring a unique advantage to that space. Frankly, that is not the business that we are in. So it is very much around providing decarbonized natural gas power stations and then capturing the carbon and emissions on the back end of that so that we can offer a low-carbon data center where more than 90% of the emissions are captured and abated. That is the value proposition that we are pursuing. There is a lot of interest in that space, and we are also working with independent power producers to, with them, provide the electron side of the equation while we provide the molecule side of the equation. I think we got out ahead of this, frankly, as things started to break. We secured locations, got the existing infrastructure. We certainly have the know-how in terms of the technology, in terms of capturing, transporting, and storing it. So we are in a pretty good place right now. We are pretty advanced in the conversations. I am hopeful that many of these hyperscalers are sincere when they talk about the desire to decarbonize and have low-emission facilities because certainly in the near to medium term, we are probably the only realistic game in town to accomplish that. I think we can do it pretty effectively. We can partner with these folks to continue to grow that, frankly, over time. So that is where we stand. I am optimistic at this point. But we are early in the game. We will see what gets translated into actual contracts and then into construction. Betty Jiang: I am hopeful as well. Thank you very much for the color. Darren Woods: You bet. Operator: The next question is from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Good morning. I wanted to go back to the proppant. As you referenced in your prepared remarks, the first twelve to eighteen months well results have started to come out. The Woodmac study and the results have been really positive. As you have been able to get more data this year, is there any other granularity you can share on where you think you are able to improve recovery the most? Like, for example, gassier zones, oilier zones, deeper zones, etcetera. Is there anything you can comment on how you see the strength of your patent or other barriers to entry keeping others from copying it? Darren Woods: Sure. I think, you know, to come back to the proppant itself, remember what we are doing here is as you get the fracs, finding ways to get proppant deeper, you know, deeper penetration into those cracks. So it is really a function of, I would say, the rock and the properties of the rock and the ability to flow the material that has made this as successful as it is. I would also tell you that we are continuing to optimize and fine-tune that. So I do not know that we are at the end of the learning curve with that. I hope to see continued improvements in that space. I would also tell you that it is just one of a number of technologies that we are pursuing along that whole production process to try to improve recoveries and lower our capital. The pipeline is pretty promising, and we are going to hopefully give you a perspective on that in December when we talk about the plan going forward. But I would think about the lightweight proppant as just one of a number of levers that we are pursuing. We feel good about what we see there. We think there is potential, additional potential. But I would also say that we see other technologies that will work in conjunction with those and be additive with respect to recovery. You remember I challenged our technology organization to double recovery, and at the time we did that, we did not have a path, a line of sight to how we would do it. But we just recognized given how early we were in the technology cycle, there should be opportunities there, and our job was to go find them. I would say today that we have got a pipeline and certainly a line of sight to how we might do that. We have got a number of things we have got to make work and a number of technologies that have to prove themselves. But we have come from kind of a white sheet of paper to one that is now filled out with a lot of ideas that we are pursuing. So I would say we are well on the way to making some of that a reality. With respect to protecting it, we feel pretty good about the patent. We feel pretty good about the supply of the raw materials that the patent covers. Everything that we are pursuing in this space, we are very focused on protecting. We do feel the technology provides and the benefits of technology should be proprietary to Exxon Mobil Corporation. Jean Ann Salisbury: Great. Thank you. Darren Woods: You bet. Operator: The next question is from Jason Gabelman of TD Cowen. Jason Gabelman: Good morning. I want to go back to the exploration discussion because it was notable since we last spoke. You have entered into multiple new blocks to expand exploration. It is not only Exxon Mobil Corporation pursuing additional exploration efforts, but you are seeing peers advertise their kind of exploration intentions also. So the question is really, what do you think is driving this industry trend? Do you see competition to enter into new blocks becoming more competitive? I am thinking given Exxon Mobil Corporation's view that shale is going to peak in the next five to ten years, is that a decent part of why you have seen kind of the industry focus more on exploration? Darren Woods: Yeah. Sure. So I think going all the way back, I can remember talking in this forum in 2020 when the industry had sharply pulled back, and we were somewhat in isolation with continuing our investment program, making the point and the case that with the depletion curve, the industry has to continue to think long term, invest, and find resources. That, I think, you are now seeing play out. The unconventional that you mentioned obviously filled a hole in the short term. But like all resources, there is a finite life, particularly when you do not have the technology portfolio that we do where we can advance and grow the recoveries. So unlike many of our competitors in the unconventional space where they see maybe production plateauing or even declining, we continue to see and grow production with technology that I have been referencing. So I think as an industry as a whole, I think people see that resource and the horizon of it. So they are shifting now to the longer-term, longer-cycle projects that are out there. From my perspective, we have never taken our eye off of that. We continue to work it. It has always been a very competitive space, and frankly, from my perspective, the way you succeed in a very competitive environment is to bring unique capabilities and advantages. So it keeps coming back to the things that we have been working on. Resource owners want to see cost-efficient development. They want to see development that happens quickly, that is on schedule, does not have overruns, so that they can start accruing the benefits of that resource development quickly. Guyana is a great example of that. So our work has been on improving our abilities to bring a unique set of skills, technology, and project capability so that we can develop resources more cost-effectively, which resource owners ultimately pay for. They like that. To bring it on quicker so that they can benefit from the resource development in a sooner time frame. So all those things play to our strengths. I think that gives us a competitive advantage. I think importantly too, they know that we have been steadfast in our focus in this space. We do not blow with the winds. We do not come in and out of this, and so they know when we commit to something that we are going to deliver on that. So those things I think give us a bit of an edge advantage in the discussions. I think you see that manifesting itself in some of the announcements that we have made with some of the opportunities that we are pursuing. Jason Gabelman: Great. Thanks for the color, Darren. Darren Woods: You bet. Operator: The next question is from Paul Sankey of Sankey Research. Paul Sankey: You have referenced a lot of this already on this call, but I wondered if you could give Exxon Mobil Corporation's perspective on the current AI CapEx boom? Especially as you are bringing down your CapEx guidance today? It is sort of a process and strategy question at a high level. Your CapEx, your peak CapEx spending at Exxon Mobil Corporation around 2013 was over $30 billion a year, which would be about $40 billion in today's dollars. If we look at Meta alone, they have a trailing run rate of your peak $30 billion and are going to $70 billion a year next. Could you talk about, Darren, the challenges that you envisage for that kind of capital deployment from a management perspective, firstly? Secondly, given the speed of this, what are the impacts directly on your business? What are the areas where this boom is either challenging or benefiting you? Thank you. Darren Woods: Yeah. Sure, Paul. I cannot say I can speak with much insight on what some of the hyperscalers are doing or Meta is doing with their capital. I will just say generically that it is very difficult to effectively and efficiently swing capital from one level to another level that is materially different. So, I mean, our approach is to have long-term plans, as you know, to basically meticulously develop plans with rigor and then execute those with excellence. That is how we think about it. The lower guidance that you heard that we talked about today is not a function of a change in activity set. We are still pursuing the same businesses. It is very consistent with what we talked about last year, which is there are things that we have built in the plan that have more uncertainty than our base business. These new things that we are developing, new businesses, data centers are one of them, low carbon solutions are another. The carbon material ventures, Proxima, all these things where you are going into new markets that are at the very early stages of their growth, there is a lot of uncertainty as to when those things actually materialize into concrete opportunities. We talked about that last year, and what you see happening is as that market evolves, those opportunities begin to materialize, and the schedule gets clearer and clearer, we are shifting our capital in line with that to make sure that when we do make the investments, we generate the returns that we expect of ourselves that are advantaged versus the rest of the industry. So I would really just caution everyone to take the changes in the CapEx that you are hearing today as a reflection of, in my mind, what we refer to as disciplined capital spending, which is not cutting CapEx, but spending it in a wise way. With respect to the AI piece of it, we certainly see the business opportunity there with the low carbon data centers. As I said earlier, there is a lot of interest in what we could bring to this space, particularly in the near term. We are continuing to pursue that. My gut tells me that those opportunities will materialize, and they will become a part of our portfolio. We will leverage the Denbury acquisition that we made some time ago to really help accelerate the decarbonization of data centers. Within our own four walls here, with our centralized technology organization, which has IT and artificial intelligence and the whole technology set around digital as part of that integrated technology organization, we see huge opportunities with AI. In fact, we are deploying that today. We are deploying it downhole in the work that we are doing in the Permian, we are deploying it in our operating sites around the world. Anything where we have got a lot of data, we are using AI to help make sure that we are learning as much as we can from that data and optimizing our production. We see a lot of value coming from that today and a lot more value coming forward in the future. I will say we are taking maybe a slightly different approach than many of the folks I see out there, which is we have stepped back and said, what moves the needle? Where do we want to focus this effort? So it is not a scattershot approach here. It is a very focused and material movement in the areas that will make a big difference to the corporation. We are making great progress in that space. Paul Sankey: Thank you. Darren Woods: You bet. Thank you. Operator: We have time for one more question. Our final question will be from Philip Jongworth of BMO. Philip Jongworth: Thanks for taking the question. Refining margins have been pretty supportive this year and were a contributor to sequential earnings growth in the quarter. A lot of moving pieces here at the moment. I was just hoping you could touch on how you see the market considering GoPak online supply disruptions, resilient demand, and then also touch on the Baytown project you FIDed this quarter and just how you are positioning the business based on the longer term. Darren Woods: Sure. So I guess the first context to set with respect to this is the demand for petroleum products. While ultimately that backs up into crude, I think it is really important to point out that there are two supply-demand balances at play here. One is on the crude side, which is the feed that goes into the refinery, and then there is the other on the product side. Those are two separate demand balances that have an impact on refining margins. What we have seen here of late is a looser crude market. The feed side of the equation has been looser, prices have come down, so you have got cheaper feedstock. Then on the product side of the equation, we have seen capacity coming offline and supply disruptions around the world. That is tightening the product side of the equation, the supply-demand balance. So we see prices going up. That has benefited the refining industry as a whole. For those companies that have refineries that are up and running reliably, they have added significantly to the bottom line. Frankly, for the work that we have been doing in our company, in the third quarter, we saw the highest reliability that we have ever had. So the work that we have done with the centralized global operations organization is really paying off. Not only are we driving down significantly driving down maintenance costs, at the same time, we are driving our portfolio reliability to a very high level. On top of that, as you know, we have been very focused on really making sure that we are high grading our refinery footprint and putting our efforts and investment in the sites that have diversified product offerings, that have advantage conversion, and that have low cost so that they will be resilient to a number of potential demand environments. As a result of that, we have much, much fewer refineries today that are much, much more effective at converting crude to products that society needs. So we have really upgraded the footprint of the refinery. Then the last point, which you touched on, is within those refineries that we say are strategic and have an advantage in the base case, how do we continue to grow that advantage? It really is a function of high grading the molecules in the refineries. We are taking the low-value products that come out of a barrel of crude and putting in the conversion capacity to make those high-value products. The most recent and significant example of that is what we did in Singapore with our CRISP project, where we took the lowest value product, residue fuel oil, and converted that to some of our highest value products with a brand new to the world lube base stocks and additional diesel. So a great example of a proprietary new-to-the-world process to make higher value products and, in fact, new-to-the-world products with respect to one of our base stocks. So a great example of what we are trying to do there. The Baytown project is a continued step in that direction, which is finding a way to high grade the molecule conversion that you have in the refinery. We have got really good opportunities with that asset base, and we are pursuing it aggressively. They come with very good returns and very resilient returns. Philip Jongworth: Okay, Phil, thank you, and thanks, everybody, for this call and for all the questions. We will post the transcript of this call to the investors section of our website early next week. We look forward to connecting on December 9 for our corporate plan update. Have a good weekend.
Operator: Good morning and welcome to the Sensient Technologies Corporation's 2025 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead. Tobin Tornehl: Good morning. Welcome to Sensient Technologies Corporation's earnings call for 2025. I am Tobin Tornell, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I am joined today by Paul Manning, Sensient Technologies Corporation's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2025 third-quarter results. A copy of the earnings release and the slides we will be using during today's call are available on the Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, costs of the company's portfolio optimization plan, and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today. I would also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be or are implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient Technologies Corporation's previous SEC filings, including our 10-K and our forthcoming 10-Q, for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. I will now turn the call over to Paul Manning. Paul Manning: Thanks, Tobin. Good morning and good afternoon. Earlier today, we reported our third-quarter results. I am pleased that we continued to build on our strong first half of the year and delivered 14% local currency adjusted EBITDA growth and 18% local currency adjusted EPS growth. Local currency revenue grew 3.5% during the quarter. We continue to have particularly strong results from the Color Group, delivering 8% local currency revenue growth and 24% local currency operating profit growth. Flavors, extracts, and flavor ingredients product lines within our Flavors and Extracts Group also had a nice quarter, delivering 4.5% local currency revenue growth and significantly contributing to the group's local currency adjusted operating profit growth of 7.8%. These results align with our expectations and position us for a strong finish to the year. We are also increasing several elements of our full-year guidance for 2025. Previously, we indicated local currency adjusted growth of high single digits for EBITDA and high single-digit to double-digit for EPS. We now expect double-digit local currency adjusted growth in both EBITDA and EPS. The major storyline for Sensient Technologies Corporation and the industry continues to be the conversion of synthetic colors to natural colors in the United States. This activity remains at the forefront of our current strategic focus and continues to accelerate as we work with our customers to prepare them for this change. As before, the U.S. conversion to natural colors is the single largest opportunity in the company's history. Over the years, we have invested significantly around the world to increase our production capacity and to optimize our product portfolio. We are also working to build a resilient supply chain that provides the botanicals necessary to produce natural colors. Aside from our work to support these anticipated conversions, our emphasis on sales execution, customer service, and the commercialization of new tech continues to drive our current performance. During the third quarter, we continued to generate strong new sales wins across each of our groups. These sales wins are a result of our innovative product portfolio across our food, pharmaceutical, and personal care product lines. These new sales wins and our pricing discipline are not only driving our revenue growth but are also the main reasons for the margin strength we are seeing across each group. We remain focused on collaborating with our customers to support their development requirements, and our sales pipelines remain robust in each of our regions. We continue to win new business across the company, despite a flat overall consumer market. Growth in the North American and European food and beverage sector has been stagnant for the last several years. New product launch activity continues to be down across many categories in the Americas and Europe, and Q3 was a continuation of the trend. Also, as I mentioned during our last several calls, the current trade and tariff landscape introduces additional complexity and uncertainty to our business. While we have already taken price actions to offset the impacts of the initial wave of tariffs, and will continue to take these pricing actions into next year, we have witnessed some demand and volume disruptions in some areas of our business due to this uncertainty, particularly in Asia Pacific. We will continue to position our supply chain organization to minimize any disruptions to our customers and to optimize the flow of goods. Now, turning to Slide 6 in our group results. Paul Manning: The Color Group had excellent third-quarter results, delivering 7.9% local currency revenue growth and 23.8% local currency operating profit growth. The group's third-quarter adjusted EBITDA margin improved to 24.7% from 22.2%, an increase of 250 basis points versus the prior year. This margin improvement is a testament to our efforts to sell technically differentiated products, control costs, execute on our pricing strategy, and deliver quality new wins. In the third quarter, the group saw strong new sales wins. While these wins were particularly impressive in natural colors, let me clarify that the wins recognized in the third quarter are not yet the result of any significant conversions of existing products in the United States. The Color Group remains on a great trajectory, and I could not be more excited about the future ahead of us. Turning to Slide 7, the Flavors and Extracts Group saw local currency revenue decline in the third quarter by 1.2% but increased local currency operating profit by 7.8%. The group's adjusted EBITDA margin was 17.7%, up 130 basis points versus the prior year's comparable quarter. The Flavors, Extracts, and Flavor Ingredients product lines delivered 4.5% local currency revenue growth and significant local currency operating profit growth. The growth in these product lines is a result of our innovative flavor technologies and our focus on new and defensive flavor wins across North America, Europe, and Latin America. Turning to our Natural Ingredients business. We have renamed that business to Sensient Agricultural Ingredients. Sensient Agricultural Ingredients consists of dehydrated onion, garlic, capsicums, and other vegetables. To this point in the year, the business has been impacted by lower sales volumes and significantly higher crop costs. We expect improvements to begin in Q4 2025. Despite these dynamics in the Agricultural Ingredients business, I still expect the Flavors and Extracts Group to deliver solid results for the year. Now, turning to Slide 8. The Asia Pacific Group saw volume headwinds in the third quarter, delivering flat local currency revenue and local currency operating profit. The group's adjusted EBITDA margin was 24.2%, up 40 basis points versus the prior year's third quarter. The flat revenue is a result of lower volumes within certain selling regions that we expect to persist through the end of this year. The Asia Pacific Group is equipped with strong leadership and operations, and the group's new sales wins momentum sets it up nicely for 2026 and the future. Turning to Slide 9 regarding our full-year guidance. We now expect our local currency adjusted EBITDA and EPS to grow at a double-digit rate. Our previous guidance called for high single-digit local currency adjusted EBITDA growth and high single-digit to double-digit local currency adjusted EPS growth. We are maintaining our consolidated full-year local currency revenue guidance of mid-single-digit growth. On the capital allocation front, last quarter, we increased our capital expenditure guidance to be around $100 million to ensure that we are prepared for the forthcoming natural color conversion activity. The increased investments we are making in natural colors are a great use of our cash. Over the next couple of years, we anticipate elevated capital expenditures. We will give more guidance on our 2026 capital estimate in February; however, as of now, we anticipate our total capital expenditures in 2026 to be at least $150 million as we continue to invest in our natural color capabilities as well as across our Flavors and Extracts in Asia Pacific Groups. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time. Now, before I turn the call over to Tobin, I would like to provide more information on the current state of the synthetic color regulation and natural color conversion activity, along with a few of our innovative technologies. Turning to Slide 10. The regulatory environment and effective legislation have not seen much change since the last time we spoke. West Virginia became the first and still the only state to pass legislation that prohibits the sale of food products containing synthetic colors. There has been no change on timing, and that law goes into effect in January 2028. Additionally, Texas has passed legislation requiring food manufacturers to place warning labels on packaged food products that contain certain ingredients, including synthetic colors and titanium dioxide, effective 2027. As I have stated, the main effect of these state actions is the conversion to natural colors at the national level. Across the country, companies are stepping up and committing to converting their existing products and setting conversion timelines to meet that January 2028 deadline. Today, we have approximately $100 million of synthetic color revenue that has the potential to be converted to natural colors. Previously, we had valued this opportunity at about $110 million. However, it appears less likely that we will see wholesale conversions in the pet food and over-the-counter pharmaceutical spaces. As I said before, the conversion to natural colors results in revenue multiples of approximately 10 to one on average. Turning to Slide 11. The FDA is now maintaining a master tracking list on their website of commitments within the industry and progress made towards those commitments. Under the parent companies currently recognized, as of today, more than 50 brands have pledged the replacement of FD & C synthetic colors. These include some very well-known and highly colored products. We have also recently seen Walmart announce that it will eliminate synthetic dyes in all of its private label products by 2027. This change was noted by Walmart to be a direct response to end consumer demand. Turning to Slide 12. I would now like to take a moment to highlight CertiSure, our product safety program for natural colors. This internal standard has been in place for years and guarantees customers a high level of product safety and quality. Raw materials go through rigorous screening for pesticides, heavy metals, microbiological adulteration, and unauthorized solvents. We hope this program will become the market standard for all suppliers and are working with the FDA to support the development of a national testing protocol as we enter a more natural world of color. As we have done for the last several quarters, I would now like to highlight some of our innovative technologies. Currently shown on the slide is some information about one of our most successful natural color products, Pure S Orange. This novel paprika-based solution is a clear testament to the efficacy of the CertiSure program. Paprika is a widely popular source of color solutions with usage across a variety of categories, but it is also a high-risk raw material. Around 60% of paprika raw material lots fail Sensient Technologies Corporation's CertiSure screening. These failures are often due to exceeding levels of pesticides and adulteration. While our CertiSure program prevents the use of contaminated raw materials, it appears that other companies may not have such stringent standards as Sensient Technologies Corporation, as we frequently see our failed lots of paprika go back into the open market for others to procure. Only batches that pass our CertiSure process are used to make innovative color technologies like Pure S Orange. Pure S Orange leverages a clean purification technology to achieve the industry's brightest and clearest natural orange. While there are other great natural orange options like annatto, beta carotene, and carrot juice, none of them compares to Pure S's stability and clear, vivid orange in beverages. As we have discussed and as experience in the market has shown, converting to vibrant natural colors is critical for brands conducting the transition of their products. It is our goal to help our customers succeed and to preserve their brands through this transition. Turning to Slide 13. Next, I want to highlight some exciting technology from our Flavors and Extracts Group that can play an important role as companies open up formulas and perform some of the necessary reformulation work that will accompany the conversion to natural colors. First is BioSymphony, a signature innovation that elevates the flavor profile for a number of different product categories. BioSymphony gives developers the flexibility to elevate the taste perception of their products and to enhance the overall taste experience. Second is PURA Mask technology. It includes a range of products that are ideal for balancing taste and neutralizing off notes that could originate from various ingredients in a customer's product. This portfolio is effective in addressing a wide variety of taste issues, from bitterness relating to high-protein ingredients or potential off notes from the incorporation of natural colors. In summary, our R&D and supply chain efforts are centered around providing safe and consistent products. If you would like more information on our natural color or taste modulation technologies, please visit our website. Overall, I am pleased with our financial performance in the third quarter. We are on track to deliver a strong performance in 2025. I am excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build. Customers continue to refine their launch timelines, so we can provide more definitive guidance on revenue timing going forward. Looking ahead to 2026, we will give more detailed guidance coming in February. However, we continue to expect our long-term growth rate to be incremental to this growth rate. As I mentioned earlier, we anticipate our capital expenditures to be north of $150 million in 2026 to support our natural color conversion preparation activities. The growth we are experiencing is a direct result of the execution of our strategy and seizing the opportunities in the markets in which we operate. I remain optimistic about 2025 and the future of our business. Tobin will now provide you with additional details on the third-quarter results. Tobin Tornehl: Thank you, Paul. In my comments this morning, I will be explaining the differences between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan. We believe that the removal of these costs produces a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance. Turning to Slide 15, Sensient Technologies Corporation's revenue was $412.1 million in 2025 compared to $392.6 million in last year's third quarter. Operating income was $57.7 million in 2025 compared to $50.5 million of income in the comparable period last year. Operating income in 2025 includes $3.3 million, approximately 9¢ per share, of portfolio optimization plan costs. Operating income in 2024 included $1.2 million, approximately 3¢ per share, of portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan, adjusted operating income was $61 million in 2025 compared to $51.7 million in the prior year period, an increase of 15.7% in local currency. Interest expense was $7.3 million in 2025, down from $7.7 million in 2024. The company's consolidated adjusted tax rate was 23.8% in 2025 compared to 23.1% in the comparable period of 2024. Local currency adjusted EBITDA was up 14.3% in 2025. Foreign currency translation had a minimal impact in 2025. Turning to Slide 16, cash flow from operations was $44 million in 2025. Capital expenditures were $20 million in 2025, and as Paul indicated, we still anticipate our capital expenditures to be around $100 million for the full year of 2025. Our net debt to credit adjusted EBITDA is at 2.3 times as of September 30, 2025. Overall, our balance sheet remains well-positioned to support our capital expenditures and sensible acquisition opportunities, our long-standing dividend. As Paul indicated, we will continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth in the years to come. Turning to Slide 17, revisiting our 2025 guidance. We expect our consolidated full-year local currency revenue growth to be mid-single digits. We have now raised our local currency adjusted EBITDA to double digits. Previously, our expectations were high single-digit growth. We now expect our local currency adjusted EPS to be up double digits in 2025. Last quarter, we guided high single to double-digit growth. We expect our fourth-quarter interest expense to be around $7.5 million, and we expect our fourth-quarter adjusted tax rate to be around 24%. Based on current exchange rates, we still expect the impact on EPS to be a slight tailwind for the year. Considering our GAAP EPS in 2025, we now expect approximately 28¢ of portfolio optimization plan costs. We expect our GAAP EPS in 2025 to be between $3.13 and $3.23, compared to our 2024 GAAP EPS of $2.94. Thank you for participating in the call today. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question comes from Ghansham Panjabi from Baird. Please go ahead. Ghansham Panjabi: Hey, guys. Good morning. Hope you are doing well. Paul Manning: Morning. Ghansham Panjabi: Well, thanks. I guess, first off, it sounds like you have honed in on the $100 million in sales as it relates to food and nutraceuticals and the potential with that conversion, etc. Can you give us a sense as to what portion of that is in the process of reformulation conversion? Clearly, regulations are moving around, and there seems to be a sense of urgency with these public mandates and polls that a lot of these companies have announced, as you pointed out in your slide deck. But can you just quantify that in terms of backlog? Paul Manning: Well, let me think I get where you are going with this one, Ghansham. The $100 million, I mean, it is a cross-section of really a whole range of customers. In fact, it includes everything from candy to beverage to baked goods to processed foods, you name it. In fact, as I noted in the comment, really, the only thing that you would probably exclude from this longer-term may even be pet food and pharmaceutical OTC. So that said, any customer that I have spoken with or any of our sales folks or other leaders have spoken with, everybody is moving in this direction. The only real variable here, I think if you go back a few months, I would tell you that there were probably three groups of customers. Group one, they were doing it, going there, knew they were gonna have to do this and wanted to do this. There was another group, maybe group two, was a bit more, "We need to kind of understand where this may make some sense, which products." And then there was a group three that, I must tell you, was a bit more cautious. Perhaps wondering if this was really gonna happen, if there was really gonna be a requirement here? Even just the last few months, I do not hear anything of a group three anymore. And I would tell you that just about every company out there is either well down the path of this, working very, very diligently, or it is really the bucket two that has probably evolved to "yeah, we are gonna do it. We just need to figure out which ones go first and which ones go last in terms of how we prioritize." So there is a strong expectation from customers that this deadline on 01/01/2028 is the deadline. There is really no kind of playing around with that one. And so I think everyone that we are speaking with, every customer and every prospect, they're fully aware of the requirement. And it is going to be either sometime in 2027 or sometime in 2028. But one way or the other, I think everybody gets there. In 2028 is certainly the goal that we observe. Ghansham Panjabi: Sure. But it does take time for the reformulation and so on, and I think senior technical people are, you know, a big part of that process. So I guess that is what I am referring to. Is the activity starting to match up with the customer's narrative as it relates to wanting to push towards natural at this point? Paul Manning: Yeah. Well, I think you said it perfectly. These are like new launches, and new launches are very, very complex, and they can take some time. And, you know, beyond just the formulation challenges of trying to match a synthetic color, selecting the right colors to include in that formulation, there is stability testing. How well does that color do in that formulation? They may have never experimented with that particular beverage or that candy or that baked good. So there is a need to conduct stability testing. Will this color still look good? Will this formulation hold up six months down the line after it has been sitting in a warehouse or on a store shelf? Many companies will do test marketing. How does the consumer perceive this product? Do they like it? Is it aligned very strongly with the taste expectations? And then, you know, there are a thousand other elements that go into these launches, and the bigger the company, the bigger the risk. There are regulatory questions. There is repackaging. Production scale-up. So it is a massive, massive undertaking. What has happened here is that the biggest multinationals who may have hundreds of products that they are reformulating, they are essentially doing hundreds of launches, relaunches, within a fairly narrow window and time frame. And so, yeah, it is a complicated game. You know, it gets less complicated as you get to smaller customers who maybe have a handful of products that they are looking to launch. They still have to contend with all those factors that I just described. But that is what puts a lot of, you know, if folks wanna ask me when is it gonna happen, what percent by what month, and what date? Well, that is a hard question to answer because most of our customers have not necessarily definitively pointed out a specific timeline for all these hundreds and dozens of products that they may be reformulating. So yeah. But your comment there really gets at what is the complexity of predicting precisely when somebody launches? And that is why I encourage folks just to remember it is 01/01/2028. That is nine quarters from now. So there is not a whole heck of a lot of variability that would be associated with these outcomes, I would suggest right now. Ghansham Panjabi: Okay. That is very clear. And then on the Food and Pharma growth of almost 11% during March, what exactly is that being driven by if you are saying that you are not really benefiting yet from the $100 million converting etc. and how much of that 11% growth is being driven by maybe new wins in natural color? How would you think about that? Paul Manning: So the reason that business is growing so well is because we have a really good strategy. We are focused on really understanding why we win and why we are successful at customers. We are very selective about the types of projects and customers we want to work with. We tend to say no to business that does not align very closely with our strategy. So you are going to see us continue to avoid commoditized high volume here today, gone tomorrow, let me send out a bid and win this by a penny type business. We stay away from that stuff. So we very much insist on having that differentiated, defense business model. And so that means that the product starts with product performance. So we have great, great products that we continue to use today. Many have been developed over the years, and we continue to develop them. But I would tell you that is a considerable source of our success. We continue to have exceedingly robust service levels across the board. And this is on the basic blocking and tackling of the business—samples and documents and salespeople showing up, and being responsive—that is certainly a foundation for why we are successful there as well. But you know, the natural colors, we are generally regarded as a very good natural color company. And so we have got really great products. We have products that I would argue others do not have and certainly do not have them to the same level of precision and consistency. And so I think our customers recognize this more and more. They see us as a tremendous resource, not just for providing color or flavor or cosmetic ingredients, but all the other components of making their launch and their business successful. So I think it is just a continuation of the ongoing strategy. Nothing particularly new that I would comment we did during Q3, but what I would note is, I think I asked Tobin before this, "What was the final amount of conversion in Q3?" You know, products that were synthetic that converted to natural. And we have calculated less than a million dollars. So that is not at all driving those results right now. So when those conversions start happening, it should be a real exciting time around here. Ghansham Panjabi: Okay. I look forward to it. Thank you so much. Paul Manning: Okay. Thanks, Ghansham. Operator: The next question comes from Lawrence Scott Solow from CJS Securities. Please go ahead. Lawrence Scott Solow: Great. Thanks. Appreciate that. It was some good call, Paul. I just follow up on that, I guess. On the 100 million target, I guess, to change, that is obviously your existing customer base. Curious, there is a whole outside of your current share on the synthetic side. I suppose there are lots of customers out there who are using synthetic colors today who will be switching to natural, who are not a customer of yours today, at least on that synthetic piece, but I suppose are target. So I am just kind of curious, you know, outside of that. I know you focus on that initial 100, but I suppose there is a much greater circle outside of that. And then, I guess, on the flip side, is there also a possibility that some of this 100 million, yes, they have to get away from synthetic, but are there cases where there is not a 10 to 1 conversion, or they may not have a great alternative for them to get to that exact color and maybe they do not get a match color and can go on a cheaper route to get a much, you know, even like Pepsi's has this naked out there? So I am just kind of, you know, throwing out other alternatives to where you go natural, but not necessarily that exact color match in a 10 to 1 revenue ratio. Thanks. Paul Manning: Alright. I see where you are going there. So the first one, the 100 million. So the simplest way to look at this is 100 million at that 10 to 1 ratio. Now, to your point, are we gonna get all 100 million of that? No. Do you know why? Because I do not necessarily want all 100 million of that. Some of this stuff, you know, there is a whole range of natural colors. There's the very strongly performance-driven, technically differentiated variety. And then, there is the sort of the belly wash commodity variety. And it is a spectrum. And so our business has very strongly focused on the former and largely ignored or avoided the latter. And so in that 100 million, yeah, there may be some synthetic colors that lend themselves to less expensive, exciting natural color solutions. We may be less interested in some of those. But then again, there are some synthetic colors in the market out there, not in that 100 million, that maybe were not real interesting to us as a synthetic color. Maybe we just never had that business. But you know what, when those convert to natural, it is really technically challenging. It is really performance-based stuff, and we would be super excited to get it. So, you know, it is all those pluses and minuses. So I think right now, we use 100 as kind of just a good benchmark. You are absolutely right. There are pluses or minuses within that. And, you know, we will keep you folks kind of posted, I think, as we continue on this journey. But I like our chances. We have been putting in a heck of a lot of work, and there are a lot of folks bringing this thing together. But, you know, the nice thing is this is a culmination of fifteen-plus years in this company. So as I said before, this is very much the long game strategy in this company. And so I think we have a very good chance and very good opportunity here to win some very, very nice looking projects. Now, to the second part of your question, kind of that 10 to 1, yeah, that too is an average. So think of it this way: the brighter a product appears and the more harsh the manufacturing environment it took to bring it to you, the higher that ratio is going to be. So think about maybe something that got baked in an oven, and it has got a natural color. That may be a higher ratio than 10 to 1. Still has that bright vivid, but it is being produced in a very, very tough, harsh environment. So heat, light, hot low acid conditions like a low pH, these are all very, very damaging to color. I think I told you, if you look at that sofa in your room and by the sunlight, that chair is just not as brown as it used to be. Well, that is what happens to color in food and beverages, too. So, it is trying to find ways to retain that vibrancy despite those really tough situations. Those types of products lend themselves to a higher ratio. Now, on the other end of the spectrum, to your point about guys like, "Well, you know, I just want this lightly colored. I've got it in an opaque package. Or, you know, I am gonna get really cute and try to take color out." Well, a couple of things on that. So, first of all, some of those would come in, obviously, at lower than a 10 to 1 ratio. But I think our guidance to our customers is you want to match, and you need to match the synthetic color. All the data and all the cautionary tales in the market suggest that if you go with less than the synthetic color match, you're putting your brand at risk. Because consumers' first complaint, more than any other, it seems, they are upset that the flavor has changed. So, the color is very strongly tied to the flavor expectation of a product. And when you modify that in a way that off the standard, consumers will revolt in some cases. And then still in other cases, they may just simply not like it because the color does not look as good. So those are the reasons that we guide our customers and advise them to go with the best match possible that gives you the best chance to be as successful as possible. But I am not going to deny that. I am sure there will be a handful of brands out there who, again, will attempt to use less color, or no color, or put it in an opaque package and, you know, try their luck with that. But I do not believe anybody has ever demonstrated that to work in any market that I am familiar with. Lawrence Scott Solow: No. No. That all makes sense. Really helpful. One quick follow-up, Paul. Just you mentioned no real change in regulations or ongoing legislation things in the last few months. Just any thoughts on the potential change on the general recognized as safe? I guess the FDA may tighten regulations a little bit on that where you actually are now required to file something where I think prior, previously, it's or currently, it's kinda self-governed, basically. Right? Does that could that potentially have any effect on your business at all? Paul Manning: Not really. The GRAS standard that you are referring to is specific to colors. Colors, I continue to argue, are the most regulated food product in the world. Synthetic colors anyway. In as much as every manufacturing batch has to be approved by the FDA, certified by the FDA. But even to get the right to manufacture those products, you have to petition the FDA for use of that product in food. And so that involves an extensive set of testing, pathological testing, quality control, and all sorts of parameters. And so that is the case with a natural color. If you would like to add one, there is no GRAS process for adding natural colors. One would have to actually file with the FDA and petition that, again, go through that rigorous process. So now, there could be impacts on other components of the business. For example, flavors, which do not have that equivalent color additive petition, but that would not be applicable to the cosmetic business. So there could be, but that is a rather vast and extensive part of the food world today. So attempting to modify that, I will be interested to see what that proposal could look like. That would be a, that may bring elements of the food industry to an absolute halt in terms of bringing new products into the market and introducing new ingredients. And so I think that is an interesting conversation. Ultra-processed foods is another one. And so I think a lot remains to be seen on those two fronts. But I think there is a lot of good discussions underway on both of those. Lawrence Scott Solow: Gotcha. Great. I appreciate all the color. Thank you. Paul Manning: Okay. Alright. Thanks, Larry. Tobin Tornehl: Thanks, Larry. Go Jets. Operator: Again, if you have a question, please press 1. And our next question comes from Nicola Tang from BNP Paribas. Please go ahead. Nicola Tang: Hi, everyone. Paul Manning: Hi, Nicola. Hi. Nicola Tang: I want to stick on the color topic, but then I do have some questions on other divisions as well. Paul Manning: On Nicola Tang: Colors, you mentioned in the remarks that even Walmart, you know, is also committed to committing some of its products towards natural colors. Well, firstly, how do you see other private label brands also following suit? How meaningful could this be from a Walmart or a general private label point? And given these tend to be lower price point items, do you see any impact in terms of this conversion price, I guess, to Larry's earlier question around whether some of those customers might choose to compromise on vibrancy or something else? That's my question. Paul Manning: Okay. So yeah, I think Walmart, the largest retailer, certainly in the U.S. market, their declaration that their private brands, Great Value being one of them, will convert to natural colors by 01/01/2027, was a big move in the right direction for the natural color market and this whole notion about conversion. Many folks have sort of wondered, is this really going to happen? Could these deadlines slip? Could this maybe just be a facade, and it's really not going to happen? I really do not think that is going to happen. And Walmart making this an expectation and moving up the timeline a year earlier than West Virginia, I think is a very positive development. Because again, consumers want natural colors. So I suppose you could say, well, why don't we give consumers what they want? And certainly, that is what Walmart has said that they intend to do. They want to give consumers what they want. So they deliberately made this edict, and they intend to do that by 01/01/2027. So that may move some of the other launches to the left, which again could be a positive. We certainly do not want everybody to attempt to convert their products by 2027 because that would be physically impossible. This move is important for that reason. Now, and because of its size and its influence, it is very, very meaningful for other brands and private labels to follow suit, to be competitive with those brands that are converting. With respect to this generating lower price points, I do not think so. I think that, you know, when you look at a lot of products, raw materials are not, in fact, in general, they are not the driving cost behind bringing a product to market. Now, synthetic colors represent almost nothing to the cost of a product on an individual SKU basis, but as you convert to naturals, they certainly become more expensive. And in most applications, it becomes somewhat at the level of a flavor, which is to say, still fairly small on the annals of raw materials but substantially more than they would have been paying for a synthetic color. So, I do not necessarily anticipate that being dilutive in any way to, certainly, by no means is that dilutive to the quality expectation of natural colors. I mean, these are fairly well-established brands and very, very strongly performing brands. So I think they have every expectation, I would assume, to have the highest performing colors in their products. So, no, I do not think that there's any diminishment of quality or price or anything else between private label and brand on a product like a natural color. Nicola? Operator: It looks like her line has dropped. Paul Manning: Oh, okay. Yeah. There are no more. Hopefully, I did not make her upset with it. Operator: There are no further questions at this time. I will turn the conference back to the company for closing remarks. Tobin Tornehl: Thank you for joining the call today. That concludes our prepared comments. If you have any follow-up questions, please reach out to the company. