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Operator: Good day, and welcome to the Exponent, Inc. 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 Joni Konstantelos, with Riveron Consultancy. Please go ahead. Joni Konstantelos: Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's Third Quarter 2025 Financial Results Conference Call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at www.investor.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. Catherine Corrigan, President and Chief Executive Officer; and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements, including but not limited to, Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factor in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine? Catherine Corrigan: Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our third quarter 2025 business performance. Rich will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions. Exponent delivered a strong third quarter with double-digit net revenue growth, demonstrating the strength of our diversified portfolio and our ability to deliver value across industries increasing demand for dispute-related work drove robust growth in reactive engagements across the energy, transportation, life sciences and construction sectors. Proactive engagements were led by risk management and asset integrity projects in the utility sector and regulatory consulting in the chemicals sector. While these were offset by lower activity in consumer electronics, we are encouraged by improving demand trends in this space as we enter the fourth quarter. Turning to our engagements in more detail, reactive engagements in the quarter were driven by increasing dispute-related activity across a broad range of industries. In the energy sector, we saw increased activity across generation, delivery and storage as clients seek failure analysis expertise for legacy systems as well as challenges with new technologies. The convergence of energy transition initiatives, extreme weather events and rapid growth of data centers is accelerating opportunities for Exponent's specialized expertise around the globe. In transportation, disputes regarding the design and performance of advanced vehicle technologies are becoming more prevalent and increasingly complex and the consequences of failure continue to grow. In life sciences, we saw increased reactive engagements involving complex medical devices with particular scrutiny of product safety, quality and performance. We also saw increased demand from domestic and international clients related to complex construction challenges and disputes. Our diversified portfolio and deep technical capabilities position us well to capture this demand and deliver meaningful value for our clients. Proactive engagements in the quarter were led by risk management and asset integrity projects in the utility sector, where we evaluate the resilience of critical infrastructure and help mitigate safety risks for consumers and communities. In the chemical sector, we saw strong demand for regulatory consulting, supporting clients on issues related to the impact of chemicals on human health and the environment. These gains in the third quarter were offset by lower activity in consumer electronics. However, we are encouraged by improving demand trends in this sector as we enter the fourth quarter, particularly with our human machine interaction studies. The pace of innovation is creating new opportunities for Exponent as companies seek trusted partners to help them ensure safety, reliability and performance. We are actively engaged in early-stage initiatives tied to transformative technologies that will define the next generation of products and systems. As artificial intelligence becomes increasingly delivered by a specialized hardware and integrated into safety-critical systems, complexity and risk rise just as rapidly. With that acceleration comes a greater potential for new high-consequence failure modes. Our deep roots and failure analysis are driving growth as technical challenges become more novel and complex and clients increasingly turn to Exponent for specialized expertise when the stakes are highest. We continue to advance and diversify our work evaluating human machine interaction and safety-critical systems from advanced medical devices and robotics to autonomous vehicles. The more complex the challenge, the greater the need for our expertise. Our multidisciplinary team is uniquely positioned to help clients navigate this transformation by turning technological disruption into opportunity and driving sustained growth for our business. I'll now turn the call over to Rich to provide more detail on our third quarter results as well as discuss our outlook for the fourth quarter and the full year. Richard Schlenker: Thank you, Catherine, and good afternoon, everyone. Let me start by saying all comparisons will be on a year-over-year basis unless otherwise noted. For the third quarter of 2025, total revenues increased 8% to $147.1 million and revenues before reimbursements or net revenues, as I will refer to them from here on, increased 10% and to $137.1 million as compared to the same period of 2024. Net income for the third quarter increased to $28 million or $0.55 per diluted share as compared to $26 million or $0.50 per diluted share in the prior year period. The realized tax benefit associated with accounting for share-based awards in the third quarter of 2025 was $141,000 as compared to $533,000 in the third quarter of 2024. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 27.4% in the third quarter of 2025 as compared to 27.5% for the same period in 2024. EBITDA for the quarter increased 9% to $38.8 million, producing a margin of 28.3% of net revenues as compared to $35.8 million or 28.6% of net revenues in the same period of 2024. This year-over-year decrease in margins was primarily due to the costs associated with our managers meeting in September, which was partially offset by better utilization and a strong realized rate increase. Billable hours in the third quarter were approximately $376,000 an increase of 4% year-over-year. The average number of technical full-time equivalent employees in the third quarter was 976, up 3% as compared to 1 year ago. This increase was due to our recruiting and retention efforts. Utilization in the third quarter was 74.1%, up from 73.4% in the same period of 2024. The realized rate increase was approximately 6% for the third quarter as compared to the same period a year ago. This is a result of our premium position in the marketplace, unparalleled talent and differentiated intradisciplinary expertise. In the quarter, compensation expense after adjusting for gains and losses in deferred compensation, increased 8%. Included in total compensation expense is a gain in deferred compensation of $7 million as compared to a gain of $7.2 million in the third quarter of 2024. As a reminder, gains and losses in deferred compensation are offset to miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in the third quarter was $5.3 million as compared to $5.5 million in the prior year period. Other operating expenses in the third quarter were up 6% to $12.7 million. Included in other operating expenses is depreciation and amortization expense of $2.5 million for the third quarter. G&A expenses increased 44% to $7.7 million in the third quarter. The increase was primarily due to an increase in travel and meals associated with our in-person managers meeting, we did not have a firm-wide meeting during the third quarter of 2024. Interest income decreased to $2.3 million for the third quarter, driven by lower interest rates. Miscellaneous income, excluding the deferred comp gain, was approximately $263,000 in the third quarter. During the quarter, capital expenditures were $2.7 million. We distributed $15.1 million to shareholders through dividend payments and repurchased $40 million of common stock at an average price of $70.45. Additionally, our Board approved a $100 million increase in our current stock repurchase program. This is in addition to the $21.6 million available for repurchases as of October 3, 2025, and reflects our conviction in Exponent's long-term growth trajectory. Turning to our segments. Exponent's engineering and other scientific segment represented 84% of net revenues in the third quarter. Net revenues in this segment increased 10%, driven by demand for Exponent's risk management and asset integrity management services in the utility industry and disputes related to services in the energy, automotive and medical device sectors. Exponent's environmental and health segment represented 16% of net revenues in the third quarter. Net revenues in this segment increased 9% due to an increase in regulatory consulting engagements in the chemicals industry. Turning to our outlook. For the fourth quarter of 2025 as compared to 1 year prior, we expect revenues before reimbursements to grow in the low to mid-single digits, EBITDA to be 26% to 27% of revenues before reimbursements. We are maintaining our revenue guidance and raising our margin expectation for the full year 2025. We expect revenue before reimbursements to grow in the low single digits. EBITDA to be 27.4% to 27.65% of revenues before reimbursements. As a reminder, the 13-week fourth quarter of this year will compare to a 14-week fourth quarter in fiscal year 2024. As a result, we will experience a year-over-year revenue headwind of approximately 7% due to the decrease in workdays in the fourth quarter of 2025. Our guidance represents a high single- to low double-digit growth rate when adjusted for the extra week during the fourth quarter of 2024. We expect year-over-year average technical full-time equivalent employees to be up approximately 4% in the fourth quarter. This growth in head count is a result of our recruiting activities and normalized turnover rate. We expect utilization in the fourth quarter to be 68% to 70% as compared to 68% in the same quarter last year. As a reminder, utilization is seasonally lower in the fourth quarter due to more holidays and vacations compared to other quarters. For the full year, we expect utilization to be approximately 72.5% as compared to 73% in 2024. We expect the 2025 year-over-year realized rate increase to be 4% to 5% for the fourth quarter and full year. For the fourth quarter, we expect stock-based compensation expense to be $4.9 million to $5.2 million. For the full year, we expect them to be $23.7 million to $24 million. For the fourth quarter, we expect other operating expenses to be $12.7 million to $13.2 million. For the full year, we expect other operating expenses to be $49.5 million to $50 million. As noted in prior quarters, the year-over-year increase in the full year, other operating expenses is largely driven by the extension of our Phoenix lease. For the fourth quarter, we expect G&A expenses to be $6.1 million to $6.6 million. For the full year, we expect them to be $25 million to $25.5 million. The increase in G&A for the full year is primarily due to an expense of approximately $1.8 million for our firm-wide managers meeting held in September. The meeting is an important investment in people development that brings together our multidisciplinary teams, develops our key talent and fosters the next generation of leaders and business generators. We expect interest income to be $1.5 million to $1.8 million in the fourth quarter. In addition, we anticipate miscellaneous income to be approximately $200,000 in the fourth quarter. For the remainder of 2025, we do not anticipate any additional tax benefit associated with share-based awards. For the fourth quarter of 2025, we expect the tax rate to be approximately 28% as compared to 24.7% in the same quarter a year ago. For the full year 2025, the tax rate is expected to be 28.5% as compared to 26% in 2024. The increase in the tax rate is due to a decrease in the tax benefit for share-based awards. Capital expenditures for the full year 2025 are expected to be $10 million to $12 million. In closing, we are pleased with the growth we delivered in this quarter and look forward to closing out the year strong. I will now turn the call back to Catherine for closing remarks. Catherine Corrigan: Thank you, Rich. Exponent is thriving as innovation accelerates across industries. New products, connected systems and critical infrastructure are transforming how people live and work, and expectations for safety, health and the environment have never been higher. We help clients navigate this transformation and bring advancements to market responsibly, applying scientific rigor to ensure reliability, performance and trust. And when problems inevitably arise, our industry-leading expertise is increasingly sought to investigate failures, identify root causes and support litigation and regulatory matters with clear independent analysis. Artificial intelligence is one of the most powerful forces reshaping this landscape, and we are helping clients integrate it thoughtfully and rigorously while managing the new dimensions of risk that it introduces. Looking ahead, we will continue to invest in talent to keep Exponent at the forefront of science and engineering. With strong momentum moving into the final quarter of 2025 and beyond, we remain focused on helping clients meet rising expectations while delivering sustainable growth and long-term value for our shareholders. Operator, we are now ready for questions. Operator: [Operator Instructions] First question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I appreciate you taking my questions. I guess, first, I wanted to ask, any early thoughts on 2026 in terms of hiring specifically? It sounds like demand has picked up some. Sequentially, utilization was good in the quarter. I know you're targeting 4% growth in headcount exiting the year, which is relatively consistent with how you've talked about the medium-term or long-term target. Just curious if there are any plans to go at the top end or exceed that normal range given the demand backdrop? Catherine Corrigan: Yes. Thanks, Andrew. I can at least start in on that. I mean, we have strong momentum in recruiting right now, right? I mean we have to be recruiting now really for adding talent in the first half of 2026. And so it's a fantastic time of year. We have lots of events at our university recruiting program and things like that. And so -- look, our philosophy remains the same in terms of targeting the recruiting toward the areas where we are seeing the growth. So places like digital health, places like automated vehicles, places related to energy, whether that be legacy systems or new technologies. And look, we are still in the planning process, of course, for 2026. But I think we will be back in a more historical range, right? We've been trailing on that over the last year or 2. But this year, to get into that 4 plus, maybe it's 4% to 6%, it's something like that. I think, is a reasonable place for us to be. Andrew Nicholas: Great. For my second question, I wanted to just touch on the AI topic. A lot of good detail in terms of the ways that it's starting to kind of make its way throughout your business. Is there any way to size it today? Any thoughts on just how fast it could grow over time? And then somewhat relatedly, should we think about AI-related projects as coming first via the reactive business or would you expect it to be more balanced across proactive and reactive? Catherine Corrigan: Yes. Yes. Thanks for that. So look, let me sort of give a little tour around the business and focus on the kinds of things that we are doing. I think that really helps to lay the groundwork for them seeing how much it's really penetrated into the business. Major ways that we're helping clients with AI is the way they are implementing AI into their systems and them wanting to do that successfully. And that's a big part of what we're doing. They're running into challenges. They're running into failures. They're running into disputes, right? So that's 1 category. There's another category where we are really building tools, techniques and offerings that we're delivering to clients, right? These are like hybrid models and our utility risk work and things like that. If you kind of go by industry, you can see electronics, that how AI is being delivered through specialized hardware, right? So this is a key area, new form factors, new technologies on the hardware side. They're getting into regulated medical devices in terms of digital health, right? There's benchmarking of the algorithms, what is the ground truth that they really need to compare with. What are the human-machine interface issues. The strategy is around collecting the data that are going to train the algorithm and getting that right, right? You've got intellectual property issues, failure analysis. I mean over in energy, it's quantitative risk modeling. It's data center performance, driving performance critical issues on the generation side. Automotive, transportation, we're seeing continued increases in the litigation profiles for advanced driver assistance technologies and the allegations are getting more complicated. So you can kind of -- as you march down, I mean, those are our 3 biggest industries, right, consumer products, energy and transportation. And you can see how it touches in different ways. And so, to say exactly what the percentage is, is a little bit difficult, but it's clearly integrating its way into our work significantly, and it's around the product life cycle. We continue to have opportunities to expand that, of course, especially as the technology continues to accelerate, but I really do think we are seeing it on both the reactive and proactive sides of our business. We're seeing the disputes in automotive. We're seeing some of those disputes on the medical device front, for example, in consumer products, but we're also using it proactively as we help our electronics clients get their algorithms right and get their training right. So I think it's pretty balanced. Difficult to quantify, but touching the business in a lot of different dimensions. Andrew Nicholas: Very helpful. And if I might just squeeze one more in here for Rich. Year-to-date, just curious if there's anything you can do to quantify kind of growth between proactive and reactive, just want to kind of have our bearings for thinking about the comps next year. Richard Schlenker: Yes. So we've clearly seen the reactive side of the business play as the real growth drivers at least through the first 3 quarters here. We ended up really seeing the peak of that here in the third quarter where we ended up with around 18% growth in the proactive -- I mean, in the reactive business and we were approximately flat in proactive. Now that proactive part saw growth in both the regulatory consulting and the risk management work that was offset by a decrease year-over-year in the proactive work that we do in consumer electronics, primarily on the hardware side. We are seeing -- we are optimistic about the activities in consumer electronics and life sciences around our work in human machine studies in the fourth quarter. So that is actually a real area of strength as we left the third quarter. So we're seeing that improving as well. So overall, I think that we are continuing to see strong demand on the disputes and reactive side and we've seen here in the third quarter already, the regulatory work year-over-year start to grow on that chemical side. And we're expecting to see growth as we get into the fourth quarter on the study side. So those are the positive trends that we have going as we start to look towards 2026. Operator: The next question comes from Tobey Sommer with Truist. Tyler Barishaw: This is Tyler Barishaw on for Toby. Just wanted to start with on the regulators. 9 months into the Trump administration. Can you just discuss the data play with regulators? How has the nature of this work changed so far? And any trends you can extrapolate over the next 3 years? Catherine Corrigan: Yes. Thanks for that question. We all know that there's a lot of dynamics going on around the regulatory environment and even within the regulators themselves, and as we look across the business, look, most of our regulatory work is in the chemical sector, it's in the medical device sector. So you're looking at EPA, you're looking at FDA, you're looking at automotive, which is going to be NHTSA and also Consumer Product Safety Commission. And we have some scattered instances with clients on maybe particular projects where they might have some delays or a little bit of pause as they're waiting longer for, let's say, the FDA or EPA to get back to them with feedback around their submissions and things like that. But that has really been more around the edges. I mean, you can see that our chemical regulatory work, for example, was a good -- was a strong grower in the quarter. And that is a business that is global. It has some of it in the U.S., but probably about 2/3 of it is represented by those global regulatory frameworks, which continue to raise the bar on issues related to safety and health. And so we're seeing it around the edges. But generally speaking, when it comes to things like regulatory enforcement, we continue to see that. And in some ways, seeing that be even stronger. I mean there have been notices coming out of, for example, Consumer Product Safety Commission about how they are cracking down on various allegedly defective products and so forth. And so we see some of that in both consumer products. We're seeing that environment in FDA and medical device work. So all in all, we're watching it very closely, but the business continues to be driven by these health and safety and environmental issues. Another one thing I'll add is that we have had an opportunity in a handful of cases to recruit some additional talent, because of some of the shakeups that have happened in some of those regulatory agencies. And so we've been able to bring over in a few instances, some folks who maybe thought they had lifetime careers at one of the regulators that are now really looking around and can really convert over into good consultants. Tyler Barishaw: Just on the government shutdown, any impact so far from that or expected in guidance? Richard Schlenker: Yes. So our work, just to size it, we've got 2%, 3% of our work that is federal government contracts that we perform. We are fortunate that most of the work that we have ongoing are things that were under contract already. And we're in the form and areas that they were not paused in what we did, if anything, our clients wanted to ensure that our work continued even if some of them were furloughed. So in the short term, we think that our revenues in the fourth quarter out of government will be similar to what they were in the third quarter. But obviously, if that continued or there were -- and as they work through the 2026 budget and such, we will have to see where all that falls out. But again, it's 2% to 3% of our business. Tyler Barishaw: And then just one final one for me. I appreciate the commentary about headcount growth for next year, but any preliminary thoughts on revenue growth for next year that we can be thinking about at this time? Richard Schlenker: Yes. We are -- we'll be providing our 2026 guidance on revenues and margins on our call at the end of January, beginning of February. We're not in a position as we're still going through planning to give those numbers. But I think the -- we are very encouraged by the fact that we do have headcount growth going that's coming with sustained utilization here or solid utilization and such. So we think we're in a positive position to -- for growth in 2026 and beyond. Operator: The next question comes from Josh Chan with UBS. Karandeep Singhania: This is Karan Singhania on for Josh. So can you unpack for us how FTE growth trended in the quarter between proactive and reactive practices? You're just curious if there are like any notable differences in hiring behavior between the 2 of them? Richard Schlenker: Yes. So our hiring -- our practices are not organized really by proactive, reactive. We organized the firm, recruit our people and develop them in disciplines or what we call practice areas, but when you can think about environmental scientists or electrical engineers or mechanical engineers and such. Clearly, the market drivers for hiring in the areas help determine that. And that can be driven by proactive or reactive work as we stated earlier, we're seeing good demand in the reactive work and ability to really engage our staff pretty quickly as they're coming into the organization in that. So I would say that the -- in the short term, the reactive work as far as demand and filling that, sure, there -- that is part that is pushing our teams along and feeling comfortable in the hiring. In the long term, which is what our, really, hiring horizon is, it's about looking out over the next several years and longer to see where we see technologies heading, where we see risk issues developing and doing that. And clearly, those lead themselves into focuses in hiring in electrical engineering and computer science and controls in that human -- both in our human factors, people with the psychology degrees, people and biomechanics and that human machine interaction. All of those areas we're hiring during the quarter. Karandeep Singhania: Got it. That's helpful. So just as a follow-up to that. I think you highlighted some of the end markets that you're starting to hire in. So I'm just curious if the mix of your hiring of the end markets is having an impact on the rate increases? And is there any reason why the current rate increase of like 6% couldn't carry on going forward? Richard Schlenker: Yes. So a couple of factors contribute to the rate increase that we did. One, over the last several years, the overall rate that we've been being able to drive through has been benefited from really the demand environment and the sort of inflationary environment for engineers and scientists in particular, in the marketplace. So one, I think we've had a very strong market driver for that. As we look to, in particular, to what's going on here in the third quarter and 2025, we've seen a strong demand in this reactive business. Our reactive business does draw upon our most seasoned people. It is about -- having a expert, a testifier, an experienced person who can go through deposition trial and all that with a strong support team along with them. But what we see is that, that, if anything, where do you see some of that utilization improvement coming. It comes at a little bit more senior level not dramatically, but just a little bit enough to make a difference in the billing rate. The other thing that contributes is when hiring is at a more modest rate, which has been even this last year, that is a lower rate of new young people coming in at the bottom, which is also an impact to dilution or blend the mix that you have. So we've had all of those things working in a positive way that has allowed us to see the rate increase at 5%, 6% here in the first 3 quarters. As we move into the fourth quarter, where I've just mentioned that we're seeing good momentum with improvement in the proactive services that can draw upon. And the good thing is really leverage our more junior entry-level consultants and as hiring continues to increase, that will bring in more entry-level people into the org. So those factors will weigh on what the realized rate is as we move forward and is why we have previously said, look, at this point in time, we're still working through each of the individual rates. But if I was to guess, I think we're going to be looking at a rate realization that's more in the historical normal range of 3%, 3.5% rate realization than we are, something that's 5% or 6% as we look at it because of all those factors. Operator: Thank you. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Xerox Holdings Corporation Third Quarter 2025 Earnings Release Conference Call [Operator Instructions] At this time, I would like to turn the meeting over to Mr. Greg Stein, Vice President and Head of Investor Relations. Greg Stein: Good morning, everyone. I am Greg Stein, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation Third Quarter 2025 Earnings Release Conference Call hosted by Steve Bandrowczak, Chief Executive Officer. He is joined by Louis Pastor, President and Chief Operating Officer; and Mirlanda Gecaj, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the expressed permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor and will make comments that contain forward-looking statements, which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Bandrowczak. Steven Bandrowczak: Good morning, and thank you for joining our Q3 2025 earnings conference call. It has been 4 months since the Lexmark acquisition closed, and I am extremely pleased with the progress both the Xerox and Lexmark teams have made in planning and executing the integration. Their efforts have positioned the combined company for long-term success by harnessing the strengths of both organizations, offerings and sales approaches. As part of this progress, we have appointed several Lexmark executives in key leadership roles such as product development, business services and IT. This blend of legacy Xerox and Lexmark leaders across the company has fostered a collaborative mindset towards synergy realization, uncovering numerous new opportunities for value creation. As a result, in just the first 100 days post closing, we have already identified an additional $50 million of synergy opportunities, some of which we expect will be realized in 2026. I am, however, disappointed with Q3 results. Macroeconomic challenges weighed on top line performance. Revenue of $1.96 billion was up roughly 28% in actual currency and 27% in constant currency, reflecting the inorganic benefits of the Lexmark and ITsavvy acquisition. Pro forma for these acquisitions, revenue declined approximately 8%. Adjusted operating income margin of 3.3% was lower year-over-year by 190 basis points. Free cash flow was $131 million, an increase of $24 million over the prior year, and adjusted earnings per share of $0.20 decreased $0.05 year-over-year. This quarter, we experienced continued disruption associated with tariff and government-funded relating uncertainty, which primarily affected transactional print equipment revenues and to a lesser extent, supplies revenue. Throughout the quarter, we observed continued delays in purchasing decisions among clients, particularly those reliant on federal, state and local government funding. General economic uncertainty also resulted in delays in purchasing among our commercial client base and distributors. However, page volume trends remain consistent and branded supply usage was in line with expectations, both of which indicate unchanged demand for printed pages. Therefore, we expect delays in equipment purchases to materialize in future periods as tariff policies and government funding decisions become more clear and the macroeconomic environment becomes more stable. Economic uncertainty did not slow the progress of our IT Solutions business, which grew pro forma revenue by double digits in the quarter, supported by a balanced portfolio of offerings that address clients' most pressing IT infrastructure needs and ongoing initiatives designed to further penetrate Xerox's existing print client base. As our attention increasingly turns to the integration of Lexmark, we remain focused on the balanced execution of 3 strategic priorities: execute reinvention, realize acquisition benefits and balance sheet strength. I will provide an update on each. Starting with the execution of reinvention and commercial optimization. We have several new product launches across print and IT Solutions over the next 18 months. Two weeks ago, we announced the largest set of enhancements to our production print portfolio since last year's decision to stop manufacturing certain high-end production equipment. At PRINTING United, a leading industry event, Xerox debuted 3 new production printing presses, the IJP900, which marks the return of Xerox to the growing mid-volume inkjet market and 2 new products under the Proficio family name, which comprise our next generation of digital color presses, serving the entry color production mid and high markets. We expect this and future launches to provide incremental revenue next year. These new products are an integral part of our leading end-to-end production ecosystem, which uses AI-driven workflows, personalization and advanced analytics to make the print jobs of our most demanding production print clients more efficient and profitable. As the Lexmark integration planning work progresses, we are carefully analyzing the optimal approach to serving the more than 200,000 combined Xerox and Lexmark clients with an enhanced portfolio of print, IT and digital services as efficiently as possible. This work has revealed an opportunity to more cost effectively serve legacy Xerox clients by expanding our presence with key distribution partners, an approach Lexmark has successfully deployed to drive better operating efficiencies and higher operating margins. We recently took this approach in parts of upper Midwestern United States, where we announced an agreement with Loffler Companies to transfer the servicing and sales coverage for small and midsized businesses in the region. Further underscoring our commitment to sales efficiency and productivity, last quarter, we advanced our inside sales strategy with the opening of a new office in San Antonio with plans to scale to 180 specialists at the facility over the next several years. This model enables us to reach more clients efficiently and at scale, while AI-driven insights helps us analyze each stage of the sales cycle, identify process bottlenecks and implement targeted actions to improve performance. While currently a small part of ESR, these initiatives are already delivering results with the 27,000 accounts transitioned into inside sales showing greater than 30% ESR growth year-over-year. Early integration work from the Lexmark acquisition has also contributed to the acceleration of our ongoing operational simplification efforts. This quarter, we consolidated best practices from the 2 companies' legacy global business service organizations to create a streamlined and more comprehensive set of centralized operating processes. Managed by GBS and supported by a unified technology stack, integrated data architecture and a captive offshore labor model, which Louis will discuss in more detail, the structure provides the optimum foundation for scaling AI-driven operational efficiencies and enhancing our cash conversion cycle. In anticipation of future AI-driven savings, this quarter, we launched an AI center of excellence to design and distribute best practices around the adoption of enterprise AI tools and develop business plans for rapid adoption of function-specific AI-enabled operational enhancements. While still early days, we expect AI productivity solutions to derisk, if not add to existing synergy savings opportunities. Moving to acquisition benefits. As noted in the prior quarter, the ITsavvy integration is largely complete. This quarter, the IT Solutions team seamlessly transitioned legacy Xerox IT Solutions, ERPs and CRMs in the U.S. to legacy ITsaavvy's technology platforms, a crucial enabler of future cross-sales activities and sales acceleration more generally. Even prior to this transition, we continue to see strong progress in cross-sell pipeline build and conversion activities. In the third quarter, year-to-date sales activity of new IT Solutions sales to Xerox Print clients exceeded $50 million across more than 150 clients with an in-quarter conversion to bookings of roughly $15 million. We took the initial step towards realizing material Lexmark-related synergies this month with the elimination of more than 1,200 roles. This action and other nonlabor savings are expected to result in run rate gross cost savings of more than $125 million by the end of this year. Finally, balance sheet strength. As a reminder, the Lexmark acquisition resulted in an increase in total debt but was immediately delevering. When the expected $300 million in synergies are included in our pro forma LTM EBITDA, gross debt leverage is currently a manageable 4.3x. This quarter, we returned to positive free cash flow and took net debt down by $226 million. With the Lexmark acquisition now closed, we expect most, if not all, free cash flow to be used to repay debt. Our goal remains to target 3x total debt to EBITDA. I'll now hand the call over to Louie Pastor, who was recently named President and Chief Operating Officer, succeeding John Bruno. Louie has been with Xerox for 7 years, holding increasingly senior positions within the organization, including most recently Chief Administration Officer and Global Head of Operations. In that role, Louie played an integral part in helping design and execute the core components of reinvention, making him the ideal successor to John Bruno as we continue into the next phase of reinvention. Louie Pastor: Thank you, Steve. I am honored to take on the role of President and Chief Operating Officer. Over the last 7 years, I have helped orchestrate significant change at Xerox, change to our corporate structure, our operating model and more recently, our asset base. In each case, these changes were well thought out, deliberately executed and designed to ensure Xerox, a company with more than 100 years of history, thrives as a leading provider of services-led software-enabled workplace solutions. Reinvention has been a long and sometimes uneven path. But with the ITsavvy and Lexmark acquisitions completed, we have now executed on the core strategic components of this journey, which means we now control the levers required to deliver the expected financial outcomes of reinvention and can focus fully and completely on execution of the core operational and commercial components of reinvention. Operationally, we are focused on combining the best-in-class capabilities of both legacy Xerox and Lexmark, optimizing our labor strategy and standardizing the consolidated enterprise on key platforms for growth that combine people, process and technology. For example, as part of our shift from a geographic operating model to a business unit operating model in early 2024, we launched a global business services organization to centralize, standardize and streamline the company's support and operational functions across regions, business units and service lines, thereby lowering operating costs, improving quality and enabling continuous improvement. We are now accelerating our progress by adopting best practices and proven capabilities from Lexmark's award-winning GBS organization that was built and refined over multiple decades. These best practices include things like unified data governance to enable real-time insights and automation, while the proven capabilities include an integrated network of global capability centers with agile delivery models. These global capability centers, when combined with changes we previously made when establishing GBS, unlock significant opportunities for Xerox. For instance, in 2024, as part of the establishment of GBS, we negotiated new commercial agreements with our outsourced labor providers, giving us greater control and flexibility. With Lexmark's captive offshore and nearshore centers now available to the entire combined organization, we are taking full advantage of this control and flexibility to consolidate operations, reduce costs, improve performance and deliver better client, partner and employee experiences. In August, less than 60 days after closing on the acquisition, I traveled to Lexmark's largest global capability center in the Philippines, where we were recently ranked as a top 5 IT employer by the Philippine Daily Inquirer. I had the privilege of meeting and spending time with many of the 1,800-plus team members based there working across engineering, IT, cybersecurity, sales operations and service delivery, among other functions. Their talent, professionalism and pride in their work were truly inspiring. The genuine care for what they do and their shared sense of purpose came through in every interaction. I can't wait to meet with our teams in the global capability centers in Hungary, India and beyond in the coming quarters. Our ability to leverage these centers is only possible because of the operating model shift we executed in early 2024, and their creation was always part of Xerox's GBS road map. But with Lexmark's assets, capabilities and continuity of leadership, we are now able to advance the progress of GBS by orders of time and magnitude, a key contributor to our increased synergy expectations. Technology is fundamental to enabling the benefits of a more robust GBS organization. To that end, we made the decision this quarter to adopt and enhance Lexmark's existing technology stack rather than continue working toward consolidating Xerox on a net new build. The technology transition will take several years to implement in full across the globe. But by leveraging an existing system that already delivers better operational outcomes together with in-house development expertise, the business benefits are irrefutable. The change management is more streamlined and the implementation process is greatly derisked. Commercially, within PRINT, we are focused on evolving our offerings in several critical ways. From a services perspective, we are focused on improving the value proposition and reducing the cost of providing managed print services. And from a technology perspective, we are focused on leveraging Lexmark's A3 platform as well as developing new high-end OEM partnerships like the recent partnership we announced with Kyocera to improve our competitive position. This quarter, the product development and delivery teams finalized plans to adopt Lexmark's A3 technology at Xerox, which will decrease our reliance on existing suppliers and reduce the overall cost of our products, ultimately providing tailwinds to longer-term gross margins. We plan to roll out the Lexmark-produced A3 product to certain partners in our Eastern European markets in Q4 with a larger global rollout planned in 2026. This platform is more profitable for Xerox on day 1 as well as over the life of the product, given Lexmark's focus on design for serviceability. As a result, we expect our new A3 platform to require far less service intensity than existing models, resulting in higher Managed Print Services margins and improved client satisfaction. As Steve mentioned, our commercial focus within reinvention is not limited to offerings. It extends to our routes to market. This quarter, we began segmenting the combined Xerox and Lexmark client bases by size and vertical, which will enable us to develop a long-term coverage model that optimizes our cost to serve and aligns our offerings for maximum traction based on the needs of specific economic buyers and end users. We will provide more details on this new coverage model in future quarters. One of the key pillars of reinvention is to drive long-term sustainable growth. While we enjoy the benefit of the contractual nature of managed print contracts, which last on average 4 to 5 years, it does limit natural opportunities to grow wallet share within those existing accounts. With our expanded IT Solutions business as a result of the ITsavvy acquisition, we now have reasons to call on our clients every single day, providing Xerox with more opportunity to cross-sell, upsell and penetrate both new and existing accounts. The acquisition of Lexmark only further expands this addressable market and enables our sales reps with a greater value proposition for our clients and partners. Lastly, I will provide an update on Lexmark synergies. Over the course of the first 100 days post close, we have held workshops and strategy sessions with each of the key functions responsible for delivering our synergy plans. These workshops have revealed $50 million of upside to our latest synergy plan, some of which is expected to be realized in 2026. The implementation of these synergies is managed by the same enterprise transformation office that has successfully delivered more than $500 million of reinvention-related gross savings and profit opportunities since 2023. We currently have 16 integration work streams with more than 100 initiatives and a broad cross-functional team of several hundred people across both organizations engaged in the identification and realization of these synergies. In summary, we are making meaningful progress integrating the 2 companies. As a result, we increased the Lexmark synergy forecast to at least $300 million, which firmly places expected savings from Reinvention as a whole north of $1 billion. These savings, when combined with an optimized go-to-market organization, selling offerings with greater secular demand mapped to a client base segmented by size and vertical are expected to drive revenue stabilization and a return to double-digit adjusted operating income in the next few years. I'll now turn the call over to Mirlanda to discuss this quarter's financial results in more detail. Mirlanda Gecaj: Thank you, Louie, and good morning, everyone. I'm recovering from a cold, so my voice may sound a bit raspy. Thank you for your understanding. As Steve mentioned, the third quarter reflected a continuation of the uncertain macro environment we saw earlier in the year. Despite these near-term challenges, we continue to execute with discipline and are making meaningful progress on cost savings. Further, we had another quarter of strong growth in IT Solutions. Q3 includes a full quarter of Lexmark results. For comparability purposes, we have provided pro forma comparisons for the prior year period, which assumes both ITsavvy and Lexmark had been acquired as of the third quarter 2024. These pro forma comparisons will be the focus of my prepared remarks. Revenue grew roughly 28% year-over-year, including the benefits of ITsavvy and Lexmark acquisitions. On a pro forma basis, revenue declined about 8% in actual currency. Core revenue, which excludes deliberate exits and nonstrategic reductions, declined roughly 5% this quarter on a pro forma basis, consistent with Q2, reflecting a continuation of the macroeconomic and policy-related uncertainty leading to clients deferring equipment purchases. These headwinds primarily affected the Print segment. IT Solutions showed continued strength, growing revenue double digits on a pro forma basis, led by public sector deployments, expanded cloud and networking activity and increased cross-selling momentum. Turning to profitability. Adjusted gross margin of 28.9% was down 350 basis points, reflecting higher tariff and product costs. On a pro forma basis, adjusted gross margin also declined approximately 380 basis points year-over-year. Key drivers of the declines include tariff charges, net of price mitigation, higher product costs and revenue mix. These factors were partially offset by Lexmark's contribution and Reinvention benefits. Adjusted operating margin of 3.3% was 190 basis points lower year-over-year on a reported basis and 370 basis points lower on a pro forma basis due primarily to lower gross profit, partially offset by Reinvention savings. While some Reinvention initiatives were delayed due to considerations around integration activities, we remain on track to achieve our cost reduction goals and to realize incremental Lexmark gross run rate synergy benefits ahead of schedule. Despite this delay, our continuous focus on cost reduction resulted in a decline in adjusted operating expenses. Excluding $50 million of Reinvention, transaction-related costs and Lexmark post-combination compensation expense, our operating base was down around 9% year-over-year. Adjusted other expenses net was $85 million, $52 million higher year-over-year due primarily to higher net interest expense associated with Lexmark acquisition financing. Adjusted tax rate of 235% compared to 27.7% in the same quarter last year. The current year rate reflects our geographical mix of earnings and an inability to benefit from certain current year losses and expenses. Adjusted EPS of $0.20 was $0.05 lower than the prior year, primarily due to lower adjusted operating income and higher interest expenses, partially offset by tax benefits. GAAP loss per share of $6.01 was a narrower loss of $3.70 year-over-year. The improvement primarily reflects an after-tax noncash goodwill impairment charge of around $1 billion and a tax expense charge of $161 million in the prior year quarter. Q3 2025 GAAP loss included an inventory-related purchase accounting adjustment from the acquisition of Lexmark of $85 million or $0.67 per diluted share and a tax expense charge of $467 million or $3.68 per diluted share related to the establishment of a valuation allowance against certain deferred tax assets. Let me now review segment results. For Print and Other segment, Q3 equipment sales of $383 million increased 13% in actual currency and about 12% in constant currency. Pro forma for the inclusion of Lexmark, equipment sales declined about 16% in actual currency. Excluding the effects of reinvention-related actions and other onetime items, pro forma core equipment sales declined around 12%. I'll provide additional color for each legacy organization to help contextualize this quarter's declines. Legacy Xerox equipment sales declined 14% year-over-year in constant currency or roughly 8%, excluding the impact of Reinvention-related items, which include the decision to stop manufacturing high-end equipment. This compares to a normalized decline of 3% in the prior quarter. The sequential slowdown reflects an expansion of the macroeconomic and government policy-related uncertainty, which resulted in continued delays in federal and SLED-related ordering activity as government agencies and companies relying on government funding await budget clarity as well as delayed ordering among our commercial clients and channel partners. Total equipment installations for legacy Xerox declined 24% this quarter, reflecting in part the impact of macroeconomic uncertainty and resulting delays in customer order activity. Overall, equipment revenue declined at a slower pace than installation due to a higher mix of color devices, which are also more profitable than mono and post sale and the benefits of tariff-related price actions. Lexmark's equipment sales can be more volatile quarter-to-quarter than those of Xerox as a higher proportion of Lexmark sales come from large channel and OEM partners, the purchases of which can be lumpy. Lexmark's equipment sales declined 30% in the quarter in actual currency. About 18 percentage points of the decline can be attributed to difficult backlog compares in the prior year, the timing of OEM orders from one large customer who pulled orders ahead of the first half of the year and large branded equipment order delays among channel partners driven by the timing of enterprise rollouts. The remainder of the decline is due to slower run rate activity among channel partners, reflecting macroeconomic uncertainty. Despite the challenging third quarter results for Lexmark, underlying demand trends remain healthy. Year-to-date, equipment sales for Lexmark are down 1% in constant currency year-over-year, normalizing for prior year backlog reductions and the aforementioned items. For the full year, Lexmark equipment sales are expected to be up around 2% in constant currency, normalizing for prior year backlog reductions. Total equipment installations for Lexmark declined 25% this quarter, roughly in line with revenue, reflecting the factors previously noted. Print post sale revenue of $1.36 billion increased 23% in actual currency and 22% in constant currency. Pro forma for the Lexmark acquisition, post-sale revenue declined 8% in actual currency. Excluding the effect of reinvention actions, core print post-sale revenue on a pro forma basis declined 5% in actual currency, slightly better than last quarter's pace as higher sequential declines of supplies at legacy Xerox was offset by legacy Lexmark's outperformance. Outside of supplies, post-sale revenue was largely in line with expectations, reflecting the benefits of post-sale revenue streams that are largely contracted or recurring in nature. Print and Other segment adjusted gross margin of 30% declined 330 basis points year-over-year. Pro forma for the Lexmark acquisition, gross margin declined 440 basis points year-over-year due to higher product and tariff costs, lower managed print volumes and a reduction in high-margin finance-related fees, partially offset by Reinvention savings. Print segment margin of 3.7% declined 340 basis points year-over-year due to lower revenue and gross profit, partially offset by Reinvention savings and the inclusion of Lexmark in results. Pro forma for Lexmark, Print segment margin declined 520 basis points, reflecting top line softness in the quarter. Turning to IT Solutions results. IT Solutions revenue and gross profit increased more than 150% year-over-year, reflecting the inclusion of ITsavvy in segment results. Pro forma for the ITsavvy acquisition, IT Solutions revenue grew just over 12% in actual currency. Pro forma gross billings, a reflection of business activity, increased 27% year-over-year in the third quarter compared to 12% growth year-to-date. The sequential improvement in billings growth reflects several large public sector deployments benefiting PC sale and endpoints, another quarter of double-digit growth in infrastructure and networking revenue and acceleration in advanced solutions billing, where we continue to see strong adoption of Microsoft Cloud Service Provider. Total bookings, an indication of future billings increased 11% in the third quarter, an acceleration from prior quarter's pace of 10%. We continue to see growth in sales activity for IT products and services to existing Xerox's Print clients with more than $50 million of pipeline creation year-to-date. IT Solutions gross profit was $44 million and gross margin of 19.5% expanded 320 basis points year-over-year due primarily to the inclusion of ITsavvy. Pro forma for the ITsavvy acquisition, gross margin expanded 260 basis points, reflecting benefits from platform leverage and revenue mix. Segment profit grew $18 million year-over-year, with profit margin reaching 8.1%, helped by the inclusion of ITsavvy. On a pro forma basis, segment margin grew 610 basis points due to platform leverage enabled by ITsavvy integration and synergy benefits. Operating cash flow was $159 million compared to $116 million in the prior year quarter. The improvement in operating cash flow reflects higher proceeds from the sale of finance receivables and improved working capital, partially offset by lower net income and about $25 million of transaction expenses associated with the Lexmark acquisition. Investing activity was a use of cash of $725 million, a year-over-year increase of roughly the same amount, primarily reflecting the acquisition of Lexmark. Financing activity resulted in a source of cash of $118 million compared to a use of cash in the prior year of $74 million. Current quarter net debt increase includes financing for the Lexmark acquisition, partially offset by the paydown of 2025 senior secured and quarterly amortization of other secured debt. Free cash flow was $131 million, $24 million higher year-over-year due to an increase in operating cash flow. We ended Q3 with $535 million of cash, cash equivalents and restricted cash. Total debt of $4.4 billion increased around $460 million from Q2 levels due to an increase in debt associated with the financing of the Lexmark acquisition. About $1.6 billion of the outstanding debt supports our finance assets with remaining core debt of $2.8 billion supporting the nonfinancing business. Post the Lexmark acquisition closed on July 1, total debt declined $226 million on the paydown of the 2025 senior secured and quarterly amortization of other secured debt, partially offset by ABL borrowings. As noted in prior calls, the Lexmark acquisition added debt to our balance sheet, but resulted in lower gross debt leverage levels. On a pro forma basis, gross debt leverage is 6.1x last 12 months EBITDA, roughly a 1.5 turns reduction relative to Q2 levels. Our top capital priority remains the reduction of debt, and we continue to target a gross debt leverage target of 3x last 12 months EBITDA in the medium term. Finally, I will address fiscal year 2025 guidance. Looking ahead, we have adjusted our full year outlook to reflect continued macro uncertainty and slower-than-anticipated equipment purchasing decisions, particularly the timing of the reopening of the government. We now expect 2025 revenue to grow about 13% year-over-year in constant currency with an adjusted operating margin of roughly 3.5% due to lower sales and a slower-than-expected rollout of price increases targeted at offsetting product cost increases and tariffs. Free cash flow guidance was reduced from $250 million to $150 million. Roughly $25 million of the reduction relates to post-acquisition transaction costs classified as operating in purchase accounting with no impact ending cash. The remaining balance is a result of lower revenue and profit as well as onetime cost to achieve integration synergies at the high end of the previously provided range due to larger cost actions. Moving to 2026. We will issue formal 2026 guidance during the Q4 2025 earnings call. In the meantime, I will build on commentary provided last quarter, providing additional color around certain expenses that are expected to partially offset gross cost savings. As we look to next year, we see meaningful opportunity for recovery once funding and tariff policies stabilize. Delayed projects are expected to convert into orders, while IT Solutions is expected to continue to outpace its markets. Consistent with our view last quarter, legacy Xerox is expected to perform in line with the broader print market, which we expect to decline low to mid-single digits with legacy Lexmark revenue expected to be roughly flat to down low single digits. IT Solutions is expected to grow above the rate of its underlying markets, which we estimate to be 7% to 8%. Moving to adjusted operating income. As Steve and Louie mentioned, integration planning work this quarter revealed incremental upside to Lexmark synergies. Of the $50 million of incremental synergies, we expect to realize about $25 million of that amount in 2026, resulting in total expected in-year gross integration synergy and Reinvention savings of between $250 million and $300 million. Offsetting these savings, we expect $60 million of profit headwinds associated with the continued wind down of our finance receivable portfolio and around $100 million of profit headwind from incremental tariff and product cost increases. We continue to target select areas for price increases and expect to fully cover the impact of incremental product costs over time. Moving below operating income, we expect interest expense to be around $290 million. Finally, free cash flow. We continue to expect around $400 million of cash from the reduction of our finance receivable balance. With that, I will now turn the call back to the operator to open up the line for questions. Operator: [Operator Instructions] Our first question comes from Ananda Baruah with Loop Capital. Ananda Baruah: A few, if I could. Just on top line impact to equipment sales, any way to discern, I guess, of the land that you talked about, it sounded like adjusted 500 more basis points of growth decline relative to last quarter, the 8% versus the 3%. Any way to discern like government impact? I guess maybe there's sort of however you want to parse this, government versus commercial, which I guess commercial is probably more macro, government sounds like it's more shutdown. And then I would imagine tariffs layer into at least macro, I'd imagine. Does that layer into government as well? And how should we think about of the incremental, the 8% versus the 3% last quarter, parse that between kind of commercial and government? And I have a follow-up. Steven Bandrowczak: Ananda, this is Steve. A couple of things. First of all, the 2 strategic acquisitions we made are absolutely leading us in knowing that the strategy is going to sustain long-term growth and profitability. If you look at ITsavvy, right, grew billings now 3 quarters in a row, bookings 3 quarters in a row. We're now penetrating our existing customer base on the Xerox side. Operating profit grew. The 2 companies, ITsavvy and IT Solutions, fully integrated and completely integrated going forward, enhancing their operating profit growth. In that sector, specifically, what we're seeing is actually growth and less -- less of an impact from the macroeconomics, both in terms of government shutdown and in terms of tariffs for a couple of reasons. One, strategically, we're aligning to where IT is making investments to drive productivity to offset some of the cost pressures that they're seeing. So I want to bifurcate and segment this out a little bit. ITsavvy, IT Solutions, clearly growing, clearly see that growing in the future. You will see more activity in our areas in terms of SaaS and moving towards solutions, right? On the Lex integration, the Lex acquisition, we've seen a couple of things. One, we obviously see acceleration in our synergies over the first 100 days. We're now increasing our synergies by $50 million. What are we seeing there? We saw some slowdown with our partners in there trying to understand what was happening with the acquisition, the 2 companies coming together. But we also saw any clients that were impacted or could be impacted by either federal or the tariffs was pausing, right? So we haven't seen a pace decline. We haven't seen a slowdown in activity. What we've seen is the hesitation specifically in the ESR growing. And so what we're looking at there is now that we're going to get certainty going forward as the government opens up, as tariff opens up, we expect that business and that volume to come back. Lastly, as we think about the cross-sell opportunities, which is really important, we now can take our IT Solutions, our production solutions, take it into the Lexmark client base and take it to the Lexmark partners, which allows us to further accelerate our revenue synergies. So it's a tale of a couple of stories there. When we talk about the government shutdown, IT Solutions growing. We see pieces and pockets of opportunity even as part of the Lex acquisition. We haven't talked about Asia expansion, which is on the table for us. So the federal government is slowing down, some of our buying from our clients and from our partners, we expect that to come back as we go forward. Any other comment, Mirlanda? Mirlanda Gecaj: Yes. Thank you, Steve. And yes, and the weakness, Steve really explained it well. On the ESR, this is where we saw top line client just slowing demand. And as it relates to post sale, the trends are very similar to Q2. Ananda Baruah: That's really good description, guys. That's super helpful. And then on the savings, the increased savings from integration, I guess this is really an overall savings question. Is there any way yet to discern what portion could ultimately go to the bottom line? Mirlanda Gecaj: Ananda, we're thinking about the increased saving, the $50 million that we upped our synergy targets for Lexmark acquisition from $250 million to $300 million. We expect about half of that to flow through in 2026 and the rest in 2027, 2028. So I would say half of it. Ananda Baruah: And is that to OP income? Or is that recognized gross? I guess what I'm getting at... Mirlanda Gecaj: Yes, it's a mix. Gross profit, gross margin and operating margin will benefit. Steven Bandrowczak: Yes. And the other thing I'll highlight is, look, we're 100 days into this, right? We've accelerated and found another $50 million. We've got multiple work streams that we're looking at, and we will see continued expansion of our synergy savings as we start to roll out and get deeper into those activities. So we're not done. We talked about the $300 million plus. There are more work streams and activities. We will see more synergy savings from those activities. Operator: Our next question comes from Eric Woodring with Morgan Stanley. Maya Neuman: This is Maya on for Eric. Last quarter, you sized the tariff headwind at about $30 million to $35 million for 2025. Maybe if we put the impact from delayed purchases at the top line level aside, you noted tariffs as one of the underlying reasons for the reduction in adjusted operating margin guidance for the full year. How would you size this headwind now? What has really changed, I guess, in the last 90 days? And you also mentioned a little -- it took a little bit longer to flow through price increases. Are there more price increases to come in response to tariffs? Or have those kind of fully flowed through now? Mirlanda Gecaj: Thanks, Maya. With respect to tariffs, last quarter, we provided a range, as you mentioned, $30 million to $35 million. Right now, we see that being on the high end of the range. We expect about $35 million net impact from tariffs in 2025, and that is included in our guidance. We are continuing with price increases, but have been very measured because we are talking to our customers. We're looking at the demand and impact it has. And given the softness because of all the reasons that we discussed in our prepared remarks, we are taking a step back and looking at case by case as we apply these price increases. We still expect to continue to offset the impact of tariffs in future periods with price increases and changes to our supply chain. But for now, again, 2025 has about $35 million of tariff impact in our guidance. Operator: [Operator Instructions] Our next question comes from Asiya Merchant with Citi. Asiya Merchant: Two, if I may. One, just if you could unpack -- I think you talked about the various levels of government softness that you were seeing on the equipment side of things, on the print side of things. But on the -- at the same point, you talked about ITsavvy doing better. So if you could just talk about the weakness that you saw in the government across the different levels between those 2 segments, federal, state, local, that would be great. And then you talked about free cash flow improvements into next year. I get 400 basis -- about $400 million, sorry, from finance receivables flowing through. Just if you can walk us through how we should think about sort of some of the other items that could impact free cash flow into next year. Clearly, better income. So how should we kind of think about free cash flow into next year versus the $150 million that you guys are guiding to for '25? Steven Bandrowczak: Yes. Thank you. This is Steve. I'll take the first part of it. So when you think about the federal shutdown, it impacts the ecosystem. You think about their suppliers, you think about the contractors, you think about state and local who require funding from the federal government. And so we see a brand overall impact on spending. However, when you think about priorities in IT spend, there are pockets and areas that they will invest. So for example, if you're going to invest in AI infrastructure so that you can accelerate productivity and take advantage of using of AI, you could take advantage of looking at how do you move more towards a captive and more into the cloud, how do you think about Network as a Service, cybersecurity, et cetera. So we are seeing pockets where they continue to invest to drive productivity based on prioritizing their IT spend. And that's where ITsavvy is taking advantage of the spending that's happening out there that is, in fact, less -- less impacted by the federal shutdown because IT organizations are prioritizing certain areas that we're actually playing in, and we're taking advantage of that. The other aspect of it is what we're seeing is, so as you start to think about the trickle down, there's a little bit of uncertainty in terms of profitability for the company. So they're pulling back capital in general. And when you think about the print infrastructure, sweating the assets and not putting in new equipment is where we're seeing the biggest input. So we're seeing page volumes okay. We're seeing supplies okay, but we're not seeing the turn on equipment that we anticipate in terms of buying new equipment, which reduces our ESR. We anticipate that coming back once we see certainty when the federal government opens and once we see certainty in budgets and when that will start to flow. Do you want to take a look at cash flow? Mirlanda Gecaj: Yes. Thanks, Steve. So we'll provide official guidance when we report our earnings -- Q4 earnings, but some guidelines to consider. So yes, we expect $400 million of proceeds from the continued reduction in finance receivables. We expect about $50 million in onetime costs associated with synergy savings. And then when we think about working capital, we expect to have a more normalized working capital, higher operating income, which is net of incremental expenses, which will contribute to an improved conversion of free cash flow from adjusted operating income in 2026. Asiya Merchant: Great. And just can I -- if you don't mind, if I could ask one more on just the competitive dynamics. I think you talked about the ESRs seeing impact from all the shutdowns and the lack of clarity, et cetera. Is this -- when you talk about some of this coming back, what's the clarity? Should we expect like competitively, your market share as you kind of see it has remained stable. And so this is more of an industry-wide shutdown? Or is there anything else from a competitive standpoint that we should consider? Steven Bandrowczak: No, we don't see losing share. We're holding share. And so from a competitiveness, we don't see anything unique that we're not competitive in this space. We're seeing a basic pullback across the board. Operator: I would now like to turn the call back over to Steve Bandrowczak for any closing remarks. Steven Bandrowczak: Thank you. While the near-term environment remains complex and our strategic priorities are clear and unchanged, execute the Lexmark integration to capture both revenue and cost synergies faster than initially planned, drive profitable growth in IT Solutions through advanced infrastructure, networking and advanced solutions, maintain financial discipline with debt reduction remaining our top capital priority and a clear path to reach 3x gross leverage ratio over the medium term. We recognize there is still more to do, but we're confident that the actions we are taking are positioning Xerox for long-term sustainable profitability. I want to thank our employees, clients and partners for their continued dedication and support. I wish everyone a great day. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning. My name is Danny and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited Q3 2025 Conference Call. [Operator Instructions] Mr. Ammar Al-Joundi, you may begin your conference. Ammar Al-Joundi: Thank you, Operator. Good morning, everyone, and thank you for joining our Agnico Eagle third quarter conference call. I'd like to remind everyone that we'll be making a number of forward-looking statements, so please keep that in mind and refer to the disclaimers at the beginning of this presentation. Once again, we are pleased to be sharing a good news story with you. In a nutshell, with record gold prices with strong and importantly, safe production, along with continued solid cost control we are once again delighted to be reporting record financial results. Across all metrics, our business is running well. And beyond the record financial results, we continue to invest in the best pipeline we've ever had and we continue to invest in the most ambitious exploration program we've ever had, which continues to deliver exceptional results. With almost 70 years of history behind us, we have never been stronger than we are now, and we have never had a better future than we have today. Before I turn this call over to my colleagues, who will go through our business in more detail, I'd like to spend a few minutes to summarize the key takeaways. One, we're reporting record financial results, driven by, of course, record gold prices, but coupled with strong and consistent operational performance. We delivered another exceptional quarter of strong production at 867,000 ounces, putting us year-to-date at 77% of our full year guidance range. We sold gold at an average price of $3,476 per ounce, another record and a full $20 per ounce higher than the spot average in the quarter, well done to the treasury team. At the same time, we continue to work hard to control costs, which means continue to deliver benefits of these record gold prices to our owners through record margins. While our reported Q3 cash costs of $994 an ounce are higher than the previous quarter, the majority of this cost increase is due to higher royalty costs which are a direct result of the higher gold prices. If we back out the impact of these higher royalties, which, again, are the direct result of higher gold prices, our Q3 cash costs would have been $933 an ounce, well below the midpoint of our cost guidance range. Year-to-date, our average cash costs were $943 an ounce. Again, if we back out the impact of higher royalties, our year-to-date average cash costs would be $909 an ounce well below the bottom end of our cash cost guidance range for the year. All of this, the record gold prices, the solid production, the continued good cost control has led to another quarter of record financial results for our owners. Record EBITDA, record adjusted net income and record returns to our shareholders. Two, we continue to strengthen the company to strengthen the balance sheet and to return record amounts of cash to our owners. We repaid $400 million of debt this quarter. We returned $350 million directly to shareholders through dividends and share repurchases, and we increased our net cash position to $2.2 billion, while at the same time, receiving an upgrade in our credit rating. Three, we continue to invest heavily in building the foundations of our future growth, advancing construction, development and studies of our 5 key pipeline projects and investing heavily in an exceptional exploration program. At Malartic, we are ahead of schedule on the underground development, ahead of schedule on the shaft and progressing studies for Marban, Wasamac and a potential second shaft. At Detour, the ramp portal is built. We have begun building the ramp to access the underground, and we continue to optimize the mill. At Upper Beaver, I was there just on Monday, we are on budget and we are ahead of schedule. The team is doing an exceptional job. At Hope Bay, we continue to get great drill results, and we are accelerating on-site activity. We've upgraded the port, we're upgrading the camp. We've emptied the mill building. We're progressing the Madrid ramp, and we have completed the box cut for a ramp at Patch 7. At San Nicolas, we continue to progress engineering on this high-grade, high-quality copper project in the best mining jurisdiction in Mexico. These projects cumulatively represent about 1.3 million to 1.5 million ounces of potential production. All from assets we already own in regions we've been operating for decades and in most cases, leveraging off existing infrastructure in place. At the same time, we are investing more than we ever have by a wide margin in our exploration program, and as Guy will illustrate at the end of this call, we continue to get truly exceptional results that will position Agnico Eagle well for decades to come. These 3 key messages are consistent with our story last quarter and are consistent with our focus over the past couple of years. But on this call, I've asked the team to spend some time on a fourth key message. I've asked the team to spend some time to talk about our continued focus on productivity. Dom and Natasha will go through a few examples to convey the message that even with gold at $4,000 an ounce, even with record financial results, our teams continue to be absolutely laser-focused on improving productivity at every opportunity at every mine. We are proud of our teams and how hard they continue to work to deliver not only great and consistent results, which, by the way, make my job a lot easier but to also focus every day on pushing themselves to operate even better and even safer. With that introduction, I will now turn over the presentation to our CFO, Jamie Porter, to review our third quarter financial results. James Porter: Thank you, Ammar, and good morning, everyone. Our operating teams delivered another excellent quarter with strong cost control, particularly on a per tonne basis. By delivering on our production targets and managing costs, our investors continue to benefit from margin expansion in a record gold price environment, a dramatically strengthened balance sheet and increased direct shareholder returns. We are in the strongest financial position in the company's history. The strong operational performance and cost control paired with higher gold prices to drive record financial results, including record revenue of $3.1 billion, record adjusted earnings of $1.1 billion or $2.16 per share and record adjusted EBITDA of $2.1 billion. These are excellent financial results, delivering the leverage to higher gold prices as you would expect. At current spot gold prices, key financial return metrics such as return on equity could be as high as 20% for the full 2025 year. Gold production in the third quarter was approximately 867,000 ounces of total cash costs of $994 per ounce and all-in sustaining costs of $1,373 per ounce. We have achieved 77% of our full year production guidance to the end of September. Though we have budgeted lower gold production in the fourth quarter, we are confident in achieving the midpoint of our full year production guidance range of 3.4 million ounces. We are benefiting from record gold prices. However, the higher gold prices do result in increased royalty expense. In the third quarter, cash costs were approximately $60 per ounce higher than what we had budgeted largely as a result of the increased royalty expense. Despite that I'm pleased to report that our cash costs remained within our guidance range on a year-to-date basis, and we still expect to be at or near the top end of our cash cost guidance range of $965 per ounce for the full year. Our teams have done an excellent job managing costs, the costs that are within our control and continue to work on ongoing optimization initiatives that Dom and Natasha will talk about later in this presentation. All-in sustaining cost per ounce were higher than the prior quarter, primarily due to the increase in cash costs and the timing of sustaining capital spending. We also expect to be close to the top end of our all-in sustaining cost guidance range of $1,300 per ounce on a full year basis. Our all-in sustaining costs continue to be hundreds of dollars per ounce below those of our peers. Again, this is the result of continued efforts by our teams to control costs and to continuously improve while maximizing the cost synergies and benefits resulting from our regional strategy. We move on to the next slide. We had another strong quarter of free cash flow generation that directly and indirectly benefited our shareholders through direct shareholder returns, the dividend and share buyback and indirectly through the strengthening of our balance sheet. We generated $1.2 billion of free cash flow this quarter and added another $400 million through the sale of equity investments which allowed us to continue to strengthen our balance sheet. Our net cash balance more than doubled in the third quarter, increasing to $2.2 billion. Given our strong financial position, we decided to redeem an additional $350 million of long-term debt in addition to the $50 million of debt that matured during the quarter. Over the past 18 months, we have significantly delevered the balance sheet reducing our gross debt in that period by over $1.6 billion. Reflecting this strength in credit profile and financial position, I'm also pleased to report that during the quarter, Moody's upgraded us from Baa1 to A3 with stable outlook. We are, again, in the strongest financial position in the company's history, giving us the flexibility to take a balanced, disciplined approach to capital allocation. We move to the next slide. We continue to deliver record shareholder returns this quarter, totaling approximately $350 million in dividends and share buybacks and totaling $900 million on a year-to-date basis. This brings the cumulative shareholder returns in Agnico's history to over $5 billion, the majority of which has been returned in the last several years. Our capital allocation strategy remains unchanged, and we are well positioned in this gold price environment. We expect to continue to increase shareholder return through increased share buyback activity and potentially through higher dividends. We also expect to continue strengthening our financial flexibility by increasing our net cash position. Given our profitability, we are expecting a significantly higher cash tax payment relating to the 2025 fiscal year in the first quarter of 2026. This is estimated at approximately $1.2 billion we are allocating cash to fund that obligation. Lastly and importantly, we will continue to reinvest in our business in order to bring our high-return organic growth projects online. We have our 5 key value driver projects Detour Underground, fill-in-the-mill at Canadian Malartic, Upper Beaver, Hope Bay and San Nicolas, all of which generate solid returns at gold prices significantly below the current spot price. At current spot prices, these projects have the potential to generate phenomenal returns. Detour, for example, once ramped up to 1 million ounces of annual production has the potential to generate over $2 billion of annual after-tax free cash flow at that mine alone at these gold prices. We will continue looking for opportunities to accelerate reinvestment in the business to drive long-term shareholder value. At current gold prices, we're generating a lot of cash, but we will remain disciplined and continue to take a measured approach to capital allocation with a focus on increasing returns to our shareholders over the long term. With that, I'll turn the call over to Dom, who will provide an overview of our Quebec and Nunavut and Finland operations. Dominique Girard: Thank you, Jamie, and good morning, everyone. Our Q3 results for Quebec, Nunavut and Finland continued to show strong and consistent operational performance, just as we saw in Q1 and Q2. We are on track to meet our guidance and we're positioning ourselves on good foundation for 2026. The production costs remain well controlled and as shown in the bottom right table here, we are seeing record profit margin thanks to the gold price. I'm very happy of our team's leadership and mindset. Even with higher gold price, the focus remains on debottlenecking the operation and improved productivity. As for example, this quarter, we have 3 mills that beat record -- quarterly records at Meadowbank, Meliadine and Goldex. For the next 2 slides, Ammar asked Natasha and myself to explain more and give examples about what we're doing at the site and regional level to control our cost to manage our business. You will hear not about cutting, cutting and cutting what you're going to hear is going to be more about productivity improvement, integrating technology, leveraging skill sets and leveraging our people. The first example is going to be Kittila, led by the team that you could see here on that picture celebrating the 3 million ounces ore. And the second one is going to be about new technology implementation in underground. Next slide, please. So at Kittila, following the new shaft commissioning and ramp-up the team were struggling to meet their operational targets at underground. And from there, I need to recognize the leadership of Jani, Mikko and [indiscernible] for taking action leveraging learning from similar initiatives done at Meliadine in 2023 to drive meaningful change. So in June 2024, they've launched an underground productivity improvement program and as at Meliadine, their approach was built on ownership focused on what matters and on problem solving. They work in collaboration with the employees. They did benchmark to define what perfect shift could look like and to be more productive. At the end, what they did, they've worked with the guys driving the equipment, as you could see there, a scoop to find how they could help them to be more productive. And some examples, like just bring the equipment faster than it was before either -- it's an easy one, but it's things that you -- that we kind of implemented to be more efficient. I will