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Operator: Ladies and gentlemen, it's Taylor Morrison Home Corporation's 2025 Earnings Webcast and Conference Call will begin shortly with your host Mackenzie Jean Aron. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. We will begin shortly. Good morning, and welcome to Taylor Morrison Home Corporation's Third Quarter 2025 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I'd now like to introduce Mackenzie Jean Aron, your host. Vice President of Investor Relations. Please go ahead. Mackenzie Jean Aron: Appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session, will include forward-looking statements. These statements are subject to the Safe Harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Denise Palmer. You, Mackenzie, and good morning, everyone. Joining me is Curt VanHyfte, our Chief Financial Officer, and Erik Heuser, our Chief Corporate Operations Officer. We are pleased to report strong third quarter results despite the continuation of challenging market conditions. Driven by our diversified portfolio and our team's careful calibration of pricing and pace across our well-located communities, we once again met or exceeded our guidance on all key metrics, including home closings volume, price, and gross margin. The ongoing execution of our balanced operating strategy has allowed us to maintain healthy performance even as we have adjusted pricing and incentives, particularly in entry-level price points. Combined with a thoughtful approach to land lighter financing tools and effective cost management, our business is generating strong bottom-line earnings, cash flow, and returns for our shareholders. With approximately 70% of our portfolio serving move-up and resort lifestyle homebuyers, our financial performance is supported by the strength of our broad consumer set. However, even though these generally well-qualified buyer groups are less sensitive to affordability constraints, all consumer segments have been impacted by macroeconomic and political uncertainty, which has weighed on buyer urgency and shopper sentiment. In addition, consumers are aware of the current competitive dynamics in the marketplace and are carefully weighing available incentives, pricing, and spec offerings in their purchase decisions. Appreciating these dynamics, we are focused on deploying innovative and compelling incentives and pricing offers to support buyer confidence and improve affordability. Leaning into the appeal of our well-designed spec and to-be-built homes to meet consumer preferences and carefully managing new starts as we continue to right-size inventory and prepare for next year's spring selling season. Given our quality land locations, the majority of which are in prime core submarkets, our sales strategies are driven community by community based on their unique selling proposition, competitive analysis, and consumer profile. In all communities, we strive to price to market to remain competitive and offer our homebuyers the greatest value. In some communities, this results in a price-focused approach to drive volume, especially where we serve predominantly first-time buyers and differentiation is more challenging given market competitive pressures. However, in move-up and resort lifestyle communities, we are inclined to be more patient to protect values given our distinct locations and product offerings in hard-to-replace communities. We are able to execute this balanced approach in part because we have a well-structured land bank that provides a flexible and capital-efficient lot supply. As I said last quarter, while the near-term outlook calls for a more patient trajectory, we strongly believe that we have the platform to jump-start outsized growth as market dynamics stabilize. In the meantime, we are doubling down on opportunities for cost management with our suppliers, value engineering with our product offerings, and overhead efficiencies in our back office. These efforts helped drive year-over-year improvement in our direct construction costs and 80 basis points of SG&A leverage. We are also continuing to expand our industry-leading tech-enabled sales tools, which are contributing to growing cost efficiencies as well as an improved customer experience. I'm pleased to share that we recently launched an industry-first AI-powered digital assistant across select on taylormorrison.com. Unlike traditional chatbots seen in our industry that rely on scripted responses forcing home shoppers through a predetermined path, our new digital assistant leverages generative AI to provide dynamic data-driven guidance that better mirrors an in-person sales interaction. Our digital assistant guides consumers through their discovery journey, provides them detailed answers to each shopper's unique questions, and helps convert interest into action, supporting lead generation and customer acquisition. This technology marks a meaningful advance in how we engage prospective buyers online, and it's another step in our ongoing digital innovation strategy as today's consumers increasingly seek intuitive, personalized shopping experiences. As to recent demand trends, we were encouraged to see monthly net absorption paces improve each month during the quarter, with September pacing at the strongest level since May, in contrast to typical seasonal slowing into the end of the summer as the improvement in mortgage interest rates helps spur activity. In total, our monthly absorption pace was 2.4 per community for the quarter and has averaged 2.7 year-to-date, slightly below our long-term target as demand has remained somewhat choppy. However, there are positive signs that potential buyers are cautiously engaged in the market. For one, our latest national home buying webinar, a free educational opportunity, we offer home shoppers to equip them with the knowledge needed for a successful home buying journey attracted over 400 attendees. That's a 155% increase from our last webinar. In addition, total website traffic is up double digits and mortgage prequalification volume is trending similarly to year-ago levels. I continue to believe that for our generally well-qualified diverse customer base, improved confidence in the broader economic and political outlook will be the most important determinant of demand stabilization, especially for discretionary home purchase decisions in our move-up and resort lifestyle communities. Among the many headlines impacting confidence, uncertainty related to H-1B policy and broader immigration-related changes have weighed on nonresident buyer activity, with Dallas, Austin, Atlanta, and the Bay Area feeling the greatest impacts. From a consumer standpoint, the mix of our orders by buyer groups stayed relatively consistent sequentially in the third quarter at 30% entry-level, 51% move-up, and 19% resort lifestyle. On a year-over-year basis, our first and second move-up set held in most strongly, while our entry-level segment pulled back as did our resort lifestyle segment due to performance in our non-Esplanade communities. Going a step further, specific to our Premier Esplanade segment, which accounts for just over 10% of our portfolio orders, were flattish year-over-year benefiting from a handful of new community openings. Given the brand's affluent customer base, this segment of our portfolio is relatively insulated from interest rate concerns and instead more reliant on consumer confidence. Positively, we did see improved shopper engagement in Esplanade during the quarter with many consumers exploring multiple communities across markets with a willingness to travel to find their preferred combination of lifestyle, location, and price. With a healthy pipeline of new Esplanade communities scheduled to open in 2026, we remain encouraged by the strength of this consumer group and the opportunity to capitalize on this brand's unique lifestyle offerings in the years ahead. As we look ahead to 2026, it's still too early to provide guidance, but there are a few strategic priorities I would emphasize as we contemplate next year's opportunities against ongoing uncertainties. To begin, we have well over 100 communities expected to open next year, resulting in mid to high single-digit anticipated outlet growth. Many of these communities are slated to open in time for the spring selling season, which should help support our sales pace and delivery goals next year. We also have realized significant cycle time savings as Kurt will detail, providing improved flexibility to start and close homes within the year, including build-to-order homes. While we hope to begin gradually shifting our deliveries closer to a more balanced mix of to-be-built and spec homes over time from our current mix of roughly 70% spec and 30% to-be-built sales, this normalization will take time and be dependent on customer demand. For now, specs will continue to bridge the gap between current buyer preferences for incentivized quick move-in inventory and an eventual return to more historic preferences for personalizing to-be-built homes, especially in our move-up and resort lifestyle communities, which have long been heavily weighted to to-be-built sales. Recognizing this unique environment, we are fortunate to have experienced teams across our divisions with the expertise to respond to local market conditions effectively to best serve our homebuyers. With that, let me now turn the call over to Erik. Erik Heuser: Thanks, Sheryl, and good morning. At quarter end, we owned or controlled 84,564 homebuilding lots. Of these, just under 12,000 lots were finished. The balance are being and will be value-enhanced by normal course entitlement and development efforts over time. Based on trailing twelve-month closings, this represented 6.4 years of total supply, of which 2.6 years was owned. The majority of our lots are in prime locations and core submarkets where we believe long-term fundamentals are healthiest. This core location strategy has helped to partially insulate us from the elevated level of new and existing home inventory in some markets. We control 60% of our lot supply via options and off-balance sheet structures. This is up from 57% at the 2024 and is considerably higher than the year-end low watermark of 23% in 2019, as we have made significant progress in our asset lighter strategy. Importantly, we have done so by prioritizing seller financing, joint ventures, and other option takedown structures, complemented by land banking at rates not historically seen. By utilizing each of these vehicles, we look to optimize the trade-off between gross margin and expected returns. As we continue to strategically deploy these tools, we believe we are well on our way to achieving our goal of controlling at least 65% of our lots. With respect to the land market, we have seen some development cost relief and favorable in land sellers' expectations regarding land structures and values. This has translated into an increased receptiveness on the part of land sellers to structure deals with terms, our preferred financing route, or in a growing share of deals to also adjust pricing. In the third quarter, our investment committee reviewed land acquisition updates that contemplated favorable transaction enhancements impacting nearly 3,400 lots and more than $500 million of purchase price. These enhancements resulted in an 8% average price reduction, six-month average closing deferral, and other structural improvements. These negotiations related to current deal flow as well as deals that were originally approved as far back as 2023. Partially as a result, we have invested $1 billion in homebuilding land year-to-date as compared to $1.8 billion at this time last year. We regularly review and evaluate our deal pipeline to underwriting assumptions and ensure each new deal and additional phase meet our thresholds prior to closing. With the flexibility to be patient, given our existing lot supply, we now expect to invest approximately $2.3 billion this year, down from our prior expectation of approximately $2.4 billion and our initial projection of $2.6 billion coming into the year. Especially in volatile markets, our investment discipline is critically important to ensuring our portfolio is set up to perform for the long term. Turning to our Build to Rent platform. We previously announced that we had entered into a $3 billion financing facility with Kennedy Lewis to support our Yardley business, which as a reminder provides an attractive and affordable single-family living experience in amenitized rental communities. During the third quarter, we transferred 14 of our 22 non-JV projects from our balance sheet into the vehicle, providing capital relief of approximately $140 million. We expect to complete the transfer of a handful of additional projects by year-end, which would release another approximately $50 million. In total, these transfers address over $1 billion of funded project costs. Even more meaningfully, on a go-forward basis, the structure allows us to jointly underwrite new Yardley opportunities, which can then be acquired, developed, and constructed fully off-balance sheet within the vehicle, providing significant capital efficiency and optionality as we continue to scale this unique business and optimize disposition strategies. Consistent with this optionality, we now expect to sell two projects by year-end as we have taken a more patient approach given recent market conditions. Now I will turn the call to Curt. Curt VanHyfte: Thanks, Erik, and good morning, everyone. Turning to the details of our financial results for the third quarter. We reported net income of $201 million or $2.01 per diluted share. This included inventory impairments, pre-acquisition abandonments, and warranty adjustments. Excluding these items, our adjusted net income was $211 million or $2.11 per diluted share. During the quarter, we delivered 3,324 homes, which slightly exceeded the high end of our guidance range of 3,200 to 3,300 homes due to faster cycle times. The average