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to SiriusPoint Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, and a replay is available through 11:59 p.m. Eastern Time on November 14, 2025. With that, I'd like to turn the call over to Liam Blackledge, Investor Relations and Strategy Manager. Please go ahead. Liam Blackledge: Thank you, operator, and good morning or good afternoon to everyone listening. I welcome you to the SiriusPoint Earnings Call for the 2025 third quarter and 9 months results. Last night, we issued our earnings press release, 10-Q and financial supplements, which are available on our website, www.siriuspt.com. Additionally, a webcast presentation will coincide with today's discussion and is available on our website. Joining me on the call today are Scott Egan, our Chief Executive Officer; and Jim McKinney, our Chief Financial Officer. Before we start, I would like to remind you that today's remarks contain forward-looking statements based on management's current expectations. Actual results may differ. Certain non-GAAP financial measures will also be discussed. Management uses the non-GAAP financial measures in its internal analysis of our results of operations and believes that they may be informative to investors in gauging the quality of our financial performance and identifying trends in our results. However, these measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Please refer to Page 2 of our investor presentation and the company's latest public filings with the Securities and Exchange Commission for additional information. I will now turn the call over to Scott. Scott Egan: Thanks, Liam, and good morning, good afternoon, everyone. Thank you for joining our third quarter and 9 months 2025 results call. The third quarter was another successful quarter of delivery for SiriusPoint. A strong underwriting performance, deliberately targeted growth, the announcement of 2 MGA disposals, Insurer, Reinsurer of the Year at the Insurance Insider U.S. owners and an upgrade to positive outlook from S&P, means there is a lot to be pleased about. Our ambition remains the same, keep building on the progress and momentum whilst targeting sustained levels of best-in-class performance. The third quarter was another step along the road on that journey, and we remain completely focused with no room for complacency. In terms of specifics, our core combined ratio of 89.1% delivered an 11% increase in underwriting income versus last year, aided in part by no catastrophe losses in the quarter. We achieved a strong operating return on equity of 17.9%, significantly ahead of our across-the-cycle 12% to 15% target range. More importantly, our year-to-date operating return on equity of 16.1% is still outperforming our range despite the heightened first half losses from the California wildfires and aviation. Therefore, we would not describe the first 9 months as being quiet as, in fact, our catastrophe losses are over $50 million higher than prior year. This puts our 16.1% operating return on equity into context and is an important proof point of the improvement in the quality of our earnings. In addition to our strong financial delivery, the third quarter also saw significant execution on the rationalization of our MGA investments. We announced agreements for the sale of our 100% stake in Armada and our 49% stake in Arcadian for combined total proceeds of $389 million, valuing them together at around 15x EBITDA. Upon closure of these deals, over $200 million of off-balance sheet value will be recognized in our book value, representing a per share increase of approximately $1.75. Finally, the quarter also saw our third outlook upgrade of the year with S&P upgrading our outlook to positive, joining the previous upgrades from AM Best and Fitch. We have added a new slide this quarter linked to delivery against our ambition to become a disciplined underwriter with a low-volatility portfolio. Slide 10 shows our combined ratio volatility against our peers over the past 2 years. This demonstrates the significant progress we have made in managing the volatility of our underwriting, both at an individual risk level and across the portfolio. We talk often about our disciplined approach to portfolio management of risk. And as you can see, since our turnaround and reshaping, we now rank amongst the top performers over the past couple of years. Our aim is to continue to build this track record. We have now delivered 12 consecutive quarters of underwriting profits and 18 consecutive quarters of favorable prior year development. I also want to spend a few moments talking about the strong top line momentum we have within the company. Gross premiums written grew double digit again in the quarter at 26% year-over-year. This is now our sixth consecutive quarter with a double-digit growth profile. This was driven in large part by strong growth within our Insurance & Services business and particularly from our Accident & Health, Surety and attritional Property books of business. In particular, I want to highlight our Accident & Health division. This business acts as a volatility shock absorber within the wider underwriting portfolio given its short tail and low volatility characteristics. It also boasts a long track record of high capital returns. Our Accident & Health division allows us to take disciplined risk in other areas that still remain within our guide rails to achieve a low volatility portfolio overall. It also has the added advantage of being less correlated to wider P&C pricing cycles. This division accounts for almost $1 billion of gross premiums written on an annualized basis and forms a significant part of our company. Elsewhere, within our Insurance & Services business, we are seeing strong growth from Surety, which, like Accident & Health, is less correlated to wider P&C pricing cycles. Premiums here are derived via the MGA distribution channel. Turning specifically to look at the premium we write via the MGA distribution channel. Again, we have included an additional slide in the quarter to share more details on our approach. Slide 13 focuses on the length of the relationship linked to the derived premium. In short, we are more careful with newer partners. Whilst they make up approximately 1/3 by number, they only make up 9% of our overall MGA premiums. We tend to have higher premium volumes with more mature partners, where we have gained greater historical experience. Around 90% of our overall portfolio comes from partners who we have had a relationship with for 3 years or more. We think this seasoning is an important part of our approach to risk taking. Our selection process, which declined around 80% of opportunities presented, seeks out partners who want to form deep long-term relationships. Looking at our existing relationships in the last year, we have continued writing business with 97% of the partners we have previously onboarded over a year ago. This demonstrates our ability to seek out those partners who we will work with on a long-term basis and those who share our underwriting and risk philosophies. In addition to our cautious approach to risk taking in the early days of a relationship, we also apply the same logic to our reserving. Under our risk-based approach to reserving, newer relationships are generally reserved above pricing projections to account for uncertainty from limited performance experience. Lastly, we have profit sharing features in place for around 87% of our MGA partners, driving alignment of interest linked to underwriting performance. Coming back briefly to the sale of our MGA investments. As I mentioned earlier, this quarter saw us reach agreements to sell 2 MGA investments, Armada and Arcadian. Importantly, we also signed long-term capacity deals with them both until 2030 and 2031, respectively, on existing economic terms. Armada, the most material to our book value, remains on track to close in the fourth quarter and Arcadian remains on track to close in the first quarter of next year. We reaffirm our commitment to a long-term ROE across the cycle target of 12% to 15% post these disposals. IMG is now our only 100% owned MGA, generating roughly $50 million of net service fee income on an annual basis. As a reminder, the carrying value on our balance sheet is $70 million. IMG is a key part of our wider Accident & Health ecosystem, generating around 25% of the Accident & Health underwriting division's premium as well as a healthy MGA margin in its own right. We are excited about the future of IMG and announced last week the appointment of a new CEO, Will Nihan, who joins us from Travelex. Finally, our capital remains strong, and our third quarter BSCR ratio improved to 226%, which is within our target range as we continue to deploy capital to support the organic growth opportunities of the business. Of course, we expect this to increase post the closing of the MGA transactions I have mentioned. As we think ahead on capital given these sales, we are taking a look at our capital stack and more specifically, our hybrid debt instruments. When we conducted the buybacks related to the CMIG shareholder agreement, we increased our leverage. Jim will cover this in more detail, but with the Series B Preference shares having a rate reset coming up in February '26, we have an opportunity to reduce leverage to pre-CMIG agreement levels whilst reducing our financing costs meaningfully. Before I pass across to Jim, I also wanted to highlight that last month saw the company earn another award, this time Insurer Reinsurer of the Year at the U.S. Insurance Insider Honors Awards. This follows our Program Insurer of the Year award, which we received in May at the Program Manager Awards. Whilst they don't mean anything in and of themselves, I think we can take them as further proof points of our progress. So I will finish where I always do. I'm incredibly proud of the team and the commitment, desire and determination they have shown again so far this year. As I reflect back on my third anniversary as CEO, our progress is strong, but it could not be done without our biggest asset, our people. I am grateful to all of them for what they have done and what they do every day, and I am excited about our future. Our collective aim is to continue our upward trajectory to become a best-in-class specialty underwriter. With that, I'll pass across to Jim, who will take you through the financials in more detail. James McKinney: Thank you, Scott. Turning to our third quarter results on Slide 16. In the third quarter and for the first 9 months of the year, we delivered excellent financial results on a consolidated basis and in each of our segments. Our diverse portfolio continues to showcase profitable premium growth with low volatility and highly attractive lines of business. At 89.1%, the core combined ratio is strong and broadly in line with the previous year. The combination of higher premiums, a strong core attritional loss ratio, lower expense ratio and no catastrophe losses produced core underwriting income of $70 million. This is an 11% increase from the third quarter of 2024 and our 12th consecutive quarter of positive income. These items are a testament to the team's strong execution, disciplined underwriting and focused capital management. Moving to net service fee income. We benefited from a 22% increase in year-over-year service revenues as well as net service fee income increasing 47% to $10 million. The investment result is $73 million. It includes the full impact of the actions taken during the first quarter to support our repurchase activities. Net investment income continues to benefit from a supportive yield environment, and we remain on track with our full year guidance of net interest income between $265 million and $275 million. Operating net income is $85 million. This excludes nonrecurring items such as foreign exchange losses. On a per share basis, this increased by 41% to $0.72. We previously referred to this metric as underlying net income, but have renamed it this quarter to better reflect the nature of this metric as the business moves past its repositioning history. Net income for the quarter was $87 million, a strong year-over-year improvement from $5 million last year. In summary, our third quarter results demonstrate our ability to profitably grow a low volatility portfolio and create meaningful value for all of our stakeholders. Moving to our 9-month results on Slide 17. Themes are consistent with the third quarter. Strong execution, disciplined underwriting and focused capital management is producing profitable growth. Gross written premium, net written premium and net earned premium grew 16%, 19% and 18%, respectively. Growth was particularly strong in the third quarter. We expect fourth quarter premiums to be more in line with the growth produced on a year-to-date basis. Common shareholders' equity increased $273 million to $2 billion, resulting in diluted book value per share ex AOCI growing 13% or $1.83 to $16.47. Moving to Slide 18 and double-clicking into our underlying earnings quality. Our underwriting first focus continues to deliver strong underlying margin improvement. The attritional combined ratio chart on the left-hand side of the page strips out the impact from catastrophe losses and prior year development as these inherently vary over time. We believe this metric is useful to examine the quality of our underwriting income. Our 90.9% core attritional combined ratio in the first 9 months of the year represents a 1.8 point improvement versus the prior year period of 92.7%. All facets of the ratio improved. The attritional loss ratio improved 0.9 points. The acquisition cost improved 0.2 points and the OUE improved 0.7 points. Important to note, we continue to benefit from scale from our earned premium growth. For the full year, we remain comfortable with our previously stated expense ratio expectation of 6.5% to 7%. The right-hand side provides a bridge from our underlying earnings quality to our core combined ratio. This displayed 3 points of favorable prior year development in the first 9 months, partially offsetting 3.5 points of catastrophe losses that relate entirely to the first quarter California wildfires. Turning to our Insurance & Services segment results on Slide 19. Gross written premium increased $186 million or 49% to $562 million in the quarter, driven by strong growth within all of our specialties. Year-to-date, gross written premium increased $367 million or 26% to $1.8 billion. The Insurance & Services segment achieved a combined ratio of 90.1%. This is a 2.3 point improvement from the prior year quarter. This was driven by a 2.3 point decrease in the loss ratio and a 2-point decrease in other underwriting expenses, partially offset by a 2-point increase in the acquisition cost ratio. The improvement is due to improving risk selection and a shift in business mix. Double-clicking on our Accident & Health book of business. A&H provides us with a stable source of underwriting profit and a strong double-digit return on capital. During the first 9 months of the year, premiums for this specialty grew 24% and now accounts for 45% of the segment gross written premium. For the areas we focus on, the pricing environment continues to meet our risk return requirements. We continue to see growth opportunities within this specialism. Turning to casualty. Year-to-date premiums have increased by 4%, driven by strong rate offset by decreased volumes. In the first half of the year, we allocated capital towards other opportunities that have more attractive underlying margins. Subsequently, in the third quarter, we saw growth opportunities within select general liability subclasses, Overall, there are many classes we remain cautious on due to pricing challenges, notably public D&O and commercial auto, where, as previously indicated, we have substantially reduced premium and exposure. In terms of casualty pricing, we continue to benefit from rate in excess of trend, particularly in excess casualty that has seen mid-double-digit rate increases. Our priority is the bottom line over top line. If conditions change, we will not be afraid to take decisive action to ensure appropriate underwriting margins. Other specialties continue to see strong growth, highlighted by Surety and Environmental. Both of these lines have seen strong year-over-year and quarter-over-quarter increases in premiums. Within Marine & Energy, rate trends are similar to those described in the second quarter. Cargo and haul generally saw single-digit rate decreases. Rates for marine liability are firmer, ranging from flat to low single-digit rises. Energy liability rates remain positive and averaged 5%. Last, premium for our Property specialty are strong on both a third quarter and year-to-date basis. This is driven by growth from our international business, where we are writing select opportunities mostly in the U.K. This business has a controlled volatility profile with a focus on lower limit residential and SME properties protected by XL reinsurance for larger events. Moving to our Reinsurance segment results on Slide 20. This quarter, gross written premium decreased by $5 million or 2% to $310 million. We saw growth in casualty, offset by a decrease in aviation premium with Property premium broadly flat. Trends were similar on a net written premium basis. On a 9-month basis, gross written premium increased by 1%, while on a net basis, premiums written decreased by 3%. The combined ratio for the quarter increased by 3.3 points to 87.9%. The result was driven by a 1.2 point improvement in the acquisition cost ratio, offset by a 4.4 point increase in the loss ratio, largely the result of decreased favorable prior year development. Double-clicking into casualty reinsurance. Gross written premium increased 7% in the quarter. It is down 2% for the 9 months. Casualty reinsurance continued to benefit from positive rate that exceeded trend. Aligned with our fourth quarter 2024 guidance, we reduced exposures on structured deals and certain casualty classes at 1/1. This is a result of underwriting discipline and our ability to allocate capital to the best opportunities. Other specialties saw gross written premium decreased by 10% this quarter. Year-to-date, we are up 6%. The reduction is the result of reduced aviation premium. We remain cautious on this specialty as we seek further rate increases to achieve rate adequacy, particularly with major airlines. A majority of major airline renewals occur in the fourth quarter. Our capital allocation to this area will depend on rate achieved and price adequacy. Elsewhere in other specialties, credit and bond pricing continues to be pressured stemming from favorable historical results and ample market capacity. Within property reinsurance, premiums were flat in the quarter with softening in excess of loss largely offset by an increase in demand for surplus relief via quota share. Here, carriers are driving additional demand, specifically for secondary perils coverage, following market expansion resulting from the improved market conditions and regulatory environment. For the first 9 months, premiums are roughly flat with reinstatement premiums from the California wildfires offsetting premium reductions. We will continue to monitor rate adequacy in property reinsurance and be disciplined capital allocators. Slide 21 shows our catastrophe losses versus peers and the reduction in the volatility of our portfolio. Following portfolio actions taken in 2022, we have materially decreased our catastrophe exposure in order to deliver more consistent returns to our shareholders. The charts show how we reduced our catastrophe losses in 2023 and '24 and have continued on this path in 2025. Catastrophe losses in the first 9 months represent 3.5 points of our combined ratio and were largely driven by the first quarter California wildfires. We have a comparatively low loss ratio, demonstrating the benefits of our diversified portfolio. I would like to take a moment on behalf of all of SiriusPoint to send our thoughts to all those who have been affected by Hurricane Melissa earlier this week. At present, we expect this to be a manageable loss with our net exposure in the affected regions around $10 million. Moving to reserving. Our strong history of prudence is shown on Slide 22. Favorable prior year development in the quarter stood at $9 million for the core business versus $30 million in the prior year quarter. It is important to consider our consolidated result here as this includes the business we have put in runoff. We had favorable prior year development on a consolidated basis of $9 million, marking the 18th consecutive quarter of favorable prior year development. Our track record of consecutive favorable releases well exceeds the average duration of our insurance liabilities of 2.8 years, highlighting our prudent approach to reserving. Additionally, we show here the strong level of protection we have on each of these loss portfolio transfers that were completed in 2021, 2023 and 2024. Turning to our strong investment result on Slide 23. Net investment income for the first 9 months of the year was $206 million, down slightly from the prior year period as a result of a lower asset base following the settlement of the CM Bermuda transaction in the first quarter. We reinvested over $900 million this quarter with new money yields continuing to be in excess of 4.5%. The portfolio continues to perform well, and there were no defaults across our fixed income portfolio. We remain committed to our investment strategy, which focuses on high-quality fixed income securities. 83% of our investment portfolio is fixed income, of which 99% is investment grade with an average credit rating of AA-. Our overall portfolio duration remained at 3.1 years, while assets backing loss reserves remain fully at match and are at 2.8 years. Moving on to Slide 24, looking at our strong and diversified capital base. Our third quarter estimated BSCR ratio increased 3 points to 226%. Our capital position remains strong and contains sufficient prudence as shown by the stress test scenario of a one in 250-year PML event. Moving on to our balance sheet on Slide 25. We continue to have strong balance sheet with ample capital and liquidity. During the quarter, the debt-to-capital ratio fell to 23.6%, driven by an increase in shareholders' equity from net income offset by weakening of the U.S. dollar-Swedish krona exchange rate, increasing the value of our debt issued in corona. Our debt-to-capital levels remain within our targets. We continue to have strong liquidity levels, including $662 million of liquidity available to the holdco following the final payment of $483 million to CM Bermuda in the first quarter. As a reminder, in the first half of the year, both AM Best and Fitch revised our outlook to positive from stable, whilst Moody's and S&P affirmed our ratings. During the third quarter, S&P also revised our outlook to positive from stable. We believe our balance sheet continues to be undervalued in relation to the consolidated MGAs, which we own. During the quarter, we announced the sale of Armada, which will increase book value by roughly $180 million upon close. We also announced the sale of our 49% stake in Arcadian. This will increase book value by roughly $25 million to $30 million upon close. Following the sale of these MGAs, we reaffirm our commitment to producing 12% to 15% ROE across the cycle. We expect to use the proceeds to redeem the $200 million of preference shares that we have outstanding at their upcoming rate reset. On a pro forma basis, using the proceeds from the sale to redeem the preference shares would reduce our leverage ratio, including preference shares from 31% to 24%. This will enhance our credit profile and reduce our cost of debt. With this, we conclude the financial section of our presentation. This quarter saw a continuation of strong double-digit growth in our top line, while delivering a core combined ratio in the high 80s that contains continued attritional loss ratio improvement. This is our seventh consecutive quarter of attritional loss ratio improvement. Operating return on equity for the quarter of 17.9% contributes to a 9-month operating return on equity of 16.1%. We are on track to deliver another year with a strong return on equity at or above our 12% to 15% across the cycle target. We have built a strong track record of delivery, and this quarter's result further validates the significant progress we have made on our journey to becoming a best-in-class specialty underwriter. With that, I hand the call back over to the operator. We can now open the lines for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Phillips with Oppenheimer & Company. Michael Phillips: First of all, congrats on the quarter, and I appreciate the slide -- the new slide, Slide 13, is nice to see. I'm so glad you guys added that. Question on, I guess, insurance and kind of to Jim's last couple of comments on the attritional loss ratio improvements. You've taken it nicely down from mid-60s to now teasing 60, low 60s. And I assume part of that -- a good part of that is because of the mix shift in the company in that segment. I guess, so as we think about continued probably mix shift A&H, Surety and different things that you're really growing in and think about that line item for the attritional accident year loss ratio, it seems like are we teasing to get below 60% as we look forward is the question. Scott Egan: Michael, thanks very much for the question, and thanks for your comments at the beginning as well. Jim, you can jump in a second as well. Look, I think, Michael, the way I think about it is, obviously, we've done a lot of the hard work over the past few years, which was really reshaping the portfolio. Obviously, because of the profile of our distribution, sometimes when we win a new MGA relationship, that can see things sort of move. But I wouldn't expect any material movements, if I'm honest with you, as we sort of look out and over. Our ambition is always to reduce it, obviously, all of our ratios. But obviously, we have to take into account the environment as well. So I would say, look, it's more sort of now, Michael, to be honest, rather than sort of incremental moves. But obviously, if that mix shift changes because we are making decisions or because we win sort of new relationships, then obviously, we'll be very clear in our guidance. But Jim, do you want to add anything beyond what I've said? James McKinney: No, I think that's well said. I think at this stage, we're likely -- it's a mix shift element. What would be clear is our targets from an ROE perspective and our commitment that we're earning appropriate returns on the deployment of capital. And so I would think about us continuing to optimize and to grow that as the real focus point. Scott Egan: And Michael, I'd just come back to that as well because one of the things, for example, in something like reinsurance as we look into some of the more structured products, if that mix shift changes, obviously, you can be quite a shift in terms of sort of loss ratio, acquisition cost, et cetera. But look, for us, we'll go after where we think there's the most value. If we pull back in certain areas, we'll be very clear on what and why, but always with good first principle, which is number one, underwriting principle. And I think Jim captured it perfectly for me, which is, look, we think of it holistically in ROE and don't just sort of pull one particular lever, and we can sometimes see value in different areas, which obviously would shift between acquisition cost and loss ratio. And obviously, OUE, much smaller number. But ultimately, we've made great progress in that over the last few years. So look, we'll be as transparent as we possibly can be. And look, hopefully, the slides helped a bit as well, and thank you for your comments in that regard. Michael Phillips: I guess given the pretty significant jump in insurance growth this quarter, I know last year is when I think you took out $90-some million. So I know we're apples-to-apples from this year to last year. But just help us think about how we can, I guess, model the premium growth going forward. Was there any anomalies in this quarter in either A&H or Surety that kind of led to the pretty significant growth this quarter? Scott Egan: Not anomalies. I definitely wouldn't describe them as that, Michael. I mean what can happen, obviously, is we can win new relationships. And obviously, that can impact it. Obviously, we've tried to be clear over the last few quarters, I hope, where we can say we've been sort of leaning into. So I think you can see the difference between our gross growth and our net written growth. And obviously, there's a linkage to the earned premium, which is still to come, which I think is the point that Jim often makes. So look, I think what you could expect subject to market conditions, profitability and a few other assumptions is our ambition is to make sure that we seize the relationships that we bought in, in the 1- to 2-year segment on the pie chart. But obviously, that will be subject to us being satisfied with the sort of underwriting performance and obviously, market conditions, but I think that's effectively what we would be looking into. There's not really any anomalies per se. But Jim, do you want to add anything? James McKinney: Yes. I would just say, Michael, maybe just thinking a little bit about trends, as Scott indicated, no anomalies from a quarter perspective or in a year-over-year that you'd take a look at. It's been a pipeline that has been growing and the strength of our relationships have been growing that have enabled what we've seen from a quarter growth perspective. I would highlight, and we tried to call this out, when I think about what growth might be, for example, in the fourth quarter, we're thinking that it will be much closer to what we experienced maybe year-to-date, recognizing that the fourth quarter tends to be or sometimes is a little bit slower than maybe kind of what your first quarter or some of the other quarters might be from just an overall kind of seasonality perspective and just where we see policies being written. Michael Phillips: And that comment was more on insurance, correct, just to be clear. James McKinney: Yes, it was. Operator: [Operator Instructions] We'll pause a moment to allow for any other questions. Mr. Blackledge, there are no other questions at this time. I'll turn the floor back to you for final comments. Liam Blackledge: Thank you, everyone, for joining us today. If you have any follow-up questions, we will be around to take the call, or you can e-mail us on investor.relations@siriuspt.com. Thank you for your ongoing support, and I hope you enjoy the remainder of your day. I will now turn it back over to the operator to wrap up the call. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Well, thank you, Michael. Good morning, and welcome to Baytex's Third Quarter 2025 Earnings Call. I am joined today by Eric Greager, our President and Chief Executive Officer; Chad Kalmakoff, our Chief Financial Officer; and Chad Lundberg, our Chief Operating Officer. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information and non-GAAP financial and capital management measures in yesterday's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And after our prepared remarks, we'll open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric. Eric Greager: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex. We delivered record production in the Pembina Duvernay, generated robust free cash flow, supported by the strength and reliability of our Canadian heavy oil and U.S. Eagle Ford operations and made further progress on debt reduction. Pembina Duvernay set a new quarterly production record averaging just over 10,000 BOE per day, driven by strong well performance from the third pad we brought on stream in September. We also completed a land swap to consolidate our Southern Duvernay acreage and commission new gathering and midstream infrastructure with Gibson Energy, both of which will support more efficient development as we scale up. Our heavy oil and Eagle Ford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter-over-quarter, while volumes in the Eagle Ford were up 3%. Commodity prices remained soft in the third quarter with WTI averaging approximately USD 65 per barrel, but our strong operational execution and cost discipline enabled us to generate $143 million in free cash flow and reduce net debt to $2.2 billion. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results. Chad Kalmakoff: Thanks, Eric. Third quarter financial results were solid. Adjusted funds flow was $422 million or $0.55 per basic share. Net income for the quarter was $32 million, and we generated $143 million in free cash flow after $270 million in exploration and development expenditures. We returned $17 million to shareholders through our quarterly dividend and reduced net debt by $50 million, bringing net debt at quarter end to $2.2 billion, as Eric noted. Our financial position remains strong. We have significant financial liquidity with over $1.3 billion in undrawn credit capacity on our credit facilities and our first note not maturing until April 2030. Our capital allocation framework remains unchanged. 100% of our free cash flow is directed to debt repayment after funding our dividend. Based on year-to-date results and the forward strip for Q4, we now expect to generate approximately $300 million in free cash flow for 2025. This compares to our previous forecast of $400 million, with the change largely attributed to lower commodity prices during the second half of the year. There is no change to our production guidance, and we expect to reach $2.1 billion of net debt at year-end. I'll pass it on to Lundberg -- Chad Lundberg to provide more details on our operating results. Chad Lundberg: Thanks, Chad. We saw strong operating performance in Q3. Production averaged 151,000 BOE per day, with liquids making up 86% of the mix. We invested $270 million in exploration and development and brought 69 wells on stream, keeping us on track with our plan. In the Pembina Duvernay, production averaged 10,200 BOE per day, up 53% from last quarter. The third pad from our 2025 program came online in September with 2 wells delivering strong 30-day peak rates averaging 1,300 BOE per day per well. The third well encountered casing issues during completion and was subsequently abandoned. We are committed to accelerating full commercialization of the asset, targeting 18 to 20 wells per year by 2027 and ramping production to 20,000 BOE per day by 2029. In addition to our progress in the Duvernay, we continued to expand our heavy oil platform. Heavy oil averaged 47,300 BOE per day, up 5% from Q2. We brought 20 net wells on stream and expanded our core land base in Peace River and northeast Alberta. Our heavy oil inventory now totals approximately 1,100 locations, supporting approximately 10 years of drilling at our current pace. Eagle Ford production remained steady at 82,800 BOE per day, with oil production up 3% from last quarter. We brought 15.6 wells on stream while achieving a 12% improvement in drilling and completions costs. We continue to see strong results from the refracs completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refrac program in 2026. Overall, operational execution across the asset base remains strong, underpinned by our commitment to health and safety of our workers and the communities in which we operate. Let me turn the call back to Eric for his closing remarks. Eric Greager: Thanks, Chad. Our third quarter results demonstrate Baytex's ability to create value across commodity price cycles. The Pembina Duvernay continues to drive our Canadian growth potential, bolstered by recent consolidation efforts and infrastructure advancements that support future development and operational flexibility. At the same time, our heavy oil and Eagle Ford assets continue to deliver reliable results and cash flow. Our capital discipline and our consistent performance demonstrate our ability to execute through market volatility, maintain financial flexibility and position our company for long-term value creation. Brian, back to you. Brian Ector: All right. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagle Ford assets. As a matter of policy, we do not comment on speculation. Our focus remains on consistent operational execution, capital discipline and maximizing value. We ask that analysts' questions remain focused on our third quarter results and published guidance. And operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Phillips Johnston with Capital One. Phillips Johnston: My first question is on the $24 million of acquisitions that you executed here in Q3. I'm guessing that was spread out across the 3 areas mentioned in the release. Should we assume that -- I guess, the question is, was there any material production that came with the transactions? Or was it all undeveloped acreage? Eric Greager: Phillips, it's Eric Greager here. Thanks for the question. It was all undeveloped land, focused in the Ardmore area, that's Cold Lake oil sands Mannville stack development; in the Peace River oil sands Pekisko area, that one is quite a bit bigger. So the Ardmore was about 4.5 net sections, and the Peace River oil sands at Pekisko area, about 40.5 net sections. That's in the heavy oil business. And then, in Spartan, likewise, focus just -- sorry, in Pembina Duvernay, likewise, it's just our areas in the South in what we call Gilby, and that was an area that was prior checkerboarded. Phillips Johnston: Okay. Great. Makes sense. And as you mentioned, we saw a nice uptick in your heavy oil production. It was up 7% in Q2, and then, up another 5% or so here in Q3, and that was after 3 sequential quarterly declines. Can you talk about what's driven that growth? And what we should expect for Q4 and into 2026? Eric Greager: Yes. It's a little early for 2026, but what I would say is we continue to execute the 2025 plan. It's really been, but for the change we made in May after -- in April, May, after Liberation Day after our Q1 announcement, it's really been executing our plan. So we lay out our capital profile based on breakup and anticipation of some breakup impacts to access. And if breakup is light, then that creates optionality in the plan. But we're really simply executing the plan, and we're seeing stronger performance across all of the assets really based on the capital investments we're making. So it's really steady execution of the plan, Phillips, with a little bit better performance than maybe we had originally communicated to the market, which is pretty consistent with our conservative guidance style. Operator: And your next question comes from Luke Davis with Raymond James. Luke Davis: Doing some good work in Canada. I'm wondering if can you just provide some parameters sort of by asset in terms of what you expect those to look like, say, over the next 3 to 5 years. And have you kind of contextualized that in the current commodity price environment versus something a little bit more favorable, call it, mid-cycle price? Eric Greager: Sorry, what assets did you say? Brian Ector: Canadian, general. Eric Greager: Okay. Yes. Luke, it's Eric again. Yes. So look, I think 2026 commodity pricing is anyone's guess, but if things go into the 50s, we're probably looking at a plan that is more conservative. That is what you would expect, and I think what any producer of a commodity would do, something that's probably closer to flat. If prices move higher toward mid-cycle through 2026 and into 2027, then naturally, we would lean in because there's a lot of value to pull forward for shareholders. I'm sure that's what you would expect me to say. The assets are just performing really well. I mean, we've got strong geology teams working all across our heavy oil fairway, the engineering teams and our long history across our large heavy oil fairway means the hit rate is pretty good on exploration and development. And in Duvernay, it's just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole, and we couldn't be more pleased with the results across our Duvernay as well. So across the Canadian portfolio, it just feels really good. Our Viking assets run steady and flat and are extremely reliable in terms of their input and output factors. So that's the way I would characterize it. Luke Davis: All right. That's helpful. I'm wondering also if you could just dig into the Duvernay a little bit more. Well performance looks very good. I'm wondering if there's anything that you can tweak going forward, and how you'd expect sort of the productivity parameters to change? And then, you did abandon 1 well, so I'm wondering if you can just flesh out some of the issues you had and maybe some learnings coming out of that. Eric Greager: You bet, Luke. I'm going to pitch it over to Chad Lundberg here for that one. Chad Lundberg: Great. Thanks. Two parts to your question, so I'll address the hole first. This was an issue that resulted from the construction of the well really on the upfront drilling. So it's something to do with the casing and the cement. We believe it's an isolated incident and that we will have it resolved for our programs forward. So I think that's the key thing is we believe it's isolated, and go forward, we've figured it out. Your second question, just on Duvernay performance, so yes, year-over-year, we've seen a strong improvement in IPs. As everybody knows, we're curiously declining the wells to try to understand how that relates to EURs. We think we have a high chance of seeing an improvement in EURs as well. When you really think about how we constructed this year, we're trying to understand completion efficiency and just our ability to deliver sand and energy into the formation. We think we made big strides this year and that, that some of these results are a direct result of that. As we think about programs forward, we're not done. And I don't know if we'll ever be done. These things are a continuous improvement cycle. But we do have more improvements that we're working through at this point in time that we're excited to deploy through 2026 and see where the results take us. Operator: This concludes the question-and-answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Thanks, Michael. We had a couple of questions come in on the webcast, but I do believe they've been addressed through the analysts' Q&A already. So I think with that, we are going to wrap up today's call. I'd like to thank everyone for joining. And thanks again for your time, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to the Reinsurance Group of America Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President, Investor Relations. Please go ahead. J. Hopson: Thank you. Welcome to RGA's Third Quarter 2025 Conference Call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get going regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments. Tony Cheng: Good morning, everyone, and thank you for joining us. I am delighted to share that we have had a very strong third quarter, as demonstrated by the continued successful execution of our strategy as well as the record financial performance we delivered. Let me open with a few key highlights. Firstly, we reported record operating EPS, excluding notable items, of $6.37 per share. These results were strong and above expectations. We had excellent performance overall with particularly good results in Asia Traditional and EMEA and U.S. Financial Solutions. Our diversified global platform continues to deliver significant long-term value. Secondly, we are seeing a positive contribution from the Equitable transaction, which closed this quarter. Thirdly, new business momentum remains strong, as evidenced by our premium growth and capital deployment into in-force transactions. We are seeing good year-to-date contributions from across our geographies. Our competitive advantages continue to differentiate RGA, leading to good new business results, a robust pipeline and the ability to be selective on the opportunities we pursue. Next, during the quarter, we repurchased $75 million of common shares. We will continue to balance investing our excess capital into the business and returning it to shareholders in a manner that allows us to execute our strategy and meet our financial targets over time. Finally, we continue to make progress on other strategic initiatives, including the utilization of Ruby Re and the successful execution of in-force management actions. All of these position us for continued long-term success. Let me now provide a few more details on the quarter, including highlights from across our regions, starting with North America. We continue to exceed our new business targets for the traditional business, driven by our strong underwriting capabilities. We closed a significant number of new deals in the quarter and reached a record number of underwriting applications. One of these deals was an enhancement of our strategic underwriting program with a digital solution that enabled us to partner exclusively with a key client that has a strong brand and a large distribution footprint. These initiatives differentiate RGA and represent an increasing portion of our U.S. business. This is yet another example of what RGA has done for over 50 years and continues to do its best, which is to be innovative and the leader in underwriting. Also, as indicated, the Equitable transaction closed in the quarter, and we recorded a full quarter of earnings in this period. Results were in line with our expectations. The asset portfolio repositioning is progressing as planned, and our previous guidance on the expected future earnings remains unchanged. Along with the financial gains, the partnership is yielding strategic benefits through increased underwriting services, product development, asset management and participation in our Ruby Re sidecar. The depth and breadth of this partnership is one example of the win-win opportunities for the benefit of both RGA and our clients. Moving to Asia Pacific. The region continues to perform very well. Traditional results were particularly strong this quarter, continuing its trend of excellent growth and bottom line results. We continue to delight our clients by staying at the forefront of innovation and helping them navigate evolving strategic needs. Our strategy in Hong Kong is to deliver holistic solutions combining product development, capital solutions and technology-enabled underwriting capabilities. We recently won the prestigious Hong Kong Federation of Insurers' Outstanding Reinsurance Scheme Award. Recognizing one of these holistic solutions. We expect this to lead to repeat transactions of this nature in Hong Kong. In addition, we've been able to leverage these strengths across the region. This was best demonstrated in Mainland China where recent regulatory changes allow participating critical illness products like the ones in Hong Kong to be sold. RGA co-developed a first of its kind critical illness combination product, and early sales performance has been strong. In Korea, RGA remains the market leader in product innovation. Building on the success of last year's cancer treatment product, which launched with 19 clients, we introduced the second-generation version of this product, and our clients have already sold over 1 million policies, demonstrating the strong market demand. Finally, in the EMEA region, RGA remains a clear market leader, and Q3 results reflect that. We successfully closed multiple transactions across the region and across a range of product lines. The strong client satisfaction from RGA executing on our promises will lead to repeat opportunities. In addition, we closed a market-first transaction in Switzerland. This follows our success in Belgium last year in a similar market first and shows Continental Europe is opening up to asset-intensive reinsurance. I firmly believe we are best positioned in this market, and our innovation will continue to drive growth in the region. Reflecting on the activity from across the globe, I am very pleased with our Traditional business results. Traditional business premiums are up 8.5% year-to-date on a constant currency basis, with good growth across regions and we can rely on this business year in, year out, giving us a strong foundation for continued earnings growth. Now with regards to transactions, we have deployed $2.4 billion of capital year-to-date. This comprised of $1.5 billion into the Equitable transaction and $900 million of capital into over 20 other transactions spread around the globe. These are high-quality transactions that don't always make headlines due to their more modest size, but are equally important as they form a regular base of business that we can also rely on year in, year out. They leverage our long-standing client relationships, our strength in biometric risk and often our repeat transactions that are well within our sweet spot. As you can see from these examples, the new business success in all 3 regions are the result of our now well entrenched Creation Re business approach. This approach proactively provides holistic and innovative solution, leveraging our competitive advantages and often leads to exclusive and repeat business. Over the past 2 years, this approach has driven expected lifetime returns of all new business across the company above our target range. Looking forward, our new business pipeline is strong across all 3 regions, and we will continue to select the best opportunities based on our expected returns, risk appetite and other strategic considerations. Another highlight is that the value of in-force business margins increased by 16% over the past 3 quarters. This is a measure of our efforts to create long-term value through new business and other management actions and indicates our success in building a sustainable and successful future. Finally, it is very gratifying that we can provide an attractive combination of organic growth and are in a strong capital position that enables us to fulfill our healthy pipeline and return a meaningful amount of capital to shareholders. So to sum up, we have had an excellent third quarter with many highlights. We are well positioned in the right markets with the right teams executing with the right strategies and have full confidence that the best is yet to come. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail. Axel Philippe Andre: Thanks, Tony. RGA reported pretax adjusted operating income, excluding notable items, of $534 million for the quarter or $6.37 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 14.2%. Results were strong this quarter and above expectations. Momentum across our business remains good, and we saw notable strength in Asia Traditional and EMEA and U.S. Financial Solutions. As Tony mentioned earlier, we closed the Equitable transaction and recognized a full quarter of income. Results for the block continue to be in line with expectations. As a reminder, this block is expected to have a highly diversified sources of earnings, split roughly between fee income, underwriting margin and investment spread. This is one of the reasons the transaction was so attractive to us. Given the diversified sources of earnings, this is immediate earnings impact as well as incremental ramp-up as some of the assets are repositioned. The portfolio repositioning is on track and was approximately 75% complete at the end of the quarter. The remainder will occur over the next 6 to 9 months. During the quarter, we deployed $233 million of capital into in-force transactions in addition to the previously announced $1.5 billion into the Equitable transaction. We also completed $75 million of share repurchases at an average price of $184.58. Our capital position remained strong, and we ended the quarter with estimated excess capital of $2.3 billion and estimated deployable capital of $3.4 billion. The effective tax rate for the quarter was 19.6% on adjusted operating income before taxes, below the expected range of 23% to 24%, primarily due to the jurisdictional mix of earnings. We still expect a tax rate of 23% to 24% for the full year. Our Traditional business premium growth was 8.5% year-to-date on a constant currency basis, which has benefited from strong growth in the U.S., EMEA and APAC. Premiums are a good indicator of the ongoing vitality of our Traditional business, and we continue to have strong momentum across our regions. Turning to biometric claims experience, as outlined on Slide 9 of our earnings presentation, Economic claims experience was favorable by $5 million in the quarter, primarily driven by APAC and Canada, partially offset by the U.S. Traditional segment. The corresponding current period financial impact was unfavorable by $50 million. Claims experience in U.S. individual life and group were modestly unfavorable. As discussed last quarter, our expectation was that the group business overall will be approximately breakeven for the second half of the year, and that remains true. Over the longer term, economic claims experience for the total company has been favorable by $277 million since the beginning of 2023 when we more fully emerged from COVID. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. I'll now make a few comments on the notable items reported in the period, which relates to the results of our annual actuarial assumptions review, the overall economic impact of the assumptions update is positive from a long-term value perspective and future run rates. As presented on Slide 7, the impact is split into 2 components: a negative $149 million current period impact due to LDTI cohorting and a positive $600 million impact to long-term value. Said another way, if LDTI did not exist, the total impact is a benefit of $450 million. These updates will increase annual run rates by $15 million, gradually increasing to $25 million annually by 2040. Moving to the quarterly segment results on Slide 6. The U.S. and Latin America Traditional results reflected modestly unfavorable claims experience, partially offset by the favorable impact from in-force management actions. In our group business, as mentioned, results were approximately breakeven and in line with our updated 2025 expectations, and the block will be fully repriced by January 2026. The U.S. Financial Solutions results reflected the contribution from the Equitable transaction, partially offset by lower variable investment income. The results from the Equitable block were in line with expectations. For the full year, we still expect this transaction to contribute around $70 million of pretax income, increasing to $160 million to $170 million in 2026 and approximately $200 million per year by 2027. Canada Traditional results reflected unfavorable group experience, partially offset by favorable individual life claims experience. The Financial Solutions results in Canada were in line with expectations. In the Europe, Middle East and Africa region, the Traditional results reflected favorable underwriting margins. EMEA's Financial Solutions results reflected favorable longevity experience and continued growth in the segment. This segment continues to be a bright spot for us. Turning to our Asia Pacific region. Traditional had another good quarter, reflecting favorable claims experience and the benefit of ongoing growth. This segment continues to perform at a high level, a reflection of our excellent competitive position and our execution of value-added solutions to clients. Financial Solutions results were in line with expectations with a modest unfavorable impact from lower variable investment income. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $58 million, unfavorable compared to the expected quarterly average run rate. This was primarily due to lower variable investment income and higher general expenses. Moving to investments on Slides 10 through 13. The non-spread book yield, excluding variable investment income was slightly lower than Q2, primarily due to higher levels of cash for part of the quarter. The new money rate remains well above the portfolio yield, providing a tailwind to our overall book yield. Total variable investment income was below expectations by around $40 million, primarily due to lower real estate joint venture activity. Overall, our portfolio quality remains high and credit impairments are better than expectations for the year. Notably, we have zero direct exposure to the recent auto sector bankruptcies. Turning now to capital. Our excess capital ended the quarter at an estimated $2.3 billion and our deployable capital was an estimated $3.4 billion. It's important to note that we manage capital through multiple frameworks, including our internal economic capital, regulatory capital and rating agency capital. From a regulatory lens, we maintain ample levels of regulatory capital in the jurisdictions where we operate. Also, our strong ratings are important to our counterparty strength. Thus, we manage our rating agency capital to support these ratings. On a holistic basis, considering all capital frameworks, we are well capitalized. In the quarter, we successfully retroceded a midsized block of U.S. PRT business to Ruby Re and we are actively working on additional retrocessions. We still expect the vehicle to be fully deployed by the middle of 2026. Looking ahead, we will balance capital deployment into the business with returning capital to shareholders through quarterly dividends and share repurchases. Our intention remains to be opportunistic with share repurchases quarter-by-quarter, depending on our capital position, a forward view of our transaction pipeline and valuation metrics. Over the longer term, we expect total shareholder return of capital through dividends and share repurchases to range between 20% to 30% of after-tax operating earnings on average, consistent with our long history. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 17, our book value per share, excluding AOCI and impacts from B36 embedded derivatives increased to $159.83, which represents a compounded annual growth rate of 9.7% since the beginning of 2021. Moving to Slide 18. We provided an update on the value of in-force business margins, which significantly increased since the end of 2024, reflecting the very strong new business momentum. Overall, we believe this is an additional lens through which to assess the long-term earnings power of our business that will emerge over time, and we are pleased with the results. All in all, this was a great quarter with strong operating results. In addition, we continue to advance many strategic objectives. Our long-term strategy remains well on track, and we are confident in our ability to deliver on our intermediate-term financial targets. We continue to see very good opportunities across our geographies and business lines and remain well capitalized to execute on our strategic plan. We also believe we are in a position to return excess capital to shareholders through dividends and share repurchases. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions. Operator: [Operator Instructions] And your first question today will come from Wes Carmichael with Autonomous Research. Wesley Carmichael: First one was just on the U.S. claims activity in Traditional in the quarter. Just wanted to see if you would unpack current experience, if that's just normal volatility in your view, if there's any onetime-ish kind of items in there. Axel Philippe Andre: Yes, Wes. Thanks for the question. On the U.S. Trad side, so we had about $30 million of claims experienced from -- of negative claims experience on the individual life side, that's really kind of normal volatility. If you look at it on a historical basis, it's well below a standard deviation. So frankly, modest noise there. And then on the group side, as indicated last quarter, and consistent with the expectations that we had set, we had about a $20 million negative experience. Wesley Carmichael: Got it. And maybe sticking with that segment, U.S. Traditional in the current quarter. Were there any onetime items that impacted premiums? It looks like premium growth was a little bit softer there than the rest of the enterprise. And if so, what was kind of the underlying growth rate there? Axel Philippe Andre: Yes. So on the U.S. premium side, so in the quarter, we had an in-force action, so a recapture of a treaty, which resulted in a positive impact to the results of about $20 million. And so the flip side of that is that we didn't record the premiums that we would have got from that treaty. And so that's really the main driver for the reduction in premiums. Operator: And your next question today will come from John Barnidge with Piper Sandler. John Barnidge: There was a recent report in September from Swiss Re suggesting a mortality reduction from GLP-1 drugs of up to 6.4% in the U.S. and 5.1% in the U.K. How soon would it make sense to maybe recognize that benefit either on pricing or in your assumptions? Jonathan Porter: John, thanks for the question. This is Jonathan. So we haven't made any material changes to our assumptions due to anti-obesity medication, but the benefits from these medications have increased our confidence that our existing mortality improvement assumptions will be realized in the future. We've done some significant modeling and analysis, and we continue to believe that anti-obesity medications, including GLP-1s, will have a meaningful benefit on population-level mortality. And going forward, we'll continue to regularly assess the data and our model and expectations as to how this population improvement translates through to our insured book of business. Specifically for the study that you referenced, our analysis is generally aligned with a central estimate that Swiss Re has as well. So our numbers are consistent with their central estimate. I think the numbers you quoted were on the high end of their estimate. John Barnidge: Yes, those were the bull case outcomes. My follow-up, I believe the lift to annual run rate is $15 million over the intermediate term and would be expected to grow. To what level would it be expected to grow in the max year? Axel Philippe Andre: Yes. So thank you, John. So just to clarify, I think you referred to the impact of the actual assumptions update. As I mentioned, there's the accounting impact and there's the kind of long-term value impact, the $600 million, which will be recognized over time. That $600 million essentially will increase our run rates by $15 million next year, so annual increase of $15 million which then gradually ramps up to a $25 million increase to the annual run rate by 2040. Operator: And your next question today will come from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: I had a couple of questions. First, just on your expectation for Ruby Re, you mentioned you expect it to be the pipeline to be filled or your -- whatever your intentions were in terms of business activity. What type of liabilities are you considering for the structure and obviously, there's a lot of demand for reinsurance or deals on some of these legacy liabilities. To what extent do those fit in your plans as well? And then I have a follow-up. Axel Philippe Andre: Sure. Thanks for the question. Yes, so Ruby Re, so we were pleased to see another transaction seeded into the vehicle this quarter. As you may recall, the vehicle was set up to really take in U.S. asset-intensive type transactions. In terms of -- we have a pipeline of transactions that we already have on our books that we're working through the process of seeding into the vehicle, which is why we're saying we have the confidence that we will be fully deployed by the middle of 2026. I think just taking a step back, we've mentioned that sidecars, third-party capital is a core component of our strategy. We expect in the future to be pursuing other sidecars and for that to be a nice supplement to our ability to deploy capital over time. Jamminder Bhullar: And then the type of liabilities include just annuities or like LTC VAs with living benefits as well? Axel Philippe Andre: So Ruby Re is really focused on relatively simple liabilities, what we call asset intensive. Those are things such as pension risk transfer. Other types of liabilities that have some biometric risks but that are relatively vanilla. As we explore new vehicles, further vehicles, we will also potentially open the aperture of liabilities. But I want to make clear that we focus on what -- where our expertise is. Our expertise is in combining the 2 sides of the balance sheet, the biometric risk and the asset side in the types of transactions that we have a track record of executing. So the intent is not to open new avenues that we have no expertise or track record in. Operator: And your next question today will come from Ryan Krueger with KBW. Ryan Krueger: I had a question on in-force actions. You've done a number of things over the last few years. I was just hoping to get an update on how far along you think you are at this point? And in the kind of opportunities that you still have going forward to do more actions on the in-force. Axel Philippe Andre: So maybe I can get started just in terms of the numbers and pass it on to Tony. So in-force actions, we've talked about it on a number of calls. We had significant contribution to earnings in 2023, 2024. If you recall, at the beginning of the year, when we talked about our intermediate-term financial targets, we said that we were expecting about $50 million a year of in-force actions. Of course, it's -- as we said, those can be lumpy. And so we -- at times, you can have a year where you are well above the $50 million, potentially below. This year, 2025, year-to-date, we're at about $45 million of cumulative in-force actions. So it's nice and on track and consistent with that run rate. And then we have a number of opportunities to continue to execute on in-force management actions throughout the book. Tony Cheng: Yes, Ryan, maybe just to add, this is a discipline that I would argue, started in the U.S. before, but it's very much around the globe. So even this quarter, we're seeing those actions, it's not just the U.S., it's across the globe. So that's the first point. And then the second point is, I want to emphasize, that's why risk management is so critical for us. We're all over the risk. And then it's a question of, okay, how do we -- once we fully -- as we fully understand the blocks of business, we then leverage off our strong partnerships with our clients to come up with true win-win solutions, oftentimes as we go through these conversations with our clients. It really hasn't impacted our ability to write new business with them. Sometimes it actually strengthens it because you're getting through potentially tough conversations in the right manner. So we're very delighted with our approach. And as Axel said, we continue to deliver on it. We don't -- it's not drawing up in any way. It's just an ongoing part of our business that we expect to continue to do going forward. Ryan Krueger: And then I had a follow-up. I guess going back to last quarter on the value in-force benefit to excess capital. It seems like there's been some skepticism from -- that this is not from you, but from others about if this is fully -- if that benefit is fully able to be deployed into growth going forward. So I guess I just wanted to just come back to that and confirm that like there's no restrictions on that. You have the full blessing from rating agencies, and that's a part of your capital that you can deploy now going forward? Axel Philippe Andre: Yes. So thanks, Ryan, for the question. So let me -- first, let me say that, yes, we -- this capital represents real capital that is available to be deployed into transactions. But let me take a step back and remind you, our excess capital is really across all 3 frameworks: economic capital, regulatory and rating agency. And we really look at what is the binding constraint. So we have at least that amount of excess capital from each of the following lenses since we take the binding constraints. I think everybody would recognize that from a regulatory capital perspective, that is capital that is there in the legal entities available to be deployed. Obviously, there's different regulatory frameworks and different legal entities, but real capital available to be deployed. So the recognition of this value of in-force to your point is from a rating agency perspective. I want to remind you that we recognize only a portion -- the value in-force for only a portion of our block. And even when we do, there's a significant haircut that is applied to that value of in-force within the rating agency frameworks. That value of in-force does amortize over the life of the business. But over time, we expect to add further to our store of value of in-force by looking at our in-force, the blocks that have not been evaluated by the rating agencies as well as new business. And just to point to one item, if you look at our value of in-force business margin exhibits in the presentation, the growth of that by 16% since -- over the first 9 months of the year, shows that there's a robust growth in our store of value of in-force and the potential to recognize that capital from a rating agency perspective. Tony Cheng: Ryan, let me just add one other point. I know you were referring to deployment into the business. With regards to, let's say, potential buybacks, we've indicated how much we're going to -- we're planning to return to shareholders. But just to answer your question, there is -- the only criteria we would look at beyond the strategic ones with regards to buyback would be, do we have sufficient liquidity and our leverage ratios? Otherwise, this capital is fully available to buyback. So I just want to add to Axel's comments. Operator: Our next question today will come from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Regarding the U.K. mortality assumption review impact, are those claims that you're seeing today? Or is it more of a long-term expectation for higher mortality? And could you also just provide some color on what you're seeing in terms of U.K. mortality trends? Jonathan Porter: Wilma, this is Jonathan. Thanks for the question. So part of the assumption review this quarter, we've increased our expectation for future U.K. mortality, and that's resulted in an increase in future mortality claims and an offsetting decrease to future longevity claims. So this change in assumptions reflects ongoing excess mortality we're seeing in the U.K. population, which likely reflects challenges with the National Health System as well as a thorough review of recent experience in our own book of business. Under LDTI, as Axel mentioned, most of this U.K. mortality impact is recognized in the current period as the strengthening of reserves on capped cohorts and the benefits of the longevity business are deferred and amortized into future periods. So on a net economic basis, looking at both mortality and longevity combined and just looking at the U.K. specifically, it's actually pretty neutral. So that's given our balanced book of business. There's not much net economic effect of the changes. Wilma Jackson Burdis: Okay. Now that the -- second question, now that the Equitable block is closed, could you provide a little bit more color on your expectation for accounting smoothing on the mortality on that block? Axel Philippe Andre: Sure. Yes, sure. Thanks, Wilma. Yes, for the Equitable block, there will be accounting smoothing of volatility. We expect roughly about 50% of that block to be to -- to benefit from that smoothing of results over time. Operator: And your next question today will come from Alex Scott with Barclays. Taylor Scott: First one I had is just on the group headwind that you guys have had from the medical piece of things. Can you talk about what you're seeing there, the kind of repricing you're taking? And just any further commentary on the trajectory there? Axel Philippe Andre: Sure. I can start here. Look, on the group side, like we mentioned last quarter, it's short-term business, right? So it all gets repriced over the course of the year. And as we mentioned, we had started to take repricing actions by Jan 1, 2026. By Jan 2026, all of the block will be repriced. And so from there on, we have expectations of profitability for all segments of the group business. Taylor Scott: Got it. The second one I have is maybe a little bit more of a pointed question, so apologies in advance. But as we kind of go around and talk to industry participants and go to some of the conferences and so forth, one of the things that comes off, and I think -- look, I think some of the investors are hearing these kind of things, too, is that RGA is getting more competitive, getting more aggressive, maybe accepting lower IRRs to win business. And I think it's important to kind of hear your retort on it just because it does seem to be something that impacts your stock. And so I'd love to just kind of get your point of view on, is that just sort of [ sour grades ] because you guys are winning? Or is there more to it? I just want to see what your response is to those kind of comments that we're hearing. Tony Cheng: Yes, Alex, let me take that. Look, there's a lot there. Firstly, with regards to risk -- taking risk, there's been no change in our risk tolerance, our risk appetite, our processes, our leaders, our culture and we probably couldn't change it if we want it and why would we change it? It has been a huge competitive advantage for us in over 52 years. So -- and you can see it throughout the whole organization like even our business approach is all around discipline. Why do we just choose and select the business that we want, i.e., the business that is exclusive and plays to our strengths of local offices, our strengths of ability to do biometric and asset risk, our incredibly strong client relationships. It's purely because it is better quality business and in my mind, less risky than tendered business. And you see that not only in what we pursue, but also what we don't pursue. I mean, our name does not come up because we're not participating in many of the recent U.S. tenders for risks that are just not in our sweet spot. Number one, they're tenders. Like I said, we very much pursue exclusive transactions. And number two, they're not in our sweet spot. They're not the risks we like. So look, this has always been our approach. It will continue to be our approach. When I heard commentary like you suggested, it just took me back to the Asian days where when we started success 20 years ago. Of course, you're going to hear these things. That's what one would expect. We just follow our strategy, follow our culture. It hasn't changed and we're so excited about our future growth and our future returns that we can provide to shareholders. Operator: The next question will come from Suneet Kamath with Jefferies. Suneet Kamath: So if I think back to when we started talking about LDTI, I think the commentary was this was supposed to be a benefit to RGA because of the smoothing and if I just look at recent results, it just doesn't seem like that's playing out. You're getting more of the bad than the good. And I was just curious, is this just because there's a larger portion of your block that's in capped cohorts, and that's what's causing it? Or can you give us a sense of what percentage of your business is capped versus uncapped. Because I just don't think we're seeing the smoothing that we expected when we first started to talk about this. Axel Philippe Andre: Sure. Thanks for the question. Look, I think we still believe that LDTI is a benefit in terms of smoothing results over time. Now that may not play out quarter-by-quarter exactly. I think if you look at the presentation in the recent quarters or if you look at older presentations that have a longer track record, you'll see that in general, the impact that comes through on an accounting basis is less than the economic. So there's some level of smoothing and some reduction of the noise there. Nonetheless, you're correct that when -- for those capped cohorts, the results flow through immediately and in capped cohorts over time, you would expect that over time, there will be some portion of cohorts that are capped. And that will result, therefore, in a bit more volatility on the negative side. Jonathan Porter: Yes. And then Suneet, just to give you a number to size it for you, for our traditional business and total across the world, about 15% of our business is in capped cohorts. Tony Cheng: Suneet, just let me add one more point. I mean, look, these capped cohorts to us, like I said earlier, look, risk management is our DNA, our critical part, and therefore, these capped cohorts are obviously blocks we monitor very closely and a fertile ground for the in-force actions that you see us doing. And that's, as I said earlier, an integral part of our way of generating further profit and ROE. Suneet Kamath: Yes, No, that makes sense. And then I guess my second question is on the economic solvency in Japan. As I think about over the past couple of quarters, I think you guys have talked about that as an opportunity. But we're, I guess, a couple of quarters away from it actually being implemented. And I guess -- has it turned out to be the opportunity that you thought it was? Or were companies able to figure out solutions that didn't require RGA's capabilities? Just curious kind of where we sit there. Tony Cheng: Yes. No. Thanks, Suneet. Look, I would say the first inklings of it driving opportunities was probably about 5 or 6 years ago. So it's not just switched the light on, and it becomes relevant. I mean, the companies have been preparing for this for a number of years. And as a result, we've been able to win good business. And I'd say it's been the essential part of why you're seeing increased activity in Japan on coinsurance of blocks. I mean, we -- our partners in the market are both obviously the local companies as well as some of the multinationals or global companies. So there could be other tools available for some of the global companies, they may have internal reinsurers and so on. But for us, it has been a driver of opportunity. It continues to be. We're very selective once again on what we pursue, which will predominantly be those blocks of businesses that have both biometric as well as asset risk as well as usually, it's going to be with long-standing clients that we may have had decades-long relationships with on the biometric risk side. Operator: Our last question of the day comes from Tom Gallagher with Evercore. Thomas Gallagher: If I look at the earnings power in the quarter, and I adjust for, we'll call it, the accounting noise in the capped versus uncapped cohort, I sort of unwind that, you get about $7 of earnings power in the quarter. Now that seems well above the kind of levels that you guys have guided to if I think about glide path. Now I'm assuming there was like significant over-earnings in some of the segments versus what you think is trendable, but can you help kind of unpack $7 and maybe getting us back to a more reasonable trend line because that does seem quite high? Axel Philippe Andre: Sure. Thanks for the question, Tom. Yes. So when we think of kind of what are the pieces in the earnings this quarter, so I think we talked -- we mentioned the claims experience. So overall, about $50 million and then the offsetting impact of in-force actions, which across the globe in the quarter is about $40 million. So $40 million of positive to offset some of that $50 million negative. We mentioned the VII, which is a headwind of about $40 million this quarter. And then on the tax side, we had a benefit. So yes, look, this was a really good quarter. We're very, very pleased. I think a lot of the result of capital deployment of earnings coming up, coming online. We've talked about kind of the ramp-up of earnings with -- as we do the portfolio repositioning. Obviously, we had Equitable, the transaction, which is one example of that capital deployment, but it's a lumpy one, and it came in this quarter. It's very tangible. So yes, look, things are clicking well. And so we're very excited about the earnings growth trajectory from here on. Tony Cheng: Yes. And Tom, let me just add a couple of points. As we always say, and as you know, one quarter's results is just one quarter's results. So if you do a similar analysis for the year, we've had an excellent quarter. That's why we describe it that way. And for the year-to-date, we're having a very strong year-to-date relative to expectations. So I'd encourage you to just maybe look back over the 3 quarters. It's probably a better gauge of where we're at in terms of sustainable earnings power for '25. Thomas Gallagher: Good point, Tony. My follow-up is on -- have you considered any partnerships with alternative managers. We've seen multiple primary life companies enter into these partnerships. And I guess what I wonder is, with the asset-intensive business, kind of a critical part of your growth. I wonder -- and with a lot of the competitors for those types of deals seemingly having, we'll call it, pretty enhanced alternative strategies, whether it's private credit or other things. Is that something that you'd consider? Tony Cheng: Yes. Thanks for the question, Tom. Look, I'd say a few things. One is with regards to private assets, obviously, we do the bulk of it still internally, but we do have a number of external relationships where we feel it doesn't make sense for us to build the capabilities or they've got scale that we would not be able to achieve. So that's the fundamental principle in which we've been operating. But I really want to send you towards -- we don't compete on pure asset transactions. That is not our sweet spot. And to be honest, there's no point us really bidding too much on those types of blocks because we know our price probably will not be competitive. So that's why we always turn back to what have we -- does that asset transaction have material biometric risk, which obviously is our -- very much our sweet spot, is a leverage of relationships that we've maybe had for decades. So I really want to center that thought. Yes, we do a material asset reinsurance or asset-intensive reinsurance, but it always comes with biometrics. And a lot of the blocks, as I shared in my comments, are smaller in nature. They're not -- or more modest in nature. They're not always the headline grabbing ones because the ones that rely on those relationships and those partnerships, we're just servicing that client, that's asked us to help them for many, many, many years, and we continue to do that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Well, thank you for your questions and your continued interest in RGA. Our strong quarter and continued growth in long-term value continues to fuel future growth and returns for RGA. And this ends today's call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to SCOR Q3 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir. Thomas Fossard: Good afternoon, and welcome to the SCOR Q3 2025 Results Conference Call. I'm joined today by Thierry Leger, Group CEO; and Francois de Varenne, Deputy CEO and Group CFO; as well by other Comex members. Can I please ask you to consider the disclaimer on Page 2 of the presentation. And now I would like to hand over to Thierry Leger. Thierry, over to you. Thierry Leger: Thank you, Thomas, and welcome, everyone, also from my side. I'm satisfied with where SCOR stands today. We had another strong quarter, especially in P&C, where our strategy of diversifying growth pays off. The investment side continues to contribute in a stable and positive way to our results. And last but not least, on the Life & Health side, we deliver 1 quarter more in line with the updated forward 2026 plan. Also, we are ready for the renewals to come and very focused on the delivery of our plan. Our teams are close to our clients, leveraging our Tier 1 franchise. We offer tailored solutions that create value for our clients and shareholders. In the P&C context that has become gradually more competitive since 2024, a I would like to take a few minutes to reflect on the broader insurance landscape and the opportunities for SCOR as we approach the 2026 renewals. Looking back, 2025 has been a good year for the P&C industry so far. And overall, 2026 is expected to remain a good vintage year by historical standards. Nevertheless, as profits are up and the supply of capacity now exceeds demand, even if demand continues to grow, it results in increased pressure on prices and underwriting discipline is being tested. I have seen this before. This is the time when wrong strategic decisions can have a detrimental impact on the company's results. Usually, it is driven by the desire to grow in a particular line, some lines of business at the wrong time. Let me state this here very clearly such situations can be avoided. And at SCOR, we are determined to keep underwriting discipline high throughout the cycle. Our business is one of diversification and volatility absorption. We are here for the long term and support our clients when they need us. We have to demonstrate strength and resilience when times are difficult. For SCOR, this means that we will stay focused on fundamentals and deploy capital where risk-adjusted returns are adequate. We are maintaining our underwriting discipline, focusing on diversifying risk exposures and leveraging our analytical capabilities to support our teams to make the right decisions. In addition, our Tier 1 franchise provides us with the opportunity to choose where we allocate our capital in a determined way. I'm pleased to see that our teams are unaffected and fully focused on our clients and the business. They have no growth targets, but I have expressly asked them to leave no stone unturned to find profitable opportunities for SCOR and to discuss tailored solutions with our clients proactively. The aim is to balance long-term client relationships with bottom line, the latter being the priority ultimately. For our investors, this means a continued focus on capital efficiency, risk-adjusted returns and long-term value creation through the cycles. We will keep expanding in diversifying lines, such as inherent defect insurance, engineering, credit maturity, structured solutions, international casualty, facultative business and longevity. We have a very selective approach to marine, aviation, cyber and U.S. casualty monitoring the dynamics closely. In Nat Cat, where the cycle is most prevalent, we will monitor relative and absolute price levels, structures and conditions to determine where we deploy our capital. We will further consider our market share and exposure to climate change when we allocate our capacities. We continue to be underweight in Nat Cat. As long as rate adequacy is sufficient, this gives us room to grow by respecting the risk limits we set for ourselves for Forward '26. To conclude, climate change, geopolitical tension, cyber threats and AI create a more volatile and more uncertain environment, increasing risk awareness and demand for risk transfer. The need for a robust reinsurance industry is palpable, and growth opportunities are structural. Within this context, at SCOR, we remain confident in our strategy and optimistic about the opportunities ahead, even in a more competitive market. Francois, over to you. François de Varenne: Thank you, Thierry. Hello, everyone. I will now walk you through our third quarter results. Starting with a few key messages. Thierry and I, we continue to be very satisfied with these results. The performance of our 3 business activities is strong, delivering EUR 211 million of net income, 21.5% return on equity and an economic value growth of 12.7% at constant economics. On a 9-month basis, the net income stands at EUR 631 million, translating into return on equity of 19.5%. As mentioned by Thierry, P&C performance is excellent. The combined ratio for Q3 is at 80.9%, well ahead of our forward 2026 assumption of below 87%. These results reflect the very low Cat claims during the quarter and a slightly higher attritional loss ratio. In this context, we have continued implementing our opportunistic buffer building strategy, albeit with an addition in Q3 of lower magnitude than in Q1 and Q2. The amount of prudence built over the first 9 months of 2025 is equal to the entire presence of 2024. In Life and Health, with an insurance service result of EUR 98 million in Q3 and the year-to-date expand variance in line with our expectations, we are on track to reach our full year forward 2026 assumption of around EUR 400 million. Investment had another good quarter. We achieved a 3.5% regular income yield, thanks to our high-quality fixed income portfolio that continues to benefit from elevated reinvestment rates. Our economic value increases by 12.7%, a translation of the good business performance, both in P&C and Life and Health. It is now very likely that our full year EV growth will stand above our Forward 2026 guidance of 9%. Our group solvency ratio stands at 210%, stable to Q2, in the upper part of our optimal range. Q3 is a relatively low net operating capital generation quarter, given the absence of major P&C treaty renewals. Overall, thanks to the quality of our results over the first 9 months, we remain confident about achieving our full-year objective. Now I will go on with more details regarding our Q3 results. Let's look at P&C first. In Q3, the P&C new business CSM is mostly stable year-on-year, excluding the FX effect. This is a strong achievement in an increasingly competitive environment. On a 9-month basis, our P&C new business CSM, grows by 4%, benefiting from our strategic growth in preferred line as well as our dynamic retrocession buying, which offsets the inward business margin erosion. The P&C insurance revenue is down minus 1.6% for the quarter and up plus 3.1% at constant FX. In Q3, this is supported by growth in both reinsurance and as well at SCOR Business Solutions. In high insurance, the growth was driven by alternative solutions and our diversifying specialty lines. In SCOR Business Solutions, the trend has improved compared to the previous quarter as the timing effect on the renewal of some contracts has now caught up. In addition, here as well, the growth was supported by alternative solutions and by our syndicate activities, partially offset by property. On a year-to-date basis and adjusted for the large impact of the termination of one large contract and adjusted as well for FX, the P&C insurance revenue growth stands at plus 1%. Moving to the underlying performance of the P&C book. Our P&C combined ratio stands at 80.9% in Q3, benefiting from low Nat Cat losses in the quarter. Nat Cat ratio stands at 2.7% in Q3 and 6.4% year-to-date, which means well below the annual budget of 10%. Let's now focus a little bit on the attritional loss ratio, which is slightly more elevated this quarter than the previous quarter of the year. In Q3, specifically, we incurred an accumulation of small and midsized man-made claims. After investigating and checking the nature of those claims, I can tell you today that we do not expect at this stage of the annual P&C reserve review, any overall attritional deterioration of the P&C book by the end of the year. This outlook is supported by the fact that we tend to take the bad news upfront, especially this quarter, not financed by IBNR, and we released the good news later. On a year-to-date basis, the attritional loss and commission ratio stands at a robust 77.1%, which includes the presence build throughout the year. We are very satisfied with the shape of our P&C portfolio, delivering excellent performance quarter after quarter. Now let's have a look at Life Finance. The Life Finance business generated a new business CSM of EUR 82 million in Q3 this is mainly driven by the protection business and by financial solutions. This is lower than in the previous quarter of the year, but related to quarterly normal volatility. On a 9-month basis, with a new business CSM of EUR 284 million, we are well on track towards achieving the EUR 0.4 billion new business CSM annual assumption. On the insurance service results, Life Finance delivered EUR 98 million this quarter with the CSM amortization of 7.5% in the quarter. Adjusted for small one-off from Q2 and FX effect, the year-to-date CSM amortization stands at 7%, not far from our Forward 2026 guidance of 6.5%. Overall, we delivered over the first 9 months an ISR of EUR 334 million, in line with our annual guidance of EUR 400 million. On experience variance, this is fully in line with our expectations year-to-date. In Q3, the impact of onerous contract were a little bit higher, partially driven by an increase in the risk adjustment and other reserve movements. This remain contained in relation to the size of our portfolio. Moving to investments. We continue to benefit from a strong performance with a return on invested assets of 3.3% this quarter, generating an income of EUR 190 million. This comes from a regular income mill of 3.5% as well as from a real estate impairment this quarter and slightly higher ECL expected credit losses in the quarter. This creates no specific concern. The quality of our credit invested portfolio is very high. The economic value stands at EUR 40 per share, flat compared to the start of the year. Year-to-date market variance had a negative impact as expected on our reported economic value. At constant FX, our EV growth stands at 12.7%, supported by both the positive evolution of our IFRS 17 shareholder equity and the growth of CSM. With this, I will hand over to Thomas to start the Q&A session. Thomas Fossard: Thank you very much, Francois. On Page 17, you will find the forthcoming scheduled events. With this, we can now move to the Q&A session. Can you remind -- can I remind you to limit yourself to two questions each? With this, operator, can we move to the first question? Operator: The first question comes from Hadley Cohen, Morgan Stanley. Hadley Cohen: I appreciate you're very satisfied with the results, and I can -- I think I can understand why but I'm not sure that the share price necessarily agrees today. In that context, can you help us unpack what's going on in the solvency ratio, please? So you've got EUR 200 million a bit higher than that earnings, less EUR 80 million for dividend accrual. And you say that there's seasonally lower, no new business value and market neutral. But even so, I'm still not sure why the solvency ratio is lower. And in that vein, I sort of wonder, how much of that is impacted by the fact that you are building buffers in the reserves? I know you haven't quantified the buffer build year-to-date, but is it possible to give us a sense of how much higher solvency might have been if you hadn't done that? And then linked to this, given the buffers are now twice as big as you initially intended, how are you thinking about further buffers from here, given people clearly want to see growth in the solvency ratio? I mean there's a few questions in there. So maybe I'll just leave it at that for the moment. François de Varenne: Thank you Hadley for your two questions. I agree with you, given the share price reaction, that's probably the two hot topics of the day. Let me come back a little bit on what we said in Forward 2026. You remember when we published Forward 2026 in September 2023, we mentioned that it was a plan where our expectation was a capital generation in terms of solvency ratio of 1, 2 points per year. So that's the guidance, and we reiterate the guidance. Now let's look a little bit at the seasonality of the evolution of the solvency ratio during the year. The 1/1 renewal on the P&C side are booked in VNB the in Q4 and in Q1. The April renewal are booked in Q2 -- in Q1, the June, July renewal are booked in Q3, so -- in Q2. So we don't have in Q3 renewal on the P&C side. So it's a low quarter. It's a seasonality effect. It's a low quarter on the P&C, VNB in the solvency ratio. Let's look at what is happening on the capital deployment side. On the capital deployment side, we deploy each quarter the same amount, Q1, Q2, Q3, Q4. So there is no seasonality in the deployment of the capital in the solvency ratio quarter-after-quarter. And we adjust at the end of the year with the full year on the full capital deployment over the year. So that's basically the dynamic of the solvency ratio for a given year. Now let's look at what is happening in Q3 and over the first 9 months. We started 2025 with the solvency ratio 31st of December 2024 at 210. We were at 212 at Q1. So you could expect, given what I said, that the solvency ratio should have increased in Q2. And in Q2, we were at 210, if you remember the call end of July, and if you look as well at the work of the economic value in Q2, we mentioned during the call that Q2 was affected by a significant weakening of the dollar against the euro, which is our consolidation currency. And on top of it, which was historical, it was also a strengthening of the euro versus all the currency we model in the internal model. So I mentioned it. It's a couple of points of impact in Q2 due to market variance. That's the point we are missing today, but they were already there. So the solvency ratio slightly decreased in Q2, where the expectation is still an increase in Q2. The fact that versus Q2 -- Q2 versus Q3, we don't create a lot of capital is expected. So now what is happening in Q3, let's look in detail. On the P&C side, so we have a low VNB due to a very low amount of renewal. We have, of course, the good Cat ratio, but we have the higher attritional ratio this quarter linked to those mid -- small and mid and midsize events I mentioned during my speech, We still accrue the dividend of last year on a quarterly basis. So that's 2 points. The good news is that the market variance impact in Q3 is under control. We made a lot of progress on ALM during the summer, especially by additional hedge on the dollar. We have the early refinancing of the debt, which brings 3 points of solvency. And we have a one-off impact of minus 1 point, which is linked to restructuring of internal retrocession between one subsidiary and the motor company. So you have the work. But again, look at the first 9 months, the guidance of Forward 2026, what is missing today is not linked to Q3 is the market impact of Q2 that we disclosed end of July. You had a second question, I think, on the buffer... Hadley Cohen: The extent to which the -- I mean, is the -- and thank you for the first response. But I'm just wondering, does the quantum of the buffer build impact the OCG, i.e., if you hadn't built the buffers to the extent that you have done this year, would OCG have been higher? And I guess, more fundamentally, why is OCG on a normalized basis as low as it is 1 to 2 points? François de Varenne: Let me reexplain what we said in the past. So we have prudence in the bill, so under IFRS and under Solvency II. So that's the prudence in the -- on top of this prudence on top of this prudence, we decided with Thierry since July 2023 to add P&C buffers. That's on top of the prudence we have already in the bill. So we added those buffer between July and today. You know that we mentioned that at the end of 2024, we were significantly above the target of EUR 300 million. We mentioned today, and that's in the quote in the press release that the amount accumulated in Q1, Q2 and Q3 is of the same magnitude of what we did for the entire year 2024. We always mention that those buffers are in the risk adjustment. They are in the risk adjustment. So we confirm that they are in the risk adjustment and those buffer have no impact on the capital generation. Thomas Fossard: Operator, can we take the next question, please? Operator: Next question is from Michael Huttner, Berenberg. Michael Huttner: I had two. So the first one is on the attritional. Can you give us a little bit more color because the variance -- I know you say lots of little ones, but the variance is huge, right? So you go from 76% Q3 last year to 79% Q3 this year. And presumably, there's less buffer building, whatever. So the -- maybe if you adjust for that, it's probably a 5-point change or something. So it seems a lot. So any insight as what happened and where it is because then we can kind of think where it might not happen, whatever, anyway, it would be very helpful. And then the other one is a more general question. The word Tier 1 was mentioned, I don't know, 6 or 7 times. So clearly, it is very important. It's core to the story. I don't quite understand what it means. My guess is it means that you think you're underrepresented in your clients' wallet in terms of market share and things. But I don't know how you can increase that in a period when prices are falling. It doesn't -- it seems quite hard. But I'd be really interested in how quickly you could close the gap and how big you see it. Jean-Paul Conoscente: Okay. Thank you for your question. I'll start -- this is Jean-Paul. I'll start with the attritional loss question. So this quarter, in Q1, Q2 this year, we've had really exceptional attritional losses with very limited man-made losses and very good attritional losses. which allowed for a very strong buffer building. In Q3, we saw the loss activity reverting back to what I would call a normal activity. As Francois said, it was an accumulation of small to medium-sized losses across both property and casualty. And what we've decided is to basically take these losses to the P&L, absorb as little as possible in the IBNR and then revert to the Q4 reserve review to review a level of adequacy on the overall reserving. As Francois has already mentioned, the preliminary results from the Q4 review show that there is no strengthening needed on our overall attritional losses. So we're very comfortable with our reserving level where it stands today. Michael Huttner: And is there anything unusual about them? Is it like, I don't know, political risk or something just to give us a little bit of color? Or is it just normal? Jean-Paul Conoscente: No, I'd say it's normal. What was not normal was the loss activity in Q1, Q2. Here, again, it's a mixture of different lines of business, not really political risk. As I said, it's more property and casualty. And I'd say it's back to what I would call a normal level of loss activity. It's just the -- what you would expect in terms of the fluctuations quarter-to-quarter. François de Varenne: Just adding a point, Michael, if you normalize the combined ratio over the first 9 months, you normalize for the Cat effect and for the discount effect. You will find a combined ratio of 87.4%. So it's exactly in line with the guidance of Forward 2026. Remember, we said in Q1, we accelerated the buffer strategy. We said the same thing in Q2. Here, it's a lower amount, but still -- we still have buffer in Q3. Again, the magnitude is the same over the first 9 months. So inside this 87%, you have a couple of points of prudence. So -- and excellent underlying performance. And again, take my statement also on what I see again as overseeing the reserve of the group. there is no concern on the reserve at the end of the year as of today. Thierry Leger: And Michael, on your T1 question, it's true that I'm mentioning it quite a lot. And so it does help in both in a hard and soft market. So it's independent. And I'll try to explain it in the easiest and quickest way. But if you just generally have clients that view you as a Tier 1 means they have a genuine and general desire to see us with a higher share on their programs than we have today. That's a good position, a good starting position for us. That means that it should give us a tick better position when it is about choosing where we play on which programs we play and where we increase the shares and on which ones we might not wish to increase the share. So it should give us a tick better opportunity for growth and a tick better opportunity on the combined ratio side. That's what you are saying. And it's like a joker card that we have, and we intend to play. And I'm sure this is going to last for multiple years. Operator: Next question is from Andrew Baker, Goldman Sachs. Andrew Baker: The first on the tax rate. So clearly, it was good -- very good in the quarter, and you highlight in the release the ongoing improved profitability of the reinsurance activities under the French tax perimeter. Can you just remind me how we should be thinking about that for Q4 and then, I guess, more medium term, '26 and '27? And then secondly, on the Life and Health onerous contracts, I appreciate, again, this is driven by the increase in the risk adjustment. But what led to this? Is this prudence? Or is there something going on in a specific line? So just how should we think about that risk adjustment increase? François de Varenne: Thank you, Andrew. So on the first one, on the tax rate. So we start to see in Q3 an improvement in the effective tax rate of the group. I've been quite vocal on the topic. We initiated a strategy in 2023 we need to repatriate more taxable profit to France to be in a situation to reactivate losses carryforward we've got off balance sheet and to use also the DTA we have activated on the balance sheet. So you saw it in the past already last year. So we are well on track in all the restructuring of the group to repatriate more profit. It's mostly through restructuring of internal retrocession to bring more through quota share assets and profit in Paris. We are going to move probably at the beginning of the year, redomiciliate one entity from Ireland to France. So the effect you see today is just a combination of -- we have now a larger base of profit located in France -- and then you have a second effect, just the excellent performance of the 3 business activities, which bring more profit. So you have those 2 effects. So if you look at the tax rate over the first 9 months, we are close to 27%. Is it a good indication of the future? What I can tell you is that compared to the 30%, it will improve. Given -- I'm a French, given discussion at the French parliament currently on the budget for France in 2026, I prefer to wait a little bit to see what type of budget we will have in France. Let's see maybe during the call of Q4, if I change the guidance. I confirm it will improve. We are on track. Again, it's not yet linked to the consumption or the reactivation of the DTA. It's just the fact that we are more profit in France and they are just at the level which is exceptional. On your second question on onerous contract on Life & Health. Let me tell you a little bit the way we see the performance of this portfolio, and that's what I said in the introduction, the way we -- and the way we guided the market during the IR Day of last September. So we have a year-to-date insurance service result of EUR 334 million. We gave a guidance last December of EUR 400 million per annum, so which means we are in line and we are even slightly above the quarterly guidance accumulated over the first 9 months. I always mention, if you remember what I said during the IR Day and in the call after this year, I always mentioned that the EUR 400 million guidance includes a cautious buffer for contained volatility. And this volatility, which is normal given the size of our in-force could come from the experience variance or could come from loss component, again, given the size and the geographies of the in-force portfolio. That's what we see. So if you look at the experience variance since the beginning of the year, so Q1, Q2, Q3, it's close to 0. So it's close to 0. If you look at the loss component, we have a little bit of noise each quarter, which is on our side within the budget we had in mind when we gave the guidance of EUR 400 million. The guidance of EUR 400 million in our mind, and I was transparent on this fact, include a cautious buffer for volatility on experience variance and/or loss component. So again, it's normal, I would say. Keep in mind as well that there is -- we commented this a few quarters ago, there is an asymmetry in the treatment on the expense variance on the CSM and the expense variance on contracts which are already on. On onerous, as soon as the contract is onerous, any movement, positive or negative flow into the P&L. More specifically, what is now happening on loss component this quarter is just a slight adjustment on group of contracts, which are already onerous and it's slight adjustment on the risk adjustment and also on one client, it's an adjustment on reserve movement. So again, on our side, with Thierry, we are really, really satisfied with the overall performance of Life. coming from, again, the CSM amortization, the risk adjustment release and the expense variance and all the volatility on loss component. Last word, the stock of loss component of onerous contract, which we disclosed last year is unchanged as of today. Operator: Next question is from Kamran Hossain, JPMorgan. Kamran Hossain: Two questions from me, both on the P&C side. The first one is just it was at the beginning of the call, a very kind of strong message from Thierry on discipline opportunities and how to avoid kind of pitfalls going forward. Just interested with, I guess, the cycle moving slightly south from where it is now into next year. does the 4% to 6% revenue target become less important now for SCOR? So just trying to work out with that market coming down a little bit more discipline, is 4% to 6% still a priority or not really? And then the second question is, historically, you've been really big users of retrocession. And more recently, you've used a lot more other kind of capital relief measures, particularly last year. In terms of the market for those, where do you think those will head into '26? Will they come down at the same rate as reinsurance? Will they come down more? What do you think the dynamics will be in that market? Jean-Paul Conoscente: Thank you, Kamran. So I'll take these questions. On the outlook and the revenue target, definitely, the revenue target is no longer, I'd say, a target for us. It will really depend on market terms and conditions. As Thierry mentioned, we expect a competitive market. especially in the Cat XL area. You have to remember, Cat XL represents only 10% to 12% of our overall premium income. And the market itself is coming from a very high price adequacy level. So the -- I'd say, the decline of that market doesn't affect the overall pricing level of SCOR as much as it does some other peers. We see competition across all the lines of business, but to a much smaller extent. And a large proportion of our portfolio, over 70% is on a proportional basis, where it's more the driver of the insurance prices that drives the price evolutions. On your second question regarding retro, we do expect that the retro market to also be competitive. The question as to whether it would be more or less competitive than the reinsurance is a little bit early to tell. We do see on the retro side, even though there's a smaller number of players, we do see all those players having appetite to grow more in terms of limit deployed as well as in terms of different lines of business they want to write. So we do expect to have opportunities to optimize our retro program again this year. Operator: Next question is from Shanti Kang Bank of America. Shanti Kang: I just had two. One is on P&C. So I was just looking at the discount rate for 3Q, that's increased to 8.4%, but we had lower cats in the quarter. So I'm a bit confused why that's increased. It's also higher year-on-year. And last year, we had a hurricane in Q3. So maybe it's on the man-made losses, I'm not sure, but just information on that would be helpful. And then on Life & Health, on that new business CSM target, what's the execution risk to that EUR 400 million? Can you tell us a bit more about the pipeline and your new business CSM numbers just to get us a bit more comfortable about meeting the guidance given the softness today? François de Varenne: Thank you Shanti. I will take the first question, and Philipp Ruede will take the second one. So on the P&C discount, so we have a discount rate at 8.2% in Q3 compared to the guidance of 6% to 7%. If you remember, it was 6.3% in Q2. Here, it's just the impact of those small midsized man-made losses that we see in the quarter, which affect mechanically the discount. So it's just a mechanical effect of the man-made losses of Q3. Philipp Rüede: Yes. So on your second question, I would say this type of fluctuation is normal. The longevity and financial solution deals are lumpy by nature. And so we remain confident that with our guidance as previously given, which was EUR 400 million, but actually for next year, and if I refer to previous communication, we expected a more significant drop in protection as we redress the portfolio and the delivery of the protection this year is actually ahead of our expectations. In terms of Financial Solutions, the pipeline is growing, but I would say it's fair to say that the execution takes longer, and you could say maybe it is a bit delayed. Whereas on the longevity side, our pipeline is robust, both in the short and the medium term. and that pipeline is global in nature, so not restricted to the United Kingdom. So hopefully, that answers your question. Shanti Kang: And just -- sorry, just on that, you implemented some profitability thresholds, I think, in December in 2024. How is that emerging in the Life and Health side? Are you seeing any pushback? Could that have really attributed to some of the softness that we've seen today or? Philipp Rüede: No, no. I mean it's rather the opposite, right? We expected to lose a lot more business with these rates increase, and we were able to retain more of the business at these increased rates. And that's why I said in terms of protection that we are ahead of our expectations. Operator: Next question is from Chris Hartwell, Autonomous Research. Chris Hartwell: Just a couple of quick questions from me. Firstly, just on the subject of the buffer. I mean you're now -- you must be getting towards sort of 3/4 of the P&C reservice result, which obviously a lot higher than what you were originally anticipating. And I guess sort of I suppose part A of the question is, how much more scope do you think there is to move this higher? And secondly, I think given the sort of initial comments around the market environment as things stand currently, I mean do you think that the industry profitability is enough to support further buffer build? And then second question, I just wanted to actually come back to the previous one on discounting. I agree I'm also a little bit confused by this. And I would have thought that this would be more to do with longer tail or longer duration claims rather than the sort of small and midsized sort of mandates that you were talking about, unless I'm sort of mixing those 2 up. So just wondering if you could sort of help to clear that up for me as well, please. François de Varenne: Chris, so on your first question, so on what we can do in the future, we were clear since 1st of January 2025 with Thierry, we build opportunistically buffer. Jean-Paul mentioned that the level of the attritional loss and commission ratio was exceptionally good in Q1 and Q2. So we mentioned that we accelerated the buffer strategy -- we still have room of maneuver in Q3 to put a smaller amount of buffer. Is it the end? No. Should you see this systematically each quarter? No. And you can expect over the next few quarters and year with the softening of the P&C market, of course, probably we will reduce the pace of implementation or we will find less and less opportunities to build buffer. But that's not for tomorrow. That's not for tomorrow. We have probably still a few quarters in front of us with still excellent margin on the P&C side. On the second question on the discount rate. So again, I mentioned it's small and midsized man-made losses. You're right. If there is an impact on the discount, it means that long-dated claims, so it's related to casualty. Chris Hartwell: Okay. And just on that casualty point, can you give a little bit more color as to if there's any particular lines of business within casualty that those claims have materialized? Jean-Paul Conoscente: Chris, this is Jean-Paul. So it's a little bit, I'd say, random. It's GL on the treaty side, on the SBS side. It's some financial lines again on the treaty and SBS side. There's no particular trend. But it's -- as Francois said, it's more underwriting years that date back 3, 4 years and therefore, have an impact on the discount rate. François de Varenne: And again, you mentioned it. I mean, we could have the choice to absorb those man-made losses in Q3 through IBNR. We did not. So we don't do it. So the bad news is in the attrition, and we wait for the outcome of the P&C reserve review in Q4. You can imagine that we are well advanced in this review. So my statement on the fact that we should not expect impact on the P&C reserve at the end of the year include, of course, the review of the casualty book. So I confirm what Jean-Paul is saying. There is no trend identified as of today. Operator: Next question is from Iain Pearce, BNP Paribas Exane. Iain Pearce: It's just coming back to the capital generation point. So I understand that you're saying that the capital generation that you've achieved has sort of been in line with the guidance that you gave at the start of the year. But I guess in Q3, we've had positive experience, particularly in the P&C business. So if we just look at cat relative to expectations, you take out the buffer, which shouldn't impact the Solvency II numbers, you would think that, that would positively contribute to the solvency. So the solvency in Q3 should be developing better than what you guided to at the start of the year. Now I guess the only thing that could offset that is the man-made claims that you're referring to, but I wouldn't guess they're at the same quantum of the level of cat benefit you've had. So I'm just understanding why that positive experience hasn't come through in the capital generation. I don't really understand that. So if you could try and elaborate on that, that would be really useful. François de Varenne: Thank you, Iain. Capital generation in Q3. So if we look at the P&C contribution, we have, as I mentioned it, the good news of the Cat, but that's compensated by the higher attritional ratio. It's almost not one for one, but I would say it's almost an impact, which has the same size. So which means the good news is offset by the attritional losses this quarter, and it's almost a one-for-one impact. You don't have the impact of the buffer, of course, in the solvency ratio. Iain Pearce: Well, I guess if the man-made is offsetting the nat cat by 1: 1, and that's implying EUR 100 million of man-made increase versus expectation in the quarter. I mean that's a pretty high number. François de Varenne: Yes, if you want more precision when I say -- I said that the capital generation on the P&C side was low. So it could be still a little bit positive. So -- but again, the order of magnitude of the