just show you some results of that, if I take the 2 graphs on the -- bars on the left, the bottom one, you could see the tonnes mined per day improved by 13% year-over-year to the first 9 months of 2024 compared to the first 9 months of 2025, 13% more tonnes moved or mined from underground. This is with the same equipment, same fleet, same people, more efficient. That allowed them also to do more by themselves and less relying on contractor which helped to reduce the cost. And on the cost side, if you take the top 1 on the left, you could see that euro per tonne minesite cost decreased by 4%, and this is despite inflation and higher royalty. So a very good job to the Kittila team. Thanks for that. Next slide. The second example is about implementing new technology of remote operations. The gains we are doing with those remote operations are not just helping us to control our costs and manage their business. It is more than just the current operation performance. It is also unlocking future growth project, enabling future growth projects. All of our projects if we could improve what we use into our studies in terms of tonnes move, tonnes mined as well as we're going to see at Odyssey, if we could improve the ramp development speed, this is significant improvement. So I will start with the example of LZ5 in 2016 where they've implemented the first LTE system in the world, underground, since that time, they really, really did very good progress. You could see with the yellow here through the time, we are now approximately over 20% of the tonnes are done through remote operation. And how this is -- the gain -- where is the gain is there were some areas some time that we were not operating the equipment because we need to do the out of the mine for the ventilation purpose, for example. So the same skill set and the same thinking has been applied to Odyssey ramp. And you could see the jump done in the year in 2023 when we started to do remote mucking and remote drilling at Odyssey. So we've increased the productivity by 20%. Again, same people same team just using the technology. This is a significant improvement. How it works? So you could see the people here sitting on the front of screen in a seat, which is the same that than the one in the scoop. So they are able to operate 3 to 4 equipment each, and we're collaborating very closely with Sandvik, LZ5 with Epiroc at Odyssey to push those technologies to do more and more. So this is helping us to control our costs. This is also enabling future projects. It is also an aspect on the workforce. Natasha is going to talk about opportunities and action on the workforce. But those type of things are in the balance to help the workforce. So we are in Quebec approximately 5% of turnover, which is fantastic and those type of initiatives are helping us to have better conditions for the workers for giving them great challenges to our professional. This is helping for the retention. This is helping for the recruitment, and this is helping for the stability of our operation. Next step, stay tuned. We're moving into the fleet management system. So the blue that you see on the graph there, this is still conventional hauling. Now to be better in that area, we're implementing fleet management system underground. We're going to be in the first of the world to implement such a software advanced like we're thinking about. In the coming years, you're going to hear about that. Next slide, moving to the project pipeline. As Ammar mentioned, both projects are on track and evolving very positively. As Guy will talk later, the drilling results keep adding value to the project. Very, very interesting. Canadian Malartic, in terms of shaft sinking where we start more conditional shaft sinking in Q3 we did a record in terms of speed. And we are about 2 months in advance of what we were planning initially when we updated the study in 2023. I would like also to highlight the construction team in Q3 did triple zero for 70,000 hours. What is triple zero is no lost time, no modified work, no medical aid and 70,000 hours, this is equivalent of 1 guy working in the construction for 30 years. Congratulations to the team, it's fantastic during those type of achievements. So to close on Canadian Malartic, the study is progressing for the vision to 1 million ounces with a second shaft Marban, Wasamac, everything is on track, and the construction team keep delivering what needed. For example, the administration building is going to be delivered in Q1 is going to be a good thing for the team to be in better position. At Hope Bay, potential 400,000 ounces annual production from the good drilling, I see, I think it's going to be slightly more than that. Let's see where the study is going to end. But in the meantime, we are -- the key thing is to advance engineering. So we are currently around 25% achieved on the engineering, and we are progressing between 3% and 4% per month, which bring us to the 40%, 50% we were looking before greenlighting the project next year, everything is in good position for that. And also, the construction team are preparing the field to be able to do that heavy construction time. So you could see here on the picture, there's 2 new wings. Both of them were approximately 133 people per wing. So we're building capacity. We're going to have 6 of them ready to go for construction, operation and keeping exploration. On that, I will pass the microphone to Natasha. Natasha Nella Vaz: Thanks, Tom, and good morning, everyone. So I'll cover the operational highlights for Ontario, Mexico and Australia. The regions delivered good safety, operating and cost performance this quarter. And along with the higher gold price, this led to record operating margins at both Macassa and at Detour. Now at Detour, as we continue to stabilize the mill at the higher throughput, the team achieved another quarterly record mill throughput. The open pit mining rate in the quarter, however, was affected by slower progress around the historical underground working. But grade is still expected to improve in the fourth quarter as we move into the higher grade domain in the pit. Over at Macassa, we had a really good quarter there, too. The team continued to see some overperformance with higher-than-expected grades in localized areas. And then at Fosterville, production this quarter was on target, following a very strong first half of the year. Now in terms of business improvement, similar to what Dom discussed, the teams, they continue to push hard to optimize our business. There is a constant effort to keep all of our operations at a state of optimal performance. It's just part of their DNA. And the optimization of the ore haulage system at Detour is a really good example of that. It's a good example of the many initiatives that are going on. It's a good example of how the team is looking at ways to sustainably lower cost and improve efficiency. And this particular journey started 10 years ago with incremental slow enhancements made over time and significant progress made, as you can see from the utilization and payload improvements as noted on the graph. And the team, they continue to look for optimizing our unit costs by involving external experts to review their performance and help identify possible efficiency gains similar to what Dom was talking about at Kittila, not just as it relates to haul optimization, but really the entire mining cycle. Another hot topic, and Dom touched on this, is related to the skilled labor shortage that the entire industry faces. Labor is a large portion of our overall cost, and our focus is to not just maintain our operational needs, but also secure the workforce to grow our business and at the same time, manage the costs. So we're taking a very proactive approach to workforce planning as we grow in Ontario by leveraging our region strategy by leveraging our competitive advantage, specifically when it comes to people. So our strategy to address the short and long workforce needs is multi-layered, of course, the first one is to ensure we continue to be a Great Place to Work for our employees by continuously investing in our people, by continuously leveraging the culture that Agnico has built we have increased the engagement levels of our teams. And Macassa is a really great example of how powerful this combination can be. Since 2022, we have significantly increased production at Macassa, and at the same time, we've significantly improved safety performance. They say that a safe mine is not -- is a productive mine. In our experience, it's also a highly engaged mine. In addition to that, we're investing in local workforce training. This quarter, we started the underground school of Mines for Macassa. Our plan is to, over a period of time, train local candidates to meet the increased demand for Macassa, for Upper Beaver, for Detour underground. While we remain focused on hiring First Nations and local employees, we're also seeing success in filling roles through our immigration program for skills that are generally hard to recruit for in Canada. So I'm very proud of the team because even at these gold prices, like Ammar was seeing their foot is still on the gas. They continue to safely and responsibly make our mines more efficient and more productive, ultimately reduce our costs. Now moving to the next slide. I'll give you a quick update on the 3 projects for Ontario and Mexico. As you are aware, the Detour Underground project plays a big part in the plan for the complex to be a 1 million-ounce producer annually. It's still early days, but as Ammar mentioned, this quarter, we commenced the exploration ramp and have advanced just over 250 meters laterally. We're also continuing with the infill and expansion drilling and continuing to see positive results, and Guy will talk about that later on in the presentation. As for Upper Beaver, during the quarter, there's been a lot of progress made in a short period of time. We did have the pleasure of hosting our Board and our senior management team this week at Upper Beaver, but also Macassa. And they were complementary, not just about the progress, but also strong teams that we have on the ground, and I completely agree. In terms of the project with respect to the shaft head frame, the structural steel and the cladding is completed, the winches have been roped up and the service hoist is ready for commissioning. So shaft sinking is still expected to commence in the fourth quarter. And over at the portal, the excavation of the exploration ramp began at the end of July and has advanced over 250 meters. Finally, with respect to San Nicolas, we continue to engage with government and authorities and our stakeholders related to the key permits that are needed. In the meantime, we're continuing to advance the engineering of some critical infrastructures which will just help us further derisk and build confidence in the execution strategy. So all in all, good progress being made on the projects. And I just wanted to end by thanking our operations team and the project team for another solid quarter. And so with that, I'll pass it over to Guy. Guy Gosselin: Thank you, Natasha, and good morning, everyone. First of all, I would like to start by taking a moment to thank the team at all sites for another excellent quarter, both safety and productivity and cost control went extremely well with an excess of 120 drill rig in action. We've completed north of 370,000 meters of drilling in the quarter, now exceeding 1 million-meter year-to-date. That is ahead of our schedule by about 9%, year-to-date in terms of meter and our unit costs are approximately 8% below budget year-to-date as a result of our strong involvement at controlling costs. Our Journey Excellence program continues to deliver. We're improving safety by introducing more mechanized feature such as robotic arm technology to reduce weightlifting and repetitive motion and we are ramping up our unattended drilling capacity that allow for drilling between shift, which is very beneficial for our underground mining sites. . Ending towards year-end, we continue to focus on key value drivers, expanding a little bit the drill program on several sites, such as Marban, Detour Underground, Hope Bay and Canadian Malartic, Odyssey where we have good exploration results that continue to blaze the trail to support studies that will support studies to deliver on our vision of growth for these assets. From a results standpoint, I would like to comment on a few projects, starting on Slide 15 with Canadian Malartic. We currently have 29 drill rig in action at Malartic, both underground and on surface at Odyssey in the extension of the deposit around the mine, including the recently acquired Marban project. And once again, this quarter has seen some very exciting results in the upper eastern portion of East Gouldie, results here says 4.8 over 25 meters at 800-meter depth in the area, we anticipate can get to mineral reserve by year-end that could provide additional flexibility to accelerate ramp-up of production in the upper portion of the East Gouldie deposit. Then also in the lower extension of East Gouldie with result of 2.3 over 30-meter 2,000 meters below surface, which is also kind of aligned with our decision to extend the depth of the first shaft down to 1,870 meters and the deposit remains open at depth and laterally. And on the adjacent Marban project, we've so far completed 96 drill on the property for 30 in excess of 30,000 meters since the acquisition -- since the drilling started in May following the acquisition mostly to test the eastern extension of the deposit on ground that belonged to Agnico prior to the consolidation. And the results have the potential to increase the ultimate design with result of to 3.3 over 11 meter, 4.6 over 10 meter, approximately 2,200 meter east of the current open pit being considered. Now on Slide 16, at Detour, as mentioned by Natasha, the exploration ramp is now progressing well with just over 250 -- almost 260 meters developed in the quarter, reaching a depth of 43-meter below surface, 62-kilometer of drilling were safely completed in the quarter with 9 drill rate and continue to infill and extend the deposits from surface in areas that are targeted for the underground mine project, both below the saddle portion of the deposit with result up to 3 gram over 40 meters, 2.7 over 55 meters. And to the west of the pit, where the planned exploration ramp would result pretty significant of to 7.4 over 27 meters. The result so far should lead to growth in the underground mineral resources system at [indiscernible]. And based on these results, we've added an additional 55,000 meter of drilling in the fourth quarter and expecting to achieve almost 220,000 meters by the end of the year. Now on Slide 17, as discussed by Dominique, again, some very good results in exploration. We have 6 drill rigs in operation. We've completed in excess of 100,000 meters year-to-date, expecting to achieve north of 120,000 meters by year-end. And we continue to see very strong results in Patch 7 area. First of all, in the southern extension of Patch with a result up to 6.7 over 10 meter, 10.7 over 3.8 meter at shallow depth 350-meter below surface, showing that the deposit remains open to the south on the right-hand side of that graph. And two, at depth in Patch 7 with very strong results, up to 12.7 gram over 9.3 meter and 16.9 gram over 4.6 meter both at around 880-meter depth in the strong new discovery at Patch 7 that shows that the deposit remains open at depth and laterally. So we anticipate that all of the good results we've seen at Hope Bay this year, where we have a very positive impact on the mineral resources at year-end and as mentioned by Dominique, all of that be integrated and our potential project development scenario to be communicated in 2026. Then on Slide 16 (sic) [ Slide 18 ], I would like to add a bit more color around Meadowbank. And as you are aware, we're looking in a current gold price environment to look at opportunity to continue to operate Meadowbank. So we've been since 2024 validating some option for pit pushback in the IVR area, but also continue to derisk the underground extension of the deposit that is known to be still open at depth. And all of those good results that we are displaying will be integrated in our scenario analysis to evaluate the pushbacks scenario and eventually to continue to mine from underground only with mill operation at a lower throughput once the open pit are fully depleted. Finally, at Slide 19, at Fosterville, not mentioned in our press release because it came out right after the cutoff of our press release today, we're pleased to announce that we've reached an agreement with these 2 resources to acquire their 39,000 hectares exploration license that surrounds our mining leads at Fosterville. This will consolidate in total more than 250,000 hectares stretching over more than 100 kilometers along the great at Fosterville to allow the continuation of the full investigation of those structure without any property boundary constraint and the transaction obviously is subject to the Victorian government approval and the closing is expected to close within about 2 months. So on that, I will return the microphone to Ammar for some closing remarks. Ammar Al-Joundi: Thank you, Guy. As you can see, we continue to work hard for all our stakeholders, and we'll continue to build off the same foundational strategic pillars that have served us well over the past 68 years. We will focus on the best mining jurisdictions based on geologic potential and political stability. We will be disciplined with our owners' money, making investment decisions based on technical and regional knowledge creating value through the drill bit and through smart, disciplined acquisitions when it makes sense. We are uniquely well positioned with a quality project pipeline leveraging existing assets in the best regions in the world where we believe we have a strong competitive advantage. And we will continue to be focused on creating value on a per share basis and on being leaders in our industry in returning capital to shareholders as evidenced by over 42 years of consecutive dividend payments and increasing share buybacks. And finally, before we open up for questions, I'd like to comment briefly on the current exciting gold environment, both the gold price and the sector more broadly, including our recent investment in Perpetua. On the gold price, of course, nobody has a crystal ball and nobody can predict near term moves, but it is very common that when a market moves up quickly, there is often a measured retracement in a period of consolidation before the next leg up. I think that is where we are on the gold price. Long term, we remain very constructive on gold and as all the factors that have pushed gold to outperform over the last 25 years remain in place and in many cases, have become more prevalent. On the M&A front, while we do have the best organic growth in our history, while we continue to have great success in our exploration programs, and while we feel absolutely no pressure to do anything, of course, we will continue to look at opportunities to create more value for our owners through smart and disciplined opportunities on the M&A side. Our owners want us to look at these opportunities our owners expect us to look at these opportunities, it is frankly part of our job. Our investment in Perpetua is a good example of this. Perpetua is 1 of the largest, highest grade undeveloped open pit gold mines in the United States and to paraphrase one of our senior exploration people. It is the most exciting U.S.-based gold exploration project she has seen in many, many years. Perpetua is also an investment in gold. Yes, there are valuable byproducts that will reduce cash costs but that's a good thing. This is what we do. We focus on geologic potential in safe jurisdictions, and we try to get in early to gain a knowledge advantage. Thank you again for joining us on this call. Operator, may I ask now that we open up the call for questions. Operator: [Operator Instructions] Your first question comes from Fahad Tariq of Jefferies. Fahad Tariq: Ammar, can you talk a little bit about the noncore investments in critical minerals? It sounds like it's a new subsidiary. I'm just trying to understand what type of investments will be vended in or spun out in there? It sounds like it would be things like Canada Nickel and maybe some other equity investments. And what is the future strategy of that subsidiary. Would it invest in like -- make equity investments or actual project development? Ammar Al-Joundi: Fahad, thank you for that question. You're absolutely right. For example, Canada Nickel will be in that subsidiary. I think as most of you know, there's been a lot of interest globally on critical metals. We are a gold company, but we're also, in my opinion, the best miners in the regions we operate, and we're the largest by far a mining company in Canada. We get asked about critical metal all the time. We want to remain a gold company. And so what we've -- the approach we've taken, which is consistent with being disciplined and consistent with our philosophy on capital allocation, which is that it should be based on knowledge. For the last 3 years, we've had a small team, as again, most of you know, looking at opportunities on the critical metals side. With everything that we've got going on with the great pipeline we've got, with our continued focus on gold, we felt now was the time to let that small group of people have a little bit more independence and look at opportunities on their own. So we've contributed small investments that are non-gold, non-copper into that subsidiary. We've given a little bit of seed capital. And frankly, Fahad, it's their job to look at opportunities. We are not obliged to invest more money. We'll be supportive, but we'll also have a first shot at looking at what they're doing. Fahad Tariq: Got it. And then may be switching gears, can you talk a little bit about how just government relations are going with the new federal government in Canada. Have you noticed changes in terms of the level of access to the government dialogue? And any opportunities in particular for Nunavut infrastructure? Ammar Al-Joundi: That's again an excellent question. We have been very pleased with the new government. I'll give you an example. While we are the biggest mining company in Canada, we really didn't get a lot of attention from the previous government. The weekend after the election and I got a text from Tim Hodgson, I've never met Tim Hodgson. He went out of his way to find out who I was, and I guess who other and I know he's talked to a lot of other mining executives and so you've got to give a government credit when the minister in the very first weekend reaches out to people on their cell phone via text. We know the teams there well. We've probably had more discussion with the new government on the importance of mining and the opportunity of mining to contribute to Canada than we had with the previous government over several years. So we're very pleased. They are very smart. They're very engaged, and they really are interested in leveraging off of what mining, for example, can do for the average Canadian. Operator: Next question comes from Anita Soni of CIBC World Markets. Anita Soni: First question is with respect to Hope Bay. What are you expecting to deliver by year-end in terms of a resource update? And then what are you targeting for the 2027 study. Dominique Girard: I could start maybe with the study, and I will let Guy for the resource. On the study, we're expecting in the first half of next year to deliver PEA study with the engineering at over 40%. And again, as we did that mediating to really have a good view on the schedule and on the cost. We like to give the information when we have enough of that engineering done. I'm very happy to see the progress with the team and midyear -- before midyear next year, we're going to give you more detail on all those KPIs Anita. And with that, I will pass it Guy. Guy Gosselin: Yes. So as a follow-up, so for year-end, I would say reserve will remain as last year. We're going to be updating indicated and inferred resources, obviously, integrating all of the new results we've been getting expanding Patch 7 driven. And along with what Dominique described our study in 2026 with the new development scenario, new [ cusp ]. So our desire would be to update with a brand-new PFS supported reserve and resources filing by the end of 2026. Anita Soni: Okay. And then just a question with respect to cost. I know you talked about tariffs a little bit, and it seemed like it was the standard customary cautionary language. But is there any -- is there any other -- I guess, I'm just trying to get an idea of what inflation -- what kind of inflation expectations you're seeing going into next year? Is it the typical 3% to 5%? Or -- and you obviously talked about optimizations where you're trying to defray some of those 3% to 5%. You've done an excellent job this year of maintaining costs within the original range despite a more than $1,000 gold price move. But what can we -- what should we be thinking about going into 2026 and other moving parts like changes in grade and things like that? James Porter: Yes. Anita, it's Jamie here. We're obviously working through the budgeting process now. I think 3% to 5% is where we've seen labor inflation over the past several years, but across all of our costs, it's been closer to 6% to 7%. And if you go back over the last 3 years, the average cost of inflation we've seen has been 6% to 7%. Our guidance has been up on average by about 3%. So we've been able to do a bit better than the rate of inflation over the last few years. Going into 2026, I think we're seeing a similar level of inflation in around 6% to 7%, across all of our various cost components, and obviously, we're seeing the pressure on royalty costs as a result of the higher gold price. So we would expect costs will be higher next year just based on the impact of higher gold prices. But as we've talked about through the call today, we're always looking at opportunities to do better than inflation. Operator: Your next question comes from John Tumazos of John Tumazos of John Tumazos Very Independent Research. John Tumazos: Could you review the rigs operating across the company? I think I heard there were 29 rigs at Malartic and the meters were being increased 55,000 to 220,000 for the year. Could you give us that review across the portfolio, please? Ammar Al-Joundi: John, I'm going to -- thank you for the question, John. I'm going to ask Guy to comment on that. Guy Gosselin: Yes. So basically, the 120 rigs as reported are spread over operating mine, advanced projects. I can go through maybe with you off-line if you want to see, but basically, we have those 29 rigs, the 220,000-meter an additional 55,000 meters, you're referring to pertaining to Detour, where we have those 9 rig operating. So we haven't seen -- I'd say, quarter-over-quarter, we have the exact same number of rigs. We've just seen an increase in productivity, and we're trying wherever we've been getting some good results, especially in the pipeline to keep drilling at the same pace during the fourth quarter. Therefore, we're expecting that we will be in a position to go all the way to around 1.25 million, 1.3 million meters by year-end without spending much more because of the lower unit cost we've been getting with those productivity improvements such as the unattended drilling. Basically, what it means on a day to day is when the driller -- with the new rig that we are currently revamping on each of the sites with collaboration with our entrepreneurs, you're basically adding the function that when the guy hit the rig at the end of the shift for the blasting and the gas clear up you can just press the button, the drill, continue to drill in between shift. So if you look at it, if you can drill 3 more meters at the end of the shift 3 more meter at the end, for an underground mine, it is quite significant. So those are the things that with the same fleet of rig, we can get more done. And we're going to continue to drill at the same pace because we have some good results. And overall, we are expecting our global exploration budget for the company, $525 million, including an exploration project to be about right on that $525 million for the year based on our [indiscernible] forecast we've just done. John Tumazos: Could you just run through several sites where the most rigs are running, I don't remember how many rigs were at each site. Guy Gosselin: Yes. Well, maybe I can provide you with those detail offline, but we have those 29 in Malartic, we have 9 at Detour. We have 12 in Macassa. We have 6 at Hope Bay so maybe I can provide you with the detailed list of the spread of our rig offline, John. Operator: Your next question comes from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: I just wanted to talk to you about the reserve and resource replacement this year, year-end 2025. I think if I go through the -- what you mentioned we're going to see increase in reserves at East Gouldie. That was really the only mine the only cause that I heard and then resource growth at Detour and Hope Bay. Is that correct? Guy Gosselin: Yes, yes, I can take it. So we will also -- we are in a good position to fully replace what we mine at Kittila, Macassa and several of our sites will see some partial replacement. We will also have Marban that will get into the mix siding the first iteration of Marban. So net bottom line, we're expecting to see a net growth, net of mining depletion by year-end by maybe, I don't know, my guess we should be up by 0.25 million or 0.5 million ounces year-over-year despite the fact that we've mined we've extracted 3.8 million and will produce 3.45 million this year. So all in all, the drilling has fully replaced what we've mined out with a light growth year-over-year. Tanya Jakusconek: Okay. And should I be thinking as you have done historically that you take your reserve and resource pricing and you look at inflation and adjust accordingly. So I know your reserves are at about $1,450 our resources at $1,750. If I put that 5%, 6% or thereabout inflation, I guess, $1,550 and $1,850, respectively. Should I be thinking that's how you're going to approach your pricing for your reserves and resources at year-end? Guy Gosselin: Well, that's a very good question. Obviously, with the current gold price environment, we are at that question, and we're working on it. But our care remains to deliver the margin ounces upfront. Therefore, we don't want to lower the cutoff grade that will change our mining sequence in the upcoming couple of years. So we are looking at it on a mine-by-mine basis, if there is some excess milling capacity. If we can mine some -- so we're going to be having that in mind, Flexing maybe our gold price assumption on some projects, whether it's a life of mine extension scenario or where there is additional milling capacity. But our firm intention remains to keep the cut-off rate stable while as you described, offsetting inflation, moving the gold price up in line with that inflation we see overall on the market. Tanya Jakusconek: So then it's really what you talk about is real actual replacement of ounces rather than any movement in gold price for what you're seeing for year-end? Guy Gosselin: Yes. Tanya Jakusconek: Yes. Okay. Perfect. Maybe over to you, Ammar, if I could, about just the strategy on the overall portfolio, both from an investment equity standpoint. And then also on your portfolio, your asset -- overall assets. So some really -- there are some smaller ones that you have in there as well. So I'm just interested in how you're approaching this -- let's start with the equity portfolio. Should I be thinking your investing in Perpetua is 1 investment. But should I be thinking that whatever sales or sales you make from that investment portfolio, it just gets reinvested into other equities rather than being thought about this gain as allocated to shareholder returns. Should I be thinking about it in that way? Ammar Al-Joundi: Thank you, Tanya, for the question. No, the money belongs to our owners. We make strategic investments in things that we have looked at and think might have an opportunity to create value for our owners. We don't do it as a trading position. We do it really again, in line with our philosophy on being disciplined with capital. It's an opportunity to make an early investment to learn about a project that we might be interested in. And so if you take a look at something like Orla and there's a long history there. We -- eventually, Orla did a fantastic job. They didn't really need us anymore. There was a lot of money tied up. We took up -- we liquidated that position, but that does not go into a pool that goes back into equity. That is our owners money, and that money everything competes for that money. Investments into our mines, technology, everything has to have a business case. So we do not simply take that gain and allocate it to future equity investments. It's our owner's money, and it gets treated like the rest of our owners' money. Tanya Jakusconek: Okay. So it just goes part of your cash flow and then gets allocated accordingly. Ammar Al-Joundi: Correct. . Tanya Jakusconek: Okay. And then in the portfolio itself, as you hire gold prices, everyone is looking at their portfolio and some you have a lot of big assets that you're focusing on coming up these top 5 assets that you talk about. Anything that you see as anything within the portfolio for noncore . Ammar Al-Joundi: Yes. I mean there -- I just looked at it this morning, John and I talk about this all the time. You're right, Tanya. There are some things that transition well, and we continue to be interested in. And as you would expect and as in the history of our company, there are some projects that while we invest in early we end up concluding don't make the criteria for our owners, and we will be disposing of them. And frankly, again, you're right at these current gold prices, it's not a bad time to in some cases, sell those assets. Tanya Jakusconek: Yes. So when we're talking about assets, we're talking about assets, not investments? Ammar Al-Joundi: Correct. Well, no, no. In this case, I'm talking about the equity investments. Tanya Jakusconek: Equity investment. How about just overall within the portfolio, just some smaller within the portfolio, anything in Mexico. You've got some smaller stuff with that... Ammar Al-Joundi: Yes. I mean the -- you asked about Mexico. There are some things that are now pretty small and nonstrategic. We always look at opportunities to get the most value from any asset, whether that means we operate it or we sell it. I can assure you we do that with all of our assets, including ones that are small. And so if there are some that you might wonder, well, why haven't you sold them, the simple answer is you can assume that we've looked at all the different opportunities and have concluded on the ones that will make the most money for our shareholders, even if it's a small asset. Operator: There are no further questions at this time. I will now turn the call back over to Mr. Ammar Al-Joundi. Please continue. . Ammar Al-Joundi: Well, thank you, everyone, once again for joining us this morning. More importantly, thank you for being our friends and supporters over many decades in many cases, everybody 1 day early, have a nice weekend. Operator: Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Patrick Industries Third Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. And I'll now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin. Steve O’Hara: Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Andy Roeder, CFO. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's other filings with the Securities and Exchange Commission. I would now like to turn the call over to Andy Nemeth. Andy L. Nemeth: Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call today. We delivered solid third quarter performance, demonstrating the resilience of our business in a dynamic and unique environment. Net sales for the quarter increased 6% to $976 million, with organic growth contributing more than 4% and offsetting an almost 2% decline in our industry shipment levels. Earnings per diluted share was $1.01, including approximately $0.07 of dilution from our convertible notes and related warrants. On a trailing 12-month basis, net sales were approximately $3.9 billion. Our results reflect both the strength of our diversified business model, solid organic growth as a result of our team's innovation and advanced product efforts and their incredible execution as we continue to navigate dynamic demand levels across our end markets and challenges facing the broader economy. Our OEM and dealer partners continue to exhibit disciplined production, leaving inventory even leaner across all of our Outdoor Enthusiast markets and positioning us positively for a potential restock when retail inflects. We remain well equipped to capture meaningful upside when that inflection occurs, both strategically and organically. We ended the quarter with a strong balance sheet and total net liquidity of $779 million. Our financial position enables us to remain flexible and nimble in supporting our customers' growth needs with a variety of levers while continuing to execute a balanced capital allocation strategy. We expect to continue our investments in the aftermarket and new product development, both through heavy emphasis on model year prototyping and in combination with our Advanced Product Group, which is focused on product development several model years out. Additionally, and importantly, we are continuing to invest in digital tools, data analytics and AI-powered solutions across our business to drive greater efficiency, accelerate decision-making, reduce costs and unlock new value for our customers. We continue to be proactive in strengthening the Patrick platform through strategic initiatives like the acquisitions of LilliPad Marine, Medallion Instrumentation Systems and Elkhart Composites, as well as the modernization of our processes, technology and equipment and optimizing our aftermarket resources to create new opportunities for our brands. These investments are expected to continue to contribute to our share gains across our end markets. Building on strong revenue execution across our primary end markets, we continue to make meaningful progress in expanding our content per unit, or CPU, through a combination of innovation, collaboration and targeted investment. Our teams are working closely with OEM partners to integrate new products and technologies that elevate the functionality, design and consumer appeal of products like RVs, boats and side-by-sides. In the third quarter, we achieved content gains across all of our Outdoor Enthusiast markets and our MH market, reflecting both our expanding product portfolio and the growing adoption of our integrated full solutions platforms. These content gains underscore the power of our diversified model and validate the continued demand for Patrick's high-valued, individualized and differentiated solutions that enhance performance, efficiency and aesthetics across every category we serve. Subsequent to quarter end, our Marine brands had a successful and prominent showing at IBEX, the marine industry supplier show. Our increased presence unveiled the scale of Patrick's platform while reinforcing our commitment to a brand-forward approach and showcasing our innovative product lineup, fully demonstrating the depth and breadth of Patrick's solutions. At the show, guests had the opportunity to explore our Full Solutions Experience Boat, allowing them to engage with numerous Patrick products, including Medallion's touchscreen displays, Wet Sounds speakers, BHE harnesses and wiring, LilliPad ladders, SeaDek flooring and lighted cup holders, XT carbon tops and TACO seating. I also want to congratulate the team at TACO on their IBEX Innovation Award for their Altura Luxury Helm Seat, a new flagship helm chair with a patented stainless steel frame concealed inside a teak ladderback. Additionally, I'm proud to share that our former President of Marine, Rick Reyenger, was inducted to the NMMA Hall of Fame. With more than 40 years of leadership in the recreational boating industry, Rick has influenced many generations of colleagues and competitors alike. Finally, I want to again recognize the remarkable efforts of the Patrick team. Their commitment, adaptability and focus on serving our customers has been extraordinary during these dynamic times and continues to drive brand-funded partnership model with our customers. Beyond cyclical dynamics, we expect to drive continued strategic growth through M&A, aftermarket expansion, innovative product development and our diversified portfolio. Our solid balance sheet and solutions-driven strategy keep us well positioned for sustainable long-term profitable growth. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets. Jeffrey Rodino: Thanks, Andy, and good morning, everyone. Looking closer at our end markets, third quarter RV revenue increased 7% to $426 million versus the same period in 2024, representing 44% of consolidated revenue. Our RV content per unit on a TTM basis was $5,055, an increase of 3% from the same period last year. On a quarterly basis, CPU increased 8% sequentially compared to the second quarter of 2025 and increased 9% year-over-year. The improvement in the revenue and CPU in the third quarter was driven by our commitment to working with and supporting our customers with model year innovations as they refine and upgrade their products, coupled with recent acquisitions. We estimate RV retail unit shipments were approximately 100,100, and according to RVIA, wholesale unit shipments were approximately 76,500 in the third quarter. This implies a seasonal dealer inventory destock of approximately 23,600 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 14 to 16 weeks. This is down from 19 to 21 weeks in the second quarter of 2025 and reflecting continued OEM wholesale production discipline. This remains well below pre-pandemic historical averages of 26 to 30 weeks, and we further believe the number of discrete units in the field is well below levels seen during the pre-pandemic period. Over the last year, we revealed a long-term strategy related to composite solutions. This highlights our efforts to seize emerging market opportunities through both acquisition and innovation. After several years of early-stage development and prototyping, we recently unified our composite solutions under the Alpha Composites brand name. Alpha Systems is a Patrick brand that is synonymous with high-level customer service, providing innovative solutions to RV and MH industries. The team at Alpha Composites will continue to build on the foundation through continued collaboration with our OEM partners. We believe our unified branding approach and dedicated resources will further enhance our competitive position as a leading composite solution provider and an innovator in a market where weight, durability, overall cost and sustainability matters to our customers. Our third quarter Marine revenues increased 11% to $150 million, outperforming what we estimate were flat wholesale powerboat unit shipments. Our estimated Marine content per wholesale powerboat unit on a TTM basis was $4,091, an increase of 4% from the same period last year. Estimated content per unit on a quarterly basis was up 15% sequentially compared to the second quarter of 2025 and increased 10% year-over-year. We estimate Marine retail and wholesale powerboat unit shipments were 42,700 and 32,300 units, respectively, in the third quarter, implying a seasonal dealer field inventory destock of approximately 10,400 units. Dealer inventory in the field remains lean at an estimated 16 to 18 weeks on hand, down from 20 to 22 weeks in the second quarter of 2025, and 19 to 21 weeks on hand last year at this time, remaining well below historical pre-pandemic averages of 36 to 40 weeks. Like RV, we believe the discrete number of units in the field remains well below pre-pandemic levels. Our broad Marine portfolio and design expertise position us as a key partner to new entrants and our existing base of valued customers alike. New entrants in the pontoon space have begun to leverage the breadth of our offerings and customer services early in their processes. Additionally, related to Andy's mention regarding IBEX, we've identified opportunities in the Marine market related to composites and are now offering a full composite deck solution, including composite flooring, woven fabric and the adhesive that brings it all together, enhancing the strength, sustainability and ease of installation for our customers. During the quarter, we completed the acquisition of LilliPad Marine, a Traverse City, Michigan-based designer and seller of premium innovative boat ladders, diving board systems and other Marine accessories. LilliPad delivers their award-winning and patented products through both OEM and aftermarket channels, deepening our lineup of innovative solutions in the Marine space. Our Powersports revenue increased 12% to $98 million in the quarter versus the prior year period, representing 10% of third quarter 2025 consolidated sales. Our revenues improved across all Powersports businesses, including those that serve recreation and audio markets, coupled with continued growth in attachment rates for Sportech's products. Entering the fourth quarter, we believe the OEMs and dealers will continue to carefully monitor and manage inventory in the channel despite some positive retail signals in recent months. Recently, our Rockford Fosgate brand launched a new 2024+ HD aftermarket solution at Sturgis. This kit includes Rockford's first aftermarket motorcycle amplifier with a built-in A2B digital interface. Not only is this a Rockford first, it is an industry first. This digital amplifier pairs with Rockford's newly launched speakers to create a premium plug-and-play solution for newer Harley motorcycles. Finally, on Powersports. As we have discussed on a number of calls, the utility segment of the Powersports market has shown much better resilience than the recreation market, leading to improving attachment rates with existing customers. We have begun to see an increasing interest in adding HVAC and other creature comforts from some of the traditional legacy Powersports OEMs, which should lead to a broader base of demand for enclosures, which Sportech provides. On the Housing side of the business, our third quarter revenues were up 1% to $302 million, representing 31% of consolidated sales. In Manufactured Housing, which represented approximately 58% of our Housing revenue in the quarter, our estimated content per unit on a TTM basis increased 2% year-over-year to $6,682. We estimate MH wholesale unit shipments and total Housing starts both decreased 2% in the quarter. As evidenced by our solid manufactured housing content per unit performance in the face of lower industry wholesale unit shipments, our team continues to perform with strong customer relationships and our ability to align and scale quickly to demand while maintaining a lean fixed cost structure. Despite recent softness in MH shipments, we continue to believe there is a lack of affordable housing options in the United States, and we believe our solutions can help both MH and site-built housing industries provide quality, cost-effective homes efficiently. We believe lower interest rates and improved customer confidence remain pivotal to unlocking pent-up demand. I'll now turn the call over to Andy Roeder, who will provide additional comments on our financial performance. Andrew Roeder: Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter increased 6% to $976 million. Our team drove increased revenues in both our Outdoor Enthusiasts and Housing end markets, including a 7% increase in RV revenues, an 11% increase in Marine revenues, a 12% increase in Powersports revenues and a 1% increase in Housing revenues. As Jeff noted, we generated solid content gains across our end markets during the quarter. Our total revenue growth of 6% was comprised of 4% acquisition growth, 4% organic growth and negative 2% industry. Gross margin was 22.6% versus 23.1% in the third quarter of last year. The decline reflected items, including short-term inefficiencies related to the model year changeover. Operating margin was 6.8% compared to the prior year at 8.1%. This change was driven by the previously described factors. Our overall effective tax rate was 26.2% for the third quarter compared to 24.8% in the prior year. Net income was $35 million or $1.01 per diluted share compared to net income of $41 million in the prior year quarter. Our diluted EPS for the third quarter of 2025 included approximately $0.07 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.04 per share. Adjusted EBITDA was $112 million compared to $121 million, while adjusted EBITDA margin was 11.5%, lower by 170 basis points from the third quarter of 2024. Cash provided by operations for the first 9 months of 2025 was $199 million compared to $224 million in the prior year period. Purchases of property, plant and equipment were $26 million in the quarter and $65 million year-to-date. This implies free cash flow of approximately $134 million for the first 9 months of 2025. Total net liquidity at the end of the third quarter was $779 million, comprised of $21 million of cash on hand and unused capacity on our revolving credit facility of $758 million. As a reminder, we have no major debt maturities until 2028 and continue to have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the third quarter, our net leverage was 2.8x. In the third quarter, we returned approximately $13 million to shareholders through quarterly dividends. Regarding our share buyback, we remain opportunistic, having repurchased approximately 377,600 shares year-to-date through the third quarter for a total of $32 million, leaving approximately $168 million left on our repurchase authorization. Regarding tariffs, our strategy remains unchanged and our teams are actively working with supply chain partners to minimize the potential impact. This remains a dynamic landscape, and we will continue to utilize all of our tools that we believe will help neutralize the absolute impact to our pricing pass-throughs and ultimately mitigate any material impact to our operating margin. I'll now move to our outlook. We estimate RV retail unit shipments will be down low single digits in 2025 with estimated full year RV industry wholesale unit shipments between the range of 335,000 to 345,000 units and continue to anchor on equivalent dealer inventory weeks on hand year-over-year. In Marine, we estimate retail shipments will be down high single digits and estimate wholesale shipments will decline low single digits, again, with dealer inventory weeks on hand year-over-year remaining approximately the same. In our Powersports end market, we now estimate that wholesale industry shipments will be down high single digits and our organic content will be up high single digits, offsetting the industry decline as our content continues to grow given ongoing increasing attachment rates for our cab enclosures. In our Housing market, we estimate MH wholesale unit shipments will be up low- to mid-single digits for 2025. On the residential housing side of the market, we estimate 2025 total new site-built housing starts will be down mid- to high-single digits year-over-year. Moving to our financial outlook. We expect our full year 2025 adjusted operating margin to be approximately 7%. We continue to estimate that our effective tax rate will be approximately 24% to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the fourth quarter. We estimate operating cash flow will be between $330 million to $350 million, and we estimate capital expenditures will total $75 million to $85 million as we continue to reinvest in the business, focusing on automation and innovation initiatives. This implies free cash flow of at least $245 million. For modeling purposes, we'd like to give our initial thoughts regarding 2026 based on where we sit today. We expect RV wholesale shipments to increase low- to mid-single digits and RV retail to be flat. For Marine, we expect wholesale shipments to be up low-single digits and retail to be flat. In Powersports, we expect low-single digit shipment growth and low-single digit organic content growth. For MH and Housing starts, we expect both to be flat to up 5%. We believe improved consumer confidence and lower interest rates are key factors necessary for our end markets to rebound more aggressively. Based on these estimates, we expect our operating margin in 2026 to improve meaningfully, an estimated 70 to 90 basis points. That completes my remarks. We are now ready for questions. Operator: [Operator Instructions] And our first question comes from the line of Scott Stember with ROTH Capital. Scott Stember: A lot has been made of some of the increased optimism coming out of Open House. What are you currently seeing from your OEM customers regarding production? What are they telegraphing as far as their desire to start ramping up production to potentially put more units into the field? Jeffrey Rodino: Yes, Scott, this is Jeff. As I look at our production numbers or production numbers from the OEMs, we are seeing -- we saw a little bit of a slight increase in October. We're seeing a little bit more of an increase in November. So we do feel like just the pure production numbers would tell us that there is some ramping up to what degree that will be consistent through into the first quarter. But right now, we're seeing a little of that. As I look forward, after this week, we really only have 6 more weeks of production in 2025 with a week off for Thanksgiving. There is some production in Thanksgiving, and then we'll take 2 weeks off for Christmas. So I think early indications are, if I look year-over-year, we're seeing some increases in the back half of the fourth quarter. Scott Stember: Got it. And then moving over to the aftermarket. I know you guys have been doing a lot of cross-pollination with RecPro. Can you give us an update of new SKUs or just -- is that accelerating? Just give us an idea of what's going on. Jeffrey Rodino: Yes, Scott, this is Jeff again. On the RecPro side, we've had several hundred SKUs that have carried over from other Patrick divisions into RecPro this year so far. We'll be close to 400 or 500 when it's all said and done since the inception of the acquisition. We are looking to accelerate that a little bit. We've really got them entrenched with our Marine side now and all of our Marine divisions to really start to grow that portfolio within the RecPro side. So really excited. We've put a little bit more capacity in that area to help accelerate that. So we're excited about what we've seen so far and what we're going to see going forward. Andy L. Nemeth: One of the other things -- Scott, this is Andy -- is that we just formally launched our aftermarket strategy, which includes a combination of not only direct-to-consumer but direct to dealer and third-party distribution. So we've rolled out a formal strategy. We're implementing structure to really kind of formally launch kind of an overall vision for where we want to take the aftermarket in alignment with our RecPro platform on the direct-to-consumer side. So we're looking forward to really driving some real value in the aftermarket. Scott Stember: Got it. And maybe just a little bit more granularity on your comments about the 70 to 90 basis points of operating margin expansion next year. I assume there will be some sales growth. Just trying to get a sense of how much is sales leverage? How much is internal self-help like things that you have going on like automation and AI and things like that? Just trying to flesh that out. Andrew Roeder: Sure, Scott. This is Andy. A lot of it is going to be sales leverage. But I would also tell you, content gains, the solutions that we're putting together for customers, allowing them to reduce cost overall, but allowing us with more product content with our customers is going to add value there. And then I think as it relates to the automation efforts, we're going to continue to push forward aggressively on automation amongst our facilities and continue to invest in CapEx. And we're definitely picking up nickels and dimes along the way as it relates to the automation efforts that we expect to see. So a combination of all of those across the platform to drive that margin improvement. And certainly, volume plays heavily in there, especially if we go above and beyond kind of our industry expectations. So we expect to be able to really leverage our fixed cost structure today. We don't need to add a lot of overhead to support significant incremental volumes. Operator: Our next questions come from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess just to follow up on that operating margin commentary. Obviously, the outlook for '26 is encouraging, but it sounds like you're looking for operating margin this year towards the lower end of your prior range. So maybe what's kind of weighing on margin this year ahead of the '26 improvement? Andrew Roeder: Well, Joe, here in the third quarter, we really experienced some model change inefficiency. If you look back through the first couple of quarters, we've seen gross margin expansion driven primarily by the addition of our direct-to-consumer aftermarket business, RecPro last fall. Along with that came a heavier OpEx profile. This quarter, our OpEx is in line, but we just had some, I'll call them one-timers, short time -- short-term investments. We brought on significant new business here in the quarter. CPU was up 9% and 10% for RV and Marine. So significant new business. And with that just comes some material and labor inefficiencies. Joseph Altobello: Got it. Okay. And in terms of the -- what were you seeing so far in terms of production and shipments in October and November? I think it was on the last call, you guys thought that we might see some sort of restock either in the fourth quarter or maybe the first quarter of next year. Are you starting to see that potential restock? Or is this just kind of noise at the end of a year? Jeffrey Rodino: I think there might be a little bit of potential restock. I mean we're getting ready to get into the selling season. You got Tampa right around the corner at the beginning of January. I think if you noted during the prepared remarks, 14 to 16 weeks on hand is extremely low. I mean, that's really the lowest we've seen since the pandemic, where it was in the high-single digits of weeks on hand back then. So there's a lot of room there. At the end of 2025, we're at about 17 to 19 weeks on hand. So there's got to be a little bit of restock in there to be able to get the right units on the lots and be prepared for the selling season that's going to come in the first quarter. Operator: Our next question is from the line of Noah Zatzkin with KeyBanc. Noah Zatzkin: I guess, first, maybe if you could expand upon how you're thinking about CPU opportunity in '26. And I guess within that, you talked quite a bit about composites. So just would love to hear some more thoughts on how that kind of plays into CPU opportunity. Jeffrey Rodino: Noah, this is Jeff. In 2026, we expect all of our businesses, as we always do, to pick up anywhere between 3% and 5% organic growth. Our expectation is composites is going to be a big part of that. I would tell you, if we look right now where we sit today, we believe the total addressable market in that composite area is about $1.5 billion. If you net out some of the cannibalization that may happen, it's close to $1 billion. Our teams are poised and ready to attack that piece of the market. And I think with some of the other things going on in the market, that opportunity continues to be very strong. Again, our APG groups are coming up with new product development, both on the Marine, RV and Powersports side. We believe that the further, I guess, increased attachment rate on the Powersports side is going to give a lot of opportunity to Sportech as more and more OEMs are looking to go to that full attachment. So I think across all of our markets, we have a lot of opportunity to grow that CPU and continue to grow the business. Joseph Altobello: Really helpful. And maybe just one more. Maybe an update on just M&A and what you're seeing out there and kind of how you're thinking about that? Andy L. Nemeth: Sure, Noah. This is Andy. On the M&A front, we've been really active in the last quarter for sure as it relates to cultivating the acquisition pipeline. We've got candidates identified really across our markets. And so we've been out actively kind of talking, kind of building that pipeline up. But as well, we're starting to see more deal flow come at us from outside sources as well. So both the organic side of it, where we're working with potential targets, as well as the deal feed coming in from investment bankers has increased over the last probably 30 to 45 days in particular. So we're seeing increased activity on the M&A front. Operator: Our next questions are from the line of Daniel Moore with CJS Securities. Dan Moore: I appreciate all the color. I want to maybe ask -- obviously, I appreciate the color about dealers' weeks on hand, both in RV and Marine. As you talk to OEMs and dealers, and we have the sort of historic backdrop of what averages look like pre-pandemic, do you have a sense for or a guess for what a new normal could look like in terms of weeks on hand in those key end markets when we get back to, say, low- to mid-single digit retail growth cadence? Andy L. Nemeth: Dan, this is Andy. So if we look at historical numbers pre-pandemic, pre-pandemic RV weeks on hand was roughly 26 to 30 weeks and Marine weeks on hand was roughly 36 to 40 weeks pre-pandemic. So if you look at where we're kind of sitting today, RV at 14 to 16 weeks and finishing out last year at roughly, let's just call it, 18 weeks, we definitely think there's some restock needed. We absolutely feel that the inventories in the channel today across the spectrum are low and that there is a restock needed even in the current environment. So we feel like there's some restocking needed. We don't expect to see the historical pre-pandemic levels, 26 to 30 on RV and again 36 to 40 on Marine. That being said, we definitely know it's -- and we feel like it's bigger than where we're at today. So Marine today, as Jeff mentioned, 16 to 18 weeks on hand. Last year, at the end of the year, we were at 22 weeks. So again, we feel like there's some restock coming and needed. We do feel like inventories are low. But we do think -- I'm going to say let's just say 22 to 24 weeks is probably a good range to kind of think about right now, at least in our estimation. But we also know that dealers have gotten really good at working with less inventory. That being said, we also do feel across our spectrum. And we have multiple touches with the dealer network, whether it's our transportation business or whether it's our touches with the OEMs or dealers themselves. We get a feel that inventories are lean and dealers will need some more balance out there. So we do feel like there's some, again, restock needed. Dan Moore: Really helpful. Switching gears, initial guidance for '26 implies operating margin getting back close to 8%. As you look across the businesses and when demand starts to return, where do you see the most significant capacity and strongest kind of incremental margins and opportunity for further expansion beyond that across the various businesses? Andy L. Nemeth: Sure. Given what we've done with our business, our team's discipline and really managing their businesses, some of the consolidations that we've done -- but as well, we're just really maintaining a lean operating structure and continuous improvement environment. There is leverageability across all of our pillars in all of our business segments. So incrementally, there's a few puts and takes. But overall, I'd tell you there is significant incremental opportunity for us to leverage the business in each of our markets. Dan Moore: Got it. And if you did and I missed it forgive me. Could you maybe quantify in ballpark terms the impact of inefficiencies related to the model year changeover in this quarter? Andrew Roeder: Yes, Dan. I mean, we saw in the first 2 quarters our gross margin expand by near 100 basis points. There's some noise in there with tariff impacts and timing. But for the most part, I think that's -- we expect a meaningful gross margin expansion driven by our RecPro direct-to-consumer margins and that acquisition last fall. So we were down 50 basis points. I guess I'd expect us to be up 50 basis points in that ballpark as we look forward. Operator: The next question is from the line of Tristan Thomas-Martin with BMO Capital Markets. Tristan Thomas-Martin: Do you have any kind of thoughts or have you seen any of the consumer kind of changes based on model year '26 pricing being up, call it, mid- to high single digits? Andy L. Nemeth: Can you repeat that question, Tristan? Sorry. Tristan Thomas-Martin: Yes, just asking with model year '26 pricing up mid- to high single digits kind of like-for-like, how are you seeing consumers and dealers react to that? Jeffrey Rodino: Yes, this is Jeff. I think they've certainly passed that along into the channel. As we could tell, we did see some increased retail year-over-year in June and July. That came down a little bit in August. But overall, we can only tell you what the production numbers are telling us right now since we haven't really seen retail for September and October. So once we see those, we'll get a better feel overall of the retail demand. But from what we can tell from production levels and where we think wholesale shipments are going, there's still demand out there, and we feel good that they've been able to absorb that into the pricing. And we have seen a little bit of interest rate help, which certainly will help mitigate some of the pricing that's happened. But overall, we feel good about kind of where the pricing has ended up. And I think that as far as what tariff noise has been out there earlier in the year, we've got a few more countries they need to sort some things out with. But as we look -- we've been working very closely with customers. We know that affordability is a big concern, and partnering with our customers to help with that affordability is something that we've been very active in over the last quarter. Tristan Thomas-Martin: All right. Just kind of the obvious follow-up is how is the production mix been looking in terms of like are we seeing maybe a little shift towards fifth wheel from single axle? Jeffrey Rodino: Yes, we've seen a little of that. I mean it certainly does occur a lot of times in the fall where we'll see a little bit more on the fifth wheel side as you get the full-time RVers. They're going to use it for the full winter, getting into a fifth wheel versus the smaller entry level. Certainly, the mix is not back to what I would call a normal mix that we've seen in the past with fifth wheel and travel trailer and the smaller travel trailers. But we have seen a little bit of a shift in the third quarter. We expect that, that will stay for the fourth. If we get into the first part of next year -- I think the dealers were so kind of keen on the entry-level product for most of 2025 as we see that they need to refill some of the stock that's out there. I think we're going to see that's going to be in some of the mid- to higher-end product. So we feel good about where the mix is at. I don't think it will go backwards into the more small travel trailers, but we're keeping an active look at that. Tristan Thomas-Martin: Okay. Got it. And then let me squeeze one more in. Is there any way to think about the composite $1 billion addressable market opportunity, kind of how that breaks out across your end market? Jeffrey Rodino: Yes, it's primarily in the RV market right now. When you look at the roofing and flooring solutions that we're providing, something that we're really not into that business right now with roofing, flooring and slide outs. The interior and exterior skins are something that we're participating in right now, and we're very active in shifting from some of the wood products that we're currently selling into composites. And we feel really good about all the prototyping that we've done and the activity and the products we've been able to bring to market. Certainly, we see some opportunity on the Marine side. That's pretty fresh on the Marine side. We've done a lot on the wood products within Marine, and now we're starting to shift over into some of the composites. So I would tell you that the majority of what we talked about in the addressable market is going to come on the RV side to start with. Operator: The next question is from the line of Craig Kennison with Baird. Craig Kennison: Apologies for joining a little late. I wanted to ask about Slide 15, talking about Powersports' organic content growth up low-single digit. What is driving that? Andy L. Nemeth: Craig, without question, content gains that we've seen as it relates to attachment rates for our enclosures in particular, we've seen, as we've talked about kind of the utility side of the business, which is really where we've got tremendous focus, being more resilient than the rec side of it. But that being said, the overall take rate continues to go up on enclosures, and the continued take rate on HVAC systems, which in the side-by-side markets, continues to go up. So we're seeing that. We're seeing some new entrants come back -- come into the market in 2026, but as well as some of the product innovations that we've had teed up over the last couple of years are expected to continue to drive content as well. So we're excited about not only the uptake rate, but some of the solutions we're bringing and then the opportunity for us to really exhibit our full solutions model as well into the Powersports market. So not only in enclosure, for example, but also a sound system, a wiring harness, a dash panel, instrumentation system, all combined into one solution for our customers going forward. So a tremendous opportunity for us to continue to realize additional content gains in the side-by-side market. Craig Kennison: And then maybe just to follow up on the RecPro topic. How do you manage any sort of channel conflict that might come about from setting up a direct-to-consumer platform? Jeffrey Rodino: Yes, Craig, this is Jeff. I don't see a lot of channel conflict in what we're doing. Prior to having RecPro on board, which gives us that direct-to-consumer avenue for our products, we had very little aftermarket touch points with -- if you look at the content that Patrick is putting into RVs and Marine and then not really having an outlet to be able to get that product into the hands of the end consumer, this has really just given us that avenue. So I don't see a lot of conflict there. Craig Kennison: And then maybe finally on the MH side, what will it take to see a more sustained recovery? It feels like there's ample need for affordable housing and we're going to get interest rates moving in our favor. What are your industry context suggesting is necessary for that really to take off? Andy L. Nemeth: Sure, Craig. This is Andy. It's a good question. I think as we look at the MH side of the business, we certainly continue to believe in the model that it provides the low-cost alternative, especially for first-time entrants into the Housing market. Historically, MH has run 9% to 11% of single-family housing starts if you go back in history, and we continue to see that trend continue. As far as I'm concerned, as we continue to watch that, we're going to continue to look for an inflection point where we see that trend change a little bit. We see a greater percentage of single-family housing starts as our indicator. But overall, the model, the narrative makes a lot of sense, especially with where things are at. We just think some of the pent-up demand needs to be released into that market. But we're fully supportive of it. And as well the quality of the homes have gotten so much better over the years. And so it really is an attractive solution. We're as well waiting for kind of that inflection point. Operator: [Operator Instructions] Our next question comes from the line of Mike Albanese with Benchmark. Michael Albanese: Just want to touch on -- Craig had asked a question about the Powersports segment. And as we think about attachment rates and products like HVAC and audio, is it possible to kind of frame maybe from an industry standpoint what percentage of the overall utility industry comes with enclosures? Andy L. Nemeth: Let me think about that for a minute, Mike. So the percentage of the industry probably today... Michael Albanese: Utility side-by-side. Like how -- yes, I guess what percent... Andy L. Nemeth: How many utility vehicles are coming with enclosures? Michael Albanese: Yes. Andy L. Nemeth: I mean, I got to take a guess. Probably 60%, 70% is a guess. I can't tell you exactly. Jeffrey Rodino: And it's definitely going to be heavier on the utility side versus the side-by-side, Mike. And then we're dealing primarily with a couple of the large manufacturers. There are some of the manufacturers out there that aren't even offering that yet, but we believe that's a big tailwind for us when they start to go into that market. So within our customers, it's that 60%, like Andy was talking about. But the overall market, I think there is opportunity beyond that. Michael Albanese: Yes, that's exactly where I was going with the question, to get a sense of -- as just enclosures proliferate, with that comes more opportunities to drive new product and increase attachment rates, right? So I was trying to get a sense on... Andy L. Nemeth: Not only that, Mike, but the frame -- not only -- so some come with a frame, right, some come with a windshield, the attachment to add doors, to add windows. Then the additional content that we've talked about on top of that from a solution perspective kind of all play into that. Operator: Thank you. Ladies and gentlemen, I'll turn it back to Andy Nemeth for closing remarks. Andy L. Nemeth: Thank you. Once again, I just really want to acknowledge and thank our incredible team for just their continued efforts, dedication, passion for really partnering with our customers, bringing new products to market, managing the tariff situation and continuing to deliver consistent and predictable results. I'm just so proud of the team and all their efforts. And as well, I want to thank our customers for their tremendous support through these incredibly dynamic times as we continue to really work to partner to make sure we're promoting kind of the industry as a whole in alignment with their goals and objectives. So really appreciate all the efforts of the team. We will continue to push forward. I think there's a ton of opportunity for Patrick as we look at where the industries are teed up and where they can go. And not only that, the resilience and scalability of our model and the ability to inflect when our customers need it I'm really excited about. So once again, thank you very much for joining us. We look forward to talking to you after our fourth quarter results. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Axos Financial, Inc. First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Johnny Lai. Please go ahead. Johnny Lai: Thanks, Carrie. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s First Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter ended September 30, 2025, and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. This call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing the call over to Greg, I'd like to remind our listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of the documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg. Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the first quarter of fiscal 2026 ended September 30, 2025. I thank you for your interest in Axos Financial. We had a strong start to our fiscal 2026, generating $1.6 billion of net loan growth linked quarter, including $1 billion of loans and leases and on-balance sheet securitizations acquired in the Verdant acquisition, which closed on September 30, 2025. A 5 basis point linked quarter reduction in net charge-offs and a 17% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the nearly 16% return on average common equity and the 1.8% return on average assets in the 3 months ended September 30, 2025. Other highlights in the quarter include net interest income was $291 million for the 3 months ended September 30, 2025, increasing by approximately $11 million linked quarter or 15.6% annualized. Net interest income growth benefited from balanced growth across single-family mortgage warehouse, commercial specialty real estate and auto lending. Net interest income in the prior year's comparable quarter ending September 30, 2024, included a benefit of approximately $17 million from the prepayment of 3 FDIC purchased loans. Excluding that onetime benefit, net interest income was up $16 million or 5.8% from fiscal Q1 of 2025 to fiscal Q1 of 2026. Net interest margin was 4.75% for the quarter ended September 30, 2025, down 9 basis points from 4.84% in the quarter ended June 30, 2025. Excluding the impact from holding excess liquidity, our net interest margin was roughly flat quarter-over-quarter. Since the Verdant acquisition closed on 9/30/2025, the transaction did not have any impact on our net interest income or net interest margin in this quarter end. We continue to maintain a best-in-class net interest margin with or without the benefit of the accretion from purchased loans from the FDIC. Noninterest income increased by approximately 13% year-over-year due to higher banking service fees, mortgage banking income and prepayment penalty fees. Total on-balance sheet deposits increased 6.9% year-over-year to $22.3 billion. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continues to support our growth and are expected to provide relatively lower cost of funding sources for the loans and leases acquired from Verdant relative to their prior capital structure. Total nonaccrual loans to total loans declined 5 basis points linked quarter, resulting in our nonaccrual loans to total loans improving from 79 basis points as of June 30, 2025 to 74 basis points as of September 30, 2025. Net income was approximately $112.4 million in the quarter ended September 30, 2025, up from $110.7 million in the quarter ended June 30, 2025. Diluted EPS was $1.94 for the quarter ended September 30 compared to $1.92 in the June quarter. Excluding the onetime deal-related expenses and allowance for credit loss adjustment for the Verdant acquisition, adjusted net income and adjusted EPS were $119 million and a $2.06 per share, respectively, for the quarter ended September 30, a 7.3% increase from the linked quarter and almost 30% annually. Total originations for investment, excluding single-family warehouse lending, were over $4.2 billion for the 3 months ended September 30, representing an increase of 11% linked quarter or 44% annualized. Commercial real estate specialty lending, auto lending and single-family warehouse had strong originations and net loan growth this quarter. Average loan yields for the 3 months ended September 30 were 7.99%, in line with the prior quarter. Average loan yields for non-purchased loans were 7.66%, and average yields for purchased loans were 15.81%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in that portfolio remain current. New loan interest rates for the September quarter were 7.2% in both the multifamily and C&I portfolios, and 7.3% in single-family, and 8.25% in our auto portfolio. Ending deposit balances of $22.3 billion were up 6.9% linked quarter and up 11.5% year-over-year. Demand money market and savings accounts representing 94% of total deposits at September 30 increased by 9% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 57% of total deposits, commercial cash, treasury management and institutional representing 22%, commercial specialty representing 11%, Axos Fiduciary Services representing 5% and Axos Securities, which is our custody and clearing business representing 5%. Ending noninterest-bearing deposits were approximately $3.4 billion at the September end -- quarter end, up by approximately $350 million from the prior quarter. Noninterest-bearing deposit balances benefited from continued growth of our treasury management business and from a large increase in cash sorting deposits that came in toward the end of the quarter. Client cash sorting deposits ended the quarter at around $1.1 billion, up by $95 million from the June quarter. In addition to our Axos Securities deposits on our balance sheet, we had approximately $460 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from our custody, clearing, fiduciary services and commercial cash and treasury management verticals. Our consolidated net interest margin was 4.75% for the quarter ended September 30 compared to 4.84% in the quarter ended June 30. We had more excess liquidity in the quarter ended September 30 with average cash balances of approximately $2.5 billion compared to $2.15 billion of average cash balances in the prior quarter. This excess liquidity was a 7 basis point drag on our net interest margin. Additionally, we issued approximately $200 million of subordinated debt in September of 2025, which has a fixed annual interest rate of 7% for the first 5 years. We used part of the proceeds from the $200 million subordinated debt offering to pay off approximately $160 million of existing subordinated debt that was scheduled to move from a fixed annual interest rate of 4.875% to approximately 9% in October. The new subordinated debt issuance reduced our net interest margin by 1 basis point in the quarter ended September 30, 2025. We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high end of the 4.25% to 4.35% range we have targeted over the past year. While new loan yields are coming in slightly lower in certain lending categories due to recent Fed actions, our goal is to offset lower loan yields with reduced cost of funds. Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across commercial lending categories and increased contributions from teams we onboarded over the past few quarters. The floor plan lending team has a nice pipeline. We also believe we've moved past peak levels of prepayment in our multifamily loan portfolio, which have been a significant headwind to net loan growth over the past several quarters. We expect the Verdant acquisition to add an incremental $150 million to $200 million of net new loans and operating leases per quarter at attractive spreads starting in the second quarter of this fiscal year ending December 31. Taking all these factors into consideration, we expect loan growth to come in at the low to mid-teens range on an annual basis in the remaining 9 months of our fiscal year 2026. The credit quality of our loan book continues to be solid and our historical and current net charge-offs remain low. Total nonperforming assets remained flat linked quarter, representing 64 basis points of total assets compared to 71 basis points in the quarter ended June 30, 2025. Nonperforming assets declined by approximately $17 million in multifamily and commercial mortgages and by $7.4 million in commercial real estate, partially offset by increases in nonperforming assets in single-family mortgages due to a handful of loans with a weighted average loan-to-value of 57%. No new C&I loans were placed on nonaccrual this quarter and a few larger C&I loans currently on nonaccrual are still paying as agreed. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolios. Net charge-offs to total assets were down 5 basis points linked quarter and 6 basis points year-over-year to 11 basis points for the 3 months ended September 30. Axos Clearing, which includes our corresponding clearing and RIA custody business had a good quarter. Total assets under custody or administration increased from $39.4 billion at June 30 to $43 billion at September 30. Net new assets for our custody business were $1.1 billion in the September quarter, an acceleration in the net new asset momentum we have experienced over the past several quarters. This marks the first time that assets in Axos Clearing's custody and clearing business have exceeded $40 billion. The pipeline for new custody clients remains healthy. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. We successfully completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company at the end of September. Verdant's focus on originating small and mid-ticket leases nationally in 6 specialty verticals is a great enhancement to our commercial lending franchise. Their risk-adjusted returns, history of low credit losses, tech-enabled service model and the entrepreneurial spirit of the team members are a great strategic fit for Axos. Additionally, these long-duration fixed rate loans and leases complement our existing floating and hybrid loans in our single-family mortgage and commercial specialty lending businesses. In addition to having access to lower cost of capital and funding, we believe the Verdant team will benefit from our operations and tech support. After meeting with the management sales, operations and credit team post close, we are confident that we'll be able to generate meaningful growth from existing and new vendors and dealers in our 6 existing verticals. Over the medium to long term, we see additional opportunities to generate incremental growth from entering new verticals as well as cross-selling deposits and floor plan lending to larger strategic dealers and original equipment manufacturers. From a deal perspective, we paid a modest 10% premium on the roughly $40 million of book value of Verdant at September 30. The seller will also have an opportunity to earn up to $50 million over the next 4 years if the business generates a greater than 15% return on equity on an annual and cumulative basis. The transaction added approximately $1.2 billion in loan, leases and equipment operating leases, which include $1 billion of loans and leases and $213 million of equipment operating leases, which are recorded in other assets. We paid off $87 million of subordinated debt and $242 million of warehouse borrowings at closing and assumed $754 million of long-term securitization financing. From an income perspective, we recorded approximately $1.3 million in deal-related expenses in this quarter and added $7.8 million to allowances for loan loss, including the roughly $7.8 million additional CECL reserves that we realized at closing, the total allowance for credit losses for the acquired loans and leases was approximately $15.6 million or roughly 1.5% of the total outstanding loan and lease balances at September 30, which we added despite a loss history for Verdant well below 50 basis points annually. Our expectation is this acquisition will be accretive to our earnings per share by 2% to 3% in the fiscal year 2026 and by 5% to 6% in fiscal 2027. The current regulatory environment provides a favorable backdrop for additional accretive and strategic M&A transactions. Our strong capital, liquidity and profitability allow us to be disciplined and opportunistic in where we deploy excess capital. We remain hyper-focused on increasing productivity and implementing additional operational improvements to help us become more profitable and scalable. We have rapidly expanded the scope of workflows and use cases for artificial intelligence across the enterprise, including risk and compliance, credit, operations, technology, legal, marketing, finance and accounting and believe that further AI implementations will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product development. AI is having an impact on our efficiency and software development. We are in development on exciting products and technologies across our consumer, commercial and securities businesses. We are continually enhancing our all-in-one consumer and small business experience with an aggressive and exciting road map. This consumer platform is utilized by retail and end clients in our institutional custody and clearing business. We have begun the rollout of our recently developed Axos Professional Workstation to selected broker-dealer clients. This Professional Workstation is a centerpiece of a technological modernization strategy in our securities business that will allow us to integrate banking products in a seamless way for RIAs and brokers to more holistically serve their clients and provide a much more flexible and modern system than many of our large competitors' legacy systems. In closing, I'm excited about the opportunities we have to maintain our positive momentum in fiscal 2026 and beyond. With the Verdant team and other team hires we have made this last year, producing both loans and deposits, we feel more certain in our ability to grow loans in the low to mid-teen range annually, maintain margin in our forecasted range and other than the costs we added through the acquisition, accomplish our objective to gain operating leverage. Now I'll turn the call over to Derrick, who will provide additional details on our financial results. Derrick Walsh: Thanks, Greg. A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Noninterest expenses were approximately $156 million for the 3 months ended September 30, 2025, up by $5.6 million from the 3 months ended June 30, 2025. Excluding approximately $1.3 million of deal-related expenses from the Verdant acquisition in September, total noninterest expenses were up by approximately $4.3 million on the linked quarter. Salaries and benefit expenses were $76.6 million, up by $1.6 million from the prior quarter ended June 30, 2025. The primary drivers of the quarter-over-quarter increase in salaries and benefits expenses were the addition of the floor plan lending team and a partial quarter of our annual merit compensation increase. Data and operating processing expenses were $22.1 million compared to $20.4 million in fiscal Q4 2025. The sequential increase in data processing expense was attributed to a handful of projects across different business units. Since we closed the Verdant acquisition on September 30, 2025, it did not have any impact on our operating noninterest expenses. Going forward, we expect the Verdant acquisition to add approximately $8.5 million per quarter in noninterest expenses. We remain focused on optimizing our operating expenses with a specific focus on AI implementation while making prudent investments to deliver positive operating leverage. As Greg mentioned earlier, we acquired approximately $1 billion of loans and leases and $213 million of fixed asset operating leases in the Verdant acquisition. Of the $1.2 billion of total Verdant loan and leases, approximately $762 million are on-balance sheet securitizations with a weighted average remaining life of 3.7 years. The net loan yield on these assets is between 3.75% to 4.5% above the 90-day SOFR rate. And the net spread of the on-balance sheet securitizations is between 2.57% and 3.07%. The interest income from the $1 billion of loans and leases will be recorded in interest income and the income from the operating leases will be recorded in noninterest income. For all new loans and leases, we expect to record an allowance for loan loss of approximately 1.5%. Next, our income tax rate was 25% for the 3 months ended June 30, 2025, compared to 29.4% in the corresponding year ago period. The quarter ended September 30 was the first quarter that benefited from the impact of the new California budget, which included a change in our tax calculation methodology. Additionally, we had approximately a 1.9% benefit in our tax rate from RSU vesting in the September period. Going forward, we still expect our corporate tax rate to be approximately 26% to 27%, consistent with what we have guided previously. I'll wrap up with our loan pipeline and growth outlook. Our pipeline remains healthy at approximately $2.2 billion worth of loans as of October 24, 2025, consisting of $605 million of single-family residential jumbo mortgage, $78 million of gain on sale mortgage, $352 million of multifamily and small balance commercial loans, $76 million of auto and consumer, and $1.1 billion across our commercial verticals. We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan lending, slowing prepayments in our multifamily lending business and incremental contributions from the Verdant equipment finance business to drive loan growth in the low to mid-teens year-over-year growth over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions. With that, I'll turn the call back over to Johnny. Johnny Lai: Thanks, Derrick. We are ready to take questions. Operator: [Operator Instructions] And our first question will come from Kyle Peterson with Needham & Company. Kyle Peterson: I wanted to start off on credit. Obviously, there's been some fairly high-profile headlines of late. Everything in your book looks pretty good. But I guess maybe any context of what you guys are seeing, particularly like in any -- whether it's pipeline deals or anything that is looks a little like spookier or unattractive to you guys? Or I guess, kind of how are you guys thinking about new deals and structure and competition in your approach to credit right now? Gregory Garrabrants: Sure. Thanks for the question, Kyle. Good to talk to you. Yes, the -- so just in speaking about the 3 deals that got a lot of press, we had seen those deals and turn those down for a variety of different reasons. We think there was some decent indicators there just based on structure that were problematic. I think that in late stages of credit cycles, people sometimes get pretty sloppy on structure. And frankly, you see that in some of the syndicated deals where the sort of lender-on-lender violence language wasn't as strong as it should have been in certain cases. We're very careful and watchful of that because we believe that, that can be a problem on syndicated deals. We turned down deals for that. We pushed back. That's an area that is less recognized, but a problem. You don't need -- I personally view it as almost a form of fraud, but you have to just be very thoughtful about that because guys are reading things into this. And it's -- at a minimum, it's extraordinarily aggressive. The other types of more blatant fraud that went on there, like with respect to 1 of the 3 deals was that people are actually forging documents and title insurance and telling banks that they have first liens on assets when they don't. There's always ways of going about trying to stop fraud. And those -- there were ways in what we do that would not have allowed that to happen because we get certain documents directly from title insurers and things that would stop that from happening. But yes, I mean, look, I think that it's always something that you have to look out for. I've always said I think fraud is one of the most dangerous potential issues that any lender has, particularly when they're secured in the manner that we are. And so in each and every segment, there are different types of risks and opportunities to mitigate those risks. And I think we do a good job with it, but we're continually on guard because people come up with new and interesting ways of doing bad things. Kyle Peterson: Okay. I appreciate the detailed color there. And then I guess just a follow-up on fee income came in pretty strong this quarter, at least what we had modeled. Just wanted to see, were there any one-timers or like whether it was like a loan sales or anything like I know you guys said last quarter. But I guess anything onetime? And then I guess, just a refresher on any of the fee income potential contributions from Verdant, like if there's any operating leases or anything and how we should be mindful of like the run rate on that from here on out would be great. Derrick Walsh: Yes, nothing from the fee income that was a one-timer in this past quarter from the Verdant profile. The expectation is a few million dollars will come through in that noninterest income line item as we look forward. Gregory Garrabrants: Yes. I think the one thing... Kyle Peterson: Do you mean per quarter or... Derrick Walsh: Correct. Yes, per quarter. Kyle Peterson: Per quarter. Gregory Garrabrants: And one thing you do have to just be thoughtful about is I think the team has done a good job on the securities side of growing out of the negative impact that hits their P&L when they -- when rates go down. So that -- there's only some of that's off balance sheet like $500 million or whatever, but that's still out there. It's not massive, but you just should think about it. I mean I think they're going to be able to grow out of it. They did grow out of it. But that's out there. So that's one element that you -- and then obviously, mortgage banking picks up, but there's probably a dead zone in there where somewhere mortgage bank has not picked up, but you end up with lower benefit from the 0 cost deposits through the sweeps. Operator: And moving next to Gary Tenner with D.A. Davidson. Gary Tenner: I had a follow-up on VCC. It was my assumption at least that the funding for the loans put on -- or the assets put on balance sheet wasn't to come from your excess cash, but you flagged the secured financing at quarter end. Is there a period of time that you have to keep that? Is it attractive price for you? Can you kind of walk us through that? Gregory Garrabrants: Yes. So we would love to take all that out and utilize the excess cash, and it would be a very wonderful day for us and our shareholders. But these are term securitizations. They were done to match fund particular leases. There is -- there are cleanup calls that I think are all at 10%, right Derrick? Yes, they're all at 10%. So they -- as soon as we can clean these up, we will because it would be cheaper to use our own deposits. But yes, they're on balance sheet, they're term financing. We can't do anything with them. I mean, obviously... Derrick Walsh: We'll monitor them and see if any pricing comes in kind of through Bloomberg and through the markets in the same way that we picked up some of our sub debt at a cheaper rate. We'll do the same thing with the secured financings. If they're trading out there at a discount, we'll be jumping on that. Gregory Garrabrants: I don't think that's going to happen. Just frankly, look, it's possible that the performance of the leases have been very, very strong. So there's no credit component to kind of get anyone excited about that. But you never know. I mean maybe somebody owns a small piece and they want to get rid of it or something like that. So we can always look at that. But unfortunately, but they're going to be out. But I do think that Verdant has a nice pipeline. They're going to be growing. We put that $150 million to $200 million growth target out there. I think they can exceed that and I think they might this quarter. So that also means that there'll be the opportunity to fund those loans with our deposits. And we kind of -- deposits just ended up overshooting this quarter, not only from operational activity, but we were -- we obviously had a big quarter of growth coming. And there was another component is that the timing of the acquisition sort of got delayed, and so they did another securitization. It was a pretty nice and tight spreads. So we talked about it and I said, well, I don't really have an objection to it because there was a bunch of moving pieces to get the deal done. But so yes, but the good news is we're well set up for strong loan growth. And I think with this deal and everything else we've done, we raised our guidance on loan growth because we had that. Even though we are certainly not hoping to be there that high single digits to low teens, and now we have low teens to mid-single digits or something, but it's mid-teens, right? But in any event, it's better. Gary Tenner: Got it. And just to go back to the secured financing, what's the -- just for modeling purposes, kind of what's the carrying cost of this? Gregory Garrabrants: Do you have that? Derrick Walsh: It's a little north or about 5.5%, and they have a 3.7% weighted average in years. Gary Tenner: Okay. Great. And then I just did have a follow-up in terms of the purchase loans. It looks like a pretty steep drop in the balance of average purchase loans in the quarter, but it didn't look like any kind of real outsized interest income or accretion benefit. So could you just comment on that? And then if you have it available, what the period end FDIC purchase loans are? Derrick Walsh: Yes. The -- it was really from the prior quarter. So if you recall, we had a big bump of $12 million in the gain on sale in the mortgage banking last quarter. So that sale occurred in the latter half of June. And so that's why the average balance was much higher for your purchase loans in the June quarter. And so I think that was the only big one that we've had to pay off during the September -- or I mean, in the June and September quarter. But that loan was a little over $100 million. So I think this quarter's average is relatively reflective of what the ending period figure is. Operator: [Operator Instructions] We'll go next to Kelly Motta with KBW. Kelly Motta: The balance sheet growth was remarkable, both organically as well as with the deal that you got. It looks like capital ratios have come down a bit. Greg, can you refresh us on how you're thinking about capital and your comfort here with being able to support potentially mid-teens loan growth, where those capital ratios you're comfortable with letting them go? Gregory Garrabrants: Yes. And we've been accumulating capital and discussing that we believe we have excess relative to what we need. So we feel very good about the capital ratios where they are and even having them go down a bit. But the reality for us is we're making over a 15% ROE. So any loan growth that's sub that essentially allows us to stay roughly equal. I mean, obviously, there's some dividends to the holding company, things like that. But within that range, I feel very good about the profitability. And I think just given if you look at the linked quarter income benefit that didn't even include the $1 billion of the Verdant loans, that was nice growth. So I think that strong income growth and the strong capital accretion is going to work well there. And I think we've done a really good job of bringing our loan loss reserve to a very strong place, including even with Verdant, where I think it was a prudent but conservative decision to bring it to 1.5% given that they've been averaging 25 and 30 basis points of loss over their period. And they've been around 5 years. So that doesn't mean you can guarantee that, but certainly bringing that to 150 is good. So we feel very good about where we are in loan loss. I feel good about where we're seeing the NPL sort of stuff shake out. I feel like the commercial real estate thing, which everybody had their -- was sort of agitated about has certainly not come to fruition in any respect with respect to us. So yes, I think it's good. And we had much higher capital ratios than, frankly, we've ever had. And so it was built for doing just what we did. And so we felt good about that deal and our ability to do it. Kelly Motta: Awesome. You guys certainly make a lot to help replenish those. So in terms of -- Greg, we got the Verdant deal. And in your prepared remarks, it sounds like there might be some more opportunities on the acquisition side. Is there anything you can share with us in terms of types of deals that look attractive, how that's shaping up and kind of the outlook from here? Gregory Garrabrants: Yes. Obviously, as I'm sure you well know and have to cover as these banks get together like kids at a frat party. There's a lot of talk about all those things. I mean we're always active in looking and trying to understand what works and what doesn't. We -- in the case of Verdant, for example, it filled this particular niche. It was a good national specialty vertical with bank quality management in an area that we didn't have. So there's a few other of those type of verticals that we always continue to look for and find the right partners. On the bank side, there's a lot of different ways to look at bank acquisitions and see what works and what doesn't. It has to be obviously the right cultural strategic fit or it has to be an incredible financial bargain. So we're very active in looking, and we'll continue to do that and see what makes sense. Operator: And moving on to David Feaster with Raymond James. David Feaster: I wanted to talk on this NDFI issue. I mean this has now become a dirty word. And I appreciate your commentary a bit talking about it. But I was just hoping you could elaborate maybe a bit on where -- obviously, there's been some fraud, but where are you seeing the pressure points in the industry, maybe compare and contrast a bit with what you do, the exposures that you've got and how you monitor and manage collateral and the cash flows just to protect yourself because that seems like an incredibly important part about that. Gregory Garrabrants: Right, right. Well, so yes, it's a broad category. So if you just sort of go through this logically, single-family mortgage warehouse, right? You have MERS for that. So there was some pretty I mean, obviously, you've been around a long time. I'm not calling you old. I'm just saying you've been around a really, really, really, really long time, David. But you remember like Taylor, Bean & Whitaker and all those kind of things and Colonial and all that sort of stuff where essentially you showed up one day and your loans are pledged to someone else, right? So that issue, I think, is more solved with MERS than others with respect to the types of loans that go through there. That's the single-family warehouse side now. Then if you think about real estate lender finance, where you have facilities that have crossed assets, what happened with respect to those other institutions was that essentially they were told they had first mortgages because they receive title policies from the borrower themselves and essentially 3 different banks, I think, thought they all had first liens or the first liens that were created by the NDFI, 3 different banks thought they had first liens on those first liens, right? So there's some pretty clear ways that you can figure that out. One way is not to get the information from the NDFI, right? So at a fundamental level, there's always this question of what do you trust? What do you don't trust? How do you get it? How do you check it, right? And so that is -- there's some pretty clear ways to do that. I'm not going to paint them all out for all my competitors, but just to say that there's ways of making sure that doesn't happen. Now there's obviously an element of how you monitor that and how you think about that with respect to the timing of it because some lenders cloud title like we do by recording a notice of assignment. So if somebody else tries to lien that particular property, then there's a notice of assignment there, title company won't work through that. Others take the word of their partners for that, right? So you always have these kind of things depending on how you think about it. But frankly, I think it's always interesting to me in banking because it's kind of beautiful to some extent because you get like one thing that happens that's idiosyncratic in a particular problem. And I remember what it was like single-family lending after 2008, '09, and all these people comes to me and say, "Well, I can't believe you're doing single-family mortgages in Florida." And I'm like, "Yes, we weren't doing them when the prices were super high, but now that they've fallen by -- the prices have fallen by 60%, we're now doing it at 40% LTVs." And of course, no, we never lost a single penny on that, and we got higher rates, right? So I think you have to just ask yourself what specifically are you talking about, right? So there's -- so that collateral is there. Now the type of "NDFI" type of risk associated with non-real estate lender finance, if you actually think about it for even a small amount of time, is a very similar risk to a regular straight ABL deal, right? Like somebody can make up invoices or a factoring. They can make up invoices, they can do all that kind of stuff. And whether you have an NDFI involved or not, if a borrower is committing fraud, the borrower can be committing fraud on the NDFI and on you, right? By like there's banks that finance factor receivable companies, right? So there's an NDFI that's a factor receivable and you're financing that factor receivable. Well, you could have the NDFI to fraud you, you could also have end clients to fraud you. So we had a small client, a direct borrower where we had a full banking relationship typical middle market [indiscernible] like small business style. And one of the guys made up an invoice, right? And there's different ways to catch them doing that. So I don't -- if you're thinking about capital call lines, then there's a whole different array of risks associated with that because often the LPs are very large funds. And so you're getting them -- the question is how many of those do you get to sign waivers of defenses, right? So there's all kinds of different things like that. I mean I think if you step back and you say, is -- each of these areas have obviously their own benefits and disadvantages. On one hand, you could -- if you put an NDFI between you and a client, if the NDFI is full of bad actors, which by far, the vast majority of them are not, they're highly professional individuals who've worked at some of the biggest and most prestigious institutions in country, their whole life. I mean, I'm not saying that doesn't mean they can't turn out to be a bad guy and be willing to commit to a life in San Quentin or something, but it's not -- that's not really what happens normally. I think, frankly, you're more likely to -- much more likely to have fraud in small business and direct borrower loans on things like factoring and ABL, potentially than you are in these large cross facilities. And those large cross facilities protect you because any individual idiosyncrasies is there as well as the NDFI capital also protects you from those sorts of things. So life banking, it's full of trade-offs, right? And you just have to understand the nuances. So that's what it is. David Feaster: Yes. That's helpful. And I wanted to get a sense on the expansion in that floor plan space with the new team. Just kind of how that build-out and integration has been? It sounds like they've got a nice pipeline. I know we're still in the early stages there, but was just hoping to kind of get an update on that business line and any expectations you might have. Gregory Garrabrants: Yes. So they've got some accepted term sheets for some nice lines with some really strong borrowers. The nature of that business requires that for any of the floor plan lines, you have to go out and get MBRAs, which are essentially repurchase obligations of the manufacturers, which is obviously an awesome thing because if somehow the asset doesn't sell, then you can have the manufacturer take it back and pay you off. So we have a lot of those executed in these areas, facilitated by those things. And so I think we'll -- I think we'll have several hundred million dollars, let's say, by March 31, I would guess. Maybe that's a little aggressive of assets and lines funded in that business. David Feaster: That's great. And then just last one for me. Just wanted to get an update on the securities business and the white labeling within there of some banking products. I know this is still in the early stages, I believe, still in beta testing. But just kind of curious, maybe the build-out of the tech infrastructure in the securities segment broadly. And then when do you think we can roll out some of that white labeling of the banking products across the platform? Gregory Garrabrants: Right, right. So there's really 2 main components to our tech modernization effort in the custody and clearing business. And the team has named it Axos Complete, which is their marketing name for it. What it is, is it's an Axos Professional Workstation. So right now, the workstations that are utilized by the -- particularly the clearing team are truly antiquated FIS and those sort of things. And they're just -- they're not flexible. They're not modern so that they can integrate through API, everything or do they have all the bank's products that we want to be able to have through there. So that has been a really big push in the development side. It's benefited from AI. It is out now to multiple test, broker-dealers, and we're getting feedback and we have a rollout schedule there. So what's the benefit of that, just specifically with respect to banking, there are a lot of other benefits is that the banking products can be proxy enrolled, enrolled by the RIA. The RIA can get access to SBLOC lending products, secured credit cards, all those kind of things that would be available as they become available at the bank, they can be made available to the RIA and the client and sold through to that client with recommendations to do that, right? So that's one piece of it. That piece is being rolled out. It will be a 6- to 7-month rollout because we have to train a bunch of folks, and this is really the core system that they were using internally to do all their trading and everything else. And so -- and then the other component of it is really it's one tech build with different ways of looking at it. But essentially, there's the retail platform, which used to call Universal Digital Bank, but as it becomes more and more available to doing a lot of other things besides banking. We're calling it the Axos Client Portal now, and that will allow the end clients of the RIAs and broker-dealers to be able not only to have access to a bunch of workflow to enhance their operations, but also access to products. So that actually does work and the RIAs are adopting it. The platform that the RIAs use is actually something different. And so over time, we'll bring all of them together on it. There's a few things we have to develop on Axos Professional Workstation to make it be the one workstation for everything, and so that's ongoing. But I think at the end of all of this, I think we're really going to have an extremely modern tech stack that will be able to be quickly modified and flexible for our institutional and end clients, and really allow a very seamless way of interacting to cross-sell banking products or crypto or whatever we decide to do there. So I think it's really exciting. Everybody is excited about it. And I really -- I do see it even if it's an outsourcing bid or what we're doing internally, how much faster it is to develop. So it's a pretty big project, but it's also going well. Operator: And we'll go next to Tim Coffey with Janney Montgomery Scott. Timothy Coffey: I'm trying to get my arms around expenses going forward. Obviously, a lot of moving pieces. None of it was... Gregory Garrabrants: So am I. Tim, so am I. So am I, Tim. Timothy Coffey: Okay. Let’s figure this out then. Is my North Star an efficiency ratio? Or is it expenses to average assets? Gregory Garrabrants: Well, so what we've been saying as a hard cap, which I am sticking to and I have stuck to, and the Verdant deal throws it a little bit into a little bit into we'll readjust to that with Verdant, rebaseline it. But that our personnel expense and professional services growth will be -- the growth will be below 30% of the net interest income and noninterest income growth. So in other words, if we grow $1 in net interest and noninterest income, we will not grow more than $0.30 in our personnel and our professional services expense. Now there might be onetime things every now and then or something, but that's a pretty strong rail that we're managing to. And we've been able to do that well. I think AI is helping. We would expect to be able to do that with Verdant too. But we've given you the cost. I mean, Derrick gave you the cost directly of what Verdant is going to add. And then you should just model that in and then expect that, that growth is going to be underneath that. That doesn't give it to you perfectly because obviously, there's other categories of growth besides professional services and personnel, but that's 70-plus percent of it, there's not like there's going to be a ton of occupancy and other things. And so we're -- we believe we're managing it pretty well. But it's a little bit tough to do it on an efficiency ratio basis because there's obviously movements around margin and onetime payoffs of FDIC loans and all that kind of stuff. I think that's kind of more a way. So if you model in that kind of growth because everybody is watching their Ps and Qs and trying to figure out what they can afford to get to that number, then that's not a bad way to do it. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Johnny Lai for closing comments. Johnny Lai: Great. Thanks for everyone's time, and we will talk to you next quarter. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Joanna Filipkowska: Good morning, ladies and gentlemen. My name is Joanna Filipkowska, Investor Relations. Today, we are presenting the results of mBank Group in the third quarter of 2025. The speakers today are Mr. Pascal Ruhland, Chief Financial Officer; Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist. After the presentation, we will answer the questions that you can put into the chat box. Pascal, over to you. Pascal Ruhland: Also good morning from my side, and welcome to our results presentation. And I'm really pleased to share that we continue to deliver strong volume momentum and a robust financial results. And let's begin with a few achievements we are especially proud of and let's start with Slide 4. First, in the 9 months of '25, we generated revenues exceeding PLN 9.4 billion, a solid 5% increase year-on-year. Each quarter, revenue surpassed PLN 3 billion despite a 100 basis points drop in interest rates between May and September. Second, we maintained our best-in-class efficiency with a normalized cost-to-income ratio of below 30%, and this despite a strong increase in contribution to the bank guarantee fund. Third, our net profit reached PLN 2.5 billion, translating into a return on tangible equity of 20%. So you see we are firmly on track with our strategic priorities. So let's continue on Slide 5. Number four, our core gross loans, excluding reverse repo and FX mortgage loans grew by 11% year-on-year, reaching nearly PLN 134 billion now by the end of September. Fifth, our active Swiss franc loan portfolio is further shrinking to 7,500. Legal risk costs related to FX mortgage loans dropped by over 50% year-on-year, totaling PLN 1.66 billion in the first 3 quarters. Both new court cases and pending lawsuits continue to decline. And sixth, thanks to our successful PLN 400 million Tier 2 issuance in Q2 and our retained earnings, give significantly bolstered our capital base creating a solid buffer for our future growth expectations. Now moving to Slide 6. As announced at our Capital Markets Day, our ambition is to exceed 10% market share in all our key products by 2030. Since January, we have gained shares in house loans, mortgage loans, household deposits and enterprise loans. So we are growing faster than the market. In corporate deposits, we've already surpassed the 10% threshold. But for strong liquidity, we focus on client satisfaction and transactionality rather than price competition. Let's move now to Slide 7. And here, we share 2 mBank unique topics. Starting on the left side. We are very proud that we have been recognized by Forrester's Technology Strategy Impact Awards '25 for the EMEA region. This award acknowledges the scale and impact of our recent technology transformation, and please believe us that is more than just a tech upgrade. This is the foundation of our strategy enabling us to scale, innovate and deliver even greater value to our clients. Our second topic on the right hand of the chart is our world-first innovation. We introduced the first palm payment ring that combines payment functionality with health and activity tracking. This combination of finance and health fits also perfectly to our strategic ambition. And now I'm handing over to you, Marek who will elaborate about our recently announced transition plan. Marek Lusztyn: Yes. Thank you, Pascal. Good morning, everyone. So as Pascal just highlighted, just this week, we have published our transition plan. This is the foundation of our resilient business model. It well combines our target to get to the net 0 emissions with some business target we have announced last month. And we are proud to announce that we are the first bank in Poland with decarbonization targets, validated by the science-based initiative that ensures alignment with the Paris agreement on getting to 1.5 centigrades pathway. Transition plan of mBank translates our climate ambitions into the concrete business actions, sector-specific initiatives and measurable targets. And it is fully embedded into the business strategy for 2026 and 2030. What are our key milestones for 2030? First milestone is the absolute Scope 1 and 2 greenhouse gas insurance reduction by 42% by 2030 when compared with 2022 as a base year. And sectoral decarbonization targets are sector level are set for commercial real estate, power generation and residential real estate as well as for our assets under management and leasing. And on that, we would like also to recall how it is integrated with the business strategy that we have communicated last month. We assume that sales volume of mortgage loans for energy-efficient properties will double when compared to 2024 and 15% of corporate loan portfolio will be allocated to sustainable transition and impact finance. And Pascal, over to you. Pascal Ruhland: Thank you, Marek. So let's now turn to our Q3 financial performance on Slide 10. Total income remained nearly flat quarter-over-quarter with net interest income down 1.4% due to lower yields on loans and floating rate securities. The net interest margin declined by 23 basis points to 3.89%, reflecting the impact of rate cuts. Fee income held be steady, supported by strong payment card-related fees, and a one-off in connection to payment card company in the magnitude of PLN 42 million. Net trading and other income was nearly 17% quarter-over-quarter, driven by gains in hedge accounting and equity stake revaluation. For Q4, we expect revenues to decline NII will be pressured by lower rates despite expected volume growth. Fee income will be impacted by year-end adjustments and the absence of any one-offs. Going to the costs. Our operating cost increased 3.3% quarter-over-quarter, mainly due to double marketing spend. Personnel costs remained stable and depreciation normalized. For Q4, we expect a moderate quarter-on-quarter cost increase. It will mainly reflect planned regulatory and business project spending. Personnel costs will rise due to higher salaries from increased headcounts. Cost of risk stood at 61 basis points below our full year guidance, and as anticipated, higher than the very low previous quarters. Marek will go later into the details, but we expect the cost of risk to remain below 65 basis points for the full year '25 and due to seasonal corporate write-offs, Q4 is likely to exceed Q3. Legal risk related to the FX loans continued to decline, reaching PLN 455 million, the lowest since Q4 2022. So we saw now the seventh consecutive quarter to dropping impact. We clearly expect the trend to continue and guide that the next quarter is expected to be lower than Q3. As a result, net profit reached PLN 837 million, down 13% quarter-on-quarter, but up 46% year-on-year. The decline was driven by a higher effective tax rate, which rose nearly to 40%. And as you know, we calculate tax according to IAS 34 and the driver of the high tax rate are the barely tax-deductible Swiss franc-related legal risk costs. Nevertheless, we saw strong results with an ROE of 16.4% and a royalty of 18.9%. Let me skip the balance sheet slide and we jump directly to Slide 12, our new lending business. In Q3, we continued to expand our lending volumes. Our mortgage loan sales reached a record PLN 4.6 billion, up 24% quarter-on-quarter and 37% year-on-year. Over the first 9 months, volumes were up 35% higher than in the same period last year. Fixed rate loans dominated. Over 80% of the new PLN denominated mortgages in July and August and 75% in September. This now represents 52% of our PLN mortgage loan portfolio. The new sales leads us to the top 3 in the country. News in September is our first stage of our digital mortgage, enabling active clients with mBank personal accounts to transfer mortgages from other banks. The record time to a positive decision on mortgage transfers is below 7 minutes. Nonmortgage lending remained solid at PLN 3.4 billion in Q3, up 20% year-on-year. Sales over 9 months were up 22% higher than year-on-year. Turning now to the corporate loans. Loan sales rose 5% quarter-on-quarter with a strong growth in structured finance, especially in renewable energy, construction and district heating. Overdrafts and trade finance also increased. Looking at the 9-month period, corporate loans rose 23% year-on-year with the K1 segment, so our biggest customers, up over 60%. Structured finance accounted for 45% of the new sales, growing 34% year-on-year. The result of the sales efforts are reflecting the growth of the loan portfolio by 2.2% quarter-on-quarter and 9.6% year-on-year, visible on this Slide 13. We are seeing strong activity across all client groups. The result is that we're gradually enhancing our market share across all key products as presented on the right-hand side of the slide. These results demonstrate that the growth of our household and corporate loan portfolio is outpacing the broader market which is and remains our strategic priority. Now let's have a look at the group's deposit developments on the next slide. We recorded deposits growth of 4% quarter-on-quarter and 10.6% year-on-year. This was primarily driven by retail current and saving accounts. And as you can see on the left side of the slide, we've managed to improve our market share in household loan deposits while in the segment of enterprises, we observed mBank's market shares fluctuating between 10% to 11% over the past year. And as I've guided the income already before, we skip the next slide and go directly to Slide 16 and to our cost development. In Q3 2025, the group's operating cost rose by 3.3% quarter-over-quarter primarily due to the 12% increase in material costs. The most significant driver was on marketing expense, which doubled compared to Q2, reflecting strategic initiatives such as the cybersecurity campaign and the promotion of investment products for our retail clients. Personnel expenses remained stable despite a net increase of 60 FTEs since June. This stability underscores effective cost containment amidst strategic hiring. Depreciation declined normalized after the elevated Q2 levels that had included accelerated amortization of IT systems. And this leads us to a cost/income ratio below 30%. And with this, I'm again handing back to Marek for the risk result. Marek Lusztyn: Thank you, Pascal. So on the following slide, we can see our risk results. You can see a normalization of the risk costs, along with the rise of the credit provisions, in particular, for the corporate exposures as compared with Q2 2025. When just as a reminder, Q2 results were positively impacted by a few one-offs in corporate book, so that was not a normalized cost of risk for ourselves. Overall, as Pascal alluded to earlier, we guide our cost of risk for 2025 at under 65 basis points for the entire year. So that is a bit higher than what you have seen in Q3. But on the following slide, we would also like to point out that cost of risk led to an improved coverage ratio and coverage ratio of mBank Group improved both quarter-on-quarter and year-on-year. And overall, we have seen in Q3 improvement of the loan quality as demonstrated by decline in mBank Group impaired loan portfolio decline in mBank group nonperforming loans ratio, both year-on-year and quarter-to-quarter both in corporate and retail segments. Also going forward, as it comes to legal risk of mBank going beyond credit risk, that risk is decreasing as well. We are happy to report that a number of settlements concluded by mBank increases quarter-on-quarter. We have concluded additional 2,000 settlements in Q3 and over 11,000 settlements between September '24 and September '25. And based on publicly available data of the peers, it shows that we have the highest share of settlements when compared to the total number of loans in the peer group. Also, looking at new court cases, we see another quarter of a steady decline. The number of new Swiss franc-related court cancers went down by 15% to just over 600 in Q3 and that is the decline of the quarterly number of new cases by 52% when compared to the Q3 of the previous year. And that leads us also to a very significant decline of loan contracts in court. That is also the fastest drop when compared to the peer group. So the number of contracts in court declined by 62% year-on-year and 26% quarter-on-quarter. So overall, the number of court cases and number of active -- not yet certain cases, dropped below 10,000. You can see that on the following slide, and that's a massive decline compared to the starting point. Also, we are happy to report that outstanding balance sheet value of Swiss franc mortgage loans dropped almost to 0 in September 2025. So Pascal, back to you on our net results and profitability. Pascal Ruhland: Yes. Thank you. So all that development, we explained delivers us a net profit of PLN 837 million in Q3. And I just want to highlight that excluding the noncore segment, excluding the Swiss franc impact, the net profit in Q3 reached PLN 1.44 billion. As you can see, we are highly profitable for the 9 months, an ROE of 17.3% and a ROTE of 20%. Let's now go to our capital position on the next slide. Starting on the left of the chart. At the end of Q3, consolidated own funds reached PLN 20.2 billion, so up PLN 2.3 billion versus Q2. The increase was driven by 2 factors. The first one is retrospective inclusion of our profit of Q2, so the PLN 960 million. And the second topic was the inclusion of our PLN 400 million subordinated bond issued in June, which posted Capital Tier 2 which were partly offset by a PLN 0.2 billion early repayment of other subordinated bonds and the Tier 2 amortization. Moving now to our risk total exposure in the middle of the slide, which rose by 1.8% quarter-on-quarter and 18.3% year-to-date. This growth resulted from strong business growth and regulatory changes, including our implementation of the CRR provisions. Consequently, we show comfortable buffers above the PFSA minimum requirements. Now forward-looking. In Q4, we expect CET1 ratio remain relatively stable. RWA will increase due to further business expansion, and we might face an impact from operational risk RWA related to the Swiss franc as we're still analyzing the latest RTS. This RWA growth would be significantly offset by our securitizations, which we just issued in October. We issued our fifth securitization based on a portfolio of PLN 3.8 billion. This was the largest project finance securitization from the CEE region with a 75% focus on wind and solar renewables. And this, plus a ramp-up of an existing portfolio leads to an improved CET1 between 0.3 and 0.4 percentage points in Q4. Therefore, at the end of 2025, we expect to remain well above our strategic target of 2.5 percentage points above the CET1 requirements. Looking ahead to '26, our new strategy, Full Speed Ahead is expected to drive further RWA growth. The pace of this increase will depend on how quickly we can expand our market share. Most of the growth will be volume driven while the remainder is linked to the implementation of the group definition of default and the calculation of this past due, the timing and impact of these changes will depend on the supervisory decision. The estimated impact is approximately 4% of today's RWA. And let me now close my part here before I'm handing over to Marcin for the economic side, and we jump to Slide 28 for our outlook. You see here, first, we expect total income for 2025 to be fairly above PLN 12 billion, driven by our excellent performance of the business model which will result in the best year of mBank's history. Second, we maintain our view that '25 is going to be the last year with a significant cost of legal risk related to the FX mortgage loans. Third, we definitely focus further on business expansion and growing market shares. And four, we continue also our efforts to strengthen our capital and funding position. So before year-end, we plan to conduct an issuance of a nonpreferred senior in green format and a benchmark size of PLN 500 million. And now Marcin, the floor is your for the economic view. Marcin Mazurek: Thank you, Pascal. Good morning, everyone. So I have only good news today. So with regard to Polish growth, we are heading towards much higher numbers with a 4 ahead. So the next year is going to end up 4.2%. This is a significant acceleration from this year. What is driving this growth? So consumer stays strong. The consumer moods are high. Wages are running also quite high. And well, consumer behaves much better than we could have expected a year ago. Additionally, unemployment rate stays low and well. What we are waiting for is mostly acceleration of investment activity. And it's going to happen due to the fact that we will have a huge inflow of EU funds in 2026. So we are also going to see double-digit growth in investment spending. So with this a bit higher growth, also inflation is going to be a bit higher. And what's most important trajectory is going to be upward sloping. So with the trough at around 2% in the first quarter of 2026, we expect inflation to slowly drift towards almost 4% in the end of 2026. So it's not a big deal with respect to inflationary processes. Inflation is not going to be exactly at NDP target, but it makes its effect on interest rates. So we expect 2 more rate cuts from the NPC and they are going to end the cycle at 4%. And this is going to happen at the start of 2026. It is important to note because the markets are pricing in much lower rates at the moment and also the consensus is lower. So summing up the economic parts it seems that we are above the consensus with respect to GDP, a little above the consensus for both inflation and clearly above the consensus with regard to interest rates. When you look at monetary aggregates, it seems that everything is firing on all cylinders. So loans are slowly accelerating. Deposit growth is holding up. So we are seeing, I would say, standard activity given the phase of the cycle, and it's going to be continued at least through 2026. As far as financial markets are concerned, we see some decrease in bond yields recently. But overall risk metrics like asset swap spread stay relatively high due to the prospects of relatively expansionary fiscal policy. As far as zloty is concerned, Polish currency is stable recently, it got appreciated towards the U.S. dollar, but it was not about the strength of the zloty, but rather the weakness of the dollar. Overall, it seems that we are having a quite rosy outlook ahead and good conditions for functioning of the banking system in 2026. Thank you very much. Joanna Filipkowska: Thank you very much, Marcin. Now we can start our Q&A session. The first question is regarding the tax line. Can you guide us through the tax line in the third quarter and the potential EBITDA effect in Q4? Pascal Ruhland: So the tax line, as I was alluding to was elevated because we are calculating after IAS 34. So what we do is we, every time calculate the full year tax impact. And the normalized corporate income tax or the tax you could expect from us is around 25%. If you're not taking into account that we are heavily burdened from our Swiss franc-related legal provisions because they are to the vast majority, not tax deductible. And while we have now a change between the 2 quarters is because some parts of the Swiss franc-related topics, for instance, settlements are tax deductible. But as we also see that settlements are slowing down and also the way of settlements are slightly changing, it was less favorable for us than in the previous quarter. The second question towards DTA effect or DTA revaluation in the Q4 with related to the Swiss franc, we do not expect that there is a major change in that respect. Joanna Filipkowska: Which portion of Q1, Q3 2025 net profit has been recognized at CET1? Can you provide any guidance on the extraordinary effect on risk-weighted assets for Q4? Pascal Ruhland: Yes. So what we have already included in our capital is the Q1 and the Q2 net profits we have gained. And every time you just include it after you have the content for including from the regulator. So we also planned for Q4, obviously, that we include Q3. But in our figures, Q3 is not yet included. With respect to the RWAs, I've guided that we expect further volume growth, which will fuel our RWAs plus that in Q4, we might face an increase of RTS, which is related to the CRR and also would then impact our op risk, but this is not yet certain. And nevertheless, the bottom line is that we do not expect a big change of our capital position, and therefore, the buffers we would see from today's perspective in Q4. Joanna Filipkowska: Thank you, Pascal. What level of Swiss franc portfolio costs should we expect in 2026? What would you define as significant Swiss franc provisions? . Pascal Ruhland: So first of all, we expect clearly the trend is going down. So every quarter to come, supposed to be lower than the quarter before hand. And we are very pleased that we are ending now, as Marek was saying it, with our active approach towards settlements, the incoming flows because we are really reducing the leftover risk. And in 2026, we expect that we less talk about the numbers, and therefore, it is less significant. Joanna Filipkowska: You mentioned that NII would be under pressure despite balance sheet growth. Are you concerned NII will be declining going forward? Pascal Ruhland: As Marcin was from an economic point of view saying it, we expect that interest rate further to decline. And obviously, as interest rates are declining, net interest income is under pressure. From today's perspective, we don't expect that 2026 will be a harsh increase of NII further, as we have seen in the last years because the volume will partly compensate the negative impact from the interest rate environment. Joanna Filipkowska: Thank you, Pascal. What is the nature of PLN 43 million, actually a little bit less than PLN 33 million, PLN 41 million, Q3 '25 card one-off. Pascal Ruhland: I mean that's a structural commitment from one of the payment providers, which is onetime paid towards us why we engaged with this payment provider. And as you said, it's PLN 41 million, PLN 42 million, and it's not recurring. Joanna Filipkowska: Then we have 2 questions that are quite detailed about our volumes of mortgage loan sales. So the first one is what was the volume of mortgages originated fully remotely? And the other one, what share of your mortgage or origination is attributed to refinancing and what's the new mortgages? Marek Lusztyn: So starting on the refinancing. I mean we see this trend picking up in the Polish banking sector. I'm happy to say that the refinancing balance is favorable for mBank. mBank refinances more loans from the other brands than we lose to our competitors. And that positive net balance is in tens of millions in terms of the volume year-to-date. And most -- more than 80% of clients refinancing externally were our affluent clients. What we actively monitor is to which banks our clients are moving to and also the key drivers of the mortgage prepayments. And on that, we clearly see that rising wages that margin was alluding to dropping interest rates and the gap between the deposit interest rates and higher loan mortgage rates, the lack of early repayment fees or fixed rate loans, which is a Polish specificity, full repayment of loans after selling the previous property are the key drivers. Joanna Filipkowska: Yes. And the last one, what share of your mortgage origination is attributed to the financing -- sorry, what was the volume of mortgages originated fully remotely? This one was not covered yet. Pascal Ruhland: That's something we, I guess, not disclosing to the external is we are very proud that we especially started and I said it, with a really fully digital refinancing as the first from a to set in-house, walk through in a digital manner to really get the mortgage done because I believe nowadays, most of the banks giving you an online platform, which on a front end looks like that it's digital, but in the end, there are lots of manual work, and we wanted to go the route as we are known for that this is a fully digital process. And therefore, we are very proud that we have started, and we expect that this channel will grow fast. Joanna Filipkowska: Thank you, Pascal. It seems that we don't have any more questions. So thank you very much for your attention and for the questions, and have a nice day. Bye-bye. Pascal Ruhland: Thank you very much. See you next year.
Operator: Good afternoon, and thank you for standing by. Welcome to the Westlake Chemical Partners Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded today, October 30, 2025. I would now like to turn the call over to your host, Jeff Holy, Westlake Chemical Partners' Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you, Gerald. Good afternoon, everyone, and welcome to the Westlake Chemical Partners Third Quarter 2025 Conference Call. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the Partnership. References to Westlake refer to our parent company, Westlake Corporation, and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the Partnership, which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the Partnership's website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website. This morning, Westlake Partners issued a press release with details of our third quarter 2025 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com. A replay of today's call will be available beginning 2 hours after the conclusion of this call. The replay can be accessed via the Partnership's website. Please note that information reported on this call speaks only as of today, October 30, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2025 results. In this morning's press release, we reported Westlake Partners' third quarter 2025 net income of $15 million or $0.42 per unit. Compared to the second quarter of 2025, our third quarter sales and earnings benefited from the completion of the planned turnaround at our Petro 1 ethylene unit in Lake Charles, Louisiana during the second quarter. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve? Steven Bender: Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' third quarter 2025 net income of $15 million or $0.42 per unit. Consolidated net income, including OpCo's earnings was $86 million on consolidated net sales of $309 million. The Partnership had distributable cash flow for the quarter of $15 million or $0.42 per unit. Third quarter 2025 net income for Westlake Partners of $15 million was lower than the third quarter 2024 Partnership net income, partially due to lower margins on sales of ethylene to third parties. Distributable cash flow of $15 million or $0.42 per unit for the third quarter of 2025 decreased by $3 million compared to the third quarter of 2024 due to higher maintenance capital expenditures as a result of changes in the timing of maintenance activities in 2025 as compared to 2024. Turning our attention to the balance sheet and cash flows. At the end of the third quarter, we had consolidated cash and cash investments with Westlake through our Investment Management Agreement totaling $51 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and the remaining $23 million was at OpCo. In the third quarter of 2025, OpCo spent $30 million on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately 1x. On October 28, 2025, we announced a quarterly distribution of $0.4714 per unit with respect to the third quarter of 2025. Since our IPO in 2014, the Partnership has made 45 consecutive quarterly distributions to unitholders, and we have grown distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit. Partnership's third quarter distribution will be paid on November 26, 2025, to unitholders of record November 10, 2025. The Partnership's predictable fee-based cash flow continues to prove beneficial in today's economic environment and is differentiated by the consistency of our earnings and cash flows. Looking back, since the IPO in July of 2014, we've maintained a cumulative distribution coverage ratio of approximately 1.1x. And with the Partners stability in cash flows, we were able to sustain our current distribution without the need to access capital markets at all. For modeling purposes, we have no planned turnarounds for the remainder of 2025 or in 2026. Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc? Jean-Marc Gilson: Thank you, Steve. The stability of Westlake Partners business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risk. The high degree of stability in cash flow when paired with the predictability of our model has enabled us to deliver a long history of reliable distributions and coverage. As a result of its importance to the stability of our cash flows, I'm pleased that earlier this week, OpCo and Westlake agreed to renew the Ethylene Sales Agreement through the end of 2027 with no changes to the contract terms or conditions. The renewed Ethylene Sales Agreement maintains the same pricing formula and sales volume protections that have provided the Partnership with a distributable cash flow to make 45 consecutive quarterly distributions to unitholders since its IPO in 2014. Furthermore, we believe that Westlake's decision to renew the Ethylene Sales Agreement under the same terms that have been in place since its origination demonstrates the critical nature of OpCo's supply of ethylene to their operations and their commitment to support OpCo's continued safe, reliable operations through stable, predictable cash flows. Turning to our outlook. Global industrial and manufacturing activity remains soft in 2025, which is broadly impacting the global chemical industry. Despite the challenging global macroeconomic backdrop, the Partnership financial performance and distributions will continue to be supported by our Ethylene Sales Agreement which provides a predictable fee-based cash flow structure from our take or pay contract with Westlake for 95% of OpCos production. As has been the case since our IPO over 10 years ago, this Ethylene Sales Agreement has delivered stable and predictable cash flow to economic ups and downs, as well as planned and unplanned turnarounds. Turning to our capital structure. We maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our 4 levers of growth, in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams, organic growth opportunities such as expansion of our current ethylene facilities, and negotiation of a higher fixed margin in our Ethylene Sales Agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distribution to our unitholders. As always, we will continue to focus on safe operations along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our third quarter earnings call. Now I will turn the call back over to Jeff. Jeff Holy: Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide instructions to access the replay at the end of the call. Gerald, we will now take questions. Operator: [Operator Instructions] Our first question will come from James Altschul from Aviation Advisory Services, Inc. James Altschul: I noticed that the distributable cash flow for the quarter was less than the amount of distribution per unit. What is the outlook for getting the distributable cash flow up to a level, again, where the distribution will be covered? Steven Bender: Yes. The entire reason for that was the planned turnaround. And when we have planned turnarounds, it does impact, of course, production and therefore, sales. And so it's not unusual when we have these planned turnaround events for our coverage ratio to dip below the 1.1 target and to have some impact on those -- on that cash flows. But we have an operating surplus that is quite robust, and we'll continue and have continued to pay those distributions out of that operating surplus. And now that we've completed that turnaround successfully and back in full production, that operating surplus should continue to build, and I would fully expect that distribution to continue to be well covered by the cash flows of the business. James Altschul: Okay. So is it reasonable to assume on a pro forma basis, if we -- you would not have the impact of the turnaround that distributable cash flow would have been in excess of the distribution? Steven Bender: Yes, it would have. Operator: Just give me a second to see if anyone else would like a question. So at this time, I'm showing no further questions. And I'd like to hand it back to Jeff for closing remarks. The floor is yours, Jeff. Jeff Holy: Thank you. Thanks again for participating in today's call. We hope you'll join us for our next conference call to discuss our fourth quarter 2025 results. Operator: Thank you for participating in today's Westlake Chemical Partners Third Quarter 2025 Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Thursday, November 13, 2025. The replay can be accessed via the Partnership website. Goodbye. This does conclude the program. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the Landmark Bancorp, Inc. Third Quarter Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is my now my pleasure to hand over to your host, Abby Wendel, President and CEO, to begin. Please go ahead. Abigail Wendel: Thank you, Lucy. Good morning, and thank you for joining our call today to discuss Landmark's earnings and operating results for the third quarter of 2025. My name is Abby Wendel, President and CEO of Landmark Bancorp. On the call with me to discuss various aspects of our third quarter performance are Mark Herpich, Chief Financial Officer; and Raymond McLanahan, Chief Credit Officer. As we start, I would like to remind our listeners that some of the information we will provide today falls under the guidelines for forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, I must point out that any statements made during this presentation that discuss our hopes, beliefs, expectations or predictions of the future are forward-looking statements, and our actual results could differ materially from those expressed. We include more information on these factors from time to time in our 10-K and 10-Q filings, which can be obtained by contacting the company or the SEC. By now, we hope you have had a chance to review our press release, which announced our financial results for the third quarter of 2025 yesterday afternoon. You can find it on our website at www.banklandmark.com in the Investors section. Landmark reported another solid quarter of results, which reflect the hard work and commitment of our associates whose efforts continue to elevate Landmark's position in the market. Net income for the third quarter totaled $4.9 million or $0.85 per diluted share compared to $3.9 million or $0.68 per diluted share in the same period last year, an increase of 24.1% in diluted earnings per share. This year-over-year increase in earnings primarily reflects growth in net interest income and prudently managed expenses. Our return on average assets improved to 1.21% for the quarter and return on average equity improved to 13.0%. We maintained a steady net interest margin and improved our efficiency ratio to 60.7% in the third quarter while simultaneously investing in new talent throughout the bank and across our footprint. Total loans were flat this quarter based on period-end balances, while average loans grew nearly 10% on an annualized basis compared to the prior quarter. Brokered deposits were the primary driver of deposit growth in the third quarter. However, we also saw solid growth in noninterest-bearing demand deposits, and we reduced our reliance on FHLB and other borrowing sources. I'm happy to announce we made significant improvements in our overall credit quality this quarter as nonperforming loans declined by almost $7 million, mostly from the resolution of a large commercial loan on nonaccrual status discussed in previous quarters. Our tangible book value per share increased to $20.96, up 6.6% on a linked-quarter basis and 15.7% from the end of the third quarter of 2024, primarily -- due primarily to solid growth in retained earnings and a reduction in our accumulated other comprehensive loss. I am pleased to report as well that our Board of Directors has declared a cash dividend of $0.21 per share to be paid November 26, 2025, to shareholders of record as of November 12, 2025. This represents the 97th consecutive quarterly cash dividend since the company's formation in 2001. The Board also declared a 5% stock dividend to be issued December 15, 2025, to shareholders of record on December 1, 2025. This represents the 25th consecutive year that the Board has declared a 5% stock dividend, a continued demonstration of our long-term commitment to support growth in value and liquidity for our shareholders. Landmark's capital and liquidity measures are strong, and we have a stable low-cost core deposit base, thanks to the network of community-based banking centers we operate and our relationship banking model. We remain risk-averse in both monitoring the company's interest rate and concentration risks and in maintaining a strong credit discipline. As we look ahead, we look forward to building on the momentum of the third quarter. We will continue to invest in talented associates and make infrastructure upgrades to support continued customer growth while making Landmark an exceptional place to work and bank. I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in detail with you. Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance in the third quarter of 2025, I'll provide some additional details on these results. Net income in the third quarter of 2025 totaled $4.9 million compared to $4.4 million in the prior quarter and $3.9 million in the third quarter of 2024. Compared to the prior quarter, the solid growth in net income this quarter was mainly due to continued increases in net interest income and higher noninterest income. In the third quarter of 2025, net interest income totaled $14.1 million, an increase of $411,000 compared to the second quarter of 2025 due to higher interest income. Total interest income on loans increased $597,000 this quarter to $17.8 million due to higher average loan balances. Average loans increased by $26.7 million and while the tax equivalent yield on the loan portfolio remained steady at 6.37%. Interest income on investment securities increased slightly to $2.9 million this quarter due to a small improvement in our yield earned on our investment securities balances, while our average investment securities balance declined slightly by $1.2 million. The yield on investment securities totaled 3.35% in the current quarter compared to 2.99% in the third quarter of 2024. Interest expense on deposits in the third quarter of 2025 increased $266,000 due to a mix -- a shift mix in our interest-bearing deposits, which grew by $19.1 million. Interest expense on borrowed funds decreased by $36,000 due to lower average balances. The average rate on interest-bearing deposits increased 4 basis points to 2.18%, mainly due to growth in certificates of deposits, which have higher rates. The average rate on our other borrowed funds increased 11 basis points to 5.09% in the third quarter as our lower cost repurchase agreement balances dropped. Total cost of funds was 2.44% for the quarter ended September 30, 2025, a decrease of 38 basis points as compared to the third quarter of 2024. Landmark's net interest margin on a tax equivalent basis held steady at 3.83% in the third quarter of 2025 as compared to the second quarter of 2025. In comparison to the comparable third quarter of 2024, our net interest margin improved by 53 basis points. This quarter, we provided $850,000 to our allowance for credit losses after taking a $1 million provision in the prior quarter. Net charge-offs totaled $2.3 million in the third quarter of 2025, which mostly pertains to the resolution of a previously disclosed commercial loan. This compares to net charge-offs of $40,000 in the prior quarter. At September 30, 2025, our allowance for credit losses of $12.3 million remains strong and represents 1.10% of gross loans. Noninterest income totaled $4.1 million this quarter, an increase of $442,000 compared to the prior quarter. The increase was primarily due to growth in gains of $208,000 on sales of mortgage loans, coupled with a $184,000 increase in fees and service charges related to higher deposit-related fee income. Noninterest expense for the third quarter of 2025 totaled $11.3 million, an increase of $290,000 compared to the prior quarter. This increase related primarily to increases of $206,000 in professional fees, $120,000 in occupancy and equipment expense and $70,000 in compensation and benefits expense. The increase in professional fees was driven by higher consulting costs during the quarter. Partially offsetting these increases was a decrease in data processing expense this quarter. The combination of growth in noninterest income, coupled with control over our expenses has resulted in our efficiency ratio improving to 60.7% for the third quarter of 2025 as compared to 66.5% in the third quarter of 2024. This quarter, we recorded a tax expense of $1.1 million, resulting in an effective tax rate of 18.7% as compared to tax expense of $944,000 in the second quarter of this year or an effective tax rate of 17.7%. Gross loans remained relatively flat in comparison to the second quarter at $1.1 billion. However, our average loans grew by $26.7 million or approximately 10% annualized during the third quarter. During the quarter, actual loan growth was primarily comprised of an increase in our commercial and residential real estate loan portfolios, but offset by lower commercial and construction loan portfolios. Investment securities decreased $2.4 million during the third quarter of 2025, mainly due to maturities exceeding our level of purchases. Pretax unrealized net losses on our investment portfolio declined by $4.7 million to $9.2 million this quarter, and our investment portfolio has an average duration of 3.7 years with a projected 12-month cash flow of $85.8 million. Deposits totaled $1.3 billion at September 30, 2025, and increased by $51.6 million on a linked-quarter basis. Compared to the prior quarter, certificates of deposits grew by $22.9 million. Interest checking and money market deposits increased by $16.5 million and noninterest checking grew by $14 million. Average interest-bearing deposits, however, increased by $19.1 million in the third quarter of 2025, while average borrowings declined by $6.0 million during the quarter. Our loan-to-deposit ratio totaled 83.4% at September 30 and continues to provide us sufficient liquidity to fund future loan growth. Stockholders' equity increased $7.4 million during the third quarter to $155.7 million at September 30, 2025, and our book value increased to $26.92 per share at September 30 compared to $25.66 per share at June 30. The increase in stockholders' equity this quarter mainly resulted from a decline in our other comprehensive losses driven by lower net unrealized losses on our investment securities, along with net earnings from the quarter. Our consolidated and bank regulatory capital ratios as of September 30, 2025, are strong and exceed the regulatory levels considered well capitalized. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook. Raymond McLanahan: Thank you, Mark, and good morning to everyone. As noted earlier, loan growth for the third quarter was relatively flat on a period-end basis, although average loans grew $26.7 million or 9.8% on an annualized basis. We saw increases in our commercial real estate, mortgage and consumer portfolios. However, these were offset by reductions in our commercial, construction and land and agricultural loan portfolios. Our commercial real estate portfolio grew by $19 million this quarter, while our mortgage and consumer portfolios increased $4.5 million and $1.4 million, respectively. However, commercial and construction and land loans declined by $17.6 million and $6.6 million, respectively. Turning to credit quality. Nonaccrual loans declined by $7 million this quarter, while net loan charge-offs totaled $2.3 million, mostly driven by the resolution of a large commercial loan relationship we previously disclosed in Q3 of last year and had been on nonaccrual. Excluding this commercial loan, net loan losses remained low. Additionally, a $1 million commercial real estate loan was placed on nonaccrual last quarter has now been fully collected. The balance of past due loans between 30 and 89 days still accruing interest increased slightly, totaling $4.9 million or 0.43% of gross loans. Net loan charge-offs for Q3 totaled $2.3 million compared to just $9,000 in Q3 of 2024. Year-to-date net loan charge-offs represented 0.29% of average loans. Our allowance for credit losses stood at $12.3 million or 1.10% of gross loans. Our Kansas economy has remained healthy. As of August 31, the seasonally adjusted unemployment rate was 3.8% according to the Bureau of Labor Statistics. Regarding housing, the Kansas Association of REALTORS recently reported that home sales in the state increased 1.2% year-over-year in September. The median sale price rose 5.5% from a year earlier, and the association also reported that homes sold in September were typically on the market for 15 days and sold for 100% of their list prices. We recognize that investors are closely watching asset quality across the banking sector. We remain vigilant in our underwriting, portfolio monitoring and recovery efforts. Our strategy continues to emphasize a resilient relationship-driven approach. We're confident in the strength of our portfolio and our ability to navigate evolving market dynamics. With that, I thank you. I'll turn the call back over to Abby. Abigail Wendel: Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the third quarter. Growth in average loan balances, a steady margin and higher noninterest income all contributed to solid revenue growth this quarter. We are focused on maintaining solid credit quality given the uncertainties in the economy, and we continually look for efficiencies in our operations. With the operating success we've had over the past few years and the high-quality banking products and services we offer, our bank is well positioned to further grow our business and add to our customer base. We continue to work on strengthening our existing customer relationships and are focused on growing lending and fee businesses across all our markets. Finally, I'd like to thank all the associates at Landmark National Bank. Their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is key to our success. And with that, I'll open up the questions -- I'll open up the call to questions that anyone might have. Operator: [Operator Instructions] We currently have no questions submitted. So I'd like to hand back to Abby for closing remarks. Abigail Wendel: Thank you. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in the company, and I look forward to sharing news related to our fourth quarter 2025 results at our next earnings conference call. I hope everyone has a great day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning ladies and gentlemen and welcome to the Vontier Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Good morning everyone and thank you for joining us on the call this morning to discuss our third quarter results. With me today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meanings of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to slide 3 and I'll turn the call over to Mark. Mark Morelli: Thanks Ryan and good morning everyone. Thank you for joining us on the call today. I'm pleased with the traction we are seeing from our Connected Mobility strategy which we outlined in greater detail at our Convenience Retail Showcase two weeks ago. We've realigned the organization to better execute our strategic vision. We're reinvigorating new product development and building significant competitive advantages. We're the clear leader in this space with some of the industry's most innovative integrated solutions. I'm encouraged by the progress we are making, which is reinforced in our customer conversations. I'll touch on a few takeaways from our event in a few minutes. Turning to the quarter, we delivered solid Q3 results in a dynamic environment. The quarter played out as expected, consistent with the preliminary numbers we shared at our investor event. Our sales, adjusted operating margin, and EPS landed at or near the high end of our guidance. Our teams remain disciplined on execution, advancing our 80/20 simplification efforts and tariff mitigation actions while delivering on the critical needs of our customers. Core sales were essentially flat for the quarter. Solid underlying performance at Mobility Tech and Environmental & Fueling was offset by ongoing macro-economic pressures at our Repair Solutions segment. Importantly, demand within the convenience retail end market remains constructive and contributed to the quarter's momentum, and we see the Repair segment stabilizing sequentially. Our car wash business returned to growth a quarter ahead of expectations as customers are adopting our cloud-based Patheon solution. This solution, which we featured at our investor event, helped us secure some key wins in the quarter and has a growing pipeline of opportunities in convenience retail. Our unified payment and remote asset management solutions are delivering real value for our customers, driving low double-digit growth across retail solutions. We have generated more than $275 million of adjusted free cash flow year-to-date, and we've deployed roughly $175 million of that to share buybacks so far this year. We also took a few targeted portfolio actions in the quarter, divesting two non-core assets and exiting a minority equity stake. Concrete examples of our 80/20 simplification work in action. Our decision to exit these businesses is a result of regional simplification efforts to sharpen our product and go-to-market focus, improving the overall growth and margin profile of Vontier. Given our solid execution year-to-date and the traction we're seeing in our end markets, we're raising the midpoint of our full-year guidance, and Anshooman will provide more details in a few minutes. I'm encouraged by the fact that core growth is now tracking above 2% for the year, particularly as we've absorbed the impact from two businesses that have reset over the last 12 to 24 months. We expect mid-single-digit adjusted operating profit growth and remain on track for roughly 10% adjusted EPS growth this year. This combination reinforces a solid value creation algorithm. Turning to Slide 4, as many of you are aware, we held a successful investor event at the annual National Association of Convenience Stores Trade Show two weeks ago and used that forum to highlight the comprehensive platform we've built for convenience retail. We're now a more focused, higher-performing business with a more synergistic portfolio and broader, more comprehensive solutions. Our connected mobility strategy differentiates us. We are delivering integrated site-wide solutions that combine hardware, software, connectivity, and services to help our customers navigate complexity. This lowers their operating costs and unlocks growth through improving consumer engagement. These end-to-end solutions expand our total addressable market and create recurring revenue opportunities. Our recently announced go-to-market strategy simplifies the sale and deployment of our differentiated solutions through key account managers, while streamlining processes, reducing friction, and speeding development with shorter sales cycles. Moving to Slide 5, our refreshed value creation framework rests on 3 pillars. Pillar 1 supports accelerating organic growth via connected mobility and innovation. Pillar 2 focuses on optimizing our core operations to drive improved and more consistent margin expansion through the Vontier Business System, and Pillar 3 guides how we deploy capital effectively, dynamically prioritizing the highest return options available as we look toward 2026. Each pillar will play a key role in delivering results. Assuming a similar macro backdrop extends through next year, we expect the convenience retail end market to be constructive. As we discussed at our investor event, we target above-market growth led by our convenience retail solutions, including accelerating growth in car wash. We have strong multi-year secular tailwinds extending into 2026 and beyond. Repair Solutions demand is likely to remain soft, though distributor inventories are lean and we are seeing sequential revenue stabilization. We expect better operating margin performance in 2026 driven by underlying productivity improvements, increased R&D efficiency, continued 80/20 simplification efforts, and more favorable mix as volumes at car wash and Repair Solutions normalize. On top of this, we expect modest margin accretion from the portfolio management actions we are taking on capital deployment. Our approach will be consistent with what you've seen from us, balancing organic investment with shareholder returns and balance sheet health. To summarize, our strategy is working. We delivered strong, disciplined execution in Q3, converted that into cash, refined the portfolio, and we're advancing our connected mobility strategy to capture incremental share gains. We will continue to manage near-term costs and tariff pressures while investing where we see the best returns and positioning the company for above-market growth in key end markets. I want to thank our teams for their focus and agility. Their dedication to continuous improvement through the Vontier business system gives us confidence to raise our outlook and to keep executing with discipline. With that, I'll turn the call over to Anshooman Aga to walk through the quarter's financial details. Anshooman Aga: Thanks Mark and good morning everyone. I'll start off with a summary of our consolidated results for the third quarter. On Slide 6, we delivered results at the higher end of our guidance, demonstrating the resilience of our portfolio and the effectiveness of our operational execution. Total sales of $753 million were largely flat with the prior year. Adjusted operating profit margin held steady, and adjusted EPS increased high single digits to $0.78. Adjusted free cash flow of $94 million came in at 82% conversion, including a modest net headwind related to the timing of cash tax payments made in the third quarter. On a year-to-date basis, we have generated over $275 million in adjusted free cash flow, approximately 12% of sales. Turning to our segment results, starting on Slide 7, Environmental & Fueling Solutions delivered core growth of approximately 2% in line with our guidance for low single-digit growth. Our sequential Q3 performance reflects an exceptionally strong Q2 driven by shipment timings tied to appliance maintenance outage and ERP go-live. Despite these timing impacts, North America dispenser sales increased mid single digits during the quarter. This was offset by softer performance at international markets related to timing of large tenders. These results, measured against the prior quarter timing dynamic and a strong prior year comparison of 9%, underscore the team's disciplined execution. Solid demand tied to new build activity from large national and regional players as well as healthy refresh and replacement activity continues to support growth in both above and below ground fueling equipment. Segment operating margin declined approximately 20 basis points ahead of our guidance for a 50 to 75 basis point decline, supported by ongoing simplification efforts. On Slide 8, Mobility Technologies core sales grew approximately 5% supported by high single-digit bookings. Core growth was led by continued strength at Retail Solutions, up low double digits in the quarter, and car wash returning to year-over-year growth, up low single digits. We are seeing strong global adoption of unified payment and point-of-sale technologies, which together were up high teens in the quarter. That's especially notable given these products grew nearly 50% in Q3 last year. And as Mark mentioned at the start, we're encouraged by core growth in car wash inflecting positive one quarter ahead of schedule. This was mostly the result of strong demand for Patheon software upgrades, which experienced mid-teens growth in the quarter. Mobility Tech's margins increased over 40 basis points versus the prior year, reflecting the benefits of simplification efforts and improved R&D efficiency, partially offset by unfavorable mix. Finally, on slide 9, Repair Solutions sales declined 7% versus the prior year as ongoing macro-economic conditions continue to weigh on service technician spend. This was slightly ahead of performance we saw in the first half, and we are starting to see signs of stabilization. Sell-through off the truck once again exceeded sell-in, indicating continued destocking by our distributors. While high-ticket product categories, including tool storage and diagnostic, remain challenged, we're seeing momentum in lower price point offerings. Segment margin declined approximately 50 basis points, primarily related to lower volume, partially offset by stronger contributions from price cost. Turning to the balance sheet and cash flow, on Slide 10, we completed another $70 million in share repurchases in the quarter, bringing us to $175 million in buybacks year-to-date. Net leverage ended the quarter at 2.4x. We exited a minority equity position and completed divestiture of two small encore businesses: a European service business, a part of EFS, and a small point-of-sale solution to the oil and quick lube end market within Mobility Tech. In total, this netted us $60 million in proceeds. On a pro forma annualized basis, these transactions remove approximately $70 million in sales at approximately 10% adjusted operating margin. Turning to our updated outlook assumptions for Q4 and the full year on Slide 11. For the fourth quarter we project revenues in the range of $760 million to $770 million, with core sales roughly flat at the midpoint. Adjusted EPS is expected in the range of $0.82 to $0.86, up mid-single digits at the midpoint. Our Q4 outlook includes a net headwind of approximately $15 million in sales and around $2 million of adjusted operating profit related to the divestitures I discussed. For the full year, we are raising the midpoint of our guidance range. We now expect sales of just over $3.03 billion at the midpoint, with core sales up 2% to 2.5%, reflecting continued strength within our Mobility Tech and EFS segments, which have more than offset the weakness seen in Repair Solutions this year. We're expecting operating margin expansion in the range of 20 to 40 basis points and now guide to adjusted earnings per share of $3.18 at the midpoint. We've updated our other guidance assumptions, which can be found on the right hand side of the slide. We entered the third quarter with a clear view of expected timing dynamics, and our teams delivered accordingly. Our strategic priorities remain unchanged. We're focused on operational excellence, unlocking self help opportunities, and driving innovation across our portfolio. Throughout 2025, our teams have proactively mitigated the inflationary impacts of tariffs and navigated broader macro uncertainty to support margin expansion and continued growth. At the same time, we're taking meaningful steps to optimize our cost structure and expect solid margin expansion next year. With strong fundamentals and cash generation, I'm confident that we are well positioned to deliver consistent performance and long term value. With that, I'll pass the call back over to Mark for his closing comments. Mark Morelli: Thanks, Anshooman. We are pleased with our results year-to-date, which have exceeded our guidance ranges and enabled us to consistently raise our outlook for the year. 2025 has been impacted by headwinds including significant cost inflation and related economic uncertainty caused by tariffs. As Anshooman mentioned, our teams have responded well. I'm proud of the way we have executed against an incredibly complex backdrop. Our connected mobility strategy, deep domain expertise, and broad service network provide us with a clear competitive advantage to capitalize on secular tailwinds across our three end markets. I'm also proud of the progress we've made to advance our strategy and align our organization, both of which lead to accelerating top line performance ahead. I want to take the opportunity to thank everyone who was able to make it to our investor showcase in Chicago recently. This was a milestone event for Vontier in terms of demonstrating progress and in illustrating the opportunity in front of us. This sets us up to better deliver long term value creation for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research. Please go ahead. Jeffrey Sprague: Mark, I was wondering if you could give us a little more color on sort of what you're seeing on the order front and some of the kind of longer cycle aspects of the portfolio. You know, you mentioned some project investment work in DRB, you know, these international tenders you mentioned. How far do those reach out? Just trying to get an early sense of maybe the exit rate or the setup into 2026 and some of those more visible parts of the portfolio. Mark Morelli: Yes, Jeff, happy to answer that. Look, I think what you've seen is the changes occurring at Vontier have led to some longer cycle type selling of digital solutions for our customers. They tend to be quite significant in size. Their selling cycle is a bit longer than maybe selling dispensers which are more shorter cycle. You've seen that run through our P&L and also in our order book. Our orders were just under one for the quarter, but if you look at it on a year over year basis and a two year stack, it's a pretty good level that we're running at. We've also made some announcements for some orders that will be landing for next year as well. I think when you I'll give you a really good example of this, in our car wash business that turned a quarter ahead of where we've told the street. It's really on the backs of bringing this type solution to market. It's an enterprise software solution where the market for car wash is actually flat even down from where we said it was. We're getting a return of growth in that business because we're selling this solution and we're getting some really good uptake from our customers on that. By the way, we see a really good pipeline of funnel of opportunities. We see that business returning to growth in a really good setup. I like our setup that we have for 2026 and I'm very encouraged. Jeffrey Sprague: Great. And then just on this, these exits, how much more of this is there to do? Is there, you know, kind of a -- I suppose there's always some kind of evaluation of the portfolio going on. You know, have you stepped up your activity there? Should we view this as one off or maybe more pruning as we look into next year? Mark Morelli: Well, I think you should view pruning as really part of our playbook. We're constantly, as you indicated there, reviewing our portfolio and looking at opportunities. This is also a real outgrowth of an element of VBS where we've incorporated 80/20, where we're evaluating and seeing parts of our portfolio that belong elsewhere. When those things arise, sometimes it takes a while for those things to work through to find the right solution for them. I think you're seeing the culmination of some work that's been underway for a while, and I think you should just look at us to constantly use that dimension to be able to enhance our growth profile and margin profile of the business. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Please go ahead. Yunhao Jiang: This is Jimmy Jiang on for Julian Mitchell. First off, appreciate all the detail you've given on the slides. Maybe just speak to any color on Q4 sales and margins by segment please? Anshooman Aga: Yes, it's just from a Q4 perspective as we said at the midpoint, relatively flat year-on-year. From a Mobility Technology perspective that business is going to be relatively flat also in Q4 year-on-year coming off a very hard compare and also some project timing. Some of these technology projects have upfront hardware component and then you have recurring revenues. It's the timing of the hardware component out there. Our Environmental & Fueling business should continue to post growth, low- to mid-single-digit growth. For Repair Solutions, we're starting to see signs of sequential stabilization which would put it down mid- to high single digits on a year-on-year basis. From a margin perspective, Mobility Technologies in Q4 should have at the midpoint roughly a 50 basis point margin expansion. If you recall, last year Mobility Technology margins in Q4 were relatively strong at 20.7% which was 170 basis points above their full year average. Despite the harder compare in terms of operating profit margins, we think we'll get another 50 basis points in Q4 this year. EFS had a slightly easier compare from a margin perspective. We expect, in Q4, we expect, they'll be up closer to 100 basis points and then Repair Solutions on the lower volume should be down about 50 basis points. Also as a reminder, we have about $17 million of impact in Q4 off the $70 million in terms of divestitures at roughly 10% operating profit margin. Yunhao Jiang: Got it. That's helpful. Maybe just switching gears a little bit, could you speak to the general bullishness on retail fueling? One of your peers sounded pretty upbeat on CapEx in this space, so would appreciate your thoughts here. Mark Morelli: Yes, happy to make some comments on that. Also, if any of you followed our investor teach-in that we had on convenience retail here recently, we are very constructive on the end market. If you take a look at Vontier, about 2/3 of our business is exposed to convenience retail and we have the leadership position worldwide on retail fueling, which is an important element and part of that, I think that's where you're going. If you look at the announcements of the major players in this space, they're building out their footprints and there's also consolidation that is occurring. Given that we've got 2/3 share or more in some of the larger market segments where these larger customers operate, they need the tools and capabilities to be able to operate more effectively, particularly when they're putting more assets in the ground and they're consolidating. This is a great backdrop for us in particular, I think a really positive setup for 2026. Also, I think the market is coming more our way with our technology solutions and market share. I think it's a very constructive element of the secular drivers that are at work that really help out our portfolio. Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Anshooman, maybe could you just peel back on the Mobility Tech [indiscernible] you obviously pulled out some of the hardware. If you just go to the segment level, especially DRB, I think should be accelerating. I'd be curious what's offset on that. Anshooman Aga: Yes, Nigel, you were breaking up but I think the question was around a little more color on Mobility Technology being flat in Q4. It's really coming off a very hard compare for Invenco. The business had a very strong Q4 based on the timing of certain projects. We've been talking about not only the NFX wins, which had hardware upfront but also the vehicle identification system order which was really delivery, large delivery last year, Q4 and also in Q1, Q2 of this year. It's hard compares for us in Invenco in Q4 again in Q1, Q2. The good news is we do have a couple of large wins in Invenco, another one in the vehicle identification system and one in indoor payments. The timing of these, usually after you win it, there's some development work with the customers, certification through their networks before the rollout starts. These projects, the rollouts will start in the back half of next year, really Q3, Q4. It's just a timing perspective I think for these kinds of businesses versus looking quarter to quarter. If we look at an annual chunk, that's a better way to look at these. This year Invenco will grow well in the double digits and next year we feel pretty confident that Invenco should grow mid-single digits again on a hard compare. Nigel Coe: That's really helpful. Maybe on environmental as the previous question alluded. Sounds like the U.S. is sort of in a new CapEx cycle. Just talk about environmental, I think that a bit more noise. Just curious how you see developing over the next 12 months or so. Anshooman Aga: Yes. So environmental is a good growth driver for us on an annual basis and I think the growth continues into next year. U.S. obviously we're supported by the tank replacement cycle that we've talked about. Also international, we've been seeing growth now, international growth. There's sometimes timing of tenders that cause a little bit up and down in a quarter to quarter. Again from an annual basis, environmental globally is an area that we feel strong about. There's continuing regulation in the space and there's not a slowdown of regulation. The amount of regulation, the complexity of regulation keeps increasing. Also with our connected offering where instead of having on-premises connectivity, our new solutions provide cloud-based connectivity where for larger customers being able to monitor the whole fleet centrally is a big advantage and we're seeing some of that play out. We feel pretty good about our environmental business. Operator: Your next question comes from the line of Katie Fleischer with KeyBanc. Please go ahead. Katie Fleischer: Just to kind of circle back on Mobility Technologies again, I was wondering if you could give a little more details about the margins. I think earlier this year you had expectations for that segment to grow over 100 basis points year over year with the operating margins. It sounds like that's coming down a bit. Just wondering what's driving that difference there. Anshooman Aga: Yes, Katie, just let's take Q3. We had expected margins in Mobility Technologies to be up 100 basis points and they were up less than that. It's also low numbers, you know, 40, 50 basis points. You're talking about $1 million, a little over $1 million. In our EFS business, we had some higher costs and timing of projects that caused that roughly $1 million, $1.5 million of lower profit versus our expectations. If we hadn't had that, we would have been right around the 100 basis points we were expecting. A little bit of headwind at our EFS business that we're working on righting and fixing. Katie Fleischer: Okay, that's helpful. I know you're not ready to guide for 2026 yet, but you made some comments about, you know, expectations for operating leverage to improve next year. How should we think about those comments in relation to the long term targets that you guys have out there? Mark Morelli: Yes, Katie, this is Mark. Look, I like our setup for 2026. I'm cautiously optimistic. As you said, it's a little bit too early to give guidance as we're heavily into the planning cycle right now. There is some color we can give. I think we're positioned to accelerate growth. I think our market leadership on convenience retail, being two thirds of our exposure there, looks good. Other elements of our business are stabilizing, like in the Repair Solutions side and, importantly, part of convenience retail. The car wash business is inflecting up. On the margin side, I think we anticipate better drop through than what we've seen because we're accelerating some of our BBS initiatives, particularly around 80/20. Do you want to add some color, Anshooman? Anshooman Aga: Yes, just putting some numbers around what Mark referenced. While early to give guidance, you know, if you go back to our convenience retail showcase, 67% of our revenue, the market's growing 3 to 4%. We think we can outgrow that market a little bit. That would put roughly 4 to 5% maybe growth for our convenience retail part of our portfolio, which is 67%. For the remaining, which large part of it is our Repair Solutions part of the business, we're starting to see signs of sequential stabilization, which still puts pressure on a year-on-year basis, especially in half one for us. You know the U.S. consumer is still stretched, especially at the lower end, and our technicians are those consumers. We still see pressure in that business but stabilizing sequentially. Best case, you know, as of now we aren't giving guidance but flattish on the remaining part of our portfolio. Our normal drop throughs on growth are typically 30 to 35%. We feel strongly that we'll outdo those given the fact that we have a lot of the 80/20 simplification, all part of our VBS system in terms of continuous improvement. You know, we could see the drop throughs north of 50%, next year approaching almost twice of what our typical drop through of 30 to 35% would be. Somewhere in that range. Katie Fleischer: Great, thanks for the color. Mark Morelli: Katie, I'll just also add as you guys start modeling, just a simple reminder, we do have a $500 million bond that comes up next year in April and that is at 1.8%. I don't think we'll be getting another 1.8% coupon, so it's probably some headwind in interest expense next year too. Operator: Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead. David Ridley-Lane: Hi, this is David Ridley-Lane on for Andrew. So on Repair Solutions, look, you know you have a publicly traded competitor out there, Snap-on Tools. Not going to make too much of 90 day performance. But year-to-date, their segment, tool segment is down 1% and Matco is down 8%. What explains kind of the gap that you're seeing versus your peers? Mark Morelli: Yes, David, this is Mark. I think on a quarter to quarter basis you're going to see some ebb and flow. First of all, we have a lot of respect for our competitors. Anshooman Aga: Those were year-to-date numbers. Mark Morelli: Yes, you know, I think if you go back to last year, you'll see we also gained share as well. I think there is some ebb and flow, and they're on the backs of their expo that they just had this quarter. We do think that the overall market for repair, and if you look at the comments that are out there, is a good backdrop, but the consumer is under a bit of pressure, which I don't think is any news. I think the real efforts that we have there is getting better vitality for some of the lower price point items. We started the year raising price, and we've hung on to some of that price that we've raised, and now we're pivoting back to some of the lower price items. I think the good news is we're seeing sequential stabilization in the business, and I think we're really focused to get an uplift on this business for next year. David Ridley-Lane: Got it. Just for clarification, I think you said your comments on orders, was that a book-to-bill being around. Or were you saying orders were up 1% year over year, organic? Mark Morelli: No, that was a book-to-bill. Anshooman Aga: Yes, book-to-bill. The book-to-bill is just under one for the quarter, hovering around that, around one for the year. We expect to end the year roughly at one. Operator: Your next question comes from the line of Rob Mason with Baird. Please go ahead. Robert Mason: It's good to see the recovery there in DRB. You know, Mark, there's in the past M&A activity in that space seemingly has had a positive dynamic on the business. I've seen industry sources suggest more of that activity could start, more consolidation activity actually could start to happen. I know there's maybe one higher profile thing out there, but just in general, I'm just curious if you're picking that up and does that inform your pipeline as maybe those larger customers where you're strong, you start planning that out? Mark Morelli: Yes, absolutely. I think our strategy in the car wash base is to win with the winners. Some of the bigger players out there, some of the more savvy operators in the space are actually making moves to further consolidate. These folks need the tools to be able to operate their footprint. The complexity they're dealing with not only on the cost management side, but also how they can more effectively attract consumers to their car wash. We have great tool with that. With Patheon, customers see excellent returns. If you have more than 100 car washes, that's even better. As you scale, these are the tools you need to scale. That's why we're getting traction in the space ahead of the overall market turn. I think we feel really good about the pipeline and what we've got in the pipeline and the engagements we have with customers. I think it's a real example of our connected mobility strategy beginning to pay off for us and real proof points around it. We're really excited about what we're seeing there. Robert Mason: Good. Going back to the event a few weeks ago in EFS, new products around the tank gauge and capitalize on that replacement cycle. One of the things that came out of the conversations was your install base, those products are just very durable. I'm just curious if there's any other incentives that you can point to that can help customers accelerate the replacement cycle around that product, new product that you introduced. Mark Morelli: Yes, we absolutely do. This is a piece of business here that we really derive a tremendous amount of leverage off the massive installed base. This is pretty much the brand of record. If you look at underground equipment, how it's being done on a worldwide basis and particularly on the upgrade cycle in the United States. A couple things we do, we package solutions so it's easier for folks when they're looking at a complete underground retrofit. We don't make or sell the tanks, but you can package up the tanks with the piping and the sensors and make it a lot easier for them to be able to do that. We also help them on interest rate issues that might come up when they're making a total retrofit solution there. We are very engaged with our customers on how they move that forward. I think the really good news about this secular driver for us is that it's a pretty steady driver that's in its early innings. It's not this massive driver that's going to drive a whole bunch of revenue in a couple quarters. I think it's going to be a pretty steady replacement cycle over the next five plus years, which I think is great. That's the kind of driver, regulatory drivers, that we like and I think we're just well positioned there to win. Anshooman Aga: I will also add, while Mark covered directly the question in terms of the incentives and how we help drive that, there's a significant value proposition of having connectivity and asset management, asset monitoring, which our solution provides, which the old solutions did not provide. When we talked about last quarter, one of our large customers doing a phase fleet wide upgrade, it's because of the value proposition that our connectivity, our new product offering provides. It's also the latest CARB certification that we provide. There are a lot of benefits. Also, to Mark's point, we are stimulating demand with a lot of these actions. Operator: Your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead. Unknown Analyst: It's actually Jose on for Andy, maybe going back to Repair Solutions. The margins there seem to be stabilizing, and you pointed to strong price cost contribution in the slide, and I think Matco was the business that was the most exposed to tariffs for you. Maybe talk through how the customer reception has been on those price increases and what you're expecting kind of moving forward. Mark Morelli: Yes, I'll jump in. I'll let Anshooman also talk about Repair as well. Look, there's no question that the tariffs have sort of been more significant for Repair Solutions. If you look back over a couple year basis, even from like Trump 1.0 to Trump 2.0, we have really worked very hard to source in region for region. I think, you know, when our setup, when we approach this year, is we source and manufacture 75% in region for region, which is a pretty significant change over the last couple years. We've made a lot of progress. I think we're going to be on our target of getting less than 10% of product sourced in China by the end of this year. I guess that long body of work has really been paying off for us. No question there's been headwinds there on costs and some of the supply chain related issues. I think as we get into next year and hopefully we see the tariffs stabilizing, I'm really proud of the management team for their ability to manage that and offset that. The pricing that we went out with earlier in the year, we've seen some drop through on that price increase that we've made. We're not making any further price increases at the moment, but we did pick up some on the price, and I think as we get into next year, as we continue to work through the tariffs adequately, we'll have better year over year compares on the tariff issue as well. Do you want to add some color there, Anshooman? Anshooman Aga: Yes, our gross margins have been pretty flat at Repair year-on-year, which basically we passed on the cost of the tariffs. Generally we've been okay passing through that. Some places it's a little more targeted where we have to make decisions around portfolio, et cetera. A large part of it, as Mark Morelli talked, has been moving supply chain and trying to optimize our cost position. Also because of leveraging a more not only a U.S. supply chain, but also other countries outside of China. We will be under $50 million of procurement from China by the end of this year on a run rate basis. Our teams have done a really good job mitigating some of the higher tariff exposures. Unknown Analyst: Got it. Helpful. Maybe kind of turning over towards cash, I did see that you slightly lowered the conversion to 95% for the full year from your 100%. At the event a couple weeks ago, you talked about targeting over 90% conversion through 2028, which is a little bit lower than the 100% you guys talked about at your previous investor day. I was wondering if you could touch on what's contributing to that and maybe elaborate on any working capital opportunities that you're working on. Anshooman Aga: Yes. If you also noticed, our tax rate is creeping up a little bit from 21% to 21% to 21.5% for this year. Part of it is to do with the R&D law change. We probably will take a lot of the cash benefit over two years because it does impact the tax rate when you take that. That's part of the 100% going to 95%, just managing our overall tax rate. We're splitting some of the tax benefit over the two years versus taking it all in one year. In terms of greater than 90%, I think that's a pretty good cash conversion. As you're going to have growth in the business, working capital kind of grows with your growth rate. One way to think about it is cash conversion of 100 minus your growth rate is a pretty good target to go for. Greater than 90% gives us some buffer, I would say. We feel very strongly that we have a really good cash conversion profile in our business. Operator: I'm showing no further questions at this time. I would like to turn it back to Mark Morelli for closing remarks. Mark Morelli: Thank you. Thanks again for joining us on today's call. We're exiting 2025 with fundamentally stronger operations, improving trends across our core businesses, and clear momentum on our connected mobility strategy. We're delivering differentiated solutions in attractive end markets, and we're committed to creating long term value for our customers and returns for our shareholders. Importantly, our shares remain meaningfully discounted to peers, underscoring the upside as we continue to execute. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. And at this time, I would like to welcome everyone to today's Provident Financial Services Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Adriano Duarte, Head of Investor Relations. Adriano? Adriano Duarte: Thank you, Greg. Good afternoon, everyone, and thank you for joining us for our third quarter earnings call. Today's presenters are President and CEO, Tony Labozzetta and Senior Executive Vice President and Chief Financial Officer, Tom Lyons. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the third quarter. Tony? Anthony Labozzetta: Thank you, Adriano, and welcome, everyone, to the Provident Financial Services earnings call. I'm happy to share Provident's third quarter results today, which demonstrated continued strong performance and advancement on several strategic initiatives. Looking back over the past 12 months, we have made notable progress driving consistent and diversified growth, while also improving operational efficiency across our entire organization. Our hardworking team remains focused, contributing to our strong results by expanding our loan portfolio and pipeline broadening our deposit base and driving record revenues for the second consecutive quarter. During the quarter, we reported net earnings of approximately $72 million or $0.55 per share, which is consistent with the previous quarter. Our annualized return on average assets was 1.16% and our adjusted return on average tangible equity was 16.01%, while we are pleased with the bottom line metrics, we are even more energized by the meaningful improvement in pretax free provision revenues during the third quarter, which grew to a record of nearly $109 million. Our pretax pre-provision return on average assets of 1.76% has improved substantially compared to the 1.64% in the prior quarter and 1.48% for the same quarter last year. We believe this improvement serves as a good indicator that we have consistently enhanced the underlying profitability of our business, even as we have accelerated and diversified our loan growth. One of our primary areas of strategic focus continues to be deposits. And during the quarter, our deposits increased $388 million or an annualized rate of 8%. It is worth noting that this growth was primarily driven by core deposits, which increased $291 million or 7.5% annualized. We continue to remain focused on efficiently funding our strong commercial loan growth and have made investments in people and capabilities to support quality deposit growth over the intermediate term. Switching to loans. During the third quarter, our commercial loan -- our commercial lending team closed approximately $742 million in new loans, bringing our production year-to-date $2.1 billion. As a result, our commercial portfolio grew at an annualized rate of 5%, driven primarily by C&I production. Our strong capital formation, combined with the growth and diversification of our loan portfolio has reduced our CRE concentration ratio to 402%, if adjusted for the merger-related purchase accounting marks. This compares favorably to the 408% in the prior quarter. Our loan pipeline grew appreciably to nearly $2.9 billion, with a weighted average interest rate of approximately 6.15% as of quarter end. The pull-through adjusted pipeline, including loans pending closing, is approximately $1.7 billion. We are proud and encouraged by the loan team's performance and the strength of our pipeline as we approach the final stages of 2025. While we have worked hard to grow and diversify our loan pipeline, our commitment to managing credit risk and generating top quartile risk-adjusted returns has remained unchanged. Nonperforming assets improved 3 basis points to 0.41%, which compares favorably to our peers. We also saw a decline in nonaccrual loans during the third quarter, while our net charge-offs were only $5.4 million. Overall, we've remain very comfortable with our credit position and our underwriting standards, and we continue to look for the risk appropriate opportunities to grow our business. We believe it is worth reiterating that our exposure to rent-stabilized multifamily properties in New York City is modest at $174 million or less than 1% of total loans, all of which are performing. Additionally, our credit exposure to non-depository financial institutions is limited to $292 million of mortgage warehouse loans. We are comfortable with the credit structure of these loans, including the controls we have in place to minimize risk. Furthermore, the customers we deal with our established and well-known counterparties to our banking. Another area of strategic focus is growing noninterest income, which performed well during the third quarter. Provident Protection Plus continues to drive consistent growth in our noninterest income with revenues up 6.1% when compared to the same quarter last year. While normal seasonality drove a step down in revenues when compared to the linked quarter, we remain optimistic about the high level of business activity occurring on our insurance platform. Beacon Trust saw revenue growth in the third quarter, increasing to $7.3 million. We are excited to announce that Beacon's new Chief Growth Officer, Annamaria Vitelli, joined us in September and will bring our demonstrated track record of driving strategic growth to expand Beacon's market presence and deepen client relationships. We also continue to invest in our SBA capabilities, which have been a steadier contributor to noninterest income. In 2025, generating $512,000 gains on sale in the third quarter. Year-to-date, we have generated $1.8 million of SBA gains on sale, which is up from $451,000 in the comparable period last year. While our total assets have grown 3% year-to-date, our strong and consistent profitability continues to build Province capital position, which comfortably exceeds well capitalized levels. As such, this morning, our Board of Directors approved a quarterly cash dividend of $0.24 per share payable on November '28. I'd like to conclude my remarks by emphasizing how proud we are to see the results of careful planning and hard work translate into continued strong performance in the third quarter. None of these accomplishments would be possible without the dedication and commitment of our employees. We will continue to execute our key strategic initiatives aimed at sustaining growth in our core business, while simultaneously making the necessary investments on our platform to ensure Provident is well prepared for the future. Now I'd like to turn it over to Tom for his comments on the financial performance. Tom? Thomas M. Lyons: Thank you, Tony, and good afternoon, everyone. As Tony noted, we reported net income of $72 million or $0.55 per share for the quarter, with a return on average assets of 1.16%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 16.01% for the quarter. Pretax pre-provision earnings for the current quarter increased 9% over the trailing quarter to a record $109 million or an annualized 1.76% of average assets. Revenue increased to a record $222 million for the quarter, driven by record net interest income of $194 million and noninterest income of $27.4 million. Average earning assets increased by $163 million or an annualized 3% versus the trailing quarter, with the average yield on assets increasing 8 basis points to 5.76%. Our reported net interest margin increased 7 basis points versus the trailing quarter to 3.43%, while our core net interest margin increased 1 basis point. The company maintains a largely neutral interest rate risk position, but anticipates future benefits of the core margin from recent Fed rate cuts and expected steepening of the yield curve. We currently project the NIM in the 3.38% to 3.45% range in the fourth quarter. Our projections include another 25 basis point rate reduction in December of 2025. Period-end loan sales per investment increased $182 million or an annualized 4% for the quarter, driven by growth in mortgage warehouse and other commercial and multifamily loans, partially offset by reductions in construction and residential mortgage loans. Total commercial loans grew by an annualized 5% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.7 billion. The pipeline rate of $6.15 is accretive relative to our current portfolio yield of 6.09%. Period-end deposits increased $388 million for the quarter or an annualized 8%, while average deposits increased $470 million or an annualized 10% versus the trailing quarter. The average cost of total deposits increased 4 basis points to 2.14% this quarter, while the total cost of funds increased 1 basis point to 2.44%. Asset quality remained strong with nonperforming assets declining to 41 basis points of total assets. Net charge-offs were $5.4 million or an annualized 11 basis points of average loans this quarter, while year-to-date net charge-offs were just 6 basis points of average loans. Current quarter charge-offs reflected the resolution of several nonperforming loans and the write-off of related specific reserves. Our provision for credit losses increased to $7 million for the quarter as a result of growth in loans and commitments and minor deterioration in our CECL economic forecast. Our allowance coverage ratio was 97 basis points of loans at September 30. Noninterest income increased to $27.4 million this quarter, with solid performance realized from core banking fees, insurance and wealth management as well as gains on SBA loan sales. Noninterest expenses were well managed at $113 million with expenses to average assets totaling 1.83% and the efficiency ratio improving to 51% for the quarter. Excluding the amortization of intangibles and the related average balance, these ratios were 1.73% and 46.72%, respectively. We project quarterly core operating expenses of approximately $113 million for the final quarter of 2025. Our sound financial performance supported earning asset growth and drove strong capital formation. Tangible book value per share increased $0.53 or 3.6% this quarter to $15.13 and our tangible common equity ratio improved to 8.22% from 8.03% last quarter. That concludes our prepared remarks. We'd be happy to respond to questions. Operator: [Operator Instructions] Our first question today comes from the line of Tim Switzer with KBW. Timothy Switzer: My first question is on the margin. I think you guys have -- I understand kind of the interest rate impacts on the floating rate book in your deposits there. But I think you guys also have quite a bit of loan back book repricing as well. Can you maybe update us on the quantity of loans that are fixed rate repricing over the next 12 months or so? And then what kind of uplift you would expect on the yields just at current rates? Thomas M. Lyons: I think, I can give it to you in pieces, Tim. The total repricing is just under $6 billion to $5.9 billion. Within that, the floating book is about $4.950 billion. So the balance is either longer-term adjustable repricing in the period or fixed rate. Timothy Switzer: Got you. And do you have kind of like what the blended yield is on that fixed rate and adjustable portion? Thomas M. Lyons: I do not. I know I mean the margin projection reflects all of that. So you can see the increase based on the expected new loan rates of 6.15% that's in the pipeline. But I don't have it at my fingertips the current portfolio rate for that piece of that segment. Timothy Switzer: Got you. Okay. And there's been some discussion on other conference calls about increasing loan competition on pricing. Could you maybe discuss what you've seen in your markets and then kind of dissect that between C&I and then the CRE market? Anthony Labozzetta: Sure. Yes. I think that's a fair statement that we've seen some increased competition in the lending market for sure, mostly on the CRE side with what the either the private space or insurance the agencies are doing. In fact, some of our -- we had about $348 million of payoffs this quarter. Some of that had to do with that. Some of it have to do with loans just selling. But on the C&I side, we're not seeing the same level of competition that we are on the CRE side. But I would say it's a fair statement to say overall, the competition has grown stronger. However, I would like to end that by saying that our team is still building a pipeline that's kind of record high at $2.9 billion. So in our pull-through, I say we're closing about 65% of the things we touch, so those are good consistent metrics for us. We're careful about what the economy looks like. We're doing good loans to good sponsors under good terms, but we're aware that there's some pricing competition or structure competition out there. Timothy Switzer: Got it. That's helpful. And if I could get 1 more follow-up. Could you maybe add some color on how some of your new specialty verticals like ABL and health care are contributing to the loan growth? Anthony Labozzetta: I think as we might have mentioned on the written prepared comments was -- this quarter, the C&I reflected most of our growth, which includes health care, maybe our warehouse lending did very well for us this quarter. In fact, those were all double-digit growth in some of those categories, where our CRE was relatively stable because of some of the prepayments, unanticipated prepayment we saw was in that class. So again, those are good. That's the areas that we are strategically focused on scaling up. We're doing it very well. We're very proud of that. We have the good teams to handle that. It's also driving a good result on our CRE concentration ratio, as I mentioned, so it's having all the strategic effects that we desire. If CRE kicks up, I think, this quarter, while I said that loans grew 5% the effective production would have been somewhere around 7%, 7-plus-percent if the prepayments were not there in the CRE space. So I'm pretty proud of the productivity this bank has right now. And our focus will continue on those verticals, which we put in place strategically. We expect them to be high single double-digit growth because the scale of that book is not substantial, so that all the productivity is going to be substantial. And while CRE will run in that 5% space. Thomas M. Lyons: Tim, the other thing I could add, if it helps with the projected loan mix is the pipeline breakdown. Commercial real estate represents about 42% of the pipeline. The specialty lending category, which includes the ABL and health care, you were referring to is about 14% there's 5% in resi and consumer and the balance is the other commercial loan categories, middle market and other commercial lending. Operator: And our next question comes from the line of Feddie Strickland with Hovde. Feddie Strickland: Good afternoon, everybody. Just wanted to touch on noninterest income, the guide seems to imply about a $1 million step down linked quarter. Is that just an expectation of lower loan prepayment fees, plus maybe some seasonality on the insurance? Thomas M. Lyons: Yes, you got it, Feddie. It's maybe a little conservatism in there as well. But the prepayment fees, again, subject to some volatility. They were about $1.7 million this quarter. So we scaled that back, but who knows what we'll see. Personally, I'd rather hold the loan and leave the fees out. But yes, that -- and the seasonality in the fourth quarter is not necessarily the strongest for insurance. We see well going into Q4 too. Q1 is where we see the pickup, right? Feddie Strickland: And I guess, along the same lines of noninterest income. Can you talk about the opportunity on the wealth side as we enter '26 and whether you're working to bring on additional talent there? Anthony Labozzetta: Well, absolutely. As I mentioned on the call, we've hired Anna Vitelli. She's the Chief Growth Officer. She's building -- she's charged with growing and service and retainage of -- in a way of extraordinary service in that space and deeply integrating it with the bank. So we think there's a lot of great opportunity. So Anna will build out our needs, adding more sales and production staff and organizing ourself in a fashion that will give us the things that we're looking for. But certainly, these investments are aimed at 1, growing new AUM and deepening connections that we have within the organization already. Feddie Strickland: Got it. And just 1 more quick 1 for me on capital. Just hoping to get your updated thoughts on how do you think about capital and about deployment via dividends versus buybacks versus organic growth, while still managing the CRE concentration piece as well. Thomas M. Lyons: Yes. I think our first preference remains organic growth at profitable levels. And again, recognizing the strength of our pipeline, that's where our energy has been focused -- that said, we are at comfortable levels of capital there. We're close to $11.90, I think, on CET1 at the bank level. So there's opportunities for us there. We certainly think we're trading at an attractive price at this point. With regard to dividend, we kind of like to get back to a 40%-ish payout ratio, somewhere in the 40% to 45% range. So I think that's when we look at that more carefully. The other thing is we're in the middle of budget season here, which is why we didn't give a lot of forward guidance. We want to wait until January to give everybody a full year update. But that will help inform our capital decisions as well as we get more confidence around our asset growth and capital formation projections. Operator: And our next question comes from the line of Dave Storms with Stonegate. David Storms: I appreciate you taking my questions. Just wanted to start with some of the decrease in deposit costs and maybe get your thoughts on how much more room there might be to run here and what that looks like from a competitive landscape? Thomas M. Lyons: Decrease in deposit costs. Well, we saw growth in noninterest-bearing, which was helpful to us. The overall cost of funds was only up 1 basis point to 2.44% this quarter. So there was a little bit of shift in mix. While deposit costs were up it was still at an attractive rate in terms of funding advantage relative to the wholesale borrowings. So that's really what we try to manage, obviously, is the overall cost of funds. That all said, we do have -- we had the Fed rate cut at the end of September, the 17th, I think it was -- and then this most recent 1 is yesterday, I guess. So we're going to see the benefit of that of both of those cuts in Q4. The September cut was effective on October 1, and the most recent cut will be effective November 1, in terms of beta overall, I think we conservatively model something in the 30% to 35% range on deposits. David Storms: And then just 1 more, if I could. It looks like your efficiency ratio is hovering right around that 50% mark. Curious as to how much of a push there is to get that under 50% and maybe what that would entail? Thomas M. Lyons: I don't think it's necessarily a push, but rather our desire to continue to make prudent investments and build for the future. So I think where we are is a really attractive level. If you look at a pure overhead management, the OpEx ratio at 183% and that's inclusive of some fairly significant intangible amortization is really quite well managed. So I don't know that there's a lot of room we're going to look to take down on that just because I think there's investments that we want to continue to make to support growth. Anthony Labozzetta: I would argue that we've been steadily making the requisite investments in our business to build out the platform for our future. The efficiency ratio, we will see that come down further by enhanced revenue opportunities. And then you might see a blip up with further investments. And I know obviously, we'll get a positive operating leverage, and you'll see it move back down. And that's kind of the trend we've been watching, but I think Tom says -- it's in this area, it can go down another point, if we're building the revenue base and then represent factor in future investments. Thomas M. Lyons: Yes, Tony made a really good point. I was focused on the expense side, but I think the revenue opportunities are there. You saw 2 consecutive quarters of nice growth and record levels for us. We do project core margin expansion over the next several quarters of, say, in the 3 to 5 basis point range each quarter. So and again, we talked about some of the investments that we hope to see returns on in the fee-based businesses over the course of the next year. A lot of room there. Operator: Our next question comes from the line of Gregory Zingone with Piper Sandler. Gregory Zingone: Quick question. How frequently are you bumping into private credit firms nowadays? Thomas M. Lyons: I'm sorry, Greg, could you say that again? We have difficulty hearing you. Gregory Zingone: I asked how frequent are you bumping into private credit firms nowadays? Anthony Labozzetta: Yes. We know that's out there. We're not -- it's not really been a factor for us, at all. Most of the business we're doing is relational. So clients are not that reticent to go to private credit for 1 transaction knowing that the whole relationship is important to them and us. So again, we're very cognizant of it being out there and the scale of it. However, it has not been a factor in us building our pipeline or getting our deals closed. Gregory Zingone: Awesome. And at first glance, your average fee in wealth management of 70 bps seems kind of high. Have you felt any pressure on pricing recently? Thomas M. Lyons: I wouldn't say recently, it has actually come down. I can remember us being as high as 77 basis points probably 2 years ago or so. But it's been pretty stable, sorry... Gregory Zingone: I was going to ask on top of that, where are new relationships coming on today? Thomas M. Lyons: I would say similar levels because it has remained steady at 72 basis points for quite a few quarters now. Gregory Zingone: And then lastly for us, M&A is picking up in the industry, it seems like a pretty good time to ask you guys. What are you looking for in your next potential acquisitional target? Anthony Labozzetta: Well, I would actually answer the M&A question a little bit differently, right? So I think our primary focus here is on the organic growth strategies that we outlined. We're pretty excited about build-outs and our advancement at the middle market space, we think there's a huge opportunity for us to create shareholder value and 1 that we think is most relevant. That being said, we're always evaluating opportunities that might be out there. I think we've proven that we have a great merger DNA, we can get stuff done. We have the right platform to do that. We'd love to see our currency trade at a place, where it's more reflective of what we're worth. So we'll always evaluate opportunities from every direction, but it's a wonderful place to have the optionality, and we're creating that by having an organic growth and focusing there first. Operator: All right. And our next question comes from the line of Stephen Moss with Raymond James. Stephen Moss: Good. Maybe just starting on purchase accounting here. I realize it's probably elevated from the prepays this quarter. But curious as to how you guys are thinking about that going forward. And also on the subject of prepaid, just kind of curious, do you think those will continue to be elevated in the near term? Or do we -- from the fee income, kind of we're going to moderate down to more [indiscernible] levels? Anthony Labozzetta: I think the prepays, usually, if we look at past trends, the third quarter seemed to have a heightened pickup, which is the summer months. We expect that to normalize and maybe $150 million to $200 million range, I would say, is more normalized, but you always have in that number that I gave, there's a lot of businesses that sold as much as it wasn't a huge, huge number of refinancing elsewhere, probably $90 million of it refinanced elsewhere. So there's always going to be activities, companies selling companies coming. We just have to have an organizational capacity to grow at a level to make up for that. But if I were to put a number on it, I would say $200 million, $150 million, $200 million is probably a good place to be. Thomas M. Lyons: And with regard to purchase accounting, Steve, I'd say our normal number runs about 40 to 45 basis points of the NIM. I would expect that to persist throughout the next 4 quarters. Stephen Moss: Great. And then kind of on the theme of organic growth and hiring. I heard you guys' comments around the efficiency ratio. Just kind of curious how you guys are thinking about hiring for 2026. You've definitely made a number of investments over the last 12-plus months. Kind of curious if there's maybe another step-up in terms of bringing people over in the new year or just color around that? Anthony Labozzetta: Yes. I mean, so I think we have a pretty good visual to our strategic planning process of what our needs are to give us the productivity in future years, particularly in areas of focus. It is our expectation that we'll continue to invest. If you look at what insurance does, we hire roughly 10 to 12 new producers every year to keep pace with that. We're expecting that to happen in the Beacon space, our commercial platform continues to hire not only in new geographies, but in verticals that we're investing deeper in. I would expect more investment in the middle market space for us next year. All of those things we have clarity of what the positive operating leverage will be derived from that. So it is part of our process in terms of forecasting and strategic planning that. We'll build all that out for you in the first quarter and you'll get a better clarity of the investment against the returns. Operator: And it looks like there are no further questions at this time. So I'll now turn the call back over to Tony Labozzetta, for closing comments. Tony? Anthony Labozzetta: Great. Thanks everyone for your questions and for joining the call. We hope everyone has an enjoyable end of the year and a holiday season. We look forward to speaking with you again soon. Thank you. Operator: Thanks, Tony. And again, this concludes today's conference call. You may now disconnect. Have a good day, everyone.
Essi Nikitin: Hi, everyone. Welcome to YIT's Third Quarter 2025 results webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. The results will be presented to you by our CEO, Heikki Vuorenmaa; and CFO, Tuomas Makipeska. Without further ado, I will hand over to Heikki now to go through the latest developments in the company. Please go ahead, Heikki. Heikki Vuorenmaa: Yes. Thank you very much, Essi. And welcome also from my behalf to the third quarter '25 webcast. In third quarter, we overall delivered solid performance, in line with our expectations. The contracting segment's profitability continues to improve, and they were the main profit drivers during the third quarter. Our apartment sales and production keeps' increasing in the residential segments. And CEE has taken the role as our primary market in terms of revenue, volume and profits. Order book for the contracting segments are developing well and broader demand environment remains healthy as we move into the fourth quarter. In fact, our next year order book is stronger than in the recent years. Our recently executed employee survey indicates strong commitment from the team towards our new strategy. And supported by the good operative progress, we revised our full year guidance. But let me share numbers and some key highlights from the quarter. The low amount of apartment completions in the residential business impacted our numbers on a group level as expected. The revenue declined to EUR 402 million, burdened by the residential segment volumes. Also, it impacted our adjusted operating profit, which was on the level of EUR 12 million. What we are really pleased is that, our contracting segments' trend is improving all the time, and the contribution to profitability is increasing. Infra revenues continues to increase during the quarter to EUR 127 million, increasing 30% compared to last year. Adjusted operating profit reached almost 6% in Infra and 4.5% in the Building Construction segment. But as we then look our business performance over the past 12 months, we can clearly see how the 3 out of 4 segments are delivering as they operate in the favorable market. Revenue is still primarily coming from the contracting segments, and representing altogether 65% of the rolling 12 months revenue. The residential operation in the CEE are expected to grow strongly, as you can see here. The project completion schedule for that next year, worth of EUR 450 million, would imply or indicate even almost 60% volume growth compared to the rolling 12 months figures. And of course, those starts, what we have been doing, those are done with a healthy gross margin levels. The resilience of the group is increasing and the dependency to single market or a single segment is declining. Our Contracting segment operates with a strong order book. So all-in-all, the company is heading to right direction. Let's move then to individual segments, and we start with the Residential Finland. As I mentioned already, the revenue has been on the declining trend. And the same trend continued this quarter as we didn't have any completions during the third quarter '25. We mostly sold apartments from our inventory during the quarter and focused to launch new projects that will be then completed during '26 and '25. Key for us is to ensure that our product designs meet the market expectations and consumer preferences. And the team here is working on with the internal efficiencies to manage the costs and identify further opportunities across the operations. The inventory of unsold apartments is reaching a normal level. Helsinki Metropolitan Area still carries excess from the decisions done during the '22. Our focus on reducing the inventory has now yielded results, and the inventory is no longer an issue for us. Actually, when we look outside of the capital area, we start to already have some shortages like in Oulu, Turku, Jyvaskyla to mention a few of the cities. Altogether, we started 224 new apartments during the quarter. And those were done mostly on the -- outside of the capital area. And the reason is on the previous slide, as discussed that we still carry an excess supply, and that we make those starts on the regions where we see that demand is healthy and we are convinced that those products are on a good micro locations that will be sold to consumers during the construction period. And as I mentioned here, the story actually is quite the same as in the second quarter. So, no completions and it had the implications that we already discussed. Our revenue and profits on this segment, same is in the CEE, is based on completion, and it has been a meaningful impact on our profitability. The completions -- overall completions this year, if we look 274 units, this could be actually the lowest point in time. This is just 20% of the completions on 2023 when we are comparing to the previous years. And here, we can see the implications where the residential business bottomed out. Now we have been starting new projects and gradually, we see that the market is improving and heading towards better times. But then we move to the residential CEE, which is our primary residential business in the future. The segment performance is very strong, which is hard to observe from our IFRS numbers as this reports revenue only at completion. It's also good to note that this team at the moment is managing a substantial amount of new projects and the future revenues, which is not yet visible on the pages here or the figures here. And as said, this has been now become our principal market. There is about 60 million people living on the operating countries that we are building the homes for consumers, and we see that there are future opportunities still to grow. Revenue and profits for the segment are heavily tilted towards the Q4 this year. The sales speed continues to increase and reach new levels. Now over 1,200 units in a rolling 12-month basis. We also continued with the new starts, a bit more than 300 units during the quarter. And by now, projects valued almost EUR 450 million are in production that are estimated to be completed in 2026. And the sales of those projects are progressing well. Favorable market conditions will reinforce the segment's roles as a key driver for the growth in the future during our strategic period. We actually had one project completion during the Q3 ahead of schedule, and that was the city in Krakow, Poland. It was one of our newest cities that we opened, and I'm very pleased that the team were able to find lead time acceleration opportunities to get the project completed already ahead of schedule. However, majority of the completions are scheduled for the final quarter this year. And total, we talk about 10% more during 2025 than what we had in 2024 in terms of completions. But let's leave the residential segments and we move to the contracting segments, starting with our Infra operations. Infra, solid performance continues. Top line and profitability continue to grow. The rolling 12 months revenue is to reach EUR 0.5 billion level soon. Actually, during the quarter, we saw already again, a 30% growth in revenue. The business has a strong order book, tendering pipeline extremely active and the customer NPS is increasing. And I'd like to double-click on one part of the market, what the segment is operating in. This is one of the megatrends what we have highlighted and it relates to the data centers. The data center investments may play a big role for the Finnish construction companies in the coming years. We have already publicly announced 3 data center partnerships by now. The market in Finland strongly increasing, investment plans announced reaching already EUR 12 billion. We made a decision a couple of years ago to invest in capabilities, both in our project management, in general terms, but also in the MEP, and that decision is now yielding results. Data center market offers great potential for us. And we are happy to work with the close cooperation with customers to deliver the solutions on time under the tight schedules that the data centers typically has. Our recent wins further strengthens YIT's position as the leading data builders -- builder of data centers here in Finland. And this is supporting our strategic focus. We are capable to actually offer full EPC solutions for the data centers as well through our diverse capabilities, and as we have capabilities both in Infra as well as the Building Construction segment. And as we combine all that, so that makes us competitive in those tendering processes. But coming back to Infra order book, and it has remained on that steady level, but the content here is a bit shifting. We actually observe increasing amount of orders from B2B customers in our order book. We still see that we have probably one of the strongest order books among the industry players, and it's approximately 19 months of work. It gives us an opportunity to develop the projects with our customers in such a way that we will find the best solutions for them, which suits for their projects. But before moving to Building Construction, I have to say that it's yet again a solid quarter from our Infra team. We also have positive news from our Building Construction segment. The revenue growth is still ahead of us, but the profitability of the segment is taking steady steps forward. This quarter, we recorded EUR 7 million profit and on the rolling 12-month basis, we are approaching 3% level. The balance sheet continues to have a lot of opportunities to release the capital, yet it also negatively impacts the segment's profitability. The negative impact from the capital employed, what we have, exceeds the gains from the balance sheet, which is the fair value gains that we are reporting during the quarter. We have secured a good level of new orders, and we are looking actually ahead with a quite positive outlook. We have about 17 months of work in our books, and we're enabling us here again also to focus on the long-term customer development activities. The market continues active and so does the tendering. Then a view to our operations. Overall, our operations are running smoothly, even though we have significantly scaled up our production volume in the residential segments. The production has now increased 60% in the residential business year-on-year, above 4,000 homes in production today. Project margin net deviations are positive in the contracting segments and supports the profitability. Our supply chain is under control. However, we start to observe workforce availability tightness in our operations, especially in Slovakia and Czechia, which needs attention from our supply chain teams going forward. Then to overall market view before handing over to Tuomas. We have actually updated our view on infrastructure market here in Finland from normal to good. Our operations in the Central Eastern Europe benefits from the favorable market conditions and the strong demand that we are seeing, especially on the residential segment, but also there is a normal to good market in the building construction segment, depending a bit on the specific country. The residential market in Finland is improving. However, it is still on the weak level and there's still way to go before we are reaching a normal level of residential market here in Finland. But that concludes my first part and time to hand over to you, Tuomas, to cover our financial performance for the quarter. Tuomas Mäkipeska: Yes. Thank you, Heikki. Let's go through our financial development in the third quarter and start with a summary of our key metrics there. So, our return on capital employed was at 3% and gearing at 85% at the end of the third quarter. Our key assets amounted to well over EUR 1.6 billion, while the net debt decreased to EUR 669 million at the end of the third quarter. The cash flow for the quarter was EUR 0 million. So all-in-all, the quarter was very stable and according to the plan also from the financial perspective. And as a result of the stable performance year-to-date, actually, we revised our guidance, and we now expect the adjusted operating profit for the year to be between EUR 40 million to EUR 60 million. But let's look at each of these topics in more detail in the following slides. Our return on capital employed improved from the comparison period but was at a lower level than in the past 2 quarters. The low amount of consumer apartment completions during the quarter, which impacted adjusted operating profit in both residential segments is visible in this metric. We will continue to drive profits and capital turnover to reach our financial target of at least 15% by the end of 2029. But some highlights regarding capital employed from the segments. So, in Residential Finland, the capital employed has been on a downward trend supported by the efficient use of our plot portfolio and sale of completed apartments from the inventory. In Residential CEE, we have been able to release EUR 75 million of capital over the past 12 months, even though at the same time, our apartments under production have increased by over 70%. So, this is mainly thanks to our strong plot portfolio, solid apartment sales and other capital efficiency measures. The Infrastructure segment continues to operate with negative capital employed, supporting the whole group's financial performance. And the capital employed in Building Construction continues to include noncore assets, which burdened the segment's profitability, as Heikki mentioned before. Let's move on to the cash flow development. Cash flow after investments for the third quarter was 0, and we can see from the graph that the cash flow in our business is cyclical and typically heavily tilted towards Q4. When looking at the longer period, the 12 months rolling cash flow was almost EUR 70 million positive at the end of the third quarter and has now been actually positive for the last 7 quarters. Cash flow from plot investments in the third quarter was minus EUR 9 million, and the plots we invested in during the third quarter were mainly located in Poland, which supports our growth in the region in the future. So, this demonstrates our ability to operate the businesses with a positive cash flow while investing in growth where the returns are the highest. Net interest-bearing debt decreased from the comparison period and remained stable when comparing to the previous quarter amounting to EUR 669 million at the end of Q3. Gearing was at 85% and decreased from the comparison period. In addition to the positive rolling 12 months cash flow, the decrease was supported by hybrid bond issuance, which took place during the second quarter this year. The net interest-bearing debt included IFRS 16 lease liabilities of EUR 260 million, as well as housing company loans of EUR 138 million. And the combined amount of these items has decreased by over EUR 80 million from the comparison period. This is thanks to our decreasing inventory of unsold apartments as well as capital efficiency actions relating to leased plots. When excluding the before mentioned lease liabilities and the loan maturity housing company loans from our net debt, the adjusted net debt amounted to some EUR 270 million. This translates to an adjusted gearing ratio of 35%. We remain determined to reduce the indebtedness of the group and operate within the set financial framework of 30% to 70% gearing. We have an asset rich balance sheet. Our key assets amount to well over 2x the net debt. When comparing the components of our key assets to the year ago situation, the changes in the company are clearly reflected there. Production has increased by around EUR 60 million, as we have accelerated our production, especially in the favorable markets of the CEE countries. As we have accelerated starts, our plot reserve has decreased by some EUR 100 million, but it continues to remain strong, enabling the construction of approximately 30,000 apartments across our operating countries. Completed inventory in our balance sheet has decreased by over EUR 80 million from a year ago as we have continued to successfully sell the excess apartment stock. So all-in-all, we have effectively used our balance sheet and will continue to do so going forward. Capital released from the balance sheet and capital efficiency in business operations continue to be top priorities in our strategy. As communicated, we identify potential to release up to EUR 500 million of capital from our current apartment inventory and through divestments of the noncore assets. These noncore assets include real estate, plots and ownerships in associated companies that are not in the core of our current strategy. And the released capital will be reallocated to fund residential segment's profitable growth and reduce indebtedness of the company, which will consequently lower the financing cost and support the net profit generation. In maturity structure of the interest-bearing debt having only limited amortizations scheduled for this and next year allow us to focus on profitable growth of the businesses. The amortizations maturing in 2027 and 2028 will be addressed as a part of normal refinancing planning. Then to the guidance, which has been revised. We have narrowed the range for the adjusted operating profit guidance. We now expect group adjusted operating profit for continuing operations to be between EUR 40 million to EUR 60 million in 2025. Previously, we expected the adjusted operating profits to be between EUR 30 million to EUR 60 million. The guidance update is a result of the stable financial performance of the businesses during the first 9 months of the year. Our outlook, however, remains unchanged. So, to summarize the Q3 financial development before handing back over to you, Heikki. The stable financial performance across our businesses seen during the first half of the year continued in the third quarter. Our plot portfolio continues to be strong, which enables us to start new residential projects and consequently support profitable and capital-efficient growth. And releasing capital is a strategic priority as we continue to allocate capital to our most profitable businesses. So based on these facts, our current financial position clearly serves as a basis for the targeted profitable growth according to the strategy. So that covers the finance part of the presentation. So now back to you, Heikki. Heikki Vuorenmaa: Thank you, Tuomas. And I think there's also other reason to say thank you. As we have announced, you have taken the opportunity to join another great company as a CFO in a couple of months, and this is opportunity for me to say thank you for the intensive 3 years that we have time to spend together. And I think that I could not have imagined a better person on that 3 years to work with in order to successfully turn around the company and reset the new strategy and put the foundations in place for the growth of the company is or has ahead of it. So, a big thank you for all the work and the commitment that you have done for the YIT. Tuomas Mäkipeska: Thanks, Heikki, for the kind words, and thank you. It's been a pleasure. And it's been an absolute pleasure working with you and working for YIT for these roughly 4 years. And I think we have accomplished a lot together, and we have really transformed the company during the last couple of years. So, I think it's been quite a ride together. And I think it also makes me sad a bit to leave the company, but I will be following you. And I think YIT has the right strategy, the skilled management and absolute professional employees throughout the segment. So, I think these are the ingredients for the future success of the company under your management. So, I'm really confident that you will keep up the good work and be successful in the future. So that's what I think from the future perspective as well. So, thank you. Heikki Vuorenmaa: Thank you very much. And I think now it's -- as we have introduced the third musketeer along the team that Markus Pietikainen, and you haven't been so visible in this stage, but of course, you have been on a close cooperation that what we have been working with you already for 2 years, given the financing and in terms of the whole group but also project financing. And we have a strong leadership bench and it's my privilege, and I'm really excited also to announce you as our interim CFO. And as you maybe introduce a bit about your personal background. So next, we're also covering the strategic progress. So you've been now with kind of seeing the first full year of the strategy. So how do you are looking forward, the implementation and execution of that as well. So please, Markus. Markus Pietikainen: Thank you, Heikki, and thank you for the opportunity. So, a few words on my background. I'm a finance major from Helsinki. I worked 12 years with Wartsila in different positions. I worked in Group Controlling, Corporate Development. I ran the Treasury, Group Treasury, and also ran a Business Unit out of Houston. So that's my Wartsila background. I also worked for JPMorgan for 5-years in different investment banking positions in London, and then also as Chief Investment Officer for Finnfund. So, this is, in brief, my background. And to your question on the strategy, I think that the first year into the 5 year strategy, we are clearly now seeing results of the strategy working out. We have a very strong outlook in the CEE countries on the residential side. This is a good margin business with tremendous growth opportunities. If you look at the 2 contracting segments, which we have, both have very robust order books, clearly, headwinds from -- and a good support from data centers, and also the defense sector. So, we see good trends supporting these 2 contracting businesses. And then fourth, the Residential Finland. I think that there clearly the trough is behind us. We've, I think, announced today the tenth self-developed project. So clearly, we are past the difficult times. And obviously, there is opportunities there going forward. So, this is a great opportunity for me to join the leadership team and really excited about this opportunity and looking forward to working with you all. Heikki Vuorenmaa: Very good, and welcome, Markus, to our team. Same time sadness but also joy and excitement, it's the today's feeling that I'm having. But now it's the time for us to go into the section that has been already promised, so how we are executing our strategy during the third quarter. First, high-level look on our revenue and profitability as well as return on capital employed. We covered this already on the early part of the presentation. The revenue is still yet to start to show the growth trends due to the low amount of completions, what we are having this year. Same thing is impacting our adjusted operating profit margin on a rolling 12-months basis during this quarter. And the return on capital employed, while it has been trending in the right direction, took a bit step back during the quarter. And it requires, of course, the profit to come, but also capital release actions that we have in the pipeline to be executed. But the highlights from our strategy during the Q3 comes from actually our strategic focus to elevate the customer and employee experience to next level. When we look on our customer feedback and NPS, it has been continued on a very high level already for the several quarters. We have also made changes in terms of how are we serving our customers that has maybe liability repairs in the Residential Finland. And the lead-times on that side has been decreasing already 60% compared to '23. And this is then, of course, reflecting as a better customer feedback, as well as when the issues that has been identified are closed on a faster pace. Also, we have been working a lot with our apartment designs, not just one apartment but also the floor layouts in order to introduce new designs in this type of a market, and it has been also what our efficiencies we have been taking. So, it has provided us opportunity to price those with a lower price than before into that market when we have been launching the new starts. And investing to our own capabilities and teams. So, we have been becoming the leading pillar of the data centers in Finland, as mentioned that we have already announced the 3 projects. But the key big highlights from this quarter is our -- the commitment of our employees towards our new strategy. We're measuring our employee satisfaction on an annual basis, and the Net Promoter Score from our employees increased from level of 30 to level of 37, and that is a significant increase compared to a year ago. The main drivers was how our teams are understanding the strategy but also how they are seeing the future of the company to develop. 98% of trainees would like to continue working at YIT after we are -- after the summer or the period of time that they have been working with us, and we continue to invest in our people. And most recently, all of our leaders are going through the leadership training, which is then building more competencies and capabilities to their toolbox in order to lead the construction side, the projects, but also the teams on desired manner. So good progress also on this during the quarter. And operator, I think now it's already time to open up and start to have the questions Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: A couple of questions from me. So, first about these so-called noncore assets you are targeting to divest in the future. So, can you give us any ballpark like how much these assets are currently generating earnings? Tuomas Mäkipeska: I can start and continue, if you wish then. So actually as you, Heikki, mentioned, so altogether, if you look at the noncore assets, noncore assets on our balance sheet and the costs that they actually create and comparing that one to the benefits of having a kind of fair value gains there. So, these costs are offsetting the gains and are exceeding the gains. So that is what we have publicly communicated. We are not disclosing any numbers regarding the noncore assets piece-by-piece, or the operational costs related to them. But in a big picture, so as we say that, they continue to burden our profitability, so that effectively means that the costs exceed the benefits. Heikki Vuorenmaa: Yes. Anssi Raussi: Okay. Got it. And maybe then about your cash flow. So, as you mentioned that the Q4 is typically the strongest quarter in terms of seasonality. So, could you give us any estimate like, should we look at, 2024 Q4 or 2023 or something like we have seen in the previous years? Heikki Vuorenmaa: I'll take this one. We're not guiding quarterly cash flows or even yearly cash flow for this year. But as we have -- throughout our presentation, we have explained that our growth in CEE countries is not tying more capital or be cash negative largely. Then also the increase in -- or growth in the contracting segments are actually supporting the positive cash flow generation, and we are confident that we have a strong cash flow for the Q4. So that we can say. But anyway, so we're not giving any ballpark on a number basis. Anssi Raussi: Okay. That's clear. And by the way, thank you, Tuomas for now. So happy to continue our cooperation in the future as well. Tuomas Mäkipeska: Likewise, Anssi. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Heikki Vuorenmaa: I would actually -- before we close, so I would actually like to thank also the cooperation with the analysts throughout these years. So, it's been also a pleasure working a very smooth cooperation with you during this phase. And most of or part of you will, of course, meet in the next roles as well. So, thank you very much for the cooperation on my behalf. Essi Nikitin: Okay. Thank you. As there are no more questions, we thank you all for participation and wish you a great rest of the day. Heikki Vuorenmaa: Thank you very much. Tuomas Mäkipeska: Thank you.