closing price of these homes was $602,000, also slightly ahead of our guidance of approximately $600,000 due to a favorable mix. In total, this generated home closings revenue of $2 billion. We are closely managing our starts volume based on community-specific inventory levels and incremental sales. During the quarter, we started 1.9 homes per community equating to 1,963 total starts. We ended the quarter with 6,831 homes under construction, including 3,313 specs of which 1,221 were finished. Our total spec count was down approximately 15% from the second quarter. As we look ahead to 2026, we will be strategic in putting new spec starts into production in advance of the spring selling season. Appreciating that our current spec inventory remains elevated and the demand environment is fluid. Positively, the ongoing improvement in cycle time has significantly strengthened our ability to flex production levels. In the third quarter, we realized another roughly ten days of sequential savings, leaving us about thirty days faster than a year ago and ninety days faster than two years ago. Even still, we believe there's further room for improvement as we are continuing to find opportunities for additional efficiencies throughout the construction schedule aided by the slowdown in industry-wide starts. Based on our current inventory position, we expect to deliver between 3,100 to 3,300 homes in the fourth quarter. This implies an updated full-year home delivery target of 12,800 to 13,000 homes. Reflecting our current backlog and recent sales paces, we expect the average closing price of our fourth-quarter deliveries to be approximately $590,000, which would leave our full-year closing price at the low end of our prior range of $595,000. Our reported home closing gross margin was 22.1%. While our adjusted home closing gross margin, which excludes inventory impairment and certain warranty charges, was 22.4%. This was slightly ahead of our guidance of approximately 22%. The upside was due in part to a favorable mix of higher-margin to-be-built home closings, which benefited from faster cycle times. Conversely, for the fourth quarter, we expect a modest mix headwind from a higher penetration of spec home closings. With spec homes accounting for 72% of third-quarter sales, but 61% of closings, we expect our spec closing penetration to increase in the near term. As a result, we expect our home closings gross margin, excluding any charges, to be approximately 21.5% in the fourth quarter. This would imply a full-year home closing gross margin of approximately 22.5% on a reported basis and roughly 23% on an adjusted basis, consistent with our prior expectations. Erik Heuser: Now to sales, Curt VanHyfte: Net orders in the third quarter totaled 2,468 homes, which was down just under 13% year over year. This was driven by moderation in our monthly absorption pace to 2.4 homes per community from 2.8 a year ago, partially offset by a 3% increase in our ending community count to 349 outlets. Cancellations equaled 10.1% of our beginning backlog and 15.4% of gross orders. While cancellation activity has increased due to a change in consumer sentiment, we believe our cancellation rates remain below industry averages driven by our emphasis on pre-qualifications, $45,000 average customer deposits, and the overall financial strength of our buyers. Looking ahead, we now expect our outlet count to be approximately 345 at year-end, slightly below our prior guidance as we have intentionally delayed some openings into the New Year when anticipated selling conditions are stronger. As Sheryl said, we have well over 100 communities expected to open next year, resulting in mid to high single-digit anticipated outlet growth in 2026. We once again realized strong expense leverage as our SG&A ratio improved 80 basis points year over year to 9% of home closings revenue. This improvement was driven primarily by lower payroll-related costs and commission expenses. For the year, we continue to expect our SG&A ratio to be in the mid-nine percent range. Our financial services team maintained a strong capture rate of 88% during the quarter, which drove financial services revenue of $56 million with a gross margin of 52.5%. This was up from $50 million and 45% respectively a year ago. Among buyers using Taylor Morrison Home Funding, credit metrics remained healthy and consistent with recent trends with an average credit score of 750, down payment of 22%, and household income of $179,000. Before turning to our balance sheet, I wanted to highlight that during the quarter, we incurred net interest expense of $13 million, up from $3 million a year ago driven primarily by our land banking vehicles. We expect to incur a similar amount of net interest expense in the fourth quarter. Now on to our balance sheet. We ended the quarter with strong liquidity of approximately $1.3 billion. This included $371 million of unrestricted cash and $955 million of available capacity on our revolving credit facility. At quarter-end, our net homebuilding debt to capitalization ratio was 21.3%, down from 22.5% a year ago. During the quarter, we repurchased 1.3 million shares of our common stock outstanding for $75 million. Year to date, we have repurchased a total of 5.3 million shares for approximately $310 million, representing approximately 5% of our outstanding share count at the beginning of the year. As a result, we are well on track to achieve our full-year repurchase target of at least $350 million as we remain focused on returning excess capital to shareholders and taking advantage of the attractive valuation of our equity. At quarter-end, our remaining repurchase authorization was $600 million. Inclusive of our repurchase target, we expect our diluted shares outstanding to average approximately 101 million for the full year, including approximately 99 million in the fourth quarter. Now I will turn the call back over to Sheryl. Sheryl Denise Palmer: Thank you, Kurt. I'd like to end by acknowledging the recent focus on addressing the country's critical need to help make housing more affordable. At Taylor Morrison Home Corporation, we welcome the opportunity to work collaboratively towards expanding homeownership and improving accessibility. We have long strived to build strong communities and deliver affordable, desirable housing options that serve the needs of our customers with both for sale and for rent offerings. We applaud the administration's commitment to improving the cost and availability of housing and look forward to contributing towards meaningful solutions. I also want to end by thanking our entire team for once again delivering results we are proud to share. Your commitment to our customers, communities, and each other is second to none, and I am confident we will continue to navigate this market successfully. Thank you to everyone who joined us today, and let's now open the call to your questions. Operator, please provide our participants with instructions. Operator: Of course. Thank you very much. We'd now like to open the lines for the Q&A. Our first question comes from Trevor Scott Allinson from Wolfe Research. Trevor, your line is now open. Trevor Scott Allinson: Hi, good morning. Thank you for taking my questions. Want to start with your views on the potential action from the administration to encourage volume. And Sheryl, I appreciate your comments in the prepared remarks. Have you guys had conversations directly with the administration on the topic? And if so, can you talk about specifically what they're looking for from you as a home builder? And do these conversations change your views at all on your approach to volume versus pace in the current environment? Sheryl Denise Palmer: Well, thanks, Trevor. Appreciate the questions. You know, as has been reported, there's a number of meetings that have been held. And, honestly, I believe it's great for the industry that we're having these very productive conversations with the administration. So the discussions are really about how we can overcome the housing shortages in this country and most critically, how do we make housing more affordable. You know, we do have some excess inventory in the system. Everyone knows today that builders are working through, and we need to be very thoughtful about how that happens. But I think we can all agree that we have an affordability issue, and it didn't happen overnight. It's gonna require tremendous collaboration by a number of stakeholders to solve. It's a very complicated issue, you know, but the good news is it's getting tremendous focus by a lot of smart people. We need to tackle rising land costs, local regulations. The list just goes on and on. I would tell you we are in the early days. So more to come. But rest assured that Taylor Morrison Home Corporation and all the big builders want to be part of the solution on providing the right housing for Americans. And I'm quite confident given the meetings we've had that we'll see opportunities and progress. I'd also point you to the LDA statement that went out a couple of weeks ago. I think it did a really nice job representing the position of all the big builders. And as far as your second part of that question, you know, we're gonna continue to do the right thing community by community, asset by asset. As we've talked about for years, Trevor, we don't make that decision globally. We really look at the balance of price and pace in consumer group in every community. And we'll continue to do that. It's not gonna be helpful to flood the market with inventory that can't be absorbed. So we just need to be very conscious of, you know, the dynamics in each submarket. Trevor Scott Allinson: Thanks for that, Sheryl. And makes a lot of sense. I think that's a very logical approach. And then second, on recent demand trends, you talked about demand improving sequentially throughout the quarter, which is very encouraging. Are you seeing a difference by consumer segment just thinking as rates came down, did you see entry-level traffic become more engaged? Or is it more broad across consumer segments? And then any color on if those improved trends continued into October? Thanks. Sheryl Denise Palmer: Yeah. Great question. You know, I would tell you it's been pretty broad-based, Trevor. And I shared just like, you know, prior discussions, that it almost comes down to, once again, community by community. You know, for example, entry-level, absolutely, we've seen traffic pick up. But we know we have, you know, affordability issues we're trying to solve for. When we look at our move-up and our resort lifestyle business, you know, there continues to be increases in traffic, increases in web traffic, foot traffic, and actually, I'm quite encouraged, you know, with the resort lifestyle as we move into the shoulder season. That's gonna continue. That consumer group is, you know, more sophisticated. They know what's going on in the market. So the opportunity is to convert them from traffic to action. And we have a lot of tools if it's anything from everything from our incentives, our mortgage programs to our new AI tool to help consumers get from start to finish. Trevor Scott Allinson: Thank you for all the color, good luck moving forward. Sheryl Denise Palmer: Thank you. Appreciate the questions. Operator: Thank you very much. Our next question comes from Michael Glaser Dahl from RBC. Michael, your line is now open. Michael Glaser Dahl: Hi, great. Thanks for taking my questions. Cheryl, as part of the sequential trends, I was hoping you could elaborate on incentives. You talked in your remarks in the press release about kind of innovative and compelling. I mean, obviously, rate buy-downs have been out there for years now. So you know, what are you doing that's different? Is this kind of lower teaser rate? Is it arms? Like, what do you think you're doing that may be playing a role in helping to drive that customer off the sidelines? Sheryl Denise Palmer: Yeah. I would tell you, honestly, Mike, it's all of the above. As you know, we continue to use, you know, both on the conventional and the FHA loans, we're using buy-downs. We're using adjustable loans. We also have proprietary loans for our inventory that's, you know, just gotten in the ground or specifically our to-be-built. Really trying to stimulate that business. Have recently just introduced a new proprietary nine-month program for our to-be-built. I think most of those are done with Fannie and Freddie through the window. We've got a slightly different program. And it really gives our customers flexibility on a forward lock. But the, you know, security of a longer period of time they, you know, if they believe rates are gonna drop. Obviously, in most of these programs, we also have the ability for a free float down. So you know, I think for us, Mike, it's really about making sure we personalize each customer's experience. Some of them need help with closing costs. Some of them, you know, don't know how, you know, aren't expecting to be in the house a long time and adjustable program seems most helpful. Some need the confidence of a thirty-year lower fixed rate. So it's really making sure we understand the customer needs and we just have a plethora of programs to provide. Michael Glaser Dahl: Okay. Got it. That's helpful. And then, Cheryl, I know it's early to give 2026 commentary. You did highlight a couple of things around community account growth. Specs maybe being a bridge to help you a little bit in the near term. I think some of that probably alludes to the fact that your backlog down nearly 40% in dollar terms year on year and probably the year somewhat similarly. The obvious question we get from investors is if you have a traditional kind of build-to-order builder go into next year with backlog down that much? How can you possibly drive to even flat revenues? Or do you have a significant gap out? So maybe can you just talk to how you're viewing that as you go into the spring? It sounds like maybe you're a little more willing to put