man-made losses this quarter offset in a good portion, the good news on the Cat side. Operator: Next question is from Darius Satkasukas, KBW. Darius Satkauskas: Two, please. So you suggested that the pace of the buffer building in P&C will slow down as the market softens. Is the intention here to limit the soft market pressure to your combined ratio and you see this buffer as a tool to achieve this? And that's why you're making such a comment. So we shouldn't essentially expect the sort of the opportunistic thing to continue and the benefit to come through the reserve releases, you will actually manage down how much you're adding if market softens. So that's the first question. And the second question, just on the Life & Health. I'm slightly confused why have you been making allowance for volatility in your ISR target? If you have been conservative in your assumptions in the recent review, wouldn't we expect to see positive experience more often than not? So these negatives in both P&L and CSM and the allowance rates are a bit surprising. François de Varenne: Thank you, Darius. So the first question, if I catch your point is basically when we are going to use those buffer. So the way we see it is really to manage in the future the volatility. So it's not to manage specifically a cycle. Maybe we will be really at the bottom of the soft cycle, but it's really to manage the volatility of the book. So that's all. Thierry Leger: Maybe there was another part of your question, Darius, is the buffer building, will the pace come down, right, given the market environment. So we very much feel in 2024 in terms of IFRS reporting, we were very much in a very attractive environment. We think we will remain in a very attractive environment next year. So we do not foresee necessarily -- again, it's opportunistic, so we can never give -- make a prediction. But we continue to believe that also next year, we should be able to build significant buffers if the results come in as expected. François de Varenne: And your second question on Life & Health and the way we set the ISR target. So that's true. I mean we did this significant assumption review in 2024. Then again, that's what I said, given the size of the in-force, given the geographies of the portfolio everywhere in the globe, given the underlying nature of all the existing treaties, we will have some volatility. So this volatility, I agree with you, this volatility could be negative or could be negative and could be on the experience variance side or it could be through a loss component onerous contract. We want to be cautious. We want to be cautious. And I agree with you, on an average, over a long period of time, this volatility should be around 0, again, with plus and minuses quarter after quarter, but it should be around 0. to be on the safe side, and we mentioned it to be on the safe side, the EUR 400 million guidance include a buffer to take into account any residual volatility that could be negative or positive, but we prefer to give a guidance and to underpromise and over deliver on the guidance. Darius Satkauskas: So if I understood Thierry correctly, the -- what you've done in terms of reserve buildup, that's for the volatility. But in terms of how much you will do going forward, you can very much manage the combined ratio in a soft market. François de Varenne: Yes. Operator: Next question is from Ivan Bokhmat, Barclays. Ivan Bokhmat: I've got 2 questions left. We've been talking about the Q4 reserve review for the P&C business. I was just wondering if you can update us on how periodically would you review the Life book? Is there a review coming in Q4? Maybe any early findings there? And the second question is related to the investment results. I think in Q3, you have flagged some higher real estate amortization during the quarter. Could you give a little bit more color on that of which portfolios or geographies that might relate to? Do you anticipate any additional charges such as this later? François de Varenne: So on the first question on the Q4 reserve review, -- so we did -- we took an external opinion in 2023 -- in 2024 with the same actuarial firm. So we list our [ Watson ]. I remind you that our Watson confirmed last year that we have increased the level of credence compared to 2023. We have been sharing this, and we -- I like to listen to the feedback of our investors on the topic. I'm not sure that bringing such a review each year will be useful. So we are listening with Thierry to recommendation or question or suggestion from investors or from you as analysts. So let's see the periodicity, but probably every 2, 3 years should be the good cycle. On your second question on the investment portfolio, so that's true that we have mentioned it, an impairment on the real estate asset. So it's a property asset that we own in France. We decided to significantly to invest and to do some CapEx to restructure this building. But first, when you invest, you have first to impair the building, then we are going to deploy the CapEx. And one day, we're going to lease it and sell it with a gain. So we are in the cycle of real estate and the DNA of the team is really what we call value-add -- so we like to restructure assets, and that's one we have and we impair it. So it's EUR 12 million. So it's not a trend. It's not something that just because we invest to value this asset, and we have to impair it a little bit before we start the renovation and the restructuring works. Ivan Bokhmat: And maybe just to follow up on this and broaden the question a little bit. François de Varenne: So which means if you look at -- because in the line real estate amortization and impairment, you have the impairment, it's almost EUR 12 million this quarter. And I would say normal amortization, that's the amortization compared to the book -- the historical value. So the amortized costs flow into the P&L and roughly, it's a budget of EUR 5 million, EUR 6 million per quarter. Ivan Bokhmat: Okay. And maybe if I could follow up on this question. And more broadly, if you can talk about the private assets that you hold, is there anything that make you concerned in the current environment? François de Varenne: No. I mean I've got -- I mean, you know that we have a positioning of the investment portfolio, which is highly defensive. The fixed income portfolio has a very high quality. The average rating is A-. Our exposure to private debt, private assets is fairly limited. We disclose it every quarter. If I take the collapse of first brands and Tricolor a few weeks ago, it was an indirect exposure on the investment side of EUR 0.2 million. So it's nothing, and it's a single low-digit number on the credit and surety side. So we don't change anything. We don't change -- I mean, we don't have any concerns, so we don't change anything on the asset allocation. And just remind you, since I mentioned all the discussion we have at the French parliament on the budget for 2026, I remind to everyone that we have 0 exposure at all to French. Operator: Next question is from Will Hardcastle, UBS. William Hardcastle: Just two. The first one is clarification really. I'm trying to understand the manmade. There's been a couple of confusing messages. You said clearly, it was above budget, I think, in Q3. Where is it year-to-date? I'm trying to understand just how much better than a budgeted type level H1 was? And the second question is just on P&C revenue. I think I just heard you say that, that 4% to 6% revenue CAGR and P&C target no longer stands. Is that right? Have you officially walked away from that? François de Varenne: Thanks, Will. I will take the first question and Jean-Paul, the second one. So I mentioned it, normalized for Cat and discount, the normalized combined ratio would stand at 87.4%. I mentioned that inside, you have a significant amount of buffer. It's a couple of points. And do not forget that the combined ratio published or normalized include a significant amount of buffer. So it's included in the attritional ratio over the first 9 months of 79.2%. Jean-Paul Conoscente: Hopefully, that reassures you that, again, the level of man-made we've seen year-to-date has been very low. Q1, Q2 was very low. Q3 is normal. So when you average it across the 9 months, it's low. In terms of P&C revenue, what I meant is we don't change the guidance. But for us, the 4% to 6% is more an outcome than an objective. We're not asking the teams to position the portfolio in such a way that we can absolutely meet this target. If the terms and conditions, we find them satisfactory and there's different price adequacy, we're ready to deploy capital and grow the book. If price deteriorate to a level that we think they're no longer price adequate, we're going to position the portfolio more defensively regardless of the guidance we've given on revenue growth. Thomas Fossard: And with this, we're going to take the last question of the call. Thank you. Operator: The last question is from Vinit Malhotra, Mediobanca. Vinit Malhotra: So almost all my questions have been answered. It's just -- and thanks for the clarification on the revenue growth. But just on the fact that you did grow U.S. Cat in July. And I'm just wondering whether what you know now, are you still happy with that decision to have grown? And the reason I'm asking is, obviously, you talked about Cat XL being an area where there's most concern, which is only 10% of the book. but still your more cautious message on pricing, was it was still considering this cat action you took? And also one more question, if I can follow up on. I think somewhere in the call, you talked about U.S. casualty with core business Solutions having some larger claims. Is that the same thing that you're talking about this attritional manmade being normalized or was something else, sorry? Jean-Paul Conoscente: Thank you, Vinit. So on the U.S. Cat, we definitely don't regret our decision to increase our risk appetite in U.S. Cat. you're right that we expect the prices to come down at 1/1 and the market to be competitive. You have to remember the price adequacy of U.S. cat currently is very high. You can see despite the wildfires at the beginning of the year, the tornado activity throughout the year, the -- let's say, the profitability of that portfolio remains extremely good. And our position is very much underweight in that market compared, for example, to Europe or to Asia. So we think there's opportunities for us to grow. In the renewal discussions, right now, the discussions seem to focus primarily on price. terms and conditions are remaining stable. Attachment points are remaining stable. So again, it's just a question of price. And given the level of price adequacy where we stand, I think we still view that market as attractive and producing very good returns. On your question on U.S. casualty and SBS, again, I'd say it's normal activity. We don't see any concerns there. It's more prior underwriting years where losses have developed to a level that we took them to the P&L. our book today on SBS is very small. We continue to take a cautious look at the U.S. casualty market overall, both on the treaty side and on the SBS side. We're following the market. The price increases on the insurance side is keeping up with loss trend, for example, in GL. The question is, is the price adequacy adequate. In our view, you have -- you probably need further years of similar price increases and no acceleration of the loss trend for it to be a price adequacy that meets our return on equity targets. So we're remaining very cautious today. Vinit Malhotra: And the claims was not in treaty or P&C, but only in SPS? Jean-Paul Conoscente: No, no, the claims were -- there was a few claims on the treaty side, a few claims on the SPS side. Operator: Gentlemen, we have no more questions registered at this time. Thomas Fossard: Okay. So thank you all for attending this conference call today. Our team remain available if you've got any follow-up questions. So give us a call. And with this, I wish you a good weekend. The Q4 2025 results call will be reported beginning of March on the 4 with a call as usual at 2:00 p.m. So wishing you a good weekend all. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.
Operator: Greetings. Welcome to the Quaker Houghton Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Schnell, you may begin. Jeffrey Schnell: Thank you. Good morning, and welcome to Quaker Houghton's Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President, and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, October 30, 2025. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe. Joseph Berquist: Thank you, Jeff, and good morning, everyone. We had a strong performance in the third quarter with adjusted EBITDA up 5% and adjusted earnings per share up 10% year-over-year. Our results were highlighted by another consecutive quarter of organic volume growth across all regions. This was amplified by ongoing strength in Asia Pacific and strong new business wins of 5% globally, enabling Quaker Houghton to outperform its underlying end markets. Our earnings growth reflects the increase in organic sales, contribution from acquisitions, especially Dipsol and a sequential expansion in operating margins as we better leverage our scale. The organization is balancing both operational discipline and strategic execution while advancing our key objectives. This is resulting in an acceleration of new business wins at appropriate levels of profitability across the portfolio. These actions are building on our solid foundation and give us confidence in our ability to drive sustainable long-term outperformance. Cash generation and capital discipline also remains strong. In the third quarter, we generated $51 million of operating cash flow and made progress on our capital allocation strategy, including reducing our net leverage to 2.4x and returning cash to shareholders through share repurchases and dividends. Our business continues to perform well, and we remain focused on what we can control while navigating the dynamic and uncertain environment. I am proud of the team's performance in 2025 as well as the organization's renewed focus in delivering meaningful productivity and results for our customers through innovation, technical expertise, and service. Third quarter results were in line with our expectations despite markets being softer than anticipated. Uncertainty around tariffs continue to weigh on customer operating plans. We estimate end market activity declined a low single-digit percentage compared to the prior year. And on a year-to-date basis, production levels across our major end markets, including steel, automotive, internal combustion engines and industrial products are down a low single-digit percentage globally compared to 2024. Relative to our markets, we are outperforming. In the third quarter, we delivered a 7% year-over-year increase in sales on a 3% increase in organic sales volumes. This was most notable in Asia Pacific, which delivered another 8% increase in organic sales volumes. Net share gains were also strong at 5% globally as the team is successfully executing our commercial strategy, capitalizing on the pipeline of cross-selling opportunities, reducing churn, and solving complex customer needs. These wins and the evolution of the pipeline should provide continued benefit to the organization as we wrap into 2026. Our organic growth was complemented by a contribution from acquisitions, namely Dipsol, which we closed in the second quarter. We are pleased with the ongoing integration of Dipsol. The business is performing in line with our expectations, and we are excited by the commercial opportunities it provides the combined organization. Gross profit dollars increased compared to both the prior year and prior quarter. Importantly, gross margins improved from the second quarter and are within our targeted range, which promotes growth at solid levels of profitability. We generated $83 million of adjusted EBITDA, an increase of approximately 5% year-over-year and 10% sequentially. This reflects the top line growth and operational improvements, including ongoing cost controls. Adjusted EBITDA margins of 16.8% continue to improve towards our targeted range. When I stepped into the role a year ago, I set out 3 key priorities, underpinned by several initiatives aimed at strengthening the core of our organization. Our strategy is working, and these actions are yielding results as demonstrated in the resilience of our earnings profile. From a commercial standpoint, we have doubled down on our commitment to serving the customer. We have taken a focused strategic approach to customer segmentation and are advancing key initiatives to improve service levels and optimize our portfolio, scaling the organization to have the capabilities to deliver the right solutions and services to meet and exceed our customers' needs. We have also increased our discipline in pursuing new business opportunities, leveraging innovation. For instance, in aluminum, where we recently introduced new products, cross-selling our leading portfolio and being more intentional with pricing. Our teams are working diligently to reduce churn, which I am pleased has trended back to historic low single-digit levels and winning back previously lost business. These efforts are paying off with positive year-to-date organic volume growth and new business wins, which are at the high end of our targeted range. To give some context to these actions, we are leveraging our global scale, footprint, and R&D capabilities. We have localized or transferred production of select products, for instance, in forging and specialty greases. This flexible sourcing provides greater consistency, speed, and cost efficiency, enhancing our competitiveness. When aggregated, these smaller wins add up and are meaningful contributors to the strong organic volume growth that we have delivered for the past 9 consecutive quarters in Asia Pacific. We believe we are well positioned to continue to capitalize on the growth in China, India and Southeast Asia and will further benefit as our new China facility comes online in 2026. Our new R&D lab in Brazil expands our global innovation network, strengthens technical capabilities for local customers and supports the growth of Advanced Solutions in the region. These enhancements highlight some of the swift targeted actions we're taking to accelerate growth and provide the full portfolio in all regions. Our team is hyper-focused on growing our portfolio of Advanced Solutions. In the third quarter, we delivered our fourth consecutive quarter of high single-digit or low double-digit organic volume growth in the product segment with a strong contribution across all regions. We have significant opportunities ahead to continue to align the business towards these attractive areas of the portfolio, especially as we leverage our increased scale with Dipsol. We have also maintained a clear emphasis on controlling what we can control. From a cost perspective, on a year-to-date basis, organic SG&A is down approximately 3% as we make progress on our cost and efficiency actions announced earlier this year. We began to put in motion further network optimization actions aimed at unlocking the leverage in our model. We have closed one manufacturing facility year-to-date in the Americas, and we consider further actions in our manufacturing footprint will be needed to improve our asset utilization, reduce manufacturing costs while maintaining the quality and service levels customers expect from us. These actions support our ability to deliver adjusted EBITDA margins in the high teens as a percent of sales over time. We will continue to benefit from the ongoing cost actions in the fourth quarter and 2026. And lastly, we are fully committed to executing on our disciplined capital allocation strategy. In the quarter, our outstanding debt balance was reduced by $62 million, and our net leverage ratio is below our targeted range of 2.5x. Year-to-date, we have returned approximately $62 million to shareholders through dividends and share repurchases while maintaining our balance sheet flexibility to execute on strategic acquisitions. The team is energized. We are executing on our strategy to deliver growth, reduce complexity and efficiently deploy capital to unlock our potential. Turning to outlook. Macroeconomic trends have remained soft through 2025, and we expect them to remain so at least through Q4. We also expect a return to normal seasonal trends in the fourth quarter, and there is lingering uncertainty that continues to weigh on customer operating rates from tariffs and global trade. We anticipate continued momentum driven by share gains and our ongoing cost actions will help mitigate these impacts. Based on our current visibility in the fourth quarter, we expect to deliver another quarter of revenue and adjusted EBITDA growth on a year-over-year basis and should generate solid cash flow. We have conviction in our strategy and are balancing the near-term and long-term needs of the organization. We have delivered strong results year-to-date despite a softer macro backdrop and current data suggests markets could begin to stabilize in 2026. Irrespective, the share gains and cost actions we are delivering give me confidence that we are well positioned to return to growth in 2026 and beyond. With that, I'd like to pass it to Tom to discuss the financials in more detail. Tom Coler: Thank you, Joe, and good morning, everyone. Third quarter net sales were $494 million, a 7% increase from the prior year. Organic volumes increased 3% and were strong across all segments, driven by share gains of approximately 5%. Acquisitions contributed an additional 5% to sales, primarily related to Dipsol, which closed in the second quarter of 2025. Selling price and product mix were 2% lower than the prior year. This consists of impacts from both product, service, and geographic mix as well as pricing largely associated with indexes. Gross profit dollars increased year-over-year and sequentially on a non-GAAP basis. Gross margins were 36.8% compared to 37.3% in the third quarter of 2024 and are comfortably within our targeted range. Gross margins increased compared to the second quarter of 2025 due to some modest raw material cost favorability and productivity actions, partially offset by higher manufacturing costs and the impact of mix. On a non-GAAP basis, SG&A increased approximately $5 million or 4% compared to the prior year. Excluding acquisitions, SG&A is approximately 3% lower on a year-to-date basis as we effectively manage costs. We are making good progress on our previously announced cost actions without sacrificing our ability to serve customers and invest in our strategic initiatives as we expect more -- and we expect more benefit in Q4 and 2026. We delivered $83 million of adjusted EBITDA in the third quarter, an increase of 5% compared to the prior year and 10% sequentially. Adjusted EBITDA margins of 16.8% are trending toward our targeted range driven by the top line growth and disciplined cost management. Switching to our segment results. The momentum in our Asia Pacific segment is evident, and the business is consistently outperforming its markets. The Asia Pacific segment has delivered positive organic sales growth in 8 of the last 9 quarters, including approximately 3% in the third quarter of 2025. This is driven by a strong contribution from new business wins, winning trials with new and existing customers in higher-growth geographies like India, through cross-selling and in new areas of our portfolio like Advanced Solutions. Asia Pacific segment sales increased 18% year-over-year as organic growth was amplified by a contribution from our acquisition of Dipsol, which is performing in line with expectations despite the challenging end market environment, particularly in automotive. Sales and organic volumes increased approximately 4% in Asia Pacific sequentially. We are improving operating leverage in Asia Pacific as segment earnings increased 16% year-over-year on the improvement in sales and modest raw material deflation. Segment earnings also increased more than 20% sequentially as we had some onetime acquisition-related items impacting margins in the prior quarter, which did not repeat. We continue to have opportunities for growth across the region. While end market conditions remain the most challenged in EMEA, net sales grew compared to the prior year and prior quarter for the second consecutive quarter. Organic sales grew 2% compared to the prior year across most product categories and once again delivered double-digit growth in Advanced Solutions. Segment earnings in EMEA also improved due to the increase in net sales and consistent segment operating margins. Net sales in the Americas increased 1% year-over-year. Organic volumes were flat as new business wins, especially in Advanced and Operating Solutions, offset softer-than-expected end market activity, which we estimate declined a low single-digit percentage in the quarter, primarily in metalworking applications. Americas segment earnings declined $3 million or 5% compared to the prior year, primarily driven by lower margins due to higher raw material and manufacturing costs as well as the impact of mix. Segment margins were consistent with the second quarter of 2025. Overall, we delivered sales growth and an increase in organic sales volumes in all segments in the third quarter. Our initiatives to return to growth and reduce complexity are gaining traction. Share gains are strong, and we are maintaining discipline around costs to better leverage our scale and footprint to drive adjusted EBITDA margins towards our targeted range. Turning to nonoperating costs. Our interest expense was $11 million in the third quarter. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 28%, and we expect our full year effective tax rate will be approximately 28%. In the third quarter, our GAAP diluted earnings per share were $1.75. Our non-GAAP diluted earnings per share were $2.08, a 10% year-over-year increase. Cash generated from operations was $51 million in the third quarter. Working capital was a modest use of cash as expected as we built some inventory related to ongoing manufacturing and network optimization actions. We also had approximately $6 million of incremental restructuring-related cash outflows. Despite these items, cash conversion was within our targeted range, and we continue to expect to deliver another solid year of cash flow in 2025. Capital expenditures in the third quarter were approximately $13 million, reflecting the timing of the construction of our new facility in China, which is expected to be online in the second half of 2026. CapEx is expected to be between 2.5% and 3% of sales in 2025 as we make progress on the construction of our new China facility and consolidate our headquarters and labs in Pennsylvania. In the quarter, we prioritized debt repayment, reducing our outstanding debt by $62 million. Our net debt at quarter end declined to $703 million, and our net leverage ratio improved to 2.4x our trailing 12 months adjusted EBITDA. Our consistent cash generation capabilities provide ample balance sheet flexibility to support our growth aspirations. We have also returned to shareholders approximately $62 million year-to-date through dividends and share repurchases. The third quarter was a positive reflection of our execution, improving our cost competitiveness, responsiveness and delivering value for customers. While we expect macroeconomic conditions to remain soft in the fourth quarter, we are confident in our strategy and our ability to outperform underlying end market conditions by capitalizing on our pipeline, managing costs, improving margins, and generating strong cash flow. With that, I'll turn it back over to Joe. Joseph Berquist: Thank you, Tom. I am proud of the global Quaker Houghton team who continue to execute for our customers, our company, and our shareholders. We are making progress on our strategic initiatives and positioning the company for long-term above-market profitable growth. With that, we'd be happy to address your questions. Operator: [Operator Instructions] And our first question is from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: Congrats on a nice volume quarter in a challenging environment. I was hoping that you could maybe give us some details on the Asia Pacific business and specifically on the margin performance. I think last quarter, there were some mix issues. You mentioned the acquisition, maybe some initial integration costs there as well as oleochemical raw materials that were dragging last quarter. Really nice sequential improvement this quarter, even though you still seem to be showing some negative price/mix. So I'm wondering, are there still some margin pressures that are happening even with the improvement that you saw? I think we're just trying to get a sense of whether we could still see some further improvement in Asia Pacific margin over the next few quarters. Joseph Berquist: Yes. Thanks, Mike. Thanks for the question. Overall, Asia Pacific, I think, has been a really bright spot for the company. We continue to win new business. We're selling the whole portfolio, right? And in that portfolio, I think there's a mix of things across the margin range. Not all of them are on the high end, not all of them are on the low end, somewhere in the medium. So there's some lumpiness at times. We have thought, I think, for a big part of the year, oleochemicals, especially in that part of the world. And we tend to lag getting some pricing in. We do expect some of that is still coming in here toward the back part of the year. But overall, it's been a really good story for us. There's some geographic things that come into play as well. I think our growth in India is also part of the story in Asia Pacific. It's not just a China thing. So again, some lumpiness. I think overall, like targeted range of where we want to be in that business. We think we're in a good place to grow profitably, continue to win share in that part of the world. Tom Coler: Yes. And Mike, this is Tom. I would just add to Joe's comments. I think he hit on -- we're really pleased with the growth in Asia Pacific and our opportunity to continue to win new business there, opportunities in India, specifically on segment margins in the quarter, I would say there's 2 components. Joe sort of talked about the raw material impact. We saw some slight deflationary impact associated with that in Q3. The other part of that is we had some nonrecurring onetime items in Q2 related to the acquisition of Dipsol. So that's sort of the other half of what you're seeing in the margin improvement from Q2 to Q3. Michael Harrison: All right. Very helpful. And then you mentioned a couple of times, Joe, the Advanced Solutions strength, and you recently expanded that offering with Dipsol. There's also just within the industry, one of the major players in surface treatment is going to be transitioning into private equity ownership, which can sometimes lead to disruption. So I was just wondering, can you talk about how you're seeing the opportunity going forward to pick up further market share in Advanced Solutions and particularly in surface treatment and some of the metal treatment that you acquired with Dipsol? Joseph Berquist: Yes, Mike. I mean that part of our business is something, again, we're excited about because part of the play that we've been running over the past few years is our customers want to buy not just lubricants from us, they're actually looking to buy things across the portfolio to help them manufacture things better. And -- so our entry into this Advanced Solutions space and our investment in that space is really a good opportunity for us to grow in different parts with our customers and in parts of their business that actually maybe are growing a little bit better than some of the traditional chemistries. And I think from a Quaker Houghton perspective, I'd like to use the old baseball analogy, right? We're still in the really early innings with some of these acquisitions, even Norman Hay that we made back in 2019 in globalizing that. It does take some time to transfer the technology into the sales force. It takes some time to build the supply chain to be competitive in all regions. And Dipsol, it's been performing, I think, as expected and maybe even a little bit better when you consider they're heavier weighted in Japan and -- with automotive, which has been a tougher place. But we're excited about the opportunity to continue to roll that out across our other regions and provide that full offering to the market for -- and gives us an opportunity to grow, I think, as we look forward. Michael Harrison: All right. And then I was just looking for a little bit of clarification on the Q4 outlook. Last Q4, I believe there were some strike-related issues and downtime, some unusual margin weakness associated with that. And then in the meantime, you've taken out costs. You've also done an acquisition. So I guess just in terms of the view that Q4 should be up revenue and earnings year-on-year. Can you give us maybe a little more precision on how you're thinking about organic growth year-on-year in the fourth quarter and maybe on margin improvement year-on-year? Joseph Berquist: Yes. Thanks, Mike. Yes, I mean, look, we have really good momentum heading into Q4. I think we have confidence in the net business wins that we've collected throughout the year, and that should carry into Q4 and the wrap of the things that we've won in addition to things in our pipeline that we continue to convert. There's just -- there's a normal seasonality that seems to be returning to the business. And when I talk about seasonality, it's really around holidays, primarily in Europe and in the Americas, you have less working days, you have some holiday outages. So we'll expect to experience that again this year. As you mentioned, our costs are under control. We continue to work on that previously announced program with some more work to be done there, right? So we would expect that to continue into Q4. Margin stability, again, you have a little bit of tug in a lower volume environment around capacity utilization. But we've taken some good steps, I think, as you see sequential margin improvement, and I wouldn't expect anything other than stability from what I'm seeing today. So overall, consider the fact that we have Dipsol, we didn't have Dipsol last fourth quarter, we feel pretty good about Q4. But I think there's just a reality that we will see the sort of normal seasonality this year, which we saw last year, it was also compounded last year by some other factors that you mentioned. Operator: Our next questions come from the line of Laurence Alexander with Jefferies. Laurence Alexander: I guess, first, just a short-term one. The -- where -- you mentioned sort of some optimism on 2026. Are there areas where you're hearing that from customers or -- either directly or indirectly, like they're seeing their customers do investments that they then now have to gear up production to satisfy or support? Or is that more just a general macro comment? Joseph Berquist: I think it's more of a general comment, Laurence. Look, as far as the market goes next year, I mean, we mentioned a couple of times, we think the markets that we've been in this year are down low single digit, right? And even stability next year would be -- we view that as a good thing, right? I don't think anyone is saying, hey, next year is going to be underlying market growth, but we're also not seeing anything get any worse. So we're kind of entering the year looking at our ability to continue to deliver above-market share gains and with visibility on the wrap that we've acquired this year, with visibility on the full annualization of the acquisitions that we've made and also knowing what we can control and are controlling and targeting around costs. So that's where our kind of optimism is for 2026. It's not necessarily about a market improvement or any sort of inflection yet. There should be continued -- Asia should continue to be strong. Europe, I think, may have hit bottom, right? So again, stability there would be a positive for us. And then Americas is a question mark, but we're not really factoring any big inflections, positive or negative at this point. Laurence Alexander: And then when you think about how -- what's driving the share gain dynamic, when end markets do accelerate, do you expect the rate of share gains to accelerate as well so that you get a double -- you get an amplified effect? Or do you see kind of your focus moving to supporting the end markets and the rate of share gains decelerate because the end markets are healthier, and you're focused more on supporting kind of new business that's coming in the door? Can you just give us a sense for how to think about modeling out what a recovery scenario might look like? Joseph Berquist: Yes. No, great question, Laurence. Look, I think over the long haul, I feel really good about our sales model, how we're going to market. I think one of the things that we've really focused on is reducing our churn and getting our churn back to this low single-digit number and sort of stop shooting ourselves in the foot, and we've done that and feel really good about how we're serving our customers, number one. Number two, returning to the customer, just really doubling down on this customer intimate model, making sure the whole organization is focused and pointed in that direction, that we're acting with a sense of urgency. I think we're doing that as well. And I've been really pleased that the new business wins are coming in at that high end of our range. We talked about 2% to 4%. We've actually been a little bit above that. I think it's possible, Laurence, with the mix and the new business that we've acquired that we could continue to grow on the top end of that range. These are still competitive markets. There's still a long sales cycle. So there can have -- there can be lumpiness as well over time. We're going to try to get as much as we can with responsible levels of profitability. But I think we feel really good right now about sustaining at least kind of the levels that we're at into the next few quarters. Laurence Alexander: And then just -- I appreciate this might be a bit of a fuzzy question or might need a fuzzy answer. But if you think about the trends in the industrial markets in terms of robotics and additive manufacturing, do you have the right -- first of all, how -- do you have a sense for how significant those are for you currently? But more importantly, do you have the right sales mix to be relevant to those markets? Or do you need to add on additional packages or technologies? Joseph Berquist: No, I think the good news there, I -- the -- your question about how have we quantified what that impact will be. We really haven't. That's something that, from a strategy standpoint, we're looking at and trying to understand that better. But I think the great news there, Laurence, is we have -- we've been compiling some of these technologies through acquisitions. You talked about additive manufacturing, our Ultraseal business, which is related not only to die-casted product, but sealing products that are 3D printed or die cast, that's something that's really good. Our growing presence with specialty greases around the world and some of these greases are going to play a really big part in robotics. They do already today. But as that robotic market grows, we think there's an opportunity there for some of the specialty greases that we produce. Anything made out of metal has our products in the processing side of it. But now with the addition of Dipsol, when you get into plating of these things and the fasteners and even the anodizing of the parts, those are all things that we think will be a benefit for us as we go forward. Haven't quantified exactly what that benefit will be over the long term, but we feel it's a positive thing. Operator: Our next question is from the line of John Tanwanteng with CJS Securities. Jonathan Tanwanteng: Congrats on a nice quarter here. First off, if you could -- I was wondering if you could discuss just the sustainability of the share gains in new business you talked about. Can you clarify if you're expecting that to remain above that 2% to 4% range you historically had, number one? And number two, how much is pricing and the margin you're willing to have on that new business has been a factor in gaining that share? Have you taken a little bit less margin there? Or is it still in that higher range versus your kind of target range? Joseph Berquist: Yes. Great question, John. Look, overall, I still think our range over the long term is this 2% to 4%. I'm really pleased that we've been doing better than that. And it's possible we sustain that. It's hard to say. As I said earlier, it's still a competitive market and our sales cycle is a little bit longer. But we feel really good about that 2% to 4% range because we've done that consistently, and I would expect we would continue to do that as we go forward. When it comes to pricing, complex question. I think what we have done is we've been very strategic about getting back to this sort of good, better, best offering with our portfolio, giving our customers some choices, especially as they're struggling in tough environments. And we want to make sure that we're giving them the full range of -- there's a little bit of background noise there, sorry. But I think we haven't necessarily been aggressive, John, in like lowering price to gain market share. That has not been and will not be our approach really ever. But also, I think being strategic with the portfolio and making sure we could sell things that are not only in the best technology range, but also in the good and better range. It helps us as we talk to our customers. Jonathan Tanwanteng: Got it. That's helpful, Joe. And then just a question on the outlook. I know you've guided to growth for Q4, but I noticed you declined to update, I think, the prior language around guidance, which was in the range of 2024 for earnings. Can you just help us understand where you stand relative to the prior outlook and if that's still valid? Joseph Berquist: Yes. I think -- look, we still feel, as I mentioned earlier, our fourth quarter is going to be better than it was last year, right? In the third quarter, I think we got there on the overall sort of our expectations, how we got there was a little bit different in that the volume is up, but there's still some price/mix headwind. I absolutely feel like within range, within range, how do I quantify that, John? It's hard to give you an exact quantification of that. But I feel like our fourth quarter, we are very confident is going to be better than last year. Our second half of this year is, as we said, will be better than the first half of this year. And you layer in some things like our Dipsol acquisition, which we didn't have last year in the fourth quarter and the cost of -- the cost actions that we've taken, we think we can still come within range, let's say that, within range of last year. Operator: Our next question is from the line of Arun Viswanathan with RBC. Arun Viswanathan: I guess I'm just curious on the APAC beat now for a couple of quarters. Does that potentially signal what could happen in other regions? Why are you guys outperforming there? Is that a combination of share gains and market growth? Or is it just one or the other? And does that -- again, would you expect similar kind of trajectory in other regions as you progress forward? Joseph Berquist: Yes, it's a good insight. It is a combination, right? Those markets are stronger, are growing, more investment in those areas. So in addition to really executing on the margin gain, but -- or not margin gain, sorry, the new business wins. So it's a combination of a strong market and executing the sales pipeline. Arun Viswanathan: And then the pricing, you may have addressed this earlier, apologies, but are you kind of -- do you think that you've kind of finished giving back all that pricing that maybe flows through with lower raws? And as you look ahead, what do you expect on the raws side? And would that also kind of -- if you do expect maybe some continued deflation, does that mean that pricing continue has to adjust lower? And does that actually ultimately result in maybe some volume gain? Or could you keep this 3% going? Maybe just talk about the dynamic between -- or the trade-off between price and volume. Tom Coler: Yes. Thanks, Arun. This is Tom. I'll talk a little bit about that. So I think when we think about the price/mix dynamic, again, we saw that impact in Q3 is about 2%. It continues to moderate as we go through the year. On a sequential basis, it was essentially no impact on our top line. I think as Joe had mentioned earlier, some of that pricing dynamic was -- wasn't as intentional as we focus on our -- the breadth of our portfolio and our ability to give customers options from a good, better, best perspective. We also do have some targeted pricing actions where we've got sort of a fit-for-purpose pricing strategy in pockets of our portfolio in various geographies. So if we think about Q3, I would say price/mix was essentially half price and half mix. The other component there on the mix side is really a combination of both just the dynamic of our portfolio and how we're selling that through to end customers and the mix associated with that. Not all of our products have the exact same margin profile. And then also there's regional differences. So again, I think as we think about it going into 2026, we do expect the impact of this to lessen as we wrap some of these impacts. But it is a dynamic market environment, and we are trying to be responsive to our customers in terms of our product offering and how we think about good, better, best. Arun Viswanathan: Great. And then lastly, just curious on -- you mentioned ICE vehicles. How are you viewing your exposure there in relation to EVs? Are you expanding your offering with EVs? If I recall correctly, maybe your performance would be better with an ICE. Could you just reiterate what would be -- what's more advantageous for you guys? And I'm just curious because we've obviously seen stronger growth on the EV side. And are you increasing your exposure there or not necessarily? Joseph Berquist: Yes. I think that's one of the things that's really exciting about the Asia story is we're growing with some of these new winners in EV. And that's intentional. That's something that we recognize was coming. It's certainly accelerated in that part of the world. It's maybe stalling a bit in other parts of the world. But we find it important that we grow with the new winners in that space, and we're doing that. We've added some things to our portfolio that really position us very well for EV. The overall sort of -- as we look at that, a traditional ICE engine, if you call that par, an EV would use a little bit less of our traditional metalworking fluids. A hybrid engine would use a lot more -- or not a lot, but a little bit more. So on balance, I think it's the algorithm that we look at is automotive production in general. And our opportunities for ICE and EV are both compelling and similar. Operator: At this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to Joe Berquist for closing comments. Joseph Berquist: Thank you. Thank you for joining our call today. We are excited about our future and excited for Quaker Houghton and all of our employees. Appreciate your continued interest in our company. And please reach out to Jeff if you have any additional follow-up questions. Thank you. Operator: This will conclude today's conference. You may disconnect your lines at this time and have a wonderful day.
Operator: Good day, and welcome to the Imperial Oil Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peter Shaw, Vice President of Investor Relations. Peter Shaw: Good morning, everyone, and welcome to our third quarter earnings conference call. I am joined this morning by Imperial's senior management team, including John Whelan, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Cheryl Gomez-Smith, Senior Vice President of the Upstream; and Scott Maloney, Vice President of the Downstream. Today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment 6 of our most recent press release and are available on our website with a link to this conference call. Today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance and actual future performance and operating results can vary materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our third quarter's earnings release that we issued this morning as well as our most recent Form 10-K. All these documents are available on SEDAR+, EDGAR and our website. So I'd ask you to refer to those. John is going to start this morning with some opening remarks and then hand it over to Dan, who is going to provide the financial update, and then John will provide an operations update. And once we've done that, we'll allow time for Q&A. So with that, I will turn it over to John for his opening remarks. John Whelan: Thank you, Peter. Good morning, everybody, and welcome to our third quarter earnings call. I hope everyone is doing well. And as always, we appreciate you taking the time to join us this morning. I'm really pleased to report another strong quarter. We generated cash flow from operations of nearly $1.8 billion and ended the quarter with approximately $1.9 billion of cash on hand. To our shareholders, we delivered over $1.8 billion through dividends and buybacks. Our strong financial performance and ability to return significant cash to shareholders was underpinned by higher volumes, including record crude production and high refinery utilization. With planned turnaround activity now complete, we're positioned for a strong finish to the year across all of our assets. While crude has softened of late, our integrated business model is very resilient and we generate substantial free cash flow over a range of oil price environments. As such, we will continue executing on our strategy and the plans we provided at our Investor Day earlier this year. During the quarter, we also announced a restructuring effort that is aligned with our well-established strategy and will further strengthen our leading position and our foundation for future growth. I'll come back to this in more detail shortly. Now let me share some highlights from the quarter. At Kearl, the bar has been raised again with the team delivering 316,000 barrels per day gross, the highest quarterly production in the asset's history, a great step on our path towards reaching annual production of 300,000 barrels per day. At Cold Lake, Grand Rapids continued to perform well, and the new Leming SAGD development finished steaming and we expect first production shortly. These projects support transformation at Cold Lake, where we continue to expect more than 40% of production by 2030 to come from advantaged technologies. Downstream utilization of 98% was significantly higher quarter-over-quarter even with planned turnaround activity at Sarnia beginning in September. That turnaround is now complete and was executed below cost and ahead of schedule. Now I'd like to share more on our restructuring plans. On September 29, we announced restructuring plans to further advance our well-established strategy of increasing cash flow and delivering unmatched industry-leading shareholder returns. We plan to further improve our industry-leading performance, by centralizing additional corporate and technical activities in global business and technology centers realizing substantial efficiency and effectiveness benefits from scale, integration and technology. This restructuring is consistent with our long-standing strategy to maximize the value of our existing assets, using technology, and leveraging our relationship with ExxonMobil. With data availability and processing capabilities growing at an accelerating pace, the changes are designed to fully leverage global available expertise to maximize the benefits of current technology and accelerate the cost-effective deployment of new technologies to drive value and enhance financial resilience. Our world is evolving quickly. Technology is advancing in leaps and bounds. We see it all around us. And there's been huge growth in global capability centers, and we have to move with it. As a company, our legacy is defined by change and adaptation to ever-evolving business environments, technology and customer needs. That ability to evolve is one of our greatest strengths. We have done it time and time again, and it is key to our success and leading position. These restructuring actions will further enhance our foundation for future growth and position us to continue delivering unmatched industry-leading returns and long-term value for our shareholders. At the same time, we remain fully committed to meet or beat the medium-term growth and expense reduction plans communicated at our Investor Day in April. Additionally, as a result of the restructuring, we have recorded a onetime restructuring charge and expect to achieve a reduction in annual expenses of $150 million by 2028. Larger benefits are expected over the long term. As more fully leveraging the global scale and expertise of ExxonMobil will enable us to further enhance cash flow growth by driving productivity improvements across our operations, including higher production, reduced downtime, lower unit operating costs as well as project planning and execution excellence. Our relationship with ExxonMobil is an advantage that others don't have and can't replicate. Now we will manage this transition through a rigorous process. We will be restructuring our corporate workforce, what we call above field, which will result in a reduction in the number of employee roles by the end of 2027. Then in the second half of 2028, we will further consolidate activities at our operating sites, primarily the Strathcona refinery in Edmonton, to enhance collaboration, ,operational focus and execution excellence. Through this transition, our focus remains on supporting our employees, operating with integrity, putting safety first, and executing our business strategy. Additionally, in view of the restructuring and our reduced office space requirements, we have signed an agreement to sell our Calgary campus, resulting in a noncash impairment charge. And on that note, I'll turn it over to Dan to discuss our financial results in more detail. D. Lyons: Thanks, John. We had 2 identified items in the third quarter in our corporate segment. First, restructuring plans that John mentioned resulted in a charge of $330 million before tax in the quarter with an unfavorable earnings impact of $249 million after tax. This charge largely consists of employee severance costs, which will be paid out over the next 2 years as we migrate activities to business and technology centers and achieve efficiencies. Second, following an extensive marketing effort and after careful consideration of the current status in the anticipated outlook for large properties in the Calgary real estate market, we signed a sales and purchase agreement to sell our Calgary campus, which is expected to close in the coming months. Consistent with this, we recorded a noncash impairment charge of $406 million before tax with an unfavorable earnings impact of $306 million after tax in the quarter. The sales and purchase agreement includes a leaseback arrangement to support Imperial's needs over the next several years. Turning to our underlying third quarter results. We recorded net income of $539 million. However, excluding identified items, the ones I just described, net income from the quarter is $1.094 billion, down $143 million from the third quarter of 2024, driven by lower upstream realizations, partially offset by higher refining margins. When comparing sequentially, third quarter net income is down $410 million from the second quarter of 2025. But again, excluding identified items, net income is up $145 million, primarily due to strong operational performance. Now shifting our attention to each business line and looking sequentially. Upstream earnings $728 million are up $64 million from the second quarter, primarily due to higher volumes and realizations. Downstream earnings of $444 million are up $122 million from the second quarter, mainly reflecting higher margins and volumes. Our Chemical business generated earnings of $21 million, consistent with the second quarter. Moving on to cash flow. In the third quarter, we generated $1.798 billion in cash flows from operating activities, excluding working capital effects, cash flows from operating activities for the third quarter were $1.600 billion, which includes a $149 million unfavorable impact from the previously mentioned restructuring charge. Taking this into account, normalized cash flow was about $1.750 billion in the quarter. As John mentioned, we ended the quarter in a strong position with about $1.9 billion of cash on hand. Now shifting to CapEx. Capital expenditures in the third quarter totaled $505 million, $19 million higher than the third quarter of 2024. In the Upstream, third quarter spending of $353 million focused on sustaining capital at Kearl, Cold Lake and Syncrude. In the Downstream, third quarter CapEx was primarily spent on sustaining capital projects across our refining network. Our full year outlook remains consistent