Operator: Good day, and welcome to the Altria Group 2025 Third Quarter and 9 Months Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir. Mac Livingston: Thanks, Angela. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's third quarter and first 9 months business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy. William Gifford: Thanks, Mac. Good morning, and thank you for joining us. Altria continued to build significant momentum in the third quarter with exciting progress across our businesses. For the third quarter, we delivered strong financial performance growing adjusted diluted earnings per share by 3.6%, and we continue to make meaningful progress across our smoke-free portfolio and toward our long-term adjacency goals. on! held steady in a highly competitive environment, and Helix announced plans to launch on! PLUS its innovative next-generation oral product. Horizon also made important regulatory filings for a joint venture and heated tobacco products. Looking at our long-term adjacent growth opportunities, we announced a collaboration with KT&G to explore opportunities in international innovative smoke-free products and U.S. non-nicotine products. And importantly, we continue to demonstrate our commitment to returning value to our shareholders. In August, we announced our 60th dividend increase in 56 years and yesterday, our Board authorized an expansion of our share repurchase program. My remarks this morning will focus on results from on! and the launch of on! PLUS, updates on our heated tobacco and e-vapor portfolio, the state of the regulatory environment and our strategic relationship with KT&G. I'll then turn it over to Sal, who will provide further details on our business results, 2025 outlook and our continued commitment to providing significant cash returns to shareholders. Let's begin with on! and the nicotine pouch category. Oral nicotine pouches continue to be the primary driver of the estimated 14.5% increase in oral tobacco industry volume over the past 6 months. In the third quarter, nicotine pouches grew to 55.7 share points an increase of 11.1 share points year-over-year. Competitor promotional activity was highly elevated during the third quarter, particularly during September driving incremental growth for nicotine pouches. We continue to monitor how this elevated promotional activity influences longer-term brand adoption. Despite this competitive landscape, Helix was steady in the third quarter, growing on reported shipment volume to over 42 million cans, representing an increase of nearly 1% versus the prior year. For the first 9 months, Helix grew on! reported shipment volume to over 133 million cans, representing an increase of approximately 15% versus the prior year. While third quarter shipment volumes for on! were influenced by trade inventory dynamics driven by promotional activity in the category we remain encouraged by the steady consumer demand reflected in our estimated retail takeaway. In fact, on! retail share of the total oral tobacco category was 8.7% for the third quarter and first 9 months, demonstrating stability for the quarter and an increase of 0.8 share points for the first 9 months. on!'s retail price increased by approximately 1.5% in the third quarter versus the prior year. In contrast to the balance of the nicotine pouch category, where average retail prices for the category declined 7% nationally and more than 70% in 1 major retail chain. A clear reflection of the intense promotional activity during the quarter. Yet, Helix's year-over-year results continue to be a meaningful contributor to the oral tobacco products segment adjusted OCI stability and adjusted OCI margin expansion in the third quarter. Helix is positioning itself for long-term sustainable success. Helix recently launched on! PLUS in Florida, North Carolina and Texas, and we are encouraged by the recent actions from the FDA that signal progress toward a more efficient and transparent authorization process for nicotine pouches, which I'll discuss later in my remarks. on! PLUS launched with 3 flavors and 3 nicotine strengths, which we believe are complementary to the current on! portfolio. We believe on! PLUS is a premium and differentiated product that we expect to appeal to both adults who dip and competitive nicotine pouch consumers. on! PLUS uniquely delivers on 3 desirable attributes for pouch consumers. Comfort, nicotine delivery and flavor satisfaction. In recent research, we compared on! PLUS MINT against several leading competitive brands. While a small sample size on! PLUS outperformed all competitive brands in the sample. on! PLUS achieved the highest purchase intent score driven by the comfort of the pouch. In addition, innovation and consumer preferences remain at the forefront of Helix strategy. Helix continues to build a pipeline of new on! PLUS flavors and looks forward to bringing them to the U.S. market. In heated tobacco, Horizon completed a key milestone on its path to bring Ploom to the U.S. In August, Horizon filed a combined PMTA and MRTPA with the FDA for Ploom and Marlboro heated tobacco sticks. We believe the science and evidence supporting Horizon's applications are compelling and present a strong case for FDA authorizations. Our teams are working diligently on Ploom's go-to-market plans and we look forward to engaging smokers with this innovative product. Moving to our e-vapor business and NJOY. We believe we have completed the product design of a modified NJOY ACE solution that addresses all 4 disputed patents. Our teams are evaluating the potential pathways to bring the modified ACE product to market. During the third quarter, both NJOY and JUUL initiated new litigation against one another. JUUL initiated litigation in federal court and before the ITC against NJOY, asserting claims of patent infringement based on sales of NJOY DAILY and on any other products NJOY may be developing that would infringe JUUL's patents. We do not expect a final determination from the ITC before early 2027 and intend to vigorously defend our positions in this litigation. In addition, NJOY initiated litigation against JUUL in Federal Court and before the ITC are certain claims of patent infringement based on the sale of certain JUUL products. As we assess our path forward with ACE and work diligently on our innovative product pipeline in e-vapor, the market remains saturated with flavored disposable e-vapor products, the majority of which we believe have evaded the regulatory process. At the end of the third quarter, we estimate the e-vapor category included approximately 21 million vapors, up nearly 2 million versus a year ago. During the same period, disposable vapors increased by an estimated 2.4 million to nearly 15 million. We believe that flavored disposable e-vapor products continue to represent over 60% of the category. This remains a significant issue, but we are encouraged by the recent enforcement actions and constructive regulatory dialogue that signal progress. For some time, we have advocated for stronger enforcement against the listed products as well as for an acceleration in FDA market authorizations for smoke-free products. During the third quarter, we observed notable enforcement efforts targeting the listed products and welcomed positive plans from the FDA regarding the pace of authorizations within the nicotine -- oral nicotine pouch category. On the enforcement front, we continue to see elevated engagement and action from federal agencies and government officials. These actions included coordinated raids executed by the federal multi-agency task force across the U.S., resulting in the seizure of hundreds of thousands of illicit vapor products from retailers and wholesalers and the potential for further legal action. Ongoing seizures of illicit products, including seizure by HHS and U.S. Customs and Border Protection of more than 4 million units of illicit vapor products with an estimated retail value over $86 million, the largest seizure of this kind and a targeted nationwide operation led by the Drug Enforcement Administration focused on illicit activity at vape shops. These federal actions alongside efforts at the state and local level are signs of progress. However, we believe sustained and coordinated enforcement is necessary to materially impact the state of the market. We remain steadfast in our commitment to supporting a well-functioning regulatory system. It is critical to unlock the full potential of tobacco harm reduction. These ongoing enforcement efforts are essential to provide adult consumers with access to regulated products that are supported by science and are aligned with public health goals. Beyond enforcement, we have been advocating for the FDA to accelerate product authorizations and establish a responsible marketplace for smoke-free products. Regulatory speed and clarity are also essential to delivering innovative options that meet adult consumer preferences and advanced harm reduction. In September, the FDA launched a pilot program to streamline PMTA reviews for oral nicotine pouches and Helix was notified by the FDA that applications for on! PLUS are included in the program. We're encouraged by this development from the FDA, and we are actively engaging with the FDA on these product applications. While the pilot only applies to certain nicotine pouches, we hope it signals broader FDA efforts to increase the speed of regulatory decisions across all smoke-free platforms. As we pursue the smoke-free opportunity within the U.S., we remain committed to our long-term adjacent growth goals. In September, we took another step forward when we announced a new collaboration with KT&G. First, we are jointly exploring opportunities to grow global demand for nicotine pouch products, including the potential expansion of the on! portfolio into select international markets. As part of our initial steps in international modern oral, we entered into an agreement with KT&G to acquire an ownership interest in Another Snus Factory, the manufacturer of the LOOP Nicotine Pouch brand. LOOP is currently available in a range of strengths with unique flavors. Our research shows that complex flavors are driving growth for modern oral in international markets and we are pleased to add our investment in ASF to complement our portfolio of on!, on! PLUS and FUMI to effectively compete across all modern oral product segments. Second, our collaboration includes the exploration of opportunities in U.S. non-nicotine, specifically in the energy and wellness space with KT&G's Korea Ginseng Corporation, leveraging their product expertise and our commercial capabilities. In addition, as part of our relationship with KT&G, we're exploring ways to improve operational efficiency in traditional tobacco with the potential benefits for both companies in our respective home regions. We believe this collaboration further supports our enterprise goals and may strengthen our capabilities relevant to international nicotine products. We're excited about our new relationship with KT&G and look forward to providing updates on our joint efforts. In summary, Altria continued to build momentum in the third quarter. Our core tobacco businesses remained resilient. We advanced our smoke-free portfolio, and we opened new pathways for long-term adjacent growth in international modern oral and U.S. non-nicotine innovation. These efforts support the commitment to our vision and enterprise goals. I'm confident in our strategy, energized by the opportunities ahead and thankful for our team's continued dedication to delivering long-term shareholder value. I'll now turn it over to Sal to provide more detail on the business environment and our results. Salvatore Mancuso: Thanks, Billy. Altria delivered strong third quarter and first 9 months financial performance. Adjusted diluted earnings per share increased 3.6% in the third quarter and by 5.9% for the first 9 months. In the smokeable products segment, adjusted operating company's income grew by 0.7% to nearly $3 billion in the third quarter and by 2.5% to $8.4 billion for the first 9 months. Adjusted OCI margins expanded to 64.4% for the third quarter and first 9 months, representing impressive margin growth of 1.3 percentage points and 2.7 percentage points, respectively. Smokeable products segment reported domestic cigarette volumes declined by 8.2% in the third quarter and 10.6% for the first 9 months. When adjusted for trade inventory movements and calendar differences, the segment's domestic cigarette volumes for the third quarter declined by an estimated 9%, slightly above the estimated 8% volume declines at the industry level. For the first 9 months, when adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes declined by an estimated 10.5% and by 8.5% at the industry level. PM USA continues to execute on its strategy of maximizing profitability over the long term. While maintaining its focus on Marlboro and the premium segment, PM USA recognizes the opportunity to compete within the discount segment, guided by data-driven strategies. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category. In the third quarter, Marlboro expanded its share of the premium segment by 0.3% to 59.6% versus the prior year and by 0.1% sequentially. At the same time, PM USA continued to strategically invest behind Basic, appealing to a price-sensitive cohort of adult smokers within the discount segment. Many adult smokers continue to face discretionary spending pressures resulting from a variety of macroeconomic headwinds, including the compounding effects of inflation. Leveraging PM USA's data analytics and robust RGM tools, Basic grew 0.9 share point sequentially and 1.4 share points year-over-year for the third quarter. The discount segment of the industry expanded by 2.4 share points year-over-year with Basic capturing over half of that growth. Importantly, our data show that most of Basic share gains came from adult smokers already within the discount segment, with limited impact on Marlboro. As a result of the combined efforts across the PM USA portfolio of brands, cigarette retail share increased sequentially for the second consecutive quarter to 45.4%, growing 0.3 share points in the third quarter. Cigars also continued to be a meaningful contributor to our smokeable products segment results. For the third quarter and the 9 months, Middleton reported shipment volume increased 2% and 1.1%, respectively, as Middleton outperformed in the large mass cigar industry. Let's turn now to the Oral Tobacco Products segment. In the third quarter, adjusted OCI declined by less than 1%. Over the same period, the segment saw improved profitability through impressive adjusted OCI margin expansion of 2.4 percentage points to 69.2%. For the first 9 months, adjusted OCI increased by 3.3%, with adjusted OCI margin expansion of 1.8 percentage points to 69%. Helix's year-over-year performance was a meaningful contributor to the stability of adjusted OCI in the third quarter and to the adjusted OCI growth for the first 9 months. Total segment reported shipment volume decreased 9.6% for the third quarter and 5.2% for the first 9 months. As growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that third quarter and first 9 months, oral tobacco products segment volumes declined by an estimated 5.5% and 3.5%, respectively. Oral Tobacco Products segment retail share was 31.1% for the third quarter and 32.9% for the first 9 months. In the highly profitable moist smokeless tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results. We recorded $157 million of adjusted equity earnings in the third quarter, up 9% and versus the prior year. As Billy mentioned, our businesses performed well in a dynamic environment during the first 9 months of the year, and we effectively maintained the strength of our core tobacco businesses while investing toward our vision. As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.37 to $5.45, representing a growth rate of 3.5% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate in the fourth quarter as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers and will continue to closely monitor their purchasing behaviors. Our strong financial performance for the first 9 months enabled us to return nearly $6 billion to our shareholders, including $5.2 billion in dividends and $712 million in share repurchases. We remain committed to providing significant cash returns to our shareholders. as demonstrated by our recent dividend increase and share repurchase announcement. In August, our Board increased our regular quarterly dividend by 3.9% to $1.06 per share, marking our 60th dividend increase in 56 years. This milestone underscores our legacy of delivering consistent shareholder value and highlights the resilience of our businesses through decades of change. And today, we announced that our Board authorized the expansion of our existing share repurchase program from $1 billion to $2 billion, which now expires on December 31 and 2026. Lastly, our balance sheet remains strong. Our debt-to-EBITDA ratio as of September 30 was 2x in line with our target of approximately 2x. With that, we'll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period. Operator: [Operator Instructions]. We will take questions from the investment community first. Our first question comes from Matt Smith with Stifel. Matthew Smith: Sal, you raised the low end of the guidance again, which is nice to see here, but the fourth quarter implies a deceleration in the earnings growth. You called out lapping the share repurchase and the MSA legal fee expiration. Are there any other key puts and takes as we think about the fourth quarter and more importantly, the path to growing smokeable OCI again? Salvatore Mancuso: Thank you, Matt. No, as you mentioned, we did talk about the share repurchase and the MSA legal funnel. I'll also say we continue to monitor consumer spending, the marketplace remains dynamic. So I would really focus on that, but we feel really good about the ability to narrow guidance by raising the bottom. We're very pleased with the first 9-month financial performance. And then smokable profitability, again, we feel really good about PM USA's performance, their ability to expand margins for Marlboro remains strong within the premium segment. So we feel really good about the smokable business and happy to be able to provide the guidance. Matthew Smith: And as a follow-up, you called out the underlying cigarette industry rate of decline moderating on a sequential basis. Billy, I know you provide the 12-month bridge that shows the macroeconomic factor. But with -- sometimes that 12-month bridge can not move as much on a quarter-to-quarter basis. So when we think about the moderation that we saw sequentially, can you talk about the drivers that you think are leading to that? William Gifford: Yes. Thanks for the question, Matt. I think when you step back and look at it, you're right, the 12-month doesn't move quite as quickly. I think what you're seeing in the marketplace -- and look, our consumer is still under pressure. Again, they don't need improvement. They just need consistency. And we've seen a bit of consistency around gas prices, inflation, things of that nature, and we'll see how that continues through the year. And I think we're starting to see some of the -- and I talked about it in my remarks, some of the stepped-up enforcement in e-vapor, it puts consumers back at play. We would love to be able to keep them in the smokeless category, but when enforcement happens, it certainly puts them at play and they consider other nicotine categories. Operator: And we'll take our next question from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: All right. I guess I have a question first on the nicotine pouch category. The competitive environment has really intensified. So could you touch on what you're seeing and whether I guess you've been happy with the performance and positioning of on! considering the moderating growth. And then could you talk about some of your initiatives that you're implementing, I guess, to maybe turn the performance around. I guess I'm kind of wondering, do you feel that you need to step up promotional spend. And then finally, could you maybe share early feedback on the rollout of on! PLUS and I guess, assuming it's positive, should we assume you'll roll out that brand nationally. William Gifford: Yes, thanks for the question, Bonnie. You're right. The competitive environment significantly stepped. I mean when we try to dimensionalize it on! was moving up, call it, 1.5% at retail from a price perspective. while the entire category was down 7% on a national basis, but as much as 70% in a major retail. So it was a significant shift in promotional spending by competitors. We had that early on with the on! in the marketplace when we launched, and we've talked about how we're bringing the revenue growth management tools over to the category. So we're extremely pleased with the performance where we were moving up in retail price and the category was moving down significantly. I know people get hung up on some of the shipment volume. I think the encouraging aspect that we see is on the retail takeaway volume. And when you look at that, that's the true demand by the consumer, and that was steady even in that highly competitive environment. Much too early on on! PLUS to really mention, we are certainly excited about the differentiation that product has and research, and we're excited to be able to bring that to market and expand it when it's appropriate. Bonnie Herzog: All right. And then I just wanted to also ask about your KT&G partnership, it was recently expanded and you touched on this, but just hoping for a little more color on the operational efficiencies you see, especially as it relates to opportunities to maybe take advantage of the double duty drawback. Also, could you give us a little more color on I guess, opportunities for alternative revenue streams as well as further expansion internationally given this partnership? William Gifford: Yes. Thanks, Bonnie. And you touched on 2 of the 3. We really see it as 3-pronged. Certainly, the modern oral initiative, being able to expand on! and on! PLUS in international markets is something that we'll be exploring. Rounding out our portfolio with the inclusion of LOOP into that, so we feel like that completes the portfolio, and we look forward to continuing discussions with them on how to think about expanding internationally into other markets. The second point is certainly the non-nicotine opportunities. And I tried to highlight a little bit where we would explore working with them. They have certainly the product expertise in the Korean red ginseng and we would look to work with them based on our commercial distribution strength in the U.S. of what are the opportunities there and certainly, we'll share more when it's appropriate. And the third was the operational efficiencies. And what we saw there was it was the ability to adapt our manufacturing center for cigarettes for items that are specific to international markets, whether that be pack size or trace and tracking and things of that nature. It certainly, to your point, allows us to take advantage of duty drawback. That's a benefit of it. But it also opens up the door for us to think about international opportunities in the future. Operator: [Operator Instructions]. We'll go next to Eric Serotta with Morgan Stanley. Eric Serotta: Billy, starting on on! PLUS, I realize it's very early days, but you did mention it as premium positioning. Could you talk a bit about the price point as you launch in the 3 states where you did a realizing only a matter of weeks or less. But how are you thinking about the relative price point of on! PLUS relative to on! and relative to competitors, which I realize are moving target at the moment. And then Sal, controllable costs and smokables were up pretty significantly year-on-year, I realize they were down in a year ago. So there was perhaps a comparison issue. But how are you thinking about controllable costs going forward? Or is there any additional color you could talk about in the quarter? And the smokeable OCI growth was relatively muted at less than 1%. Was that really the controllable cost, or are there other factors that you'd point to that constrain the OCI growth in the quarter? William Gifford: Yes. Thanks, Eric. So I'll kick this off and then Sal can follow up with the question for him. I think when you think about on! PLUS, we certainly see that as a premium-priced product because of the differentiation and the satisfaction we think it brings in the experience to the consumer. In our research, the consumers choose that as the top product in there from a total experience standpoint, and we think it can demand the premium price at retail. Certainly, in any introduction, you have introductory price promotions. We know as soon as we get it in consumers' hands, they experience that differentiation that I'm trying to highlight to you. And so we'll certainly have introductory price promotions as we look to expand when appropriate. Salvatore Mancuso: As far as controllable costs go, I guess I'd start by saying that I would not look at controllable costs quarter-by-quarter. I think -- I really believe you need to look at the cost over the long term exactly for the reasons you highlighted in the question. There are some comparison issues. Costs are not linear. There's timing within a quarter. So you touched on that in the question. I think you are right to point that out. As far as controllable costs going forward, I'm going to be careful not to kind of lean into future guidance and things like that. But I would tell you how we think about costs. Obviously, in a declining category like smokeable and cigarettes in particular, cost management is an important part of the growth algorithm along with pricing. We do manage our overall costs. Obviously, we've shared with you the Optimize and Accelerate program that, that program is not just about effective cost management and cost reductions. It's also about better performance and speed to market. And we are taking those cost savings and reinvesting that in our future. I'll also share that we spend a lot of time continuing to hone our data analytics in our revenue growth management tools, and that has been extremely helpful. And while it manifests itself as price realization in the P&L, I look at that as productivity because we are better able to use promotional investments to support our brands and PM USA and data analytics team continue to do a terrific job of using data analytics and those RGM tools extremely effectively. So we're very happy about that. And then OCI for smokeable, I really would look at that over a longer term, again, not a particular quarter smokable is up 2.5% on a year-to-date basis. Very pleased with its performance, especially when you see the strength of Marlboro within the premium segment. Operator: We'll go next to Faham Baig with UBS. Mirza Faham Baig: A couple from me as well. Firstly, if I could come back on the duty drawbacks. If we take a bigger look at the at the picture. Altria is likely to make around $3 million in federal excise tax payments this year. Should this be the amount that we think about the potential benefit from the duty drawbacks. And is this likely to be the sort of key engine that drives group EPS growth to high single digits over the next couple of years to meet the mid-single-digit EPS CAGR to 2028. So that's the first question. The second one, going back to the pilot program that the FDA is running. Does this or could this impact your decision to go ahead with the national launch on on! PLUS, i.e., you may wait for the decision on this? Or you may take a decision irrespective of the program? And the second one on that is why do you think it's possible for the FDA to accelerate this process on nicotine pouches, but it's not possible to do so in vapor, which is arguably a much larger category and reviews there began much earlier. William Gifford: Yes. So quite a few things in that question. So if I don't touch on one, please follow up. I think when you think about the duty drawback, I wouldn't jump to a conclusion at this point in time. It's really about a relationship with international players. How do we think about producing cigarettes for international, some of the other benefits that we get certainly drawback is an additional benefit to that. When you think about the pilot program, I want to be clear that we want a functioning regulatory system. So we're going to always make our decisions based on what's the long-term best interest of the company with an eye towards what is best to get a functioning regulatory system. I think your question related to pouches versus vapor, I think from comments from them, but just the interpretation of it being called a pilot program, they wanted to start where it made sense to start, and that's in nicotine pouch. It's a fairly set category, even though we've seen some players maybe enter the marketplace illicitly. It gives them a way to thinking about the category in total and then differentiated products and what's different between individual products in the marketplace, which should speed up their review of that. I think when you think about vapor, the marketplace is a mess right now. And so I think the nature of a pilot program is to learn. They will learn manufacturers, including us, will learn. It's been a very collaborative process with constant engagement through the application review process, which is very different and very encouraging from the FDA we experienced under the previous administration. So I think once you have those learnings, we would hope and encourage the FDA to expand it to other categories. Mirza Faham Baig: I guess just a quick follow-up. Could you clarify that the EPS growth is suggested to accelerate to high single digits over the next couple of years in order to meet your mid-single-digit EPS CAGR. Is that still the ambition? William Gifford: Our ambition is the goal. We haven't changed our goals from an overall CAGR that we stated previously. And that's been our stated goal. So yes, that's the way I would think about how we're going to manage the business going forward. Operator: There appears to be no further questions at this time. I would now like to turn the call back over to Mac Livingston for any closing remarks. Mac Livingston: Thanks, everybody, for joining us today, and have a great day. Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
Operator: Greetings. Welcome to the Gannett Company Q3 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Esposito, Head of Investor Relations. You may begin. Matthew Esposito: Thank you. Good morning, everyone, and thank you for joining our call today to discuss Gannett's third quarter 2025 financial results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer; Trisha Gosser, Chief Financial Officer; and Kristin Roberts, President of Gannett Media. If you navigate to the Gannett website, you will find that we have posted an earnings supplement in addition to our earlier press release. We will be referencing it today on the call as it provides you with additional detail on this quarter's performance and our full year 2025 business outlook. Before we begin, please let me remind you that this call is being recorded. In addition, certain statements made during this call are or may be deemed to be forward-looking statements as defined under the U.S. federal securities laws, including those with respect to future results and events and are based upon current expectations. These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement as well as the risk factors described in Gannett's filings made with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or correct any of the forward-looking statements made during this call. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In addition, we will be discussing non-GAAP financial information during the call, including same-store revenues, free cash flow, total adjusted EBITDA, adjusted EBITDA margin and adjusted net income attributable to Gannett. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earnings supplement. Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any Gannett securities. The webcast and audio cast are copyrighted material of Gannett and may not be duplicated, reproduced or rebroadcasted without our prior written consent. With that, I would like to turn the call over to Mike Reed, Gannett's Chairman and CEO. Michael Reed: Thank you, Matt, and good morning, everyone. I'd like to start this morning by drawing your attention to some very notable highlights from the third quarter and subsequent to the quarter end. First, we accomplished a significant milestone within the quarter with our total debt falling below $1 billion for the first time since our merger in late 2019. And we are nearing another milestone with total digital revenues growing to 47% of total company revenues in the quarter, an all-time high, and we believe that we'll close in on 50% in the fourth quarter. Our $100 million cost program is now fully implemented. And as a result, we expect to start realizing the full benefit in Q4, and that is expected to drive significant year-over-year growth in adjusted EBITDA in the quarter. We had a few large digital clients shift spend from the third quarter to the fourth quarter, and those clients have begun their campaigns in October. While that influenced Q3 results, it positions us well for a strong fourth quarter. And finally, we were pleased with Judge Castell's partial summary judgment ruling earlier this week in our lawsuit against Google. The decision represents an important step forward as it establishes liability on certain claims. We remain encouraged by the continued legal progress addressing Google's monopolistic practices and are optimistic about what this means for both Gannett and the broader publishing industry. Turning to the business. We remain confident in our strategy, our execution and the sustained progress we are making toward our long-term growth objectives. Let me call out a few more important highlights from the third quarter. Our audience grew sequentially on what was already an extremely large base, and we delivered another quarter of year-over-year growth in digital advertising revenues. In our digital-only subscription business, digital-only ARPU reached a new high, and we saw digital-only subscription revenue improve in Q3 from Q2, movement in the right direction after our strategy shift this year. And our DMS business saw improved year-over-year trends in core platform revenue and average customer count, while core platform ARPU remained near all-time highs. Subsequent to the quarter end, we had a couple of nice developments on the licensing front. First, on October 8, we had the full launch of our Perplexity deal timed with the launch of their Comet browser. And we are very excited to announce this morning our new AI licensing deal with Microsoft. This new deal is timed with Microsoft to support the upcoming launch of its publisher content marketplace, which you'll hear more about later in the call. We are hopeful to keep building on our growing portfolio of AI licensing deals with the announcement of additional partnerships. Debt reduction continues to be a top priority for us. And for the first time since our merger in 2019, total debt fell below $1 billion, which marks a significant milestone in strengthening our balance sheet and reducing leverage. With regard to financial performance in the third quarter, it's important to note that revenue was influenced by several large customers shifting their spend from Q3 into Q4, the largest of which was Perplexity. Adjusted EBITDA was impacted in the quarter by approximately $7 million versus our expectations, driven by revenue moving into Q4 and incremental expenses, primarily a pull forward of expenses associated with our cost reduction actions, including medical and benefit-related costs tied to employee exits from the organization. While these factors created some noise in the quarter, most of our key fundamentals and metrics remain strong and the drivers we were most excited about for the second half of the year continue to hold, including the momentum across our audience in terms of growth and engagement, our diversified growing digital product portfolio as well as our $100 million cost reduction program. With these items in place, we expect to drive meaningful year-over-year adjusted EBITDA growth in Q4, along with solid growth in total digital revenues and free cash flow. Based on what we are seeing already in October, we expect to deliver a strong fourth quarter. Now let's discuss a few key operational highlights from the third quarter. Our digital strategy focuses on expanding our audience, deepening engagement and maximizing monetization across the customer journey. In Q3, we continued to drive one of the largest digital audiences in the media industry with 187 million average monthly unique visitors, which grew more than 3% compared to Q2. This significant scale, combined with our unique ability to stay closely aligned with our readers' preferences, drove another quarter of at least 1 billion page views per month domestically. As a result, digital advertising revenues recorded another quarter of year-over-year growth. And moving forward, we expect to accelerate this momentum into Q4 as several new advertising deals have now moved through the pipeline. Separately, the focus in 2025 on the quality of our digital subscriber acquisition strategy is showing positive results. Digital-only ARPU achieved a new high of $8.80 in the third quarter, up approximately 8% year-over-year. Q3 also returned to sequential growth over Q2 for digital-only subscription revenue. While it will take a few more quarters to return to volume growth, these wins show that our intentional actions are working. And moving forward, we will continue focusing on acquiring high-value subscribers in our core local markets, where we offer a differentiated product, trusted brand and create meaningful value for our customers as evidenced by the growth in digital-only ARPU. With the innovative work Kristin and her teams are doing to expand our content experiences and product portfolio, we believe we have a strong value proposition for our consumers and advertisers. And with that, I will turn the call over to Kristin to share more work underway to strengthen our media business. Kristin? Kristin Roberts: Thank you, Mike. Gannett Media continues to lead with purpose by providing essential content that informs, engages and entertains audiences across the country. By listening to our audience and leveraging data to understand how they interact with our platforms, we maintained our position as one of the nation's leading news and information providers among content creators. We also continue to keep our readers deeply engaged as we delivered another quarter with more than 1 billion page views per month across our network. As we enter the final months of the year, we recognize that sustaining audience growth and engagement requires an innovative approach. Video is undeniably the most critical format for our future as Americans increasingly turn to video platforms for their news and information. Thanks to the work our unified video team has done over the past year, we are well positioned to meet audiences where they are and deliver content in the format they prefer most. One of the areas where we have seen tremendous success with video is through our sports coverage and OneTEAM Sports. In the third quarter, we launched a comprehensive suite of sports hubs for the Big Ten, SEC and NFL that brings fans closer to the action through vertical video and story carousels that create an immersive mobile native experience. These hubs also feature real-time scores, player stats and standings that give fans immediate access to the information they care about most. Early results show that time spent within these hubs is double compared to traditional browsing on our platforms, along with higher engagement levels, which in turn creates a promising opportunity to further monetize our loyal sports audience. We're taking the same approach to new categories that spark passion and loyalty, whether it's entertainment or our recently launched USA TODAY Pets, which debuted in July with new branding, a fresh design and a video-first content strategy that spans the full journey of pet ownership. As we grow this passionate audience, our teams are expanding monetization opportunities through affiliate partnerships and sponsorships, while enhancing the platform with new features such as vertical video support and additional storytelling formats that are designed to deepen engagement and give our readers more reasons to register and subscribe. On that note, our digital-only paid subscription volumes continue to reflect the deliberate actions of our refined acquisition strategy. I'm encouraged to see new highs in digital-only ARPU, which drove sequential growth in digital-only subscription revenues from Q2 to Q3. As I mentioned on the prior call, games remain a key focus for us in the back half of the year, and that progress is evident with the launch of PLAY, a unified digital hub for casual entertainment and gaming. Designed to align with the daily habits of USA TODAY readers, PLAY brings together everything from morning horoscopes and comics to afternoon puzzles in one convenient destination. What's most exciting is the promising upside we see in games as a new consumer revenue stream. Nearly 1/3 of our readers already play games online, but only a small share are currently doing so on PLAY. That means every incremental gain and engagement has an outsized impact. For instance, if we can get 1 more percent of our audience to play games at our current play ARPU rates, that equates to an additional $10 million annually in digital-only subscription and digital advertising revenue. Overall, this presents a great opportunity to expand our audience, deepen engagement and drive incremental revenue as we continue introducing new features and promoting PLAY across our network. Across every initiative, from video to new verticals to games, our teams are working with creativity, focus and urgency to meet audiences where they are and deliver experiences that truly resonate. I want to thank our teams for their continued collaboration and determination. We are building meaningful momentum, and I am confident that our collective efforts are setting the stage for a strong finish to the year. Back to you, Mike. Michael Reed: Thanks, Kristin. It's exciting to hear about all you and your teams have going on and especially exciting to see our PLAY business launch, which we believe has tremendous potential. Now shifting gears to AI. The value of real-time trusted content continues to increase, and we are excited to partner with Microsoft on the upcoming launch of their publisher content marketplace. We are proud to be one of the select few U.S. publishers participating in their pilot program with Microsoft Copilot. And this exciting new initiative represents one of the first large-scale efforts to fairly compensate publishers for AI usage of their content to ground AI-powered features and results with trusted output. With regard to our AI content monetization strategy, in addition to creating valuable trusted content at scale and licensing at fair value is our new approach to deploying technology to block AI bots that try to scrape our content. Today, we are blocking over 99% of AI verified bots other than Google that try to scrape our content without licensing agreements in place. In September alone, we blocked 75 million AI bots across our local and USA TODAY platforms, the vast majority of which were seeking to scrape our local content and about 70 million of those came from OpenAI. This is a clear signal of just how valuable our content is to these AI engines, especially our local content, which we are uniquely positioned to deliver at scale. We will continue to partner with and provide access to companies that are interested in licensing our content responsibly and fairly. However, current structures limit publishers' ability to control how some major platforms such as Google use unlicensed content, an issue we continue to advocate for as part of building a fair and transparent AI ecosystem. Additionally, in Q3, we announced that DeeperDive, our industry-first Gen AI answer engine is now fully implemented on USA TODAY. Following a successful beta in Q2, DeeperDive brings the power of Gen AI conversations directly on USA TODAY's platform for all users, tapping into years of proprietary real-time, high-quality content created by journalists and editors at USA TODAY and across the USA TODAY Network. Since launching in mid-September, readers have asked more than 3 million questions with average daily activity well over 50,000 interactions. These early results show strong traction and highlight the meaningful opportunities to drive higher readership, deeper engagement and in turn, enhanced monetization on our platform. Now turning to our DMS segment. We continue to see encouraging stabilization across our key metrics with year-over-year trend improvement on our core platform, which includes revenue and average customer count, while ARPU remained near all-time highs. These gains reflect the positive impact of our strategic initiatives such as AI smart bidding and enhancements to our AI-powered software solution, Dash. For those who have been following our progress, I would like to provide a quick update on where these key initiatives currently stand. Starting with AI smart bidding. Search remains a key lead gen tool for our SMBs, and we've created greater efficiencies through the use of AI smart bidding. The adoption continues to ramp. And by year-end, we expect close to half of our U.S. budgets to be leveraging it. We are seeing encouraging results so far as it delivers a better cost per lead versus traditional integration strategies. Turning to Dash. We continue to see strong momentum with our voice and SMS agents managing a growing volume of customer interactions. Our voice agents are managing 15% of calls for enabled customers. As a result, we are driving greater efficiency and simplifying daily operations for the SMBs we serve. In parallel, for customers whose needs fall outside our core platform's ideal profile, particularly larger bespoke or media-heavy programs, we are increasingly serving them through capabilities in our Media segment. This approach puts each customer on the best fit solution, protects platform unit economics and enables us to grow DMS at the company level while concentrating incremental investment where ROI is highest on our own platform. Together, these efforts are building a stronger, stickier and more resilient DMS business, and we see a clear path to sustained growth. I'd now like to turn the call over to Trisha to provide additional details and color around our 2025 third quarter financials. Trisha? Trisha Gosser: Thank you, Mike, and good morning, everyone. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In the third quarter, total revenues were $560.8 million, a decrease of 8.4% or 6.8% on a same-store basis. Despite the static revenue trends in Q3, we expect notable improvement in the fourth quarter, which is driven by a more significant impact from AI licensing revenue and larger digital advertising campaigns, along with targeted subscription pricing adjustments and platform enhancements. In Q3, operating costs and SG&A expenses decreased approximately 8%, reflecting our ongoing focus on disciplined cost management. That being said, Q3 expenses reflect incremental costs associated with our cost reduction program, which removed $100 million in annualized costs from our base. We believe the reduction of expenses, primarily associated with our headcount reductions, also accelerated some costs into the third quarter in areas such as medical and other benefit-related programs, which traditionally we would have expected to incur in the fourth quarter. Total adjusted EBITDA was $57.2 million in the third quarter, representing a 10.2% margin. These results were impacted by the timing of large drivers of revenue and adjusted EBITDA that shifted into the fourth quarter as well as the expense impacts I just mentioned. Many of our most profitable revenue drivers will contribute more meaningfully in Q4 rather than Q3, and our cost reduction program is fully in place as we enter the fourth quarter. As a result, we expect robust year-over-year growth in adjusted EBITDA in the fourth quarter as well as our third consecutive year of full year adjusted EBITDA growth. Total digital revenues in the third quarter were $262.7 million, a decrease of 5.3% or 4.1% on a same-store basis and represented 47% of total company revenue. Within digital, advertising revenues increased 2.9%, driven by a continued improvement in client retention and our large audience base. We anticipate even stronger results in the fourth quarter, fueled by strong advertiser response to our sports, pets and other high engagement verticals. In Q3, digital-only subscription revenues totaled $43.7 million, representing sequential growth of 2.4%. As a reminder, we faced our toughest year-over-year comparisons in Q3 as we cycled the prior year's benefit from system conversions and grace relief. Digital-only paid subscriptions also continue to reflect the intentional actions to optimize our acquisition costs by prioritizing long-term monetization versus shorter-term volumes. We believe these deliberate actions are paying off, evidenced by digital-only ARPU achieving a record high of $8.80 and growing approximately 8%. We expect digital-only ARPU to increase in the upcoming quarters as we maintain our focus on attracting and retaining more profitable subscribers. Looking at the Domestic Gannett Media segment. In Q3, segment adjusted EBITDA was $35.4 million, representing a margin of 8.5%. Revenue trends in Q3 on a reported basis continue to reflect the sale of the Austin American-Statesman in Q1 and businesses divested in late 2024. Turning to Newsquest. In Q3, segment adjusted EBITDA totaled $14.6 million, up 4.6%, while segment adjusted EBITDA margins increased 50 basis points to 23.9%. Revenue trends also posted their second consecutive quarter of growth, increasing 2.5% year-over-year. In our Digital Marketing Solutions segment, Core Platform revenue in the third quarter was $114 million. Segment adjusted EBITDA was $9.8 million. We ended the quarter with approximately 13,400 core platform customers and core platform ARPU remained near record highs at approximately $2,800, which reflects growth of 2%. We see encouraging signs of stabilization. And in Q4, we expect year-over-year improvement in both core platform revenue and segment adjusted EBITDA. and to better serve our customers in certain categories, particularly large multi-location businesses, we have transitioned some of these clients to be serviced through our Media segment, where they can leverage additional tools and capabilities. Now let's shift to the balance sheet. At the end of the third quarter, our cash balance was $75.2 million and outstanding net debt was approximately $921 million. Debt reduction remains a top priority, and we continue to make meaningful progress during the period. In Q3, we repaid $18.5 million of debt and generated $4.9 million of free cash flow. For the 9 months, we have repaid $116.4 million in debt, which brings our total debt to below $1 billion, and we expect to repay over $135 million in debt during 2025. As we look at the full year, several large revenue drivers that were originally expected to contribute to the third quarter are now expected to start in the fourth quarter. As a result, we now anticipate digital revenue to be down in the low single digits for the full year on a same-store basis, with growth in the low single digits in the fourth quarter. We believe the expected strength of the fourth quarter, combined with continued expense discipline, positions us to achieve full year growth in adjusted EBITDA and 30% growth in free cash flow. We know there is more work ahead to strengthen our financial results, but the third quarter also underscores the progress we're making to build a more durable and diversified business. With the scale of our audience, the strength of our brands and the ability to leverage our content across multiple revenue streams, we believe Gannett is well positioned to create lasting value. Combined with an ever-improving balance sheet and a disciplined focus on the execution of our strategy, we believe we are laying the foundation for long-term value creation. I will now hand it back to the operator for questions, and then we will go back to Mike for some closing thoughts. Operator: [Operator Instructions] Your first question for today is from Giuliano Bologna with Compass Point. Giuliano Anderes-Bologna: Congrats on the continued execution, especially on the securing another important AI licensing deal. As a first question, you referenced some of the developments this week in the Google antitrust lawsuit that you have outstanding. Can you share what the development was and how you think it impacts the case and how the case should move forward as a result of that development? Michael Reed: Hey, Giuliano, good morning. Thanks. Yes, let me start by explaining that or actually emphasizing that this is a very positive development for Gannett as it relates to our case against Google. And so a little more detail on what happened on Tuesday this week, Judge Castell the federal judge in New York issued a summary judgment ruling in our case against Google. And effectively, the court agreed with the Department of Justice's earlier findings earlier this year that Google illegally monopolized the digital advertising market and ruled that Google can't relitigate those issues in our case. So Judge Castell said Google basically -- said Google can't relitigate the issues in our case. That was a big win for us. But trying to simplify it, what it means for us. It means the court has already established liability on key aspects of our claims. And the case really now focuses on damages and remedies for these claims. And this is another important point, Giuliano. We believe this ruling has the potential to move the case forward more quickly now, allowing us really to concentrate on demonstrating the harm caused and the remedies we're seeking, which obviously include compensation for the damages done to us. So it was a significant win for Gannett that establishes liability, and we think moves the case along quicker and also will lead to a more fair and open digital marketplace eventually. So this was a really positive milestone for us, and we're excited about the developments this week, but also staying really focused on the next steps of the process in this case. Giuliano Anderes-Bologna: That's very helpful. Maybe shifting gears a little bit. You noted some of the large revenue drivers shifting, yes, from 3Q into 4Q. Can you unpack what's driving that timing and whether it reflects broader trends you're seeing in advertiser demand or digital monetization or onetime shift. Michael Reed: Yes, sure thing. I think the first point I really want to emphasize here is we do think based on October's activity that it is simply a timing shift. And I'll start with Perplexity, and that was really not -- that was just due to a product launch timing shift. We signed the deal with them, as you know, towards the beginning of the third quarter, and their common browser was scheduled to launch in September, and that got pushed to early October. And so the revenue that we had planned on for September from that licensing deal didn't begin until October. So truly a timing shift tied to a product launch. The good news is it launched in early October, and we are enjoying that partnership now with Perplexity, and it will help the fourth quarter now. We also saw a number of digital advertising deals that were in the pipeline shift from Q3 spend to Q4 spend. And again, the good news here is that we're successfully seeing those deals up and running in October and running their messaging and contributing to revenue in October. So we do believe that there's not more to it than a timing shift, both for the advertising customers that shifted as well as Perplexity. So we feel good about -- feel disappointed that it impacted the third quarter, but really excited about the positive impact it's going to have for us on the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate it. I guess can you give some more color on the incremental expenses that you incurred during the third quarter? And do you think any of these will continue to have an impact going forward? Trisha Gosser: Hey, good morning, Giuliano, this is Tricia. Yes, the biggest component of the incremental expenses that we saw compared to what our expectations were for the quarter were associated with the headcount reductions that we completed in the quarter. So that was tied to that $100 million cost takeout that we did. So we saw things like medical and other employee benefits programs spike up in the quarter. And we really think that, that was tied to people exiting the organization. And to your question about whether we think that continues, I don't think so. I actually think it has the ability to have a favorable impact on Q4. Generally, we see a spike in claims towards the end of the year, and we really think that, that was pulled forward into the third quarter as people exited the organization. The other thing I would highlight that's really important is that cost program is now fully implemented. So we're going to see the full benefit of that impact in the fourth quarter, and that really should set us up to have a strong year-over-year EBITDA growth in the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate that. And then next question, given that the digital revenue mix is now approaching 50% of revenue, how do you see that evolving into '26? And what gives you confidence in the durability of those revenue streams? Trisha Gosser: Yes. As you know, in Q3, we were about 47% of total revenues coming from our digital businesses. We expect that to be closer to 50% in the fourth quarter and then expect that to surpass 50% in 2026. And I think it's important to note that the makeup of our digital revenue is much more diverse today than it has ever been. You heard Mike talk about Perplexity launched earlier this month. We announced a Microsoft AI licensing deal just this morning. We've signed agreements with AI licensing partners throughout the year. We think there are more AI deals to be coming in the coming quarters and months. You heard Kristin reference the launch of PLAY, and we think that could be a good contributor from both the digital advertising and a subscription standpoint. And so we continue to develop these new revenue streams that can be created from the content and the core competencies we already have, creating high-quality content at scale and attracting this massive audience. And so we have all these new revenue streams taking hold, and we're also seeing some progress in our foundational revenue streams. The DMS initiatives that Mike mentioned, the fact that our digital-only subscription ARPU continues to grow and to reach new highs as our strategy takes hold. Our digital advertising deals have been strong as we enter the fourth quarter, and that ladders on top of what's already been a growing business. So we've got this really diverse digital revenue profile. We've got this really strong audience and the direction of each of these components is headed in the right direction, and that gives us a lot of optimism on the fourth quarter, but getting to that 50% plus composition in 2026. Giuliano Anderes-Bologna: That's very helpful. And then maybe the last one, touching on the AI side. You referenced the new AI partnership, including Microsoft. Can you elaborate on how those partnerships translate to monetization? And what do you see as next steps? Trisha Gosser: Sure. Kristin Roberts: Trisha, I'll take this one. This is Kristin. And first of all, thank you, Giuliano. I'm always very, very happy to talk about the value of these partnerships. I think that what is foundational to a healthy future for AI on the web is content that is high quality, of course, also trustworthy and factual. And so the way we're thinking about this is that as AI agents become sort of central to how people are discovering and consuming content, we -- alongside companies such as Microsoft, we believe that publishers play a critical role in determining the value of their content in these experiences. So now Microsoft is focused on building a scalable and equitable solution, one that is going to ensure that publishers are fairly compensated for the value that they're delivering through their content offerings, their premium content offerings. And so to this end, they are piloting this publisher content marketplace. They're doing this with a number of select U.S. publishing partners, and the aim here is to learn and to shape the tools and the policies and the pricing models really that are going to define this era. I'm certainly happy -- I think we're all very happy to be participating in creating that marketplace, creating it with Microsoft and with Perplexity and other partners. Each of our licensing deals, Giuliano, is structured a bit differently. Some of them include direct licensing fees, others include revenues sharing components. What I would say is that they all expand the ways that we can monetize the content we already produce and do it at fair value. So we see significant long-term opportunity in the space. The AI content marketplace certainly is still developing. I think the ultimate models for monetization are not quite fully defined yet. So our approach is to participate early, help shape the framework and then ensure that our agreements do not trade off the long-term upside of this evolving ecosystem. So I'd just say that overall, we view these partnerships as early building blocks for a more sustainable, more balanced digital ecosystem and one where publishers are rewarded for the value they are creating. I hope that helps. Operator: Your next question for today is from Matt Condon with Citizens. Matthew Condon: My first one is, just can you elaborate on what you're seeing as far as traffic coming from these AI platforms? Are you seeing meaningful click-through rates and meaningful traffic coming to your sites from these platforms, then thinking specifically about Perplexity just as that deal is launched in the early days here? Michael Reed: Yes, Matt, thanks, and thanks for the question. No, there's not meaningful traffic coming from AI search companies. And that's really why the value from a monetization standpoint for publishers like Gannett has to be from the licensing of our content. The whole model of answers on AI search platforms is they get the full answer on that platform. So the Google model of the blue links click back to the publisher's site is not the same model inside of the AI platform. So that's why we've been so focused on these monetization deals, these licensing deals because we don't see the traffic coming back. The other point I would make, Matt, is that we are actually blocking 99% of all the AI bots trying to scrape our content, other than for those platforms that we have to deal with or, as I mentioned early on the call, with Google for which we can't block because we still need that search traffic from the blue links, even though they don't distinguish and let us authorize content for the blue links only and not for AI, which is the problem I mentioned in the ecosystem that I mentioned earlier in the call. So the short answer is no, there's not a lot of traffic coming from the AI search platforms. That's why the licensing deals are so important. However, what's also important is that we're blocking the scrapers. And so in order to get traffic on their sites based on our content, they need to pay us for that content. And we continue, as you hear from Kristin on these quarterly calls, we're continuing to develop ways to go direct to the consumer and bring the consumers directly to our platform and also using other social media ways to bring consumers to our platform. And I think the final point I would make is despite not getting traffic necessarily from the AI search platforms, we're not having an issue with overall traffic. You heard this morning we had 187 million uniques on average on our platform in the third quarter, and that was up from 181 million uniques in the second quarter. So we're doing a great job creating the right content and doing the right -- doing a great job in driving consumers to our platform. Matthew Condon: Great. And maybe just a follow-up on that. It's just obviously, one of the major companies that you're blocking is OpenAI. And can you just talk about just their willingness to come to the table, maybe other AI platforms that you don't have partnerships today, their willingness to come to the platform and negotiate deals where you do feel like you'll get fair value for your content. Just how is that pipeline developing here today? Michael Reed: Yes. OpenAI, as you heard, was -- is the biggest offender in terms of trying to scrape. I mentioned we had 75 million AI bots we blocked and about 70 million of them were OpenAI. Another interesting data point there is that we're rounding down, it was a little more than 70 million. 69.9 million of the AI bots from OpenAI that we blocked were seeking our local content, really interesting. They really want our local content. We blocked them 69.9 million times in September. OpenAI is not willing to cut a fair deal at this point. We continue to talk to them, and we'll continue to block them. And we do know that there's value in our content. Otherwise you wouldn't have seen over 70 million attempted scrapes in the month of September alone. So short answer, Matt, no, we haven't gotten to a good place with them yet. We're really hopeful to. Our goal is to be -- and you heard it in Kristin's discussion and answer to the question Giuliano asked is we want to be proactive in creating the right solutions here with our AI partners. And so that remains the path we'd like to take, and we'd love to take that path with somebody like OpenAI. Matthew Condon: That's interesting. And then maybe just shifting gears here to the DMS side of the business. Can you just elaborate on what you were talking about, about pushing certain clients to the Media segment? Talk about the benefits there are both for those clients and for Gannett, just, yes, how, just how that strategy will develop over the long term. Trisha Gosser: Yes. Matt, this is Trisha. Good morning. I think there's 2 things here. First is how do we invest with the highest ROI in our platform? Who is the right ideal customer for our DMS platform? And how do we focus our investments to make sure that we are delivering the best experience and the lowest cost per lead for those customers on our platform. And we think we've identified what that ideal customer profile looks like. For those who sit outside of that, so you heard us talk about really large customers that are multi-location. There are tools on the market today that allow us to do that more quickly, get those campaigns up and running with more speed and to manage many, many different locations at scale, still leveraging some of the knowledge we have within the company and within the platform. But rather than develop that on our own platform, we're starting to leverage some tools in the media space that allow us to serve not just the ideal customer on our DMS platform, but a broader category of DMS advertisers. We also see that there's a percentage of DMS customers who want a predominant media buy. So a lot of our customers buy across our platform. But when somebody wants a predominant media buy with DMS, we can use some of these tools to service that buy more effectively. So it's really about how do we get the most value out of our platform and how do we deliver the best experience for our customers. Matthew Condon: Great. That's very helpful. And then maybe just one last one for me. Just great to see debt below $1 billion for the first time since the merger. Can you just talk about where we sit today as far as just real estate and asset sales and further debt paydowns? Trisha Gosser: Yes. So we're at $116 million of debt paydown through the year. We feel very comfortable that we'll get to $135 million or above for the full year. We still have a few small to midsized real estate deals in our pipeline that we expect to get through Q4, maybe Q1. We know we've talked about this before. We will always have some things in our portfolio that we're able to monetize. But I think once we get through this next chunk, we've largely monetized our real estate portfolio. But we also see that we're generating a good amount of free cash flow. We have several drivers for improved free cash flow next year. This year, we'll be up 30%. Next year with a lower debt balance and lower interest rates as well as the improving trends in our revenue and our EBITDA, we'll have a significant amount of free cash flow to address our debt. So there's always something in our portfolio. But I think from the real estate perspective, we've got one more small chunk, and then we've largely monetized that. Operator: Your next question is from [ William Kavaler with Odeon Capital ]. Unknown Analyst: Going back to licensing, this is obviously becoming a critical or is expected to become a critical revenue stream. Do you guys have any intention of breaking out that licensing revenue so that we can kind of look at that, say, like a library cash flow kind of revenue stream? Michael Reed: Yes. Great question. I think 2 thoughts there. One, and Kristin mentioned this earlier too, is the business model for our AI partners is still developing. And I think the long-term play for us on how we monetize the AI partnerships with the most upside is still developing. And so I think we want to see how those 2 things develop, and it does have to become a bit more of a meaningful piece of our overall revenue streams. But the short answer to your question is, yes, I could see us breaking licensing fees out at the right time as it becomes a more significant part of our overall digital revenue stream and as we have more confidence in what the sustainable revenue model is for us. Operator: We have reached the end of the question-and-answer session, and I will now turn the call back over to Mike for closing remarks. Michael Reed: Yes. Thank you, and thanks for being with us today. And as we part, let me leave you with a few thoughts to wrap up this morning. As you heard from us this morning, we're very optimistic about a strong fourth quarter, and we're nearing a month into that quarter, and we're encouraged by what we're seeing in October. To summarize, we had some clients shift digital spend from Q3 into Q4, and we'll realize the full benefit of our $100 million cost reduction program in the quarter. And that's all on top of what is typically a strong quarter for us from a seasonality standpoint. So high expectations for the fourth quarter. We're thrilled to have our Perplexity licensing deal up and running now in October and also really excited to be able to announce our next licensing deal with Microsoft this morning. And as I mentioned on the call, we do expect to announce a couple more AI partnerships over the next couple of months or a couple of quarters. We're encouraged by the pipeline there. And also, this came up just a minute ago, but we're really excited about how we continue to strengthen the balance sheet and continue to reduce debt. we're particularly excited to see our total gross debt drop below $1 billion. And with interest rates declining and lower debt balances, Trisha just mentioned, we expect that to lower our interest costs quite a bit in 2026, and that will be a big contributor to our free cash flow growth next year, which that free cash flow growth will allow us to continue to pay down debt above and beyond what our normal amortization is. And then final thought is just we're pleased, as you might expect, to see Judge Castell's ruling on Tuesday in favor of our partial summary judgment filing in our case against Google. This establishes liability for Google and moves our case an upcoming trial to a damages case for our key claims. And we're hoping a trial date gets set very soon. Although we think -- altogether, we think this sets us up for a strong fourth quarter and a strong future, and we look forward to updating you on the fourth quarter results early next year. Thanks for joining us today. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to AIXTRON's analyst conference call Q3 2025. Please note that today's call is being recorded. [Operator Instructions] Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Gunner. A warm welcome also from my side to AIXTRON's Q3 2025 Results Call. My name is Christian Ludwig. I'm the Head of Investor Relation and Corporate Communications AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on Page 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other media. However, we will place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you to our Q3 '25 results call. I will start with an overview of the highlights of the quarter and then hand over to our CFO, Christian, for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an update on the key business developments of the second quarter on Slide 2. The important messages for Q3 '25 are our free cash flow in the quarter was EUR 39 million, totaling EUR 110 million in the first 9 months '25, while inventories are down to EUR 316 million, coming from EUR 369 million at the year-end '24. This shows we are well on track with our strategy to rebuild our cash position after we had depleted that with the construction of our 300-millimeter cleanroom, the innovation center in the years '23 and '24. In Q3, we recognized new orders of EUR 124 million, which lead to an equipment order backlog of EUR 287 million, where we have achieved a book-to-bill of 1.04. We concluded the quarter with revenues of EUR 120 million. With that, we were in our guided range of EUR 110 million to EUR 140 million. The gross margin reached 39% in Q3 and averaged 37% in the first 9 months. This figure includes a one-off expense related to our implemented personnel reduction earlier in the year. Adjusted for this effect, the gross margin after 9 months came out at 38%, slightly below previous year's 39%, mainly due to volume shifts and FX headwinds. As the market remains soft, we had to adjust our fiscal '25 guidance 2 weeks ago. We are now expecting revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance of EUR 530 million to EUR 600 million, and a gross margin of now 40% to 41%, down from previously 41% to 42%, and an EBIT margin of now around 17% to 19% from previously 18% to 22%. AI continues to be the main end market driver, especially for our Optoelectronics segment. Automotive-driven power electronics demand, on the other hand, remains soft. Christian will now provide a detailed look into our financials on the following pages before I take over with an update. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the key points of our revenue development on Slide 3. In a soft market environment, we achieved revenues of EUR 120 million, down versus the EUR 156 million last year, but well in the guided range of EUR 110 million to EUR 140 million. For the first 9 months, revenues came in at EUR 370 million, down about 9% year-over-year. A breakdown per application shows that 66% of equipment revenues after 9 months come from GaN and SiC power, 14% from LED, 16% from Optoelectronics and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with EUR 80 million. The aftersales share of revenues after 9 months was up by 2 percentage points year-over-year to about 22%. Now let's take a closer look at the financial KPIs of the income statement on Slide 4. I already talked about the revenue line. Gross profit decreased year-over-year in Q3 '25 to EUR 246 million. Gross profit in the quarter was negatively affected by approximately EUR 8 million due to volume shifts from Q3 into Q4 and around EUR 2 million due to FX effects. Subsequently, the gross margin in the quarter came in at 39%, down 4 percentage points versus the prior year. After 9 months, gross profit was at EUR 136 million, 15% below last year's figure. At 37%, our gross margin after 9 months was 2 percentage points lower than after the same period last year. But please recall, as stated in our Q1 release, this includes a one-off expense of a mid-single-digit million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for these effects, the gross margin after 9 months would be around -- at around 38%. For the remainder of the year, we calculate with an average U.S. dollar-euro exchange rate of 1.15 and the continued weakness of the Japanese euro rate. Due to high expected revenues in foreign currency in Q4, we expect an additional around EUR 3 million negative impact in revenues and gross margin with the larger part resulting from the U.S. dollar and the smaller part from the Japanese yen. Together with the above-mentioned EUR 2 million effect realized in Q3, this totals to approximately EUR 5 million negative FX impact, which corresponds with the 1 percentage point gross margin adjustment of our guidance. OpEx in the quarter were slightly up by 4% year-over-year to EUR 31 million, primarily driven by higher R&D spending compared to the previous year. For the first 9 months, OpEx came in at EUR 94 million, a reduction of minus 6%, driven primarily by around 13% lower R&D expenses. R&D expenses were down mainly due to reduced external contract work and consumables costs. As stated before and visible in Q3 numbers, R&D costs in H2 will be higher than the H1 number. So for the full year, we expect R&D costs to be slightly lower than in 2024. EBIT for the quarter is EUR 15 million, a significant drop versus Q3 2024. The main drivers besides the already mentioned negative factors impacting gross profit is a negative operating leverage effect resulting from lower revenues. The weaker performance in Q3 led to an EBIT of EUR 42 million for the first 9 months, a decrease of 30% year-over-year. This translates into an EBIT margin of 11%. Again, please record the one-off expense in connection with the personnel reduction I've mentioned before. Adjusted for this effect, the 9-month EBIT margin would be around -- at around 12%. Now to our key balance sheet indicators on Slide 5. On a more positive note, working capital has continued to come down -- has come down by around EUR 100 million since end of fiscal year '24. Several balance sheet items contributed here. We continued to decrease inventories to EUR 316 million compared to EUR 369 million at the end of 2024. Year-over-year, inventories have been reduced by EUR 111 million as we continue to work through the surplus accumulated last year. And as stated before, we expect further inventory reductions to materialize throughout 2025 and into 2026. Trade receivables at the end of September were at EUR 129 million compared to EUR 193 million at the end of 2024. The reduction versus year-end is mainly the result of the collection of the payments related to the large shipments end of 2024. Advanced payments received from customers at quarter end were at EUR 73 million, a nice recovery of about EUR 20 million versus end of last quarter, but still down about EUR 9 million from end of 2024. This is primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments now represent about 25% of order backlog. The fourth key element of working capital, trade payables, has now come down to EUR 24 million from EUR 34 million at the end of 2024. This reflects a now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow after 9 months improved to EUR 128 million, a strong improvement of EUR 100 million versus last year's EUR 28 million. On the back of the improvement in operating cash flow, free cash flow improved even more. It came in at EUR 110 million after 3 quarters compared to negative EUR 58 million last year. This was supported by a strong reduction in our CapEx. With EUR 18 million after 9 months, our CapEx was significantly lower than last year's number of EUR 86 million. This is primarily due to the now completed investment in the innovation center. As of September 2025, our cash balance, including other current financial assets improved to EUR 153 million. This equals an increase of EUR 88 million compared to EUR 65 million at the end of fiscal year 2024, despite the dividend payment of about EUR 17 million in Q2. As stated before, a key priority remains the rebuilding of a strong cash position. Our financial decisions continue to be guided by this objective to ensure a robust liquidity foundation for the future. This has served us well in the past, and we see ourselves well on track towards this target. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with optoelectronics and lasers. In optoelectronics, AIXTRON has seen a continued recovery in demand for datacom applications, which began earlier this year and has been reaffirmed in Q3. This trend is expected to continue into '26 and beyond. Our customers are increasingly transitioning to 150-millimeter indium phosphide substrates and photonic integrated devices, PIC devices requiring advanced epitaxial performance. This segment is technology-wise very demanding. It requires excellence in the uniformity, doping control and defect management, areas where our G10-AsP platform excels. Historically, AIXTRON has held a market share of over 90% in this domain served by our G3 and G4 planetary reactors. The G10-AsP is now establishing itself as the tool of record to the laser market, replacing legacy systems at leading customers. Q3 shipments and scheduled Q4 deliveries underscore our strong market position with repeat orders from key customers such as Nokia. Additionally, VCSEL demand is recovering, driven by LiDAR modules and automotive applications. We, therefore, expect that tools for the various laser applications will contribute significantly to our full year order intake and also into next year '26. Now let me move on to our LED business. We are seeing first encouraging signs of reinvestment in red, orange, yellow -- ROY LED applications. Utilization rates for red, orange, yellow LEDs have been high throughout the year with double-digit system shipments for mini LED applications driven by demand for RGB fine pitch displays. Notably, some TV manufacturers such as Samsung are shifting to full RGB backlighting, boosting micro LED demand. While overall micro LED demand remains moderate, medium-term drivers are positive. We've received multiple orders for our G10-AsP platform, primarily for red pixel production in next-generation AR devices. The recent announcement of Meta's AR glasses based on micro LED technology signals a broader trend with more OEM products expected in '27 and '28. Our G5+ and G10-AsP platforms are ideally suited for these applications, which require ultra small pixels and defect-free epitaxial die. The launch of Garmin's first micro LED watch is likely to further stimulate demand across blue, green and red micro LED segments. In solar, after years of moderate investment, we are now seeing renewed interest, including multiple orders for low earth orbit -- LEO satellite applications in constellation projects. LEO satellites are those that orbit the earth at altitudes of about 2,000 kilometers. They enable both fast communication as well as high-resolution earth observation by operating in a zone just above the earth's atmosphere, where they can maintain strong signal connections with ground stations. These satellites work in interconnected constellations of hundreds of thousands of satellites of hundreds or thousands of satellites to provide global coverage, examples are Starlink or OneWeb. We anticipate this trend to continue in the years '26, '27 and '28. Let me now come to gallium nitride power. AIXTRON continues to lead GaN power segment with over 85% market share across all wafer sizes and power ranges. Although demand is softer compared to last year, we are seeing solid volume orders for both 150- and 200-millimeter solutions, particularly from Asian customers with ramp-up plans extending into '26 and '27. We've also strengthened our partnership with imec. Together, we are accelerating innovation at both the architecture and device level. imec has been using both our G5+ as well as the G10-GaN platform for its 150- and 200-millimeter partner programs for quite a while. And we have now shipped a 300-millimeter gallium nitride platform to enable broader access to imec's recipes. We see first power semiconductor manufacturers adopting 300-millimeter GaN technology such as Infineon Technologies. Regarding the overall GaN market, we are still dealing with a moderately oversaturated installed base, requiring some more time to absorb existing capacities. This digestion phase is expected to continue for some quarters before a broader recovery sets in. With that, let me come to silicon carbide. While end-user demand remained soft, we observed moderately increased utilization rates at some of our customers. On the one hand, this is due to new EV models being launched, which drive demand. On the other hand, SiC is starting to enter the AI data center value chain, especially in voltage classes of 1,200 volts and above. You have seen the new NVIDIA power architecture, which relies exclusively on wide band gap power devices. At the International Conference for Silicon Carbide and Related Materials -- in short, ICSCRM in Busan, Korea early in Q3, various industry players confirmed midterm adoption of super junction silicon carbide technology. This technology basically means that instead of one thick silicon carbide epi layer deposited today, we will see in the future multiple thinner silicon carbide epi deposition steps. These thinner epitaxial layers require enhanced uniformity and shortened process time. Our G10 silicon carbide platform is well positioned to meet these needs, offering superior productivity due to the benefit of the batch concept, especially for thinner layers. We are proud to have shipped our 100 G10-SiC CVD system, marking a major milestone and reinforcing our leadership in the silicon carbide power segment in this quarter. The silicon carbide market is still undergoing a longer digestion period, particularly in western-oriented regions. As a result, there are no major decisions for new fab investments on the agenda these days. In summary, we can say that the soft market period still continues in almost all markets, apart from the laser market, driven by the hunger for data from AI applications. A demand pickup will not materialize in '25, and visibility in '26 is still limited. With that, let me now move to our guidance. Due to the market situation just described, we had to adjust our guidance for 2025, 2 weeks ago. Based on the current soft market environment and assuming an exchange rate of USD 1.15 per euro for the remainder of the year, we now expect the following outlook for '25. We expect to generate revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance, which was initially EUR 530 million to EUR 600 million. FX effects led to an approximately 1 percentage point reduction of gross margin and EBIT margin. As a result, we expect now a gross margin of around 40% to 41% and an EBIT margin of around 17% to 19%. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit million euro amount in the relation to the implemented personnel reduction in the operations area earlier this year. The measure will lead to annualized savings in the mid-single-digit million euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around 1 percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. Let me, at this place, also give you a first outlook for the next year 2026. We clearly see that the medium and long-term drivers for AIXTRON's growth such as demand for GaN and SiC power devices, LED and micro LED applications, lasers and LEO solar applications remain intact. However, visibility for the fiscal year '26 remains low. And as of today, we do not see signs of a demand recovery yet. Therefore, our view today is that 2026 revenues are likely to be slightly below those of '25, maybe flat. Furthermore, assuming an exchange rate of USD 1.15 per euro, we expect the EBIT margin not to come out below the range of the current year, maybe better. As always, we will give you a firm guidance with the release of our financial year results end of February 26. With that, I'll pass it back to Christian before we take questions. Christian Ludwig: Thank you very much, Felix. Thank you very much, Christian. Operator, we will now take the questions. Operator: [Operator Instructions] The first question comes from Janardan Menon from Jefferies. Janardan Menon: I just wanted to touch upon your final comments on 2026 to start off with. You said that 2026 is likely to be flat or down, but it sounded like you expect Opto to be up, and your trend -- when I look at your Q3, GaN seems to be doing quite well, while SiC is down quite sharply. So would it be fair to say that at current visibility, you would expect Opto to be up, SiC to be down and GaN to be somewhat flattish. Is that a view that -- which would be sort of a preliminary view for next year? Felix Grawert: It's a good -- I think you got a perfect read on this one. Let me try even to quantify it for you. I think roughly in terms of percentage of revenues, we expect as a percentage of total revenues next year, we're expecting to gain about 10 percentage points for Opto, 10 percentage points gain for GaN and minus 20 percentage points in silicon carbide. So a pretty weak year for SiC, but very strong year for the Opto segment. It used to be a smaller segment. So adding 10 percentage points of the total is quite a significant one. This also helps on the margin. You have seen my comment related to margin quality. And GaN also as a percentage gaining a bit. Janardan Menon: Just a follow-up. On the SiC side, yes, I understand that demand is quite weak right now. There's quite a bit of supply out there and automotive is still sluggish. But listening to companies like STMicro and all who are under quite severe margin pressure on the silicon carbide side, they seem to be accelerating their 6-inch to 8-inch transition because they see that as a way to improve their profitability. And ST specifically said that they'll do it within -- through the course of '26 and by early '27. I would assume that that would be true for other parts of the installed base as well given the price pressure on silicon carbide. Do you not see this as a driver at all for your silicon carbide revenue? And do you really need the end demand to recover before any improvement happens? Felix Grawert: I think you catch it very well. Yes, the 6- to 8-inch transition is going very fast, especially at outside of China players. I think worldwide outside of China, we see the 6- to 8-inch transition progressing at rapid speed, as you have indicated with one company name, and we see the same in other players. In fact, we do hear from some of our customers that while end customer revenue is flat or down, the unit numbers are going up and unit numbers is, of course, what we as an equipment maker like, because in the end, it's about wafers and increasing numbers of wafers. So in fact, we expect that by the end of '26, the transition in the Western world, as I may call it now, including Japan, is probably concluded '27, '28, I would expect the volume to be completely going on 8-inch. We do see on 8-inch also much better quality wafers, which helps the customers in terms of yield. That's one of the cost reduction drivers. Also 8-inch substrates are getting good pricing now. Initially, they used to be very expensive. Now the pricing for 8-inch substrates is going well. And that, at some point, means the excessive overcapacity that I was speaking about at some point will be digested. I would not dare at this point to give an exact prediction because there's multiple variables that we are just discussing. But I think we can clearly see at some point, the overcapacity will be digested and then there will be new demand. Janardan Menon: But that transition doesn't mean buying new 8-inch machines from you, is it to generate revenue for you? Felix Grawert: At some point, it will mean buying new demand and new tools when the existing overcapacity is consumed. Right now, we talk about existing overcapacity, which is just being converted. Operator: Next up is Martin Marandon-Carlhian from ODDO BHF. Martin Marandon-Carlhian: The first one is on something that you put on the press release on gallium nitride. You talked about utilization rate rising in data center. And I was wondering what does it mean exactly? I mean, does it mean that you already anticipate orders in the near term linked to the new 800-volt architecture from NVIDIA? Does that mean something else? Felix Grawert: Let me explain what we mean by that. Thanks for the question. What we have seen is we have seen in the years, especially '23 and '24, we have seen quite a number of gallium nitride orders, which were happening a bit ahead of the wave, such that, I would say, early '25 at the existing volume customers, we have seen quite a significant overcapacity of installed base also in gallium nitride. That was the reason why in '25, compared to '24, our gallium nitride shipments have been slowed down quite a bit, because our existing and established volume customers literally had also in GaN, not only in SiC, but also in GaN, some overcapacity to be digested. So as we started into '25 at some of our customers, also in gallium nitride, we have seen installed base utilization to be quite low. Now towards the end of '25 and looking into '26, we see that a much larger fraction of the installed capacity is being utilized at the existing GaN customers, while those who newly entered the GaN market in '24 and '25 in previous earnings calls, you may have recalled that we said -- well, there's still new players entering the market to gallium nitride. And those new entrants at this point in time are still in the qualification or in the device and the sampling phase of their technologies to their end customers. You have seen the numbers that I was just commenting towards the question that Janardan was asking. We expect the GaN segment for us to be slightly up next year. Again, it's an indication, qualitative indication. as we see that utilization is increasing, and we expect due to the increasing utilization, some expanding orders from some customers kicking in. The broad market recovery, as I've indicated, with the real volume pull, we don't expect in '26. We rather expect that in '27, '28, but some increasing orders in '26. Does that answer the question? Martin Marandon-Carlhian: Yes, that's very clear. But just a follow-up on this. I mean, why would you anticipate more of that volume in '27 and '28? Because we read that this new architecture from NVIDIA is supposed to be for Rubin Ultra, which is launched in H2 '27. So I was expecting capacity maybe to come a bit earlier than this. So does this mean that maybe it will not be 100% GaN for some steps at the beginning, the 50 and 12-volt steps and it will go gradually. I mean just can you explain a bit why it should come more gradually, let's say? Felix Grawert: So this is based on our current view, what we have and the signals we get from our customers. I share the view that the new 800-volt architecture will lead to significant volumes around '27, '28. This is also our view, I share that. Now for us, it's always very difficult to predict the exact timing when customers will place the orders for new equipment because we do see certain trends, but we cannot look into the exact budgets and plans of our customers. Therefore, at this point in time, we can only comment on what we are currently seeing. If later on in the year, volume kicks in and orders accelerate, we are very happy to it. We don't see signs to that yet. Martin Marandon-Carlhian: Great. And maybe a last question on GaN. I mean, you all is saying that the GaN market will be close to $500 million this year with that data centers really being really a contributor. What would you guess would be the size of the data center market for GaN compared to the overall size of the market this year, like $500 million? Felix Grawert: So I do not have the exact timing for my message in mind. We have looked at a midterm perspective, I think somewhere triangulating '28, '29, '30, something a little further out. And in this triangulation that we've done, the data center opportunity with an upside of about 50% on top of the market without the data center opportunity. You may recall that we have a slide out there in the investor deck, which on the X-axis has 3 time horizons. I think '20 to '23, I think '24 to '26 and whatever '28 to '30, something like this. And on the Y-axis, the different voltage levels, low voltage, medium voltage and then very high voltage. And there, we have put the AI data center opportunity, and this is the market that I'm referring to. Martin Marandon-Carlhian: Maybe last question for me on the gross margin. I mean the current guidance implies record gross margin in Q4. Just can you help us maybe see the main drivers of this? Christian Danninger: Yes. Martin, Christian here. I'll take that one. I mean, like in the last years, the Q4 will be the strongest quarter just by volume, purely shipments. Beyond that, we expect an improved product mix, especially a higher share of final acceptance revenues coming with high margins and also some fixed cost degression effects. A little bit of color on the product mix. We expect a big share of G10 family products, around 50% of Q4 revenue so that you get an idea. So also looking at the -- comparing this with the last year, these margin ranges appear achievable for us. Operator: Next up is Didier Scemama from the Bank of America. Didier Scemama: I've got a couple of questions maybe clarification on the comments you made earlier on '26. And perhaps my math is not right, so please don't shout at me if I'm wrong. I think you said the SiC part of the business would be down 20 percentage points in terms of group sales. I mean, by my calculation, that would imply a pretty minor revenue contribution in '26. So is that correct? And then equally, Optos up, I think you said 10 percentage points within the group, that's going to put it at something like EUR 150 million next year. Is that the right ballpark? Felix Grawert: I would say right ballpark, right indications, Yes. As far as we can say. I mean, it's very early, but we really want to give you some… Didier Scemama: Yes, of course. Felix Grawert: Yes, exactly, yes. Didier Scemama: No, that's incredibly helpful to me perfectly honest. So I guess the question, when I look at the comments you put on the 9-month report, you said about 50% of the bookings came from power electronics. So I have to assume that the rest mostly come from Optos because LEDs, et cetera, is fairly de minimis, which if you compare to what you said last year, means that the bookings in Optos are probably up meaningfully, which is again consistent with what you said. So perhaps when you look at history, Optos, like all the other segments have tended to be incredibly cyclical. So would you think that there is duration in that growth in optoelectronics beyond '26? Or do you think that the big CapEx cycle we see currently for silicon photonics and lasers is going to be as we've seen in the past, a big year and then it falls off a cliff. Felix Grawert: I think you asked the trillion, the multitrillion dollar question, how long the AI bubble will last. I do not have the crystal ball for you, right? If I would, I might not be sitting in this place right now. Didier Scemama: Okay. Well, yes, I mean, honestly, I wish you good luck. Felix Grawert: I think it fully relates given the serious note, yes. Some joking aside, a big part of the laser part is, in fact, coming from the datacom, right? And the datacom, again, is driven by the AI and the AI data center build-out. So it's really hinges on that one, to a very big part, probably 50%, 60%. So it really depends on how exactly that's progressing. But we can only see what we have now in our visibility. But a longer-term view 2, 3 years out, I think it's as difficult as for everybody predicting the AI trend. Didier Scemama: No, for sure. And if I may, as a follow-up, I mean, you mentioned Nokia/Infinera as a customer for your G10 platform for their peak products. Can you give us a few more examples of key customers for that division so that we understand the underlying dynamics, please? Felix Grawert: Unfortunately, I cannot, because we keep customer names always strictly -- very strictly confidential as under NDA. We stick to that. We are extremely sensitive to that. I can give you a qualitative indication. Imagine you think who may be the top 10 providers for data communications devices for AI, you can assume that at least 80%, 90%, maybe 100% of those guys are our customers currently placing order with us and 90% of those are placing orders for the G10-AsP. Maybe I can give you that indication. And I really mean it as I say it. Operator: Now we're coming to the next question. It comes from Madeleine Jenkins from UBS. Madeleine Jenkins: I just had one on utilization rates. You mentioned that the GaN power were increasing. Could you quantify that at all? And also, I guess, get a sense of what your silicon carbide utilization rates are at kind of Chinese and then Western customers? Felix Grawert: So I understand your question about detailed utilization rates. We don't have those. And we could also not share them if we would have them. But what we can say is that based on spare part orders, based on service orders, we see a trend here, which is a good utilization increase for the GaN power, which leads us to expect some volume expansion orders in '26 at a moderate level as we have indicated. At the same time, in silicon carbide for the overall market, I think towards the beginning of the year, we have seen very low utilizations with very low -- I mean, clearly far below 50% means far more than 50% of the capacity installed in the market was standing idle early in the market. And maybe we are now approaching a 50%, 60%, 70% utilization in silicon carbide. So we do see it increasing, but we are still far from a level on a market level where customers are really going into reorders and expansion orders. I think that's not yet on the agenda. Madeleine Jenkins: Then I guess all your kind of new orders in silicon carbide specifically, are those kind of new customers in China? Is that the right way to look at it? Felix Grawert: Yes. We did have significant orders and shipments in '25 in silicon carbide into China, quite a diverse set of customers, highlighting the success of our G10 silicon carbide platform. So I think we've managed to establish that platform very well in the China market. That was all relating to the earlier question by Janardan. That was all for 8-inch or having 8-inch in mind. However, we are all aware of the large overcapacity in silicon carbide in China. Also the China silicon carbide business at this point in time has slowed down. I think the market overall is digesting the existing overcapacity. However, I think we all see the very nice success of Chinese electric vehicles. At some point, the overcapacity will be digested and there will also be new orders. Madeleine Jenkins: Then just a quick final question. Do you have a sense of kind of how much of your current gallium nitride revenues this year, let's say, are for data center applications? Felix Grawert: That's honestly very difficult to predict. Sorry for having only a vague answer, because our gallium nitride customers, I think we all have a couple of very big names, leading power electronics makers in mind, right? They use our platform essentially our tools, essentially for all the applications across the board. On our tool in the same configuration, you can produce a 20-volt, 100 volt, a 650 volt and even if you want a 1,200-volt device without any change in configuration. And therefore, we, as a maker, just send the tool as it is and the customer can do whatever the customer wants with it without a modification in those power ranges. Therefore, it's for us very difficult to predict. If there would be a different configuration by voltage range, then at least we would have an indication. But therefore, it's difficult for us to say. Sorry for that one. Silicon carbide is different, right? 6- to 8-inch, right? It's always the customer needs a configuration and we see spare parts orders or parts orders, and we can at least give you here in the call a qualitative indication for the GaN, it's really one size fits all. And yes, customer takes it and then we don't know. Operator: Next up is Ruben Devos from Kepler Cheuvreux. Ruben Devos: I just had a follow-up on silicon carbide. I think you touched upon it already, but it was around your comments on benefiting over proportionally when the cycle would return. I think you talked about a more diverse set of customers. So that might be an explanation, right? But just curious around what degree of confidence you have, right, to make that statement of outgrowing the market. And even outside like automotive, how does the pipeline shape up thinking about industrial as well in silicon carbide? Felix Grawert: Thanks a lot. I think your question hints very well towards the future direction of silicon carbide. Let me go a little deeper to expand on it, maybe some of the backgrounds, the technical backgrounds are interesting. So the first generation of silicon carbide devices, which we have seen, I would say, in the last 5 years with a very simple MOSFET consisting essentially of just one thick layer, one thick epi layer. Now what I mentioned, the next generation of devices, which to the expectation of all market participants will be the main volume in the next wave. Everybody expects the next wave of growth, '27, '28, exact timing to be TDD to be super junction MOSFETs. So this is a device where this thick layer is split into 3 or 4 thinner layers. So each of them about 1/5 or 1/4 thick of the initial one. And it's not just one big epi, but the wafer would be put into a tool 4 times. So you make 1 thin layer, then you do some device processing and then the wafer returns to the silicon carbide epi tool comes the next thin layer and so on multiple times. And this super junction technology shifts the operating point from one thick layer, which, let's say, has in the past been deposited, let's say, in about 1 hour to 2 hour processing time, now into multiple thinner layers and depending on which type of equipment, let's say, it now takes 15, 20, 30 minutes instead of 1 or 2 hours. So the wafer gets into the equipment multiple times. And with that, the complete dynamics about the productivity of the tool, the key KPIs and so on is shifting because essentially, it's a very different operating point. You can buy -- in an analogy, you can buy a car which is perfect as a city car, small and nice and fits into parking lots, but doesn't drive very fast, you don't care. And a perfect travel car for long-distance travel or a nice sports car for going up the mountain pathways or driving races, right? And each of the operating points has a different optimum. And this new operating point about thin layers to our calculations and also to the feedback we receive from customers is very beneficial for the batch tool which we are offering. This is the reason why we've made these positive earlier statements. With that, let me come to the second part of your question. The other part of the market, which may provide further growth, I think it's still a little further out than '27, '28 is the market for industrial applications. That market could probably towards the end of the decade grow very big. What we are talking here is about the following. Today, we use the silicon carbide devices mainly in switch mode power supplies or like power devices for the car in the main inverter and in voltages, 650 to 1,200 volts. We can also make silicon carbide devices, which have 3,000 volt or 6,000 volt or 10,000 volts, much, much higher voltage classes. And the industry is working on. That was, for example, one of the elements in the NVIDIA power architecture. I think everybody here in this call has the chart of the architecture. If you look at the chart of NVIDIA, on the very front end, you come from the grid and you enter the grid into the data center at voltages around 14 kilovolts, and that's 14,000 volts. And this down conversion from over 10,000 volts eventually down to 1,000, this is done by silicon carbide and then from 1,000 to 1 is done by gallium nitride. Now you cannot only use the silicon carbide in the data center for these high voltages, but in the entire grid. And we all know as more and more renewables are being used worldwide, I think China leads the pack with driving down the cost of solar and wind, but the whole world is following. And we need much more active grid stabilization, load management, active management and so on and so forth. So the grid, the worldwide power grid will experience over the next 2 decades, massive investments into switching infrastructure. Today, this is all being done by transformers. I think everybody knows next to the highway like these transformer stations standing. In the future, many of those will be done by active switching, and this will all be done by silicon carbide power devices. So all the leading grid suppliers, whether this is Siemens and ABB, Schneider Electric, General Electric in the U.S. are working on such devices. And it's a nice end segment for silicon carbide to come. However, I think this is a longer-term trend. I would not put the years '27, '28 on it. I would rather put '29 onwards as a nice trend for the turning of the decades on this trend. Ruben Devos: Just my second question related to optoelectronics, basically. I think you've called co-packaged optics as a key driver for indium phosphide adoption. How quickly would you expect the market to move there from pilot into volume co-packaged optic deployment? And you've very helpfully framed the tool market size for silicon carbide and gallium nitride in your slide deck. So may I opportunistically ask whether you've done a similar exercise for the G10 arsenide phosphide platform. Felix Grawert: Thanks a lot. I take the suggestion. It's a good one. Let's take that on our action item list that he smiles around me here in the room, yes. It's a good one. We don't have it yet for today, so I cannot give it to you maybe in the next earnings call. Now to your question about the sizing and what we see. For the optoelectronics market, unfortunately, it is much more difficult to predict than for the GaN and for the silicon carbide market. Let me try to illustrate to you why. In GaN and SiC, we talk at least for the low volume segment for pretty standardized segments and types of devices, right? For GaN, we talk 20 volt, 100 volt, 650 and then exotic 1,200. Silicon carbide, 650, 1,200 and now I was talking a bit about the very high voltages. So you can put it into 2 or 3 classes. Unfortunately, the optoelectronic market is extremely fragmented. We both see that in the number of players. I don't know there may be a couple of hundred optoelectronics producers and companies, while in power electronics, we talk probably about like maybe a dozen or 2 dozen, 3 dozen maybe at most, yes. So it's extremely fragmented. And such are the different technologies, which is competing with each other. The good thing is this is physics. They all have in common. As of today, they need a wide band gap semiconductor, gallium arsenide or indium phosphide for generating the light. But then the way the light is being processed, whether this is on an indium phosphide or gallium arsenide-based photonic integrated circuit or whether the light coming on is put into a silicon photonics. You can use silicon -- silicon dioxide waveguides and switching devices. This is extremely diverse and therefore, very difficult to predict. I wouldn't dare at this point to make a prediction where it goes. We are aware that all the guys who are working on the leading-edge CMOS nodes and also doing heterogeneous integration, all of them work on multiple technologies because even for the big guys in the industry, things at TSMC, it's difficult to really say, well, this technology is winning out against the others. Operator: Next up is Andrew Gardiner from Citi. Andrew Gardiner: I just had one on the margin outlook into next year that you provided us, Felix, saying that you thought EBIT margin next year would be in line, perhaps better year-on-year. Can you just sort of give us some of the drivers there in terms of gross margin? I mean, obviously, you've given us the mix in terms of Opto and GaN up and SiC down. How would you sort of quantify that in terms of magnitude of gross margin change next year? And also, you've done a sort of a workforce reduction earlier this year. Given the still slow market in SiC, do you see any need to continue to reduce OpEx? Or are we far enough through this down cycle now where you just sort of have to -- you weather it because you can see the long-term opportunity. So really there's not much change -- incremental change in terms of OpEx into next year? Felix Grawert: Yes. Thanks a lot for the question. I think part of the answer you've given, let me try to give an end-to-end consistent picture. So we were referring to EBIT margins really to bottom line. I have not given indication on the gross margin, no quantitative, right? So I was really mean EBIT margin. And I think there's three drivers behind our indication towards. So we wanted to give you a very clear indication that the margins is not getting worse despite the top line suffering probably a bit. And I think there's three drivers behind it. On the one hand, we see margin-wise, a bit stronger product mix. I indicated the gain of Opto, that helps a lot. And secondly, we will see the full year effects of the headcount reduction, which we conducted early in '25. '25, there's also cost and restructuring costs. In '26, we get the benefits of that. And the third topic is we use the slow period of the cycle right now for some operational improvements, be it working on our storage topics, be it working on logistics topics, be it currently working on our operational efficiency. So we have quite a bunch of these things ongoing, which are just making our operations more fluent, which reduce the external spend that's going out the door all the time. And we expect some of those effects to kick in. And based on those 3 effects altogether, we expect, yes, in terms of absolute terms and a stable bottom line or percentage-wise, stable or even improved bottom line despite the probably slightly weaker top line. But I think that's important in the end for you guys also then to everybody here in this call to give an indication where does it lead on the profitability. Operator: The next question comes from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could give us some clarity on what drove the push out this year, which end market drove the reduction in outlook for the year? Felix Grawert: Sorry, I didn't -- acoustically, the line was very bad. I didn't get the question. Could you repeat it, please? Adithya Metuku: Sorry, apologies. I was just wondering if you could give us any color on what drove the reduction in guide in 2025? Where did you see this push out, which end market? Felix Grawert: Okay. Sorry, I get it. Honestly, this was all across the board, except for the laser market. I think the laser market we've indicated is strong and continues to be strong and this is growing into next year, as we have just discussed. We have seen a weaker-than-expected GaN in silicon carbide. Initially, as we started into the year, it's always very difficult, right, to predict the full range. And we have put the full guidance range accounting early in February '25. So looking now 7 months back. In our full guidance range, we have accounted for both a slow market scenario, which now is unfolding. So therefore, we now look at the lower half of the guidance. And early in '25 with the upper end of the guidance, we have also taken into account a more positive market environment. As we all see, the more positive market environment for power semis for electric vehicles is not yet unfolding. So the upper half, therefore, had to be corrected now down to the lower half. We are narrowing down at the lower half of the guidance. Adithya Metuku: Then just on the LED and the micro LED market, you talked about seeing signals of improvement. I just wondered if you could give us a bit more color on what exactly you're seeing, especially on the LED side? Is it driven by China? Is it anything construction related? Just any color you can give us on these two end markets in terms of the signals of improvement. Felix Grawert: Yes. Thanks a lot. So on the LED market, this is typically almost exclusively China-only market. I think we can say, because of cost and volume effects. We all know, right, China is very, very strong these days on the display making. It used to be, as you have indicated in your question, historically, there used to be a lot of the LEDs going into construction, right? In China, they put these big, big walls on the skyscrapers. But as we all know, the China housing bubble has collapsed, right? That was also the reason why the segment was bad for us for 2 years. Now we are seeing the classical LED market coming back with, we call it fine pitch displays means and especially display backlighting. Local dimming, local backlighting of display, you can achieve magnificent effect by either having white LEDs behind your LED display, you can create a beautiful black or you can produce quite some nice bright colors on it with that one, and that's even going now into -- turning into RGB. The good news is it is revenue already today. The bad news is it makes it much more difficult for micro LED to gain ground in the televisions because the normal displays are already getting much improved quality. So let's see what it means for the micro LEDs. The other point, which I was indicating, we still see that on micro LED, research work is ongoing. We've seen some first devices. I was relating in my prepared notes to the Garmin watches, which is the first micro LED watch coming out at quite high prices and unfortunately, with low battery lifetime. So we are seeing that coming. And we see a lot of companies currently doing work on AR glasses and VR glasses. You may have seen the glasses launched by Meta. There's much more stuff in the preparation. I think this is a new device category, which will really come into the market quite soon. And yes, we see some moderate demand for that also next year, as I've indicated in my prepared notes. But again, it's far away, to be clear, it's far away from the micro LED massive investment wave that all of us 2, 3 years we were expecting where we would expect that micro LEDs are penetrating everything from smart watches to notebook displays and televisions, right? That one we are not seeing yet. We still see the research ongoing. So some -- many companies are still working on it, but we don't have a clear in our view when exactly that's coming. Adithya Metuku: Just one last question. With TSMC getting out of the GaN market, I just wondered, do you see a market for secondhand tools for your GaN epitaxy tools? And would that affect demand maybe next year or the year after? How do you see the implications of TSMC getting out of the GaN market? Felix Grawert: Honestly, I see it as a bit of a reshuffle, which happens normally in all the markets where there's a bit of a slowdown in the market. I think we see the same in silicon carbide, some players are exiting, some others use the opportunity to buy some used tools to get a hold of in or to get used tool and then newly to enter the market, I think it's a normal play that happens in a softer market environment. For the overall market and for us, this has essentially no implication because whether a used tool is installed or whether a tool is installed at company A or changes the ownership and is later on installed within the factory of company B, it doesn't change the overall installed capacity in the market or doesn't change the market dynamics. So for us as an equipment maker, we are -- we support customers when they need help in either way, sometimes for moving tools, for reinstalling tools, but it doesn't change or doesn't impact the market. Operator: The next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the usual update on 300-millimeter GaN. I think it's quite well known that Infineon is quite advanced in that context. And obviously, no big surprise there, cooperating closely with you in that regard. So when should we expect tool orders to arrive and, let's say, outside Infineon, what's your view? How many companies are currently working on the transition and preparing orders? Felix Grawert: So I think with 300-millimeter GaN, the market unfolds pretty much as we have expected. If you recall, we stated earlier that we see the 300-millimeter GaN as a subsegment of the overall GaN market, initially targeting the lower voltage classes means 100 volt, 20 volt, maybe 200 volt. Maybe at a later time, also 650, but really starting at the lower voltage classes. And we get confirmation from many customers what we had expected early on that customers are really targeting to switch and to reuse existing silicon MOSFET or silicon IGBT capacities and to rededicate existing fabs for gallium nitride. Of course, customers need to buy new epi tool because the silicon epi tool is a completely different tool from a gallium nitride epi tool. So in any case, there's a new tool demand for gallium nitride tools. However, the market adoption and the customer decision to the largest part depends on the installed base of factories. So customers who have today their silicon MOSFETs running in a 200-millimeter silicon fab are likely to switch to a 200-millimeter GaN tool. Customers who today are running their silicon MOSFETs in a 300-millimeter fab will want to switch and rededicate their 300-millimeter fab to a 300-millimeter GaN fab. So that is the market dynamic. And I think based on that dynamic, we never comment on customers unless we have a joint press release with customers. So allow me to describe the trend without names as we always try to do. So we really see customers who have installed 300-millimeter silicon capacity are switching now and starting to switch and have plans. There are many, many, many other customers who have 200-millimeter silicon fabs continue to work on gallium nitride 200-millimeter. And as a result of that, our strategy going forward is that we will support both groups of customers. So GaN 300 is not displacing GaN 200. We have our GaN 300-millimeter road map. We are very happy with the results that the 300-millimeter tool is giving. But at the same time, we also maintain an active 200-millimeter GaN road map where we also work on improvements. We have multiple very close customer collaborations on 200-millimeter tool improvements or even next-generation tools for 200 millimeters. Michael Kuhn: Then on cash flow and working capital, given that you don't expect top line growth next year, how much more would you think you can further optimize working capital? Because I think you mentioned you see further potential also into 2026. Christian Danninger: Let's focus maybe on the inventories because the rest of the working capital is always a little bit arbitrary, the receivables and the down payments. But on the inventories, our key ambition is to drive them down further. It's a little bit difficult yet to predict, not knowing the exact product mix and so on, but like at first, like high level expectation would be another 20% down. Felix Grawert: I would be more ambitious. Let's check. So I would say by the end of this year, I would expect inventory EUR 275 million, plus/minus EUR 15 million. To give you a number, let's see how close we come. Maybe next year, EUR 200 million. Let's see, something like this. Christian Danninger: Let's see. Michael Kuhn: Looking forward to it. Maybe you can do a little bet between the 2 of you who comes closer. Operator: There are no further questions. Felix Grawert: Good. Perfect. And I think we had a lively discussion. We very much appreciate as you see. And yes, stay tuned. I think this is a good exchange. And I think we all see each other latest in the February call for the full year results. Christian Danninger: Exactly. We will be on the road at various conferences. So I guess a lot of you at one of the conferences. And for those we don't catch before end of the year already in Merry Christmas. Felix Grawert: In October. Okay. Cheers, guys. Christian Danninger: Thank you. Bye-bye.