some specs in the ground where others are pulling back a little. But just give a little more detail on how we solve thinking about that positioning. Sheryl Denise Palmer: Yeah. I think you have to hit it from a number of angles. Mike, first of all, I think we've been very clear that we're gonna do look at each community and make sure we understand the right need and put the right number specs in the ground. Our specs, as I said, I think both Kurt and I said in our prepared remarks, are a little higher. We pulled back a little bit in the third quarter to see what happened to sales paces. We have the fourth quarter given the reduction in construction cycle. It gives us much more time. I think back to a year ago where we probably had to have houses in the ground by January and February and probably no later than March depending on the community or market. Today, that can go till next July or August. So you've fundamentally picked up at least another quarter of production cycle next year. You combine that with our ability to add new to-be-built, you know, well into next year and the community count growth, then we're gonna really seek to understand the market, and we have the platform to ramp up starts if the market is there for it. But as I've said, we're not gonna force inventory in the ground. In some communities, we find that pricing has been inelastic. And so we really have to make that decision community by community and balance, you know, profitability along with volume. Michael Glaser Dahl: Got it. Okay. Thank you. Operator: Thank you very much. As a reminder, if you'd like to raise a question, our next question comes from Michael Jason Rehaut from JPMorgan. Michael, your line is now open. Michael Jason Rehaut: Great. Thanks very much. Good morning, everyone, and congrats on the results. Sheryl Denise Palmer: Thank you. Operator: Wanted to first drill down on, you know, how you're thinking about, you know, specifically about spec inventory. Sorry. Saying early that it remains elevated, I think it's kind of one of the key reasons why you're looking for a little bit of a dip down sequentially in 4Q gross margins. Trying to get my arms around how you're thinking about this going into the first half of next year, if you would expect this kind of drag or headwind to remain in place or even accelerate. And, you know, if you're kind of working through excess spec inventory, let's say, the current fourth-quarter pace, when might assuming the market trends follow normal seasonality, when might that overhang dissipate? Sheryl Denise Palmer: Yeah. I think similar to what I said to Mike Dahl, I think it's a balancing act, Mike. I mean, obviously, it's our intention to work through the inventory, and then we have a lot of new communities that will be bringing new inventory to the marketplace, and we'll be monitoring it month by month as we look at our fourth-quarter starts. We've always said we're going to align sales pretty close to start. You saw us pull back a little bit on that in the fourth quarter because the inventory was in the third quarter. Going into the fourth quarter, and so we're gonna play that by ear, but we're in a position if it's permits on the shelf, ready to respond to the demand in the marketplace. But like I said, we're not gonna flood the market with inventory, so we're really going to pace it based on sales and opportunity. Michael Jason Rehaut: Okay. Appreciate that. And I guess just looking at your different regions, you talked about September being a little bit better from a within the quarter and perhaps that's continued into October. From a regional standpoint, I'm curious if you've seen the strength more concentrated in any areas and specifically maybe you could kind of go around the world in terms of which markets remain on the margin stronger than average, weaker than average. We heard comments yesterday that maybe Florida showing a little bit of signs of stabilization. So love your thoughts on that as well. Sheryl Denise Palmer: Certainly. I'd be happy to. Yeah. You know, I would with the comments on Florida, Mike. You know, we continue to be very bullish around Florida. I think Florida was the last to really adjust if we think about the last few years, but the good news is given how late it was to the party, we're already seeing green shoots on inventory sales activity. When I look at our sales, half of our Florida markets were up year over year. In fact, Orlando had the highest paces in the country. Closings for the quarter were up almost across the board in all of our Florida markets. And half the market saw improvement in their margin in the quarter year over year. Heading in the shoulder season, like I said, I stay optimistic that we'll have a good season for the resort lifestyle business. We're also seeing a decent reduction in both new and resell inventory. And once again, I'm delighted to see that. If I go to Texas and you see it in the numbers, Mike, you know, it was a tougher quarter from a volume standpoint. Inventories have been elevated in Texas. If I kind of run around the state, you know, Austin, they've been at this for it feels like darn close to three years. It does feel like we're starting to see the bottom, which I would say is encouraging. Months of supply have come down. And it feels like it's holding pretty steady. You know, we'll go a couple more months and see if that's true. But when we look at, like, underproduction QMIs in the market, they've settled. More reasonable levels. Margin recovery, you know, we've seen them up a little bit quarter over quarter. And the land market, I would tell you, continues to be tough. The teams have been very diligent in their assumptions not to get ahead of themselves. Until we really find final pricing in the But the good news is we have a very strong portfolio of quality assets, that will continue to carry the day. You know, Dallas I think it slowed down a bit, a little bit more. The lowest price points in Dallas are hypercompetitive. And most builders, it appears as real have subscribed to, I would say, more of an inventory strategy. Resales have remained generally stable, maybe up a bit. Once again, I tell you our balanced portfolio gives us some great opportunities because it's a high-growth market for us as we look forward. Great land pipeline. Margins are still strong. Probably the thing I'd point to in Dallas I think I said it in my prepared remarks. Say that three times. Prepared remarks, Mike, is the H-1B buyers. You know, we've seen that both in the demand and from a cancellation standpoint. And then if I wrap up with Houston there, you know, the first-time buyers it's competitive, very competitive for them. The good news is there's lots of them. It actually hasn't one of our highest paces in the quarter in the country. Our core communities continue to do well. But you have to put it on a relative basis. Paces are down from the peak levels. Certainly in Texas, more than we've seen across the board. But I think our locations doing well. The ones in the court are doing better. Qualifications qualification seems to be the biggest issue for our first-time buyers there. And we're having to use both rate incentives buy downs, really every tool we have in our toolbox to assist these buyers get to a payment that they can afford. I'd probably describe it as competitive but steady. But like I said, pulled back from our peak levels. Carolina is broadly doing really good. You can really start to see the difference between core and some of the fringe markets, and our core assets are really performing nicely. I move to California, you know, we've been discussing for a while. On the capital front. We've really, you know, tightened up our investment. The communities we have in SoCal are doing well. We have pulled back the investment a little bit. You know, once again, SoCal's above the company average or even pull so it's pulled back from its peak. Their absorptions are above the company average. If I go to the Bay I would say tech has had an impact on both probably Bay and Seattle. And if I go to stack and round out California, you know, I'd say they're holding steady. They're getting more than their fair share in the marketplace. When I look at our resort lifestyle business there, we have one that's approaching closeout, one that's in the new stage. In a new state you know, newer stages of opening without the amenity. So those are kind of balancing each other out. I'd say Sacramento overall stable, consistent community count paces year over year. And then maybe I'll wrap up with Phoenix. I think that market probably provides the most diverse offering across all consumer groups for us. It's a balanced market with our to-be-built and inventory offering. We've seen good improvement on cycle time. We definitely, with our move-up buyers here, have a more discerning buyer. But we have the options to meet their needs. Paces have been constant sequentially. Once again, I'd say this is a market that's kind of punching about their weight, strong margins for us. Modest incentives compared to the rest of the country. You know, in the land market, it's a little bit mixed. We're seeing some wonderful opportunities. We're very deal specific. We've been able to renegotiate terms and price. We've seen, you know, just coming out of an auction, a state that was pretty frothy. So a little bit of everything in the marketplace. You know, I just wrap my with just a macro that I know there's been a lot of discussion on California. I mean, excuse me, Florida and Texas. When you look at migration patterns, they're still leading the country. They continue to be very important markets for the industry. Consumers still have strong equity in their homes. Income networks are growing. So I'd say, you know, the green shoots are starting. But, Erik, I'm sure I missed a lot. Anything you can think of? Erik Heuser: You covered it long term. You know, excited about the population gains. And net move-ins that we've seen in those markets over time. And specifically, as you think about months of supply and price in the retail market, if you're to indicators we've watched carefully. You know, seeing some real stabilization, a few examples, maybe Sarasota and Tampa, by way of example, were months of are actually down and pricing has stabilized, so there's no real movement there. Houston's been interesting in that the months of supply are down about 4%. On a moving average. And stable pricing. And so some real examples of some stabilization. Of course, we'll continue to watch seasonality. And evolution. And on a new inventory side, the cycle is a little different than all others. There is always a little bit of seasonality. But we continue to monitor the core versus noncore benefits that we think we have. Sheryl Denise Palmer: I really see difference in performance. Erik Heuser: Right. Sheryl Denise Palmer: Yeah. Michael Jason Rehaut: Great. Thank you very much. Sheryl Denise Palmer: Thank you. Operator: Thank you very much. Our next question comes from Matthew Adrien Bouley from Barclays. Matthew, your line is now open. Matthew Adrien Bouley: Morning, everyone. Thank you for taking the questions. So I wanted to ask on the I guess, the over 100 new communities to come next year. I'm curious any detail on how that may break out either from a regional or product perspective? And specifically, I'm curious on your Esplanade expansion. I think you said it's still hanging around kind of 10% of sales today. I know you guys had some, you've got some, ambitious goals of expanding that product. So should we expect to see any movement on that mix of Esplanade next year as well with all those openings? Thank you. Sheryl Denise Palmer: You know, we really leaned in, Matt, talking about 26. So we we're not gonna go too far. But I will give you a tidbit. I'll give you an Esplanade we have three new Esplanade opening in the first quarter. Along with amenity centers, nine holes of golf in one of our communities, so very exciting when I look at next year and just across the Esplanade. Portfolio with the amenities that are opening along with new communities. I think we're excited. Very consistent with what we discussed at our investor day. I think before we get into more detail, on community's card, I think you wanna add to that. We really wanna wait till next quarter. Yes. I think we'll wait, Matt, until we kind of wrap up the year. But as you can imagine, I think the outlet growth will be pretty broad-based kind of throughout the country. So I think we'll leave it at that for now. We can handle that more when we wrap up the year. Matthew Adrien Bouley: Okay. Got it. I appreciate that. Secondly, just SG&A. Looked like a lot of leverage there despite sort of flattish homebuilding revenue year over year. Can you speak a little more around what you're doing to control costs here? Was there anything one-time in that 3Q result? Or should we think you've kind of found a new run rate level here in Q3 that we can kind of use to model out the next year on SG&A? Thank you. Curt VanHyfte: Yeah, Matt. Thanks for the question. SG&A, yeah, that's a focus of ours. Ideally, it's part of the culture. The teams are focused on it. We're constantly looking at kind of our throughput kind of results that we get on various metrics. In the quarter specifically, we benefited from some lower kind of payroll-related costs and lower commission costs as well. And as we said in our prepared comments, we're tracking to be in that mid-nine percent range for the year. So all in all, I'm very happy with where we're at from an SG&A perspective. The teams are focused on it. And we're doing a lot of good things from a cost control perspective. And I should also highlight the fact that from a back-office standpoint, we're continually trying to find ways to improve kind of how we're operating whether it's our shared contract kind of program that we have where we're centralizing all of our contracts and we're moving the needle on that as well on some of the other aspects of the business. The other one I'd point to, I think you're Sheryl Denise Palmer: our contracts department that we've had in place for a year now, right, where all the contracts are centralized. I think that's a good one. I think the other one I'd point to, Kurt, is what we're seeing in the reservation system. I mean, even just in September, we saw about an 800 basis point reduction from our overall business to those that came in reservation and co-broke. So if we can keep that up, generally month to month, we've been seeing four, 500 on average. 