with our previously issued guidance. Shifting to shareholder distributions. In the third quarter, we continued to demonstrate our long-standing commitment to return surplus cash to our shareholders, paying $366 million in dividends and returning almost $1.5 billion through our accelerated share repurchase program under our normal course issuer bid. We anticipate completing our NCIB program before year-end. Finally, this morning, we announced the fourth quarter dividend of $0.72 per share, in line with our third quarter dividend. Imperial remains committed to a reliable and growing dividend, as demonstrated by 31 consecutive years of annual dividend growth. Now I'll turn it back to John to discuss our operational performance. John Whelan: Thanks, Dan. I want to take the next few minutes to share the key highlights from our operating results. Upstream production for the quarter averaged 462,000 oil equivalent barrels per day, up 35,000 barrels per day versus the second quarter and up 15,000 barrels per day versus the third quarter of 2024. This quarter marks a new crude production record for the company. Now I'll cover highlights for each of the assets, starting with Kearl. Kearl set a quarterly production record averaging 316,000 barrels per day, up 41,000 barrels per day versus the second quarter and up 21,000 barrels per day versus the third quarter of 2024. This marks the highest quarterly production ever for Kearl, surpassing our previous best set in the fourth quarter of 2023. The strong volumes were driven by a combination of high ore quality and our optimization efforts associated with ore selectivity and we're also realizing reliability gains from upsizing and design improvements of the hydrotransport lines. Kearl continued to progress on unit cash costs and that is quickly becoming one of my favorite parts of our story. Unit cash costs at Kearl were USD 15.13 per barrel this quarter, a decrease of nearly USD 4 per barrel compared to the second quarter, helped by the absence of our planned turnaround, but also improved reliability, recovery and/or selectivity. When compared to the third quarter of last year, we achieved a decrease of over USD 2 per barrel. The third quarter's strong performance contributed to our year-to-date unit cash cost of USD 17.89 per barrel. With year-to-date unit cash costs down over USD 2 per barrel, we are realizing the benefit of our strategy that is focused on growing volumes with lower unit cash costs. Moving next to Cold Lake. Cold Lake's production averaged 150,000 barrels per day, up 5,000 barrels per day versus the second quarter of 2025 and up 3,000 barrels per day versus the third quarter of 2024. I would like to take a moment to draw your attention to unit cash costs at Cold Lake. The current cost in the third quarter was USD 13.38 per barrel. And that is supporting year-to-date costs of USD 14, which is down USD 1 per barrel versus the same period last year. Consistent with that, our Leming SAGD project remains on track. Having recently completed steam circulation, we expect to see first oil in the coming weeks, with production ramping up over the next year. And looking to the future, we have an abundance of high-quality in-situ opportunities in our portfolio. At Aspen, we continue to progress the EBRT pilot with start-up remaining on track for early 2027. In addition, our Clarke Creek and Corner assets provide us with further long-term growth opportunities. These 3 assets have the potential to support up to 150,000 barrels per day each of advantaged production during their estimated 25- to 50-year operating life. And to round out the upstream, I'll cover Syncrude. Imperial's share of Syncrude production for the quarter averaged 78,000 barrels per day, which was up 1,000 barrels per day versus the second quarter and down 3,000 barrels per day versus the third quarter of 2024. In early September, Syncrude began its planned 50-day corporate turnaround and was able to complete it ahead of schedule and under budget, with work wrapping up at the beginning of last week. Syncrude also continued to utilize the interconnect pipeline to import bitumen and gas oil to ensure high upgrader utilization. And this enabled an additional 6,000 barrels per day, our share of Syncrude suite premium production. Now moving to the Downstream. We delivered strong operational results while progressing our planned turnaround at Sarnia. Refinery throughput averaged 425,000 barrels per day, equating to a refinery utilization of 98%. This exceeded last year's third quarter throughput by 36,000 barrels per day, and it exceeded the second quarter 2025 throughput by 49,000 barrels per primarily driven by lower turnaround impacts and strong reliability at all sites. As we mentioned in the second quarter earnings call, we started up the Strathcona renewable diesel facility and are already realizing benefits of backing out more expensive imported products and replacing them with our own low cost of supply. We continue to optimize production based on hydrogen availability. Earlier this week, we successfully completed our turnaround at Sarnia, ahead of schedule and below budget. With our turnaround activity complete for the year, we are expecting a strong fourth quarter. Petroleum product sales in the quarter were 464,000 barrels per day, which is down 16,000 barrels per day versus the second quarter of 2025, driven by lower export volumes, partially offset by higher jet and asphalt sales. Overall, we continue to see robust demand in Canada with gas and diesel comparable to the third quarter of 2024 levels and jet showing stronger event. Turning now to Chemicals. Earnings in the third quarter were $21 million, consistent with the second quarter. Compared to the third quarter of 2024, earnings were down $7 million, driven by weaker polyethylene margins. While challenging market conditions persist, our integration with the Sarnia refinery continues to add value and provides resilience in low-price environments. So to wrap up, I'm very pleased with the strong operational and financial performance in the quarter, highlighted by the record quarterly liquids production in our Upstream best-ever quarterly production at Kearl and strong refinery utilization of 98% in our Downstream. With our planned turnaround activity complete, we're focused on a strong finish and remain confident in our guidance. We continue to return surplus cash to our shareholders in a timely manner and still expect to complete the accelerated normal course issuer bid by the end of the year. As mentioned earlier, our restructuring plan advances our long-standing strategy of maximizing the value of our existing assets. The planned positions Imperial to continue delivering industry-leading shareholder returns over a range of market conditions. We are transforming from a position of strength, leveraging the rapidly advancing technology environment, the growth in global capability centers and our relationship with Exxon Mobil. I've described what is changing as part of our restructuring. It is equally important to highlight what is not. Our governance and leadership structure is not changing. What we are doing is fully aligned with our strategy. Our strategy is not changing, and our growth plans are not changing. We remain a proud Canadian company, and industry-leading technology-focused energy company contributing significantly to the country and our shareholders. And throughout this transition, we remain committed to supporting our employees, the communities where we operate and responsibly producing the energy and products Canadians rely on. In closing, let me say the combination of our financial position, strong operating results and our strategic initiatives to further strengthen our efficiency and effectiveness give me confidence in the future of Imperial and our ability to further enhance our industry-leading position. I am very pleased with the strong results our team has delivered and I want to thank them. And as always, I'd like to thank you once again for your continued interest and support. Looking ahead, we are planning to issue our annual guidance for 2026 in mid-December. And with that, we will now -- I will now move to our Q&A session and pass the floor back to Pete. Peter Shaw: Thank you, John. As always, we'd appreciate if you could limit yourself to one question, plus a follow-up so that we can get to all the questions. So with that operator, could you please open up the line for questions? Operator: [Operator Instructions] And the first question will come from Manav Gupta with UBS. Manav Gupta: Kearl keeps setting new milestones. I mean production volume was significantly better than our expectations. And I don't think I've seen a $15 op cost out there. So help us understand what's driving these improvements? And how is this asset positioning Imperial extremely well for times to come ahead? John Whelan: Thank you, Manav, and I may make a few comments and I'll -- Cheryl can chime in as well. Thank you for that comment. And as I said, Kearl, the unit cost performance there, the reliability, the performance of the asset has certainly become one of my favorite parts of the story. It is very key to our success and our future for sure. And as we look at where we are right now, I think we're really well positioned to meet the midpoint of our annual guidance. The team continues to set new records. We had a best second quarter, best ever second quarter. Now we've had the best ever quarter in the third quarter. But it is important to note, there's variability quarter-to-quarter, and we need to keep that in mind as we go forward as well. But this quarter, we had very strong volumes with our high ore quality, our optimization efforts and as well as reliability gains. I couldn't be more -- I couldn't be prouder of this team and have -- be more optimistic about this asset and the importance of it to our business. We're on track to deliver on our commitments and around a future of 300,000 barrels a day for this asset and a unit cost target is up $18 a barrel in 2027. Cheryl can comment a bit more, but thank you for the comments. This is a very important part of our business for sure, and we're very pleased with the performance of this asset. Cheryl Gomez-Smith: Thanks, John. So a little bit more in terms of what's made the difference. And I'm going to go back to some of the messages that I shared when we had Investor Day. Kearl continues to have a relentless focus on optimizing scope and collaborating lesson learned, and this is including implementing creative ideas. We continue to integrate lessons learned and technology, drive better decisions via data and analytics as well as leverage our global earnings and benchmarking. In short, we're maintaining this continuous improvement mindset. The work and the success that we've had to date gives me confidence continue to outperform while maintaining our facility integrity as well as our strong risk management. Manav Gupta: My quick follow-up is on the refining macro. It looks like the diesel markets are very tight and whatever channel checks you are doing is indicating that the Russian refineries have taken a significant hit and it'll take a long time for those markets to normalize. And so I wanted to understand in the next 3 to 6 months, how do you see the refining market out there? Do you think the strength in diesel cracks can continue? Because if that's the case, your fourth quarter numbers in the refining side have definite upside from where we are. So if you could comment on that. Unknown Executive: Sure. I'll jump in and take that. Yes, we have certainly seen the same things right out the door right now with the global supply/demand balances and then the sanctions out there propping up diesel margins. And so we -- as long as those sanctions continue and the disruptions occur in the global market, we think that, that's a possible outcome for us. The way we manage our business is making the products that we see margins out the door on. And with all of our maintenance work behind us this year, we see high utilization numbers for the balance of the fourth quarter. And combined with the margins that we're seeing, especially in the diesel channel, we're seeing -- we're looking forward to a positive fourth quarter. Operator: And we'll take a question from Greg Pardy with RBC Capital Markets. Greg Pardy: Thanks for the rundown, John and Dan. I wanted to come back to the restructuring, just to better understand how the transition is going to work. So you done a sale leaseback from the building, which means that the staff that will be retained presumably is going to be a Quarry Park. It sounds like you'll be a Quarry Park. And then I'm just trying to understand that if the transition is going to occur over essentially '26 and '27, have the folks that no longer have a role, are they still in the building? Or has that transition kind of move? I'm just trying to better understand how the dynamics are going to shake out? John Whelan: Well, thanks, Greg. Let me cover that. This -- if you step back from this, what we're doing, I would say, and I'll get to the specifics of your question. This is -- we've been assessing this opportunity over a couple of years, and it really builds on the transformation journey that we've been on for more than a decade, frankly, of gradually outsourcing work to global capability centers and leveraging technology to improve efficiency. In the past, you've seen that over the last decade in terms of our organization size, we are doing just as much or more in terms of what we're operating, what we're executing, but with less people doing it in a more efficient manner. So in the past, we did this opportunity by opportunity based -- on an opportunity-by-opportunity basis or organization by organization. Now we've looked at this from a company-wide perspective. And as we've kind of crawled and walked, we see the opportunity to run as we move forward. And I share that just to highlight, there's been a tremendous amount of planning put into this, and we have a detailed plan for how we will execute this over the next 2 years. So in terms of -- you're right, this transition will occur over a 2-year period in terms of the workforce transformation piece of it. And then the consolidation of operating sites will happen after that in 2028. So an overall a 3-year period. We have detailed plans in place for the outsourcing of this -- of work to global capability centers. But another important part to consider is part of this efficiency gain is outsourcing work, but there's also about 40% of the reduction is pure efficiency gain. There will be less people required to do the work as we capture the scale that we can get in these global capability centers. So we have a 2-year transition for how we'll capture those efficiencies and outsource the work to these global capability centers. Our organization, we are right, the office while we are -- we have entered into a sale and purchase agreement on the office that includes a leaseback for us where we will stay in Quarry Park through 2026 and 2027 and the first part of 2028 until we move staff to our consolidate them at operating sites at that time. So nobody will have to move. And we will -- you will see a transitioning a reduction in our workforce over that 2-year period, '26 and '27. The end of '27, we will get to the outcome, the desired outcome that we have communicated. And then in '28, we will move people after we've achieved that reduction. I hope that answers your question, but... Greg Pardy: Oh, my goodness. Yes. No I mean, John, you're always well prepared. No, no, that's incredibly thorough. Maybe just to come back to what Cheryl was talking about with respect to Kearl. So in C dollars, a little over $20 is looking very, very good. I'm wondering if you could just maybe break it down between kind of volume versus input costs versus just perhaps the elimination of absolute costs or structural costs that have now been taken out of Kearl as a consequence of fewer people, digitalization and so forth. Because obviously, we had very weak natural gas prices in the third quarter, but not sure that's really a factor at all in terms of performance you put out. John Whelan: I mean I'll start and then I will hand over to Cheryl, Greg. Thanks for the question. I mean -- and it is a really good point to make. It is a combination of both. We are working both the denominator and the numerator in that. So we have been reducing our absolute costs in what we call capturing structural efficiencies. So not just reducing in the short term, not pushing things out, but actually structurally reducing our costs that we can reduce and will remain reduced. And we do that with a very laser-like focus on maintaining integrity, safety and all of those things that are most important to us. You've heard me talk about in the past being the most responsible operator. And that involves safety performance, your integrity, your reliability, but also your cost structure. So we do those things in concert, ensuring that we maintain integrity, reliability and safety, but also reducing our structural costs. So there has been millions and millions of dollars structural savings identified. But obviously, you have seen the barrels go up as well. And so it is the combination of both and the team continues to work on both parts of that equation, which is really important given the magnitude of the improvements we've seen and what we want to continue to do as we go forward. I'll pass it over to Cheryl to elaborate a little more. Cheryl Gomez-Smith: Sure. Thanks, John. And Greg, what I would say is this is a very good example of the and equation, as John mentioned. So in this space where we're looking at unit cash costs were leverage scale, looking at structural cost savings as well as incremental production. When I think about incremental production, it leverages the relatively high fixed cost structure at Kearl. So this is a powerful lever in terms of lowering our unit cash costs. And as John mentioned, we continue to focus on reliability maintenance optimization, deployment of digital solutions to improve our productivity and lower absolute costs. Several of the things we highlighted at our Investment Day in terms of automation, robotics, remote activities. So it's a yes and in terms of how we get there. Operator: We'll take a question from Dennis Fong with CIBC. Dennis Fong: My first one is just related to your in situ pipeline, Aspen, Clark Creek and Corner. Thank you for the kind of the rundown. Obviously, EBRT is a focal point in terms of the go-forward strategy. Is just kind of solidifying and understanding the development potential and the results for the pilot, the primary driver for kind of moving on to the next steps? And maybe what else would you like to see beyond kind of further prove out of the technology for you to feel comfortable moving forward with Aspen, I guess, first or any of these 3 in situ projects? John Whelan: Thank you. Thank you, Dennis, for the question. I'll start again, and I may ask Cheryl to chime in as well. I think if we look at these future -- this future in situ portfolio, we remain very bullish about it. The resource base is significant and of high quality. And we believe we have the technology and EBRT to unlock that resource base at lower unit cost, lower emissions than even the technology we're using today. So we have decided to do the pilot. We feel quite confident in the technology. We've done a lot of lab testing on it. But given the scale at which we want to deploy it, we felt it was valuable to do the pilot. The main things we're going to be looking for in the pilot is the solvent recovery and the production uplift that comes from those. So that's the main thing. And that we'll start off the pilot in 2027. So that's from a technology perspective. But we're going in pretty positive about it, but it's important to prove that up, I think, through a real-life pilot in the field. We feel very good about the resource. We will continue to do some delineation work around that, but we've done a lot already, and we feel very comfortable in that space. And I think the other part is just the overall investment environment. You've heard us and industry talk about that, the importance and we've been on record with that at the government and we are working closely with the government around that, simplifying regulation, shortening project approval time lines and those type of things. That's important as we consider future investment and growth in production. And then the other aspect is egress, and we feel very good about that, particularly for Aspen. As we look out the next decade and we listen to what the pipeline companies are talking about in terms of debottlenecking projects with Trans Mountain, Enbridge's announced projects that they've been talking about, we feel very good that there's egress going to be available for the next decade or so. So we're doing some work on the technology. There's an investment climate piece that we continue to involve work with the government on. We think there's egress. So overall, we're very bullish about the opportunities. Cheryl Gomez-Smith: Add I'll just add a couple of other comments, Dennis. We drilled the 3 wells. And as John mentioned, we're on target for an early 2027 start-up. We're going to run a pilot to validate production uplift here, John mentioned solvent recovery as well as overall operability. The other thing I'd highlight is the pilot is intended to derisk this technology, and it's a very similar approach to what we took for SA-SAGD. So I think we're well on track there. And I'd echo which the comments that John made, which is we're very -- we're looking forward to EBRT technology. This is what we're looking for in terms of being a game changer for institution developments going forward. Dennis Fong: Great. Really appreciate that contacts from both of you. I wanted to shift focus back maybe towards Cold Lake. Obviously, you have the Leming SAGD project with the targeted start-up here. And I just wanted to think a little bit more how should we be thinking about the Mahihkan SA-SAGD project as well as if you wouldn't mind highlighting any of the future SA-SAGD project opportunities that exist within that field and maybe what that potentially looks like, both from an op cost perspective as well as a production perspective and level, if there's any further updates from what you guys highlighted at the Investor Day? John Whelan: I'll make a few broader comments, Dennis, and then Cheryl can come in again as well. Our plan that we laid out for 165,000 barrels per day at Cold Lake in the next few years, we still feel very good about that plan. We're committed to that plan. And there's a number of things that contribute to that. There's low-cost base optimization projects such as our laser technology. There's infill drilling using the unique compact rig that we have there to do infill drilling. That's a part of it. We are applying warm flow in a number of areas. We've got the Leming SAGD project that I just spoke about. Grand Rapids is going extremely well as well. So it's all of these building blocks and components that contribute to our confidence of getting to 165,000 barrels per day. Now the Mahihkan SA-SAGD, I'll let Cheryl come back and talk more about that. That's obviously very important. But that's a 2029 startup with a peak production of about 30,000 barrels a day. But it's all of these building blocks that contribute to it and also the transition, the transformation really that we're making at Cold Lake moving to these advantaged technologies and seeing ourselves continue to see in 2030 with about 40% of our production coming from that advantage technology. And I'll let Cheryl say a bit more specifically on Mahihkan and so on. Cheryl Gomez-Smith: Sure. Maybe I'll cycle back with Grand Rapids. We're very pleased, Dennis, with our results from Grand Rapids thus far. Specific to that effort, the next 3 pads are currently in development and this will fully leverage our plant capacity and offer inventory to sustain production at low capital. Now switching to Mahihkan, this will be our first commercial Clearwater SA-SAGD development. John mentioned a 2029 startup. And one of the things that's an enabler and projects take time in the development is we have to convert the Mahihkan plant, which is currently a cyclic steam facility to a solvent-enabled SA-SAGD plant. All that in mind, we're on track to deliver, I'd say, more than about 50,000 barrels per day from SA-SAGD advantage production by the 2030 time frame. The other thing maybe I'll leave with is we do have a pipeline of future SA-SAGD projects as I look at 2040, 2050, and we'll take those in due course. Operator: And we have a question from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: John, I wonder if I could ask a really simple follow-up on Carol. Given the sustained efficiency improvements you've seen the consistent production performance, what would you say today is the production capacity trajectory for Carol in terms of where it is now and where you think you can get to? That's my first one. My follow-up is a quick one. It's probably for Dan. It's always for Dan, same question every quarter. You leaned on your balance sheet a little bit this quarter, and you've accelerated the time line for your buyback. Is there any intention in the current environment for an SIB before the middle of next year? John Whelan: Thanks, Doug. Yes, let me take the Kearl one. Again, I couldn't be more proud of this team and the improvements that have been made at Kearl over a number of years. And I remain confident that we'll continue to make improvements at Kearl in terms of unit cost reductions and volumes uplift. I think our story is very consistent though with -- right now, the way we think about it. It's very consistent with our Investor Day. We believe we have a strong foundation that supports potential for 300,000 plus barrels per day. We talked about at that time, the number of days that we're seeing a greater than 300,000 barrel a day days. You see the quarter that we just had in the quarter, that also builds that confidence. Right now, our focus is really how do we move it to 300,000 barrels a day. And that -- I would just say the confidence in that is growing all the time. And we do -- and we talked about that in Investor Day. So we have a pretty clear path to get the asset to 300,000 barrels a day with bitumen recovery projects, continued focus on individual equipment performance, extending our turnaround intervals reduction duration. I feel very good about that. But we're not done at 300,000. We're very much focused on what's the potential beyond that. We believe there is potential beyond that. And we're continuing to work and develop those plans and we'll share them as those get matured. D. Lyons: Do you want me to take the second? Doug, -- so just to kind of address your question, as you said -- as we've said here, we fully plan to complete our accelerated NCIB by year by year-end, consistent with what we said few times. And then, of course, looking into next year, the soonest we can renew that is late June of '26. And of course, we plan to renew our NCIB and then your question is really around the first half of '26. And as I said before, our ability to return cash in that period really just depends on commodity prices, right? It depends on the crude prices and cracks, and what we've said for a long time is as we generate surplus cash, we'll return it in a timely way. That still remains our principle. So it's really just going to be dependent on what the commodity markets give us in the first half of next year. Operator: And that does conclude the question-and-answer session. I'll now turn the conference back over to Peter Shaw for closing remarks. Peter Shaw: Thank you. And on behalf of the management team, I'd like to thank everyone for joining us this morning. If you have any further questions, please don't hesitate to reach out to the IR team, and we'll be happy to answer those. With that, I'll say thank you very much, and have a great day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Good day, and thank you for standing by. Welcome to the Casella Waste Systems, Inc. Q3 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Butler, VP of Investor Relations. Please go ahead. Brian Butler: Good morning, and thank you for joining us on the call today. We will be discussing our third quarter 2025 results, which were released yesterday afternoon. This morning, I'm joined with John Casella, chairman and chief executive of Casella Waste Systems, Ned Coletta, our president, Brad Helgeson, our chief financial officer, and Sean Steves, our senior vice president and chief operating officer of Casella Waste Operations. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we make about the company's future expectations, plans, and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent Form 10-Q, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views on any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today, 10/31/2025. Also, during the call, we'll be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, are included in our press release filed on Form 8-K with the SEC. With that, I'll turn it over to John. John Casella: Brian, and good morning, everyone. Welcome to our third quarter 2025 conference call. In Q3, the Casella team worked hard and stayed focused on executing our operating plans, delivering another strong quarter that reinforces our improved outlook for 2025. I'm extremely proud of the team for once again overcoming challenges and demonstrating the strength of our operating model and our strategic execution. Revenue and adjusted EBITDA were quarterly records at approximately $485 million and $120 million, with year-over-year growth driven by continued solid waste pricing strength, healthy landfill volumes, and meaningful contributions from our acquisition program. Year-to-date, adjusted free cash flow totaled $119 million, up 21% year-over-year, supported by EBITDA growth and stronger working capital performance. We remain on track to achieve our full-year free cash flow guidance, which was raised following our second-quarter results. Our solid waste operations delivered strong performance with pricing and landfill volumes continuing to drive margin expansion on a same-store basis. Integration of the Mid-Atlantic businesses is progressing well, with systems conversions and fleet optimization initiatives positioning the segment for further gains in Q4 and well into 2026. Our Resource Solutions segment continued to perform well, effectively managing commodity price headwinds with our risk management structures and overcoming third-party disruptions in the Boston market. We've completed eight acquisitions year-to-date, adding approximately $105 million in annualized revenue. We expect the Mountain State Waste transaction to close at the end of 2025, contributing an additional $30 million of annualized revenues. Our M&A strategy remains focused on a balanced mix of smaller tuck-in acquisitions and larger opportunities that expand our geographic footprint, such as Mountain State. With an active pipeline representing approximately $500 million in annualized revenues and a strong balance sheet, we are well-positioned to continue creating long-term shareholder value through disciplined strategic growth. Our third-quarter results highlight significant progress in resolving short-term challenges in the Mid-Atlantic segment and reinforce our confidence in achieving our enhanced 2025 guidance. The sustained operating and acquisition momentum provides a strong foundation for continued growth and value creation in 2026. We announced Casella's Sustainability Leadership Awards in Q3, recognizing customers who exemplify the power of partnership in reducing waste, increasing recycling, and advancing the circular economy. This year's recipients are Primo Brands, Dartmouth College, The Arc Oswego, and the University of Vermont Medical Center. That showcases what's possible when innovation and collaboration come together. We celebrate their achievements along with the dedication of our Casella team members who work alongside them to build real-world models of economic and environmental sustainability for the future. As announced in August, I'll be transitioning to the executive chairman role at the end of 2025, with Ned stepping into the CEO role. It's difficult to fully express how proud I am of what this team has accomplished. Over the past five decades, I've had the privilege of working alongside some of the most dedicated, hardworking people in our industry. Together, we built Casella into an industry leader defined by our core values that continue to guide us. While this will be my final quarterly earnings call as CEO, I'll continue to serve as chairman of the board, supporting Casella's long-term strategy, stakeholder relationships, and the culture that makes this company so special. I'm deeply grateful for everyone who has been a part of this journey, and I'm excited for the next chapter under Ned's leadership. It's really exciting when we look back at the past fifty years. And I can tell you how proud we are of what we have achieved over that fifty-year period of time. But I'm even more excited about what is going to happen under Ned's leadership in the future. With that, I'll turn it over to Brad to walk through the financials in more detail. Brad Helgeson: Revenues in the third quarter were $485.4 million, up $73.7 million or 17.9% year-over-year, with $53.4 million from acquisitions, including rollover, and $20.4 million from same-store growth or 4.9%. Solid waste revenues were up 20.6% year-over-year, with price up 4.6% and volume essentially flat, down 0.1%. Within solid waste, price in the collection line of business was up 4.7% in the quarter, led by 5.2% price in front-load commercial, and volume was essentially flat. Year-over-year volume trends continue to improve as we move through the year with indications of a relatively stable economy in our market. Price in the disposal line of business was up 4.6% and volume flat year-over-year. Results in the landfill business were strong, with same-store price up 3% and total tons up 11.7%, including higher third-party MSW and C&D volumes, nearly 20% growth in internalized volumes. Resource solutions revenues were up 7.8% year-over-year, with recycling and other processing revenue down 5%, impacted by lower commodity prices but national accounts up 16.5%. Within resource solutions processing operations, our average recycled commodity revenue per ton was down 29% year-over-year, with softer markets across the board and most commodities selling below five-year averages. Notwithstanding market pressures, our contract structures share this risk with our customers by adjusting tip fees in down markets. So the net impact of lower commodity prices on our revenue is only about $1 million. Processing volume in revenue terms was up 2.5%, driven by higher volumes at the Willimantic recycling facility. Within national accounts revenue, price was up 4.3% and volume up 8.6%. Adjusted EBITDA was $119.9 million in the quarter, up $16.9 million or 16.4% year-over-year, with contribution from acquisitions, including rollover, 8% organic. Adjusted EBITDA margin was 24.7% in the quarter, down approximately 30 basis points year-over-year. Bridging the year-over-year change in adjusted EBITDA margin, new acquisitions contributing at lower initial EBITDA margins than our overall business diluted margins by 100 basis points in the quarter. The base business, excluding newer acquisitions completed in the past twelve months, expanded margins on a same-store basis by 70 basis points, with landfill volumes representing a 60 basis point tailwind and the rest of our operations, including the Mid-Atlantic region, growing margins by 10 basis points year-over-year. As a reminder, when we acquire privately held companies, they often have lower EBITDA margins compared to Casella's consolidated average. This can initially dilute our margins on a year-over-year comparative basis. However, as we integrate these businesses, execute on synergies, and implement our operating practices and strategies, this becomes a margin expansion opportunity over time, which is regenerative as we continue to execute on our acquisition pipeline. Cost of operations were $315.3 million in the quarter, up $48.1 million year-over-year, with $39 million of the increase from acquisitions or approximately 74% of acquired revenue and $9 million in the base business. Excluding acquisitions, cost of operations were down 100 basis points as a percentage of revenue on a same-store basis. General and administrative costs were $57.3 million in the quarter, up $10.2 million year-over-year. As a percentage of revenue, G&A was up 40 basis points year-over-year, as we continue to invest in technology upgrades and integrated acquisitions. We have a strategy in place to begin generating meaningful leverage on the G&A line as we grow, and we expect this to become another driver of margin improvement in the future. More to come on this next quarter. Depreciation and amortization costs were up $19.7 million year-over-year, with $9.6 million resulting from the recent acquisition activity, including the amortization of acquired intangibles. Adjusted net income was $26.6 million in the quarter, or 42¢ per diluted share, up $4 million and down 2¢ per share. GAAP net income was up $4.2 million in the quarter, with the nonrecurring Southbridge Landfill closure charge in the third quarter last year. Net cash provided by operating activities was $233.2 million in the first nine months of 2025, up $61.6 million year-over-year, driven by EBITDA growth. DSO was essentially flat from June and year-end at thirty-five days. Adjusted free cash flow was $119.5 million year-to-date, a record for the first nine months, and representing approximately two-thirds of our full-year guidance. Capital expenditures were $187.8 million, up $61.4 million year-over-year, including $54 million upfront investment in recent acquisitions. As of September 30, we had $1.16 billion of debt and $193 million of cash. Our consolidated net leverage ratio for purposes of our bank covenants was 2.34 times, and our $700 million revolver remained undrawn. Our liquidity and leverage profile will enable us to be opportunistic in continuing to execute our growth strategy and robust acquisition pipeline. As announced in our press release yesterday, we raised the lower end of our revenue and adjusted EBITDA guidance for 2025, increasing the midpoints to $11.835 billion and $420 million, respectively, reflecting increased visibility and confidence in full-year results and underlying strength in the business. Recall that we already raised the lower end and midpoint on our cash flow guidance metrics at Q2, and we remain well on track for those. Looking ahead to 2026, we anticipate another year of strong growth across revenue, adjusted EBITDA, and cash flow. As you build your models for next year, we expect overall organic growth in the range of 4% to 5%, primarily driven by solid waste pricing and an incremental 3% or $60 million of rollover acquisition revenue, including contribution from Mountain State Waste, which we expect to close at the beginning of the year. This puts total revenue growth, excluding future acquisition activities that haven't yet closed, in the range of 7% to 8%. On the adjusted EBITDA line, we'll target 25 to 50 basis points of overall margin improvement, driven by pricing actions in excess of underlying cost inflation, operating enhancements in the Mid-Atlantic, including route synergies and automations enabled by truck deliveries and the completion of our ongoing system consolidation, benefits from our operating programs elsewhere in the business, and the rollover contribution from acquisitions. Specifically in the Mid-Atlantic, we're currently working towards improvements of at least $5 million on an annualized basis, which will contribute to our anticipated overall margin improvement. This puts total adjusted EBITDA growth, again before further acquisitions, at roughly 9% to 10%. In addition, we'll aim to generate leverage on this growth on the adjusted free cash flow line, targeting growth in our typical long-term range of 10% to 15%. And with that, I'll turn it over to Ned. Ned Coletta: Thank you, John, for your support as well as I'm preparing to take on this CEO role on January 1. By my account, this will be the 110th quarterly conference call that you've led as a CEO. What an incredible record for a legendary leader and mentor to all of us. We are all excited for you to take on the next chapter of your career after fifty years at the helm of Casella. And we look forward to your continued support in your new role as executive chairman. As highlighted in our earnings release yesterday, third-quarter results exceeded expectations for both revenue and adjusted EBITDA. Total revenues rose nearly 18% year-over-year, driven by strong 4.9% organic growth and continued contributions from acquisitions. Adjusted EBITDA reached $120 million in the quarter, up 16.4% year-over-year, with base margins before acquisitions expanding 70 basis points year-over-year. Our solid waste collection and disposal operations continue to perform well, supported by 4.6% pricing growth, higher landfill volumes driven by greater internalization and third-party activity, and ongoing improvements within the Mid-Atlantic segment. Landfill volumes, as Brad stated, were up 11.7% year-over-year, with roughly one-quarter of the increase driven by better sales performance and the remainder from increased volume internalization. On the permitting front, we've made solid progress on the expansion efforts at our Hakes and Highland landfills in New York, with permits expected over the next several quarters. We're working to more than double the annual permit at Highland from 460,000 tons a year to a million tons per year and also add close to sixty years of capacity at current run rates. At the Hakes landfill, we're permitting a ten-year or more expansion at current run rates. These expansions are important with the expected closures in New York over the next several years. Operationally, we completed multiple routing optimization projects during the quarter, reducing total route days by 10 and lowering driver headcount requirements, all the while maintaining service quality. Our delayed truck orders in the Mid-Atlantic have started to deliver, with 43 trucks arriving since July 1 and another 37 trucks expected to deliver in the fourth quarter or into early 2026. Most importantly, over 60% of these trucks are automated, which will allow us to rapidly convert operating efficiencies and labor reductions in addition to the expected savings from lower maintenance costs and eliminating truck rentals. The Mid-Atlantic integration, automation, and optimization initiatives continue to advance, and as Brad mentioned, we expect at least $5 million of savings in 2026, but the ultimate multiyear opportunity is much larger, and we're currently working to establish the cadence of these savings. The Resource Solutions segment delivered year-over-year adjusted EBITDA growth, reflecting strong national accounts performance and operational efficiencies from the upgraded Willimantic recycling facility. These gains, together with our resilient pricing structures, including the floating process and SRA fees, effectively mitigated the impact of weaker commodity prices. Our acquisition program remains a powerful engine of growth and value creation. We have closed on eight acquisitions year-to-date, representing roughly $105 million in annualized revenues. The pending acquisition of Mountain State Waste is expected to close at the end of 2025 and will add another $30 million of annualized revenues. We also have four smaller tuck-in deals under letter of intent totaling roughly $20 million of annualized revenues, which could close in late Q4 or into 2026. As Brad mentioned, our balance sheet remains strong, with total liquidity of roughly $866 million, giving us ample flexibility to continue executing our strategic growth and investment initiatives. Looking ahead to the remainder of 2025, our outlook remains positive, and we expect to finish the year strong, supporting midpoint increases in both our 2025 revenue and adjusted EBITDA guidance ranges. In addition, our early view of 2026 is positive, with sustained pricing strength, the rollover acquisition growth, and cost savings initiatives positioning us for another strong year of cash growth. With that, I'll turn it back to the operator for questions. Thank you. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from Tyler Brown of Raymond James. Your line is open. Tyler Brown: Good morning. Good morning. Hey, John. Just congrats again for everything over the years. I know this may be your last call, but I'm looking forward to keeping in touch over the future. John Casella: Absolutely. I look forward to supporting the team on a go-forward basis. So it's exciting. Very, very exciting. I'm sure we'll see you around. Hey. Ned Coletta: Ned, Brad. Hey. Tyler Brown: Conceptually, so there seems to be some concerns maybe in the market about the longer-term trajectory of margins for you guys? And I know that margins are down slightly year-to-date. There are a lot of moving pieces. But at a core level, again, kind of say excluding M&A, is there any reason to think that margins couldn't meaningfully accrete as time goes on? Again, just getting that unit revenue over unit cost spread. And then how would you characterize kind of a, quote, unquote, normal year? And then how should we think about the impact of M&A on that algorithm? Brad Helgeson: Yeah. So maybe I'll start off. This is Brad. So we don't see anything that will challenge what we've executed and what we expect with margins over time. Sort of taking a step back is we have acquired businesses, mostly collection businesses, you know, plus or minus, every deal is different. But those come in at roughly a 20% EBITDA margin on average. Our collection business overall in Casella is closer to a 30% margin business. So, you know, what we see when we acquire businesses is there's significant multiyear margin expansion opportunity. And so it's sort of this kind of constant recycling where in the current period, acquisitions may weigh on our margins because the deal is coming in initially at a lower margin. But then that becomes it sort of fuels the fire of, okay, as we implement our strategies and our operating programs and so forth, we can take those margins up 500, maybe even a thousand basis points over the long term. So that's the model. And we don't see any reason why something would derail us from those kind of basic economics. Tyler Brown: But specifically, Brad, in the third quarter, acquisitions completed in the last twelve months weighed on our margins by 100 basis points. That's not concerning to us. As Brad said, I mean, it's expected. It's what we modeled. It's we knew was coming. But in the core business, we accreted margins 70 basis points, and you know, we did a great job converting on price, we did a great job executing on our sales funnel. Sean and his broader team continues to do great work on the ground operationally. We've got an amazing new safety leader that's joined Casella, Jeff Martin, that we're excited to have on our team. He's really making a positive early difference on our safety culture and advancing that in the right direction as well. So you know, the building blocks are there for us to continue to accrete margins and to improve. It really comes down to a bit of the acquisition cadence and how much that dilutes the core business. Tyler Brown: Okay. And so as we just to be clear, going back to the '26 sketch, you're looking for 25 to 50 basis points next year, including M&A. Is that right? Brad Helgeson: Including the M&A that we've completed plus $20 million of LOIs are not in the '26 look. Yeah. Correct. Tyler Brown: Okay. And then also just some clarification real quickly on the synergy capture in Mid-Atlantic. So I think you said $5 million. But to be clear there, does that include any benefits from, call it, surgical pricing opportunities? I know that the old ERP may be limited to that. Ned Coletta: Yeah. Tyler, it does not include any pricing or margin lift. We're pretty early in our budgeting process this fall. We've just kicked things off. Brad tried to give an early snapshot of some of what we're seeing. We're also running through our multiyear strategic planning as well. So we really hope to kind of give some floating bricks building blocks into February along the lines of the work we're doing specifically along synergies, operating initiatives, some of the work in the back office as well. And give, you know, a couple-year horizon on what those building blocks look like and how we expect them to come in over the next couple of years. Right now, probably a little bit of a conservative look, but we're so early in budgeting that it'd be hard to get ahead of that. Brad Helgeson: Yeah. And then to put a little bit of a finer point on the I said you have at least $5 million of opportunity next year. That's really just what is right in front of us in terms of low-hanging fruit. You know, when we get the truck deliveries, you know, and complete the system conversion, the opportunities that we're going to be able to execute on relatively quickly, like, within months of the of 2026. As you said, it doesn't include, you know, broader opportunities, further synergies beyond that, and broader opportunities just to run the business better when we're on one system. Tyler Brown: Okay. And then my last one, so it kind of actually segues a little bit, Ned, to what you're talking about. And I know maybe at heart, you're a bit of a scientist. So it's been a pretty interesting earnings season. I mean, you know, I cover a lot of different things, and we continue to hear whether it's trucking, even the aggregate business of all places. But there continues to be a lot of use cases for AI. And I'm just curious how that story fits in at Casella. It sounds like you guys are doing some longer-term planning. And I'm just curious if you see real-world application there. If it's in the truck, the back office, pricing, maintenance, maybe all of the above. But just, Ned, any broad thoughts there would be really helpful. Thanks. Yeah. Good question. Ned Coletta: As Brad mentioned, I mean, we have so much focus right now on some foundational elements for systems. We brought in a great new CIO two years ago who had been at Deloitte in waste management for twenty years. And we've been focused on some really simple things, like a billing system consolidation, new payment portals for customers, our new app, website, e-commerce. There are some really foundational elements there. But as you know, a few years back, we rolled out a great new financial ERP as a company. We rolled out a new procurement system. And around those stable platforms, we're looking for AI opportunities to really streamline. One of the areas we're probably most excited about is we've put in some new communications tools at Casella over the last six months. Albeit, with a couple of small bumps in the road, but we're now at a point where the team can start to look at some of the automation features and AI features in that system to help us gain efficiencies. And I think we look to process first, and then there's a lot of automation to come into the future. But I think the next year plus for us is about these foundational changes to systems and process innovation, and then we'll look to start to reap a lot of efficiency from that point forward. Tyler Brown: Interesting. Okay. Thank you guys very much. And, again, congrats, John. Thank you. Operator: Thank you. And our next question comes from Trevor Romeo of William Blair. Your line is open. Trevor Romeo: Good morning, guys. Thanks for taking the questions. And I'll add my sincere congratulations to John and Ned here. Wanted to maybe pick up on a comment that I think Brad made during the prepared script, which was if I heard it right, I think 20% growth in internalized landfill volumes this quarter. I think that sounds like a pretty good number. You know, you've talked about some of your investments in trucking logistics, obviously, McKean before. Maybe you could just speak to what kind of success you saw this quarter and looking forward, you know, where you sit in the path of that internalization opportunity, how much room you have left? Ned Coletta: Yeah. Thanks for the question. It's a great point Brad made, and a big focus of ours over the last twelve plus months as a management team. Beyond just operating synergies and automation and back-office synergies when we buy businesses, but many times, we have a great opportunity over the course of maybe even two to three years to internalize volumes. Many of the companies we buy might have longer-term contracts in place for third-party sites. And as they roll off, we look to optimize the system, get the right transfer assets in place, the right transportation assets in place, and see where it might fit in our landfill portfolio. So you're really seeing some of that harvesting happening from acquisitions that have been completed over the last couple of years, and it's great value creation and very large and accretive as well. And something we'll continue to look to into the future. Trevor Romeo: Great. Thanks, Ned. And then maybe just a question. Appreciate your comments already kind of on the Mid-Atlantic integration, but just maybe on M&A and integration broadly, I think we've gotten this question a couple of times. Maybe you could talk about your sort of your corporate development and integration team as you've scaled as an organization and done more M&A over time? Have you grown the size of those teams or made any changes to the way they operate? And is there anything you're learning from the current integration you can apply going forward to be more, more effective? Ned Coletta: Yeah. Excellent question. Thank you. We've done quite a bit of work there. If you flashback several years ago, we were very much decentralized in our approach from a diligence and integration standpoint with acquisitions. We've built a great team. We have several amazing members of the team both from sourcing to diligence to integration work. We have a standardized collaborative tool that we use that helps us to manage that process. And we really started to recognize a lot of best practices, ways to manage risk, ways to gain efficiency in that process as we've stood up the standalone team over the last several years. And it's increased our capability to complete deals and complete them successfully. And that's really the most important thing. John had talked a little bit about where he plans to be spending time, but one of the most important places is on that front end of the acquisition pipeline. John is just so well regarded and respected throughout the industry. And, you know, he'll be focused a lot of time on that front end of the pipeline, and then we've got this amazing team stood up right behind him to focus on the diligence and integration efforts. Trevor Romeo: Okay. Thanks so much. I'll turn it over. Congrats again. Thank you. Operator: Thank you. And our next question comes from Adam Bubes of Goldman Sachs. Your line is open. Adam Bubes: Hi, good morning. Congrats, John, what a run. And congrats, Ned as well. Ned Coletta: Thank you. I think you said core margins were up 70 basis points. 