Operator: Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the AlzChem Group AG following the publication of the Q3 figures of 2025. I'm delighted to welcome the CEO, Andreas Niedermaier; CFO, Andreas Losler; as well as CSO, Dr. Georg Weichselbaumer, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session in which you will be allowed to place your questions directly to the management. And having said this, I hand over to Mr. Niedermaier. Andreas Niedermaier: Yes. Thank you for the warm welcome, and good morning together. Thank you for joining us today, and welcome to the quarter 3 call. As usual, we open with an executive summary, go forward with the figure analyzes and then move on to the new outlook. As always, we will go through the presentation first, and then be available for the questions at the end. So, let's skip the disclaimer and go directly to the Page 5. So, I have to do that as well. Let's check Page 5. So, now Page 5, you should see that. So, in a summary, it can be said that we are on a real good growth core, especially in the Specialty Chemicals product segment. So, from that point of view, it was an additional successful quarter 3 for us. For the third quarter, we recorded growth, which means that the group sales increased by additional 6% for the 9 months period by 2%. Once again, our Specialties were the main driver of the growth with a 9% increase in sales here, which more than compensated or overcompensated for the decline in sales in the other businesses. We will then hear more details about analysis later on, but that information is a teaser here. EBITDA also grew by 12% to EUR 86 million, approximately mainly due to the positive volume development of Specialty Chemicals. The EBITDA margin across the group increased from 18.5% to 20.3% now. So, based on the real good development on the figures for the first 9 months, we can -- and we are able to confirm the outlook for the sales more at a lower threshold, but we will be able to increase earnings from the today's point of view and the reported figure is more the lower end than we can see today. So, our CapEx activity is in full swing. The construction of the two new plants, including infrastructure is on schedule and on budget here. The roofs are currently being built and will also be closed soon. The first installations inside the plant have already begun. In the U.S., we are in the process of talking about specific project situations with several locations. And teams are evaluating the individual locations so that the basis for a decision can be laid in the coming months here. And engineering has already started with the adoption and the translation of the layout to the U.S. standard. The demand for creatine products remains really high in order to be able to benefit from market growth and incremental creatine expansion was successfully commissioned in quarter 3. In addition to the urgently required capacity increases, this investment also leads to greater efficiencies with an automatic packaging system. This shows the strength of Alzchem as I see that when sales potential on the market opens up, we size the possibility of growth and efficiency investments that are implemented quickly and consistently. And we can report the cooperation with Ehrmann and a high protein creatine products with Creavitalis in stores since October. Let's discuss that in more detail on the next page. So, Ehrmann in cooperation with AlzChem launched in expansion of its high-protein product line, which takes functional nutrition to the next level. The focus is on Creavitalis, the high-quality creatine made in Germany from us. The Ehrmann High Protein Creatine range makes the proven ingredient available for the first time in the form of delicious everyday products for a broad target group. The new product line comprises three categories: puddings, drinks and bars. And delivers per portion approximately 1.5 gram of Creavitalis each. Since October, the Ehrmann High Protein Creatine puddings and drinks have become gradually available in German retailer stores. And in the Ehrmann online shop, the bars will be added to the range starting now in November. Creavitalis stands for the highest purity and quality and therefore, also has convinced the customer Ehrmann to enrich its products with high-purity creatine and to provide it with a broad range of products for the first time for a broader market here. The first creatine project in the Ehrmann products underlines a variety of applications of creatine also outside the fitness sector and confirms our strategy of investigating the further applications of creatine and thus opening up further market potential. And we believe in further growth here. However, let's now move on to more figure analysis of how the business performed in the quarter and for the first 9 months. And for that, I hand over to Georg Weichselbaumer. Georg Weichselbaumer: Thank you, Andreas. As always, let's start with the development in our Basics & Intermediates segment, which managed to slightly reverse the downward trend observed in the first half of the year. The segment concluded the reporting period with sales amounting to approximately EUR 122 million. This represents a decrease of EUR 11 million or 8% compared to the previous year. Only looking at Q3 standalone, sales showed a positive development and were 6% above Q3 last year as was EBITDA. Again, this development was not a surprise to us and part of our guidance. For the 9-month period, and as outlined throughout the year already the decline in sales driven by volumes effects. The European steel industry remains in a difficult economic situation and is continuously producing lower volumes than in the previous year. Accordingly, our customers to ask for less quantities. In contrast and on a positive note, the development in the fertilizer segment, particularly with our calcium cyanamide fertilizer, Perlka, was encouraging. Q3 sales were further supported by a new product in our midsized business, which was successfully placed with the customer for the first time. This product contributed positively to the sales and EBITDA development within this segment. We are now in negotiations with the customer regarding an additional production campaign, which could contribute to a further positive development of our Basics & Intermediates segment. This sales development within the third quarter of 2025 led also to an increased EBITDA for the same period. Nevertheless, this development did not contribute to an increase in EBITDA in the 9-month period compared with the previous year. Even if we managed to pass on some portion of high electricity costs, we could not compensate to reduce quantities and tend to accept the decline in EBITDA, which also led to a decline in the EBITDA margin compared to the previous year. On the production side, the facilities within our Basics & Intermediates segment could steadily and reliably produce all raw materials required for the growth of our Specialty Chemicals segment. This brings me to the next page, where we analyzed the situation in our Specialty Chemicals segment. Specialty Chemicals is still on a very promising growth path supported by the recent development within our Creatine business, which Andreas described already. For the 9-month period as well as for Q3 stand-alone, all major KPIs could be increased compared to the comparative periods. On a cumulative basis, we can report a sales increase of EUR 22 million or 9% and EBITDA increase of EUR 11 million or even 16% and an increased EBITDA margin of almost 28%. Only looking at Q3 stand-alone, we can report a sales increase of EUR 7 million or 8% and EBITDA increase of EUR 2.4 million or 11% and an increased EBITDA margin of almost 28%. Main support for this development clearly came from the increased quantities supported by slightly increased prices for the 9-month period. It must be noted that this performance is very much in line with our guidance as set during the year. Let me outline the development within three business areas: Human Nutrition with our outstanding high-quality creatine products, Creapure and Creavitalis, custom manufacturing with very specialized products and production facilities and defense with our propellent nitroguanidine. While the latter can only grow this year to the extent that our customers are able to purchase before completing their own capacity extensions. The other two businesses made a significant contribution to growth. The demand for our creatine products made in Germany was much higher than last year, and we could especially grow in the U.S. but also in other regions. Andreas already mentioned the cooperation with Ehrmann brings creatine into the functional food market for the first time. The most current successful commissioning of our expanded creatine capacity will support our growth and the satisfaction of steady and increased market demand. As already mentioned during our information in Q1 and Q2 of this year, the comeback of our custom synthesis area continues. We have seen increased and steady demand, and this development supports our belief that the volume declines over recent years were only a temporary phase and that the Traditional Chemical segment with its highly specialized products continues to offer further growth opportunities with a corresponding contribution to earnings, even in Europe. EBITDA grew in line with sales, but a very good plant utilization led to an improved EBITDA margin. Again, we are mostly satisfied with this development within this group and confirm our growth perspective. Let us now move on to our third segment, Other & Holding. As seen throughout the year, sales for the Other & Holding segment were below the previous year's level. This decrease is primarily due to reduced electricity grid fields for the chemical park customers, which AlzChem is allowed to charge the customers under electricity regulations. All other services provided to our chemical park customers are broadly stable. The segment's EBITDA followed the sales and the decline was mainly due to the reduction of grid fees. That was all for our detailed view on the segment development. Let's now hand over to Andreas Losler and take a look at the overall group figures. Andreas Losle: Yes. Also good morning from my side, and thank you, Georg, for the insight in our segment development in the first 9 months of '25. As always, I will start with a detailed look at our group P&L figures first. In terms of sales, we finished the first 9 months of the year with total sales of almost EUR 425 million, which represents an increase of 2% or almost EUR 10 million compared to the previous year. A closer look shows that this increase was mainly supported by the development in the third quarter of '25, in which we managed to grow by 6.5% or EUR 8 million. Over the whole group and adding all segments together, the sales increase of over 9 months was driven by volume and price increases almost at the same level. As my colleague, Georg explained already, both operating segments contributed to this development completely differently that the quantities sold in our Specialty Chemicals segment could more than overcompensate the volume loss in our Basic & Intermediate segment. On a regional basis, the major sales increase could be achieved in the U.S. and Europe. As already mentioned in previous calls, the ongoing discussions about U.S. tariffs did not affect our business that much. Our sales split for this reporting period shows 66% sales coming from the Specialty Chemicals segment, while this relationship was only 62% on the comparative period. This development underpins our strategy to grow within our Specialty Chemicals products in niche markets and finally, support and explained our ongoing good EBITDA development. EBITDA is a good point. Let's talk about its development within the first 9 months of '25. Over the whole group, our EBITDA grew more than our sales debt and ended up at EUR 9 million or even 12% over the last year's reporting period. As seen over the last reporting period and in line with our strategy, this development was mainly driven by our Specialty Chemicals segment, supported by a steady and reliable raw material supply from the production plans in our Basic & Intermediate segment. Also, electricity prices are still higher than last year. A good utilization of our production facilities compared with stable sales prices led to an improvement in our extended material cost ratio showing an improvement from 36% to 33% this period. Cost wise, we have to report increased personnel expenses based on increased union tariffs and slightly increased number of employees, which support our growth. Our operating costs increased mainly resulting from much higher FX losses due to the weak U.S. dollar development. All put together, we managed to increase our EBITDA margin to impressive 20.3% after showing 18.5% last year after 9 months. With stable depreciations and supported by an improved financial result, we ended up on a group net result of EUR 45 million, which represents an increase of 20% compared to last year. Accordingly, earnings per share have increased by the same rate up to EUR 4.62 per share. That was the big picture of our profit and loss. Now let's move on to the balance sheet and cash flow figures. Our balance sheet and cash flows are still very healthy, but further influenced by some special impacts, which we have seen and reported throughout the year '25 already. The increase of EUR 105 million in our balance sheet, total can simply be explained by two major impacts: increased CapEx spending for our nitroguanidine expansion in Germany and customer grants received for this CapEx program. Non-current assets increased by EUR 57 million, primarily due to the investments aimed at expanding production capacity for nitroguanidine as well as customer grants capitalized in this context as non-current receivables. Approximately 67% of our investing cash flow within the first 9 months of the year was dedicated to this CapEx program in Germany. In total, we received almost EUR 56 million of customer grants already related to our nitroguanidine expansion. These are based on milestones or monthly payments. As such payments increase our cash balance, they also do increase our contract liabilities on the other hand. As of September 30, '25, we showed contract liabilities amounting to EUR 85 million. Those will be released beginning in '27 as revenue when the products are delivered out of the new plant. During our Q1 call in April this year, we gave a detailed explanation of the accounting treatment, and we refer to this presentation. Apart from this, we saw an increase in our inventory level in preparation for a scheduled extended maintenance shutdown of one of our carbide furnaces at the beginning of '26. Equity total could be increased by EUR 28 million. This development was supported by our positive group's net result and the recognition of increased interest rates for pension valuation and reduced by the dividend payment of EUR 18 million in May '25. However, as the balance sheet total increased materially, our equity ratio decreased from 42% to 40% but could be increased since our half year reporting date. This development was already outlined within our guidance and shows the expected ratio. Based on the increased interest rates mentioned, our pension liabilities were reduced by approximately EUR 5 million, while real pension payments amount to only EUR 2 million. As of our reporting date end of September '25, we can again report a positive net cash position of EUR 37 million. And again, we were able to shortly invest our liquidity surplus in order to earn interest, also a reason for our improved financial result. Our operating cash flow is still significantly influenced by the customer grant received for our CapEx program. As mentioned already, we received EUR 55 million in total. On the other hand, we slightly increased our working capital in preparation for the extended maintenance of one carbide furnace with a corresponding impact in our operating cash flow. We have already mentioned our materially increased CapEx activities compared to last year. Apart from the nitroguanidine expansion, we invested in expanding our creatine production capacities, the development of network operations and infrastructure matters. Anyhow, we can still report a positive free cash flow, which almost equals the amount from last year. Our increased dividend payment in May '25 and approximately EUR 4 million cash out for the current share buyback program explains the increase in financing cash outflows. As you can see, AlzChem is in a very healthy cash position and ready for future growth. At the end of this call, I will now give you some updates on our guidance for the remaining 3 months of the year. From today's perspective, we can confirm the outlook given in our last financial statements and the developments within the first half of '25 have confirmed our estimate. Sales are expected to grow to approximately EUR 580 million, while we expect them to settle at the lower end of our range, as Andreas already mentioned. EBITDA is still expected to grow at least to approximately EUR 130 million. Our outlook is still based on the same assumptions as given at the beginning of the year. The fundamental growth drivers will be volume effect within segment Specialty Chemicals, which will overcompensate the sales decline in segment Basics & Intermediates. Sales are supported by further increased demand in the area of human nutrition, custom manufacturing and possible positive developments within the metallurgy product area. As mentioned already, we still do not expect a material negative impact from the volatile tariff politics of the U.S. administration right now, but the further weakening of the U.S. dollar could have a negative sales and cost impact on our result. So, that's it from our side with the information for the first 9 months of the year and the outlook for the remaining 3 months of' '25. At this point, we would like to thank you for your appreciated attention and are now at your disposal for possible questions. Operator: Yes. Thank you very much for the presentation, and we now move on to the Q&A session. [Operator Instructions] And we already have some participants raising their hands. Mr. Faitz, you should be able to speak now and place your questions. Christian Faitz: Yes. Good morning, everyone. Thanks. Hope you can hear me. Congratulations on the results. I have a couple of questions, please. So first, can you please talk a bit about the inventory development into the end of this year in preparation of the refurbishment of the calcium carbide furnace in heart. Should we expect inventories in your Basics & Intermediates to approach, let's say, a EUR 60 million level or even above and on the shutdown for refurbishment? We are talking about the bigger furnace being out for how long and in which time frame? Thanks very much. Andreas Losle: Maybe I can answer the first question about the inventory development. Right now, we do expect to be on the level where we expect it to be at the end of the year. Also -- so, we have seen an increase over the year. But at this point in time, we should have reached the topline and inventory should not change that much until the end of the year. Andreas Niedermaier: And for the maintenance shutdown, it will take approximately 6 months. Christian Faitz: Okay. Perfect. If I may, I have one more question for now. Can you please give us an update on the scouting for the location for nitroguanidine in the U.S.? Is there any recent updates? Maybe you can share some thoughts there. Georg Weichselbaumer: I mean, as we said in the presentation, we have narrowed it down to a few locations. We have visited those locations, and we're currently also building P&L for all of those locations to make a very good decision based on figures by the end of the year. Operator: Well, thank you for your questions. And we move on to the next participant, Mr. Schwarz, you should be able to speak now and place your questions. Andreas Niedermaier: Oliver, it seems to be that you are muted. Oliver Schwarz: Yes. I just realized, sorry for that. The obvious mistake I'm making every time. Hopefully, it works now. Andreas Niedermaier: No problem. We can hear you. Oliver Schwarz: Wonderful. Thank you very much. So without further ado, I also got some questions for you. Firstly, regarding the Q3 development in the Basic & Intermediate segment, obviously, what we saw in Q3 is a reversal of the trends we saw, especially in H1, but also in previous years, that we saw volume and price declines. And you said -- stated that this was mostly due to a new contract with a customer, I don't know whether it's an existing one or a new one that enabled you to break that trend in Q3, which would imply to me that the contract size of that customer regarding their product might be in the vicinity of EUR 5 million to EUR 10 million, probably. Could you just confirm that the underlying trend of lower prices and volumes is still ongoing and is just offset or more than offset by this new product and the respective contract? And could you elaborate a bit how sustainable that is? So what kind of market potential you see for that product? And in general, how you see things going forward in that regard? That would be my first question. The second one is for Specialty Chemicals. It's basically the same thing. We saw a bit of a trend reversal also in Specialty Chemicals. Given that at the half year stage, there was a flat pricing in Q3, there was a price increase of 7%. But on the other hand, you had strong volume growth in H1, and it declined a tad in Q3. Could you elaborate a bit, especially on the, let's say, less strong increase or the, let's say, the drop in momentum in volumes in Q3? I guess that might be a mix effect that we see strong creatine sales, which is a highly profitable product, but other products might have had a harder time. Could you especially talk about Creamino in this context, please? And last but not least, congratulations on your cooperation with Ehrmann, which is quite a sizable diary operation in Europe. Could you give, let's say, your estimates or your feelings about what the market potential in the midterm of this cooperation and the resulting products could be, given that we are just at the very beginning of the rollout here in Germany and Europe will probably come, I don't know, next year or the year after, how is that timing planned in that regard? That will be my third and final question. Thank you very much. Andreas Niedermaier: So, Georg will you take the opportunity to answer the Basic & Intermediate question first, I think. Georg Weichselbaumer: Yes. I'm not surprised about that question. To get some more information about the background of that as we think a turnaround, particularly in the nitriles portfolio, we are in cooperation with a blue-chip customer. And the first campaign, which we made was just a start to confirm when we did that in a very positive way that the synthesis works. And there will be quite some significant ramp up. However, we are not privy to the information to which level it will grow, but the numbers which you mentioned were not completely wrong. It does not indicate that this is a reversal for the Basic & Intermediate segment. It is a good starting point, as I said, for the nitriles portfolio. But the underlying economics, in particular for the steel industry are still unchanged and will remain unchanged. We are positively surprised. I think we can say that for the Perlka development, because we could increase both volumes and prices. Andreas Niedermaier: Yes. So thank you, Georg for that analysis, some words to specialties. So, please don't overestimate the single quarters. So, you have to look more on the accumulated figures from my point of view. Because sometimes there is a little more quantity of that product in the last months of the, let's say, second quarter and then it's moved to the first month of the next quarter. And from that point of view, the underlying trend is really healthy for the already mentioned products like Creapure, Creavitalis, and the Specialty products here as Georg already reported. So, NQ is stable and on stable growth underway. And you will see next year a big increase when the new plant will be ramped up and will be started. So from that point of view, we will see really a healthy and a good underlying trend for our Specialty Chemicals here. So, the last question from you, Oliver was some words about Ehrmann. So, Ehrmann is very important from my point of view because it's the first step into the daily market and that interesting is quite big from other daily customers as well. And from that point of view, I think that's a trendsetting product actually. And that will help the creatine growth a lot. But that's not the only and single underlying trend for the creatine growth. So, we see a good growth trend in healthy aging, in fitness sector as well. And from that point of view, we really think about adding additional capacities. We think about that actually. And hopefully, we can report in a few, let's say, months that we will increase the capacities again here. Yes. So, that's in a nutshell, hopefully, answered your question here. Oliver Schwarz: Yes. Thank you very much for that. Just perhaps a clarification on the Ehrmann project that you did. I was just wondering, I mean, at the very beginning, when Ehrmann rolls out a product in Germany, obviously, due to the landscape of the German supermarket chains, the uptake will be choppy. That's normal because the products have to be listed and the respective supermarkets have then to display them in their shelves and so on. And that is very different, how REWE does it compared to EDEKA and so on and so forth. And then, we have the rollout in other European markets because Ehrmann is not only strong in Germany. It's also very strong in other parts of Europe when it comes to their sales composition. So, I'm just wondering is that this Ehrmann cooperation has that -- is that basically just a tip of the iceberg, what we are just, let's say, seen and how big might that become just that cooperation. I'm not negating other growth -- pockets of growth in other parts of your business. I just want a better understanding about how -- what kind of lever on sales and earnings that might grow into when it's, let's say, fully fledged rolled out, roll it over Europe, how much of that would basically be reflected in your future earnings and sales? Andreas Niedermaier: Oliver, as you know, we can't display and can't get this detail, and talking about earnings and sales on a customer base. But let turn it that way around. So, from my point of view, you're right, that's only that the first small introduction into the daily business of creatine. Creatine will be, from my point of view, a standard product. But Ehrmann was very fast to introduce that. And from my point of view, we will see many products out there in the future, but it could take time, let's say, from my point of view, 1 or 2 years, to introduce other customers as well, because you have to do your tests. It's not so easy to stabilize creatine in puddings and in milk products or in their products at the end of the day. And Ehrmann did it in a very fast and in a very, let's say, positive way from my point of view. And at the end of the day, we will see here a good growth path and a good growth segment, which will support our growth for creatine much, let's say. But that's not only the one thing, as I already said. So, healthy aging, fitness trend, women health that will support the creatine as well. And from that point of view, I have seen another question here written down, if the additional quantities are already sold out of the creatine plant? Yes. We have already sold out all the quantities, and that's the reason why we are thinking about additional quantities here as already mentioned. Operator: Yes. Thank you very much. And we indeed have questions in our chat box. I will read one out so that you know how to answer it. Could you please elaborate on CSG's strategic rationale for acquiring such a significant stake in AlzChem? Do you believe they intend to build a more substantial position over time? Andreas Niedermaier: So, interesting question. We know CSG as an investor. We do have contacts. But to be honest, I do not know the strategy of them. They are an investor as all investors, and we maintain the contact quite well, and they support from today's point of view, the strategy, and we will see what happens in the future. So, from that point of view, I can't disclose more because I don't know more about the strategy. Actually, from that point of view, I think you could go to them directly and ask them what's the strategy, because we don't know more about that. Operator: Well, thank you. And I'll read out one more question from the chat box. Could you comment on the latest competitive landscape for nitroguanidine. Rheinmetall has publicly stated in recent earnings calls that it aims to build a vertical integrated supply chain for propellant powders, including NQ, how might AlzChem be impacted by such efforts? Georg Weichselbaumer: That's a really very simple answer to that question, positively. I mean, just imagine Rheinmetall and in particular, our contacts are approximately 20 kilometers away from here, and we have a very, very good communication and we develop things jointly. Andreas Niedermaier: Yes. And as you know, Rheinmetall has an own nitroguanidine plant in South Africa. Yes, that is the case. But if you want to be backward integrated, you need guanidine nitride, you need dicyandiamide, you need the fertilizer business and at least you need to have the carbide business there. If you want to -- if you don't want to be dependent on Chinese material, then you have to build up all that chain. So, you can ask Rheinmetall if they will build up carbide furnace or if they purchase a carbine furnace. I haven't heard about that. Operator: Well, there was a follow-up concerning this from [ Mr. List ] separately, what is management views on synthetically produced guanidine and NQ, since their ongoing efforts in the United States, do you have a perspective on those developments? Andreas Niedermaier: So, that brings question marks to our eyes and to our ears. So, we haven't heard about that actually. So, if you can give us that information and hand in that information, then you can do analysis on it, and we can probably answer that question afterwards. Operator: Okay. Perfect. And we move on to -- well, there is a follow-up on this from [ Mr. List ] in the context of the U.S. expansion, are you engaged in discussions with particular states regarding potential subsidy packages, grants or tax incentives to support site selection? Georg Weichselbaumer: Yes, we are. Operator: That was pretty clear. Andreas Niedermaier: That's pretty clear. That is what we are used to receive from Georg. Yes, that was pretty clear. Operator: Okay. Thank you. And if we move on to one participant raising his hand. Mr. Hasler, you should be able to speak now and place your question. Peter-Thilo Hasler: Of course, I have also questions on Ehrmann. You mentioned that Ehrmann was very fast on the chart on Page 6. There's only the end of the timeline mentioned was October '25, the market launch. Could you tell us when was -- when the beginning was and what fast is in that industry? And the second question would be if you expect -- so I expect that you will not expect that the mass market entry will lead to a dilution of your premium positioning. But do you expect that this will increase the pricing power in your industry business? And the third question is I haven't seen the yogurts and bars. And so yet in the supermarket. Could you tell us something about the pricing of the Ehrmann products? And if I may ask a fourth question on that. You said that you will not comment on an individual client. But if it were Christmas today, how would you do such a partnership, as you call it, in your dreams? Would it be a true sale? Or would you get percentage of revenues of the products? Andreas Niedermaier: Yes, let's start with the last question. It's a true sale and it's not the percentage. From that point of view, we have been very quick in developing that. So, developing times or sometimes more than 5 years. But here, we have been much quicker. So let's say, between 20 months and a little more. We are talking here about the time framing. So unfortunately, you haven't seen the product in the supermarket, but come over to Trostberg, then we can display you that, no doubt about that. And what the very positive thing is that you will see television spots in the near future. Here, I think it has been already started. And you see advertising in all multichannels already about that product. And so, from that point of view, that was only a setup of the logistics lines. They filled all the logistics and now are promoting the product in all channels, what you can see. So, I think the next quarter we can talk about that everybody should have seen the product in the supermarket and should have heard about the product, I think. Yes. The pricing, I'm not really sure. I think it's approximately EUR 250 , but it differs from some offers and from some supermarkets. So, from that point of view, we don't really have a clear view about that. Georg Weichselbaumer: If I may add, it is very rare from Ehrmann that they actually display logos of other products, on their products. And since there is such a good synergy between proteins and also creatine, which actually is symbiotic, not 1.1 is 2, but more than 2, because creatine can activate the metabolism of proteins, they actually agreed that the Creavitalis logo is also on their sales products and it was a joint development because, as I said, creatine and then Ehrmann really fits. Andreas Niedermaier: So, let's grab the next question. What's the development of Eminex. So actually, we are in the process of incorporating Eminex into the climate calculators. That's a very important that you are a piece of the climate calculator. We are not in there, but there are positive signs from our point of view. We have good contacts and hopefully, we will make it next year that we are a part of the calculator. And then from my point of view, it will much supported to take Eminex at the end of the day. But please be remind the farmers don't have to pay actually for their methane emission that will change in the future. And if that two things have been changed, then Eminex will go like a rocket. Operator: Well, thank you very much. That was the last question from the chat box. No, there is one final question from [ Mr. List. ] I'll read it out. Amid the positive sales developments within the need trials product line, have you given further thought to potential portfolio rationalization given the new trials is not part of the integrated Verbund model. Thank you. Georg Weichselbaumer: It is not part of the integrated Verbund model, but it strengthens our site. Also, nitriles operates our air purification or our exhaust purification plant. So, it would not be easy to shut it down. That's the more defensive answer, but the more offensive is, I think we can develop nitriles into a business which looks cook completely different from what it used to be. But with products were not so much making nitriles, but gas phase reactions can really make a difference. And the project, which is currently implemented is the first one, which we have and there are more to follow. Operator: Thank you very much. And there is one participant raising his hands. Mr. Piontke, you should be able to speak now and place your questions. Yes, Mr. Piontke, you unmute yourself? You should be able to speak. Manfred Piontke: One question regarding the bird flu. We got a lot of information the last couple of days. Do you feel that here, this could bring problems for your product which is going to the feeding of these animals that if I remember 10 years ago, we -- in the last bird flu, Evonik had lots of problems and in sales and earnings. Do you have first impression what has happened to your clients? And how big is this business in the creatine business? Andreas Niedermaier: Yes. So it's a decent stack of our business, no doubt about that. So it's very important for us, the Creamino business we are talking about. But actually, I haven't heard that any of our customer had a problem with the bird flu now. So at least in the U.S., I haven't heard about some problems of our customers with the bird flu. So it's, from my point of view, more a German thing actually, and Germany is not that big for our Creamino business here. So, from that point of view, I don't see really a big danger, but you're right. That's always a topic. So, if the birds are slaughtered down and brought away then we have a heavy impact or it could have been seen a heavy impact on Creamino business. But up from now, we don't see that. Operator: Well, thank you very much. And there are no more questions by now. I'll wait a few moments. But no. So, ladies and gentlemen, we now come to the end of today's earnings call. You will find the presentation on the website of AlzChem Group AG and also on the Airtime platform by clicking into today's event. Dear participants. Thank you for joining and you've shown interest in the AlzChem Group. Should further questions arise at a later time, please feel free to contact Investor Relations. A big thank you to Mr. Niedermaier, Dr. Weichselbaumer, and Mr. Losler for your presentation and the time you took to answer the questions. I wish you all a lovely remaining week. And with this, I hand over to Mr. Niedermaier for some final remarks. Andreas Niedermaier: We'll thank you very much for your questions. Thank you for being here now. A message on our own behalf. So, because this was the last joint publication together with Georg Weichselbaumer here. As you already know, this is his last term as a Board member and his successor is already in the starting blocks. I would like to thank you, Georg, very much for the excellent cooperation on behalf of the Board and the employees. You were certainly a significant stable success factor with your know-how and your market knowledge here. Thank you for that. So, our corporation will not be completely away yet. You will still take care of the success of the USA project for a while. But in this format, it was certainly the last appearance, and you can pass on your responsibilities now. Thank you very much, Georg. So, let's now come to an end. We can now offer you the opportunity to visit us again virtually or in person at the conferences, as shown above. We will be available in Frankfurt. We will be available in London. Otherwise, we will be back with our full year reporting on February '27. Stay safe and sound, stay in our good graces, and goodbye. Thank you.
Operator: Good morning. My name is Rob, and I will be your conference operator today. I would like to welcome everyone to the call. [Operator Instructions] I'd like to introduce Beth DelGiacco, Vice President, Corporate Communications and Investor Relations. You may begin your call. Beth DelGiacco: Thank you. A press release was issued earlier today with our third quarter 2025 financial results and business update. This can be found on our website, along with the presentation for today's webcast. Before we begin on Slide 2, I'd like to remind you that forward-looking statements may be presented during this call. These may include statements about our future expectations, clinical developments, regulatory timelines, the potential success of our product candidates, financial projections and upcoming milestones. Actual results may differ materially from those indicated by these statements. Argenx is not under any obligation to update statements regarding the future or to conform those statements in relation to actual results unless required by law. I'm joined on the call today by Tim Van Hauwermeiren, Chief Executive Officer; Karl Gubitz, Chief Financial Officer; and Karen Massey, Chief Operating Officer. Luc Truyen, our Chief Medical Officer, will be available during Q&A. I'll now turn the call to Tim. Tim Van Hauwermeiren: Thank you, Beth, and welcome, everyone. I'll begin on Slide #3. At the start of the year, we set a bold growth agenda anchored in our long-term road map for value creation, Vision 2030. Today, VYVGART is delivering meaningful impact in 2 blockbuster indications with MG and CIDP. Our prefilled syringe is now approved in most major markets, fueling new patient and prescriber adoption. We've also made significant pipeline progress and will enter 2026 with 3 Phase III assets. At the same time, we are investing in our next wave of growth with 4 new molecules in Phase I development by year-end and a vibrant immunology innovation program driving future opportunities. Slide 4. Today, I'm joining you from AANEM in San Francisco, where we are engaging with the neurology community and sharing new data that reinforce our commitment to continuous innovation in rare neuromuscular diseases. I would like to briefly highlight several key data sets presented this week that underscore our leadership in gMG. VYVGART has set a high bar in gMG, driving rapid, deep and sustained responses. Our gold standard for patient impact is for patients to achieve minimum symptom expression or MSE. New data from the ADAPT subcu study showed that up to 60% of patients reached MSE with 83% maintaining it for at least 8 weeks, highlighting the durability of VYVGART responses. We also know that steroid reduction is recognized as a critical outcome for both patients and prescribers. Building on earlier data showing meaningful steroid reductions with VYVGART at 6 months, we now see this sustained through 18 months with over 55% of VYVGART patients reducing steroids to below 5 milligram per day. We also presented data from the ADAPT SERON study, which met its primary endpoint, showing significant improvement in MG-ADL at week 4 compared to placebo. Importantly, we observed increasingly pronounced and clinically meaningful improvements in both MG-ADL and QMG scores across subsequent treatment cycles in the overall population and across all patient subgroups. These positive results support our plan to file for a label expansion that includes all 3 seronegative subgroups, MuSK-positive, LRP4 positive and triple seronegative. This is a landmark moment in advancing our scientific understanding of MG as the results indicate that pathogenic IgG autoantibodies drive disease regardless of antibody status. Additionally, we continue to showcase the strength of our ADHERE data in CIDP, while introducing new HEOR insights that highlight the severe disease burden, long diagnostic journey and the urgent need for innovation for these patients. Slide 5. We now have 3 first-in-class molecules in Phase III development, efgartigimod, empasiprubart and ARGX-119, each representing a true pipeline in a product opportunity. We continue to maximize the FcRn opportunity by advancing efgartigimod in severe IgG-mediated autoimmune diseases while building the future of this target with the next generation of molecules. As we grow our understanding of FcRn biology, we're building out our capabilities to address patient needs in therapeutic areas beyond neurology. We're also reinforcing our leadership in neurology with empasiprubart, now in Phase III development for MMN and CIDP. With its selective approach, blocking C2 at the intersection of the classical and lectin pathways, empasiprubart is uniquely positioned to address a broad range of autoimmune diseases. Lastly, ARGX-119, our MuSK agonist, has now advanced to Phase III in CMS. It is designed to restore neuromuscular junction function, opening the door to indications like ALS and SMA and underscoring our commitment to pioneering new biology in high unmet need indications. Pipeline and the product molecules are designed with built-in optionality, giving us the flexibility to prioritize indications and allocate resources to programs where we can deliver the greatest patient impact. In line with this strategy, we've made three disciplined development decisions. First, we stopped development of empasiprubart in dermatomyositis due to operational challenges with study enrollment. That said, DM remains an area of commitment for us. This is a population that has seen little innovation and unmet need further validated by the strong pace of DM enrollment in our ALKIVIA study with efgartigimod. Second, we decided not to advance efgartigimod into a registrational study in lupus nephritis based on the results of the Phase II data. Efgartigimod was well tolerated and safety in line with established profile. Third, we are rolling out our next efgartigimod indication, which is Graves' disease. This expands our reach into thyroid-driven autoimmunity and allows us to move directly into Phase III in a disease where there is a high need for a new treatment option. We expect to initiate the registrational studies early next year. These are well-informed decisions to ensure we focus our time and capital on indications where we can deliver the most value. We're also thinking in terms of long-term growth horizons for our core assets, which means that even though we are moving forward in certain indications today, we are a data-based company and we will be ready to revisit our decisions as new evidence emerges. Slide 6. The progress we have made positions us for 5 registrational readouts next year. Each reflects our disciplined approach to indication selection, a clear biology rationale, trial designs anchored in robust clinical endpoints and strong commercial potential to address an unmet patient need. Ocular MG will be the first of these in 2026. We have established a strong biologic rationale, supported by encouraging ocular domain data from the ADAPT study and real-world case reports. The Ocular study will assess the MGII ocular score and if successful, could expand our label to include MGFA Class I patients. Myositis and TED studies extend our reach into rheumatology and endocrinology. With myositis, the Phase II portion of the registrational ALKIVIA study demonstrated meaningful improvement in muscle strength and physical function using TIS, which we will evaluate over 52 weeks in the Phase III. In TED, we're stimulating TSHR autoantibodies drive disease, we leveraged peer data to advance directly into Phase III. Across both indications, we see a clear opportunity for VYVGART to deliver differentiated efficacy and safety. MMN will be our first registrational readout for empasiprubart. With IVIg as the only available therapy today, there is a significant opportunity to disrupt this market with a novel treatment. In consultation with the regulatory agencies, we've changed the primary endpoint to grip strength, which should capture meaningful functional improvement for patients. Lastly, in ITP, which is already approved in Japan, we designed an efficient confirmatory trial to enable regulatory submission in the U.S. and EU. Translational data continue to show that efgartigimod reduces platelet destruction and supports platelet production and maturation. Slide 7. As part of Vision 2030 and in support of our ambitious goals, we're making investments across our business to ensure long-term sustainable growth. We're actively scaling our operations in the U.S., including an expanded collaboration with FUJIFILM through a new manufacturing facility in North Carolina. This move strengthens our global supply chain and supports our manufactured in a region for the region strategy, ensuring we can meet growing demand for VYVGART and future pipeline therapies. At the same time, we are investing our pipeline innovation engine, doubling down on our pursuit of novel biology because this playbook is working. We remain on track to have 4 new pipeline assets in Phase I by year-end with more expected to advance from our 20 active IIP programs, each representing a potential breakthrough in immunology. With that, I will now turn the call over to Karl. Karl Gubitz: Thank you, Tim. Slide 8. The third quarter 2025 financial results are detailed in this morning's press release. We are proud to report an outstanding quarter, reflecting exceptional execution and sustained momentum in our business. In the third quarter, we reported total product net sales of $1.13 billion, marking a historic milestone for argenx as we surpassed for the first time $1 billion in VYVGART sales in a single quarter. We achieved growth of 19% or $178 million in product net sales when comparing to the previous quarter of this year and 96% or $554 million in growth when comparing 3Q on a year-over-year basis. If you look at the breakdown by region, product net sales were $964 million in the U.S., $60 million in Japan, $94 million across our rest of the world markets, including our partner markets and $9 million for product supply to Zai Lab in China. The product net sales in the U.S. specifically grew by 20% quarter-over-quarter, reflecting the impact of our investments in the PFS launch earlier this year. PFS is now firmly established as a growth driver in our markets, supporting our continued momentum in gMG and CIDP. The gross to net adjustments in Q3 and the net pricing in the U.S. are in line with the prior quarter. Next slide. Total operating expenses in the third quarter are $805 million, representing a 5% increase compared to the second quarter. Our R&D expenses increased by 9% or $28 million and our SG&A expenses by 4% or $11 million. Building on our solid revenue performance, we continue to invest in our growth opportunities. Therefore, expect our expenses to continue to grow in the single digits for the rest of the year. This will result in our combined R&D and SG&A expenses to land just north of $2.5 billion at between $2.6 billion and $2.7 billion. Cost of sales for the quarter is $109 million. Our year-to-date gross margin remains consistent at 11%. Our operating profit for the quarter is $346 million, and the quarterly financial income is $43 million, which results in profit before tax of $386 million. The year-to-date effective tax rate is 13%. After tax, the profit for the quarter is $344 million and $759 million on a year-to-date basis. Our cash balance at the end of the quarter, represented by cash, cash equivalents and current financial assets is $4.3 billion, which represents a nearly $1 billion increase in cash since the beginning of the year. I will now turn the call over to Karen, who will provide details on the commercial front. Karen Massey: Thanks, Karl. Let's go to Slide 10. As we close the year, it's inspiring to reflect on how far we've come since VYVGART's first approval 4 years ago, reaching more than 15,000 patients globally across 3 indications and 3 product presentations. We're transforming patient outcomes, redefining what patients can demand from their treatments and pioneering an entirely new class of medicine with our first-in-class FcRn blocker. This quarter is a continuation of delivering that transformative impact. Today, I'm excited to share how our commercial strategy continues to turn innovation into access and impact for patients and how we plan to sustain our growth momentum into 2026. Slide 11. Once again, the team has delivered an outstanding quarter, reflecting growth in all indications across all markets. The prefilled syringe is performing exactly as expected, driving increased VYVGART demand among patients and prescribers who embrace a more flexible treatment option. More than half of patients starting on PFS are new to VYVGART with the rest switching from Hytrulo vial or IV. Since the launch of PFS for self-injection, over 260 prescribers have written their first ever VYVGART prescription, expanding our prescriber base and setting the stage for continued patient growth. We've also strengthened payer access, securing additional policies to enable more patients to initiate treatment. Growth outside the U.S. is strong with the PFS approved in most major markets. I'm excited to now share how we're executing on our strategy to strengthen our MG leadership and build the momentum to establish an equally strong foothold in the CIDP treatment landscape. Slide 12. In MG, we have consistently delivered new patient growth for 15 quarters while executing on our strategy to unlock the full 60,000 patient opportunity, advancing 2 label expansion studies in seronegative and ocular MG and driving earlier adoption of VYVGART to expand the biologics market by an additional 25,000 patients. Today, we're the #1 prescribed and fastest-growing biologic in MG. Where we see the biggest opportunity to maintain this leadership is to reach patients earlier in the treatment paradigm. We're already seeing this shift take place with the percentage of patients coming from oral therapies increasing year-over-year now at 70%. The PFS is fueling this momentum, opening doors to new segments of younger, more active patients and our strong safety and efficacy remain the foundation of physician confidence, driving earlier prescribing decisions. As Tim highlighted, we're excited to be moving closer to potentially expanding our label to include seronegative gMG patients following positive top line results. The unmet need here is significant, especially for triple seronegative negative patients who experience diagnostic challenges and currently have no approved therapies. Ocular MG is next. Patients often struggle with symptoms that make everyday activities like working or driving nearly impossible. Many are heavily reliant on steroids in the absence of treatment options. These programs reflect our commitment to address underserved populations and redefine care in MG, setting a higher bar for what patients can expect from treatment. Slide 13. In CIDP, we continue to deliver innovation that translates into patient impact. We're seeing consistent growth in both patient starts and prescriber engagement, driven by physician trust in the safety profile of VYVGART Hytrulo and its ability to deliver meaningful functional improvement. We're on track to grow towards our 12,000 addressable market of patients not well controlled on current therapy. We continue to hear stories from patients about their positive experience to date. The prefilled syringe is driving additional demand as patients opt for the convenience of self-injection, and our activation efforts are empowering patients to ask their neurologists about VYVGART Hytrulo. Here's the story of one of those patients. Sasha is a mother of 4 in her 30s. She was hospitalized for over 3 months earlier this year given her symptom progression. She shared the frustration that came with CIDP, completely dependent on her spouse for even the simplest daily activities. After starting VYVGART Hytrulo and later switching to the prefilled syringe, she said, "I can live my life." She's walking her children to the school bus, something she deeply missed. And thanks to the flexibility of the PFS, she's thrilled to plan a 10-day cruise without worrying about having to be home for an injection. While this is just one patient experience, these stories give us confidence to expand our reach and serve more patients over time. We're now gearing up for 5 Phase III readouts next year, actively engaging with patients and physicians to ensure that if the data are positive and approved, we'll be ready to expand into these markets and deliver broader patient impact. As an example, we're strengthening our rheumatology presence through deeper engagement and increased visibility at major medical conferences with our clinical data. Our focus remains on finishing this year strongly while laying the foundation for multiple future launches. With that, I will now turn the call back to Tim. Tim Van Hauwermeiren: As the heart of our success is our commitment to transforming patient outcomes, with multiple pathways to realize Vision 2030, we're not just positioned for sustained growth, we are building a legacy of long-term value for patients and shareholders. We have the strategy, the signs and the momentum behind us. But most importantly, we have the passion and purpose to redefine what's possible in immunology. With that, operator, we'll open the call up to questions. Operator: [Operator Instructions] Your first question comes from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: Just one clarification actually just on the formulation mix. It obviously seems that the PFS is driving the growth. But could you just confirm that all of the other -- or the other 2 formulations are still growing underlying in both CIDP and MG? And then just on the pipeline, I know it's a little bit further out for you at the minute, but I'd be interested to get your perspectives on Sjogren's disease. We saw some Phase III data from Novartis ianalumab yesterday. I'd be keen to get your thoughts on that and how you think VYVGART could potentially differentiate and what represents a clinically meaningful signal? Karen Massey: Yes. Thanks for the question. Maybe I can take the first one on the PFS and Tim, if you want to comment on Sjogren's. So you're right, prefilled syringe is the major driver of growth this quarter, and that actually continues the trend that we've seen over time since Hytrulo launched or since we launched the subcutaneous version. Having said that, the IV does continue to be an important contributor to the business and to the results that we saw this quarter. There is definitely a segment of patients and physicians that prefer the IV option. So the fact that VYVGART has all 3 presentations, and they're all contributing to our performance is important for both -- for obviously, for MG, whereas for CIDP, the focus is on Hytrulo as approved in presentation. Tim, do you want to comment on Sjogren? Tim Van Hauwermeiren: No. Thank you, Karen, and thank you for the question. So I think it's important and great news for patients, Sjogren's patients to see the Novartis data, which clearly showed a statistically significant win in Sjogren's. When we look at the efficacy, we believe a 2-point improvement is considered clinically meaningful, so there's definitely room for improvement. We have strong conviction, of course, in efgartigimod based on our own Phase II data and peer data in Phase II. This is a precision tool, which we believe is going straight after the circulating immune complexes instead of a more broad general B-cell suppression. So the data need to speak and the trial is well underway. Thank you for the question. Operator: Your next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: I wanted to get some color about how you're thinking about the CIDP launch. Specifically, our survey work indicates a high level of excitement from physicians to want to move efgart into frontline therapy ahead of IVIg. I wanted to hear what your feedback from the sales force is and what efforts would be needed in addition to what you are already detailing in order to make efgart the first-line option for patients in CIDP. Karen Massey: Yes. Thanks for the question, Tazeen. And we're hearing very positive feedback from prescribers about the CIDP launch as well. And what -- the feedback that we're hearing is that the real-world experience for CIDP patients reflects what we see in the clinical trials and importantly, around efficacy and safety. And then obviously, we have the convenience. You'll recall that in our clinical trial and in our label, we have the approved indication for all patients. And so what we're seeing at the moment is that the early experience is from IVIg switch patients, so 85% of our patients are coming from IVIg switch. But we are seeing some of the patients that are starting naive where they haven't started with IVIg, they're not switching and we're having -- just like in the clinical trials, we're seeing good real-world experience with that. So we see that we're at the beginning of the growth curve for CIDP. We see continued momentum. We see continued expansion of the prescriber base. And I think that over time, we'll start to see more penetration in the market across all patient segments. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: Congrats on the progress. Just as the narrative shifts to VYVGART pivotal readouts in '26, I mean, can you give us a sense of the revenue potential for those indications and how they may compare to MG and CIDP? And I can sneak in a second, I guess, what diligence got you excited about pursuing Graves with VYVGART. I know there's been some debate about the unmet need there. Tim Van Hauwermeiren: Yes. Thank you, Derek, and thank you for the question. What we have been saying publicly is that revenue potential-wise, each of these Phase III indications roughly represent an MG-like opportunity, and we will be giving more detailed information when we come closer to the market. You know that Graves has always been on our indication list. I think there's a clear biology rationale. It's established how you do the clinical trials, and we have been digging deeper into the unmet medical needs. So whilst it is true that it is a subset of patients doing well on the cheap available medication, there's a substantial subset of patients which are not doing well. And again, from that point of view, it may resemble MG, but a subset of patients is in bad need of an alternative medication because there's not much left once you feel the cheap available medication today. Thanks for the question. Operator: Your next question comes from the line of Alex Thompson from Stifel. Alexander Thompson: Congrats on the quarter. I guess on the empasiprubart discontinuation in DM, I wonder if you could speak about sort of the trial issues, the enrollment issues you had there. Was that due to the IV presentation and how that compared to the myositis trial with efgartigimod? And maybe you could also comment on the CIDP, empasiprubart enrollment as well and if that's being affected? Tim Van Hauwermeiren: Alex, thank you for the question. We have the benefit of having Luc with us, our colleague and Chief Medical Officer. So Luc, why don't you take the question on the discontinuation of DM and the excitement which we have about ALKIVIA. Luc Truyen: Yes. Thanks, Tim, and thanks for the question. Yes. So most of the -- this is also a POC trial, Phase II trial that we were running, of course, in a highly competitive enrollment environment. And of course, it didn't help that C5 read out negatively. And we set the bar high for what we want to see, so our inclusion criteria are pretty robust to make sure that we can have a readout that would be predictable for Phase III. And the enrollment just stumbled on that. And then we, of course, have to make decisions within our portfolio with all the work we have, what we keep trying or what we say, okay, DM is an important indication and ALKIVIA during which DM enrolled pretty well. But right now, for the C2, we felt we had to reprioritize. Beth DelGiacco: And then on your question on CIDP enrollment, we just started those empasiprubart trials, so are still too early to say on how our enrollment is projecting there. Operator: Your next question comes from the line of Yatin Suneja from Guggenheim. Yatin Suneja: Just a quick one from me. With regard to the thyroid eye disease studies, could you just talk about the expectation in this indication, how you're thinking about the potential positioning? And then I think also just talk about -- is there a way to capture some of the TED patient population with Graves' study that you might be running now? Tim Van Hauwermeiren: Yes. Thank you, Yatin. For TED, we decided not to disclose too much about positioning. I think we first need to wait for the data to speak. We think there is a convincing proof of concept out there from a peer molecule. And the jury is out to know how this mechanism of action is going to differentiate itself from the available mechanisms of action. And it's fundamentally different biology, fundamentally different mode of action, but the data need to speak for themselves. I think there is ample of room for improvement, both on the efficacy side and the safety side. And you know we're running this trial as well with the prefilled syringe. TED and Graves are basically presentations of the same spectrum, the same disease biology, underlying disease biology. And so with venturing into Graves, which we announced today, we are actually increasing our efforts in the thyroid space. Thank you for the question. Operator: Your next question comes from the line of Yaron Werber from TD Cowen. Yaron Werber: Congrats all. Really nice quarter. I have a couple of questions. Maybe the first one, can we -- any chance to get an update on 121, the IgA sweeping platform and then 213, the long-acting VHH of efgartigimod? And then secondly, maybe when we look at sales, sales essentially have now quarterly sales more or less doubled since about a year ago, as you noted, when you launched also CIDP and obviously, PFS is now launched. I'm just trying to get a sense, can you -- how much of the growth is driven by CIDP versus gMG? Tim Van Hauwermeiren: Yes. Karen, why don't you start with the commercial question on the relative growth drivers that impact? And I will take the pipeline question. Karen Massey: Yes, absolutely, happy to. Yes, so you're right, we saw when you zoom out, nearly 100% growth year-over-year, as you said. And what we see in the underlying fundamentals of the business is strong growth across both MG and CIDP, both contributing to the growth that we're seeing for the quarter and over the long term. So if you look at MG, in particular, I think it's important to note, we're the #1 brand of biologic at this point, and we're growing faster than the market. And that market is expanding quickly with biologics being used earlier in the treatment paradigm. And then, of course, in CIDP, just a year out from launch, we're seeing expansion in our market share there as well. And I spoke earlier about the increased penetration into that market. So I would see -- I would say what you can expect moving forward is continued growth in both MG and CIDP, and contribution from across the different markets and geographies as well. Tim Van Hauwermeiren: Thank you, Karen. And then, Yaron, on your question on the pipeline, which I really appreciate, both ARGX-121 and 213 are swiftly progressing through the Phase I studies. Remember, in the dose escalation, single dose, multiple dose, we are, of course, first and foremost, interested in safety and tolerability, but these are also molecules which are going to unveil their potential to the PD effect. So you know that the ambition level for ARGX-213 is to move to monthly dosing with an equivalent PD effect as VYVGART and no compromise on safety. And for ARGX-121, the IgA removal sweeper, the objective is to have a very fast and very deep IgA reduction. So these Phase I trials will disclose a lot about the potential of these molecules, they're on track, and I would say stay tuned for the first data disclosure soon. Thank you. Operator: [Operator Instructions] Your first -- your next question, sorry, comes from the line of Danielle Brill from Truist Securities. Danielle Brill Bongero: Congrats on the quarter. Maybe I'll ask a question about the seronegative opportunity based on our conversation yesterday. Can you talk about your confidence in the opportunity from a commercial standpoint and the approval based on the subgroup data that you presented? And I'm also curious if you could share any MSE data findings given the importance of that endpoint to prescribers? Tim Van Hauwermeiren: Thank you, Danielle, and we have the benefit of having Luc on the phone. So look, maybe you show some color, you share some color on the path into submission and then how -- from where you sit, the likelihood for an approval? And then maybe, Karen, you comment on the importance from a commercial point of view. Luc Truyen: Yes. And Danielle, thanks for the question. So we are very excited by the outcome of the SELON study because we invested a lot in running the biggest trial in seronegatives with a rather innovative design, including diagnostic adjudication. And they really -- the overall results really enforces VYVGART's potential to really move the dial in this underserved population, as Karen already said. So we met the primary endpoint, which by design was on the overall population with a clinically meaningful and highly robust statistical significant reduction in MG-ADL score. And we also, as we showed at AANEM with James Howard presenting, showed that over consecutive cycles, this impact with benefit accrued deeper and deeper. Now this was seen across the 3 subgroups. So the MuSK, which -- coincidentally, we have one of the biggest MuSK data sets here, triple seronegatives and then LRP4. And across these 3, the benefit moved towards the same direction. And that for us is the basis that we have quite some conviction in the benefit we are providing to these patients. But of course, ultimately, it's going to be a review decision by the agency. But we feel pretty confident that we can have a great discussion on the real benefit that we're bringing to this underserved population. Tim Van Hauwermeiren: Thank you, Luc. And Danielle, on your MSE question, there's a ton of data to unpack. So the long-term follow-up, the deep dive into these patients, there will be much more data sets disclosed going forward into the future. So please stay tuned. And Karen, why don't you comment on this significance from a commercial point of view? Karen Massey: Yes, happy to. And I think this is a significant opportunity from a commercial perspective, and we're certainly very pleased to see such strong data from the SERON study. So as you know, we're the leaders in the MG market, and our strategy is to expand that leadership with the broadest label possible. So SERON or seronegative opportunity is one angle for that. The other is ocular MG, and we know that we have the data readouts coming next year for that. So we're well on our path of executing our strategy of expanding our market leadership. And the opportunity that we see in seronegative with the 11,000 patients is very high. One of the indicators that we think is important is how fast this clinical trial enrolls across all 3 of the subtypes. And I think that really demonstrates the unmet need and the enthusiasm about VYVGART in these subtypes. So I'm looking forward to the approval, if we get the approval, and I know the team is looking forward to being able to bring transformative impact to patients -- in seronegative patients as well. Operator: Your next question comes from the line of Akash Tewari from Jefferies. Amy Li: This is Amy on for Akash. Congrats on the quarter. Just a quick question on myositis. Curious to see what your bar for success is across the 3 subsets and how you are thinking about integrating the new steroid tapering protocol while still mitigating placebo risk? Tim Van Hauwermeiren: Thank you, Amy, and thank you for joining us on the call today. So of course, the first thing we want to achieve in this basket trial is to achieve statistically significant separation from placebo. It is generally understood in the community that a total improvement score of 20 represents a clinically meaningful benefit. You may recall the Phase II data, which we presented where we did a sensitivity analysis looking at TIS of 20, but also TIS of 40 and even 60, where you just see an increasing effect of VYVGART, which is very exciting. So that's how you should frame or look at success in the clinical trial. Thank you for your question. Operator: Your next question comes from the line of Richard Vosser from JPMorgan. Richard Vosser: Maybe you could talk a little bit more around the rationale for the change in endpoint for the EMPASSION trial for empa and MMN, and give us an idea of what you're looking for around the group strength endpoint. Tim Van Hauwermeiren: Thank you, Richard. Thank you for joining us and great question. Luc, this is a great question for you, right? Luc Truyen: Yes. Thanks for that question. So we made that change in close consultation with the agencies. On that endpoint had a precedent and felt that this could indeed be an indicator of a meaningful outcome. And so that's why we made that switch. We had strong data on this endpoint, by the way, from our Phase II trial where there was accruing benefit over time on this measure. So we feel pretty confident that with this switch, our probability to show the benefit of empa is more or less unchanged from the prior endpoint, the MMN routes, on which we also keep doing the work, which is going to be a key secondary, which will provide further insights in the dimensions of benefit. Tim Van Hauwermeiren: Thank you, Richard [indiscernible], I think this is a great advantage for us because the alternative was MMN routes, which was still going through an important validation step. But now we see CBUR and CDUR using the same endpoints in a specific indication for IVIg in the past and now VYVGART going forward. So we're welcoming that harmonization. Thanks for the question. Operator: Your next question comes from the line of Samantha Semenkow from Citi. Samantha Semenkow: I wonder following the lupus nephritis data that you've seen, is there anything you can take from that data set to help inform additional indication selection for efgartigimod or even 213 going forward? And then just relatedly, how are you thinking about additional indication expansion for empa? And do you have any plans for subcutaneous formulation development there similar to your playbook that you have for VYVGART? Tim Van Hauwermeiren: Yes, Samantha, thank you for the question. From a playbook point of view, it is indeed the intention to leverage our subcu platform across all indications. But maybe, Luc, you want to comment on the lupus nephritis data? Luc Truyen: Yes, yes. And thanks for that question. So we're still fully digesting it. But just from the top line evaluation, it was clear that right now, there isn't a path forward to a registrational study. And given that we want to be transparent about these things, we put it in here, but we're still trying to fully understand the data, which, to your point, may inform further decisions on a path forward potentially with another asset in the portfolio. Operator: Your next question comes from the line of Myles Minter from William Blair. Myles Minter: Congrats on the quarter. My question is back on the ianalumab data that we just saw and placebo responses in Sjogren's disease. I'm just wondering whether that 5.5, 5-point change from baseline in ESSDAI, is that within your expectations for your ongoing UNITY study? Or just saying that data change your expectations and potentially powering assumptions for that trial? Tim Van Hauwermeiren: Thank you, Myles, and that's a great question. In Sjogren's, I think we badly need better endpoints. That's why in the Phase II proof-of-concept study, we explored the effect of the drug across an entire spectrum of endpoints, also some of the new endpoints which are coming. But unfortunately, today, the regulator still forced to use ClinESSDAI because the CRESS and STAR endpoints haven't been fully validated yet. I think the placebo effect which you see in this study is actually quite consistent with the placebo effects, which we have seen in historical trials. So it's the ballpark which we expected when we were designing the clinical trial and powering the clinical trial. Thank you for the question. Operator: Your next question comes from the line of Sean Laaman from Morgan Stanley. Unknown Analyst: Congrats on the quarter. This is Morgan on for Sean. We have 2 questions. So first, just wanted to get your thoughts on J&J announcing the head-to-head for Imaavy versus VYVGART in gMG.? And then second, I know you provided guidance on OpEx for the rest of the year. But given all the pipeline indications and trials you have going on, I wanted to know if you could provide any guidance on OpEx and the potential lift over the next 12 months or so? Tim Van Hauwermeiren: Luc, do you want to first comment on that study from J&J, please? Luc Truyen: Yes. Thanks, Tim. Thanks for the question. So I want to start by saying at argenx, our goal is always to prioritize evidence generation that will really add significant value to the patient and the community. And if we look at this design of this head-to-head trial, I'm afraid it will not provide that much new information that benefits patients because of the primary endpoints chosen and the timing of the readouts, we already know that when you stop dosing VYVGART or [indiscernible] for that matter, that IgG's will return to baseline. That is not novel. So this study will just prove different PD effect of 4 doses of VYVGART versus continuous dosing. And I don't think that, that really adds. And it's also not in line with how VYVGART is actually used in the real world today. And at AANEM, for example, we have poster # 12 for those who are interested to show the long-term data on subcus that shows that with a regimen that really triggers new treatment when the start of deterioration happens that you can keep people well below the significant difference of minus 2 points. So to me, that, therefore, creates this question how much added value will this study bring and understanding, and overall, our perspective on competitive landscape hasn't really changed with this. We welcome competition because it's good for patients, and we get to better outcomes ultimately for that patient community, but we have not seen really meaningful differentiation being offered here. And so we continue to be confident in the bar we have set. The accumulated data shown at AANEM with all the data out there across both pediatrics, long-term data, the seronegatives are really in line with our mission to present data that really add value. Tim Van Hauwermeiren: Yes. Thank you, Luc. And I want to remind the audience that for the long-term follow-up in the subcu study, we now reached 60% MSE in our patients, 85% of these patients have sustained MSE of 8 weeks or longer. I think that's what matters to patients most. Thank you for the question. Karl Gubitz: Morgan, thank you for your question on operating expenses. Just to repeat what I said earlier, this year, we will end between $2.6 billion and $2.7 billion. Our capital allocation priorities is clear. We're investing in growth. We're not going to talk about the operating expenses and guidance for next year now. But what we will say is that the increases you saw in Q3, you can expect that to continue going forward. Thank you for the question. Operator: Your next question comes from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: With $4.3 billion on your balance sheet, how are you thinking about external innovation in the future? I believe you did an early-stage deal earlier this year, but should we expect more of those going forward? And are there any technologies that you think would be a good fit with your internal efforts? Tim Van Hauwermeiren: Yes, Jacob, and thank you for the question, and thanks for joining us today. Just as a quick reminder, all innovation at argenx starts with the collaboration with external world. So at the core of each pipeline asset is a very strong fabric of collaborators. It is true that with the increasing cash balance, our aperture for novel biology, which we're hunting for is opening up. We are no longer just looking in academic labs, but we're also involved in a number of constructive discussions with young biotech companies, typically not a place where you find exciting biology. So we're looking for the same biology. The hunting ground just increased, thanks to the balance sheet. So stay tuned. In our innovation mission, more of that biology will be coming in. Operator: Your next question comes from the line of Luca Issi from RBC Capital Markets. Unknown Analyst: This is Cathy on for Luca. Congrats on a robust quarter. And we have a question on VYVGART for gMG. We've been hearing from a few KOLs that patients are receiving the drug using shorter off cycles compared to the label. And that is because these physicians are worried that these patients relapse towards the end of the off cycle, so they prefer to restart the next cycle sooner rather than later. Is that consistent with your understanding? And if so, this is an important tailwind that is partially offsetting your gross to net headwind? Any color there much appreciated. And if it's okay, we have a quick follow-up on seronegative MG for Luc. Any rationalization around why triple seronegative patients are not as responsive? Tim Van Hauwermeiren: Cathy, thank you for the questions. So first of all, in the ADAPT trial, we adapted the cyclical dosing of the drug to the individual need of the patient. And that's also what the label says. So the label is not prescriptive in how you use the cycles, you redose based on clinical judgment. So it is possible that there is a subset of patients which needs the drug more frequently. There's also a tail of patients which needs to dose much less frequently and there's the whole individualization concept behind VYVGART. So your information is correct. Actually, we presented these data in the poster where you see the total distribution of patients with an average cycle of 5.2 per year, with a number of patients needing it more frequently and a long tail of patients needing it less frequently. The seronegative question is intriguing, right? Luc, why don't you pick up this one? Luc Truyen: Yes, yes. And it's important to realize that triple seronegatives often have a longer diagnostic course and therefore, present often also with a more severe disease, which is actually what we have observed in ADAPT SEROM. And therefore, and talking through, of course, experts in the field, our hypothesis is that the initial signal may be lower because repair mechanisms need to kick in and so forth. But what is really encouraging for us is that in the subsequent cycles, they really get to meaningful benefits. And in that sense, that story is not too much different from what we've seen in non-seronegatives. And so we find that encouraging. We -- of course, we'll continue to look into the data, as was already said, around can we get to MSE also in these patients given their longer disease journey. But overall, we feel the totality of the data fully supports a robust benefit here. Operator: Your next question comes from the line of Thomas Smith from Leerink Partners. Thomas Smith: Let me add my congrats on the strong quarter. Just on Graves, we recently saw some long-term follow-up data from a competitor FcRn suggesting a potential to drive long-term disease remission in this disease. I was just wondering if you could comment specifically on that data set and how important the potential disease modification was in your decision here to pursue Graves with VYVGART. And then you mentioned some excitement around the market potential. I was just wondering if you could maybe expand on that and share some of your initial assessment around the potentially addressable market here? Tim Van Hauwermeiren: Yes. I will start with taking the answer and maybe, Karen, you can shed some qualitative color on our excitement around the size of this opportunity. It is correct that there are data out there from a peer in the FcRn space. We shared the passion for FcRn with our peer group. Whilst it is interesting, we have to be very careful because this was a very small sample. So I think it warrants further investigation in a large properly controlled clinical trial. So stay tuned for more data coming out of more advanced clinical trial work. And maybe, Karen, a few words on excitement around Graves. Karen Massey: Yes, happy to. I mean whenever we select an indication, we look through 3 lenses: the biology, can we develop the indication, and we always look at the commercial opportunity through the lens of what is the real unmet patient need in this indication? And can we bring transformative outcomes in the patients. And so when we looked at the Graves indication, what we saw was that there's a large prevalence of the disease, and there is a subset of patients that has a clear unmet need that we think they've got based on the proof of biology study, based on the convenience of our subcutaneous dosing that we think we could fulfill that need. It also creates that franchise, if you will, opportunity given the connection to TED that Tim talked about earlier. So we see that there's a significant commercial opportunity here and look forward to seeing the clinical data readout. Thanks for the question. Operator: Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Just maybe sticking to the subject of Graves' disease. I'm just curious just -- obviously, it is a spectrum along with TED. And so just given the start of the study, I mean, are you thinking about targeting a particular time point in that progression? And do you think it's realistic or possible to potentially show that you're able to sort of modify the course of disease in terms of progression to TED? Tim Van Hauwermeiren: Yes. Thank you for the question. We're not going to comment in this call specifically about the trial design. The trial will come live relatively soon, and we will be presenting trial design, inclusion/exclusion criteria, et cetera, in the appropriate conferences, so stay tuned. On the potential disease modification, it's an interesting hypothesis. I think we need more data to come to a firm conclusion there. But thank you for the question. Operator: Your next question comes from the line of Victor Floch from BNP Paribas. Victor Floch: Actually, a quick follow-up on the peer assets that one of the analysts was mentioning before. That's exactly the one you've actually used to leverage their Phase II data to go straight to TED a few years ago. So I was wondering that is that asset is going to report some Phase III data in the not-so-distant future. So I was just wondering whether these data sets was a relevant proxy for [indiscernible] out of success in TED or if you have any comments to be made? Tim Van Hauwermeiren: Yes. Thank you. It's hard for us, Victor, to comment on the time line of clinical trials of third parties. I think we're best off asking the question to them. The way we look at this type of Phase II work is it is a proof of biology. I mean it is an FcRn antagonist. It is firmly establishing the role of FcRn and autoantibodies in the disease. And we know these diseases are autoantibody-driven. I would be very careful jumping to conclusions because as we know, in the FcRn class, not all FcRns are made equal. I think VYVGART is a unique Fc fragment. It's uniquely engineered based on a unique understanding of the biology. So I would not just cross-compare between molecules in the same class. We have already seen in other indications that actually it is just not appropriate to do. So strong proof of biology, stay tuned for the argenx data, I would say. Operator: Your next question comes from the line of Xian Deng from UBS. Xian Deng: So I have a question on VYVGART Phase II data in myositis, please. So just wondering for the Phase II data, there were about 23% injection site erythema. So just wondering if you could share any comments on that and any strategies to mitigate that. And so in general, just wondering how serious do you think that is? And in terms of physician feedback, given in a small subset of patients, they might have interstitial lung disease. So just wondering what's your mitigation strategy there? And if I may also squeeze in very quickly, Roivant recently announced a positive Phase III data for their JAK/TYK2 inhibitor, brepocitinib in dermatomyositis. I mean, of course, you are running the trial in a much broader general myositis overall, so just wondering what's your comment on the competitive landscape, please? Tim Van Hauwermeiren: Yes. There's 2 questions in one, right, but that's not a problem. Luc, yes, we have seen the data in DM. This is, I think, a large market, huge unmet medical need. There will be multiple molecules which will be playing in this marketplace, and we are welcoming this molecule. It's going to help us shape and build that market. It will not be the solution for each patient. I think you will need a portfolio of therapies to adequately deal with these patients. They're very complex patients. Back to the erythema, it's much to do about nothing I would say. These are very mild erythema. It's typically your first administration where it can happen and then it disappears. This is nothing new. We have reported that as well in our MG and CIDP patients. So we know the phenomenon. It's not unusual, atypical. And I think it's mild, it's transient, and it's certainly not stopping us in commercialization of this product in other indications to the contrary. Thank you for the questions. Operator: Your next question comes from the line of Charles Pitman-King from Barclays. Charles Pitman: I've got one just on the patient numbers. I know you've not provided us with an update today on kind of the total number of patients tried on therapy. But I'm just wondering kind of what the next milestones are that you could be announcing? I mean, can we assume from today that you've not kind of hit 20,000 across all indications or, say, 5,000 for CIDP, just given the kind of prior 15,000 total ex-China and 2,500 guidance that you gave us at 2Q? And also just related to that, I wonder if you could give us some commentary on just the quarterly patient add dynamics, given you now got MG, CIDP and PFS launched, when should we expect kind of patient adds to peak ahead of the next indication approval? Beth DelGiacco: Thanks, Charles. Yes, we did not provide a patient number this quarter. The last one we provided still stands, which was from 2Q. We did a similar communication rhythm with MG and that we provide patient numbers as we cross certain thresholds. We're not going to share what those thresholds are, but I think it's important to know that we have seen consistent growth and that the revenue in this situation really speaks for itself. And Karen, do you want to talk about the patient growth? Karen Massey: Yes, absolutely. Happy to talk about the patient growth. I'm pleased for the question because I'm really excited about the continued momentum that we see across all indications in terms of patient growth this quarter. And I think when you zoom out, I mean, certainly for MG, it's been 15 quarters of consistent momentum in terms of patient growth as we bring more innovation to patients. And most recently, obviously, the PFS has contributed to accelerating that growth. I think what's really important to note is that with prefilled syringe, 50% of the patients are new to VYVGART, and that's across both indications. And don't forget the 260 prescribers since prefilled syringe launch 2 quarters ago are new to VYVGART. They had never -- these prescribers had never written before prefilled syringe launch. So what you can see is both patient growth very consistently across the quarter with momentum as well as prescriber growth consistently. And that prescriber growth is important because it opens up new pockets of patients in both MG and CIDP and indicates that we're at the beginning of the growth curve for both indications. Thanks for the question. Operator: And your final question today