800 was a September was a peak for us. But, obviously, the more we get through our reservation system with that reduction that will continue to show the leverage in the SG&A. Matthew Adrien Bouley: Got it. Super helpful. Thank you, Sheryl and Kurt. Good luck, guys. Sheryl Denise Palmer: Thank you. Operator: Thank you very much. Excuse me. Our next question comes from Alan S. Ratner from Zelman and Associates. Alan, your line is now open. Alan S. Ratner: Guys. Good morning. Thanks for all the details so and nice quarter. I guess just first on the SG&A just since that was the last topic there. Just trying to back into what the implied guide for 4Q is and to get to mid-9s for the year. I think it does imply that rate does tick up a bit sequentially on a fairly similar revenue base. So is that just some conservatism around that 800 basis point reduction in the broker side that you just mentioned, Cheryl? Or is there some other that I should be aware of on Curt VanHyfte: Yes. Hi, Alan. I think it's a couple of things. A, yeah. We are seeing a potential influx of commission costs for Q4 as what we're seeing from some of the competitors in the marketplace and what everyone's doing to drive maybe their closings for the year. With Sheryl Denise Palmer: brokers, right? With brokers. And then what I would also say is that based on our guide of, you know, the midpoint of our range of 3,200 units, with our average sales price at $590,000, we are losing a little bit of leverage just because of the top line. It's going to be a little bit less than it was in Q3. Alan S. Ratner: Got it. Okay. Understood. Thanks for that Kurt. Second question, and I apologize, I missed some of these numbers, but I thought the detail that Erik gave surrounding some of the successes you've had on land renegotiation was really encouraging to hear. So I was hoping, first, you just repeat that? And second off, on the deals where you were actually able to get lower pricing, can you quantify like what maybe the margin impact is on those particular projects? And just the general timing of when we should expect to see that benefit beginning to flow through? Hi, Alan. Yes, great question. Appreciate it. It was about 3,400 lots in the quarter that rolled through our investment committee that were renegotiated. And that renegotiated a renegotiation took the form of deferrals. So those on average were about six months. But a relatively surprising level were actually on price, and it was basically an 8% decrease in the original purchase price on deals that were rolling back through the investment committee that had been negotiated from fourth quarter twenty-three through relatively current. So, you know, as you think about navigating this particular cycle, it's been interesting to me in participating in it. That this one's been relatively quick in terms of seller receptiveness for the call. But also, you know, our proactiveness in making sure that we're playing offense and communicating clearly. And we've seen success. And so maybe to your question relative to what should we expect, as we review deals that we had in our original expectation in terms of gross margin and return production, we want to make sure that we're holding those. And sometimes that does require an adjustment. And so I wouldn't say that's going to result in significant upside. But we are maintaining our original expectations in most cases. And then in terms of timing, those are gonna roll through. You know, over time. So again, relatively current on deals that we'll be closing on in the next few months. Developing. And so it's gonna take some time for that to roll through the system. The last thing I would say, interestingly, as we're talking about the land environment, this one being a little bit different than past, is we have seen some interesting finished lot pickups. And so about 25% of the land rolling through our system most recently are actually finished lots. Those have been difficult to find, over the last couple of years. And I think that's Alan S. Ratner: likely Erik Heuser: the case of some other builders maybe walking from deals on our ability to renegotiate those in a way that makes sense for us. And as I alluded to, we're also seeing some development cost relief. So those would be a couple of other upsides that we see. Sheryl Denise Palmer: And, Erik, would you just so we don't get over our ski test. I mean, it's been interesting. Right? Because your point, we've had some tremendous renegotiation. We've had other guys that just won't move. And we've been forced into a position to walk away. Erik Heuser: Completely agree. The success cases, as I mentioned, are the deferrals and the purchase price and, in some cases, just some restructuring of the deal. But there are also instances where they just don't work and we're standing our ground and just having to walk from those. And so that was you'll see it all through the system as well. Hey, Erik. Can I squeeze in one more on that topic? Because I think it's really, really interesting. Have you seen any common thread on the deals that you have been able to renegotiate? Are you more are you seeing more success with, say, land bankers or kind of your more institutionalized land sellers and developers or more success perhaps with kind of the one-off mom and pop landowners, farmers, etcetera, curious if there's a common thread on the deals that people are kinda holding their guns or versus the ones that seem to be a bit more willing to negotiate? Yes. It's really all categories. Alan. And so we start with the seller financing, you know, can you just carry this? And we need some more time on it. And so we've seen success there. The land banking appetite continues to be relatively strong so we use that as a in a surgical way where we can optimize our return by using by using land banking. But would say the supply of the availability of land banking is been very high. And then lastly, with regard to just the price changes, as I mentioned of those 3,400 lots, about 75% of the lots actually resulted in some kind of price change. And so it's been really interesting as we think about the solutions, which are many. Alan S. Ratner: Great. Thanks for all the detail, guys. I appreciate Sheryl Denise Palmer: Thank you, Alan. Operator: Thank you very much. Our next question comes from Rafe Jason Jadrosich of Bank of America. Rafe, your line is now open. Rafe Jason Jadrosich: Hi, good morning. It's Rafe. Thanks for taking my question. I wanted to ask in terms of the incentive change, you comment sort of that entry-level was where you're seeing the most pressure, but you're also seeing some hesitancy on the move-up in resort lifestyle. Like, you sort of quantify where the margins are for each of the segments and then maybe how much the incentives have changed for each of them? Like, how different is it across the different segments? Sheryl Denise Palmer: Yeah. I mean, the incentives by consumer group, you know, I always hate averages. Because I think it doesn't tell the whole story. But, certainly, you would expect our most expensive incentives go with those forward commitments. And those are generally our first-time buyers, and we're having to help them get the rate as low as we can. So as to total dollars, the sales price less. So the total dollars are a little less, but the percentage, you know, that's where once again, I think our most expensive set. You go all the way to the resort lifestyle buyer, where that's our, you know, that ASP is probably about $200,000 higher than our average. And those folks generally as concerned about interest rates. And so those incentives work differently. You know, we'll see a lot of support there on helping them with options. You know, if you spend this, we'll give you that. Sometimes it's reduction in lot premiums. They're more sophisticated. They know what's happening in the market. They don't wanna overpay. And if they can't get it in a mortgage incentive, they want it somewhere else. But I'd say, you know, generally, you know, we're using incentives across the board. It's just the how for each customer. But I wouldn't point to significant differences in range except for the call out that our most expensive incentives tend to be with first-timers. Kurt, is that No, think generally speaking, you're in the ballpark. And Rafe, we don't Curt VanHyfte: really provide kind of margins based on kind of the segment. Overall. But I think you could probably imagine what we have said in the past is that our resort lifestyles margins are typically the highest kind of in the portfolio. But to Cheryl's point, it comes down to kind of each buyer's specific situation and we apply and we try to align the to maximize each buyer's situation. Rafe Jason Jadrosich: Okay. That's helpful. And then, you sort of mentioned that cycle times are hard, but they're still coming down. How do we think about how much higher the backlog conversion can go? And then how much opportunity do you have on the cycle times from here? How much more can they come down? Curt VanHyfte: Yes. Rafe, I would say that just from a cycle time perspective, we're essentially at pre-COVID levels for the most part. We have a couple of markets that maybe still have a little bit of opportunity. To kind of run through the tape there. So we do feel like there's continued opportunity there overall for the entire business. Relative to the conversion kind of rate I think we were at about 74%, 75% in Q3. And based on our closing guide and where backlog is today, I think you can expect that that conversion rate will be higher. In Q4 just based on kind of the sheer numbers of the numerator and the denominator there. So you can expect that to be higher probably in Q4 than it was in Q3. Rafe Jason Jadrosich: Is that like a sustainable level going forward? Or is that just because of the mix of spec relative to BTO? Curt VanHyfte: Yes. Rafe, it's more of a function of where specs are today. As you've heard Sheryl talk about, we intend over time to be able to see it in flux or to raise the level of to-be-built over time. So it's a point in time kind of where we're at today. And then as I said we'll see what we can do on the 2B build side of the business in the coming months and quarters. Sheryl Denise Palmer: But the next couple of quarters are going to likely be higher conversion. It's going to be a higher conversion for the next Curt VanHyfte: couple of quarters, yes. Rafe Jason Jadrosich: Okay. That's helpful. Thank you. Thank you. Operator: Thank you very much. Our next question comes from Kenneth Robinson Zener from Seaport Research Partners. Your line is now open. Kenneth Robinson Zener: Good morning, everybody. Sheryl Denise Palmer: Hi, Ken. Good morning. Operator: So Erik Heuser: a couple of things here, just kinda housekeeping. But with incentives, if you were to think about the bucket, I think some of the builders have been Kenneth Robinson Zener: describing it to me, like, you know, half of the incentive is the price reduction. Half and then the other half is kind of split equally between mortgage buy downs and closings. Do you within those three buckets, do you have a comment Sheryl Denise Palmer: Yeah. I would tell you that you know, move a little bit quarter to quarter. And it will be a little different if you're talking growth or net price or you're talking units. But you know, somewhere around 45% of our incentives are specific to financial services. And a subset of that would be what we would call the most expensive. Forward commitments. And then the balance, the other 50%, is gonna be a combination of all the other things we've talked about. You know, it could be options. It could be lot premiums. In some instances, we may have had to reset pricing to market. But it's a combination. Erik Heuser: And just to be clear, when you say financial services, Sheryl, it's Kenneth Robinson Zener: you're recording all that stuff in the homebuilder segment net pricing. Is that correct? Or is there stuff running through financial services, just to be clear? Sheryl Denise Palmer: No. It's running through the margin. Most of the Right. Financial services are running through the margin. I mean, actually, all of them. Are running through ASP, and some are running through cost of goods. Erik Heuser: Right. Okay. Just wanna clarify. And then, Kenneth Robinson Zener: you know, Erik Heuser: obviously with orders, you generally want to follow your starts, we'll generally follow your orders. Kenneth Robinson Zener: I'm just wondering, looking back, so 3Q, starts for below Erik Heuser: orders, both down inventory units make sense. 