60 basis points related to landfill volumes. So that leaves around 10 basis points of sort of underlying margin expansion between the core business, including Mid-Atlantic. How do the Mid-Atlantic margins compare to this time versus last year and what sort of the true underlying solid waste margin expansion excluding that Mid-Atlantic headwind? Brad Helgeson: Yeah. It's Brad. The rate of change on the margins kind of year-over-year is really encouraging. So last year, the Mid-Atlantic on a year-over-year margin comparative basis, a headwind of about 100 basis points. You know, this quarter, it was 10 basis points. So we're really seeing things turn around there. I mean, we're not as you've heard us talk about, we're not nearly where we want to be and where we will be. But it's getting much better month after month. We're going to see delivery of, you know, additional trucks to the end of the year, which is going to be helpful as well. A lot of good things happening there. Adam Bubes: Terrific. And thanks for the framework on 2026. I think you spoke about 25 to 50 basis points of margin expansion. It sounds like Mid-Atlantic is actually going to be a tailwind next year, not a headwind. So can you just help us think about the building blocks maybe between, you know, Mid-Atlantic, the core business ex Mid-Atlantic, and then M&A that sort of leads you to that 25 to 50 basis points? Brad Helgeson: Yeah. I mean, I think it's fair to think about the Mid-Atlantic next year as certainly a tailwind on a year-over-year basis from EBITDA margins. You know, as now, I'll hesitate from getting into too much detail because, you know, as Ned alluded to, we're just now in our budget process really drilling into the plan for only the Mid-Atlantic, but the rest of the business. So, you know, it's difficult to parse it real specifically, but we feel good about 25 to 50 basis points of overall margin improvement and Mid-Atlantic being a contributor to that. Adam Bubes: And then last one for me. I might have missed it in the prepared remarks, but what was landfill pricing in the quarter? And rail-served capacity in the Northeast has had some impact on landfill pricing just based on ebbs and flows of capacity in the market. Is there scope for reacceleration in pricing off the current rate, and how do you think about timing of that? Brad Helgeson: Yep. So price in the landfills on a third-party basis was 3% same store. So that's same customer, same time. So, you know, it's a bit softer than it has been in years in the past. I think rail capacity entering the market is certainly part of that. Adam Bubes: Great. Thanks so much. Thank you. Operator: And our next question comes from James Schumm of TD Cowen. Your line is open. James Schumm: Hey, good morning, guys. Nice quarter. Ned Coletta: Morning. Good morning. Thank you. James Schumm: Can you just help give us a little bit more color on the timeline for the Mid-Atlantic billing system? Like, when do you think you're going to have this fully resolved because my understanding is, like, you can't really reap the pricing benefits really until you get it all on one system and then figure out where you can price. Right? So what's the timeline? Is it the end of the year? Is it January? Is it Q1? Or is it later than that? How should we be thinking about that? Ned Coletta: Yeah. We're about 50% through all of the customers today. And actually, next week, we'll get through a big, big chunk as well. And right now, conservatively, the Q1, it could be a little bit before that. So the system's work should be done by early Q1, kind of January, February. And then we've got a little bit more work to move on to our latest customer payment portal. And that will be the last step. And at that point in time, that entire business unit in the Mid-Atlantic will be on the most modern version of Casella's billing system and payment portal, and it'll allow us to do many things. One, as you said, we'll be able to use our tried and true profitability tools for customers, which give us more visibility in where we focus, and to ensure that we're really yielding the returns that we need to on each customer. But we'll also be able to really rapidly start to gain synergies in that business. So since certain of these businesses have been left on their own original billing systems, we haven't been able to consolidate across the eight plus acquisitions we've done in the last year. So we'll be able to rapidly consolidate routes, take trucks off the road, and at the same time, we have a lot of automated trucks showing up into that region, which accelerates this even further. So we laid out a conservative number for next year. But it will gain momentum. It's a flywheel that will gain momentum. We've done this many times before. Our team is very, very good at this. This is not recreating anything. There's not technology risk. It's more just a matter of we got to get the customers loaded into the system. We've got to do some quality control work, get them onto the payment portal, and then Sean and his team get to work and start consolidating these businesses through the '26. James Schumm: Okay. Great. Thanks for all that color, Ned. And then I was just curious, were there any notable one-time unusual revenue benefits this quarter? Ned Coletta: No. No. James Schumm: Okay. Because the guidance, if I'm doing my math correctly, which may not be the case, it seems to be implying Q4 revenues of about $467 million. That seems to imply somewhat of a sharp drop-off in your annual growth rate, and just I know there's some seasonality in the fourth quarter, but it just seems like a fairly large slowdown relative to your historical performance. So I didn't know if that's conservatism or if there I don't know if is there anything to say there. Ned Coletta: We start to comp a few acquisitions that were made in '24. So I don't know if that's part of what you're seeing. If you parse out organic and inorganic growth, that might be an area Brian can connect with you offline and walk through that. Brad Helgeson: Yeah. Typically, what you would see, it's hard to tell exactly the seasonality because you have acquisitions that are coming on that weren't there in the prior fourth quarter. This year, that's a little bit different because, yeah, in that pointed out Royal, for example. We closed Royal 10/01/2024. Exactly. So Royal is in the numbers on a comparable year-over-year basis in Q4. So a little more of the seasonality is exposed, if you will. James Schumm: Yep. Makes sense. Okay. I'll turn it back. Thanks a lot for the answers, guys. Thank you. Operator: Thank you. And our next question comes from William Griffin of Barclays. Your line is open. William Griffin: Hey, good morning, everybody. I appreciate the time. And good to hear, you know, progress on the Mid-Atlantic integration continues here. Appreciate all the color that you've given on the billing system implementation so far. Just curious if you have sort of a preliminary view or look on how we could expect pricing in that region to evolve or potentially accelerate in 2026 as you kind of get this system fully implemented? Ned Coletta: You know, it may be a little early to weigh in on that, and I don't mean to say that in a manner well. But I think we got to get into data. So we've been doing more just blanket-based reasonable price increases across this customer base. And the way we've run our business for many years is really detailed analytics. We understand each customer if we're making an adequate return. Making sure we're covering off the cost structure with that margin spread. And then trying to have dynamic features in place, like our energy and environmental fee, to pass fuel risk back to the customer and environmental risk. We use our SRA fee to pass back recycling commodity risk. Neither of those floating fees are in place predominantly across that market. We have been introducing with new customers, so we've got work there to get the floating fees in place to look at risk. And really, as I said a minute ago, we've got to get into our tried and true tools. We got to look at profitability, and there's a lot of work as we're integrating these routes to understand the true cost as well. Right now, the cost structure is a bit higher than it should be. So as that automation comes to the street, as we get consolidation of routes, this will be an iterative process into 2026. It may be several years until this entire picture is put together from pricing, profitability, and fees into that market. It's not something we're just going to pull a lever, you know, in Q2 and move everything. Brad Helgeson: And certainly, backward-looking, we've seen the Mid-Atlantic has been somewhat of a drag on our overall pricing stat. So, you know, without talking about specifically what we think the opportunity is going forward, we do know that our inability to put pricing forward in a lot of cases has been somewhat of a drag. William Griffin: Got it. And then just have two quicker ones here, so I'll combine them. I guess, one, I noticed it sounds like the timing of the Mountain State waste closure was pushed out from Q4 to Q1. Just wondering if there's anything to note there. And then any impact on truck deliveries related to $2.32 tariffs? Sounds like those are on track, but just wanted to check. Brad Helgeson: There's nothing of note. It's just a normal regulatory process for Mountain States. There's really nothing to note there. And then what was the second part? And from tariffs? William Griffin: Oh, yeah. Brad Helgeson: We're the majority of our equipment trucks, etcetera, all manufactured in North America. So we don't anticipate any particular impacts there at all. Yeah. We're a big Mac. At Kenworth. Ned Coletta: Company. That's our two primary brands. If we've got some Peterbilts, you know, they're very limited in scope. And I know Peterbilt's looking to move capacity to the US manufacturing-wise, but that's not a primary brand for us. You know, the one as Sean said, you know, we really have worked hard over the last standardize our brand around two chassis, and they're both American-made. So we don't expect an impact there. Across the rest of the supply chain, we really haven't seen much if anything. There's a few very limited tariffs we've seen here or there. We've been tracking them very closely through our procurement team and pushing back and making sure if it does come through an invoice, there's proper documentation, and we understand if it's real or not. Brad Helgeson: Yeah. The other piece too is that the second half of this year, the disruption in the supply chain in terms of delivery of trucks has really eased, and we're now getting all of the equipment that we need and then some. So that whole issue has really gone away in the second half of the year. So we can get whatever we need from an equipment perspective, particularly trucks. William Griffin: Alright. I appreciate that. John, Ned, congrats to you both, and happy Halloween, everybody. Ned Coletta: Thank you. Operator: And our next question comes from Shlomo Rosenbaum of Stifel. Your line is open. Shlomo Rosenbaum: Hi, thank you very much for taking my question. I just wanted to step back a little bit with the Mid-Atlantic, and it looks real great that the EBITDA margin drag going down from 85 basis points last quarter to 10 basis points this quarter should be done within whatever it is, five, six months. I just want to ask with, you know, having gone through, you know, some hiccups over there, and really winning into the acquisition kind of a stride. Where do you feel you are in terms of being able to integrate these deals? Like, if big deals come in, what would you say would be some, you know, key things that you could step back and say, hey, our execution is going to be better in the future versus what we saw now. Just, you know, anytime it goes through things, it's a running process. It's an iterative process. And do you feel you can do you know, your capabilities have increased over the last, you know, year because of that, you know, not within the way that you've built the team, but just in terms of, you know, on the ground capabilities and the cadence of the way things should go. Ned Coletta: Yeah. You know, there's two unique things in the Mid-Atlantic. One, we bought assets extracted out of another company. And that's different. We've done that one other time in the past and had wild success. This time, it's a little bit more complicated with the transition services agreement and lack of visibility. But more importantly, John and I stuck by a certain rule for a lot of years in the company. Every company we bought, we put onto our billing system as fast as possible. And in the Mid-Atlantic, you know, we made a bad decision. I mean, that's what it is. We left it on its billing system. We left it alone, and we realized we just didn't have enough visibility. And at the time, it was the right decision because we really wanted to see what the AMCS platform could do and to see if there was something that we could leverage other parts of Casella. But it turned out to not have a lot of features that we need to run an effective business from profitability analytics to ease of extracting data and analysis. So we made the pivot decision in, you know, 2025 to get onto our core tried and true system, and we've been running fast. And, you know, you got to check things out sometimes. We made a tiny, I guess, you know, decision back then that that's turned into something a little bit harder, but we're back to our core basics, which is get every acquisition onto the Casella tried and true system as fast as possible. John Casella: I think the other aspect of that is that we also really have come out of that even stronger. And that's really developed over the last probably six months, the entire business development team, the integration team, more development there, looking at where we can strengthen those teams for the future. So I think that there's no question that there's some lessons learned coming out of that. But clearly, we're really excited about it. I think at this point in time too, another factor is building bench strength. We're doing that internally now from an HR standpoint. And we've got 10 Casella people in the Mid-Atlantic at this point in time. So we're very confident about where we're going in the Mid-Atlantic. We're going to close the gap in terms of margins. We're going to do everything that we set out to do. And, yeah, there's some lessons learned. No question about it. We need to have a bigger bench strength to support the acquisition opportunities that we have. We've learned that. Doing it. So you know, Ned's right. There are a few lessons learned. For sure. Ned Coletta: Yeah. But it's interesting. I mean, we've done 80 plus acquisitions in the last five years. Five plus years. And you know, we've yielded the synergies, hit our models, in every case. You know, once or twice, it takes a little bit longer, but we do a really good job. We do a postmortem on every deal. We measure ourselves. We hold ourselves accountable. We learn from it. And it's actually something I would say is a real core strength of our team. And there should be a lot of investor confidence around this part of our growth strategy going forward. It's something we're good at and will continue to drive a lot of value. Shlomo Rosenbaum: Okay. Great. And then just going over those two landfills for your deep in the permitting, you know, re-permitting process, how confident are you on that to get over the finish line? We're just hearing so many stories about, like, nightmares in terms of getting these things done. So I just want to ask. John Casella: No. I think so. I think so. We feel very confident. I mean, I think that there's anyone who's developed capacity in the Northeast of Casella over the last twenty-five years. I think our record goes without saying. We're very confident in getting through the process. I think the biggest challenge with our Highland facility was making sure that we got through the host community. We're through that, obviously, and now we're working on the DEC permitting. Expect to, as Ned said, probably in the next few quarters, expect to have that permit in place. And the same thing with Hakes as well. So, you know, the Northeast is a challenge from a disposal capacity standpoint. It continues to be a challenge. It's not easy. I certainly don't want to give you that impression, but we're very confident that we're going to have success there. Ned Coletta: Yeah. And this is a big deal too. Bringing on this much new disposal capacity in the Northeast versus having to rail a thousand miles away or 2,000 miles away is a really big value creation point for shareholders. So you know, we're excited to get through these processes. We're down to the last throats. And we're, as John said, we're very confident. Can't predict the exact month or date, but we're close. Shlomo Rosenbaum: And can you just talk a little bit as the capacity comes on, does that increase your ability to internalize? Is it the fact that other landfills in the region are running out of capacity? Like, when would we start to see that, you know, start to increasingly add value to your operations? John Casella: I think that it's probably, you know, '26, twenty-seven, you know, time frame, I think. But a lot of that depends on how much disposal capacity comes out of the Northeast market. You know, right now, we have Ontario coming out at the '28. It could change. There's also the potential of significantly more capacity closing in the Northeast as well. So when those events happen, we're going to be in a position with the capacity that we have to really take advantage of it. So you know, it's very hard to predict when that's going to happen, but you know, all indications are that we're going to be losing capacity in the Northeast. Yeah. Gaining capacity. And with the exception of what capacity we're putting in place, going to be losing capacity in the Northeast. Ned Coletta: And within very short distance of Highland and Hakes, there are three sites that will be closing in the next two to three years from the Buffalo market to the Finger Lakes to the Greater Albany market. That whole tier of New York is losing significant landfill capacity over the next several years as we're ramping up these sites. So our timing should be good. It's not a '26 gain, but it'll be a great organic growth engine for us over the next couple of years. Shlomo Rosenbaum: Great. Thank you. Operator: Thank you. And our next question comes from Tony Bancroft of Gabelli Funds. Your line is open. Tony Bancroft: Good morning, gentlemen. Thank you. And John, congratulations on all your successes. You did a wonderful job and built an amazing company, and that could be more well-deserved. My question is for more 30,000 feet bigger picture, you know, as is this given all the surging power needs for AI data centers, you know, in the Northeast grid. How do you see Casella's, you know, landfill to gas energy capacity? Again, this is sort of longer term. I understand this is a small portion of the business, but bigger picture, just sort of like your, you know, you figured out the declining capacity in the Northeast longer term. Yeah. How do you see that impacting your landfills with, you know, energy demand and also on the waste side, you know, with the E&P waste, you know, in the Northeast as well. Wanna get your longer-term view. John Casella: Sure. I mean, I think that we've taken a different tack, you know, from a strategic standpoint in terms of the, you know, the RNG facilities where, you know, we are basically selling our gas to RNG developers. And really have taken a much different perspective about the long-term volatility of that aspect of the business. So we're going to be steady stream in terms of the value that we create. The capital investment, whether it's a $35 or $50 million investment, is really being invested by third parties. We're simply selling the gas. So that's not going to really have a significant positive or negative to Casella on a go-forward basis, Tony. Ned Coletta: You know, today, it's about 1% of our EBITDA. Our energy sales, both in landfill gas energy and in the RNG. As John said, we made a thousand percent the right strategic decision by not developing those facilities on our own. But we've got three new facilities coming online in the next few months. Our North Country facility in New Hampshire, we have a third party who's ramping an RNG facility there. And we have two Waga facilities coming online in New York, Highland and Chemung. We haven't modeled much for 2026 impacts for these. But they could become more material. And, you know, there's a lot of really high-quality methane coming off those landfills and, you know, definitely be something we'll keep visibility on it. It'd be very accretive, 100% margin. So it's, you know, exactly what you want with no investment. So it'd be exciting to see those streams ramp up. Tony Bancroft: Great job, gents. Thanks so much. Ned Coletta: Thank you. Thank you, Tony. Operator: Thank you. And our next question comes from Stephanie Moore of Jefferies. Your line is open. Stephanie Moore: Good morning. I wanted to follow-up on McKean. I know that you've said that you know, you did have some plans to add a transfer station and do a little bit of building at that site. Just to move forward with that asset. If you could talk a little bit about, you know, any updates in terms of that building now, timing of completion, and then just general overall thoughts in terms of timing of those investments and then, you know, the ability to start to really push volumes through here over the next, you know, twenty-four, thirty-six months, etcetera. Thank you. John Casella: Sure. I think that, you know, first of all, the facility is up and operational. We're, you know, the entire team out there has gotten some great experience over the last, you know, six months or so in terms of handling different types of waste to the facility. We have not aggressively tried to move waste to the facility. We're looking at internalizing some of our own rail served out of our Holyoke facility. We're looking also at our Willimantic. But it's probably, you know, Q2 2026 when we'll begin to see a little bit more activity. But, again, a lot of it depends on what happens from a disposal capacity standpoint, how much capacity comes out of the market and when. We also, you know, recognize that our facility at McKean also is the closest facility to the waste generation in the Northeast as well from a rail perspective. So our turn times are going to be good compared to some of the other alternatives that are further away. So excited about it. But, again, it's a longer-term, significant impact on a positive basis to the company. Stephanie Moore: Great. Well, I appreciate all the color today. Thank you, guys. Have a good weekend. Ned Coletta: Thank you. Bye. You too. Operator: Thank you. And as a reminder, if you have a question, please press 11. And our next question comes from James Schumm. It's a follow-up from TD Cowen. James Schumm: Hey. Thanks, guys. Stephanie just asked my question on McKean, but maybe coming at it from a different angle. So like, I know you've been sort of using this or reserving this as a strategic backup for Northeast volumes. But I believe it's your largest permitted volume landfill. So would you consider acquiring collection operations in Western PA or Cleveland and send those tons there? Or could you use McKean's Rail Access to serve your Mid-Atlantic operations? Ned Coletta: Yeah. Thanks for the question. So Pennsylvania is a state with a lot of landfills. So you got to really be pretty local to a landfill from a truck standpoint to have it make sense to bring in volumes. And that's why it's been a slow site for the last decade as we brought in really just proximate waste into that site from the surrounding communities in Pennsylvania. As we look at an opportunity to truck it further in Pennsylvania, it gets complicated quickly because you can't get overweight permits in Pennsylvania over the road. So you're really only hauling, like, 20, 22 tons in a 53-foot trailer. So it makes it a little more costly. That's why the rail side of this is exciting. We continue to look at opportunities both in the Northeast and in the Mid-Atlantic region for rail-served transfer stations or even development opportunities to get those direct linkages. So that will be something we'll continue to do into the future. It is more capital intensive to move waste via rail than via truck. So it's always our preference to, you know, move it via truck versus rail. But if you can have the right linkage, the right long-term contract, or connection to a Casella asset, that could be a long-term value creator for shareholders. James Schumm: Okay. Great. Thank you. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to John Casella for closing remarks. John Casella: I'd like to thank everyone for joining this morning. Ned and Brad look forward to discussing our fourth quarter 2025 earnings and our 2026 guidance with everyone in February. Have a great day. Have a great Halloween. Ned Coletta: And thanks, everyone. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at (212) 515-3200. At this time, I'd like to turn the call over to the company's chief executive officer, Stuart Rothstein. Thank you. Stuart Rothstein: Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance third quarter 2025 earnings call. As usual, I am joined today by Scott Weiner, our chief investment officer, and Anastasia Mironova, our chief financial officer. ARI's third quarter was highlighted by continued strong origination activity and progress with our focus assets, as transaction activity and operating in the broader real estate market continues to improve. Importantly, as capital from focus assets is freed up and made available for redeployment into newly originated loans, ARI continues to benefit from the strength and breadth of the Apollo real estate credit platform. Overall, Apollo is on pace for a record year of commercial real estate loan originations, with over $19 billion closed to date. This provides ARI with an incredibly robust pipeline of transactions and enables us to effectively deploy capital and construct a diversified loan portfolio on behalf of ARI. During the quarter, ARI committed to an additional $1 billion of new loans, bringing year-to-date originations to $3 billion. Consistent with recent activity, this quarter's originations were divided between the US and Europe. ARI's ability to deploy capital in Europe continues to be a differentiating factor. Apollo is the most active alternative lender in Europe, which has a fragmented lender universe given the less developed securitization market. Fundamentals in Europe remain healthy across property types, and with the lower rate environment enabling transactions to have positive leverage again, the acquisition market has picked up significantly. The third quarter loans closed included residential transactions, and as of the end of the third quarter, residential loans encompassing multifamily, for-sale residential, senior housing, and student housing represent ARI's largest underlying property type in the portfolio at 31%. Repayments continued to track expectations with $1.3 billion of repayments and sales during the quarter, bringing year-to-date repayments to $2.1 billion. Turning now to the loan portfolio and an update on ARI's focus assets. At quarter end, the carrying value of the portfolio totaled $8.3 billion. 54% of ARI's loan portfolio now represents loans originated post the 2022 rate hikes. The headline for ARI's focused assets is continued sales momentum at 111 West 57th Street, with six new contracts signed since the last earnings call, three of which closed post quarter end, generating approximately $55 million in proceeds and further reducing ARI's loan basis. At the Brook, ARI's multifamily development in Brooklyn, we have seen strong leasing velocity to date and are still on target to exit that investment in 2026. Anastasia will discuss in her comments, but we expect this capital rotation out of focus assets will have a meaningful impact on ARI's earnings run rate going forward. Shifting to the right side of our balance sheet, ARI continues to maintain robust liquidity and has access to additional capital from the company's various financing facilities. ARI's lenders remain actively engaged in the sector with ongoing dialogue around in-place or potential new financings. ARI continues to diversify the company's lender base and expand sources of capital, having entered into a new secured borrowing facility during the quarter in Europe. In addition, we upsized the borrowing capacity on our revolving credit facility by $115 million and extended the maturity to August 2028. With that, I will turn the call over to Anastasia to review ARI's financial results for the quarter. Thank you, Stuart. Anastasia Mironova: And good morning, everyone. For 2025, ARI reported GAAP net income of $48 million or 34¢ per diluted share of common stock. Distributable earnings were $42 million or 30¢ per share. Distributable earnings prior to realized loss on investments and realized gain on litigation settlement, or the measure we refer to as run rate distributable earnings, was $32 million or 23¢ per share of common stock. Run rate distributable earnings during the quarter was slightly below the dividend level, given the timing of redeployment of capital within the quarter. It is worth noting that we often do not have control over the timing of new loan transactions closing and its correlation to the timing of repayment in the portfolio. Reinvestment of proceeds from unit sales at 111 West 57th will provide upside to earnings in Q4 and further in 2026. We continue to address other focused assets in our portfolio and foresee resolutions on a number of them towards the second part of the year in 2026. Recycling of capital from those self-performing assets will provide further uplift to earnings in 2026. During the quarter, we received discounted payoff proceeds associated with our Michigan office loan, which was previously fully reserved. As a result, we recorded a partial reversal of the specific CECL allowance in the amount of $1.3 million and the charge-off of $6.2 million. We also realized a $1.2 million loss on sale of the promissory note, which was previously reflected as note receivable held for sale on our balance sheet. This realized loss was in line with the previously recorded valuation allowance for this asset. Additionally, during the quarter, we recognized a $17.4 million gain in connection with the settlement of the litigation related to one of the assets in the Massachusetts healthcare portfolio. The aggregate impact of these events was a 14¢ increase in book value per share. As a result, our book value per share, excluding general CECL allowance and depreciation, was $12.73 as of the end of the quarter. Our loan portfolio ended the quarter with a carrying value of $8.3 billion and a weighted average unlevered yield of 7.7%. As Stuart mentioned, we had a strong quarter of loan origination totaling $1 billion and completing an additional $234 million in add-on funding for previously closed loans. Year to date, through Q3 quarter end, we originated over $3 billion of new commitments and completed a total of $702 million of add-on funding for previously closed loans. Subsequent to quarter end, we committed an additional $388 million towards new loans, $324 million of which have already been funded. In addition to those closings, we have a robust pipeline of loans which are expected to close before the end of the year. With respect to risk rating, the weighted average risk rating of the portfolio at quarter end was 3.0, unchanged from the previous quarter end. There were no new asset-specific CECL allowances recorded during the quarter and no other movements in ratings across the portfolio. Our specific CECL reserve decreased by $7.5 million due to partial reversal and the associated charge-off on the Michigan office loan, as mentioned earlier. Our general CECL allowance increased this quarter by $1 million due to origination activity in the portfolio. Total CECL allowance percentage points of the loan portfolio amortized cost basis is up slightly quarter over quarter from 429 basis points to 438 basis points, driven by a slightly lower loan portfolio balance at the end of the quarter compared to the previous quarter end. We ended the quarter with strong liquidity of $312 million, comprising cash on hand, committed undrawn capacity on existing facilities, and loan proceeds held by the servicer. Our leverage is down quarter over quarter from 4.1 times at June 30 to 3.8 times at September 30. We continue to diversify and strengthen our banking relationships, with two new banks joining the syndicate to our revolving credit facility, which was upsized by $115 million during the quarter and extended by three years. Liquidity in the secured borrowing market remains plentiful, and with continued spread tightening, we have been able to generate returns consistent with our historical and target levels. With that, we would like to ask the operator to open the line for questions. Thank you. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Doug Harter with UBS. You may proceed. Doug Harter: Thanks. You know, as you think about the timeline to monetizing the Brook and, you know, how should we think about the pacing of future sales at 111 West 57th? Yeah. Thanks, Doug. Look. Let me take those in reverse because it's at 111 West 57th, we're effectively down to three units at this point. You know, including what the market knows of as a quadplex and then another penthouse. So there's actually, you know, foot traffic and interest continues to be good at 111 West 57th Street. I would say, you know, given the size of the units we're talking about moving, it's tough to know exactly from a timing perspective. But certainly, you know, our expectation in dialogue with the team working on it is that, you know, certainly the early part of next, you know, sometime in the first part of next year, we would hope to be at the finish line on 111 West 57th Street. Think with respect to the Brook, if things keep along pacing from a lease-up perspective, and there's nothing else unforeseen in the marketplace. You know. Today, we would think about bringing the asset to market, you know, call it sometime in the late spring, early summer next year with the hope of closing a transaction sometime late third quarter, early fourth quarter. Great. And then, you know, as you think about leverage, you know, what do you think is the right leverage level, you know, for this business to be run, you know, as you think about, you know, the level of redeployment that you can do as you free up capital? Stuart Rothstein: Let me look. I think for us, it hasn't changed much. What's, you know, the leverage has moved up in the company over time only because we've pivoted out of your mezz loans and more into all senior loans where you end up, you know, roughly same attachment points. And generating your ROE that way. I think, you know, for us, we will continue to originate senior loans at, you know, call it, and then back lever somewhere in the, you know, 65 to 75% range from a back leverage perspective. That would imply ultimately a leverage level, you know, call it in the mid-threes, but then you've got some corporate leverage as well through the term loan B and the senior secured notes. So we're gonna run the business around, you know, around four terms of leverage when we are fully deployed and capital efficient, including return of capital from focus assets. Doug Harter: Great. Thank you, Stuart. Stuart Rothstein: Sure. Thank you. Operator: Our next question comes from Harsh Hemnani with Green Street. You may proceed. Harsh Hemnani: Thank you. And thanks for the update on, you know, the Brook and 111 West 57th. Both of it seem like, you know, 2026, excuse me, and part of it in the '26. Do you have any thoughts or update on the Liberty Center asset and how that's progressing? Stuart Rothstein: Yeah. The, you know, the news on Liberty Center, which was actually not a surprise when it happened. I guess we knew it was ultimately going to happen, but we thought, you know, the we thought the market would accept a sale through that, which was the parent of the movie theater at Liberty Center filed bankruptcy. I think the feedback through the sales process that we were early stages on earlier in this year was that, you know, we'll get a better response from the marketplace on the sales side as that gets resolved. At this point, the movie theater is continuing to pay rent. But is, I would say, operating the theater suboptimally. We will let the process play out through the bankruptcy court. We are very much involved in the process. And we'll determine whether they are going to accept or reject the lease. It is clear from incoming inquiries that there are other operators interested in the movie theater space if it becomes available. But at this point, we need to let that process play out, and I think we will be in a better position to assess timing of an exit probably late Q1, early Q2 of next year. Harsh Hemnani: Got it. That's how it works. And then maybe on the repayment side, it's been a little lumpy this year, but this quarter was specifically, you know, a big step up in repayments. Is there anything particular to point to that's driving the elevated level of repayments, and do you think that will continue perhaps in the fourth quarter and moving into early next year? Stuart Rothstein: Yeah. Look. We're never, you know, we're never gonna predict, you know, the exact timing, and we tend not to spend a lot of time losing sleep over quarterly variations. I do think to your question, you know, at a broad level, repayments are occurring because the capital markets are fully open. There's the ability for people to access repayment capital, but you're also seeing improved operating performance in a lot of asset classes, and the market has accepted a reset from a valuation perspective. So I think a lot of the sort of stasis that we saw in the market in 2022, early 2023 as people were trying to digest elevated interest rates and not really sure where the economy was headed. I would say both in the US and Europe relevant to our portfolio. There's just better clarity in the market. I think a lot of the capital that was sitting on the sidelines, particularly on the equity side, is biased towards transacting these days. So I think we will continue to see a healthy pace of repayments across the portfolio. And I would say, you know, it'll be lumpy quarter to quarter just because you're never quite sure when deals will close. But as we look out in terms of projected repayments, you know, the big headline was that repayments are consistent with what we would have expected. And we don't see that changing going forward. Harsh Hemnani: Great. Thank you. Operator: Our next question comes from Jade Rahmani with KBW. You may proceed. Jade Rahmani: Hi. This is Jason Sapshaw on for Jade. Thank you for taking my question. So on 111 West 57th, total exposure was up slightly this quarter to $279 million. I'm assuming that was due to increased capitalized cost on development spend, maybe TIs on the retail lease. Is that accurate? Stuart Rothstein: Yes. Jason. It was it's accurate. Yeah. We had some in connection with the bottom lease. We had to pay for some, you know, ongoing TI. Jade Rahmani: Got it. So I think it would matter if I would I would also say I'm sorry, Scott. So it's the other thing I'd say, it's it's consistent with the underwriting we did at the time we took the reserve on 111 West 57. So I would say it's consistent with expectations. I'm sorry, Scott. Go ahead. Scott Weiner: Yeah. I was just gonna say we didn't have any of the any of the contracts closed in the So I think you you saw in in our release that we'd already have three three contracts closed that'll reduce the balance. And then, you know, Stuart was saying that there's three unsold units, but there also are three more units that are under contract that we expect to close the remainder of the quarter. So there should be six units at least closing this quarter paying down our balance. Jade Rahmani: Oh, wow. Okay. That's great. And then on on Brooklyn multifamily, what's the difference between the debt listed in the slide deck at $330 million and capitalized financing and construction costs in the 10-Q at $393? Sorry. $330 in the slide deck and $393 in the 10-Q. Stuart Rothstein: And, Stacia, you wanna handle that now or just get back after the call? Anastasia Mironova: Yeah. This is Anastasia. I will take a look at the map here. I'll get back to you after the call. Jade Rahmani: Alright. Thank you. And then just on the two hotels, the Mayflower and the Atlanta hotels, any update there would be helpful. Stuart Rothstein: I mean, think on the Mayflower, the hotel continues to perform well. Obviously, there's some seasonality in the numbers, which sort of always impact what occurs in Q3. But overall, from an NOI perspective, particularly relative to basis, the hotel is performing quite well. And we are now stepping into a focus on optimizing the expense side. At the hotel, but we continue to feel quite positive on performance of the hotel and just think there's some more net cash flow uplift that we can Thank you. Hotel two more stabilized level. Jade Rahmani: Alright. Thank you. Operator: Our next question comes from John Nicodemus with BTIG. You may proceed. John Nicodemus: Hello. Morning, everyone, and thanks for taking my question. As Harsh mentioned, it was definitely a high repayment quarter, but it sounds like originations are a full go into the end of the year, which is exciting. Obviously, this is all can fluctuate on a quarter-by-quarter basis, but how do you envision the size of the loan portfolio trending not just in the next quarter, but kind of as we further into, you know, 2026 and maybe even end of next year, you have any insight on that? Thanks. Stuart Rothstein: I mean, where the growth in the loan portfolio is gonna come from, John, is, right, to the extent we are able to take unlevered capital. Right? If you think about repayments on 111 West 57th Street, or ultimately selling Liberty Center. Right? You're gonna take unlevered capital and then, you know, deploy it and lever it into assets. So you'll see some portfolio growth as we bring back what we would call the focus asset capital. You'll see less impact if and when we ultimately sell the Brook. Does that is levered as a construction deal already, we'll be able to use, you know, more leverage against the senior first mortgage than you can against a construction deal. So you'll see some pickup in asset level, but it won't be as dramatic as just assuming all of the capital is coming back to us. But that's what's really gonna drive portfolio growth going forward is taking focus assets, which for the most part are unlevered or underlevered and deploying them into senior loans where we'll use, you know, quote-unquote full leverage per my response to Doug's question earlier in the conference call. John Nicodemus: Great. Really helpful, Stuart. Thank you. And then another one for me, saw the team originate two sizable loans on upscale hotels during the quarter. I'm just curious if there's something about the hospitality sector that you're finding more attractive at this time. Or were these more just unique opportunities in New York and San Diego? Thanks. Scott Weiner: Yeah. I mean, I would say, look, we've always been active in the hotel front both in the US and Europe and, you know, happen to like these deals just given size and in-place cash flow. You know, one of the deals, we partner with someone, and there's a mezzanine behind us. We're able to structure a very low leverage deal and then one in New York City was an asset we're familiar with in a sponsorship group with acquisition financing. So nothing special. You know, I think hotels always have a part of the portfolio and think it's, you know, we've gotten a bunch of repayments in hotels. So we thought it made sense to add these two deals. John Nicodemus: Awesome. Thanks so much, Scott, and appreciate the time. Anastasia Mironova: Thank you. And as a reminder, to ask a question, please press 11 on your telephone. Our next question comes from Rick Shane with JPMorgan. You may proceed. Rick Shane: Hey, this is AJ on for Rick. So it seems like office trends are continuing to improve. Was just wondering if you can give us an update on what you're seeing in your office portfolio right now. Scott Weiner: Yeah. Look. I mean, I think look. It's still very much city by city with office. I mean, I think we're fortunate, you know, where our exposure generally is. But I would say, certainly, you know, in the stats that we're getting from the landlords, you know, people are back in the office more, and that's really across the board. Clearly, New York, I think they're maybe even higher than pre-COVID. Lots of positive, you know, leasing momentum. Again, you know, New York and London in particular. You know, Chicago where we do have some exposure, you know, it's, you know, I would say it's, again, asset by asset. We happen to have a loan on one of the new buildings in Chicago, and that's doing great. We have a loan on an older building that is seeing some positive leasing, not as much as the, you know, the newer build, which I think, again, is consistent in other markets. So I think we're pleased. And I think overall, so we're seeing more capital market activity. You're seeing certainly the financing of office deals is back across the board, both stabilized deals as well as lease-up, and then you are starting to see more transaction activity. Rick Shane: Super helpful. Thank you. And then just one more another one on repayment. So, you know, now that rates are finally starting to come down, could you see a bit of a tick up in repayment rates, for some of those, you know, earlier COVID-era advantages that have been waiting for lower rates for so long? Scott Weiner: Yeah. I mean, I think as we look at our portfolio, you know, consistent with all real estate. Right? Yeah. Good. Scott. Go for it. I was just gonna say, there's a bunch of our stuff is actually being sold. So people have achieved their business plan, and they're selling it, and we're getting repaid. You know, other deals are being refinanced and whether, you know, pulling out money or just, again, the loan is coming due. So I don't really see it as a trend where someone had really high expensive debt from COVID or pre-COVID. I think it's just normal, you know, these are floating rate loans with, you know, a few years of call protection. When we do a loan, we kind of expect it to be out two, three years. And I just think people are, you know, the markets are open and where they want to, you know, refinance or sell, they're doing that now. Rick Shane: Yep. Thank you very much. That's all for me. Operator: Thank you. I would now like to turn the call back over to Stuart Rothstein for any closing remarks. Stuart Rothstein: No closing remarks. As always, appreciate everybody's time. And if you have questions after the fact, myself, Hillary, Anastasia, we are always reachable and available. Thank you all. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome everyone to the Xenia Hotels & Resorts, Inc. Q3 2025 Earnings Conference Call. My name is Becky, and I will be your operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Aldo Martinez, Manager of Finance, to begin. Please go ahead. Aldo Martinez: Thank you, Becky. And welcome to Xenia Hotels & Resorts, Inc.'s third quarter 2025 earnings call and webcast. I am here with Marcel Verbaas, our Chairman and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and Atish Shah, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects. And Atish will conclude today's remarks on our balance sheet and outlook. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by such forward-looking statements. The earnings release that we issued this morning, along with the comments on this call, are made only as of today, October 31, 2025, and we are under no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our third quarter earnings release, which is available on the Investor Relations section of our website. The property-level information we will be speaking about today is on a same-property basis for all 30 hotels unless specified otherwise. An archive of this call will be available on our website for ninety days. I will now turn it over to Marcel to get started. Marcel Verbaas: Thanks, Aldo. Good morning, everyone. As we reported this morning, our third quarter performance generally met the expectations we outlined during our second quarter earnings call. The lodging industry continues to experience a challenging operating environment, particularly as it relates to leisure demand, which generally is a significant driver in the third quarter for our portfolio and the industry overall. However, despite these macro challenges, we continue to benefit from the high-end positioning of our portfolio as well as unique internal growth drivers such as the continued ramp of Grand Hyatt's Resort. We also continue to benefit from strong group demand throughout, which was evident again in September and thus far in the fourth quarter. We expect group demand to remain strong as we look ahead to next year, which is supported by robust group room revenues already on the books for our portfolio for 2026. Turning to our third quarter financial results, for the third quarter of 2025, we reported a net loss of $13.7 million, Adjusted EBITDAre of $42.2 million, and adjusted FFO per share of 23¢, which was a decrease of 8% compared to the same quarter last year. Our same-property RevPAR for the quarter was essentially flat for our 30-hotel portfolio compared to the same period in 2024, with an occupancy decrease of 100 basis points offset by a 1.6% increase in average daily rate. The Houston market, in particular, was a drag on portfolio performance as the market and our hotels faced tough comparisons due to a short-term demand lift from the aftermath of a hurricane in the third quarter of last year. Additionally, given the seasonality of the various demand segments in our portfolio, group demand, which has been the strongest segment this year, was not as big of a driver for our third quarter as it was in the first half of the year and as we expect to see again in the fourth quarter. Despite these challenges, when excluding our Houston assets, same-property RevPAR increased by 0.9%, which was largely driven by significant year-over-year growth at Grand Hyatt Scottsdale as the resort continues its ramp towards stabilization. In addition to the strong growth in Scottsdale during the third quarter, we experienced double-digit percentage RevPAR growth in Santa Clara, Birmingham, and other markets. Despite the relatively muted performance in the third quarter, we are pleased that for the first nine months of the year, our same-property portfolio achieved a 3.7% increase in RevPAR driven by 80 basis points higher occupancy and a 2.4% increase in average daily rate when compared to the same period in 2024. This outperformance was again mostly fueled by the recently renovated and up-branded Grand Hyatt Scottsdale Resort during the early phase of its path towards stabilization. As it continues to perform in line with our underwriting expectations, we continue to be excited about the impact of our stronger group positioning this year, and particularly the associated increase in banquet and catering revenues. As a result of a significant increase in food and beverage revenue, our third quarter same-property total RevPAR increased by 3.7% in the third quarter as compared to last year, despite our RevPAR being flat year over year. This third quarter increase was again mainly driven by Grand Hyatt Scottsdale. For the first nine months of the year, the impact of increased food and beverage revenues was even greater, as same-property total RevPAR increased by 8.5%. Our strong group base for the fourth quarter and for 2026 gives us optimism that we will be able to continue to experience outsized total RevPAR gains in the quarters ahead. Third quarter same-property Hotel EBITDA of $47 million was 0.7% above 2024 levels, and hotel EBITDA margin decreased 60 basis points. Excluding Grand Hyatt Scottsdale, third quarter EBITDA decreased 7.8% and hotel EBITDA margins decreased 160 basis points. For the first nine months of the year, same-property hotel EBITDA of $205.4 million increased by 12.6% above 2024 levels, and hotel EBITDA margin increased 101 basis points. Excluding Grand Hyatt Scottsdale, year-to-date EBITDA increased 3.9% and hotel EBITDA margin was essentially flat. We remain pleased with our operators' efforts to control expenses in a continued inflationary environment. Turning to our capital expenditure projects, we now project that we will spend approximately $90 million on property improvements during the year, which is a $10 million increase compared to the midpoint from our prior CapEx guidance. This increase is due to two factors. First, the anticipated completion of some additional capital projects that were originally planned for various properties, as we have been able to mitigate the impact of any potential tariff-related cost increases. And second, the cost we will be incurring in 2025 for a comprehensive reconcepting of the food and beverage operations at W Nashville. Even with this increase, we still anticipate spending approximately $50 million less on capital expenditures in 2025 than we projected at the beginning of the year. We are extremely excited about the upcoming relaunch of the food and beverage venues at W Nashville that we announced in our release this morning. We extensively evaluated several options to increase the appeal of the food and beverage outlets and hotel, which could drive incremental F&B revenues and further enhance the desirability of the hotel for all demand segments. After completing this thorough process, we are pleased to have reached an agreement with Jose Andres Group, under which Jose Andres Group will operate and/or license essentially all of the food and beverage outlets at the hotel. We believe the combination of the operational and marketing expertise of Marriott and Jose Andres Group will drive incremental revenues and hotel EBITDA and make the hotel an even more exciting destination. We will be making an additional capital investment of approximately $9 million to effectuate this change. However, given the already outstanding physical condition and quality of the hotel's existing venues, this capital will be largely spent on FF&E and branding elements as well as kitchen equipment and back-of-the-house improvements. We are projecting that the relaunch of the F&B outlets will add between $3 million and $5 million to hotel EBITDA upon stabilization through increases in food and beverage and room revenues, which we believe should result in the hotel's generating in excess of $20 million of hotel EBITDA in the next few years. Barry will provide additional details on this exciting W Nashville F&B relaunch during his remarks. As we look ahead to the remainder of the year, we remain cautious in our near-term outlook, which is reflected by slightly reduced expectations for the fourth quarter. For the full year, we now expect a same-property RevPAR increase of 4% and adjusted EBITDAre of $254 million at the midpoint of our updated full-year guidance. Atish will provide additional details on these modest adjustments to guidance during his remarks. As has been the case for most of the year, group business continues to be a driver of our RevPAR growth, with leisure softening a bit this year, as we had anticipated, while business transient continues to improve gradually. We saw a continuation of this trend again in October. We are encouraged by the approximately 5.8% RevPAR growth that we project our same-property portfolio will achieve in October, which represents a meaningful improvement over our portfolio's third-quarter performance. With a strong overall group base for the fourth quarter, we again anticipate significant growth in food and beverage revenues during the quarter as well. Looking ahead to 2026, we believe that Grand Hyatt Scottsdale will continue to ramp in consistent with our underwriting, and we expect group demand across the portfolio to be robust and drive outsized non-room revenue growth. We continue to believe strongly in the long-term growth prospects for our well-located, diversified, and high-quality portfolio in 2026 and beyond. Barry will now provide more details on our third-quarter operating results, the W Nashville Food and Beverage relaunch, and our other capital projects. Barry Bloom: Thank you, Marcel. Good morning, everyone. For the third quarter, our same-property portfolio revenue was $164.5 million, flat to the third quarter of 2024, based on occupancy of 66.3% at an average daily rate of $248.09. Strength in non-room spend, particularly banquet revenues, resulted in total RevPAR of $289.76 for the quarter and $329.60 for the year to date, an increase of 3.7% and 8.5% respectively when compared to the same period in 2024. Excluding Grand Hyatt Scottsdale, RevPAR was $167.87, a decrease of 2.6% as compared to 2024. This reflected a decrease of 289 basis points in occupancy for the period and an increase of 1.5% in average daily rate as compared to the third quarter of 2024. Our top-performing hotels for the quarter were Grand Hyatt Scottsdale with RevPAR up 27%, Andaz Savannah up 15.3%, Waldorf Astoria Atlanta Buckhead nearly 14%, Grand Bohemian Hotel Mountain Brook up 13.2%, Hyatt Regency Santa Clara up 12%, Renaissance Atlanta Waverly up 12.5%, Grand Bohemian Hotel Orlando nearly 9%, Bohemian Hotel Savannah Riverfront up 8.3%, and the Ritz-Carlton Pentagon City up nearly 6%. Strength in group business and continued improvement in corporate demand was the driver behind success in most of these properties. Hotels that experienced RevPAR weakness compared to 2024 included Loews New Orleans, all three Houston hotels, Marriott Dallas Downtown, Hyatt Centric Key West, and Kimpton Hotel Palomar Philadelphia. New Orleans suffered from a lack of convention center activity relative to last year, and the Houston hotels were challenged by a comparison to a significant amount of business related to Hurricane Barry that they captured last year. General leisure softness and the return of inventory that was offline last summer impacted us. Looking at each month of the quarter compared to 2024, July RevPAR was $161.98, down 1.7%. August RevPAR was $154.43, down 1.5%. And September RevPAR was $177.52, a 3% increase. Excluding Grand Hyatt Scottsdale, compared to last year, business declined in July and August, largely due to the weakness in the Houston market and softer leisure demand overall. Performance in September significantly improved as we got out of the leisure-heavy summer months and saw strong group business as well as a significant increase in corporate travel. Business from our largest corporate accounts was modestly down in Q3, with declines in both July and August, but saw an even increase in September as compared to Q3 of 2024. Business from the largest volume accounts continued to be down meaningfully from 2019, but has continued to grow throughout the year. Group business continues to be a bright spot across the portfolio despite the seasonal shift from corporate to association-related group, resulting in the lowest quarterly group growth for the year. In the third quarter, excluding Grand Hyatt Scottsdale, group room revenues were virtually flat compared to the third quarter of last year, due to modest declines in both July and August, while September was more in line with the trends we have seen throughout the year, approximately 5%. Food and beverage revenue from banquets declined slightly during the quarter compared to last year as a result of a mix of events. Now turning to expenses and profit. Third quarter same-property total revenue increased 3.8% compared to 2024. Hotel EBITDA margin decreased by 60 basis points, resulting in hotel EBITDA of nearly $47 million, an increase of 0.7%. For the year to date, hotel EBITDA increased 12.6% with margin improvement of 101 basis points compared to the same period in 2024. Since Grand Hyatt Scottsdale was undergoing its transformative renovation last year, the following P&L analysis is presented for the remainder of the same-property portfolio. Compared to last year, hotel EBITDA for the quarter was $46.7 million, a decrease of 7.8% on a total revenue decrease of 0.7%, resulting in a margin decline of 160 basis points. However, we are pleased with the ability of our hotel's management teams to control expenses in light of softer revenue. Rooms department expenses increased by 1.5% on a 2.6% decline in revenue. Food and beverage growth was muted at 0.4% with expense growth of 0.8%. Other operating department income, including spa, parking, and golf revenues, was up 6.6%. Miscellaneous income was up 7.8%, resulting in a total RevPAR decline of just 0.7%. In the undistributed department, expenses in A&G and sales and marketing were well controlled. A&G increased by 1.5% compared to last year, while sales and marketing expenses grew by 2%, continuing the moderating trend we have experienced over the past several quarters. Property operations and utilities expenses were up 2.6% and 0.5% respectively. Turning to CapEx, during the third quarter, we invested $19.9 million in portfolio improvements, which brings our total for the year to $70.7 million. These amounts are inclusive of capital expenditures related to the completion of the transformative renovation at Grand Hyatt Scottsdale. We completed improvements in the building facade and parking lot during the third quarter, which now mark the full completion of this transformational renovation. During the third quarter, we made significant progress on select upgrades to guest rooms at several properties, including Renaissance Plano Waverly, Marriott San Francisco Airport, Hyatt Centric Key West, Hyatt Regency Santa Clara, Grand Bohemian Hotel Mountain Brook, and Grand Bohemian Hotel Charleston. This work, which is expected to be substantially complete by year-end, is being done during periods of lower occupancy, particularly over the holiday season. We are continuing to make significant infrastructure upgrades at 10 hotels this year, including facade waterproofing, pillow replacements, elevator and escalator modernization projects, and fire alarm system upgrades. As business levels allow, the majority of this work will be completed in the fourth quarter or early 2026. In the fourth quarter, we will begin work on a limited guestroom renovation at Marriott Pittsburgh, which will be completed in the first quarter of 2026, and a renovation of the M Club at Marriott Dallas Downtown, which we expect to be completed in early 2026. During the third quarter, we entered into agreements with Jose Andres Group, also known as JAG, pursuant to which JAG will operate and/or license substantially all of the food and beverage outlets at W Nashville. JAG is the restaurant management arm of Jose Andres, a globally acclaimed chef, restaurateur, and media personality that operates nearly 40 restaurants, bars, and lounges across the country and the globe, including several at prominent lodging properties. We believe this comprehensive relationship will leverage the superb physical attributes of the hotel to create unique destination dining venues, and the beverage program will include proven JAG concepts such as Zaytinya, an Eastern Mediterranean concept that will serve lunch and dinner, Bar Mar, a coastal seafood and premium meat concept that will be open for dinner, and Butterfly, a high-energy rooftop bar with a Mexican-inspired menu. In addition, there will be a completely new pool experience that will feature an expanded bar, upgraded food offerings, and refreshed outdoor spaces. Modifications will be made to the existing living room, which will become the breakfast venue while continuing to serve as the hotel's lobby bar, featuring a revised menu of unique cocktails and food options. In addition, the hotel will offer premium Jose Andres Group-designed banquet and catering menus, which will complement existing offerings in order to enhance group experiences and drive incremental food and beverage revenue. Modifications to the venues will begin in the fourth quarter in a staggered approach intended to minimize disruption, and all venues are expected to be completed by the first half of 2026. Our in-house project management team will provide direction and oversight to the renovation process, which gives us significant confidence in achieving on-time project completion and the ability to stay within our budget. We are incredibly excited about this relationship and the repositioning of the F&B outlets at W Nashville. With that, I will turn the call over to Atish. Atish Shah: Thanks, Barry. I will provide an update on our balance sheet, discuss our guidance, and provide some additional context. At quarter-end, we had approximately $1.4 billion of debt outstanding, of which 25% was at a variable rate. Our weighted average interest rate was 4.2%, and our leverage, including preferred equity, was 4.5 times net debt to EBITDA. Our debt maturities continue to be well-laddered with a weighted average duration of 3.5 years at quarter-end. We have one mortgage loan that matures next March, and we intend to pay it off ahead of maturity with available cash. A quarterly dividend of 14¢ per share was declared, which reflects our target payout ratio of approximately 50% of adjusted FFO. Year to date, we have repurchased 1.8 million shares of common stock at a weighted average price of $12.66 per share, representing 6.6% of our outstanding shares at the beginning of this year. We have $34.1 million of remaining capacity under our share repurchase authorization. We continue to believe that our shares are trading at a significant discount to the value of our assets. Turning to our 2025 guidance, we will start with our RevPAR guidance, which we have reduced by 50 basis points at the midpoint due to a 4% point reduction expected in the fourth quarter. We continue to expect full-year RevPAR growth of 4% to 5%. Our adjusted EBITDAre guidance for the full year is now $254 million at the midpoint, which reflects the change in RevPAR guidance, partially offset by continued strong cost controls. Our adjusted FFO per diluted share guidance at the midpoint is now $1.01 versus $1.03 previously, which reflects the $2 million decrease in full-year adjusted EBITDAre. Our current adjusted FFO per share guidance is 4% higher than our initial guidance at the beginning of the year and 8% higher than our 2024 results. Looking ahead to 2026, we would like to provide some initial thoughts. First, by way of reminder, about 35% of our group room nights for 2026 are already on the books as of September, and about 50% of our group's revenue for 2026 was definite. 