comes from the line of Colleen Kusy from Baird. Unknown Analyst: This is Nick on for Colleen. Congrats on the quarter. If you could comment on the progress you made in the ex-U.S. launches, whether you think that could be a meaningful top line growth driver for the next year? Or whether you think focus will be more so on deepening penetration in the U.S. and what you view as the eventual market opportunity for ex-U.S. relative to the opportunity in the U.S.? Karen Massey: Yes. Thanks for the question. What you will see is that we have growth across all geographies or all markets. And what we're pleased to see, certainly, if I go through those markets, in Japan, we've launched CIDP. We recently got the PFS approval, and we're pleased to see continued demand growth for both MG and CIDP. So Japan is a very important growth driver for us, and we see that continuing in the future with the PFS launch. If we turn our attention to the other major markets in Europe, in Canada, what we see is that in MG, as you'd expect, it takes a little more time for those markets to come online as we negotiate pricing and reimbursement agreements. We have a narrow price band, and we have good pricing and reimbursement agreements in place. And what we are starting to see is those revenue contributions for those HTA markets increasing. We recently received the approval for CIDP, that's launched in Germany, and we expect that there'll be further launches for CIDP in additional markets in the upcoming months and years. So we expect that there will continue to be growth ex-U.S. But of course, the U.S. will continue to be a strong growth driver for us as well. Thanks for the question. Operator: And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the WTW Third Quarter 2025 Earnings Call. Please refer to the wtwco.com for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next 3 months on WTW's website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning as well as in the most recent Form 10-K and other subsequent WTW securities filings, SEC filings. During the call, certain non-GAAP financial measures may be discussed to provide direct comparability with period -- prior periods all complement regarding the company's revenue growth results will be on a non-GAAP organic basis, unless specifically stated otherwise. For reconciliations of the non-GAAP measures as well as other information regarding these measures please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. I'll now turn the call over to Carl Hess, WTW Executive Officer. Please go ahead, sir. Carl Hess, you may begin. Carl A. Hess: Good morning, everyone, and thank you for joining us for WTW's Third Quarter 2025 Earnings Call. Joining me today is Andrew Krasner, our Chief Financial Officer; Julie Gebauer, our President of Health, Wealth & Career; and Lucy Clarke, our President of Risk & Broking, are also joining us for our Q&A session. We delivered another quarter of solid results, driven by consistent and strong execution of our strategy. In the third quarter, we generated 5% organic growth, 230 basis points of adjusted operating margin expansion and adjusted EPS of $3.07, up 11% year-over-year. We've sustained our momentum in the market and remain on track to deliver our full year financial objectives. I want to thank all my WTW colleagues for their hard work and dedication to achieving our strategic and financial goals. As these results show, the strategy we laid out nearly 1 year ago to accelerate performance, enhance efficiency and optimize our portfolio continues to drive value for all our stakeholders despite the volatile macroeconomic environment. Against that backdrop, I'd like to provide some observations on current market conditions. Concerns about global trade, inflation and geopolitical conditions remain, creating both opportunities and challenges. On one hand, some clients are looking for support to manage the related people and risk issues, and on the other, some companies are continuing to limit discretionary spending. We continue to monitor relevant economic indicators such as employment levels, which may affect our business prospects over the short term. In addition, we're facing headwinds from declining rates in certain segments of the commercial insurance market across various geographies. In the face of this dynamic environment, our businesses continue to be resilient as we remain intensely focused on providing relevant services that deliver value to our clients. Health, Wealth & Career career delivered steady 4% organic growth or 5% when excluding book of business settlement activity and interest income with strong margin expansion. These results reflect our diversified and recurring revenue base and disciplined cost management. Like last quarter, we saw robust demand for our solutions that help clients manage their health care costs, derisk their defined benefit pension plans and adapt to new legislative and regulatory requirements such as the EU pay transparency directive. We also experienced an increase in M&A due diligence and integration work as well as in workforce management support. Our suite of technology tools continues to be a prominent factor in our success. For example, our talent flow analysis utilizes web crawling and data mining to identify clients' real competition for talent, which is essential for meaningful benchmarking. And our Health and Benefit scout tool informs health plan design through an in-depth evaluation of health care access, quality and cost based on a client's workforce location, demographics, claim experience and more. Through predictive analytics, we help forecast benefits cost and attrition risks, identify skills gap and detect pay equity issues. We're also using AI tools to improve the employee experience. In Risk & Broking, we generated 6% organic growth in the quarter and expanded adjusted operating margins by 70 basis points. This marks the 11th consecutive quarter that our Corporate Risk & Broking business recorded high single-digit growth, excluding the impacts of book of business activity and interest income. I'm pleased with the strong returns on our investments in talent and innovation, and we continue to look for opportunities to invest further. In particular, our investments in digital tools, AI and automation have helped R&B capture growth opportunities and create efficiencies. As declining rates continue to pressure certain areas of the market, the impact of these investments has been increasingly valuable in driving meaningful efficiency gains and advancing our progress on delivering 100 basis points of annual average adjusted operating margin expansion in R&D over the medium term. We continue to launch a steady cadence of new tools and products that support our growth and margin objectives. For example, we recently launched the newest version of Radar, an end-to-end rating and analytics software widely used by insurers. Radar 5 brings advanced capabilities, including GenAI techniques, to provide greater speed and agility for pricing, portfolio management, claims and underwriting, enabling insurers to unlock smarter data-driven decision-making at scale. We also launched Gemini, our global digital placement facility in the quarter. This innovative solution provides efficient access to additional insurance capacity, addresses the increasing complexity of risk and market volatility, offers competitive pricing declines at a guaranteed discount and is backed by A+ rated void syndicates. Now I'll turn to some of our new business wins in the quarter. In Health, Wealth & Career are customer-centric solutions, differentiated technology and focus on making smart connections continue to drive growth across all our businesses. In a notable example, we unseated the long-time incumbent providing global actuarial work for our Fortune 250 engineering company, not only because of consistent actuarial expertise and tools across our global network, but also because of the innovative ideas we brought them to better manage pension risks around the world and to address retirement readiness for their workforce. In a win featuring smart connections across HWC we were selected to support the planned spin-off of a global Fortune 50 company with overall program management, communication and change management and the implementation and administration of a new U.S. health plan. We won this business, which encompasses 40,000 employees after building a strong reputation as a trusted partner to the parent organization. Another innovative HWC win involves the extension of our Embark Employee Experience portal to potential new hires of a health system to showcase their total rewards and culture with the aim of boosting new higher acceptance rates. In Risk and Broking, our specialization strategy and our ability to offer differentiated value through our technical expertise, global collaboration and client-centric solutions continue to be key factors in bringing in new business. For example, in CRB, despite a challenging risk environment, we covered property damage, business interruption and liability insurance for an energy portfolio in Eastern Europe. The client reached out to us directly as our technical knowledge of these types of assets and our global industry relationships are well known in the marketplace, highlighting the value of our specialization strategy. We also secured a significant new mandate in Europe covering property damage and business interruption for a leader in the electric vehicle sector. Teams from different regions coordinated to identify and address gaps in the clients' coverage while achieving a premium reduction all in just 3 weeks. This win underscores our ability to deliver cost-efficient solutions to support high-growth, innovation-driven clients with complex coverage needs. Before turning it over to Andrew, I want to provide an update on WE DO, our enterprise delivery organization. We were especially pleased with the margin expansion we delivered this quarter across the business. Over the past quarter and as we look ahead, WE DO is helping us continue to improve how we operate, leveraging automation and AI to enhance efficiency and deliver savings. Our approach combines generative and analytical technologies to identify opportunities, design more efficient solutions and automate processes. With WE DO-backed automation projects, we've streamlined billing, collections and payments to drive stronger margins and free cash flow, which were reflected in our results this quarter. Overall, I'm pleased with how we performed this quarter. We delivered solid financial results in line with our expectations with mid-single-digit organic growth and meaningful margin expansion across both segments. We have good momentum across the business, giving us added confidence in our ability to deliver on our 2025 targets. And now I'll pass it on to Andrew for a more detailed discussion of the financials. Andrew Krasner: Thanks, Carl. Good morning, and thanks, everyone, for joining us today. In the third quarter, we delivered solid organic revenue growth of 5% and expanded adjusted operating margin by 230 basis points year-over-year to 20.4% or 120 basis points of year-over-year improvement when excluding TRANZACT. Adjusted diluted earnings per share were $3.07, which is an increase of approximately 11% over the prior year. As a reminder, we completed the divestiture of TRANZACT on December 31, 2024. And for the full year 2025, this will create a headwind to adjusted diluted earnings per share of $1.14. As Carl discussed, our solid third quarter results reflect the strong foundation we've built and the benefits of our investments in talent and technology. Our strategy is resonating with clients and colleagues and our businesses remain highly resilient despite the macro uncertainty. We remain firmly focused on our strategic objectives and the financial framework outlined at Investor Day to create long-term shareholder value. Turning to our segment results. Health, Wealth & Career revenue grew 4% compared to the third quarter of last year. Excluding the impact of book of business settlement activity and interest income growth was 5%. Our results for the third quarter are in line with our expectations, and we remain on track to deliver mid-single-digit growth and margin expansion for HWC in 2025. As a reminder, the vast majority of HWC's business is recurring, with only a small portion being more economically sensitive and discretionary. Our Health business achieved strong growth of 7% this quarter or 8% growth, excluding the impact of book of business settlement activity and interest income. This growth was primarily driven by double-digit increases in International and solid performance in North America. Results in International were driven by new global benefit management and local appointments, successful renewals, health care inflation and market expansion. In North America, focused sales efforts generated growth across all market segments. In Europe, growth was offset by a significant book of business sale in the prior year third quarter. Excluding the impact of interest income and book of business settlement activity, Health has grown 8% year-to-date. We continue to expect strong demand across the global business driven by health care inflation and employers' continued focus on managing costs while maintaining competitive employee benefits. With a healthy pipeline for the remainder of the year, we continue to expect high single-digit growth for the full year, even with a high double-digit growth rate in the fourth quarter of last year. Wealth had revenue growth 5% in the third quarter primarily from strong levels of retirement work in Great Britain and North America. Demand for our core defined benefit work, including financial forecasting, compliance support and data projects remain strong. We also saw growth in project work to support pension derisking, surplus utilization and workforce restructuring. Our investments business delivered growth primarily from new products and client wins. We continue to expect low single-digit growth in the Wealth business for the year. Career growth was 2% in the third quarter, with solid growth in Europe, driven by strong demand for EU pay transparency support and employee communication projects. While compensation benchmarking survey work increased across all regions, a change in the survey delivery pattern limited growth this quarter when compared to the same period last year. We are confident revenue growth will increase meaningfully in the fourth quarter due to this change in the pattern combined with the continued demand for advisory work related to the EU pay transparency directive that goes into effect mid-2026. We continue to expect Career to grow low to mid-single digits in 2025. Over the long term, we expect mid-single-digit growth based on our track record and continued focus on product and technology offerings alongside recurring services. Benefits, Delivery & Outsourcing, or BD&O, grew 2% versus last year's third quarter, driven by growth in outsourcing due to increased project and core administration work in Europe which was partially offset by lower commission revenue in the individual marketplace, our B2B2C Medicare Exchange business. Keep in mind that our Medicare Exchange generates about 80% of its revenue in the fourth quarter due to the timing of the Medicare enrollment period. In combination with the timing of new business, BD&O overall generates nearly half of its revenue in the fourth quarter. Accordingly, we forecast BD&O growth to be strongest in the fourth quarter of the year, reflecting the expected timing of commissions, new client implementations and new projects to support regulatory changes. We continue to expect BD&O to grow at mid-single digits for the year. HWC's operating margin in the third quarter was 28.6%, an increase of 390 basis points compared to the prior year or an increase of 100 basis points, excluding the impact of the TRANZACT divestiture. This result demonstrates our ability to consistently deliver incremental margin expansion regardless of cyclical macro conditions and supports our strong track record of margin expansion in HWC. Let me move on to Risk & Broking, which had revenue growth of 6%, underscoring the continued momentum in the business. Our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Corporate Risk & Broking grew 6% or 7% when excluding both book of business activity and interest income. This was on top of the 10% growth rate achieved in the prior year comparable quarter. As Carl mentioned, this is the 11th consecutive quarter of high single-digit growth when excluding both book of business activity and interest income. CRB's growth this quarter was primarily driven by our global specialization strategy which continued to support expansion amid the more challenging rate environment. Of note, we generated significant new business across a number of markets this quarter as well as project revenue recognized in our Global Specialty businesses, with notable contributions from construction, surety and credit risk solutions. This illustrates that our commitment to global specialization continues to generate value for clients and drive growth. From a macro perspective, and relative to last quarter, we are seeing a more challenging growth environment as market rates continue to soften across various lines. Nonetheless, our specialization strategy is resonating in the market and we are pleased by the results we are seeing from our Global Specialty businesses. We continue to expect mid- to high single-digit growth in CRB for 2025. While industry-wide pricing pressure is making high single-digit growth harder, we believe it is still attainable. In our Insurance, Consulting & Technology business, revenue was flat versus last year's third quarter when ICT delivered 7% growth. Our combined approach of Consulting & Technology continues to add value. However, trends we highlighted last quarter persist as the consulting environment has remained weak and clients continue to demonstrate caution for making large multiyear technology implementation decisions. While we are encouraged by our pipeline on the technology sales side, we do not expect to see a meaningful pickup in consulting activity in the fourth quarter. For the full year, we continue to expect low to mid-single-digit growth. Turning back to R&B's results overall. We are pleased with our momentum year-to-date, which gives us confidence in our ability to deliver mid- to high single-digit growth for the full year. As I mentioned a moment ago, although the path to achieving high single-digit growth is more challenging given the current pricing environment, we believe it is still possible. R&B's operating margin was 18.8% for the third quarter, a 70 basis point improvement over the prior year or a 100 basis point improvement when excluding the impact of foreign exchange rates. This was primarily driven by operating leverage from strong organic growth performance, coupled with continued expense discipline. Foreign exchange rates were a headwind of 30 basis points to R&B's operating margin in the third quarter due to weakening U.S. dollar, but we expect the full year foreign exchange impact to be slightly more modest. So far this year, we achieved 90 basis points of operating margin improvement in R&B or 120 basis points, excluding the impact of foreign currency and we are committed to delivering 100 basis points of average annual adjusted operating margin expansion over the next 3 years. As Carl highlighted earlier, investments we've made in our technology capabilities continue to provide value and provide a strong platform for us to deliver ongoing operating leverage and efficiencies across the business. Finally, I will give some additional color on our enterprise level results. Adjusted operating margin for the third quarter was 20.4%, a 230 basis point improvement over the prior year, reflecting strong margin expansion in the segments and prudent business expense management supported in part by our WE DO initiative. This result includes a 110 basis point tailwind from the TRANZACT divestiture. As we enter Q4, our seasonally strongest quarter of the year, all our businesses are operating with continued discipline and rigor, giving us confident in our ability to continue to expand margins. Foreign currency was a $0.04 tailwind to adjusted EPS for the quarter and a $0.05 headwind year-to-date in 2025. The U.S. dollar has been weakening during the quarter. So I want to give you some additional color on foreign exchange. At the current spot rates, we expect a foreign currency tailwind to adjusted EPS of approximately $0.15 in the fourth quarter and approximately $0.10 for the full year. Of course, the impact may fluctuate throughout the remainder of the year. Our U.S. GAAP tax rate for the quarter was 19.7% versus 16.1% in the prior year. Our adjusted tax rate for the quarter was 22.4% compared to 19.7% for the third quarter of 2024. We expect our full year 2025 tax rate to be relatively consistent with the prior full year rate. We generated free cash flow of $838 million for the 9 months ending September 30, 2025, an increase of $114 million from the prior year. This was driven by operating margin expansion and reduced transformation program cash costs. The favorable second half setup we anticipated began to play out this quarter. As we previously noted, the remaining transformation costs continue to abate and the divestiture of TRANZACT will act as a tailwind to free cash flow as we lap the prior year fourth quarter in which that business recorded net cash outflows. We remain on track to deliver our objective of annual free cash flow margin expansion. During the quarter, we returned $690 million to our shareholders via share repurchases of $600 million and dividends of $90 million. We continue to view share repurchases as one of our primary methods of capital return and an attractive use of capital to efficiently deliver value to WTW shareholders. We continue to expect share repurchases to total approximately $1.5 billion in 2025, subject to market conditions and potential capital allocation to inorganic investment opportunities. Looking ahead, we're confident our balanced and disciplined capital allocation approach will generate long-term shareholder value. We'll continue to be selective as we invest in talent and in our platform to ensure we're driving sustainable growth and margin expansion. In closing, we are pleased by our performance year-to-date in 2025. We are increasingly seeing the execution of our strategy manifest in our results, giving us solid momentum as we enter the fourth quarter. We remain confident in delivering on our 2025 financial objectives of mid-single-digit organic growth, adjusted operating margin expansion, adjusted EPS growth and ongoing improvement in free cash flow margin. With that, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Gregory Peters from Raymond James. Charles Peters: So for the first question, I'm going to focusing in on the Risk & Broking organic revenue results. I appreciate the color, both you made, both you, Carl and Andrew made specifically on the new business. And I guess what I'm getting at is how much of the third quarter result reflected sort of unusual wins that won't recur or come at it a different way. You mentioned project-based placements. Were those unusual relative to other quarters? And maybe you can just build on that by line of business? Is there something nuanced or geographies that's driving what I would characterize as a better-than-market result? Carl A. Hess: Thanks for the question. We were really pleased with the 6% growth we achieved for the R&B segment. That was on top of, right, a 10% for a solid growth result in Q3 '24. CRB delivered 6% organic or 7% when you exclude both book of business activity and fiduciary income. I think our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Lucy, can you give us some color commentary on that? Lucy Clarke: Yes. Sure, Carl. Hi, Greg. Yes, let me just start by reiterating we had another good quarter overall. Within CRB, we've generated strong new business in all of our global markets and across almost every single specialty line. We saw particularly meaningful contributions from construction, M&A, surety, credit risk solutions and remain committed to delivering mid-single-digit to high single-digit growth in R&B for the year. As you know, of course, our clients are benefiting from an improving rate environment, which can translate to a revenue headwind for us. Naturally, this industry-wide dynamic will make the path to high single-digit growth for the year more challenging but not out of reach. In terms of the project-based placements, it's just important to keep in mind that the nature of our work in specialty is always a combination of recurring and one-off work. So as we noted in those prepared remarks, we did see increased contributions from placements for multiyear projects undertaken by some of our clients. Normal part of growth in our specialty businesses, particularly in construction, M&A, surety and natural resources. That specialization approach has been a key driver of growth for us in R&B, and we expect that to continue. Thanks, Greg. Charles Peters: I'm going to follow up just because it's important. I know part of your expectation going forward is to expand your margins in Risk & Broking each year and both Andrew and Lucy now have previewed that it's becoming more difficult to get to the higher end of your organic revenue results in Risk & Broking. Should we be worried that if we go from mid-single digit to high single digit, just to mid-single digit, that there might be some pressure on your ability to generate that 100 basis points of margin improvement in the next 2 years? Andrew Krasner: Greg, it's Andrew. I'll take that one. So we did see a strong margin improvement in the R&B segment of 70 basis points or 100 basis points, excluding the impact of foreign currency. So year-to-date, 90 basis points of operating improvement or 120 basis points, excluding the impact of foreign currency. We're not going to sort of guide to a specific number for the full year, but we do remain absolutely committed to what we laid out in Investor Day of the 100 basis points on average over the next 3 years per year. And we feel like we're on track to achieve that. It's really driven by some of the investments in technology that we've made really looking at process improvement, things of that nature, that's really going to help drive those efficiencies. So I think despite the top line, we feel like we have the appropriate tools and levers to be able to get there. Operator: Our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question was on free cash flow. If you can just provide more expectations for the year and the fourth quarter. I think in your prepared remarks, you commented about how the favorable second half began to play out this quarter. I just was hoping to get more comments there. Andrew Krasner: Yes. Perfect. Thanks, Elyse. Our view has not changed from what we shared last quarter. The favorable second half setup that we flagged continues to play out. Through the third quarter year-to-date, we had $838 million in free cash flow, which is $114 million year-over-year increase, that was driven by operating margin expansion and reduced transformation cash costs. Looking at the fourth quarter, the remaining transformation cash cost will continue to abate and the divestiture of TRANZACT will act as a tailwind as we lap the prior year fourth quarter. So taken together, we remain confident in our ability to deliver free cash flow margin expansion, not just in 2025, but beyond as well and just continue to build on that momentum. Elyse Greenspan: And then my second question, I was just hoping you guys could provide what the insurance pricing headwind was in the third quarter? And also, was that similar to the second quarter or worse? Lucy Clarke: Elyse, it's Lucy. Thanks for the question. So sure, pricing pressure has continued in certain areas of the market, and it's becoming more meaningful as we make progress through the year. From our perspective, property is the most impacted class, particularly in the large and complex segments but most lines are showing softening other than, of course, North American casualty where pricing continues to rise. Important to remember that these pricing improvements follow 5 years of pricing increases. So many of the markets still see these levels as rate adequate, and it's a welcome relief for our clients. So we're still expecting mid- to high single-digit organic revenue growth in Risk & Broking for the year in spite of any of the pricing developments. Operator: And our next question comes from the line of Rob Cox from Goldman Sachs. Robert Cox: First question on HWC margins. I think if we exclude the impact of TRANZACT, the margins improved 100 basis points, as you all mentioned. If we do that in the first half of 2025, I think the margins contracted. So I was just curious sort of what changed in the quarter and how you guys are thinking about margin expansion, excluding TRANZACT in the fourth quarter and beyond? Andrew Krasner: Yes, sure. I mean, as we laid out in Investor Day, we're committed to incremental margin improvement across that sector over the long term. Over the full year here, we'll have some tailwinds, right, from the divestiture of TRANZACT, but everything is playing out exactly as we expected. And maybe, Julie, you want to comment on some of the drivers of sort of how we're going to sustain that performance going forward. Julie Gebauer: I would, Andrew. But first, I want to highlight that so far this year, excluding the TRANZACT divestiture, we added 40 basis points of margin in Q1, 20 basis points in Q2 and now 100 basis points in Q3, as you mentioned, in line with our commitment to build on our strong track record. We've been able to do this consistently over a lot of years for a few reasons, and that the foundation of this performance is the way that we focused our portfolio. We got businesses where we can not only differentiate but also scale and generate leverage. And then on top of that, we have a really clear view of our top line and a firm command of our cost structure. We take a very disciplined approach to resource management. And then finally, we still see opportunities with process optimization, automation and right shoring to add to margin. So while we take pride in what we like to say are industry-leading margins in HWC, we are very confident in our ability to build on that. Robert Cox: Great. And then I just want to follow up on the BD&O business. It sounds like the guidance is being maintained for mid-single-digit organic growth for the full year. Just looking at what you guys have done year-to-date, it looks like you might need something like high single digits organic in the fourth quarter. Could you tell us what gives you confidence on the improvement there? Julie Gebauer: Yes, Rob, I'll take that. I'm going to start with a reminder that BD&O overall generates nearly half of its revenue in the fourth quarter. And in addition to typically our outsourcing clients going -- new outsourcing clients going live in that quarter. About 1/3 of our revenue in this business comes from our individual marketplace business, and in that business, we generate about 80% of our revenue in the fourth quarter, as Andrew mentioned, during open enrollment that happens from October until early December. And given the new clients that we've added, our expectations for Medicare retirees to review and switch coverage during that enrollment period, we expect to see increases in commissions and fees and solid growth in the quarter ahead. So overall, we expect mid-single-digit growth for the full year and over the longer term. Operator: And our next question comes from the line of Michael Zaremski from BMO. Michael Zaremski: Looking at the interest income levels, very healthy, better than expected. Is that the run rate or any one-timers we should be considering? Andrew Krasner: No specific one-timers, but I just -- it's important to keep in mind that some of the investment income is driven by sort of where the cash balances are held across jurisdictions and interest rates vary by geography. So sometimes geographic mix of business can have an impact there. So I think that's the only nuance I'd call out there. Michael Zaremski: Okay. So we'll -- I guess I'll take it as a kind of use it as directionally at the run rate. A follow-up to Greg Peter's question earlier and just not trying to split hairs and we love when you give extra color. But in the R&B segment, when you mentioned the project based placements in specialty, which is great color. It just leads to the question, is project-based mean like more nonrecurring or onetime that we should kind of be considering in our run rate on a go forward? So just wanted to try to ask that one last time to make sure we're not -- new wording. Lucy Clarke: It's just one last time. It's Lucy. Thanks for the question. Yes, you're right, it does mean onetime revenue. But we always have onetime revenue. The nature of our work in specialty is a combination of recurring and onetime revenue. We just saw increased contributions from the placement of multiyear projects in the quarter, so we hold it out. It's a normal part of the growth in Specialty business. Operator: And our next question comes from the line of Paul Newsome from Piper. Jon Paul Newsome: I was hoping you could talk a little bit about the war for talent. We see a lot of headlines, particularly on the property casualty side of the house about books getting hired back and forth. And where do you think Willis fits within that? And do you think we're seeing a heightened level of poaching back and forth? Carl A. Hess: Yes. Thanks for the question. We are really happy with our ability to attract and retain top talent. As Lucy shared after she joined last year, right, the success of our strategy over the last 4 years and the world-class resources we've developed to serve clients, they're highly attractive to prospective employees. We continue to hire strategically with a focus on bringing in accretive talent, especially within our Specialty lines and geographies. More broadly, we continue to make investments in the fastest-growing and most profitable areas of our business. And so we remain very excited about the innovation fostered by both these investments and the new talent in the organization. It's helping us realize significant opportunities to accelerate profitable growth and to enhance our margins. Jon Paul Newsome: So do you think you're getting kind of more than a fair share at this point? Or do you think you've sort of reached a point where you're kind of at your steady state of continued growth? Lucy Clarke: I'll just pick up on that. Thanks. So of course, our people are it for us, and our business is built around talent. Incredibly proud of the people who work here and how they look after our clients. That really strong focus on talent has been the key driver of our organic growth and, of course, particularly for new business growth over the last few years. We will continue to complement our existing talent by making strategic hires in the areas we think that they'll be most impactful both in terms of geography and specialty. It's proven to be a real successful strategy for us, and we'll continue to execute on that. Operator: And our next question comes from the line of David Motemaden from Evercore ISI. David Motemaden: I had a question just on some of the R&B commentary just around the path to achieving the high single-digit growth, just getting more challenging, given the current pricing environment. And I'm not so much focused on fourth quarter, but just thinking bigger picture about the mid-single-digit to high single-digit growth targets you guys had laid out at your Investor Day about a year ago within R&B. Just given the current environment and the direction of travel, I guess, how are you thinking about that target? Is it still that mid-single to high single, mid-single, is low single digit on the table? Just interested in your thoughts on that. Carl A. Hess: Yes. I mean, stepping back, right, our solid performance this year reflects the success of the specialization strategy and demonstrated by 6%, the solid 6% we got out of CRB, that 7% we do exclude book of business and fiduciary income for the quarter. Given our performance year-to-date, we remain committed to mid- to high single-digit growth in R&B for the year. But as we've said, right, we acknowledge that high single digits, a bit more challenging now with the current environment. Lucy Clarke: Yes. Let me just add to that. Thanks, Carl. Yes, so we've made the comments about where we expect '25 to end up. And obviously, we're not going to comment on '26 until next quarter. But we still have plenty of room to grow across Risk & Broking. We expect client demand and the attractiveness of the specialty structure to continue to generate growth rates that continue to lead the market. So we see a lot to be optimistic about, but we'll talk about '26 next quarter. David Motemaden: Got it. Okay. And then just following up, just seeing an economy that looks like capital spending and spending is still solid, but then employment growth, which Carl, you mentioned that's slowed a bit. And I hear you loud and clear that HWC is vastly recurring in nature, if I think about their revenues. But could you just help me think about just general employment levels and how that might impact some of the contracts that you have, particularly in BD&O even if it is recurring. Are there different bands there that can tweak up and down based on your client employment levels? Or could you just help me think through the sensitivity of your businesses to that? Julie Gebauer: David, I'll pick up on that one. Look, overall, we haven't seen softening employment impact our revenue overall. And I can tell you that even with a softening employment landscape, we expect to deliver mid-single-digit revenue growth in HWC this year. And while it's worth noting that employee turnover has dropped across industry, there is still high competition for certain jobs and skills. We've got -- we do these talent intelligence reports that found that organizations are investing heavily in technology, talent, data roles, customer service jobs. And then balancing that alongside other external factors like things I've mentioned before have been mentioned before, health care inflation, healthy pension-funded status new legislation where our clients need support, we believe that overall environment is generally favorable for our HWC services, and that includes BD&O that you specifically mentioned. Operator: And our next question comes from the line of Mark Hughes from Truist. Mark Hughes: In the Health business, I talked about the strong pipeline. How much of that do you think is you're taking share versus there's just a lot of movement, a lot of folks looking for solutions given health care inflation. Carl A. Hess: Thanks for the question. Just to take this one step back, right? The Health business at 7% for the quarter, and that's 8% before when you exclude book settlement and really reflecting broad-based growth across all regions. We think our strategy is continuing to yield meaningful results. This is the sixth consecutive quarter of growth in the high single digits range. Our expectation is that demand is going to remain solid for the rest of the year driven by a very solid pipeline and supportive external trends. And though we do recognize we have a strong comp in Q4. We continue to expect to deliver high single-digit growth for the full year. But maybe if Julie could give a bit more commentary about what we're seeing in Health. Julie Gebauer: Yes. Sure, Carl. And Mark, to pick up on your point, I'll start with the external environment. Health care inflation is still front and center for a lot of organizations due to the higher cost driven by things like increased utilization, technological advances, prescription drug cost increases and the list goes on. In fact, we've done some recent research that shows that 73% of company, 73% are feeling more cost pressure in this area than at any point in the last 10 years. So it isn't a surprise that they're turning to us for help in managing these costs, whether that's to take health plans out for competitive bids or considering more significant changes. So this environment has been favorable. And we've been successful with focused sales efforts and a strong service and that has generated strong retention new business and good results for some of our solutions like global benefits management and our middle market offerings. And so our pipeline is strong. And to repeat what Carl said, we are confident in delivering high single-digit growth for the full year. Mark Hughes: Very good. And then on the -- in the retirement business, what is the prospects for continued project work if interest rates are going to be declining here? Presumably, most pension funds are pretty -- doing pretty well. But what is -- how does 2026 shape up relative to 2025 on that front? Carl A. Hess: Yes. And again, let's ground this where we're starting from. Wealth generated 5% organic for the quarter, driven by strength in retirement. New clients and core DB services and LifeSight to your point, expanded project work for existing clients, right? Our investments business is delivering growth from new products and client wins. We continue to expect low single-digit growth for the year and over the long term. And Julie, what are we seeing on the ground and what do we think about the future? Julie Gebauer: Yes. Yes. I'd like to actually break this into 3 pieces. The core defined benefit work emerging work in the defined contribution area and then developing product solutions in the investments area. So starting with core defined benefit, we have added more clients in our target market. And to the point that's been made already conducted more project work. That includes not only derisking, which is interest rate dependent, but derisking readiness for the future, doing things like data cleanup, helping clients with workforce management projects and doing work to support the adoption of new legislation. We have very good momentum going in this area, and we expect these trends to continue. Now in defined contribution, we are live with our LifeSight Solution in 12 countries now, and we continue to add clients and assets under management. At the end of the quarter, last quarter, our assets under management across our Master Trust type arrangement with over $42 billion. And then we've seen strong performance in our new product launches in our Investments business. I want to highlight what I think is a really exciting example where we launched funds in collaboration with BlackRock for our clients' international defined contribution pension plans. And that has been seeded with over $1 billion in assets from a client headquartered in the Middle East. So with developments like this, we expect our Wealth businesses to grow revenue steadily in the short to medium term. Growth is expected to accelerate over the medium to long term as we build in some of these faster-growing areas that I've mentioned. And I'll just close with the momentum that we have this year, we're expecting results to be at the top end of the low single-digit range. Operator: Our next question comes from the line of Ryan Tunis from Cantor. Ryan Tunis: Just one for me. So in Risk & Broking, the 7% organic. Can you give us some idea of geographically, how the U.S. fits in there versus International? Andrew Krasner: Yes. So we saw growth across all of our geographies. We're happy with how all of the businesses performed but don't get into the detail on geography by geography basis. The U.S. is about less than half of the total portfolio that we have within that business. So again, well diversified across geographies, lines of business markets and property casualty splits, and that's served us well. Ryan Tunis: Sorry. But like seems like broadly, that's where we're seeing some pressure on brokerage, organic just on the U.S. side. So you're saying that we should assume that U.S. is running somewhere in your 7% organic? Lucy Clarke: No, that's not what we're saying. We saw particularly good performances from the U.K. and our GB and International, and we had some outperformance there. Operator: And our next question comes from the line of Mark Marcon from Robert W. Baird. Mark Marcon: One for Julie and one for Lucy. Julie, just with regards to the health insurance pressures that employers are facing. Typically, when we go through these time periods, how long do you see elevated levels of continued requirements for help from your clients? It seems to me like it would be a multiyear process to try to optimize benefit plans and things of that nature. But I'm wondering what your perspective is on that. And then for Lucy, obviously, we all know that we're going into a softer cycle, how would you characterize this softer cycle relative to others? And to what extent does that impact your ability to gain new clients from competitors? Julie Gebauer: Mark, thank you. On the health care front, you're right that this is typically a multiyear phenomenon where we have higher health care inflation around the world. We're already looking out at estimates for 2026, and it is still expected to be high. Lucy, you want to comment on... Lucy Clarke: I would love to Julie. Thank you. Yes, thanks Mark, for the question. So how would I characterize this soft cycle compared to other soft cycles? I guess I would just make the note that we are talking about it being a softer cycle, but it's important to remember where we've come from. We had 5 years of rating increase. And so where we are is softer, but it is still considered rate adequate in most -- by most carriers. And in terms of how does it affect our ability to attract clients. Well, I mean, clients aren't only looking for the lowest price. They will get better pricing from brokers across the board. But we think that the biggest thing we have to offer clients is the differentiation in our specialization strategy. Operator: Our next question comes from the line of Meyer Shields from KBW. Meyer Shields: Two quick ones, hopefully. And I apologize if this has been covered before. But given the fact that you've done $1.3 billion of repurchases year-to-date and fourth quarter is the strongest free cash flow quarter. Why is $1.5 billion the right number for 2025? [indiscernible] Shouldn't it be higher? Andrew Krasner: Yes, sure. So as we mentioned in the prepared remarks, we're still targeting $1.5 billion in subject to market conditions and, of course, potential capital allocation to organic or inorganic investment opportunities. In terms of timing and potential upside, we continuously monitor our cash levels and market conditions to take advantage of opportunities to accelerate repurchases. And will lean in if the opportunity presents itself, and we think it's a prudent thing to do. As we always have, we evaluate all of our options for capital allocation, which does include share buybacks, internal investment and carefully consider strategic M&A to make sure that we're maximizing value creation for our shareholders. Meyer Shields: Okay. That's fair. Second question, with the survey-related results or revenues that are being deferred to the fourth quarter, were the associated expenses still booked in the third quarter? Andrew Krasner: Yes. The simple answer to that question. So we expect some revenue to bleed over into Q4 related to that sort of temporary shift in timing. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Carl Hess for any further remarks. Carl A. Hess: Thanks, everyone, for participating today. Before we wrap up, I'd like to acknowledge the destruction caused by Hurricane Melissa and express our deepest sympathy to all of those affected. For our clients and business partners in the areas impacted our thoughts are with you, and we'll continue to lend our support through this difficult time. Thank you all for joining us this morning. I do want to thank once again all our WTW colleagues again for their hard work and dedication, and thank you to our shareholders for their continued support of our efforts. Have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Greetings, and welcome to the Terex and REV Group merger call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President of Investor Relations. Please go ahead. Derek Everitt: Good morning, and thank you for joining us to discuss the planned merger of Terex Corporation and REV Group and Terex's intention to exit its Aerial segment. A copy of the related press release and presentation slides are posted at investors.terex.com and investors.revgroup.com. The replay and slide presentation will also be available on those websites. This morning, Terex also announced its third quarter 2025 earnings. The corresponding presentation and press release are posted at investors.terex.com. Please turn to Slide 2 of the merger presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the presentation and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information we believe is useful in evaluating operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. References to year is [indiscernible] unless otherwise stated. Terex's fiscal year-end is December 31 and REV's fiscal year-end is October 31. References to the merged company's financial year on a pro forma basis reflect these different fiscal years. On Slide 3, we provide additional information and links to related documentation. Continuing to Slide 4. Today's presenters will be Terex's President and Chief Executive Officer, Simon Meester; and REV Group President and Chief Executive Officer, Mark Skonieczny; Jennifer Kong-Picarello, Terex Senior Vice President and Chief Financial Officer; and Amy Campbell, Chief Financial Officer of REV Group, will also be participating in the Q&A session that will follow the prepared remarks. Please turn to Slide 5, and I'll turn it over to Simon. Simon Meester: Thanks, Derek. Good morning, everyone, and thank you for joining us today as we launch a transformative new chapter for Terex and REV Group. Before we discuss this exciting new step, I want to take a brief moment to thank the Terex team for another solid quarter. We delivered $1.50 of EPS on sales of $1.4 billion with a cash conversion of 200% and are maintaining our full year outlook. The team continues to execute really well. We successfully completed the ESG integration, and we're very excited about what's next. Today, we are announcing the merger of 2 great companies to create a U.S.-centric large-scale specialty equipment manufacturer with iconic leading brands serving highly resilient and growing end markets. The new combined company will be truly transformational in makeup and markets served. With complementary operations, management systems and channels, we have created the opportunity to unlock significant readily achievable synergies, making the combined company stronger and more competitive, a win-win for our customers, our team members and our shareholders. We believe the financial profile, growth potential and leverage is highly attractive and will deliver significant value to Terex and REV Group shareholders. In addition to stronger, more predictable earnings and associated free cash flow, the combined company will have a low capital intensity profile, providing a solid foundation for future profit enhancing and growth investments. Let's move to Slide 6 to review the transaction in more detail. Terex and REV have entered into a definitive agreement to merge in a stock and cash transaction that will result in Terex shareholders owning 58% and REV shareholders 42% of the combined company. This allows both Terex and REV shareholders to participate in the potential upside of the combined company. REV shareholders will also receive $425 million in cash consideration. The combined company will trade on the New York Stock Exchange under the current Terex stock ticker, TEX, and I will serve as CEO of the combined company, supported by a proven management team that reflects the strengths and capabilities of both organizations. At closing, the Board will be comprised of 7 directors from Terex and 5 from REV. We expect to complete the merger in the first half of 2026, subject to customary closing conditions. Our teams have developed a detailed plan to deliver at least $75 million in annual synergies, contributing to the highly attractive financial profile of the new company. We're also announcing that we plan to exit our Aerial segment and are evaluating a potential sale or spin-off. This exit will significantly reduce our exposure to cyclical end markets. Considering the achievement of synergies and the exit of Aerial segment, the merged company is expected to provide a mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, near the top end of the specialty equipment peer group. At closing, the combined company is expected to have a strong balance sheet and liquidity position with approximately 2.5x leverage on a pro forma basis with the opportunity to delever further upon the exit of the Aerial business. Turn to Slide 7, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon, and good morning, everyone. Speaking on behalf of the REV team, I'm excited about joining forces with Terex and embarking on the next chapter of our transformation, becoming an even stronger company with new opportunities to leverage our combined scale and operating systems to drive product innovation and even greater efficiency. Both our teams have done a lot to transform our businesses over the past several years. We have taken steps to strengthen our respective portfolios by acquiring highly regarded businesses and making them even better while driving greater focus by divesting businesses that don't align with our strategic direction or financial thresholds. Over the past few years, the REV team has deployed its operating system to drive broad-based improvements within the business. We executed simplification and process flow improvements across our manufacturing footprint, worked diligently to improve safety and invested in onboarding and training for our employees. Our sourcing team fortified the supply chain through multi-sourcing initiatives that lowered costs and made material flow more dependable and less exposed to market disruptions. And we are now in the early stages of product simplification and commonization that we believe are the next steps in maximizing our operational potential. I am proud of the hard work and improvements delivered by our team over the past 3 years and believe the company has reached a level of performance that provides a foundation for even greater momentum. Combining with Terex is a unique opportunity that we believe will create meaningful value for our shareholders. Simon Meester: I agree, Mark. Terex went through a similar rationalization exercise in recent years. And when Terex acquired ESG last year, we took a significant step to strengthen our portfolio, improve our margin profile with higher and more predictable earnings and associated cash flow. The recently announced divestiture of our Italian crane business that we expect to close very soon was another step in that direction. And clearly, merging with REV and exiting the Aerial segment will take our performance to another level. All that said, we are still in the early innings of our strategic transformation with significant synergies to deliver and growth opportunities across each of our end market verticals to continue to create shareholder value beyond this merger. Let's turn to Slide 8. We are merging 2 strong companies to produce a combination that will clearly be greater than the sum of the parts. After completing the Aerials exit and adding $75 million in synergy value, the pro forma company is expected to deliver EBITDA margins of about 14% with a cash conversion of approximately 85%. At $5.8 billion in revenue, we will have meaningful scale with a strong balance sheet, well positioned to continue to invest and create additional value for our shareholders. Moving to Page 9. The combined company will be U.S.-centric, competing in a diverse and balanced set of attractive end markets. Approximately 85% of the combined revenue will be generated in North America with the vast majority from products that are made in our combined U.S. manufacturing network. The portfolio will be well balanced with about 40% of sales related to Specialty Vehicles with the remainder split between Environmental Solutions and Materials Processing. Each business has a demonstrated track record of delivering resilient and predictable operating results to a large degree because of the resilient end markets they serve. From a Terex perspective, the pro forma end market profile will be less cyclical than ever before in our history. And by design, with nearly 60% of revenue associated with emergency vehicles and waste collection, a significant share of our volume is tied to essential services that are not subject to economic ebbs and flows like other markets. On the utility side, we expect accelerated growth for years ahead stemming from AI, data centers and the need to significantly upgrade the U.S. power grid. We also continue to see growth for infrastructure spending in the United States, Europe and around the world, which will benefit our Materials Processing business. Turn to Slide 10, and you will see a snapshot of some of our great products and brands. We are a leading player in each of these markets. As I mentioned earlier, with combined pro forma sales of $5.8 billion, the total addressable end market for our products provides significant opportunity for additional penetration and growth. Terex Utilities manufactures bucket trucks, digger derricks and related products that enable linemen to work safely on light electrical transmission and distribution lines across North America, a key advantage to maximize grid uptime with emerging opportunities overseas. As a leading player in this space, we are increasing capacity and throughput within our current manufacturing footprint as we see share gain opportunities in this expanding market. Our ESG business is a leader in refuse collection vehicles, compactors and related digital products. The HAL brand is regarded as a technology leader with a full range of automated side loaders, front loaders and multiple digital products. Our 3rd Eye digital platform is a meaningful and growing revenue stream on the refuse side of environmental solutions with extension opportunities across every vertical. In the center, you will see examples of our extensive materials processing product range. Our Powerscreen and Finlay brands are global leaders in mobile crushing and screening within the broad aggregates industry and relatively new brands such as Ecotec are leveraging core MP technology to expand into environmental and other adjacent markets. Examples of our industrial vehicles range include Advance, a market leader in front discharge cement mixers and Fuchs material handlers sold to scrap, recycling and port customers around the world. Turning to Specialty Vehicles. REV has developed an extensive line of fire trucks and ambulances all under brands such as E-ONE, Spartan, AEV and Wheeled Coach that are recognized as market leaders in quality and reliability by the first responder community. REV's nationwide customer base is supported by an expansive dealer network to ensure their vehicles are available to execute their life-saving duties. In addition, REV's niche portfolio of motorized recreational vehicles includes such leading brands as Fleetwood and Renegade. Turning to Slide 11. Common characteristics across many of our end markets include economic cycle resiliency through reliable replacement demand and aftermarket service, market growth supported by secular tailwinds and the ability to differentiate through quality technology and life cycle support. The emergency response fleet with the support of its dealer network serves the nation's first responders from volunteers in small towns to the largest cities that own fleets of hundreds of fire trucks and ambulances and everything in between. We continue to see demographic trends, including outward suburban expansion that leads to municipalities growing their fleets. REV has done an excellent job customizing its product offerings to align with the needs of its diverse customer base and vastly different infrastructure requirements. Its end customers have stable budgets supported by municipal tax receipts and departments that prioritize emergency vehicle replacement and fleet growth to maintain coverage requirements. There are similar dynamics in waste and recycling, where growth is fueled by 4 main drivers, starting with population and economic growth, more consumption generating more trash; and second, disciplined vehicle replacement, particularly with the national fleets and large municipalities. Third, accelerated replacement demand driven by innovation leading to lower total cost of collections from products such as automated side loaders that replace manual rear loaders and reduced emissions delivered by our CNG offerings. And finally, growth in digital solutions where we are the clear leader in this space. Within infrastructure, there is plenty of runway ahead with the allocated government spending with a clear need for more investments ahead. In the U.S. alone, the backlog of mega projects continues to grow, providing a tailwind through 2030 at least. Looking abroad, we are seeing infrastructure spending momentum across Europe, while the Middle East and India, where MP already has a strong presence also continue to grow. And finally, the utilities market is also poised for significant market growth. Demand on the U.S. electrical grid is increasing with the majority of data center-related growth still yet to come. Industry forecasts anticipate public power and independently owned utilities CapEx to grow between 8% and 15% per year through 2030. So with this portfolio of leading businesses, we think we're very well positioned for growth for years to come. Let's turn to Page 12, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon. I agree the combined company is well positioned for sustained growth. The investments we have made in our respective operating systems will help ensure we capitalize on those growth opportunities and deliver the synergy value that we have defined here today. Through our operating systems, our companies have provided a framework designed to drive excellence across all aspects of our organization from operational efficiency and innovation to customer satisfaction and employee development. By leveraging a structured set of tools, processes and performance metrics, these programs ensure consistent execution of our strategic priorities, fostering sustainable growth and profitability. They empower teams at all levels to focus on continuous improvement, problem-solving and value delivery, creating measurable benefits for customers, employees, shareholders and communities alike. This disciplined approach will align the combined company towards achieving world-class results while reinforcing our commitment to being trusted leaders in the industries we serve while delivering value to our shareholders. Simon Meester: And at Terex, we launched the Terex operating system, which is very well aligned in its design and purpose with the REV system to accelerate continuous improvement and leverage our growing scale. We also refined the integration excellence playbook component of our operating system as we integrated ESG. Terex has muscle memory from its past and got it back in shape recently, setting us up well to execute this integration. Our organizations also share a performance-based culture. The combined team will be energized and fully capable of capitalizing on the many opportunities that lie ahead. Let's move to Slide 13 to talk more about the $75 million in synergies. Our teams have already started to lay the groundwork for synergy realization. We have a detailed project plan and will hit the ground running the day we close. We expect to achieve about half the $75 million run rate within the first 12 months as we consolidate corporate activities and eliminate duplication. Sourcing savings will ramp up starting with simpler categories like MRO, hardware, steel and more standard material before moving into more customized engineered components. Ultimately, every category will be addressed by the team, resulting in a more resilient and cost-efficient supply base. On the operational side, we will build on the best practice sharing that has been done within both organizations and extend them across the company. The extensive U.S. footprint will provide greater optionality to increase domestic capacity, leveraging our combined capabilities. We expect go-to-market synergies over time as we optimize distribution channels and customer relationships, and we see meaningful opportunities to extend our 3rd Eye digital platform in the fire and ambulance verticals in the future, building on the technology developed in refuse, which we have started to extend into our utilities and concrete businesses. The mission-critical status and intense conditions faced by first responders creates a natural use case for enhanced situational awareness for better maneuverability and safety provided by the 3rd Eye digital platform. We have a lot of exciting value creation opportunities and a track record of delivering. Turning to Slide 14. With this transaction, we are essentially rebaselining the new company with much more resiliency and predictability in both top and bottom line performance in different end market mix and an overall enhanced margin profile. As an example, we are significantly reducing our exposure to the cyclical construction markets. We believe that equity markets value resilient, predictable earnings and reward growth. The transformational actions we announced today hit both notes. The exit of the Aerial segment further enhances that profile by removing cyclicality in the combined business. With pro forma 2025 estimated EBITDA margin of 14%, we are creating a company with greater revenue growth potential and reduced earnings cyclicality that we believe is highly sought after by market participants. Moreover, our combined balance sheet provides optionality to take additional strategic steps over time to grow and further improve this attractive financial profile. Let's wrap up our prepared remarks on Slide 15. Merging Terex and REV creates a large-scale specialty equipment manufacturer with a highly synergistic portfolio of leading businesses across a diverse set of attractive, growing, resilient markets. We see a strong fit between our cultures and our management systems. We have the playbook, the muscle memory and the team in place to execute our integration plan and unlock at least $75 million in annual synergy value. We will leverage our shared capabilities to outperform in our end markets and generate strong earnings and free cash flow. We purposely structured the transaction to result in a strong balance sheet and flexible capital structure to enable future organic and inorganic investments. I want to close by thanking the REV and Terex team members for their tireless efforts getting us to this point. I look forward to the exciting future ahead for our combined company. And with that, I would like to open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stephen Volkmann from Jefferies. Stephen Volkmann: Congratulations. I don't usually say that, but this seems like a lot of work in a big transaction. So best of luck on all that. I guess I'm curious maybe as a starting point, Simon, you talked about the sort of more stable profile and the cost synergies, which all kind of makes sense. But what are you thinking strategically relative to growth going forward? I know you listed some specific growth things, but there were mostly kind of stuff that I think we already thought Terex had. So how does this kind of jump-start growth for you over the next sort of 5 years or so? Simon Meester: Yes, Steve, thanks for the question. And yes, thank you. We are obviously very excited announcing the merger this morning. We think it checks all the right boxes. And to your point, it creates a new significantly less cyclical combined portfolio with attractive and growing addressable markets. And yes, besides the synergies that this brings and the more predictable profile, we do see a lot of growth potential, as I mentioned in our prepared remarks, across all of our verticals. And a lot of that is tied to just urban expansion, population growth, electrical grid upgrades, infrastructure investments, but also more waste and recycling. And that's just the addressable markets as they grow. But then as this group comes together, we also see a lot of opportunities in customers that we both cover in products that we can develop together. I'm thinking about the digital use cases that we referenced in our prepared remarks that we see use cases, for example, in some of the REV applications with our 3rd Eye products. So we see a lot of growth upside in both purely addressable market and in terms of revenue synergies. Stephen Volkmann: Okay. Great. And then maybe just a follow-up relative to the AWP sale or spin. That's interesting from a timing perspective because I guess one might argue that things are sort of bumping along a bottom there. Why not sort of hold on to that until it's a better business and sell it at some other point? Simon Meester: Yes. Great question. We think that the Aerial's journey is very well documented on how it performs through the cycle. Our Aerial's business has a strong brand, strong team, strong footprint, strong legacy. We are excited about the product portfolio and its pipeline. And obviously, the level playing field now that we have these 2 favorable antidumping rulings in both North America and in Europe. And we are convinced that there will be plenty of suitors out there who will recognize the through-cycle value that we believe the Aerial's business will bring to their portfolio. So we think that, that is transparent enough. Operator: Our next question comes from the line of Mircea Dobre from Baird. Mircea Dobre: I guess I would have a question for Mark, and this is a REV Group perspective here. I'm just sort of curious, Mark, to get your thoughts in terms of how this transaction came to be and how you evaluated value creation from the standpoint of the REV Group shareholders. Your Specialty Vehicles business has done well, and you're clearly on a path to expand margins with a lot more to come as we look at the next couple of years, right? So that opportunity is still ahead. So as you think about this business now being part of Terex, why does it make sense to enact this merger at this point? And from a valuation standpoint, I don't know if I'm doing the math correctly, but it looks to me like the transaction implies about 11x EBITDA on 2026. If that's correct, how did you think about the right valuation framework to apply in this transaction? Mark Skonieczny: Yes, sure. So obviously, from how it came about just through the normal course of banker discussions and the opportunity that was presented was really compelling, as we've said in our prepared remarks. But as we also talked about, it's just a natural step in the transformation journey. I think, Mig, in the past, we've talked about what kind of products that we'd be looking for, what kind of companies we'd be looking for. And obviously, we've stressed something in the refu or utility space was always on our radar. When you look at the leading brands that come together in this portfolio, it was just a natural fit for us, especially with the exit of the Aerial's business when you put these 2 companies together. And from a valuation perspective, when you look at the mix of the consideration, it treats both shareholders very well and it provides the ability to participate in future upside of the company, the combined company. And the $425 million of cash consideration still leaves a strong balance sheet for the new company. So if you look at our shareholders specifically, they continue to participate in the upside that you are quoting there, but also get to participate in the synergy realization, the $75 million and to participate in the value unlock associated with the Aerial exit, which we've included in that -- in the deck. So I think that really was the construct and how we came about it and how I looked at it, both from an operational good tangential products and ultimately, the value creation that it gives our shareholders. Mircea Dobre: Okay. And then my follow-up, $75 million of synergies, certainly not a bad number, but as a percentage of sales for the combined entity, it doesn't seem like a big hurdle. So I'm kind of curious to what degree this number might prove conservative over time. And we haven't really talked about RV. I know this has been part of the REV portfolio a smaller business, but perhaps less of a focus? Is RV considered for potential sales divestiture in the near term as well? Simon Meester: Yes. Thanks, Mig. So yes, $75 million run rate going into 2028. We think 50% is -- will be achieved within 12 months after closing. We have very similar operating systems, very similar culture. So we do think we will hit the ground running, and we have a good pipeline. We just want to walk before we run. And I think similarly to when we announced the ESG synergies, we just want to make sure that we manage the pipeline accordingly. And then obviously, we're going to try to overdrive the number, but that is the number that we're currently communicating, and we're going to do our best to exceed that expectation. And when it comes to the RV business, first and foremost, we're going to focus on the things that we are announcing today, the integration of the 2 companies, the execution on the synergies and then the Aerial's exit. But going forward, we will continue to assess the effectiveness of our portfolio as both companies have done and will continue to do and just -- and make the right decisions for our shareholders. Operator: Our next question comes from the line of Jamie Cook from Truist. Jamie Cook: Congratulations on the transaction. I guess my first question, Simon, back to the unlocking of shareholder value. Key to that, obviously, is you guys either selling or spinning the Access business. So I'm just wondering your confidence level in sale versus spin and potential timing because if it's a spin, I guess I'd be probably more concerned with the market would value the Access business. So first that. And then I guess my second question, wondering if you could talk a little more about the opportunity with 3rd Eye. You mentioned it a little in your prepared remarks and whether with the 2 combined companies, what the aftermarket is as a percent of sales? And is there a bigger aftermarket story here, the ability to grow aftermarket and increase it as a percent of the total to again reduce cyclicality and potentially improve margins further? Simon Meester: Yes. Maybe I'll talk about Aerial's and then maybe, Mark, you can share a little bit your thoughts on digital in the applications that your business addresses. So on Aerials, yes, as I mentioned earlier, the Aerial's business is a great business. There's a lot of equity in the brands. There's obviously 60 years of history, part of the founders of that industry. And it's been a public reporting segment for almost 20-some years or so. So we think it is very well known what the Aerial business does and can do through the cycle. It is a cyclical business, but there are suitors out there that like that kind of profile. So we are not concerned that there won't be any suitors. Quite the opposite, we think there will be quite a few. So for the simple matter is that it's a very recognized business on how it performs through the cycle. Mark, do you want to take the digital question? Mark Skonieczny: Yes. I think, Jamie, I won't address the aftermarket side. But obviously, as I visited the facilities and look at the products, and there's just a plug-and-play replacement for some of the cameras that we use, but also the back-end software capabilities. We are in the beginning stages of looking at telematics and other things that, that product offers. So it's really an advancement of some of the things that we are doing from an innovation side. So it really gives us an upper hand in advancing that. So I would say the aftermarket part of that comes afterwards, obviously, but the initial install will be very favorable to the combined company, which is what we referred to. So I think that we're excited about that and the opportunity and the advancement that this gives us on the innovation side of the -- especially on the municipal-based businesses like we've talked about. Operator: Next question comes from the line of David Raso from Evercore. David Raso: I was curious, Simon, the decision to exit Aerial's, when was that strategic decision made? Was that something you thought about when you became CEO about 2 years ago? Was that already on the agenda? Or would you say it was more related to the potential swap here in businesses? Simon Meester: Yes. We have always had the intent to make our portfolio less cyclical. And the first step, we kind of diluted the cyclical part of our portfolio by means of the ESG integration. And I think that's exactly what happened, and our stock has shown more resiliency as a result of it in the last 12 months. And it's been a very successful integration. And then as this deal was -- or this opportunity was presented to us, we just started to analyze and we saw the merit and we saw the clear value that it would bring to our shareholders and that it would be that next step in terms of making the portfolio less cyclical. So no, it's just something that's kind of evolved organically over the last couple of months. And then we felt that it was a really compelling case and hence the reason we pushed forward with it. David Raso: Yes. I'm just trying to get a sense of how far along are we already in you understanding who the potential buyers are? Are books out already? Just trying to get a sense of the timing, if it's something you've thought of for a while. And as you discussed, you feel like the earnings over the cycle are well understood enough. The timing of the sale, maybe you're a little less sensitive to than others could believe. But just curious, how far along are you in this process knowing who the potential buyers are? And are the books already out? Simon Meester: Yes. No, they're not out. But yes, obviously, we talk to a lot of people just as you do. As I said, I think it's -- the business is well understood. And I think it's also, as I mentioned a couple of times, very well documented on how it performs through the cycle. And I don't want to get into too much detail on who we're talking to and what's going on. But we're starting the process formally today. And we will -- we feel confident that there will be plenty of suitors that will reach out to us over the next couple of days, weeks. David Raso: Okay. But safe to say this is not ground zero starting the process. It's been something that's been in the works at least in that, okay. Simon Meester: No. Operator: Our next question comes from the line of Tim Thein from Raymond James. Timothy Thein: The question I had was on distribution, specifically as it relates to Terex's ES segment and the Specialty Vehicles group of REV Group. I'm just curious if there is any overlap there. I'm thinking -- I know there's some mix of direct sales as well as what goes through dealers. And so again, I'm just thinking to the extent there's overlap or any potential kind of channel conflict just given that a lot of these specialty dealers will carry multiple lines and multiple brands. And so I'm just thinking if that's any issue that has to be thought through. Mark Skonieczny: Tim, this is Mark. And from our perspective, and we've looked at that, there is no overlap across these channels, which sort of is again, the beauty of this transaction, bringing these complementary products together. So there is no overlap that we're aware of that will cause an issue. Timothy Thein: Got it. Okay. And then just on the -- I apologize if I missed it, but was there a time line in terms of -- for the AWP sale or spin? And then anything you can help us with respect to the tax basis of that business as we think about those 2 potential options? Simon Meester: Yes, we have not communicated an explicit time line. And yes, we will keep you updated as material developments occur, but nothing else to share on that at this point. Operator: Our next question comes from the line of Michael Shlisky from D.A. Davidson. Michael Shlisky: Congratulations. I wanted to circle back to Mig's question and just kind of follow up there. Looking at the 2026 EBITDA for REV Group Mark, it is looking like around 11x, but you had some pretty sharp increases in your 2027, 2028 outlook where have much higher than that, 25%, 35% higher by that point, roughly $75 million worth. So I guess, one, I want to make sure that you're not double counting. You're still on track to get that 2027, 2028 EBITDA goal that you've already stated. And then secondly -- and this is all new synergies beyond that. And then secondly, I think the multiple is a lot lower or a bit lower when you consider that most of that number in 2027, 2028 is I don't want to say in the bag, but largely booked because it's a lot of fire trucks. So I'm just curious how you engage in discussions, given what you know about where you think that is going as opposed to where it's been and the trailing EBITDA. Mark Skonieczny: Yes. Again, I think this transaction allows our shareholders to continue to participate in that as you've seen in our quarterly results and the fact that we've been ahead of the targets for 2027. So from the progression to those targets. So we feel very good about the accomplishments that we've had so far to date with the throughput increases and the margin realization that you're pointing out. So this is not a reflection at all of our ability to hit those. We are very confident in those numbers that those, and they were obviously supported the deal when we looked at valuations for both sides of the shareholder base. So I would say that. And then obviously, the synergies on top, as you pointed out, gives us value creation as well as the ability to participate in the unlock, like I said, to Mig on the Aerial exit on the side of the Terex house. So ultimately, I think all that was taken into consideration when we did the deal. Michael Shlisky: Okay. And then secondly, I wanted to ask the synergy outlook for the combined company. is that combined with Aerial's or without? I guess I'm kind of curious, you'll get some synergies on purchasing steel and so forth post the merger, but are there dissynergies if and when you spin off the Aerial's and you'll have the opposite. We'll have a little bit less scale on buying steel and other components. I guess I just want to know, is it net or is it gross, the current synergy expectation? Jennifer Kong-Picarello: This is Jen. That's a net amount. So we have taken into account the dissynergies. Operator: Our next question comes from the line of Kyle Menges from Citigroup. Kyle Menges: Congratulations on the deal. I am curious how you're thinking about integration of these 2 entities over time. It looks like there's some operational cost revenue synergies, especially between the ES segment and REV Group's businesses, but also looks like these 2 will kind of run as individual segments. So any thoughts there would be helpful. Simon Meester: Yes. Thanks for the question. Yes, first of all, in terms of integration, the plumbing, so to speak, will follow the same playbook that we used for the ESG integration. And we think we have a strong process there and a strong track record on doing these kind of integrations. And then the way we will complete the segments makeup, so to speak, is that the REV segment will become a dedicated third segment to the Terex portfolio. Kyle Menges: Got it. And then on synergies, it feels like the bulk of cost and revenue synergy would be between the ES segment and REV Group. So curious what the synergy is between REV Group and Materials Processing and just now how you think Materials Processing, how that segment fits in the portfolio? Simon Meester: Yes. The big swings are the -- obviously, the corporate cost synergies because we're merging 2 public companies. And then there is multiple efficiencies in SG&A and supply chain and logistics. Also in terms of our shared services footprint, there are synergies there and then a big one in terms of manufacturing best practices. And one of the examples I'd like to call out is if you look at what -- how our utilities margins, for example, have improved over the last 12 months just by the virtue of now reporting into the ES segment, you can see that how those manufacturing best practices can really drive margins up. So those are the big swings in terms of synergies between the 2 companies. Operator: Our last question comes from the line of Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Congrats on the deal announcement. Simon, just wanted to go back to the point on cyclicality on Aerial's, I understand, and I think this has been asked in a number of different ways, but I just wanted to touch on it a little bit more. Just given you don't need the proceeds to kind of delever to a reasonable range here, why not keep Aerial's as a means of kind of maintaining some diversification in terms of kind of end market exposure near term? And maybe just kind of -- that's just kind of a different way of asking basically, if you don't mind kind of expanding on some of the implications of the intention to sell Aerial's on kind of your view of either the near-term upside opportunity associated with the U.S. rate cycle or kind of improvement there and also the longer-term views of the ability of Aerial's to kind of achieve mid-teens margins kind of through the cycle, I believe that I think that was kind of the longer-term target. So if you could just talk about -- are these positives getting pushed out to the right? Any structural changes to kind of how you look at that business would be helpful. Simon Meester: Yes. Thanks for the question. So yes, we're basically -- with this merger, we wanted to rebaseline the company. That's what we wanted to do. So with these -- with the REV Group and our Materials Processing segment and our Environmental Solutions segment, we're basically becoming a new company. And what we want to pursue is a more predictable, much less cyclical kind of earnings profile. That's what we want to do with the company going forward. And we believe that Aerial's is a proven business. It's a strong business. There is a lot of upside coming from the mega projects alone in the United States. And then obviously, we see now Europe starting to invest in infrastructure, public construction as well, which will fuel further demand. We're not going to get into guiding, obviously, for 2026 here on this call today, but we think there is a lot of upside for the Aerial's business for years to come. And then combine it with, I think, a well-documented proven track record on how it performs through the cycle, we think it's a very nice business for anyone. Angel Castillo Malpica: That's very helpful. And maybe just could you touch on -- I guess, comment on what you kind of perceive would be kind of the fair value for this business given the current demand backdrop and everything you just discussed? And importantly, as it pertains to potentially different avenues to divest any concerns over the current geopolitical kind of environment and whether that limits the potential range of interested parties in these assets? I guess we're asking -- I'm asking because there's been other construction OEMs who kind of put on pause some intentions to sell assets due to kind of geopolitical challenges, maybe limiting international parties from moving forward. So just curious if you could comment on that. Simon Meester: Yes, I'm not going to comment on any kind of valuation. I think that, that would be too premature on this call. And in terms of its appeal, I mean, it's one of the -- it's a leading brand in its space. It's a very strong business with a strong brand. We have a level playing field in its addressable market, which means that there is no immediate risk for any kind of dumping activities in North America and Europe. So an attractive end market. And it has a pretty strong U.S. base. So quite honestly, I see it as the exact opposite. I see it as a very interesting asset that could give any owner a meaningful footprint in a very attractive end market and a big part of that being the United States and Europe, which are -- which is probably 90% of it anyway, if not more. So I see it completely opposite. I think it's a very attractive asset. Operator: We have a question from Steve Barger from KeyBanc. Steve Barger: And sorry, I didn't have time to look this up, but can you tell me the dollar amount and duration in years of REV Group's backlog and maybe the concentration of it by product category, if you report that? Mark Skonieczny: We don't report it by product category, but maybe, Amy, you want to take that. But it's about $4.5 billion all in and 2- to 2.5-year backlog. I don't know if you want to comment on. Amy Campbell: You answered the question pretty well there, Mark. No, that's correct. We have a $4.5 billion backlog. We do break that out, $4.2 billion of that is in what we consider our Specialty Vehicle segment and about $300 million is in our Recreational Vehicle segment. And that 2- to 2.5-year backlog is strictly for those fire trucks and ambulances. Steve Barger: Got it. And there are other fire truck and municipally oriented companies out there that, in some cases, have higher than current margins embedded in backlog due to strong pricing. Is that the case with REV Group as well? Amy Campbell: Yes. We have the same. During the pandemic, we saw backlogs for emerged fire and emergency equipment manufacturers increase across really all brands. And all of the providers of that equipment have been working through those backlogs and continue to work through those backlogs. Operator: That concludes our question-and-answer session. I'd now like to turn the call over back to Mr. Simon Meester for closing remarks. Simon Meester: All right. Thank you. So thank you for your questions today. I want to just reemphasize how excited we are by today's announcement. We are merging 2 great companies, creating a low cyclical portfolio with strong synergies, a better margin profile, a U.S.-centric footprint, leading brands and last but not least, a low capital intense kind of structure. So we're very excited on how this sets up and the value that it brings to our shareholders. So with that, I want to thank you. If you have any additional questions, please follow up with the respective Investor Relations leads. Operator, please disconnect the call. Operator: This concludes today's session. You may now disconnect.