2Q it was higher Kenneth Robinson Zener: And the idea was there you wanted to build, right? Operator: To have specs. Erik Heuser: Which you know, if let's say spring is Kenneth Robinson Zener: softer, than expected, would you guys still be in the position where you want to keep that volume up relative to the start volume up relative to orders. And I'm thinking you did so much work on it fixed G and A, right? It's like down 20% comparable to your inventory units. I'm just trying to think about how your guys' playbook works there or if you really just have starts follow orders wherever they go, you know, in spring of next year. Curt VanHyfte: Yes, Ken, great question. At this point in time relative to next Kenneth Robinson Zener: year, Curt VanHyfte: probably not going to get into specifics there. But what I can say is we're going to continue to probably we've adjusted our starts in Q3 relative to sales to kind of right-size our inventory position. And generally speaking, we're gonna stay sticky from a start standpoint to sales. But then it's going to come down to a community by community kind of analysis. And how each community is doing, and we'll fluctuate that as necessary. Necessary based on A, the community Entry level is going to be more spec. Townhomes are going to be more spec. And then of course as we move our way up in the consumer segmentation profile we'll look to kind of hopefully pursue more to be built business. But I think the market is going to tell us and lead us to that path down the road. Kenneth Robinson Zener: Okay. No, I appreciate that. I wasn't trying to get next year's guidance as much as kind of your thinking about when to start go above and below orders. Thank you very much for your time. Sheryl Denise Palmer: Thanks, Ken. Bye, Ken. Operator: Thank you very much. Our next question comes from Jay McCanless from Wedbush. Your line is now open. Jay McCanless: Hey, good morning, everyone. Operator: Wanted to ask where is the spread now between spec closings Jay McCanless: and build to order closings? On a closing standpoint, we were sixty-forty, 60% spec or 61% spec and 39% to be built for the quarter. Operator: Okay. Then what's the gross margin spread on that now? Curt VanHyfte: Yes. We continue to run-in that several you know, 100 kind of basis points. As you can imagine Jay, nothing new there. Within our Esplanade communities, with the high premiums and the high option revenue. We can see some of these get up to 1,000 basis points. So but generally speaking, it's at several 100 basis point And then We continue to track to. Sheryl Denise Palmer: Also believe, do you think it's fair, Kurt, even within our Esplanade, non-Esplanade, resort lifestyle? We have a spread. Right? There's our Esplanade tends to deliver the highest. Yep. And our Non-Esplanade still aged targeted restricted a little low. Operator: Okay. Thanks. And then the question I had Jay McCanless: it's encouraging to hear that maybe the land prices are breaking a little bit. But just as we think about how when that can start to help the gross margin Operator: Is it going to be a back half of 2026 event? And also, Jay McCanless: one of your competitors called out, there was a small number, I think it was $1,500 per home tariff impact. Curt VanHyfte: Have you all tried to assess what impact the new tariffs might have on costs for next year? Yes. I'll start with land. Jay. From a timing standpoint, this is current current updates to our underwriting. So you're probably practically not gonna see it really roll through until '27 and beyond for most of that. And in some cases, I would tell you that it's we're just on you know, holding our original underwriting expectations in terms of retrading. And in some limited sort circumstances, we are seeing some opportunistic deals roll through, and those are the ones that you might some future upside on. But kind of a blend of the two, I would just, and then with regard to tariffs, I'll just make a brief comment on the land market, and Kurt can take the balance and vertical But, you know, we are hearing from our teams that, generally speaking, on the land development receipt standpoint, and there's not gonna be a whole lot of specific tariffs impacts, but kind of the magnitude of five to 6% release on cost on the development side. Curt VanHyfte: Yes. And Jay, on the House side, yes, I think we subscribed to the thinking that it will be a modest increase from a tariff standpoint. There's the cabinet stuff that came out the vanities, the steel is out there. But again, I think what I would also add to that is we're doing a lot of things behind the scenes just from an operational kind of execution standpoint. Working with our trade partners, our suppliers on what I'll call cost reduction strategies that the teams are doing a great job working through. I would also add that we've recently hired a new national VP of Purchasing and construction that is helping us lead that charge. And that's one of its focal points as well. So all in all I think we have a pretty good balance approach and dealing with the tariff potential increases. Through some of the other things that we're working on behind the scenes relative to our cost reduction strategy. In light of some of the start activity. That we're seeing. Jay McCanless: Okay. Operator: Thanks, Jay. Thank you very much. We currently have no further questions, so I'd like to hand back to Sheryl Denise Palmer for any further remarks. Sheryl Denise Palmer: Thank you very much for joining us for our third-quarter call, and wish you all a wonderful holiday season, and we'll look forward to talking to you early in the New Year. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.
Operator: Good morning, and welcome to the Hilton Worldwide Holdings Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's prepared remarks, there will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Charlie Ruer, Vice President Corporate Finance and Investor Relations. You may begin. Charlie Ruer: Thank you, Chuck. Welcome to Hilton Worldwide Holdings Inc.'s third quarter 2025 earnings call. Before we begin, we'd like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-Ks. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.hilton.com. This morning, Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment and the company's outlook. Kevin Jacobs, Executive Vice President and Chief Financial Officer, will then review our third quarter results and discuss our expectations for the year. Following their remarks, we'll be happy to take your questions. With that, I'm pleased to turn the call over to Chris. Christopher Nassetta: Thank you, Charlie, and good morning, everyone. We certainly appreciate you joining us for our call today. Our third quarter results continue to demonstrate the resilience of our business as strong net unit growth, disciplined cost control, and our capital-light business model delivered solid bottom-line performance. Adjusted EBITDA and adjusted EPS both meaningfully exceeded the high end of our expectations despite softer-than-expected industry RevPAR performance. Our strong portfolio of brands, powerful commercial engines, and disciplined execution continue to drive meaningful free cash flow conversion, which we expect to be greater than 50% of adjusted EBITDA for the full year. We remain on track to return $3.3 billion to our shareholders in the form of buybacks and dividends for the full year. Turning to results for the quarter, system-wide RevPAR was down approximately 1% year over year as unfavorable holidays and events, softer international inbound to the U.S., declines in U.S. government-related travel, and portfolio renovations weighed on results. In the quarter, leisure transient RevPAR was roughly flat, driven by strong demand in Europe and the Middle East, offset by unfavorable holiday shifts in the U.S. Business transient RevPAR decreased approximately 1%, driven by continued economic uncertainty. Group RevPAR decreased approximately 4%, driven by tougher comparables as we lap major international events, renovation impacts, and holiday shifts. We did see group demand strengthen, which is reflected in our stronger fourth-quarter group position and our 2026 position, which is up in the mid-single digits. As we look to the fourth quarter, we expect RevPAR to be up approximately 1%, driven by holiday shifts, easier year-over-year comps, and relative group strength. We now expect RevPAR for the full year to be flat to up 1%. As I lift up and think about the opportunity ahead, I remain optimistic about the next few years. We continue to believe that in the U.S., lower interest rates, a more favorable regulatory environment, certainty on tax policy, and a significant investment cycle will result in accelerated economic growth and meaningful increases in travel demand. This, when paired with limited industry supply growth, should drive stronger RevPAR growth over the next several years. Turning to development. During the third quarter, we opened 199 hotels totaling over 24,000 rooms and achieved net unit growth of 6.5%. Openings increased more than 35% year over year on an organic basis. Our luxury and lifestyle brands continue to expand around the world, comprising approximately 20% of total openings in the third quarter. In Asia Pacific, we announced our plans to exceed 250 luxury and lifestyle hotels in the coming years, representing portfolio growth of over 50%. In Europe, we opened the Conrad Hamburg to expand our award-winning luxury brand into one of Europe's most iconic destinations. Conversions remain integral to our growth story. We expect nearly 40% of openings in 2025 to be conversions across 12 of our brands, sourced from a mix of independent hotels and competitor brands. We recently celebrated Hilton Worldwide Holdings Inc.'s 9,000th hotel following the conversion of the Signia by Hilton La Cantera Resort and Spa, a landmark property set atop 550 acres overlooking the rolling hills of Texas Hill Country. We also added the 1,000-room Sunseeker Resort as part of our Curio Collection. After eclipsing 8,000 hotels just a year ago, we opened nearly three hotels per day to reach this latest milestone, further underscoring our incredible growth momentum. In the years to come, we continue to believe the conversion opportunity is immense globally. To help capture this opportunity and leverage our skill set in identifying white space and developing new brands, earlier this month, we launched our newest brand, Outset Collection by Hilton, the company's 25th brand and eighth in our growing lifestyle portfolio. Outset Collection by Hilton is defined by soulful, story-led properties featuring a diverse range of hotels across urban destinations, small towns, adventure outposts, and offbeat hubs. Grounded in deep research, we determined that the upper midscale to upscale collection space represents an enormous opportunity for unbranded or independent hotels that currently comprise more than 50% of the global hotel supply. To date, we have more than 60 hotels in development with a long-term growth potential of more than 500 hotels across North America alone, and will open our first several in the fourth quarter. Hilton Worldwide Holdings Inc. has consistently delivered an industry-leading share of conversions in the United States, and we expect that to strengthen with the addition of the Outset Collection. More broadly, we continue to deploy our brands into new markets around the world, driven by industry-leading premiums they deliver for owners. In the quarter, we marked brand debuts in 12 new countries and territories, including DoubleTree in Pakistan, Hampton in the U.S. Virgin Islands, and Motto in Hong Kong, which also represented the brand's debut in Asia Pacific. Globally, Hilton Worldwide Holdings Inc. operates properties in 141 countries and territories with an average of only four of our 25 brands per country, demonstrating the huge runway of growth ahead. In addition to strong openings, we signed 33,000 rooms in the quarter, up over 25% year over year on an organic basis. We increased our development pipeline to more than 515,000 rooms, growing both year over year and sequentially versus the second quarter, with expansion in key strategic markets and across chain scales. In Japan, we announced several agreements to further bolster our luxury and lifestyle portfolio, including Waldorf Astoria Residences in Tokyo, marking the region's first residences under the iconic Waldorf Astoria brand. We approved LXR, Curio, and Tapestry properties at the foot of Mount Anapore, Japan, offering guests easy access to Niseko's exceptional ski slopes when the hotels open later this year. In Vietnam, we approved nearly 1,800 rooms across five hotels to debut our Conrad, LXR, and DoubleTree brands and to expand the Hilton brand in one of Asia's most dynamic markets. We also signed our first LXR hotel in Phuket, Thailand, our first Canopy in Manila, Philippines, and announced three Curio Hotels in key Italian destinations, including Genova, Milan, and Sorrento. New development construction starts in the U.S. were strong during the quarter, and for the full year, we expect global new development starts to finish up nearly 20% and up over 25% in the U.S. year over year. Even with this year-over-year growth, new development construction starts remain below 2019 levels, implying strong continued runway for growth. Our record-setting pipeline, combined with conversion momentum and acceleration in construction starts, will continue to fuel our growth in the coming years. We expect to achieve net unit growth of between 6.5% and 7% in 2025 and 6% to 7% annually over the next several years. Our development success is incumbent on us being the premier partner for our owner community. Thus, we're always innovating to continue delivering industry-leading RevPAR premiums and profitability for owners while exceeding guest expectations. During the quarter, we communicated a first-of-its-kind program that offers owners system fee reductions, many of which are tied to hotel-specific product and service quality scores. The fee reductions will share the efficiencies we have gained through scale and technology with our owners while reinforcing the need to continue maximizing the customer experience. We think we are well-positioned to continue finding new efficiencies and strengthening our value proposition for guests, owners, team members, and shareholders. Our proprietary tech platform, envisioned a decade ago, was built for agility, with 90% of our enterprise solutions in the cloud today, up from 20% in 2020 when we started deployment. This modern platform has established Hilton Worldwide Holdings Inc. as a pioneer and leader in hospitality technology and is allowing us to rapidly introduce new innovations that elevate guest experiences and drive greater value for our entire network. Because of where we are in