2026 revenue production was healthy in the third quarter, and during the quarter, we gained 5% more group pace for 2026. We anticipate strong citywide convention demand in several markets, including Pittsburgh, which is expected to be one of the world's top five citywide convention markets. Our group outlook reflects our focus on high-quality group business and food-focused amenities, which we believe will help us capture additional market share. As a result, we expect another strong year for group business in 2026. On the leisure side, we expect demand to temper, and most of our markets are expected to be more stable. Grand Hyatt Scottsdale, by way of underwriting, was expected to achieve full-year property-level hotel EBITDA of $20 million in 2026. We will now open for questions. If you would like to ask a question, please press star followed by one on your telephone keypad now. For any reason you would like to remove yourself from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted. Operator: Our first question comes from Michael Bellisario from Baird. Your line is now open. Please go ahead. Michael Bellisario: Thanks for the morning, everyone. First question for you, Atish. On the dividend, I know you mentioned that you are paying out less than your target. But maybe just where is the current payout this year going to land in terms of where you see that your tax? Atish Shah: Well, I do not have that exact number right now, but I will say that we are targeting a payout ratio of approximately 50% of adjusted FFO. Michael Bellisario: Second question probably for Barry, just on the group outlook commentary. How much of the pace increase for next year is price versus volume? And then just in terms of production, what type of accounts, what type of groups are booking, and what are you hearing from meeting planners today? Thank you. Barry Bloom: Yeah. The setup for next year, obviously, as Atish mentioned, is really good. It is quite strong. It is a little more volume-driven, but rate growth is good. I mean, better rate growth than we have seen in the last year or two. So it is a very, very nice setup. On the group side, we are continuing to see a little bit of a shift from corporate business back to more normalized association business within the portfolio, particularly at the largest resorts. And I guess if you look back, right, we were really coming out of COVID, corporate was wanting to meet every day, and they were ready to fill in. Association was slower in rebooking, but we are seeing that come through now. I think that is part of what you saw in our mix in Q3, where corporate had kind of filled the gap the last couple of years. That is where we are first starting to see the shift back to the more normal relative ratios of association versus corporate. Operator: Our next question comes from Jack Armstrong from Wells Fargo. Your line is now open. Please go ahead. Jack Armstrong: Hey. Good morning. Thanks for taking the question. Could you break out what the impact of the government shutdown has been, if any, on the portfolio? And with the uncertainty there, how confident are you feeling in the full-year RevPAR guidance? Atish Shah: Well, thus far, it has been fairly limited within our portfolio. We have spoken before about the fact that we are not heavily dependent on government business. Obviously, we continue to check with all of our properties to see if we are seeing any particular impact. There have been a few cancellations, but it has been relatively minimal thus far. So I think if you contrast our portfolio with some of the peers, our business is probably a little bit more limited. Now, if there is a prolonged shutdown that is causing more issues as it relates to air traffic control and people being more concerned about being able to travel and those types of things, then obviously it could impact us as well. So far, we are not assuming any very significant impact from the government shutdown over the next few months, and that is really based on the situation as we see it today. Jack Armstrong: Helpful. Thank you. And could you maybe provide an update for us on what you are seeing in transaction markets? And also what your level of interest is in trying to get some more dispositions done over the next year? Atish Shah: Yeah. Sure. I mean, it seems like, contrasting it to where things were maybe six to twelve months ago, it does seem like there are some more hotel transactions coming to market. It does seem like there is a little bit more volume that the broker community is seeing. And as it relates to us, I mean, obviously, we are still looking at the various ways we can allocate capital, and given our cost of capital at this point, especially with how attractive our own portfolio looks, share buybacks probably look more attractive than acquisitions at this point. I would not expect us to be really active on the acquisition side here in the very near future. I think a lot of that has to do with what happens in the private markets. If there is maybe a little bit more softness, if you will, and prices are coming down a little bit, then they come a little bit closer to what we view to be something that is a good use of capital for us. But I do not foresee that here really in the very short term. As it relates to dispositions, we will continue to look at what we have always done, which is to see if it makes sense to continue to refine the portfolio slightly, especially when it comes to assets that may need some additional capital where we do not feel the appropriate ROI might be achievable. So we will continue to evaluate that. I would not expect any wholesale changes, but certainly could see another disposition or two over the next twelve to eighteen months as we continue to fine-tune and review our portfolio. Jack Armstrong: Really helpful. Thanks for the call. Operator: Thank you. Our next question comes from David Katz from Jefferies. Your line is now open. Please go ahead. Operator: David, your line is now open. Please ensure you are not muted. Operator: We are not getting any audio, so we will move on to our next question from Ari Klein from BMO Capital Markets. Your line is now open. Please go ahead. Ari Klein: Thank you and good morning. What is contributing to the somewhat softer expectation for Q4, and are you seeing that play out this quarter? Is this broad-based? Atish Shah: Yeah. Thanks, Ari, for that question. So with regard to the fourth quarter, it is more on the transient side. And really, it is not any particular market. In the third quarter, part of the reduction in our guidance for the full year is obviously also attributable to the fact that we brought our RevPAR down slightly in the fourth quarter. And that is what got us down essentially 50 basis points at the midpoint. Some of that was due to some of the additional weakness that we saw in Houston, a little bit in excess of what we anticipated. The reason why we still got to our numbers meeting our expectations was because we saw some greater strength on the non-room spend, which really got us back to the total RevPAR number that was more closely matching what we were expecting in the third quarter. Ari Klein: And then maybe just on the changes at the W Nashville, I guess that piece while you mentioned the $3 to $5 million of EBITDA from the changes, and I think I heard you mention that from that now you expect the hotel to generate in the $20 million range or the original underwriting? Atish Shah: Yeah. Sure. I mean, obviously, it is going to take a couple of years to get to that stabilized number. As I pointed out and Barry kind of spoke about in his comments too, we really anticipate this to help drive not just the F&B revenues but also just make the hotel a more desirable location overall. Even today, as you point out, I mean, clearly, we have given it time here. We have worked kind of with Marriott to try to optimize operations and jointly with them worked on coming to a solution that we believe is going to be very attractive for the hotel over the next few years. So I think that is something that is going to take a little bit of time to stabilize here. We have essentially been running in the mid-teens of EBITDA over the last few years. So clearly, we were looking for ways to drive what we think this hotel can produce for us over the next few years. We have, to your point, tempered our expectations from where we started on underwriting since we are not close to those numbers that you quoted yet. We do think that this will give us that additional lift of $3 to $5 million as a result of this effort over the next several years. And what is still going on in the Nashville market overall, obviously, is we are still going through some stabilization in the market with the support that we are getting from the high-end supply that was added over the last several years that is still getting absorbed into the market. So over the next several years, we expect to see a bump coming from the changes that we are doing here, but also with the market kind of improving and stabilizing. It has been a tougher leisure year, especially in that market as well. So we expect that to get better over the next several years. We are obviously not saying we are going to put a ceiling on where we think earnings can go here, but just realistically, looking at where earnings have been over the last several years, what we think the F&B will do to help the operations there, we have set our expectations for the next several years. We expect kind of north of that $20 million, and hopefully, we will grow from there. And that is a great asset. It is a great market. Still a lot of positives as far as what is going on in the market. So we continue to have high hopes for how ultimately this property will go. Ari Klein: Thanks for all the color. Appreciate it. Operator: Our next question comes from David Katz from Jefferies. Your line is now open. Please go ahead. David Katz: Good morning. Thank you for taking my call. Just on leisure, we have obviously been hearing about some of the weakness in leisure. In your opinion, from your perspective, is it travelers who are choosing not to travel, to defer travel? Are they balking at price and perhaps trading down? What would you classify as the source of the weakness as far as leisure? Marcel Verbaas: Well, with kind of a global comment on it, I think when we looked at the setup for this year, and I am sure you recall when we spoke at the beginning of the year, our expectation was really kind of the way it has played out for every segment, which was strong group business this year. We did expect business transient to kind of slowly keep recovering, and we did expect some softness in leisure compared to prior years as there is still this normalization that was kind of going on from these kind of outsized levels of leisure travel that we saw over the last few years. So I would say that it has not changed that much from what our initial expectations were. I think what you have seen overall is that there has always been a lot of discussion this year about consumer spending overall, about consumer spending on travel. There has been, it appears to have been, clearly more in the lower segments that have been impacted more significantly than the higher segments like where we play. So it has not been quite as severe on the higher end. But we are still dealing with a lot of uncertainty in the market, various economic factors, obviously. Dealing with the fact that international outbound is still greater than international inbound. Also, alternative travel that is obviously available for people, whether it is cruises or other things. So I think all of those things kind of play into it. Now that being said, and I think Atish brought this up in his comments, as we look ahead to next year and going a little bit more granular as it relates to us, I think that we are still seeing a very similar setup on the group side. We have got a really good group base going into next year. Business transient is subject to some of the macroeconomic issues, obviously, whether that continues to kind of gradually improve, but that is still our expectation at this point. And we do think that leisure probably has found more of a footing in our portfolio where some of these markets are more stable, and where we do think that we could hopefully see some growth on that again going into next year. And I will just kind of leave it at that. That is our view of what we are seeing happening in the market at this point. Operator: As a reminder, if you wish to ask a question on today's call, please press star followed by one on your telephone keypad. Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Your line is now open. Please go ahead. Austin Wurschmidt: Thanks. Good morning, everyone. Barry, you had commented that business from your large corporate accounts was up significantly in September. I guess first, any markets you would call out as seeing sort of an outsized increase? And then second, is the pace of that improvement still less than you may have expected, given that Atish made some comments about just expectations being pulled back on both the business and the leisure side? Barry Bloom: I think in terms of strength, no doubt, Northern California, particularly Santa Clara, is seeing significant corporate growth. I mean, I think we all know what is kind of going on in tech. We are positioned both for tech as well as specifically within some of the specific AI-driven accounts or those that are maybe either direct or indirectly focused on that. We have seen some other markets where we have seen good quality corporate demand. We see it in some of the smaller markets like Pittsburgh, DC, where our Ritz-Carlton Pentagon City is a little bit outside of the direct government business. So with the strong accounts we have in Pentagon City, we are seeing it in Atlanta. So markets like that are kind of traditionally strong business markets, and that is where we have seen the strength in corporate demand this year. In terms of across the portfolio, it continues to improve every month. I think relative to expectations, overall, it is probably where we want it to be. There are still some markets that ebb and flow, I think, particularly based on seasonality. Part of, in addition to the impact from Hurricane Barry in Houston, we did see a little bit of soft corporate demand in the quarter than we expected in both Houston and Dallas. But again, we feel like that segment clearly is growing. We are particularly getting where we are starting to continue to sell out more to thin lines and nights, which is also great because not only does it drive volume, but it enables the hotel to really drive compression on those nights. We certainly see that continuing next year. Austin Wurschmidt: And then just going back to leisure demand, Marcel, you provided a lot of good detail in the earlier question. But I guess at a high level, would you still expect leisure to lag the overall portfolio in 2026, or could the demand normalization provide a little bit better pricing power and maybe be a little more on par with what you are seeing in just the transient segment overall? Marcel Verbaas: Yeah. I think we could. I think, you know, Atish pointed it out too, we have seen some stabilization in some of the more leisure-oriented markets. Clearly, we expect group to be the leading segment for us as it relates to growth. The group side is very strong. Grand Hyatt Scottsdale has a lot to do with that too, as it continues to ramp and build a greater group base at that property, obviously, but even throughout the rest of the portfolio. As Atish pointed out, we have a very, very strong group base for next year as it relates to the segments. The group will continue to lead, and I do think that we could see certainly a scenario where leisure and business transient are more on par as it relates to what kind of growth we can see out of those sectors. Austin Wurschmidt: Very helpful. Thank you, everyone. Operator: We currently have no further questions, so I will hand it back to Marcel Verbaas for closing remarks. Marcel Verbaas: Thanks, Becky. Thanks, everyone, for joining us today. We appreciate your interest in the company and the opportunity to share our results for the third quarter and what we believe is a good setup going into next year. We have a strong portfolio and believe we will continue to see the benefits from that going forward. I hope everyone has a great Halloween. Operator: This concludes today's call. Thank you for joining. You may now disconnect your line.
Operator: Good morning, everyone, and welcome to the SB Financial Third Quarter 2025 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions] I would now like to turn the conference call over to Sarah Mekus with SB Financial. Please go ahead, Sarah. Sarah Mekus: Thank you, and good morning, everyone. I'd like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President and CEO; Tony Cosentino, Chief Financial Officer; and Steve Walz, Chief Lending Officer. Today's presentation may contain forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP financial measures, are included in today's earnings release materials as well as our SEC filings. These materials are available on our website, and we encourage participants to review -- to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of the date made, and SB Financial undertakes no obligation to update them. I will now turn the call over to Mr. Klein. Mark Klein: Thank you, Sarah, and good morning, everyone. And welcome to our third quarter 2025 conference call and webcast. The third quarter reflected steady execution across our business lines and continued stability in our core markets and concentrated growth and expansion wins. I'm pleased to report that the integration of the Marblehead clients was successfully completed this past weekend. We welcome and value them, as they are a key ingredient in our strategy to further leverage our community bank brand. We're also preparing to descend upon a new adjacent market just to our west into Napoleon, Ohio in Henry County. We are clearly excited about the potential of this market and especially the $800 million in deposits in the market we intend to aggressively pursue as a result of our new presence. Throughout the quarter, we maintained our focus on disciplined lending, core deposit growth, and careful expense management. While the operating environment remains competitive, we believe our balance sheet, lines of business, credit quality and a growth mindset position us well for the final quarter of the year. Some highlights for the quarter include net income of $4 million with diluted earnings per share of $0.64, up $0.29 or approximately 83% compared to the prior year quarter. When considering the servicing rights impairment, adjusted EPS was $0.68 for the quarter. This was our 59th consecutive quarter of profitability. Tangible book value per share ended the quarter at $17.21, up from $16.49 last year, or a 4.4% increase. Excluding the acquisition payment for Marblehead, tangible book value per share is up 8.9%. Net interest income totaled $12.3 million, an increase of over 21% from the $10.2 million in the third quarter of 2024. From the linked quarter, net interest income accelerated at a 30% annualized pace. Loan growth over the prior year quarter was approximately $80.6 million, or 7.8%, and now marks the sixth consecutive quarter of sequential loan growth. Deposits grew by nearly $103 million, or 9% inclusive of the $51 million in deposits related to Marblehead. The deposit base and relationships from Marblehead have remained largely intact since the financial merger in January. When we exclude the Marblehead deposits, overall deposit growth was still healthy at 4.5%. Assets under our care continued to grow and now exceed $3.5 billion, consisting of bank assets of $1.5 billion, residential servicing portfolio of $1.5 billion and now, wealth assets of over $563 million. Once again, this diverse book of assets provide stability across market cycles and continues to position us well for performance enhancements heading into 2026 and beyond. Mortgage originations for the quarter were $67.6 million, down from both the prior year and linked quarters. However, our pipeline has strengthened a bit, with the per-year rate at or below the 6% level for most of this past month. We are well positioned to recapture market growth with our 23 lenders positioned all across the Midwest in Cincinnati, Indianapolis, Columbus and Northwest Ohio as rates decline. Operating expenses decreased approximately 3% from the linked quarter and up slightly compared to the prior year. Year-to-date expense growth, excluding the onetime merger cost, was 9.5%, well below the 18.5% year-to-date revenue growth. This acceleration of revenue over line item expenses represents an operating leverage of now 3.5x this quarter and 1.8x for the year through 3 quarters. Asset quality continues to be one of our competitive advantages. Charge-offs returned to more historic levels, and we successfully eliminated nearly $1.3 million in nonperforming loans from the linked quarter by way of payoffs and upgrades. In clear sight, we continue the relentless pursuit of our 5 key initiatives. And I'll remind you: Growth and diversity of revenue; organic growth for greater scale to improve efficiency; deepening client relationships for a greater scope and more services per household; excellence in operational activity; and, of course, top-tier asset quality. A little closer look at revenue diversity and growth. Mortgage originations remained fairly consistent during the third quarter and continued to show solid improvement from earlier in the year. Total production was approximately $68 million, as I mentioned, just slightly below the level recorded in the same quarter last year. While we have been disappointed overall in the residential market this year, Our ability to generate residential real estate loans across our footprint still improved by 9% over year-to-date 2024. As a result, we have improved our residential loan sale gains now by 13% over the prior year-to-date. That said, we are absent from any meaningful refinance volume thus far in 2025. This quarter continued our trend of purchase and construction loans. Year-to-date, we have completed over 80% of our volume in purchase and approximately 7% from construction. Throughout 9 months, we have done just $7 million in refinancing our own book. As a result, our servicing rights have increased by nearly $1 million or 7% and are providing an additional $175,000 in annual revenue for 2025. Noninterest income was up 2.9% from the prior year quarter at $4.2 million and down 15.9% from the linked quarter. The increase from the third quarter of 2024 was driven by increased mortgage servicing rights as well as increased title service fees and other fee-based business line revenue. From the linked quarter, we saw a reduction due to the $460,000 servicing rights impairment that accounted for approximately 60% of the decline. Peak Title has continued to be a bright spot in our fee income suite thus far in 2025. Their revenue contribution is up nearly $400,000 or 32% on a year-to-date basis. These results are especially meaningful given that our mortgage value is up just 9% year-to-date. Peak has expanded their customer base well beyond State Bank, and our commercial lenders have consistently increased their referrals. In fact, year-to-date, our internal referrals have provided our title company with 28% of their total revenue. Our wealth group is transitioning to a new strategic partnership with [ Advisory Alpha ] that we mentioned in prior quarters. This will enable us to bring an expanded suite of marketing materials to the table, and most importantly, a number of CFP professionals that will be an added benefit to our current and future clients while strengthening our high-touch brand. Over the coming quarters, we intend to expand on the impact this strategic partnership will have on our client base. On the scale front, during the third quarter, we continued to make solid progress integrating the Marblehead team into our organization. Their staff has blended well with our State Bank team, and we've been very encouraged by their continued success in retaining long-standing client relationships and maintaining strong community ties. We also recently completed the integration of Marblehead's customers into our core system on October 24, marking the final step in aligning operations and technology across our combined organization. This acquisition, while small, has enabled us to enter a new market and add nearly 2,500 deposit accounts with a weighted average cost of approximately 1.2%. As I mentioned earlier, deposit growth, both with and without Marblehead, has been a strong contributor to our earnings in 2025. We have been able to keep most of our excess deposit liquidity, which has averaged approximately $75 million, invested overnight, expanding margin revenue. As rates are expected to further decline in the coming quarter, we will be utilizing this liquidity to fund our solid loan pipelines across our footprint. Again, we have grown loans now for 6 consecutive quarters, with the annual growth rate of 7.8% well in line with our historical averages of high single digits. We understand that the majority of the growth has occurred in the Columbus market and in the commercial real estate product line. However, even with the impact of that somewhat lopsided growth over the past 4 to 5 quarters, Columbus represents just 40% of our loan balances, and CRE is now less than half of our total outstandings. Additionally, CRE is in our loan portfolio and contributes and constitutes just 203% of regulatory capital, which is well below peer and well within regulatory benchmarks. Expanding relationships or more scope. Our focus on relationship banking continues to guide how we serve and grow our franchise. We remain committed to understanding the needs of our customers and delivering the right mix of products and services to support them through varied economic conditions. As part of that commitment, we've continued to refine and expand our hybrid office model that combines personalized end market service with flexible digital and remote engagement. This approach has strengthened the connectivity with clients while helping to enhance efficiency across our footprint. We remain dedicated to this model in our new markets of Angola, Indiana and soon to be Napoleon, Ohio and have begun retrofitting several of our existing offices to better align resources with current levels of activity. As we disclosed in prior quarters, our markets have experienced disruption from mergers and acquisitions. We have been opportunistic in pursuing clients of the disrupted competitors. But most importantly, we've been able to add depth to our business development teams and in our urban markets and in our agricultural lending business line. All of these changes have been part of a concerted effort to be present and available in each of our communities. There is still a significant level of business activity in our legacy markets, and as client rub heightens, we feel we are well positioned to leverage our Main Street banking model with newly acquired talent to drive our acquisition of both loans and deposits higher. Referrals remain a key element on our quest to deepen existing client relationships. Year-to-date, we have now initiated over 1,100 referrals to business partners, with 557 closing for approximately $62 million in additional business for our company. Operational excellence. A major focus for us throughout this year has been the acquisition and integration of Marblehead clients, employees and community. We achieved the financial close of the transaction 5 months after announcement and customer conversion 9 months after the financial close. Despite the speed of those transitions, we have had little to no customer attrition, and the client-facing staff are here today, taking care of their long-term clients. Our integration team has built a process and structure that will allow us to compete and complete future transactions quickly and efficiently. As we indicated last quarter, we believe that agricultural lending opportunities have begun to expand in our markets. In fact, we recently added another experienced lender in the ag production sector and will undoubtedly allow us to solicit a number of well-established ag production relationships across the Tri-State region. Our balances have been steady at $65 million for some time, but our commitment and renewed emphasis are intended to deliver us a $100 million portfolio a year from now. Finally, asset quality. We continue to review a high level of asset quality metrics, as with prior quarters. As I mentioned, charge-offs fell to 0 basis points from just 2 basis points in the second quarter. Nonperforming assets totaled $4.9 million. We remain focused on maintaining our strong asset quality, as demonstrated by the continued management of our criticized and classified loans, which stood at $5.8 million, down from $7.2 million in the linked quarter. Our allowance for credit losses remained robust at 1.44% of total loans, now providing 345% coverage of nonperforming assets. We did make real tangible progress to reduce nonperforming loans this quarter, but we still have room for improvement. In fact, our top quartile performing peer group has been consistently 10 to 15 basis points lower than us on this ratio. We do feel that we have additional opportunities to reduce it further and are targeting 25 basis point level of NPAs in the coming quarters. Now I'll turn it over -- the call to Tony for additional comments on our quarterly performance. Tony? Anthony Cosentino: Thanks, Mark. Good morning, everyone. Let me outline some additional highlights and details of our third quarter results. Starting with the income statement. In the third quarter, total operating revenue increased to $16.6 million, a 15.9% rise from the $14.3 million in the prior year and a 3% -- 3.5% decrease from the linked quarter. Net interest income growth was and has been the main driver, with it reaching $12.3 million in the quarter, up 21%. Loan income topped $16 million for the second consecutive quarter, reflecting our higher level of outstandings and the contractual repricing of the portfolio. Loan yields in the quarter reached a new high of 5.95%, up 23 basis points, and as a direct result, pushed our earning asset yield up 18 basis points to 5.31%. Year-to-date ROA was 90 basis points, up 17%, with our pretax preprovision ROA at 1.29%, a 28 basis point improvement over the 2024 third quarter year-to-date performance. Despite the growth in the balance sheet and the need to fund our earning asset growth, funding costs have been very stable. Total interest expense for the quarter of $6.5 million was up just $113,000 or less than 2% from the prior year. Our year-to-date interest expense is up $430,000 on a dollar basis, comparing very favorably to the $7.1 million as interest income has risen year-to-date. Our rate on interest-bearing liabilities was 2.33% for the quarter, down 19 basis points from the prior year as the impact of Marblehead's lower-cost deposits and organic deposit growth in a number of our markets has held down funding costs. We believe that this quarter will likely represent the low point on funding costs, as well as the peak in our net interest margin of 3.48%. We do have several more quarters of asset repricing, and we will continue to roll off bond balances into higher-yielding assets, but funding costs will likely rise to offset that margin appreciation. As has been the case for most of the last 2 years, fee income has been fairly consistent at between $4 million and $5 million per quarter. With the level of our margin revenue increasing substantially, the fee income to total revenue percentage has trended down from our historical averages to the now mid- to high 20 percentile range. This quarter, we had a higher OMSR impairment, given the improvement in rates, which was more than offset by the increase in our equity from the lower AOCI level. Total mortgage banking contribution this quarter of nearly $1.5 million was higher compared to the third quarter of 2024 by over 10%. We continue to utilize the hedging program, which allows us to not only maximize gain potential, but also minimize our rate exposure with an expanding pipeline. The gain on sale yield thus far in 2025 is 2.08%, slightly down from 2024. The sale percentage this quarter of nearly 100% has increased our year-to-date originated sale percentage now to 88%. Operating expenses, as Mark commented, continue to be well controlled as they were down from the linked quarter by 3% and are up from the prior year by just $500,000 or 4.5%. This sub-point -- sub-5% growth level includes all of the operating costs for Marblehead fully integrated into our current environment. We've increased total headcount by just 5 from the prior year as we have made structural changes in mortgage and support to offset the new additions for Marblehead and for our lending staff. Now let's review the balance sheet. Mark touched on our growth metrics for both loans and deposits, which have been critical to our earnings expansion this year. Looking into 2026, we expect that we will deliver another high single-digit level of loan growth, which we intend to fund with bond portfolio runoff, 4% to 5% deposit growth and supplemented by targeted wholesale borrowings that complement our current balance sheet structure. We have not been a large player in the wholesale market, as our stable deposit franchise has been able to deliver the funding needs for us to self-fund our asset growth. We currently have just $35 million of wholesale borrowings with an average coupon in the low 4s. All of our liquidity ratios are currently well within policy, and we have immediate access to over $190 million in FHLB capacity, with nearly $500 million in total contingent funding options. Our loan-to-deposit ratio remained consistent to the linked quarter at 88%. We believe that the low to mid-90s is a target level for this ratio that will balance profitability with liquidity risk. Given the stable nature of our deposit franchise with an average account balance of roughly $22,000, our deposit betas are very predictable and allow us to rely upon that funding base moving forward. On capital management, during the quarter, we repurchased 101,000 shares at an average price of just under $20, roughly 115% of tangible book and 95% of tangible book adjusted for AOCI. We have now bought back nearly 252,000 shares this year for $4.5 million using 45% of our earnings. As Mark mentioned, tangible book value per share was up from the linked quarter by $0.77, driven by a $2.1 million benefit on AOCI, higher earnings and a reduction in share count from the buyback. And lastly, asset quality. Total delinquencies were slightly lower than the linked quarter at 45 basis points, with the bulk of the reduction in the 90-plus day category. Since the prior year, total delinquent loans are down $1.7 million. And total classified loans were also well down from the prior year by nearly $1.3 million or 21%. Our allowance for credit losses increased 1 basis point, but remained consistent with portfolio trends and in line with recent quarterly loss rates. Given the general improvement in our CECL metrics and the improvement in NPLs this quarter and what potentially will be upgraded in the near term, it is more than likely that this is the high end of our reserve level going forward. I will now turn the call back over to Mark. Mark Klein: Thank you, Tony. We remain very encouraged by our potential to deliver a strong performance in the last quarter and full year for 2025. Anticipated further reductions by the Federal Reserve, potentially expanding mortgage volume, coupled with a larger balance sheet and higher margin, should provide the tailwind we expect as we close out the final quarter. We continue to see strong loan pipelines, and the new lenders we have added to our team are anxious to deliver new loan and deposit relationships. We announced a dividend last week of $0.155 per share, equating to a 3.1% yield and just 24% of our earnings. This will complete our 13th consecutive year of increasing our annual dividend payout to our shareholders. Now we'll open the call up for any questions. Sarah? Sarah Mekus: Jamie, we are now ready for questions. Operator: [Operator Instructions] And our first question comes from Brian Martin from Janney Montgomery. Brian Martin: Thanks for the update there. Just -- Mark, maybe just -- can you -- whomever, I guess, just on the loan growth, can you just talk about -- it sounds like, Mark, your last comments about maybe some recent hires, I don't know if they're recent or just someone you're talking about over the last 6 to 12 months you've hired. But just the pipeline and the hires, it sounds like the ag will be a little bit of a focus here given the new addition there, but just how we think about the growth -- the pipelines and the growth in the next 6 to 12 months? And particularly, I guess, maybe just geographically, it sounds like there's good growth everywhere, but maybe a little bit more in ag here in the short term? Mark Klein: Yes. As you know, and as I indicated, we hired a new seasoned ag lender from a competitor that has gone through some M&A. And that individual managed over a $100 million portfolio. So we're clearly expecting some opportunities there given the disruption in the landscape and the opportunities there. We've also replaced an individual in the northern market with a seasoned individual that has been with some larger banks that clearly managed a larger portfolio as well. So those are a couple of areas that we are pretty optimistic about. And then we've also certainly continued to have good traction from the Columbus, Ohio market under the leadership of Adam Gressel and the 2 lenders that we have in that market. And as I mentioned, CRE continues to be the focus, but C&I still is on our radar in all of our markets. Steve Walz can give a little bit of color on growth in the other markets we have. Steve, which has been a little more limited? Steven Walz: Sure. Yes. Thanks, Mark. Yes, Brian, I think you heard discussion in the comments about our expectations about ag and what can be delivered there. We do certainly expect that addition to aid our, call them, legacy markets that have been certainly flatter growth. That being said, it doesn't change our expectation that Columbus will continue to deliver high levels of growth, but also, those other growing more urban markets, we do expect to play along as well. So while we certainly expect a little pickup in ag, we do have expectations broadly that the additions we made will enter to our benefit broadly. Brian Martin: Got you. And can you -- I guess, how is the pipeline of kind of unfunded commitments as far as those funding up here? I guess, is there still a pretty healthy balance of what you guys expect to fund up there that's kind of already booked and just kind of waiting to be funded? Steven Walz: There is -- there remains a number of dollars in unfunded commitments. We continue to replace some of those dollars as they roll, obviously, into the permanent loan structure. We continue to grow in that area as well. And we expect, certainly over the next 6 to 12 months and end of this quarter as well, to continue to kind of hold serve with where we've been on our growth rate, Brian. Mark Klein: Tony, any additional color on the pipeline? Anthony Cosentino: Yes. I think as Steve and Mark mentioned, we probably have $40 million of unused line commitments that we think we'll fund in, call it, the next 6 to 12 months. I think most of our lending that's been commercial real estate, especially in the Columbus market, has probably been shorter term, kind of 3-year type transaction. So we're probably 1 year into that process. So we feel like there's still significant potential there to expand that. I would think Q4, we're probably going to do similar growth level that we did in Q3, call it, $15 million to $20 million of growth. And our initial expectations is kind of the $80 million to $100 million 2026 number. And call that 40% funded by things that we've already booked. And 60% from new activity, I guess, if I'd lay it out at a high level. Brian Martin: Got you. Okay. Yes. And Tony, I guess maybe can you talk about the ability -- I heard your comments on the margin, but just -- I know you still have a fair amount of liquidity, but you also talked about growing deposits and potentially using some borrowings. Just frame up, I mean, I guess, the loan growth here in the next 6 to 12 months in terms of how you fund that? I guess, is it primarily going to come from the liquidity? Or I guess, is that not the case? Just trying to get if you work that down because it feels like if you work that down a little bit, it probably helps the margin a little bit. But again, you also talked about the competitiveness. So I don't know, just -- how you can frame up the margin outlook and just the utilization of that liquidity? Anthony Cosentino: Yes. I mean in a perfect world, let's say we've got $50 million to $75 million of available liquidity today that we're investing overnight. If I didn't think there was going to be a significant increase in the competitive nature of deposits, I think we turn that $50 million to $75 million immediately into our loan pipeline, which we'll probably call that a 300 basis point improvement of what we're earning today. And I'm just kind of -- believe on the ground, from what I've seen, that funding costs and competition is going to get tougher. So I really think -- we've had a very stable deposit base that -- there's no but there -- but I do think that there's going to be some pretty good competitive offerings from competition in the early part of 2026. And I think our customers will be subject to some of that desire and emphasis about potentially wanting higher rates, which concerns me a little bit that will squeeze our margin. But if I think we can hold where we are and just use that $75 million, then I do think margins will increase from where they are today. Mark Klein: Well, unfortunately, Tony, the runoff and the amortization in the securities portfolio certainly add some inertia and some backwind as well. Anthony Cosentino: Yes. Brian Martin: Okay. And so just big picture. And broadly, Tony, given the competitive pickup here, I guess if your margin peaks this quarter, I guess, do you just see it kind of being just a little downward drift given the factors you've kind of outlined there? It doesn't seem like there's a big shift lower, it doesn't seem like it's going a lot higher. It's like more of the offset with some of the -- your repricing that you're going to have. And then just being offset by maybe the competitive factors a bit. Is that kind of how to think about it? Anthony Cosentino: Yes. Because I do think -- yes. I do think 3.5% is a good solid margin level for us given our asset size and given where we are. I think we're probably going to hold that margin level throughout 2026 because we're going to have repricing on the asset portfolio, bond roll off that will be higher. Reuse of liquidity, that will be a higher number. And a little bit of headwind from funding costs, potentially. But if we have fairly dramatic rate decreases in the short term, our prime-based, call it, every 25 basis points cost us, call it, $350,000 on an annualized basis from kind of our prime-based HELOCs, et cetera, we probably got 75 basis points of move before we hit our floors. So we're kind of in that window of how you recover from that if it's a fairly rapid decline in Fed rates. Brian Martin: Got you. Okay. That's helpful. And just -- that's fine. I think that was it on that. And then how about just in terms of the credit quality, it sounds as though there's opportunity, this is kind of the peak on the reserve coverage. I guess, can you just kind of frame up, I mean, I guess, if credit quality holds and there's no big -- and you do see a little improvement here, it sounds like there's some potential improvement. Maybe just frame up what that improvement could look like and just where you're thinking on reserve coverage over time as you kind of continue to bring that -- the credit numbers down a little bit more. Anthony Cosentino: Yes. I mean, happy to start. I do think we probably have got, call it, $500,000 to $1 million of current nonperforming that we think we have a better than average chance that we're going to be able to either upgrade or get those paid off in the next, call it, 6 months. And then I think that will be as we talked about kind of that 25 basis point level of NPAs, which I think is probably the low point that we'll see. So I think that adds some downward pressure in the current world of CECL about where our reserve is. If you look at any comparison we have relative to peer or relative to where we are, our reserve level at 1.44% is at the high end, which is fantastic. But I do think we're going to have some pressure that potentially, we're not going to take reserve back, but we may not be putting as much in as we have this year. I mean, we put in almost $1 million this year through 9 months. So a pretty strong level of provision we've set aside in what has been a great credit quality year. Steven Walz: Yes, Brian, I'd just add. We've talked about it in prior quarters here. We've got a very robust loan review process and have been confident that we understand where the weaknesses are. So the pace of improving that ratio has been a function of the time it takes to get controlled collateral, in some instances, just being a little longer than we expected. It's not really a result of, well, 1 troubled credit fell off and was replaced by another. Again, we remain confident. We know our portfolio well. It's really just been the pace at which we thought we could clean some of those up that has frustrated us. Brian Martin: Yes. No, understood. And that reserve ratio, Tony, I mean, maybe it gets down to the 1.25%, 1.30% type of level. Is that where we -- over time, you could see it go as things progress? Or is that -- do you have kind of a target as far as where you're thinking that ends up down the road? Mark Klein: Well, before Tony answers, I got to tell you, Brian, that he and I are kind of bookends on that strategy. If we grow $150 million or $200 million, I can see it going down to that, but I don't see it going down to that just because we have charge-offs or less in reserve. This is not going to happen. I think more is always better in that arena. Brian Martin: Yes, totally agree. Anthony Cosentino: Yes -- I would say -- I worry less about the percentage than kind of the full dollar amount. I would guess if we're here next time -- this time next year, we're probably in the range of, call it, $16 million on a reserve level from our $15.3 million that we're at today. And then where that reserve percentage is, if we grow $80 million to $100 million, it's probably at 1.39%, 1.40%, something like that. So it's not terribly out. But our coverage of NPAs at that point, if we get to where we think we are, is probably over [ 0.40% ]. So we feel pretty good about where it is. Brian Martin: Yes. Okay. That makes sense. I mean, you guys have done a great job on credit. And like you said, the reserves are, as Mark said, bigger or stronger. Or better is -- bigger is always better, but certainly, you have to understand modeling as well and what the credit picture looks like. But okay. And then maybe just one of the last two here, just on the expense outlook. Can you talk about kind of where we're at today? I guess, I know that could change a lot with mortgage production and whatnot. There's some volatility with that. But you guys have done a great job on the expense side and just kind of trying to get my arms around what that looks like in the coming quarters, just next 12 months, however you want to frame it up, just kind of the trajectory from kind of the current expense run rate, how should we think about it? Mark Klein: Brian, just a couple of comments, and Tony can certainly clean this up. But as you well know, technology has become a big factor in the expense side. And we continue to work hard to remain relevant in that space, but that certainly is going to continue to accelerate on into the next foreseeable future. And then obviously, from a people perspective, we're seeing a lot of pressure, if you will, in various markets to identify and attract the talent that we need. So pressure is clearly on the expense side, which certainly adds fuel to the fire when we talk about a balance sheet expansion and stabilized or widening margins. But it's going to get a little more difficult as we move forward, which, again, is so critical to expand the balance sheet. And Tony, I know you probably have some additional ideas on that? Anthony Cosentino: Yes. I mean, I think Q4, we did $11.5 million in total expense in Q3. I think Q4 will be in a similar number. I do think mortgage volume will be up, call it, 15% versus where it was in the linked quarter, probably somewhere around $80 million. So that will drive a little bit higher expense. But call it, $11.5 million in Q4, which would give us, call it, $46 million and some change for all of 2025. I mean, I hate to say I feel good about where expenses are, but I do. I mean, we've added some staff and some things, but we made some structural changes on support in mortgage. And we continue to find those kind of opportunities of people doing more jobs, kind of linking things together and doing some of those kind of things. I do think our hybrid strategy on branches will allow us to retrofit some that will reduce some headcount. So I feel pretty good that a 3% or 4% pace in 2026 is -- would be okay at this point. Brian Martin: Got you. Okay. Yes, it makes sense. The -- like you say, the hybrid and some of the other -- like what you've done on the mortgage side has really helped. And we'll see what happens with the volume, which is kind of maybe the last thing I want to ask, Tony, just -- or Mark, just in terms of Mark's comment about the 30-year being below 6 and really no refinancing done this year. I guess, how do you think about just the mortgage volume for next year? I mean, I think if you -- I don't know what -- I guess you could talk a little bit about fourth quarter, that's front and center. But just in terms of what you're thinking in terms of where rates are today and the people you have on the ground, what should be kind of big picture outlook? Mark Klein: Well, as you know, Brian, we're geared up for and structured for that $450 million to $500 million number that we've talked about forever. We're still structured like that. We've improved marginally, but we're looking for a sub-6, much like everyone is looking for a sub-6 and something with that 5.5 kind of a number or 5.25 would be a great boost to that level of volume. But this year certainly has been better than the one before, but we have the capacity and 23 different producers that are highly incented to find additional volume. I would certainly like to think that we would get -- Tony's got his number, I'm sure, but I certainly like to think we get back into the 400 range as rates decline, particularly in the 10-year. Now I know it bumped back up here recently, but that would be a welcome boost to our earnings, if you will, if we could get something in that 5 range. Comments, Tony? Anthony Cosentino: Yes, I think, like I said, we'll likely do $80 million in the fourth quarter, which will be a nice solid improvement from the $68 million we did this quarter. I do think mortgage volume will tend higher. We're now in, call it, the fourth year of this kind of tough rate environment, and there becomes a point where you do have a kind of a backlog of things. I looked at a pipeline this morning of $37 million. And there were an awful lot of refinances on there, probably, call it, $12 million of that, so about 30%, which would be a big number. So you get this initial move when you get the rate below 6. And then I think if you see that for an extended period, you might get back to a 20% refinance level. And if that's the case, then I think the $320 million to $350 million range is probably pretty solid. And you have an outside chance to get to the kind of a 4 handle in 2026. We'll see how this quarter goes. Mark Klein: Just short of my number, 400. Optimistic CEO. Anthony Cosentino: Round up to the 4 handle. Mark Klein: Something north of 4. How about that, Brian? Brian Martin: There you go. I want to ask for best on rates because that will drive a lot of it, too. So -- and I guess everything good with the Marblehead transaction in terms of the integration. I guess, no -- I guess, Mark, you talked a little bit about the opportunity. Anything you're seeing in that market that is something we should hear about in terms of any initiatives you've got there? I know if there's opportunity there, but just trying to frame up if the integration went well. And those cost savings are all, I guess, effectively in the numbers now in terms of when we look at next quarter? Mark Klein: Yes, they generally had a smaller staff, and we're getting back in the game up there. They were basically on the sidelines for at least a couple of years, given their capital position. So we got some work to do. But clearly, there's opportunities up there, and we intend to pursue those. The staff that was there is still there. And we're leveraging that brand that's 117-plus years old into ours. So we have high expectations. And that, coupled with -- wasn't your question, but you couple that with the new market we're going into in Henry County that collectively has, as I mentioned, $800 million in deposits there that -- strangely enough, $700 million of that $800 million rested in community banks. That I would say below $2 billion, $3 billion, now it's like $300 million. So there's a lot of deposits that have gone to regional players, and our intent is to pursue those aggressively. So everything to the north and a little to the east, I guess, of us, which would be the Henry County thing is where our focus is going to be, in addition to that Columbus market that we all know is on fire. Brian Martin: Yes. Okay. And I guess in terms of capital, balancing potential, M&A versus the continued repurchase of shares, what's the mindset today in terms of how you're thinking about that, how we should think about it in the coming quarters? Anthony Cosentino: Yes. I think we're getting to the point, obviously, our dividend -- shareholder dividend is going to be above $4 million next year, based upon where we are. So that's getting to be meaningful. We obviously are fine on a regulatory capital basis, but I would say we're probably going to probably slow down the buyback a little bit just so we can retain a little bit of capital for potential transactions if they come together, although we still have a tremendous amount of excess earnings. Obviously, our debt reprices next year, midyear. So we've got some things we got to think about there, whether we refinance or expand or do some things there. So I think on the capital front, we have a lot of opportunities and options as we sit today. Operator: [Operator Instructions] And as showing no questions at this time, we will end today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks. Mark Klein: Once again, thank you for joining us this morning, and we certainly look forward to bringing you up to date on our full year results in January. Thanks for joining. Goodbye. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions]. Please be advised that today's conference is being recorded. And after the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir. Juan Pelaez: Abi, thank you. Hello, everyone, and thanks for attending our 2025 third quarter earnings call and webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the Investors section. Please read the forward-looking statement disclosure on Page 2 of the slides and note that it applies to all statements made during the teleconference. The reconciliations of the adjusted numbers are in the appendix to this presentation. Sanjiv will provide some opening remarks, and then Matt will give an update on Linde's third quarter financial performance and outlook, after which, we will wrap up the Q&A. Let me now turn the call over to Sanjiv. Sanjiv Lamba: Thanks, Juan, and good morning, everyone. Once again, the third quarter has proven the strength and resilience of our model. EPS of $4.21 grew 7%. Operating cash flow grew 8% and we generated $1.7 billion of free cash flow. The backlog remains at $10 billion, contractually securing long-term EPS growth while increasing our network density. Despite the challenging macroeconomic environment, Linde employees continue to generate shareholder value while maintaining industry-leading results across key metrics that matter most to our investors. This culture of ownership, deeply ingrained throughout our organization is a foundation of our performance culture. And it serves us well in both good times and bad. Given the current economic uncertainty, I thought it would be helpful to provide you an overview of what we are seeing around the world. Slide 3 provides the end market trends for organic sales which include both price and volume. Starting with consumer-related end markets, which make up about 1/3 of global sales. Healthcare encompasses both institutional and home care sales, primarily for respiratory ailments. You may recall last year, we proactively pruned certain parts of the U.S. home care portfolio. which laps by the end of this year. Going forward, I expect health care to remain a stable and steadily growing segment. Food and Beverage continues to grow low to mid-single digits, driven by a combination of consumption trends and innovative application technologies that enhance food quality and preservation. This is a workhorse of the portfolio that may not get a lot of the spotlight but it provides consistent growth and is remarkably resilient. Electronics at 9% of sales was the fastest-growing end market this quarter. Note, this 9% does not include an additional 2% of electronic sales in Taiwan through our nonconsolidated joint venture, which is also growing well. The 6% growth we achieved is evenly split between on-site project start-ups and demand for processed gases and advanced materials. Growth was fueled primarily by high-end chip production in Korea, Taiwan and the U.S. and some lower rent ships in China and Southeast Asia. We observed increased fab activity in Q3, spurring merchant and packaged gas demand as well as new all side bidding opportunities, particularly for cutting-edge advanced nodes. I expect this end market to provide robust growth for some time and serve as an important part of our project backlog growth. Turning to industrial end markets, which account for about 2/3 of our sales. As many of you know, this is an area we've been cautious on for several quarters in a row. So recent macro trends have not been a surprise. Starting with metals and mining, which were slightly up, largely due to inflationary price increase, while base volumes were mostly negative. Metals trends were region-specific and also impacted by tariffs. China is up where Linde benefits from supplying Tier 1 customers, but I believe the trends for Tier 2 and Tier 3 steel mills are considerably more stressed, but we do not supply that. U.S. has been as bright spot for metals, not just production levels, but also new capacity opportunities as they've been supported by the new tariffs. Europe by contrast is the weakest as demand continues to drop led by weak industrial activity. We've been supplying steel mills for many decades, and we have seen the cycles. We have confidence in the competitiveness of our customers, but also the opportunity to deploy our applications that enable our customers to either reduce energy consumption, debottleneck and enhance efficiency. Chemicals and Energy are up 1%, driven by inflationary price increases. Overall, base volumes are down as chemicals is one of the most challenged end markets today. The U.S. and China saw flat volumes. India continues to see moderate growth. While the rest of the world is seeing volume decline as they adapt to trade policies and lower demand. Europe remains the weakest with continued broad-based demand challenges. Fixed payments are being made. So the profit impact for us is therefore limited. Despite the current challenges, I expect this cycle to rebound as all prior ones have, especially given our confidence in the cost position of our top-tier customer base. Manufacturing, which grew at 3% year-on-year was the fastest-growing industrial end market. Let's start in the Americas. We are seeing solid volume growth, especially in the United States. We seem to have lapped some of the tariff concerns, and this has translated into a healthy uptick in manufacturing activity. In addition, I'm pleased with the momentum in our commercial space business. Growth has been strong as we remain the trusted supplier of fuel for rocket launches and satellite propulsion systems. This sector continues to present exciting opportunities for Linde as we invest in additional capacity. Turning to APAC. Manufacturing volumes are holding steady. China's numbers appear to be leveling off, while India remains on a strong growth trajectory. Europe, again, continues to face challenges with widespread softness in manufacturing activity. Summarizing these trends. Consumer markets are performing as one would expect. Pricing continues to track inflation. And despite some of the volume challenges from the ongoing industrial recession, Linde is well positioned to supply as industrial activity and volumes recover. In other words, it's business as usual. Finally, more recently, I've heard some talk of a potential recession and the possibility of an economic contraction. As far as I'm concerned, we've been in an industrial recession for more than 2 years. And here at Linde, we've taken proactive steps while navigating contractions across several industrial end markets. We've been making our model recession resistant for many years now, stressing on productivity and efficiency within our business, focusing on targeted high-quality growth while maintaining disciplined capital management. Our operating model is designed to plan for the worst and be ready to capitalize on opportunities as they come. When things get tough, there is no group in the world I'd rather have in my corner than this Linde team. I'll now turn the call over to Matt to walk through our financial results. Matthew White: Thanks, Sanjiv. Third quarter results can be found on Slide 4. Sales of $8.6 billion were up 3% from last year and 1% sequentially. Recent weakness in the U.S. dollar led to a currency tailwind of 1%. Tuck-in acquisitions in Americas and APAC added another 1% and engineering impact decreased 1% from project timing. Excluding these items, year-over-year underlying sales increased 2%. Price increases of 2% were broad-based and aligned with globally weighted inflation, except for helium, which continues to experience price pressure from excess supply. Overall volumes were flat as contribution from the project backlog was offset by weaker base volumes driven primarily by European industrial customers. As Sanjiv mentioned, the weaker industrial activity was not a surprise as trends mostly followed our guidance expectations. Underlying sales were flat sequentially as seasonal increases in APAC were offset by seasonal decreases in EMEA. Note, we had a supplier settlement in the U.S. home care business broken into 2 separate payments to Linde. The majority was paid Q3 2024, as disclosed in the 10-Q while a final smaller payment was received in the second quarter 2025. The payments recovered prior excessive costs and resulted in a current quarter operating profit headwind of approximately 2% or 40 basis points versus last year, and 1% or 20 basis points sequentially. Aside from this, profit growth was primarily driven by price increases. EPS of $4.21 increased 7% or 4% more than operating profit primarily from a lower share count and tax rate. While the share count is part of our ongoing repurchase program, the tax rate relates to favorable timing versus the upcoming fourth quarter. We anticipate full year ETR to be in the mid- to high 23% range, which is similar to 2024. Slide 5 provides an update on capital management. Operating cash flow increased sequentially to $2.9 billion, or 8% over prior year. Second half operating cash flow is seasonally higher. So I expect a similar level for the fourth quarter. Overall, despite economic headwinds, the bar chart validates our resiliency through significant free cash flow generation. To the right, you can see how we deployed year-to-date capital with $4.2 billion invested into the business using our disciplined investment criteria and $5.3 billion return to shareholders. We have an underleveraged balance sheet with significant access to low-cost capital. So we're well positioned to capitalize on future opportunities. I'll wrap up with a guidance update on Slide 6. Fourth quarter EPS guidance is $4.10 to $4.20 or 3% to 6% growth. While this assumes a 2% FX tailwind, it also assumes an approximate 2% tax rate headwind, so these 2 mostly offset. As mentioned earlier, third quarter tax rate was slightly lower than the run rate, but we anticipate fourth quarter to be higher. There aren't any structural reasons rather just timing effects. It's possible there could be upside to this tax rate estimate, but time will tell. Excluding these 2 items, underlying EPS growth is holding in the mid-single-digit range as we maintain the assumption of base volume contraction at the top end of guidance, similar to last quarter. The quarter guidance rolls up to a full year range of $16.35 to $16.45 or 5% to 6% growth against the challenging macro backdrop. In summary, we remain cautious on the outlook. It's difficult to identify near-term catalysts, which could materially improve industrial activity for the remainder of 2025. And while we may take this prudent view, it does not negate our ability to generate shareholder value. Over the last 2 years, the global economy experienced recessionary industrial conditions with restrained capital activity. Yet Linde has grown operating cash and EPS, mid- to high single digits while contractually securing a record high-quality project backlog. Looking ahead, if conditions worsen, we're prepared to take appropriate mitigating actions. And when things recover, we're well positioned to capitalize. Either way, we won't spend time predicting the future, but rather focusing on the actions to shape it. I'll now turn the call over to Q&A. Operator: [Operator Instructions]. And our first question comes from the line of Laurent Favre with BNP Paribas. Laurent Favre: My question is regarding the backlog. And I remember that 3 months ago, you were talking about defending the $7 billion by year-end despite startups. I was wondering if you think -- I mean, I'm not aware of any significance new intake in Q3. Are you expecting significant new projects coming in, in Q4? Sanjiv Lamba: Thanks for that question. Obviously, the backlog at $7 billion. This is the sale of gas backlog is at a record level. I had said 3 months ago, my expectation is we will end the year with a 7 handle on the backlog despite starting up $1 billion in projects during the course of the year. We're on track for that. And I believe at this stage, we are on track to getting that 7 handle by the end of the year as well. Laurent Favre: And you talked about new projects in -- on the steel side in metals in the U.S. Can you talk about that opportunity? Is it something for the near term? Or do you see multiple opportunities over the next 12 to 18 months? Sanjiv Lamba: So I just want to make sure I understood that correctly. You're asking about opportunity pipeline broadly and then in the U.S. Laurent Favre: No, it was more about metals or I would say, traditional projects away from electronics, away from decarbonization. Sanjiv Lamba: Good question there, Laurent. So yes, I think we are seeing that as a result of the tariffs that steel and metals broadly are likely to see some continued expansion in the U.S. We find ourselves well positioned with the right players who are contemplating that expansion. So the answer is, yes, we are looking at steel and metals opportunities and potential for new expansion projects, which will lead to greater gas demand, which we will either feed from our existing network or with additional assets that we are proposing to put. Operator: Our next question comes from the line of Duffy Fischer with Goldman Sachs. Patrick Fischer: If you would, could you take a peek into next year? You've got, obviously, the Q4 guide out. That is a baseline to springboard into '26. How comfortable do you feel? What does the project startup look like next year? And then if you just kind of anniversary the price you have now, how much benefit does that look like it will bring in '26. So just anything that you can kind of see forward into '26 would be helpful. Sanjiv Lamba: So Duffy, in 2 weeks' time, we will have the entire team here going through a rigorous plan process. The plan presentations will happen there. And we will come back to you and give you good visibility on next year and provide the guide for next year as well in February, as we normally do, which you're aware of. So I want to go through that process. Our planning process is fairly rigorous. And I think that's what gives us the confidence to come out and give visibility on next year. I'll say a couple of things to kind of whet your appetite a little bit while you wait for us to come in February. The backlog that we have under execution, obviously, is a strong input into continued EPS growth that we are likely to see into next year and beyond. So expect that for sure. And of course, there is a variable in all of this, as you know. And our EPS algorithm, which holds well today and shows that management actions and capital allocation does what it needs to do. At the end of the day, the variable that we'll be looking at for next year will all be around the macro. And I think that's going to be one of the factors that we will spend a lot of time talking about and planning for to ensure that we have a solid guide when we come in February. Operator: And our next question comes from the line Matthew DeYoe with Bank of America. Matthew DeYoe: I could be wrong, but I think this is like the first quarter in some time where pricing didn't really move up sequentially and I don't know maybe it's just coincidence or rounding, but I think just a question on like the backdrop for pricing and whether you remain confident that you can continue to move the needle just given some of the slower macro that we're talking about here. Matthew White: Matt, this is Matt. I think when you think pricing sequentially, you're always going to have timing differences of when the anniversaries are for certain contracts for the escalations on certain contracts. So that's a normal part of our process. I always like to look at year-over-year as the key way to understand our pricing and then compare that to how the globally weighted inflation is. And when we look at the 2% we have year-over-year, that's pretty much aligned with what we're seeing in our geographies on a weighted inflation basis. So I probably wouldn't look too much into the sequential timing just because of some of the different timings of when increases occur. Sanjiv Lamba: Matt, I might just add one comment, which is helium and rare gases, which is a drag on pricing, has been something we've mentioned in the past as well now. Remember, helium and rare gases for us is a small portion of our revenue. So the overall impact for us at the enterprise level isn't that great. But nonetheless, that's been a drag for us, particularly in APAC, which you've probably seen. Operator: And our next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Sanjiv and Matt, one more try on '26. Do you need base or organic volume growth to achieve your EPS growth algorithm next year? Matthew White: David, so when you think about the algorithm, there's the 3 parts, as we've described in the past. And the capital allocation part and the management action parts don't need any economic help. And as we've said time and time again, those 2 parts, we view kind of mid-single digit individually. And so the combination of those 2 should get us to about 10% or hopefully a little more without any help from macro. And then the third piece is the macro, which really we view has 2 parts. The FX translation, given we're dollar functional and the base volumes that we see. Even though they're under contract to customers, how many molecules they take will drive that base volume. So that's the part that's been the drag, the headwind for a few years now. But the rest of the model continues to deliver on the algorithm, hence, why we've been able to achieve the growth we have with even the face of negative base volumes. And up until recently, unfavorable FX translation. So we feel quite good about management actions, and we feel quite good about our capital allocation portion of the backlog and we've talked about the strength of our backlog projects coming on stream. We've talked about the free cash flow that we can deploy on everything from stock repurchases to M&A activity. So we feel good that, that will deliver, and we feel good the management actions will continue to deliver. So the macro, as Sanjiv mentioned, we'll give more of an update on that on February and how we view that and how we will put that together in the guide in February. Operator: Our next question comes from the line of Tony Jones with Rothschild. Mazahir Mammadli: This is Mazahir speaking on behalf of Tony. So I'd just like to ask one question about the project backlog and what major end markets do you expect to drive growth once the electronic CapEx cycle peaks over the next year or so. Sanjiv Lamba: Thanks. So our view remains that the electronic cycle doesn't peak next year. The electronic cycle in our mind is here for the next 5 to 7 years and potentially a little bit beyond that as well with all the build-out that's contemplated. Now having said that, the visibility we have on the electronic cycle comes through the engagement with various of the leading semiconductor companies and who are currently contemplating fab expansion. So that's what gives me the confidence to give you that sense that I expect that electronics in the capital cycle or CapEx investments to continue for some time to come. Beyond that, today, we have a fairly strong pipeline of projects that we're working on. And that happens to be across a number of end markets. And I still feel pretty confident that we will continue to see growth certainly in electronics, as I mentioned, but also in a number of other areas, including steel in parts of the world where we continue to see some possible opportunities. We mentioned the U.S. is one. India is potentially another. We expect chemicals and refining in other parts of the world to also continue to see some level of activity. And last but not least, while we don't explicitly look at decarbonization projects separately, they still embedded within our end markets. Companies are still looking at their programs for decarbonization and that will continue to provide an opportunity pipeline that looks pretty good, certainly for projects that have strong economic basis on which to progress. Operator: And our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Just wondering, as we're far enough along in the fourth quarter, are you getting any sense particularly maybe in Europe, that we'll see earlier than normal seasonal shutdowns? Or is the sense you're getting that -- and I think there was a comment to this that maybe there's a little bit less pessimism now that some of the trade deals have gotten pushed along. So just any thoughts on that would be helpful. Sanjiv Lamba: So generally, Vince, in Europe, Q3 tends to have a seasonal impact, and my expectation remains that Q4 will largely be flat. When I look at the broader European context today, unfortunately, as you know, we are seeing negative volumes there sequentially. That industrial market remains soft. I don't see a catalyst for change in the near term to kind of change that fundamentally. I'll talk about a couple of geographies that are looking like we might see movement. So I'll start with Germany to begin with. The economy is slow. You probably just saw data that came out yesterday and this morning, suggesting that maybe a slight uptick. There is an expectation. And again, we don't base our plans and strategy on hope. But generally, there is an expectation and hope in Germany that the spend on infrastructure, the $500 billion that's been planned will provide an impetus or momentum for industrial activity to pick up. I don't see that happening before middle or maybe even Q3 of next year. But nonetheless, that is something that people are looking forward to. The U.K. economy, on the other hand, also large in the European context remains stagnant, and we aren't seeing much movement there. And I can't see really a catalyst there either for a fundamental change. There is a bright spot in Europe. I have to mention that, which is the Nordics. The Scandinavian businesses seem to be seeing growth. They seem to be seeing some momentum, and that's good news, but they aren't large enough to move the overall European context. So at CTU, for the rest of the year, I expect that declining trend that we have in volumes to remain consistent. Sequentially, you should expect that to be flattish. Nothing beyond that at this stage. Operator: And our next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: One of the desired outcomes from the trade and tax policy is clearly an increase in U.S. manufacturing. And it seems like we've lapped some of the tariff concerns, you started to see some uptick here. How would you frame the market risk near term, which seems to be getting a bit better versus what maybe your customers are saying in terms of doing new projects, CapEx plans and level of certainty on sort of forward growth expectations? Sanjiv Lamba: Patrick, that's a good question. Let me kind of give you a 2-part answer to that. I'll talk to you about our U.S. package business that reflects the near-term realities of what we're seeing and what we saw in Q3. We expect that to be consistent into Q4, and I'll give you a little bit of a sentiment view from what I'm hearing from customers as well. Let's start with the package business. So the package business, the U.S. package business grew mid-single digits organically. That's volume and price together. Gas volumes were down low single digit. They were impacted by Helium as well within that. So the industrial demand underlying there was quite stable. Hard goods sales were up mid-single digits. Volumes are particularly up due to growth in automation and equipment sales. And that's usually a good sign because it shows that customers are preparing for order book pickups to happen and therefore, getting ready for that. So that's a good signal that we obviously track quite closely. So I'd say that growth in automation equipment suggesting that they're willing to make some of that upfront investment to be prepared for the orders as they come through. Now on larger projects, and I think to answer your question around customer sentiment now, I'd say that there remains a degree of caution. There is no question we've lapped the tariff concerns, but there still remains a degree of caution. And I think we see people progressing on looking at their major expansion projects or CapEx investment into the ground, but we still see a degree of caution around that. Broadly, I would say when I look at broader manufacturing, the volumes are resilient, which suggest that, that trend is likely to continue into Q4 with hopefully the pickup happening in the first half maybe middle of next year in terms of actual projects on the ground, ensuring that volumes have a pickup. Operator: And our next question comes from the line of John Roberts with Mizuho Securities. John Ezekiel Roberts: I think China is lowering the prices quickly on electrolyzers, the same way they did on equipment for solar and wind. Do you think that might cause any recovery in green hydrogen ammonia? It's been very quiet in the last couple of years here. Sanjiv Lamba: John, I think the Chinese cost curve on electrolyzers, alkaline in particular, has been declining for some time. This isn't necessarily new. They've had a couple of hiccups around the scale-up technology being reliable and working through. But notwithstanding that, I fully expect Chinese electrolyzers to provide a very -- a good option in the market as people evaluate the economics of green hydrogen or renewable hydrogen. What I would say to you, though, is that the issues with renewable hydrogen are slightly more fundamental, and they come with 3 parts, and I know you know this, John, but I'm going to repeat this anyway. The first issue is around scalability of that technology because we are still talking in terms of 5-megawatt stacks, 20-megawatt stacks that isn't scale at which we can really operate. So you have hundreds of modules to come together in case you want to build a 200 or 500-megawatt facility, which again, in the larger scheme of things, when you compare that to a large steam retail reformer is a fraction of what the steam methane reformers deliver. So I think from that scalability point of view, there is a challenge for electrolyzers as is the challenge around reliability in terms of being able to operate clearly not 24/7 because of the availability of renewable energy. But even from the grid, I think the ability to give that 24/7 consistently over the course of the year is still fairly challenged around electrolyzer technology. So that's the first piece. The second piece is what you referred to, which is capital efficiency or the lack thereof. And I think that's being addressed in part certainly by the Chinese more rapidly than anyone else. I've said this before, so at the risk of repeating myself, that's probably the cost curve on the capital side needs to probably get a reduction of between 60% to 70% before you start seeing an inflection point which makes renewable or green hydrogen more competitive. And last but not least, in all of this we shouldn't forget the fact that we need availability of [ renewed ] electrons generally, but renewable energy, in particular, because that's what the preferred option for green or renewable hydrogen is. And as you know well, today, any electron gets taken out very quickly. And all of this build out on data centers and AI-led data center development means that renewable energy is going to get scarcer, if you will, from a renewable hydrogen perspective. So that's something also that is structural for now that needs to get addressed before we get to a point where you see that scale-up happen. Operator: And our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: In your commentary on the APAC segment, you said your prices would have been up or they were up in all areas, except for helium and rare gases. So if half of the penalty is helium, maybe that's $15 million. And in your other segment, you're losing about $15 million in that segment used to earn about $15 million. So the helium hit there is at least $15 million, maybe it's $30 million, so it looks like maybe the helium penalty this quarter was $50 million year-over-year. It had to be a minimum of $30 million and so if you annualize that, that's trimming your EPS growth by about 2%, maybe it's 1.5% to 2.5%. Is that the correct math? Sanjiv Lamba: So I'm sure you've done the math. I'll let Matt kind of respond back to that. I'll just give you my flavor on what is happening to APAC pricing to just reconfirm that APAC pricing excluded helium and rare gases. So I would urge you to not forget that. So APAC pricing, excluding helium and rare gases, is positive. Now you have to remember in APAC also that China is going through deflation. So we do see that reflected the Chinese pricing more broadly. But Matt, what do you say to the math that Jeff just put. Matthew White: Yes. I think on a high level, Jeff, I would agree with the basics of your math. When you think about full year, we'll stick with full year basis rather than quarter. But on a full year basis, between helium and rare gas, if you take both the volume impact because you did see some curtailment of volume, whether it's for balloon or whether it's for MRI, coupled with some of the pricing impact you could argue on a year-on-year basis, that's probably a 1% to 2% impact, probably in the lower end of that range, but on the EPS year-on-year. And APAC, unfortunately, is impacted the most. Given that's where the larger percentage of demand for those products are. But that is how I would summarize. I mean when you think about helium and rare gas, it is low single-digit percent of our global sales. And just given some of the volume and pricing impacts, you have seen an impact year-on-year related to that. So I would say pretty much flows close to those numbers, but we hopefully have seen some stabilization definitely on the pricing of rare gases. And helium, I think it still remains to be seen on some of the Russian supply. Operator: And our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: Nice quarter. Sanjiv, I wanted to dig in a little bit in your comments on the chemical industry. Unfortunately, I see all red today for our sector in terms of stock prices. But you had commented that you saw the cycle will turn positive. We've seen a lot of companies this quarter have asset write-downs. There's more announcements of asset reductions or rationalization, particularly in Europe and other parts of the world. So what do you think -- why do you think there could be a recovery in the sector over time. And I just worry that maybe the structural issues that could prevent a recovery anytime soon. So just curious on what you think needs to happen for that industry to turn the corner. Sanjiv Lamba: So Mike, that's a good observation. I think the chemical industry, as I said in my remarks, is probably the most impacted at this point in time. And therefore, every view on the industry or all perspectives on the industry tend to be quite negative. The reality is, and you know this well, Mike, we've seen the chemical industry go through these cycles before. There are some elements that are structural. There is nothing that we have to accept that, particularly Europe, right? And we have seen the rationalization of capacity in Europe, supporting capacities elsewhere in the world. The one market where chemicals is still doing reasonably including in the last quarter was China. Now obviously, a lot of capacity put in China on chemicals, which doesn't help the global supply-demand situation. But nonetheless, we have seen chemicals continue to have reasonable growth in China in the quarter and the expectation remains that, that will be the case. I do expect that with the rationalization in Europe, you will see the broader chemical asset base, start looking at the recovery or rebound over time. I'm not suggesting it's happening tomorrow anytime soon but I do expect that cycle to turn. And based on the feedback we have from many of our customers now, the expectation remains that once the rationalization actions have been taken into account, there will be a fundamental shift back to a point where you will see that chemical industry come back a little. Michael Sison: Got it. And then just one quick follow-up. SG&A was up 9% year-over-year, sequential up 3%. Any particularly -- any reason for that trend? And how do you see that going forward? Sanjiv Lamba: Yes. The answer for that is fairly simple, Mike. I always look at SG&A because quarterly trends have things in and out. You've got merit, you've got inflation, you've got stuff like that. I always look at year-to-date. Year-to-date, SG&A is up 1%. And really, I think when you dig a little bit deeper under that, we've got M&A impacting that by about a percent. We've got inflation impacting that by about 2%. And then we have, as you know, a whole restructuring set of actions happening, which take down our SG&A by 2%. So net-net, year-to-date, we're up about 1%. Operator: And our next question comes from the line of John McNulty with BMO Capital Markets. John McNulty: Maybe a follow-up around some of the European capacity closures. So it looks like there have been a lot announced at this point. And so far, you all seem like you've avoided being tied to too many of them, likely a lot of good partnerships that you've kind of picked over the years. I guess can you help us to think about at least given the announcements that have come out in the last quarter or so if there's any speed bumps that we should be aware of as we look out over the next year or 2 where assets are getting shut down, maybe you get a big onetime payout and then the business disappears. I guess how should we be thinking about that? Sanjiv Lamba: John, I'd say to you that the rationalization has been something that we have looked at. And to some extent, we internally had kind of mapped out what we thought the pace of that would be. All of that's playing to exactly how we thought it would be. So I'm not seeing any surprises in there. I would also say to you that there are a few customers that are below mTOP at the moment in Europe, largely around steel and chemicals. And I think we still are being paid. The thing that I look at when I look at these large customers is whether we're getting paid the fixed fee, and that's what contractually protects us from any exposure. So we see that happen. I do not expect any significant rationalization impact of the order and kind of the way you defined it where things stand down with large one-off payments. We are just seeing -- again, it's the pedigree of the customers we have, the cost positions that they have, which ensure that these Tier 1 customers in the chemical sector that we serve will remain. They will be much, much the last man standing, if you will. And I feel good about that portfolio. Operator: And our next question comes from the line of Josh Spector with UBS. Joshua Spector: I had a follow-up just on the manufacturing comments. I mean, I think if you look at the declines you're calling out in Europe and then the growth in the U.S. side or Americas broadly, I mean you're doing much better than the PMI metrics than what we're looking at. So just curious if you could comment maybe in a little bit more detail by market or wins and how that is driving itself the quarter maybe some of that's redundant with your answer to Patrick, but I wasn't sure if there's anything else to add. Sanjiv Lamba: Yes. So I think as I explained there, Josh, the manufacturing piece more broadly is seeing, 2 things are happening, right? We're lapping the tariff concerns or the trade concerns that were there, and I think that's resulted in manufacturing coming back and rebasing. So the uptick in manufacturing that I referenced earlier on is driven by that. And then obviously, we are seeing some of the clarity that is now coming into the market, allowing people to plan and progress with their activity and potentially expansion in that space as well. I won't point out any specific elements. I'll give you a couple of examples. So the U.S. manufacturing, clearly, I've given you the example of the U.S. packaged gas business, that is a great proxy for U.S. manufacturing has done well, mid-single-digit organic growth. That is, of course, both price and volume. But I'll also give you examples in China, as an example, which we've been struggling with manufacturing being in steady decline. We have seen particularly around selective subparts of the manufacturing end market. We've seen EVs and batteries show some growth, so we are seeing a bit of mix back around the world. The U.S. leaves that in terms of the manufacturing activity and the growth we see in there. We're seeing, obviously, India, I gave you the example of China, where we see manufacturing broadly remain struggling is Europe. And I think it should come as a surprise to you. We've been kind of looking at that, and it is exactly as we had expected, unfortunately. Now the expectation there is that the $500 billion spend in Germany is going to spur some of that manufacturing activity. I'd love to tell you that it's going to happen on the first of January 2026, but you and I both know that by the time the German system puts its whole process around that, it's going to be a few quarters before we get the benefit of that. And you will see that play out. I think there's a certainty around that. But again, we'd love to watch for that to happen before we can really kind of comment on that. Matthew White: And Josh, this is Matt. The only other one thing I'd add to Sanjiv's points are, we do put commercial space in the manufacturing, that is growing and clearly driving some of the growth in that end market. That obviously will not correlate with PMI, given it's a very different type of growth trajectory, but that is also having a positive impact on the manufacturing end market. Sanjiv Lamba: Matt, I don't know how I forgot that because I think the space is an end market by itself. I think -- it's about time we grew that enough to be able to show that as an end market. But yes, very healthy double-digit growth, feeling really good about aerospace broadly and commercial space specifically, Josh. And I'll just give a bit more color there just to say, look, the reason we're excited is not only are we seen as a reliable partner for -- by almost all the space launch companies. But as the companies are ramping up their activity and accelerating their manufacturing process around both the production of engines, testing of engines and obviously launch, we see this significant opportunity for growth, and we are putting a lot of capacity on the ground today, particularly in the U.S., to serve that additional oxygen, nitrogen, hydrogen demand and, of course, rare gases for propulsion systems for satellites as well. So yes, that certainly sits in manufacturing, and Matt was absolutely right in just pointing that out. Operator: And our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Sanjiv, you commented in the prepared remarks with regard to electronics, that you expect robust growth for some time. So I was wondering if you could unpack that for us a little bit. For example, what sort of industry level growth do you see over the next few years, however you think about that, square inches of silicon or otherwise? And in the past, I think that you've asserted that industrial gas demand into electronics actually grows at a premium rate due to shrinking nodes and maybe changes to chip architecture, et cetera. Is that still the case? And what is that premium? And how do you see it evolving with AI, data centers, et cetera? Sanjiv Lamba: Sure, Kevin. That's a great question. So as I said in the prepared remarks and also in the response to a question earlier, we still see a very robust pipeline for growth over the years to come over there. I think when you think about semiconductors broadly, the expectation remains that over the next 5 years or so, you should see semiconductor industry grow to $1 trillion. I think the expectation of growth between 9% to 11%, I think depends on which study you pick up. Within that, clearly, as you're aware, logic is the steady growth element in there. And of course, memory more recently driven by HBM really is seeing a significant pickup as well, and that's where a lot of the capacities today, both in terms of logic for the GPUs as well as HBM and memory are really finding the investments play out. I would say to you that I expect that the 9% to 11% growth range is a good number to begin with. You will see, as it always happens once fabs come on the ground, in terms of actual consumption from an industrial gas perspective, we tend to start the plants up and obviously, you see a bit of a momentum there and then evens out and gives you that 9% to 11% longer term. So I feel good about how we will see that reflected both coming from logic as well as HBM, particularly, but memory more broadly as well. The second part of your question was around the intensity of gases. And the answer is absolutely yes. The more advanced nodes we see the intensity of gases goes up and has continued to go up. The tools that we now see with the OEMs who are putting the tools together or even looking at the next generation of tools and our R&D engagement with them suggest that, that gas intensity increased continues to be the case. And that's what gets us excited, right, that there is significant growth happening, but not just that you're actually seeing a higher intensity of gas application in that process as well. I know for a fact that Juan has done some really good work around that gas intensity analysis. If you want you can reach out to him, he can share some more information with you. Operator: And our next question comes from the line of James Hooper with Bernstein. James Hooper: My question is more on the margins in EMEA. I mean 36% is very, very impressive, and you've done over kind of 200 basis points year-on-year, excluding pass-through. But are we starting to reach terminal velocity on margins here? Without kind of volumes coming back, how much further can we go? And what levers you're looking to pull to keep growing here? Matthew White: James, this is Matt. I think starting with -- yes, as you look at EMEA right now, clearly, you have negative volumes and positive price. And that combination is creating a very strong margin contribution result year-on-year. And as we mentioned on the volume side, the industrial on-site customers are primarily driving a portion of that, so we are still getting paid, but they are, in some cases, noticeably below the mTOP levels. So you will get a little bit of a boost on that. When you see some recovery in those on-site customers, I don't expect any margin expansion, if anything, you might have a minor margin dilution simply as you start to bring up some of the power costs, which essentially flows through. So that component would have an impact on the recovery. As far as base merchant and package recovery, that would be margin accretive, right? That would be, as you would expect, as that volume flows back through. So we've always tend to found in our history that in more difficult times, our margin expansion tends to be greater and that's simply because of the earnings algorithm that we talked about earlier, that you tend to have more contribution from management actions, which can be highly margin accretive. When we get recovery periods, we still get margin expansion but not at the same clip, simply because then you shift more of your growth towards volume. And you just get a little bit of a mix change effect there. So that's how I think of EMEA, but they are doing what you would expect this model should do in the environment they're in, which is they're getting price to inflation, their fixed contracts are maintaining, as you would expect, and they're managing their cost back given the environment they're in. Operator: And our next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: Would you mind updating specifically on packaged gases, 2 issues. One is what you're seeing in terms of demand trends there, particularly in sort of the welding applications. But also where we are on the regional consolidation in Europe versus the U.S. And how much further you think you can go in terms of consolidating the U.S. market? Like where do you think your market share might top out. Sanjiv Lamba: Thanks, Laurence. So I described the U.S. package business earlier on. And I think within that, the comment I made was we're seeing certainly on the hard goods side, in the last quarter, in fact, we saw mid-single-digit growth from an organic sales perspective. Volumes were up, particularly driven around growth in automation and equipment. And that's a good sign because that shows that the building end of the manufacturing cycle is looking stronger. Obviously, some of that is going into large construction projects, including data center, something we don't normally talk about. But -- and obviously, LNG projects in the U.S., et cetera, which are driving some of that growth. And I think the growth still looks pretty robust. And as manufacturing laps all these concerns around tariffs, et cetera, we have an opportunity to see a good growth pattern there as we look ahead into the future. On consolidation, I'll give you a global view and then I'll focus a bit on the U.S. because that's where the action is. So there was consolidation and there are opportunities for consolidation on tuck-in acquisitions in the packaged gas space. And we've seen that now taking the model that we've got in the U.S., and we've applied that in elsewhere in the world, including in Asia and increasingly now looking at opportunities in Europe as well. So there are opportunities for consolidation globally. But the biggest opportunity lies in the U.S. There is no question around that. And while I may not comment on the market share piece, I can only say this to you, I still believe we have a number of opportunities for tuck-in acquisitions in the U.S., and we have the balance sheet strength and the appetite to go about doing that. From memory, I'm just trying to think back. I think we closed 18 deals last year globally. This year, we're saying about 1% of our sales are going to come from acquisitions. Much of that is going to be tuck-in acquisitions coming out of the packaged gas space. So we feel really good about that space. We expect significant opportunities still in that space for us to continue to do that. Laurence Alexander: And just if I may, on the cylinder rental price increases over the last 5, 7 years, given how soft the end markets have been, have you seen any material pushback or pricing fatigue where you may need to -- where you feel you need to walk back the cylinder rentals to help the market? Or just describe what's going on there? Sanjiv Lamba: The easy answer is no. We have a robust rental process and of course, our customers see the value that comes out of that and the rental stream and the growth we've seen within that has matched CPI globally, weighted CPI that we see as a proxy for price increases that we would normally expect. So we've seen exactly that trend come through on rentals as well. Operator: And our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Last quarter, you mentioned maybe some thoughts around disinvestment in Europe and your thoughts that maybe that would not continue. Maybe you can just provide updated thoughts there as well as here in the U.S., you just mentioned strong opportunities. However, we're also seeing some rollbacks here. So maybe you can just kind of elaborate on how you think the path forward could look in both those regions from an industrial and investment standpoint. Sanjiv Lamba: Sure, Arun. So let me give you a quick -- I give a walk around the world, so you've got a sense of what the different end markets are doing. I'll now maybe channel that into the opportunity pipeline that we're looking at. So it's fair to say that most of our opportunity pipeline today comes from the Americas and Asia. That's where the opportunity pipeline today is providing projects that we're currently working on. And if those projects meet our investment criteria, then obviously, these are projects that then go into the backlog and get developed. Now, the U.S. opportunity remains robust. We see opportunities across a spectrum of end markets. I gave examples of electronics earlier on. We talked a little bit about steel. Clearly, even in other end markets, we are seeing opportunities for growth in the U.S. market. So it's a robust pipeline of projects that we see in that space. On Europe, I'm not sure I quite got your comment on disinvestment. What I would say to you is that the number -- the opportunity pipeline for Europe or EMEA, in our case, looks a little bit lighter when compared to either Americas or APAC, not surprising, as you would expect, just given the industrial weakness that is currently there in Europe, but we still do have a number of projects in Europe that are progressing, some of them are latest decarbonization, whereas others are related to growth in other different end markets. So we still see opportunity pipeline in Europe that over time as we develop that, we'll convert into projects that we will take into the backlog or into base growth. Operator: And our final question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: You have highlighted in the past some opportunities for AI to help you improve operational efficiency and productivity. I was wondering if you could speak about any new use cases that you've found for AI that you may be implementing as we get into next year? Sanjiv Lamba: So Mike, I don't know how much time you have, but I could carry on the use cases for AI. Obviously, it's very topical. No discussion today is complete unless we've talked about AI. In our case, of course, we've been doing a lot of work with data, which we've been capturing for about 30 years plus and a lot of machine learning work that's been done over the last 4 or 5 years. So much of that is in deployment today. Off the top of my head, I'd say to you, we have about 300 use cases or above that. And they range across the entire spectrum of operations, some at the front end on the sales process and some in our engineering and design process as well. So a healthy number of use cases, very robust deployment process. We have an AI council that ensures that, that deployment works well with the overall strategy that the company has laid out for ourselves. And we're excited about that. And the one change I would say to you is rather than just look at stand-alone use cases for AI, we are now looking at different domains and trying to understand how we can introduce AI tools across the domain, so that we can harvest some value. We track AI projects just like we track all our productivity projects. It's on our internal platform in which they get reviewed and validated. And the AI team, I can tell you has a very stretching goal in terms of what it needs to deliver as a benefit. So we will use that -- look at every use case and look at the business case underpinning that. And those benefits are looking interesting and exciting as we speak. But again, all of that scales up over the next 2 to 3 years to have some major impact on the business. Operator: And I would now like to turn the call back to Juan Pelaez for any additional or closing remarks. Juan Pelaez: Abi, thank you, and thanks, everyone, for participating in today's call. Have a great day. Operator: Ladies and gentlemen, that will conclude today's conference call, and we thank you for your participation. You may now disconnect.