Operator: Greetings, and welcome to Public Storage Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Burke. Thank you. You may begin. Ryan Burke: Thank you, Rob. Hello, everyone. Thank you for joining us for our third quarter 2025 earnings call. I'm here with Joe Russell; and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 30, 2025, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourself to 2 questions. Of course, if you have more after that, please feel free to jump in queue. With that, I'll turn the call over to Joe. Joseph Russell: Thank you, Ryan, and thank you all for joining us today. Public Storage's third quarter results reflect differentiated strategies that continue to drive our outperformance in addition to encouraging industry trends, including operational stabilization, lower competition from new supply and increasing acquisition activity. We are raising our 2025 outlook for the second consecutive quarter based on outperformance in same-store and nonsame-store NOI growth, acquisition volume and core FFO growth per share. Public Storage's industry leadership is proven by, among other things, the highest revenue generation per square foot with the most profitable operating platform, the strongest portfolio expansion through our best-in-class teams and backed by our growth-oriented balance sheet, the highest retained cash flow generation, which we utilized to invest back into our business to drive earnings, and FFO growth in excess of stabilized same-store growth driven by our compounding returns platform. We have been actively advancing the pillars of this platform, which include our leading operations, capital allocation and capital access. Just a few of many examples in terms of our operating innovation include: first, we have the industry's leading omnichannel customer experience through which we offer digital options across their entire journey. The success is evident with customers now choosing digital path and 85% of their interactions and transactions with us. Second, with the shift to digital, we are modernizing our field operations by utilizing AI to directly provide customer service and staff our properties more appropriately. The days of needing a property manager on site all day, every day are behind us. Instead, we now have people on site, when and where customers need help. To date, this has reduced labor hours by more than 30%, while also increasing employee engagement and lowering turnover. And third, we are deploying new technology-based strategies across the entire organization, including customer search and generative engine optimization, unit pricing and revenue management, asset management including security, vendors and maintenance, identifying and executing development opportunities and putting the right tools in our field and corporate teams hands to even more effectively drive revenues and control expenses. Collectively, these initiatives are driving higher revenues, margins and core FFO per share growth. Now I'll turn the call over to Tom. H. Boyle: Thanks, Joe. We are leaning into our platform strength. Joe spoke to our industry-leading operations and technology initiatives. I'll now touch on capital allocation, capital access and performance specifics. On capital allocation, we have accelerated portfolio growth with more than $1.3 billion in wholly owned acquisitions and developments already announced this year. The acquisition opportunities are relatively broad-based across size, geography as well as seller type. We will continue expanding the non-same-store pool through additional acquisitions and our $650 million development pipeline to be delivered over the next 2 years. We are built to execute on this activity based on our industry relationships, data-driven underwriting and strong capital position. With leverage at 4.2x net debt and preferred to EBITDA and retained cash flow reaching about $650 million this year, we will continue using our advantageous cost of capital to fund portfolio expansion and drive core FFO per share growth. Now shifting to financial performance for the quarter and our improved outlook. Revenue growth in the same-store pool came in ahead of our expectations, primarily due to strong in-place customer behavior. Overall, in-place rents were up 0.6%, offset by lower occupancy. From a market perspective, Chicago, Minneapolis, Tampa, Honolulu and the West Coast are standouts with revenue growth in the 2% to 4% same-store revenue range. Speaking specifically to the West Coast, our strong presence top to bottom from Seattle down to San Diego, representing 1/3 of our NOI, serves us well with good demand trends and more limited new supply. Los Angeles will return to strong growth when the state of emergency price restrictions expire. Our expense control across the same-store pool continues to be strong as well, held flat for the quarter and driven by reductions across most line items. Continuing declines in property payroll and utilities are direct results of the differentiated initiatives that Joe spoke to. Accordingly, same-store NOI growth came in better than we anticipated. Outside of the same-store pool, outperformance in our high-growth non-same-store pool helped drive core FFO per share higher by 2.6%. This is a 560 basis point acceleration from the growth level achieved in the third quarter of last year. As Joe mentioned, our strategic focus continues to drive core FFO per share growth well in excess of our stabilized same-store growth. We adjusted our full year guidance to reflect the positive trends I just spoke to with increased outlooks for same-store revenue, same-store NOI and nonsame-store NOI. All in, we increased core FFO per share growth by nearly 1% with 1 quarter left in the year. Looking forward, we are very well positioned to continue driving performance with differentiated strategies that will further enhance our compounding returns platform. With that, Rob, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Eric Wolfe with Citi. Eric Wolfe: As we get closer to year-end, could you maybe just talk about the process you go through in setting your budgets for 2026? And sort of how you go about determining things like where move-in rents to go, occupancy and sort of all the main variables that are going to make up growth for next year? H. Boyle: Yes, sure. We can talk about that. I mean, we're continuously forecasting and updating our forecast for the business as we move through any given year, obviously, starting with 2026 process, something we started several months ago, and people are forecasting their businesses. In terms of some of the line items you spoke to we're using data-driven processes and historical trends as well as predictive analytics to drive those forecasts. We certainly challenge our teams to come up with new initiatives to drive the business going forward into the new year, and that process is well underway. Joseph Russell: And Eric, I'd add that it's a robust process across literally every function within the company. It's fluid. It doesn't end and begin even as we speak, it builds, and we have a lot of analytics relative to the things that we're doing from a deployment standpoint as we've spoken to, we have a whole host of efficiency efforts that are tied to investments in digital and otherwise, it continues to drive our margins to the level that we attain. And then to Tom's point, the whole host of things that we do tied to revenue optimization across the entire portfolio with not only our same-store but our non-same-store portfolio. Eric Wolfe: Got it. That's helpful. And I think in the press release, you characterized things as sort of stabilizing. I don't know if you feel like maybe there's a path of things getting back to more sort of a normal run rate growth or what it would take to get there. But just sort of curious how you're thinking about sort of the trends that you've seen recently in October, over the last couple of months. If you're starting to get a little bit closer back to normal, if it's more of a just kind of like a stabilization and sort of a little bit more of a muted rebound? H. Boyle: Yes, a good question. I think as we look ahead, we do see steady stabilization. And as we've moved through 2025, we've seen demand bouncing off the bottoms of '24. We see new supply continuing to be coming down just given the challenges associated with new development in many of the markets we operate. But I'd probably point you most notably to the fact that what I commented on earlier around some of our stronger markets where we're stable, but we're growing at a healthy clip as well. And just highlighting the West Coast again, with growth in the 2% to 4% same-store revenue growth range and good fundamentals. So some of the markets aren't quite there yet, but we're seeing a good and healthy customer and overall operational performance in many of the markets we operate today. Operator: Our next question comes from Michael Griffin with Evercore. Michael Griffin: I'm curious if you can give us any insight into whether new customer behavior has changed at all. It seems like the revenue this quarter was mainly driven by that existing customer, which seems to remain sticky. But as these move-in rents decline on a year-over-year basis, do you feel like we're starting to hit a trough there? Or do you think there's potentially further to go in terms of new move-in rents? H. Boyle: Yes. I'd say taking a step back, I think there's too much focus related to move-in rents is one particular element of revenue, right? Overall, across the organization, we are focused on revenue as the most important metric. And that is a combination of what you're highlighting, yes move-in rents but also move-in volumes, move-out activity existing customer behavior and rent increases. And it continues to be a competitive operating environment for new customer move-ins and you could see that through the quarter. But the focus here is certainly around revenue is the most important metric and that goes throughout the organization from the property managers and property staff, all the way through the home office organization. So we continue to make investments through our platform to drive revenue in a competitive environment. And I would point you not to one particular metric. Michael Griffin: Tom, I appreciate the context there. And then maybe just on the revised guidance, it seems like you're trending in the more favorable range, both on expenses being towards the low end and NOI being toward the high end, at least on a year-to-date basis. So maybe are there any puts and takes we should think about when looking at the fourth quarter sort of implied guidance? Maybe tougher comps in certain line items? Or any clarification there would be helpful. H. Boyle: Yes, sure. Every quarter has got its own set of comps. I do think the fourth quarter specifically Property tax is a tough comp. We had a number of healthy refunds last year. We'll see whether the team can execute on similar amounts this year, but that's a pretty tough comp. And then as we think about same-store revenue, we've been consistent highlighting that the impact on Los Angeles will grow as the year progresses. And so we do anticipate that to occur in the fourth quarter. Otherwise, those would be the 2 items I'd highlight for you. Operator: Our next question comes from Samir Khanal with Bank of America. Samir Khanal: I guess just sticking to that topic about L.A. and the impact. I mean, kind of what are you hearing on the ground given the pricing restrictions and the burn-off in Jan? I mean, what are your channel checks kind of telling you at this point? Joseph Russell: Yes, Samir, not probably anything deterently than you're hearing, which it's completely in the hands of the Governor. And the decision time frame, he's looking to come back to announce whatever next set of decisions would be very early January. So no additional color or context beyond it could result in a whole range of outcomes, but nothing specific at this point. Samir Khanal: Got it. And then I guess, Tom, on the expense side, when you look at expense growth, kind of that 3% range, you guys have done a great job in terms of controlling expenses. I mean how much room do you have there to kind of still kind of grow at that sort of 2% into next year, at least the next 12 to 24 months? H. Boyle: Yes, sure. And I appreciate the comments. The team is focused around a number of different initiatives to drive operating expense performance while also driving revenue in the overall business. And the couple that we continuously highlight and we're seeing bear fruit again this year, continue to be the digital investments that we've been making. One of the side effects of those digital investments is the ability to think holistically differently about our property staffing and customer interaction, so we saw some fruit borne from that this year, more to come there as the team continues to drive evolution in our operating model. And then I think the other one clearly to highlight is our solar power initiatives, which we'll have solar on over 1,100 -- or we have solar on over 1,100 of our properties today and continue to drive forward with that initiative. And we'll continue to see the benefits from that. But in this environment, we're looking for all those ways to invest in the platform and drive better OpEx performance. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I was wondering if you could talk through your current expectations for supply and maybe how you expect the next 12 months will compare to the last 12 months and what's driving that? Joseph Russell: Yes. Sure, Caitlin. The trajectory continues to be the same, meaning on a year-by-year basis, we see the pressure creating fewer and fewer developments as a whole industry-wide. There are here and there are certain markets that have a number of additional assets coming to market. But clearly and nationally in a very positive context that supply delivery momentum continues to go down. And we've seen it throughout 2025, we're going to see it into '26. And I would even say we're continuing to '27. The basis for that outlook continues to be first and foremost, we're in that business nationally. We see the complexity and the friction that comes from any kind of a development. It's tied to the things that you have to do from an entitlement standpoint, becoming more and more complicated, the cost structure of assets themselves and then, again, formulating and understanding the risk that would be tied to going into the development process that in and of itself could take anywhere from 2 to 3 years if not longer. And then going to a stabilized asset that could take another 2, 3 or 4 years. So the risk factors for any kind of developer out there are much higher today and they continue to go a direction that's actually very good for the industry as a whole. Meaning there are going to be fewer and fewer deliveries even going in the next couple of years. Caitlin Burrows: Got it. And then so I guess then leading into PSA's on development activity. It does sound though like you guys want to kind of maintain or backfill your pipeline of activity. So other than, I guess, size, what do you think differentiates your strategy and ability to kind of get past all of those issues? And how is your kind of stabilization over the past few years been going versus underwriting? Joseph Russell: Sure. I'll take the first part and I'll have Tom talk to the stabilization, which is quite good as well. So no question, we have very different capabilities. It starts with inherent and deep-seated knowledge, market-to-market, with the amount of inherent operational data that we get, we have an ability to underwrite assets from a development and risk standpoint far differently than others do. We have the data set that guides us to optimize not only property size but also configuration within properties, unit, size, mix, et cetera. We can find pockets of assets quite effectively or pockets of asset development very differently than most developers. We've got a good national team working aggressively out finding in developing assets in a window that I just spoke to, that is far more difficult. So in a reverse way for us uniquely, it's providing the opportunity to go in and find very powerful development opportunities in a whole host of markets nationally. So our confidence and our commitment to the business has never been higher, but at the same time, it's never been a more difficult business. So it is a very good and unique window for us to continue to deploy capital, and it continues to lead to substantial and the highest returns that we see from any capital allocation effort. Tom, you can go ahead and talk about some of the metrics cited out, which continue to be quite good. H. Boyle: Yes. Our lease-up of our developments that have been recently delivered continues to do well, actually pacing a little bit ahead of expectations year-to-date. And you can see in the sub the yields produced by those vintages to Joe's point earlier, it does take 2 to 4 years for those vintages to stabilize, but we're seeing good trajectory across those vintages today and achieving those strong risk-adjusted returns that Joe spoke to. Operator: Next question comes from Ron Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. The guide -- I think this came up earlier, but the guidance sort of assumes a little bit of decel as you get into sort of 4Q. And I guess the obvious question is just as you're thinking about top of the funnel demand, whether it's some of the web search data or anything like that, are you seeing anything from that standpoint that's showing that demand may be slowing? Or how do you sort of think about that? H. Boyle: Yes. Thanks, Ron. Nothing implied there as it relates to demand overall. We continue to see a healthy customer activity to date. I think the item that I would highlight as it relates to same-store revenue, if that's where your focus is what I highlighted to Michael Griffin earlier around, the cumulative impact of the rental rate restrictions on Los Angeles, which will be holding us back a little bit more in the fourth quarter compared to the third quarter. And then that property tax, tough comps as well. But otherwise, the non-same-store pool is set to continue to accelerate given the activities to date and the capital allocation that we've been putting for forth. Ronald Kamdem: Great. And then, yes, my second question was just on the acquisition pace picking up. Just maybe talk about the product that you're seeing stabilized, nonstabilized and sort of cap rates and returns expectations. Joseph Russell: Sure, Ron. It's a combination of all of those things. So we had an active quarter, obviously, and pleased to see the range of different types of sellers that have come to us either through off-market transactions and/or assets that we've been [trolling] or in dialogue for some period of time. So it's a combination of some larger portfolios that we've curated to match some of our own investment requirements, market to market. It's also been a combination of some smaller portfolios that have resulted from some of our off-market and/or private conversations with them, always a healthy way to do some additional business. And then as we typically do with our national focus and the team that's out working nationally, relationships and otherwise, we're doing a whole host of one-off or a much smaller transaction. So it's a whole combination. It's, again, a market focus that we have to stay very close to and we're well suited to do so. We have unique capabilities to underwrite these assets with, again, going back to our development processes, knowing and understanding markets very deeply and been very pleased with a whole host of different types of assets that are either on one end of the spectrum stabilized or others that we're very comfortable bringing in the portfolio that are not stabilized, but once we put them on our platform, very comfortable and confident we're going to get the kinds of returns and meet expectations from, again, the invested capital going into those assets as well. So we're seeing a fair amount of good activity based on a lot of hard work that continues to go in that process, but it's bearing some good fruit. Operator: Our next question is from Eric Luebchow with Wells Fargo. Eric Luebchow: Great. Appreciate the question. So maybe could you update us a little bit on operating trends through October in terms of occupancy moving rates? Anything you're seeing as we kind of move into the fourth quarter here? H. Boyle: Yes, sure. Happy to do that. I'll provide a couple of elements. And as I spoke earlier, focus continues to be on revenue overall. But specifically, talking about new customer activity. I'd maybe frame it as if you look at the third quarter and the rate and volume associated with new customer activity is down about 9% year-over-year. And each of the months throughout the quarter a little bit different in terms of volume versus rate, et cetera. October is doing a touch better than that, down 9%. So some improving from that standpoint. Really driven in this particular month, driven by stronger move-in activity, and we're achieving that with less discounts but also lower rates. So better net outcome there. I'd point you to move-in rates that again are driving that volume being in the down 10%, 11% ZIP code, but driving good volume up 3%, 4%. In terms of occupancy, because of that move-in volume, occupancy closed, Eric, is sitting today down about 40 basis points year-over-year. But again, I reiterate the revenue focus versus occupancy or rental rate. And we feel like we're in a very good place from an occupancy standpoint to drive revenue in a steady stabilizing and hopefully improving operating fundamental picture. Eric Luebchow: Great. And maybe just a follow-up. I know you touched on this a little bit, but the LA rent restriction headwinds, you had guided to about 100 basis point headwind. So maybe you could just update us on what you're expecting kind of as we look into Q4 and what you see underlying demand looking like on the West Coast? And I guess a related question. I mean, there has been some recent news about rent restrictions related to immigration activity in LA County with ICE. And so just wondering if you expect that to have any impact in the region. H. Boyle: Yes, sure. So 2 components there. One, related to LA performance for the year, it is trending a little better than what we had expected at the start of the year. And I think last quarter, I provided some perspective around revenue growth expectations for Los Angeles for the year being down close to down 3% for the year. We think based on where we are right now, it's probably going to be down in the 1s, meaning negative 1% and negative 2% for the year. So some better improvements there. In terms of -- and I would point to the drivers there really being what we spoke to earlier around really top to bottom, the West Coast, good customer activity, less new supply in those marketplaces and good trends. So good customer activity there. And then the second part of your question, the more recent state of emergency is going to have a negligible impact on our operating performance in the fourth quarter just as you think about a state of emergency already being in place through the start of January. So no change there, but we're certainly still in an environment with pricing restrictions associated with those state of emergencies. Operator: Our next question comes from Spenser Allaway with Green Street Advisors. Spenser Allaway: Just one for me. Can you talk about the amount of NOI upside you guys are currently underwriting when you're acquiring from mom-and-pop operators today? Maybe just broadly, I know that it varies asset to asset. And then with the increasing prevalence and uses for AI, do you think that, that upside is going to increase meaningfully in the years coming, just particularly as we think about the amount of data PSA has to work with and enter into like algorithms? H. Boyle: Yes. Sure, Spenser. So in terms of cash flow that we can earn from assets that we fold into the portfolio. That's an important component to our capital allocation strategy as we continue to make investments in our operating platform and drive performance there. We can utilize that advantage as we deploy capital. And the most visible thing that I would point to is the margin advantage that we have in and out of the marketplaces that we operate in and that gives you a sense. Generally speaking, that margin advantage for new assets is both the revenue side and the OpEx side driving that margin performance. And so consistently getting towards 10% sort of margin enhancement for lots of the assets that we acquire. In terms of going forward, I noted earlier, we continue to make investments in the platform, both from a revenue and OpEx side. And so we do anticipate that we'll continue to drive performance within our operating platform and that will then immediately have the same impact on the assets that we're putting into the pool, both for our wholly-owned assets as well as for the benefit of our third-party management customers, we drive our operating platform. Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: First, 2 quick follow-ups on acquisitions. Your volume is approaching $1 billion for the year, so a fairly active year. First, what's the outlook for that pace to continue into 2026? And then second, you've had very active years in the past, you did more than $5 billion in '21 and nearly $3 billion in '23. Is now a good time to lean in ahead of a recovery? I'm just curious what the appetite is like today to do something more sizable or strategic? H. Boyle: Yes. So a number of components to that question. So Joe and I will probably tag team this one. But I think we have seen an improving transaction market this year, Joe, spoke to that a little earlier. I do think the improving debt market trends set up for more active transaction volumes going forward. And so I think that's an opportunity set. In terms of our appetite continues to be very strong. We look back at 2021 and the $5 billion of acquisitions that we acquired there and would love to do that again. So it's a question of what the opportunity set is ahead of us, but we're built to be able to integrate that level of activity and fold those assets into the operating platform that we're speaking to. So we're excited about the potential for increased activity. We'll have to see what 2026 brings. Joseph Russell: Yes. And Todd, I'd just add, the balance sheet is well positioned to service as we, again, unlock those range of opportunities. To Tom's point, we've proven over the last 5 years in particular, that whether we're in a process where we're taking down one individual very large portfolio or a whole collection of smaller assets. All of our systems and digital investments, et cetera, allow us to integrate these assets incredibly smoothly in many cases, within a 24-hour time frame from one platform to another. So we've got the technique, the scale and now time and again the experience to continue to aggregate these assets, and we are going to continue to look for any and all ways to do just that. Todd Thomas: Okay. That's helpful. And then Joe, just sticking -- your comments around technology. So you mentioned a number of things, employee efficiencies, the rental process, Generative AI search. Clearly, expenses are an area where you've seen technology have a big impact. Is there a lot more room there? Or do you feel you sort of rung out a lot of the efficiencies at this point with maybe more benefits accruing toward acquisitions, mainly going forward? And what do you think might have the biggest impact in the next 3 to 5 years as you look out? Joseph Russell: It's top to bottom, Todd, and continues -- from an investment standpoint, we are making a whole host of priorities around impacts to the business that starts right at revenue, all the things that we can do through our technology and investments tied to revenue and then it's optimization. Clearly, you can see that with the efficiency and continued outperformance on margin achievement. But again, to give you color on where we are on this road map, we're very confident. We have only just begun. I mean there are very meaningful things that the team continues to invest in, literally every part of the company. It's very empowering. It's not easy, but we have the fortitude and we continue to display the ability to use these tools very effectively in many times, a much shorter time frame than we may have originally estimated, as we've spoken to now for some time. 85% of our customers now transact with us digitally, where 4, 5 years ago that number was basically 0. And with, again, the migration to more and more data-driven processes that creates iterative and in some cases, compounding opportunities to drive efficiency much sooner and more effectively than we may have even envisioned at the front end. And we are encouraged by the team-by-team effort that continues to play through. We are no question, a self-storage company, but we have a focus on data optimization that continues to serve us quite well, and we're very committed to that. Todd Thomas: What kind of margin upside do you think is ultimately achievable? Joseph Russell: Well, we'll see how that plays. But confident we're not done. Operator: [Operator Instructions] Our next question comes from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just wanted to follow up on L.A. quickly. You talked about feeling a bit better about the drag that L.A. is going to see for the year. Just curious if you could translate that down 3% to now down 1% to 2% on the overall portfolio? And is there any offsets from the strength in L.A. on the West Coast, the same-store revenues? H. Boyle: Yes. No, and I think giving you the guidepost as it relates to the markets should be helpful. I think the fourth quarter, obviously implied number associated with that, as I've noted a couple of times, will be holding us back a little bit further as it relates to the impact to the overall same-store. The demand associated with new customer as well as one of the things we've seen in Los Angeles is less vacate activity, and we've seen that up and down many of our markets and nationally, less vacate activity also helpful. So occupancy is up a little bit in Los Angeles. And so a lot of the same trends that Joe and I have already spoken to on this call in terms of good customer activity, very challenging new development environment continue to support Los Angeles despite the fact that we can't charge the rents that we otherwise would charge in a competitive marketplace. Juan Sanabria: And then just cap rate wise, how should we think about going in yields and targeted stabilized yields on the investments you're making at around $1 billion year-to-date? H. Boyle: Yes. No, the yields that we've been targeting are pretty consistent with what we highlighted last quarter. So we're likely to achieve going in yields in the kind of 5.25% ZIP code on a mix of stabilized and unstabilized activities year-to-date. And so the points we've been making on this call, we have the opportunity to plug those assets into our operating platform. And as we do that, we'll achieve more cash flow from those assets. And so those will stabilize into the 6s. Operator: Our next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Sticking with the transaction market, can you talk about the opportunity that you see with lease-up properties, you'll be able to operate them better, maybe there's the appetite to purchase that? And then also the increase in the non-same-store NOI guidance was higher by $10 million. Does that reflect improved performance of the previously owned properties? Or does that reflect the newly acquired ones? Joseph Russell: Okay. I'll take the first part, and Tom can take the second, Michael. But no question we have continue to deploy capital into many assets that are far from stabilization from some that literally are vacant to 30%, 50%, 70% occupied and otherwise. And time and again, have proven the ability to lift the performance of those assets very confidently, just like I spoke about earlier, tied to the knowledge that we have from a market standpoint, all of the techniques that we're using from revenue management, operational efficiency, knowledge of customer dynamics, knowledge of the market itself. So no question, we have a high degree of confidence in any range of stabilization from an asset standpoint. So we will continue to entertain all different asset types based on that level of knowledge and skill and that is continuing to produce the kinds of returns that we're very confident will not only continue, but it will give us more running room as we grow the non-same-store portfolio just like we have in 2025. Tom, you can take the second part. H. Boyle: Yes, the second part of your question, just related to nonsame-store performance. Part of that is better performance and lease-up of some of the assets that you're speaking to. And then the other portion is obviously closing on some incremental assets than what we had closed under contracts. So that combination leads to better outlook for nonsame-store for this year. But you also know we included an update to the incremental NOI from after '25 to stabilization, which reflects the future engine of growth associated with this pool of assets as they stabilize and lease up. So that's increased to $130 million for '26 and beyond. Michael Goldsmith: And my follow-up question, your marketing spend is down year-over-year. I believe your promotions given is also down. So can you just walk through kind of like the thought process around using these levers as top or as a top-of-funnel demand driver? And just is there a reason why pulling back on some of these factors, this is the right time to do that versus maybe leaning in at a time with demand being kind of uneven? H. Boyle: Yes. Thanks, Michael. I'd say we consistently use all the tools you highlighted in order to drive the right kind of customer volumes and behavior over time. So we're active in utilizing advertising as well as promotional activity, lowering our rental rates, increasing our rental rates. And as I noted earlier, it all goes into a focus on optimizing and maximizing revenue as the one metric that we're focused on versus individual line items. And that's the focus of the team, and we'll continue to use all those tools in order to focus on that revenue metric. Operator: Our next question is from Mike Mueller with JPMorgan. Michael Mueller: I guess for some of the stronger markets that you talked about in your initial comments, can you talk a little bit about how different were the, I guess, the move-in rent comparisons to the year-over-year comps in those markets compared to the roll-up number we see in the South? H. Boyle: Yes, Michael, I mean, I spoke earlier to the fact that many of those markets I highlighted are performing well, steady, strong growth from many of them. And associated with that, you have better move-in trends, but you also have better trends from existing customers and good behavior amongst the existing customer base. So it's a combination of things as always, but no question, seeing some good strength across many of our markets today. Michael Mueller: Got it. Okay. And as a quick follow-up, and I apologize if I missed this one. The -- any changes in terms of the pushback from customers on ECRI or ECRI levels in general? H. Boyle: No. The existing customer continues to perform quite well. You can see vacates were down in the quarter. Price sensitivity remains consistent with our expectations and our modeling. So no shifts there, and we continue to be encouraged by the storage consumer as they rent with us. Operator: Our next question comes from Brendan Lynch with Barclays Bank. Brendan Lynch: Clearly, you guys are making good progress on the efficiency initiatives, especially on labor. How do you evaluate though, if you cut too much? I'd imagine there's some sort of A/B testing. But any details on your approach to overage or underage of labor would be helpful. Joseph Russell: Yes, Brendan, we're in a now multiyear integration, which has included, to your point, a whole host of testing relative to the efficacy of optimized labor. And we very conscientiously and first and foremost, used customer interaction and customer service as a guidepost to see and understand, to your point, how far to go. The components of that also, though, include on a per market basis, and even a submarket basis, the kind of scale that we have. And with that, the effectiveness of the digital ecosystem that guides us to the predictability factor of this. And the tools that we're using from a predictability standpoint continue to become more and more effective. So those kinds of tools are the tools that we invest in completely from a labor standpoint that does a multitude of things from an output standpoint. One, again, tied to customer service; number two, the effectiveness of the team member themselves, ironically, but intentionally, it's also led to a much higher level of employee satisfaction relative to the way that they're operating their day-in-day environment. It's also and very intentionally provided good expense optimization and we continue to see more and more tools, particularly with the amount of data that we're dealing with, where we're moving in, for instance, north of 100,000 customers a month to guide us to the effectiveness of this. I mentioned earlier that now 85% of our customers are transacting with us digitally, but there are many customers that want to do the opposite and we're servicing them quite well with, again, a whole host of even different tools that they had to conduct business with us 2, 3 or 4 years ago. So more evolution in this entire process, but very good traction, meaning that we've got more to do, and we're excited about it. Brendan Lynch: Great. That's helpful. I also wanted to ask on housing-related demand. Obviously, that's kind of been a missing element for a couple of years now. Are you seeing any signs of improvement yet or any reason to be more optimistic that 2026 would be better than 2025 or 2024? H. Boyle: Yes, sure. I mean I think housing is a component of our demand. It's been relatively stable over the last couple of years as housing transaction volumes have been relatively stable after the step lower several years ago. Clearly, interest rates are a touch lower, mortgage rates are a touch lower, that should be helpful as we think about activity going forward. We haven't seen anything on the ground yet that would dictate that there's any meaningful shifts currently. And our in-house perspective is that it's going to take some time for the housing market to continue to work through it's adjustment with a big shift in mortgage rates over the last couple of years. So I think it's probably a steady as she goes environment in housing, maybe a touch better than that. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Ryan Burke for closing comments. Ryan Burke: Thanks, Rob, and thanks to all of you for joining us today. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, greetings, and welcome to the UDR Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, the Vice President of Investor Relations, Trent Trujillo. Please go ahead. Trent Trujillo: Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, please be respectful of everyone's time and in an attempt to complete our call within 1 hour due to other earnings calls occurring after hours, we will limit questions to 1 per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey. Tom Toomey: Thank you, Trent, and welcome to UDR's Third Quarter 2025 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; and Chief Financial Officer, David Bragg. Senior Officers, Andrew Cantor; and Chris Van Ens will also be available during the Q&A portion of the call. A number of fundamental drivers of our business have been supportive of growth for much of 2025. Coupling this with our core operating advantages, resulting in an attractive same-store revenue, expense and NOI growth and enabled us to raise our full year FFOA per share guidance for the second time this year. As we start the fourth quarter, and as it has been widely reported by various third-party publications, the apartment industry has experienced a broad deceleration in rent growth. Most of our markets face some combination of employment uncertainty, slower household formation, lower consumer confidence and high levels of recently completed supply. Collectively, these factors have contributed to rent growth that has been more measured than what we anticipated as recently as 45 days ago. Even with this backdrop, we are encouraged by various indicators that suggest our residents are resilient and appreciative of the value of renting at UDR. From a long-term perspective, the United States remain structurally under-housed. Affordability of renting an apartment relative to home ownership is nearly at an all-time level of favorability. And the pipeline for future supply has materially decreased. UDR is a cycle tested, having delivered more than 10% average annual total shareholder return over the past 25 years. We will continue to focus on the items that are in our control to manage through the times of uncertainties, make opportunistic and accretive investments and deliver value to our shareholders. Looking towards UDR's next 25 years, I'm excited about our process that harnesses data, measures outcomes, create actions and drives cash flow growth. Points to make around that. Our operating teams have executed a wide range of operating innovation for years with our latest example being our customer experience project. We continue to uncover actionable insight through the millions of daily touch points with existing and prospective residents that enable our teams to measure, map and orchestrate a superior UDR living experience. This influences our operating tactics from the market level all the way down to the individual apartment home. This approach has led to industry-leading improvements in resident retention, which enhances top line revenue, mitigates expense growth and drives margin expansion. Elsewhere, our approach to capital allocation is increasingly data-driven and collaborative. Our sophisticated tools allow us to screen investment attractiveness at the asset level across more than 7 million apartment homes nationwide. We have recently executed on the insight from this platform and our teammates to identify an acquisition that holds both an attractive rent growth profile and comes with operational upside to drive yield expansion. In addition to better informing our buy and sell decisions, we are leveraging our proprietary analytics platform and the wisdom of our teams to influence our NOI enhancing and redevelopment capital expenditures, which we expect will further enhance growth in the future. Collectively, we are enthused about the innovation we continue to deploy that drives resident, associate and shareholder value. The initiatives and the platforms we have built aligned with our long-term strategy, enhancing capital allocation decisions and drive cash flow accretion. When coupled with our investment-grade balance sheet and substantial liquidity, we have positioned ourselves to attractive results for years to come. Moving on, we continue to build on our position as a recognized leader in corporate stewardship. With the release of our seventh annual corporate responsibility report 2 weeks ago, we detailed the efforts that we enabled UDR to become a more sustainable and resilient company, one that has been recognized as a top workplace winner in the real estate industry for the second consecutive year. Our achievements reflect the engaging employee experience we have built, solidifies our stature as an employer of choice and deepens our rich history as a leader in corporate stewardship. I'm proud of all we have accomplished, and I look forward to sharing more success in the years to come. Finally, I and the other members of the Board of Directors are excited to welcome Rick Clark to UDR as our newest Board member. Rick joined us earlier this month, and his appointment is the latest move in the Board's refreshment process that also included the departure of 2 long-tenured directors earlier this year. Rick brings a wealth of real estate investment and capital markets experience, having served Brookfield in various senior leadership roles for over the course of nearly 4 decades, and we look forward to embracing his perspective as we advance our strategic initiatives. In summary, UDR has an established history of innovation, a demonstrated track record of delivering attractive shareholder returns and a collaborative team with a deep bench to execute our strategy. I remain optimistic about the prospects of the apartment industry given favorable long-term fundamentals. And UDR will continue to harness data in an effort to make decisions that drive cash flow, enhance our value proposition and stature within the industry. With that, I'll turn the call over to Mike. Michael Lacy: Thanks, Tom. Today, I'll cover the following topics: our third quarter same-store results, our full year 2025 same-store growth guidance and expectations for operating trends across our regions. To begin, third quarter year-over-year same-store revenue and NOI growth of 2.6% and 2.3%, respectively, exceeded consensus expectations and were driven by: first, 0.8% blended lease rate growth, which was a result of renewal rate growth of 3.3% and new lease rate growth of negative 2.6%. Blends began the quarter ahead of our expectations, but over the last 45 days have decelerated beyond typical seasonality, which we largely attribute to the economic uncertainty. This led to our third quarter blends being below our prior expectations of 2%. Second, and more positively, annualized resident turnover was nearly 300 basis points better than the prior year period. This enabled us to unlock both revenue and expense benefits that resulted in NOI growth above consensus. Third, occupancy averaged 96.6%, which was 30 basis points higher than the prior year period. And fourth, other income growth remained strong at 8.5%, driven by continued innovation along with the delivery of value-add services to our residents. Shifting to expenses. Year-over-year same-store expense growth of 3.1% in the third quarter came in better than expectations. This positive result was driven by favorable real estate tax growth, insurance savings and constrained repair and maintenance expenses. Collectively, expenses across these 3 categories, which account for nearly 2/3 of total expenses, grew a mere 1.9%. Based on our year-to-date results through the third quarter and recognizing the trends we have experienced thus far to begin the fourth quarter, we adjusted our full year 2025 same-store revenue growth guidance midpoint to 2.4% from 2.5% previously. Occupancy, other income and bad debt have outperformed, which largely neutralized the impact of a lower contribution from blended lease rate growth through the end of the year. Positively, more moderate real estate tax and insurance growth led us to enhance our full year same-store expense growth midpoint by 25 basis points to 2.75%. Combined, we have reaffirmed our full year 2025 same-store NOI growth guidance midpoint of 2.25%. While the near-term operating environment presents some challenges, we have taken action to position ourselves well on a relative basis. In our favor is the fact that we have only 15% of our annual leases expiring in the fourth quarter. We strategically shifted approximately 5% of our lease expirations out of the fourth quarter in anticipation of a more challenging leasing environment due to both seasonality and the sheer volume of units and lease-ups. This approach has benefited us as occupancy remains in the mid-96% range and aligns with our approach to maximize total revenue. Looking ahead, the building blocks for 2026 same-store growth are coming into focus. Based on our revised outlook for blended lease rate growth, we are forecasting a 2026 same-store revenue earn-in that is approximately flat. This compares to our historical average of approximately 150 basis points and our 2025 earn-in of 60 basis points. Actual earn-in will depend on our results through the rest of the year, and we will provide 2026 guidance in February that will address our outlook for drivers of same-store revenue and expense growth. Turning to regional results. Our coastal markets are performing near the high end of our same-store revenue growth expectations, while our Sunbelt markets have lagged. More specifically, the East Coast, which comprises approximately 40% of our NOI, continue to exhibit strength with third quarter weighted average occupancy of 96.7% and blended lease rate growth of 2%. Year-to-date, same-store revenue growth of approximately 4% is at the high end of our expectations for the region. New York has been our strongest market in this region, driven by continued healthy demand and relatively low approximate new supply completions. Boston and Washington, D.C. have had similar success year-to-date, though we have experienced some cautious indicators recently due to a slowdown in job growth among some of the largest employment sectors in these 2 markets. The West Coast, which comprises approximately 35% of our NOI has demonstrated the strongest positive momentum and performed better than expected year-to-date. Third quarter weighted average occupancy for the West Coast was 96.7% and blended lease rate growth led all regions at 3%. Year-to-date, same-store revenue growth of 3% is close to the high end of our full year expectation for the region. We continue to see particularly strong momentum in San Francisco Bay Area, which delivered blended lease rate growth of 7% during the quarter. San Francisco, alongside Seattle are our 2 top-performing markets in terms of year-to-date NOI growth. Annual new supply completions in 2026 are forecasted to be low at only 1% of existing stock on average across our West Coast markets, which we expect will lead to relatively favorable fundamentals in the coming quarters. Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, still lag our coastal markets on an absolute basis due to the lingering effects of elevated levels of new supply combined with economic uncertainty. Positively, much of this supply continues to be met with strong absorption, though it has come with a general lack of pricing power. Third quarter weighted average occupancy for our Sunbelt markets was 96.5%, with blended lease rate growth of approximately negative 3%. Year-to-date same-store revenue growth for our Sunbelt portfolio is slightly negative, which lags the low end of our full year expectations for the region. Among our Sunbelt markets, Tampa continues to perform the best, while Austin, Dallas, Denver and Nashville continue to work through elevated levels of lease-up inventory from recent supply deliveries. To conclude, we delivered attractive third quarter results. Same-store revenue, expense and NOI growth were all better than expectations. Current leasing conditions are not as robust as we previously expected them to be, but we have taken action to position ourselves well on a relative basis. Longer term, the combination of a broad shortage of housing in America, a continued decrease in new supply across most markets and the elevated cost of homeownership should bode well for occupancy and pricing going forward. We will continue to tactically adjust our operating strategy for each market to maximize cash flow and leverage our innovative culture to drive initiatives that enhance our growth profile. My thanks go out to our teams across the country for your hard work and ability to drive results across all market conditions. I will now turn over the call to Dave. David Bragg: Thank you, Mike. The topics I will cover today include my initial firsthand impressions of UDR, our third quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. I'm delighted to be a part of the UDR team after following the company closely from the outside for about 20 years. I'd like to share a few of my initial impressions from the inside. First, I'm honored to lead a high-caliber and experienced finance team that has allowed me to make a smooth transition. My 5 partners who comprise our finance leadership team and report directly to me have been with UDR for an average of 13 years, and they show up to win every day. Second, UDR's culture of innovation has carried over to the investment side of the house, where our analytics effort is increasingly informing our decisions on CapEx, redevelopment, acquisitions, development and dispositions. Our capital allocation process is highly collaborative as it draws on insight from across the organization. The team's priorities are encapsulated in the heat maps for both sources and uses of capital that we publish, and we are aligned on the goal of driving long-term cash flow growth for shareholders. Third, operations. I have long respected the company's operational acumen, which I have witnessed in person on visits to dozens of UDR communities over the years. Now that I'm here, I appreciate the interplay between the corporate team in Denver and our colleagues in the field, and I am impressed by the team's ingenuity and tenacity as we navigate today's fluid operating environment. Overall, I'm inspired by the drive and camaraderie I've seen across the company and how innovation is embedded in our culture. On to third quarter results. FFO as adjusted per share of $0.65 exceeded our previously provided guidance expectations. The $0.02 or 3% FFOA per share beat to our guidance midpoint was primarily driven by NOI and the benefit related to an executive departure. This beat led us to raise our FFOA per share guidance range for the second time this year. Our new full year 2025 FFOA per share guidance range is $2.53 to $2.55 per share. The $2.54 midpoint represents a $0.02 per share or approximately 1% improvement compared to our prior guidance. Looking ahead, our fourth quarter FFOA per share guidance range is $0.63 to $0.65. Next, a transactions and capital markets update. First, we received more than $32 million in proceeds from the successful payoff of our preferred equity investment in a stabilized apartment community located in Los Angeles. Second, as part of recapitalizations, we fully funded a total of approximately $60 million at a 10.5% weighted average contractual rate of return across preferred equity investments in 2 stabilized apartment communities. One is located in Orlando, Florida; and the other in Orange County, California. Positive property level cash flow allows for approximately 2/3 of our contractual return to be paid current in cash. This aligns with our approach to focus on investments with high current pay, lower LTV and that screen favorably within our investment analytics platform. This discipline enhances the safety and performance of these deals. Third, subsequent to quarter end, we entered into an agreement to acquire a 406-apartment home community located in Northern Virginia for $147 million. The multipronged decision to acquire this asset was based on insights from our predictive analytics platform, our assessment of future CapEx needs and the operation team's on-the-ground perspective. In fact, the community is directly adjacent to an existing UDR property, which should drive efficiencies once placed on our operating platform. We are on track to close this deal in the fourth quarter and plan to fund it with dispositions currently in process. As a pair trade, we expect this transaction to enhance the long-term outlook for portfolio level cash flow. As a result, we have increased the midpoints of our full year 2025 acquisition and disposition guidance by approximately $150 million each. Fourth, during the quarter and subsequent to quarter end, we repurchased approximately 930,000 shares at a weighted average share price of $37.70 for a total consideration of $35 million. These buybacks were executed at an average discount to consensus NAV of 20% and an approximate 7% FFO yield. And fifth, during the quarter, we extended the maturity date of our $350 million senior unsecured term loan by 2 years to January 2029 with two 1-year extension options. We executed this extension at a 10 basis point lower effective credit spread compared to terms of the prior agreement. Concurrently, we entered into a swap agreement through October of 2027 for $175 million under the term loan at a fixed rate of 4%. Finally, our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs. Some highlights include: first, we have more than $1 billion of liquidity as of September 30. Second, after we repay $129 million of secured debt at maturity at the beginning of November, we will have $357 million or 6% of total consolidated debt scheduled to mature in 2026. And third, our leverage metrics remain strong. Debt to enterprise value was just 30% at quarter end, while net debt to EBITDA was 5.5x, which is squarely in our target leverage range. In all, it was a highly productive quarter for UDR. Our balance sheet and liquidity remain in excellent shape, and we are focused on capital allocation decisions that drive long-term cash flow per share accretion. With that, I will open it up for Q&A. Operator? Operator: [Operator Instructions] We take the first question from the line of Eric Wolfe from Citi. Nicholas Joseph: It's Nick Joseph here with Eric. I was hoping you could walk through how you're going to the assumption for a flat earn-in for '26 just based off of the rent growth that you've achieved year-to-date and then also what's assumed in the fourth quarter guide? Michael Lacy: Nick, it's Mike. I'll kick it off here. And maybe a couple of points even before I get into earn-in just because we've gotten a few questions regarding deceleration to the back half of the year. So I think first, it's important to talk a little bit about just how well we've done through the first 9 months of the year. And the fact that we're within, call it, 10 or 20 basis points of coastal peers in terms of total revenue growth, and basically beating every peer across our markets on a head-to-head basis as it relates to peer median wins. The team has done an incredible job. And just as a reminder, our focus is always on total revenue growth, and it's playing out as we would have expected. I'd say secondary to that and more specific to what we experienced during the quarter and for the remainder of the year is a little bit lower demand after Labor Day in terms of traffic and a little bit more of a cautious resident was apparent to us. Going forward, we believe that we have a strategically set ourselves up to drive occupancy back into the high 96% range in the fourth quarter. And a lot of that has to do with our strategy to drive down our expirations. That's starting to play out in front of us. In addition to that, we're constantly focused on individual residents at the unit basis as well as the property basis. And so we'll continue to lean into that. Specific to our earn-in, this will be in flux for the next 60 days or so as we navigate through the back part of 4Q. And as I mentioned in my prepared remarks, we do expect a relatively flat earn-in when it's all said and done, and that would assume that our blends are roughly negative 1%, negative 2% in the fourth quarter. And that earn-in of, call it, flat. It's not all across the board, across markets, regions. They're a little bit different. And just to kind of size that for you. The East Coast, my expectation today is probably closer to that 40 to 70 basis point range. The West Coast is a little bit better, maybe in the 50 to 80 basis point range. And then in the Sunbelt today, we're expecting around negative 120 to 150 basis points, just given the supply backdrop and what we're dealing with there. So it gives you a sense for what we're seeing today. But again, that can change based on what happens with market rents. Tom Toomey: Nick, this is Toomey. Just I think it's a great question. And I think Mike gave you a really good set of color points. Backing up and maybe looking at it from a high-level standpoint, I'd say this, we've mentioned a number of times the amount of data we're capturing on individual customers, traffic patterns, renewals, et cetera, literally on a daily basis. And what it's screening to us is a very cautious customer. And you can see that from the time we take -- send out a notice to the length of time it takes them to respond to the traffic patterns, how long they spend on our communities, at what price point our Internet traffic is. And so with that backdrop of a cautious customer, I think you'd say, well, how have we actioned on that data. And you saw and you have -- our strategy is really an occupancy first, and we'll match the market on rate. But we think that sets us up for the future. If this cautious customer remains, then we've already captured our occupancy and then it's focused on renewals and cash flow growth. And if it ticks up, you're going to see our ability to pivot and price because we're full. So I think you have to always look at these things not in a blend per se, what data are you looking at? What decisions are you making, how often and what are they driving towards? And in our case, it's maximize revenue, maximize cash flow. And there's a lot of things that go into that. But what I'm very proud of is how Mike's team has performed over a number of years, a number of cycles and in particularly, how we're set up right now. Operator: We take the next question from the line of Steve Sakwa from Evercore ISI. Sanketkumar Agrawal: This is Sanket, on for Steve. Can you help explain what's driving so much variability within renewal rate growth quarter-on-quarter for you guys compared to your peers? And any specific things impacting that? And should we expect this to more normalize going forward? Or this is more related to seasonality and how you guys are responding to the demand you're seeing on the ground? Michael Lacy: Yes, it's a really good question, and it kind of goes along with some of the prepared remarks and what we were just talking about a little bit is just some of the headwinds we're facing pretty much across the portfolio today, just in terms of consumer sentiment, what's happening with the jobs, immigration policy and then you add in the supply that we're facing down in the Sunbelt, and you have a different dynamic across the different regions. And for us, expectations are that it's going to be a little bit weaker here in the short term. Tom mentioned it, we're driving our occupancy up. And it does take a real focus on that individual resident and looking at property by property to try to maximize both total revenue as well as cash flow. So again, expectations are we're kind of in the thick of it right now. This is that normal period of time where demand starts to fall off. We'll see what happens as we move into next year. Operator: We take the next question from the line of Jamie Feldman from Wells Fargo. James Feldman: I guess just sticking on the theme, I'm sure you've paid attention to what your peers in the sector have done in terms of occupancy change, new lease renewal rate. And it looks like across the board, UDR has had some of the weaker results. Is there something unique to the portfolio? I know you're starting from a higher occupancy level. And Tom, I appreciate your comments on occupancy being king. But is there something else you guys can point to or that we should kind of read from this data or not read from this data? Michael Lacy: Jamie, it's a good question. We've been digging into this as well. And ultimately, the way I started the call was around our total revenue growth and how that performance relates back to some of the peers. You can look market by market and you look as a whole, we think that we've done a pretty tremendous job throughout the year. That being said, when you break it down and look at some of the metrics and specific to blends, during the quarter, we had, call it, 80 bps at the portfolio level. When you break it down and look at coast for Sunbelt, our coast was right around 2.3%. So still seeing relatively strong growth out of the coastal markets. The Sunbelt has been a little bit weaker than we expected. I've been talking about this over the last couple of months. And even in the prepared remarks, we talked about being at the low end of our guidance here. We've just seen a little bit more of an occupancy-first approach through a lot of the lease-ups that are happening in and around our properties that put pressure on our rents. But when you look at that total revenue growth and again, compare us against some of the peers within these markets, we are handily winning on a head-to-head basis. And so it points to things we're doing with other income, how we're diving into the bad debt initiatives, We are driving significant total revenue growth, and I'm proud of the teams for their efforts, and I really think it's playing out. Christopher Van ens: Yes. Jamie, this is Chris. I would say one other thing that potentially clouds the waters a little bit is the definition of what blended lease rate growth is. So when Mike and team put it together, that's all of our leases. If you just did a like-for-like 12-month comparison, you'd obviously get different numbers. So you just got to make sure that as people are really myopically focused on blends that they're comparing apples-to-apples over time. Operator: We take the next question from the line of Rick Hightower from Barclays. Richard Hightower: So obviously, there's been movement in the management team and you hired -- you brought along a pretty high-profile Board member in Rick Clark. So just help us understand some of the bigger questions for the company around future succession, the depth of the bench, what changes might we expect from the outside given what's occurred? Tom Toomey: Rich, I appreciate the question. I guess embedded in that is a number of different ones. First, let me start with the Board. Yes, Rick is a great guy. I look forward to adding his perspective to the boardroom. And clearly, it's part of our overall plan of refreshment of the Board. You saw 2 senior Board members step off earlier this year and bringing on Rick, and we continue that process as a collective group as a Board. And we'll continue to look at refresh candidates and that process. So that's just our normal course of business, and we're delighted to have Rick. With respect to the second part, management and succession, you look at it and both Dave in his prepared remarks commenting on the seniority experience level and knowledge in the finance team, he's inherited a very strong capable group, and he stepped right into that and that has gone off just as planned, if not better than planned. And with respect to the rest of the organization, succession obviously, at my level, a Board-level topic. We continue to have that on an ongoing basis and feel comfortable that we have a plan both in a range of outcomes and time frames, and we'll continue to refresh that as time evolves. The rest of the team, very experienced group. You can see the number of people we've brought through the company that remain here, but also the success of those who have left and gone on to run other companies. So I tend to think of us as a talent producer, grower. And sometimes you can harvest that internally and sometimes it grows outside the envelope, but I'm very proud of both the depth the capability of the group and the cycle testing of this group. And we're currently in one of those cycles where it will test the group, and they've performed very well. Operator: We take the next question from the line of Jana Galan from Bank of America. Jana Galan: Question on the capital allocation priorities. Recently, you've been doing a little bit of everything between the acquisitions, share buybacks and debt and PE investments. Can you maybe speak to where you're seeing kind of more compelling opportunities as you look forward? David Bragg: Jana, this is Dave. Thanks for the question. And I'll start by talking about the capital allocation process itself because it is increasingly collaborative and data-driven. Our capital committee assesses each opportunity in a collaborative fashion, and these are our goals: match funding to remain leverage neutral, and that's one; and two is improving the portfolio's long-term cash flow growth prospects. Therefore, when we think about the primary sources of capital, they tend to be 1 of 3 things: DPE paybacks; contribution of assets into JVs; or disposition of assets for which the capital committee has deemed that we have relatively low go-forward IRR potential. And then from there, we look at a menu of redeployment opportunities that we also show on our capital allocation heat map. Top priorities are consistently investing in the operations platform, NOI-enhancing CapEx and redevelopment. What's recently moved up in terms of a priority and we executed on it would be share buybacks. And we find that to remain a compelling opportunity for us. And then at times, where opportunities present itself, as we've improved our disposition process, you may see us do some asset recycling into acquisitions or activate some of our land bank. Operator: We take the next question from the line of Austin Wurschmidt from KeyBanc Capital Markets. Austin Wurschmidt: Mike, I was wondering if you could just speak a little more to the inflection that you've seen in some markets like D.C. and Boston, given it is about 1/4 of the portfolio. And I'm just wondering whether you think that the softening is a temporary phenomenon and seasonal or if you think these trends could continue to persist into 2026, given some of the indicators like job growth that you had referenced in your prepared remarks? Michael Lacy: Sure. Austin. I think first, maybe specific to D.C., just to give a little bit of color here, 15% of our NOI, we are 40% urban, 60% suburban. So we do have a very diversified portfolio in D.C., and that's helped us produce the #1 total revenue growth against the peers year-to-date. And so I'm proud of the teams for their efforts there. I think as you go out further from kind of D.C. Central, we've seen a little bit more growth. I mean, specific to places like Manassas, Woodbridge, even as you go out to Alexandria and Reston, we've seen upwards of 4.5% to 6% growth out in the suburban areas. You get down to that central D.C. area, we are still seeing about 2% to 3% growth. So still pretty strong, but a little bit weaker than the suburbs. Overall, D.C., we have seen a little bit of a deceleration over the last 60 days or so just in terms of traffic, how that's translated into blends, a little bit more on the concession front, but we're still running about 96.5% occupancy. And we continue to assess and understand what's going on with our residents. And I'll give you an example. We have about 10,000 units in D.C., and we've had probably 70 to 80 residents that we are in open communication with right now just regarding the impact of the environment out there, how it's impacting them from a furlough standpoint and getting paid. And so we're going to continue to have those open and active conversations with them to make sure that we're working with them going forward. Specific to Boston, to your point, it is another rather large market for us. It's about 11.5% of our NOI. We are more 30% urban, 70% suburban here, still seeing occupancy in that 96% to 96.5% range. A little bit more pressure in the North Shore for us because we've had more of a supply impact than a demand impact, seeing a little bit more strength coming out of places like the South Shore as well as downtown in Boston. Operator: We take the next question from the line of Michael Goldsmith from UBS. Ami Probandt: This is Ami, on with Michael. We were wondering why did you make the decision to realign the fourth quarter leases? We've now seen 2, 3 years of market rents peaking early and pretty soft pricing power in the fourth quarter. But is there anything in the analytics that's pointing to indicate that this is going to remain the case, and we won't shift back to a more pre-COVID demand trend? Michael Lacy: Yes. For us, originally, it stemmed back to supply. And so when you think about the impact of supply and the peak of it coming in the middle of the year, our expectation was you're still going to have to lease up during the fourth quarter where demand typically falls off, and so we are trying to get in front of that. And so when you think about that 15% of our leases expiring in the fourth quarter, specific to the Sunbelt, it's probably closer to about 7% to 8% that we moved out of the fourth quarter into next year, where we do feel like once we get through this supply, we will be in a better place to start pushing rents again. And so originally, it was positioning ourselves based on supply, and it just so happens to help us out given the fact that demand has fallen off a little bit more than we expected as well. Operator: The next question from the line of Adam Kramer from Morgan Stanley. Adam Kramer: I just wanted to ask about concessions in markets. And I guess both what you guys are offering maybe on average across the portfolio and then specifically in maybe some of the Sunbelt markets and then also what you're sort of seeing more broadly in these markets outside of your portfolio in terms of concessions? Michael Lacy: Sure. I'll provide a little color there, Adam. I think for us, portfolio-wide, what we're seeing today is about 1.5 week concession. That compares to about, call it, 0.07 to 1 week about 3 months ago. And so it has ticked up a little specific to some of our markets and regions, where I'm seeing a little positive activity is where it's less than 1 week. That's in markets like Baltimore, Boston, Nashville, Orange County and definitely San Francisco. Where I've seen a little bit more pressure over the last probably 2 months or so, it's in Texas, Florida, D.C., L.A. and even parts of Seattle today. Operator: We take the next question from the line of John Pawlowski from Green Street. John Pawlowski: Dave, could you share the underwritten year 1 NOI yield on the Northern Virginia acquisition? And then Dave or Mike, could you give us a sense how much margin lift you will get at the 2 adjacent or close to adjacent properties from potting operations versus if you just own 2 assets far apart in that market? David Bragg: JP, thanks for the question. Happy to talk about The Enclave acquisition. And it really is an output of this collaborative and data-driven investment process. And so we'll tackle it as a team. I'll start with a few high-level thoughts. Chris, who has built an impressive investment analytics platform, he can speak to that, and then Mike can clean up with the operations perspective. About your question directly, the year 1 yield that we're underwriting is about mid-5%. That's consistent with the opportunities that we observed in that market. In D.C., there are some questions about that market given the government shutdown. It's a serious situation, but we believe it will prove to be temporary as has been the case in the past. And our investment decisions are made with a long-term perspective in mind. D.C.'s economy has been and will continue to be partly reliant on the federal government, but the share of jobs tied to the federal government has declined in recent decades as the local economy has diversified around other sectors, including tech, and we expect this to continue. And we're increasingly playing not a market level game, but an asset level game when we select assets, and Chris will get into that. Before I hand it off to him, I just wanted to talk about the funding source, which is dispositions. As we assess dispositions, we consider several factors, including rent growth outlook, CapEx outlook per our team's intimate familiarity with our assets and then the operation team's perspective. And importantly, on this one, we're utilizing a reverse 1031 exchange to preserve tax capacity for buyback activity. Go ahead, Chris. Christopher Van ens: Yes, sure, Dave. Thanks. And before I get into the specific analytics around Enclave, maybe I'll take a quick step back just because I want to make sure everyone on the call knows what we're referring to when we speak to our investment analytics platform. So we've really been working on our investment analytics platform for a number of years now. I would tell you, over the last year, 1.5 years, though, I think we've really supercharged our progress. That's through some investments in technology solutions, software solutions, dedicated headcount that are expanding and improving the platform. I'd tell you the first thing to probably know about the platform is that it is expansive. It covers 35 markets currently, including all of our markets. That's about 7 million apartment homes, utilizes a large amount of proprietary UDR data. Obviously, UDR has been around for a long time. We do have a lot of data use, which is great. But we also use a significant amount of third-party data often in quite unique ways, I think. The second thing to know, I would say, is that it's highly predictive of future relative rent growth at the market, the micro market and the asset levels. But by no means, and I'd be the first one to tell everyone this, it's perfect. It's an important tool in our process, but it's definitely not the only tool, a lot of things like operational upside, which Mike can cover in a second CapEx opportunities, et cetera. Specific to Enclave, I would tell you, as we look at the analytics, first off, D.C. is a neutral weighted market for us. That means we don't think it's going to necessarily outperform the portfolio or underperform the portfolio from a forward rent growth perspective over the next 6-plus years. Micro market around Enclave, somewhat similar, a little bit better than neutral, so maybe a little bit above average. But where the analytics really like the transaction is at the asset level. And that's very important to us because I kind of remind everyone, in case you've heard this before, but being right on the asset is about 2x more impactful to forward rent growth than being right on the market at the end of the day. So the analytics, what do they like about Enclave? Well, they like things like unit size, they like things like unit mix, the rent level, the supply dynamic around that property, et cetera. So we feel good about it from an analytical perspective, and then Mike can fill in on what the operational upside is. Michael Lacy: Yes. Thanks, Chris. A few things for me. I think, obviously, the first thing is the proximity. The fact that it's across the street from one of our assets today and arguably one of our better teams that we have out there. And so we're excited about that. When we think about margin, when we look at a trailing 12 to where it could go over, call it, a 3-, 4-year period of time, we see about 500 basis points in expansion. And so we think we can get it up to about 85%, which is close to our D.C. average today. And we're going to do it through things like headcount reduction, parking initiatives, adding package lockers, doing some flooring ROIs, things of that nature. And I'd tell you, even in addition to that, we see low supply out there, average income of about $130,000. It's located just off of I-95, and this is the best-performing submarket in D.C. for us today. Operator: We take the next question from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: A question on retention. It's been the saving grace of apartments this year in terms of healthy renewal spreads and record low turnover. But I guess at some point, that probably stops or slows down and reverses. So are you guys concerned just with how jobs are looking, layoffs, all the sort of nervousness that you and other apartment REITs have talked about? Are you guys nervous that retention may start to slip and what has been the saver may start to be a headwind? Michael Lacy: Alex, it's Mike. I'll kick it off and everybody else can jump in. I think for us, you point to some of the facts. And so you go from when we started really rolling out our customer experience project back in 1Q of '23, we have had the most improvement over the peer group since that period of time. We've been able to reduce our turnover by about 600 basis points since that period of time. We continue to see quarter-over-quarter declines in turnover. I can point to what we see today for October as well as the rest of the fourth quarter. My expectation is that's going to continue to be down on a year-over-year basis. And a lot of that has to do with focusing on the process, focusing on the initiatives and really diving into the data to understand how we can change that trajectory. And it's truly going from that transactional to more of a transformational shift and focusing on the lifetime value of our customers. So I think there's still room here. I think some of the things that we're working on right now that's going to allow us to continue to push our turnover down is just the touch points reaching out to our residents. In fact, we've had about 30,000 additional touch points this year to be more proactive versus reactive. That's paying dividends today. We're allocating resources to solve things on the move-in experience, callback tickets, even backlog issues, that's making a difference. We put in place playbooks that's around that move-in experience as well as just throughout their life cycle that works and what doesn't work. That's paying dividends. And I think the biggest thing that we're leaning into right now is just the sheer volume of getting positive reviews. When we look at our website and we look at how people are deciding where to live and how long to stay somewhere, we've really been able to identify that 4- to 5-star review is very impactful. And for us, we've had about 5,000 year-to-date 4- to 5-star reviews. That compares to about 1,500 this time last year. And so we think that's going to continue to help us as we move forward, too. So at the end of the day, we still think there's a lot of room to lean in here and really to drive these results. Tom Toomey: Alex, this is Toomey. Just to add on, certainly, housing policy in America has evolved as long as you've been in this industry in a number of ways. And right now, I'm more interested in seeing what happens in the Fannie, Freddie going public and what happens to mortgage rates because of that. And so there are positive things to look at. You're right, our business is driven on the employment picture and ability for that. Certainly with the current unemployment number, if you take the accuracy of any number out of D.C. right now, bodes well. And we'll just see how this plays out. But I think the housing policy aspect, I don't see much of a major. I see it more of a tailwind than a negative. And on the employment picture, it's going to be played out. And just to cap it off, I think Mike and team are really more responsive to the individual interactions and decisions just as Chris has highlighted the individual asset and the individual performance. And so this is really our overriding theme, which is how do we convert data to actions to increase cash flow at a higher velocity and stop trying to just ride the waves, but how do we get on top of it and stay there and be anticipatory of it. So I think the company is built for a lot of different economic cycles. Management team has been through a lot of different ones. We'll manage the cards as they're dealt, so to speak. Operator: We take the next question from the line of Julien Blouin from Goldman Sachs. Julien Blouin: Dave, I was wondering what you make of the JV with LaSalle given some of the issues with deployments through that channel in recent quarters and whether that falls maybe lower on your list of capital allocation priorities? David Bragg: Julien, thanks for the question. Actually, it's quite high on our list of priorities, the LaSalle JV is. And consistent with last quarter's update, we do continue to work on a contribution of assets from our balance sheet that fits mutual goals shared by them and by us. And this will allow us to earn fees and use proceeds to expand our portfolio with new investments that we find compelling. So I think that you'll see more news from us on that front soon. The incremental buying power in the JV is a bit over $500 million, and we're really excited to both explore these balance sheet contribution opportunities as well as external acquisitions as we grow that JV going forward. Operator: We take the next question from the line of John Kim from BMO Capital Markets. John Kim: Thumbs up on the one question policy. I wanted to ask about your market strategy. So I'm trying to juxtapose increasing your exposure to D.C. at this time, just given the demand headwinds. I know you talked about that acquisition quite a bit. But juxtapose that with your decision recently to lower your exposure to New York. And if you could provide an update on the marketing of Columbus Square that your partner is doing and whether or not you plan to participate in that process? Tom Toomey: Why don't I start off, this is Toomey. I'll ask Andrew to give you an update on Columbus and where that stands and then maybe I'll give some more color on the other aspects. So... H. Andrew Cantor: Thank you, Tom. This is Andrew. As everyone knows, our JV partner is marketing for sale. Its stake in the venture and is currently working through that process is what I would tell you. We are not either a buyer of that stake or changing our ownership position. And we will continue to manage the venture on a go-forward basis after the sales process and that is completed. Tom Toomey: With respect to markets in D.C. and New York, you're going to see us, as Chris has pointed out, recycle individual assets. And so we have a number of assets in the marketplace. You may not follow them, but I think there's a total of 6. D.C. is part of that composition of what we're exposing to the market. And I think you'll see us less targeting markets or balancing the portfolio and looking at individual assets. We've got over 180, and we're trying to say what would that -- the worst one, if you will, or the one with the least amount of prospects in the future trade for versus something that we're excited about as you saw us just trade. So we're looking at them in individual, not in an overall market type of communication, and that will happen both on the buy and the sell side of the equation. Christopher Van ens: Yes, John, I would just follow up real quick on the New York assets because they were a little bit unique as well, and Andrew can jump in with some of his thoughts if he wants to. But One William, it was in our New York bucket, but obviously, it was New Jersey. It was probably 30, 40 minutes outside the city. They had some rent control there that we were looking at the regulatory issues, and that potentially was going to change. So that one was kind of an orphan in the New York. It was inefficient. We decided that the price made a lot of sense, and we were able to offload it at the beginning of '25. As far as the Brooklyn asset, that was 100% rent stabilized. So depending on what you think is going to happen going forward in New York City right now, that was a rather prescient, I would say, sale at the time. We obviously didn't know that this was going to happen either potentially, but we feel very good about that one. And yes, that was less a little bit about market than more about, "Hey, maybe these are not the most efficient assets in the portfolio." Operator: We take the next question from the line of Alex Kim from Zelman & Associates. Alex Kim: I appreciate the time today and applaud the one question policy. Could you talk about your other income growth and provide some more detail on how it contributed to sequential same-store revenue growth? And as part of it, have you seen any realized benefits from funnel? Michael Lacy: Sure. Specific to other income, it's always good to size it. And this typically makes up around 11.5% of our revenue. So roughly $175 million out of $1.5 billion. What we saw during the quarter was right around 8.5% growth across this line item. And some things were higher than others, and I'll give you a few examples. Our parking initiative was up around 11% or $1.3 million. WiFi has been a continuous rollout for us over the last 12 to 18 months. We saw about a 63% or $1.5 million increase during the quarter. And then we saw things like our package lockers, pets, things like that, that were up in that double digit -- low double-digit range as well. On the slight negative, if I had to give you one, we are seeing some less activity on things like short-term furnished rentals, common area rentals, even some of our corporate exposure at this point has come down a little bit. So we've been able to offset that, obviously, still driving very high other income growth and going to continue to lean into those initiatives to drive outperformance into the foreseeable future. Specific to funnel, where we're seeing a little bit more is transparency. So we are able to see what's going on at the property and vice versa with our centralized teams here. Everybody has one view on what's happening with our customers, our prospects. It's allowing us to be a little bit more nimble. It's allowing us to lean into some of those 30,000 touch points I mentioned earlier just because we have more data that's going to the system. It's allowing us to drive more and quicker decisions as it relates to the customer experience project. And so where it's paying dividends is really on that turnover. Operator: There are no further questions in the queue. I'd just like to hand the call back over to the Chairman, President and CEO, Mr. Tom Toomey, for his closing comments. Tom Toomey: I want to thank all of you for your time, interest and support of UDR. We look forward to seeing many of you in the upcoming events. And with that, take care. Operator: Ladies and gentlemen, the conference of UDR, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.