our technology platform roadmap, we feel uniquely positioned in the industry to embrace AI and drive greater differentiation for our Hilton network. During the quarter, we continued to drive our award-winning workplace culture, including being named number one best workplace in Australia, New Zealand, and Sri Lanka, marking a total of 18 number one wins in the past year, the most since we began participating in the Great Place to Work survey. We're more confident than ever that our team is poised to deliver for our shareholders in the years ahead. Overall, we're very optimistic about our business and what is on the horizon globally. Our brand-led, network-driven, and platform-enabled strategy will continue to help us achieve our dramatic growth trajectory and meet the evolving needs of our travelers around the world while delivering great returns to owners and shareholders. Now, I'm going to turn the call over to Kevin for a few more details on the quarter and expectations for the full year. Kevin Jacobs: Thanks, Chris, and good morning, everyone. During the quarter, system-wide RevPAR decreased 1.1% versus the prior year on a comparable and currency-neutral basis, driven by modest declines in both occupancy and rate. Adjusted EBITDA was $976 million in the third quarter, up 8% year over year and exceeding the high end of our guidance range. Outperformance was predominantly driven by better-than-expected growth in non-RevPAR-driven fees, disciplined cost control, ownership, and some timing items outweighing RevPAR softness. Management franchise fees grew 5.3% year over year. For the quarter, diluted earnings per share adjusted for special items was $2.11. Turning to our regional performance. Third-quarter comparable U.S. RevPAR decreased 2.3%, largely driven by pressure across business transient and group as holiday shifts, declines in government spend, portfolio renovations, and softer international inbound demand weighed on performance. For full year 2025, we expect U.S. RevPAR to be roughly flat versus 2024. In The Americas outside the U.S., third-quarter RevPAR increased 4.3% year over year, driven by strong demand in both leisure and group segments. For full year 2025, we expect RevPAR growth to be in the mid-single digits. In Europe, RevPAR grew 1% year over year, driven by a rebound in the U.K. and Ireland and offset by a tough year-over-year comparison from major events last year. For full year 2025, we expect low single-digit RevPAR growth. In the Middle East and Africa region, RevPAR increased 9.9% year over year, driven by robust intra-regional travel growth for both business and leisure segments. For full year 2025, we expect RevPAR growth in the high single-digit range. In the Asia Pacific region, third-quarter RevPAR was up 3.8% in APAC excluding China, led by strong group trends in Japan, Korea, and South Asia. RevPAR in China declined 3.1% in the quarter, largely driven by the impact of the government travel policy on business transient group travel, particularly in Tier two and Tier three cities. For full year 2025, we expect RevPAR growth in the Asia Pacific region to be roughly flat, assuming modest RevPAR declines in China. Turning to development. As Chris mentioned, for the quarter, we grew net unit 6.5% and have more than 515,000 rooms in our pipeline, of which nearly half are under construction. We expect to deliver 6.5% to 7% net unit growth for the full year. Moving to guidance. For the fourth quarter, we expect system-wide RevPAR growth to be approximately 1%. We expect adjusted EBITDA of between $906 million and $936 million and diluted EPS for special items to be between $1.94 and $2.03. For the full year, we expect RevPAR growth of 0% to 1%, adjusted EBITDA between $3.685 billion and $3.715 billion, and diluted EPS adjusted for special items of between $7.97 and $8.06. Please note that our guidance ranges do not incorporate future share repurchases. Moving on to capital return. We paid a cash dividend of $0.15 per share during the third quarter, bringing dividends to a total of $108 million for the year to date. Our Board also authorized a quarterly dividend of $0.15 per share in the fourth quarter. For the full year, we expect to return approximately $3.3 billion to shareholders in the form of buybacks and dividends. Further details on our third-quarter results can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Chuck, can we have our first question, please? Operator: The first question will come from Shaun Kelley with Bank of America. Please go ahead. Shaun Clisby Kelley: Hi, good morning everyone and thank you for taking my questions. Chris, like usually around this time of year, we start to think about the setup for next year and I know it's hard to put you on the spot without guidance out there, but we'll kind of talk around it anyways a little bit. Could you just give us your thoughts about kind of the timeline for the improvement you're hoping to see on the top line and operating environment? And then just we're getting a lot of feedback this morning about how well you've done on the cost side. Let's play the counterfactual. If the top line and we're talking really RevPAR here, but if that environment doesn't get a little bit better, could you just talk about what you can do in your comfort continuing to execute so well on the bottom line of the side of the business and drive some operating leverage? Across the Hilton Worldwide Holdings Inc. enterprise worldwide? Thanks. Christopher Nassetta: Yes. Thanks, Shaun. Happy to cover both. So obviously, yes, we're not giving we gave you a form of guidance on unit growth. For next year, we're not at this time of year going we're just starting the budget season. And so we don't we're not going to give guidance on RevPAR. But here's what I'd say. I said it at your conference. I said it on the last call, I believe we feel incrementally a lot better about the setup for 2026. I sort of said it briefly in my prepared comments. I mean, think while there's certainly a lot of noise in the world and you saw in Q3 industry numbers were less were lower than everybody expected. I still think if you sort of lift up and you get away from the noise that structurally in the U.S. at the moment, since that's still 75% of our business. There's a lot of really good things going on. I mean, inflation is definitely coming down. Rates are coming down with it. Expectation that rates will continue to come down. You have certainty on tax policy which is unusual and probably lasts for at least three to five years. You have some meaningful benefits in that tax policy like bonus depreciation and things that that stimulate investment. You have regulatory regime that is going to be much more friendly. And you have an investment cycle that is coming and sort of happening, but it takes time to get embedded in the economy. And what is that investment cycle? I mean, I hate being redundant, it's worth noting. I mean, you have the core infrastructure bill that was done approved by Congress signed by President Biden you know, if you add up all the pieces of it, roughly $1.6 trillion, like, less than 20% of that's been spent. You had $800 billion from the CHIPS Act less than 5% of that's been spent because it takes time to get the money in the system. And then on top of that, have the whole AI investment thesis that's going on, not just the tech companies that are obviously investing at into the trillions when you put when you put it all together. But all of the infrastructure that goes behind that. So all the data center development that's going on, all the energy development that has to go because without energy you don't have data centers, without data centers you don't have AI. And so while it takes time to get all of that embedded and I can't like I cannot tell you like I think it's like January 18 that all I think it's like a benefit that we are going to be getting for several years. I do believe you will start to see it. In the first half of next year. I almost think you you you have to. And then another couple of reasons for optimism on next year is one obvious one is comps get a lot easier. Right? I hate to rely on that. I mean, I obviously just gave you a pretty good setup for much better fundamentals. But the comps get easier. You've got some event-driven benefits next year. You have midterm elections, which mean a lot of activity. These are big midterms. People are in every state in the union, people are going to be running around raising money campaigning. That's good for business. You have America's 250 which is going to be a year-round celebration. There's a lot of energy going into that from a lot of different places including the administration. You have World Cup, which isn't like Super Bowl where it's a weekend or whatever. It's a fairly extended sort of experience. And so all of those things are going to be good. And then, of course, on the other side of it, while we're benefiting from what I think is a pretty darn good development story and getting much greater than our fair share, you're still in a in super cycle of underdevelopment. In the industry where you're you're adding capacity at less than 1% against the two point five point five percent thirty year average. So, like again, you can all get caught up in the noise and tariffs and like there's a lot geopolitically. Listen, I'm not don't have my head in the sand, but I like to try and lift up above noise. That's sort of what I do in my personal and professional life. And when I do that, it makes me feel pretty good about the next few years. So I would bet a lot of money that 26% going be better 25% and I'd bet a lot of money 27 is going be better than 26%. The exact slope of that is difficult to determine. We'll obviously try and do a little bit more precise job through the rest of this year. In doing a very granular analysis market by market as we as we go through the budget season. But I feel really good about it. On the cost discipline side, listen, I think I would hope everybody would agree, we've been super disciplined forever on costs. Like since we went public, if you look at us versus core competitors, relative to our size and scale, we've always been pretty efficient. And I believe we will continue to be, as I said, very briefly in my prepared comments, there are a lot of tools available to us to continue to drive efficiencies and we're going to use those. I mean in the world of AI, by redefining a lot of processes there are opportunities to continue do things more efficiently and be able to accomplish more with less. And that by the way holds true for our G and A, but also importantly very importantly, because our job is ultimately deliver profitability for our owner community I think it affords us opportunities to continue to find efficiencies that can translate into higher margins by reducing incrementally system costs more. I noted very quickly and it's reasonably broadly known because we've communicated to our community, but we did a first of its kind reduction in system fees to be clear, not our royalty rates and our not our license fees, but the fees that owners pay us to operate the system, And that's been done because we've just found ways to be more efficient, whether that lots of different use in AI where we're redoing processes and getting efficiency and we think we're doing things better. But more efficiently. And that that's translating to benefit us, but it's also translating because the bulk of the cost structure of this whole enterprise really is running the system. It's benefiting our owners. And we want to do more of that. Like we want to this has been a difficult time for the owner community in this sort of air pocket where I think really good things are coming. But at the moment, you're sort of in The U.S. Seeing modestly negative top line. And while inflations come down, it's still a little bit elevated. That's not good for owner community. And so that's why we put this program in place But it's also why we want to continue as we're in this transition period to a faster growth period of time utilize every weapon in our arsenal and we have a lot to to continue to drive efficiencies. That's a long-winded way of saying I think we've always been frankly on the tip of the spear in driving very efficient cost structures and we will continue to do so. And that's sort of a mentality I have and we have that will never change. And now we just have more ways to do it. Shaun Clisby Kelley: Thank you very much. Operator: The next question will come from Stephen Grambling with Morgan Stanley. Please go ahead. Stephen Grambling: Hey, thanks. Chris, I appreciate the comments you made about the tech stack and also some of the opportunities in AI, but just to dig in a bit on that. On the back of partnerships being formed by some retailers and e-commerce companies with large language models, how do you think about potentially partnering with some of these companies as another source of distribution? Maybe also remind us of some of the internal efforts on AI as we think about both direct and indirect opportunities. Christopher Nassetta: Yes. We can spend the whole call plus we spend the days together talking about this. And we're obviously like most, spending a huge amount of time understanding where AI is, the art of the possible. I mean, have to be exact, think 41 use cases that are being utilized inside the company at this moment. As we test and learn. I'm not going to torture everybody going through it. And competitively, I'm not going to into granular detail for obvious reasons. But I'd say broadly I look at it as AI for us at the moment and I think it'll evolve and change and like you just have to be really agile that with the speed at which this is moving. But I think for the foreseeable future, meaning the next year in AI world, there's probably three buckets. I talked about one, which is reinventing processes to garner efficiencies. And that can be wherever we have a lot of process and historically you have antiquated ways of doing things that require a lot of people. There are different ways to do it and repurpose people to do higher value. Things. And so, again, I think that benefits that can benefit our G and A, which you've you've seen like some of the use cases are are you're seeing a benefit. But again, we're at the tip of the spear. And you've seen a little bit of it vis a vis the system, relative to our owners, but there's more of that. That's one big bucket. The second big bucket is go to market like basic basically how you market distribution, the whole distribution landscape and that's what you started with Stephen, and I agree wholeheartedly. I think I think there are all sorts of risks with AI, like but in the end, here is the thing, we're in the business of fulfillment. We're not yes, we we have a platform and a network But in the end, we have all we have 9,000 and growing hotels that we control rate inventory and availability and the only way you get it is through us. Okay? No other way. You either get it from us or you don't get it. And we are in charge and control of fulfillment, the actual experience for the customer. In the world we're going into, having multiple LLMs and a really what I would argue much more competitive environment for how people get information. I view that, again, I'm not I don't have my head in the sand. There's all sorts of risk. I view that as a very good thing. Right? If we do our job, we have control over inventory, If we do a really good job in delivering product service, loyalty, to our customers and we are viewed which we are as the best of the best at fulfillment then we're going to we have all sorts of new ways to think about how we distribute our products. So you can assume yes, we're talking to all these all these people in their early days. They're in a bit of an arms race trying to figure out who the winners and losers are and it is organized, but it's a little bit like the Wild West at the moment. But I think where it's going is super super good. For us in how we go to market and how we distribute our products if we are intelligent about how we control our and how and making sure we always deliver on the fulfillment side. The third bucket is CX customer experience. We're already not just testing, we're doing like we have because, as I said in my prepared comments, we've evolved our tech stack and we're basically micro open source cloud based We have massive flexibility in how what we do with our tech stack and we are already utilizing that in ways to deliver a much better customer experience, meaning mass customization, understanding your customer, being able to take all this data that we've had, manage the data, get outputs that actually allow people enable people on property to do things to customize the experience to resolve a problem real time in a way that that we've never been able to do because you just you always had massive amounts of information. The question is, did you have the right information? Could you manage the information? Could you translate the information in ways that could spit out a command to get somebody to take an action? And now we have that. And so this isn't like a pipe dream that we like I'm thinking about. This is like inaction, we're doing it, we're testing, we're learning, And we think there's a huge opportunity. I think the winners in fulfillment and back to my fulfillment, comment, are the winners across all industries in a world where everybody wants what they want, right? And they get it now more and more is mass customization. I mean, I've been thinking for twenty years. It just hasn't been quite as possible as it is with how technology has evolved, particularly particularly with AI. And so the most I mean, they're all very exciting to me, but the customer experience side of it as you can probably tell, really excites me. The other two buckets are are super important and I think will ultimately, all of them will allow us to differentiate ourselves in terms of how we serve customers and ultimately drive greater profitability into the network. Stephen Grambling: Love it. Thank you. Operator: The next question will come from Daniel Brian Politzer with JPMorgan. Please go ahead. Daniel Brian Politzer: Hey, good morning everyone and thanks for all the great detail thus far. The net unit growth obviously it's a bit of an acceleration or organically here from that 5% that you've been running at ex LCLH and Graduate. Can you maybe parse that out as we think about going forward between your expectations for conversions next year versus some of the newer brands that you've launched? Maybe if there's any element of that accelerating, albeit off a low base construction starts that you mentioned? Kevin Jacobs: Yes. Thanks Dan. I think look the composition for the acceleration I think is just if you think about it, if you go ex as you said, if you go ex partnerships and look at it, is it just an acceleration still out of COVID, right, because the development cycle picks back up and delivers on a lag. So what you're seeing here, we raised our six point five to from six percent to seven percent to six 0.5 seven percent for this year. That's really broad based. There's really no one area. We said we think nearly 40% of that's going to come from conversion. So we keep winning well more than our fair share conversions. But if you look at new development and Chris mentioned, we think new development starts this year are going be up 20% and then The U.S. Over 25%. That bodes well for the setup for new development going forward. And really is the underpinning of the 6% to 7% for the next couple of years. And then you layer in with conversions. And so look, new brands is going to be part of it just like Spark been an important part of it the last couple of years. The new brands that are oriented towards conversions will be part of the conversion story. But then a good a big part of the story is taking our core brands and exporting them around the world in emerging markets, right? So it really is pretty broad based across the board. And we would expect something on the order of magnitude of in the 30 percentage points 35%, mid-30s, call it, to be from conversions versus new builds for the next couple of years? Daniel Brian Politzer: Got it. Thank you so much. Operator: The next question will come from David Katz with Jefferies. Please go ahead. David Brian Katz: Good morning, everybody. Thanks for taking my for all the details. I wanted to just talk about you frankly asked us a lot about the higher end of the luxury end of the scale. You've in the past how it provides somewhat of an as well as the financial benefit. We certainly hear and see this getting to be a more expensive arena to play in. Talk please about how you sort of balance that tangible and intangible return opportunity and sort of where you're at? Thank you. Christopher Nassetta: Yes. I'm happy to and good question. Luxury is is very important. I mean, we do make money in the luxury space. But if you look at the you looked at our our EBITDA driven by segment, it's not a huge contributor as a slice of the size of the slice of the pie. But it's important because it does help create halo effect that helps the whole system and network effect work. It's aspirational product that our customers want. And so have been very focused on it. You are right that if you looked at where our ultimately where the bulk of our key money goes in any particular year, it is disproportionately at the high end of the business. It's not all luxury, but big convention resort convention and luxury hotels. And so by by so doing those investments, we're saying it's important. And we'll continue to do that. But we're not going to go crazy doing that, meaning right now, you look at where we are in luxury, I would think I think we can prove scientifically. It's really working. We have as many dots on the map as anybody. As a result of the SLH deal, which was 100% capital light deal. We have 600 dots on the map. We have 100 plus more in our core brands coming in terms of pipeline. We have, we think, all the most important covered. I mean, there are always a couple. I'd like to see Waldorf in Paris. And there are a few places that are hard that we're focused on, but if you look at the whole world where we think we're in all the right places and the reality is with all respect to the competition, our loyalty program is the best performing loyalty program in the space. I mean, we're approaching against a target a multiyear target of 75% Honors occupancy, we're approaching 70% at a faster rate than we thought. We're growing the program 15% to 20% a year Active members are increasing or crazy healthy, people are really engaged with the program. The patterns that we've seen in redemption with luxury, including SLH, have proven that what we were trying to do, we've accomplished that And so that's we're going to continue to focus on luxury. You're going to see us do things to to continue I mean SLH will continue to grow not at a really not the way it has grown zero to 500, but it'll grow incrementally because we are helping them and they are they are working on growing that growing that business. So that will continue to grow. But you'll see most of the growth come in our in our core brands. We're going to be sensible about it. We only only even when we're making these investments, we don't make these investments to lose money. I mean, we're always investing against a a market a deal opportunity where we think that whatever we're giving is a lot less than the value of what we're getting. We'll continue to do those. But I don't we do not I do not and we do not feel particularly post SLH that we have to do anything unnatural. And obviously, the luxury business has been performing really well and we like that. My own belief is it will continue to perform well. But what you're going to see over the next two or three years on the basis of what I is going to happen, you can disagree with me, you're going to see broader economic growth in The U.S. Pickup and it's also going to be much broader based you're going to see all of the mid market start to converge with the high end. And almost I mean, eventually it has to, because it always does. And makeup of what's going on, which is really what's really driving it as an investment cycle, that's a middle class game, like the investment cycle of building data centers, bridges, highways, power plants, that's getting everybody in the game. And so again, luxury is great, performing really well. We're focused on it. It's a good halo effect. We think we have what we need. And we'll keep grinding it out with these deals. But I do believe that the relative performance gap will close. In a meaningful way over the next couple of years. David Brian Katz: Thanks. Nice quarter. Operator: The next question will come from Steven Donald Pizzella with Deutsche Bank. Please go ahead. Steven Donald Pizzella: Hey, good morning everyone. Thank you for taking our question. Chris, just wanted to follow-up on the offer to provide owners system wide fee reductions tied to product and quality scores. If I heard you correct, Can you elaborate on what the genesis of that was? How we should think about any impact from a franchise and royalty fee perspective moving forward, if any at all? And does this incentivize more conversions for loaners moving forward? Christopher Nassetta: The answer to the last part is yes, I think it does. But the genesis of this was sort of what what I implied. It started with the fact that, listen, in the end, our job is to deliver not just top line. Got to deliver bottom line to owners or this wonderful virtuous cycle of getting them to reinvest and build us more hotels does not work as well. And so we know that they are they are having a difficult time. They had a great run-in the initial years coming out of COVID, but it's gotten much more challenging. And so we want to help. And we think we should be able to, meaning same comments I won't repeat them about, we can garner efficiency. We can use AI We can think about all of our processes where it's a big system, in ways that in ways that will benefit them. So that was really the genesis. The other thing we're trying to accomplish and it was I said it very quickly, but it's an important note, is that and this isn't unique to Hill. The whole industry industry during COVID had a cycle of underinvestment in assets. That's because everybody the owner community rightfully had to survive. They were having to pay interest and like they didn't have the money that they would normally have to invest. So you went through a unique cycle in my forty years of doing this of under Again, just across the board. Thankfully, we went into it in a very good place. So we feel pretty good about where we are, but we want more investment in the system. And so we have been encouraging and by the way, I sort of mentioned, we have a in The U.S, we have over 20% of the system is in renovation right now. That we've been encouraging it and it's been happening, but we thought if we're going to do this, we want to help provide another incentive to accelerate it to go even faster. And so we did create, I think, pretty unique setup where we have stay scores etcetera. But you think about customer satisfaction scores and it's a complex equation, but one that they understand because it's the way we manage the system the franchise system already where we provided gates essentially that people need to get through by brand with and it's stair step, it's a very complex system. But again, so what sort of the way we've managed the business, they understand it. And so that's the second area. The first was we want to help our owners. The second was we want to help our owners also in the long term, which to make sure that the product quality is where it needs to be. And even without it hitting it doesn't start until January. The relief doesn't start until January. We've seen a pretty meaningful uptick in activity. So I mean people get it. They want to get They want to get through the gate. And a large part of the system will. I think when we did it, it was like 50 I think it's last I looked at maybe approaching 60 without even having rolled out. To be clear, it doesn't I do think it will the more the higher our margins more people want to build us hotels. So I think it's helpful in that regard. And it doesn't have any impact on our royalty management rates and license fees, management fees. It's all in the the other part. The part of the system we manage on behalf of owners for the whole system. So there's no impact on our P and L. Operator: Your next question will come from Robin Margaret Farley with UBS. Please go ahead. Robin Margaret Farley: Great. Thank you. Looking at your fee revenue the year, kind of fee revenue per room, it's growing even with more economy rooms and more rooms in China, but I think a lot of investors might worry would hurt that number. What What's driving the economics there? And I guess is there anything that you'll be comping next year for us to think about anything unusual in those numbers for this year that you'd be comping next year or do you feel good about those economics continuing next year? Kevin Jacobs: You're talking about comps that would drive fee per room year over year? No. Just things like the non RevPAR, yes, sorry. Go ahead, yes. Well, non RevPAR is different, but fees per room, no, there's nothing that would comp year over year. And yes, you are seeing a little bit of our mix shift over time in terms of what we're delivering shift to emerging markets including China, which is normal as we continue to grow outside The U. But I think as we've said before, and I know we all know why you're asking because you get this question a lot from your clients and from investors and we get it a lot. So we get that it's on investors' mind. 've talked about this a lot in the sense that even if you take the mix of what we're delivering, which is slightly different, if you combine that with the existing mix, we're really not shifting the overall mix of of contribution over time from higher fee paying things to lower fee paying things The rooms we're opening largely around the world if you exclude China, are at the same fee per room rates or higher than our existing in place fee per room rates. And then you think about other factors like RevPAR continuing to grow, our take rate continuing to increase as we regrow license fees The bulk of our deliveries being in our strong mid market brands where we charge our highest fees per room If you put all of that in the model, and sorry, I should add that even in the case of emerging markets, we're starting to grow our higher end brands and in China, we're moving more towards our own brands in the MLAs. The MLAs are going to continue to grow, but we're growing our own brands that are 100% off at higher rates. So you put all that in the model and we believe and we know that fees per room will continue to grow over time. Christopher Nassetta: Yes. We I know Kevin's right, it comes up too often. And so right or wrong, it does. We've modeled it. In the most granular way which by definition is more granular than anybody else can model it. And our five and ten year models and it keeps going up. For the reasons Kevin described. A little bit more visibility on the China thing, we did two MLAs. We're not planning to do any more. Those have highly productive. They've helped us build an incredible network effect in China. Our market share in China is incredible. I'm not going to but it's off the charts. It's the highest market share that we have anywhere in the world. So it has worked. We're not doing any more MLAs. We those are productive. We learn from those. And now we're taking our mid market brands like Garden Inn and others and doing it ourselves. So if you look at even in China, with those continuing to grow just based on the velocity of growth that we have the ones we're doing ourselves. The fees per room are going up in China, they're not going down. So you put all that together, and when we do it bit by bit by bit, these per room are going up. Robin Margaret Farley: Great. Thank you. Operator: The next question will come from Brandt Antoine Montour with Barclays. Please go ahead. Brandt Antoine Montour: Great. Good morning. Thanks for taking my question. So apologies for more of a near term question, Chris or Kevin. I just curious in terms of the corporate travel trends into the fourth quarter. I mean, you do have tougher comps on that side of the ledger. But I think more of the question is, guys talk to a lot of companies you see a lot of data. From within your system. Does it tell a bit of a story in terms of which corporates are putting their people on the road large companies or small companies, region by region And when you speak to those companies, are they sort of if they agree with your view, of this sort of future economic tailwinds, what do you think that they're waiting for? Christopher Nassetta: Yes. I mean, listen, it's a lot of yes, we talk to our customers. We do customer events all the time. We did a big one recently where I had tons of our customers and talked to our sales teams. And I'd say broadly people are pretty constructive. Mean it's anecdotal, but I don't really talk to any of our major customers that say like they're not going to be traveling more year. I don't talk to any of our customers that don't understand they're going be paying a little bit more for the product. Next year. I think they like everybody think inflation should come down. So maybe they don't want to see the big increases that they have been seeing. But they understand they're going to have an increase. I think what's been holding them up is the obvious, just noise in the system. I mean, think the big guys the tariff stuff has sort of affected them. They were way behind. So I'd say in a relative sense, maybe they have performed in the very short term a little bit better because they were so far behind But they're rattled. And then the little the SMBs are always more resilient. But they're a little bit relative. So I just think there's been a lot of noise in the system The reason I'm more optimistic about next year, again, I can't prove it. It's just anecdotally. I'm talking to a lot of them. I think you're going to see these if I'm right about when you lift up, you see some of these broader macro macroeconomic trends start to take hold and people feel more confident and you get as you get closer to midterms, some of the tariff stuff sort of goes a little bit more in the back seat, I believe people will settle down and get back to their And again, anecdotally, they're not telling us, they're not telling me when I talk to the folks that run travel departments anything, but think we're going to travel more and we're going have to pay more for it. Next year. Brandt Antoine Montour: Great color. Thank you, Chris. Operator: Your next question will come from Elizabeth Dove with Goldman Sachs. Please go ahead. Elizabeth Dove: Hi, there. Thanks for taking the question. You're clearly seeing amazing traction on the development side and with conversion side of things speaks to the strength of the brand everything else. But maybe it'd helpful just to get like a pulse check on the key money side of things, like what you're seeing in terms of key money per room, the competitive environment, any kind of shift there over the last few months? Kevin Jacobs: I wouldn't say there's been a shift, Lizzie, over the last few months. I think you've had a shift over the last few years in the sense that it is a more competitive environment. I mean with unit growth being an important part of all of our stories in the industry, it's really important. And then some of us sort of take a little bit of a lead in that regard, our competitors are sort of anxious to catch up and get out there and sort of deals get a little bit more expensive. But with that said, I would say, Chris mentioned it, something like 85% or 90% of the key money we deploy is on full service and above. It tends to be on luxury. It tends to be on the big convention center type hotels. It tends to be the bigger projects garner the bigger checks. Every once in a while, you have part of it depends on which brands are available a certain deal, right? If you have a conversion, and it's an independent hotel and all the brands are available and that owner is fortunate enough to be able to create some competition, that can make it a little bit more expensive. But that said, if you look back we're still broadly in terms of what is under construction, we're still under 10% high single single digits of our deals overall are using any form of key money So you're still sort of 90% plus in terms of what's under construction, has no key money associated with at all. And if you look back in the last few years, we've had some years that are a little bit higher. We've had some years that are a little bit lower. But that tends to be more some of the big chunky deals that the timing of when they happen changes that answer. If you had asked us six months ago, a year ago, we would even back to our most recent Investor Day, we would have set a good run rate for key money is $150 million to $200 million a year and we would still say that's a good run rate. So it hasn't really changed dramatically. It is a more competitive world, a slightly more competitive world, but it isn't changing dramatically. And part of that is, and Kevin alluded to it, I mean, we're trading listen, our brands perform better than everybody else's. So like we have trained our development teams to have the dialogue with with our partners, our owner partners to make sure as they're thinking about key money that they're not being penny wise and pound foolish. So they get a little bit more key money or they get some versus none but they get 500 or 1,000 basis points lower RPI or market share, obviously, that's a losing trade. And so we've worked really hard with our development teams. We make it hard on them. I mean, we basically don't don't believe we should have to do it. To Kevin's point, we think it should be consistent with where we've And we've been able to do it because I think we've got a really good story with really good performing brands. And I think our development teams are understand how to make that argument. And it doesn't always win, but it's winning a lot more than it's not. Operator: Next question will come from Michael Joseph Bellisario with Baird. Please go ahead. Michael Joseph Bellisario: Thanks. Good morning, everyone. A question for you. Just a question on pricing sort of broadly maybe help us understand what are you seeing in terms of how and where customers are booking, especially on the leisure side? And then much more are you running promotions and discounts? And is that weighing on ADR at all looking ahead? Thanks. Christopher Nassetta: We are running when it's weaker, we're always going to do honors specials and use a little bit more OTA business and access other distribution channels. And in third quarter, it was weaker. So we did those things. I mean, you look at the numbers, you'll see it was pretty we're not you haven't seen any sort of collapsing in rate integrity. I mean, declines were pretty much balanced between rate and occupancy, which is what you'd see. You definitely add in categories you had a lower in third quarter, lower group base. So that means you have more rooms sell, you got to do more transient, business transient, was a bit weaker for the reasons I just described. Everybody is rattled about everything going on in the world. Leisure was pretty strong, but then leisure isn't the highest rated business. So what does that mean It has impact on rate. What I would say is when you dissect so far, and you know my view now because I've said it three or four times that the world coming our way So far if you dissect it, it's really been a mix shift that has affected rate You're just taking lower rated customers and their sub substituting for higher rated customers, meaning you're taking leisure customers that pay less not necessarily that the leisure rates dumping. It's just it's a lower rate than you're substituting in for business transient, which is a higher rate. So I think when you when you deconstruct it scientifically, I think you feel pretty good that rate integrity has been reasonably good, not that shouldn't be surprising intellectually to any of us in the sense that inflation is alive and well. And while it's come down, it's still somewhat stubbornly high. And so you know, we will be a beneficiary of the, you know, of that of that broader trend. So, technically, it's pretty evenly split but things I can is off, we replace it with lower rate business As a result, rate will will come down a bit. Yes, just the weighted average will bring it down. Operator: The next question will come from Smedes Rose with Citi. Please go ahead. Smedes Rose: Hi. Thank you. I know you've covered a lot of territory here. I just I just wanted to ask you. I I think the full year sort of trimming on RevPAR and slightly more modest outlook doesn't really come as surprise. But as you think about the fourth quarter and kind of the implied guidance, is the government shutdown impacting your forecast at all or is that is everything sort of just going on? It's business as usual? Kevin Jacobs: No. I mean, look, we're sort of almost a month in into twenty two days I guess into the government shutdown with them so a month of that in the forecast. So we have factored for that into the forecast in the fourth quarter. And our full year scenarios, which is a range really encompass if the government even if the government shutdown keeps going, we think we'll be within that range. So it is affecting the numbers. I think that who knows if our forecast would have come down anyway probably given what came in the third quarter, we might have been a little bit lower for the fourth quarter anyway, but we are factoring for it and it is affecting the numbers. Smedes Rose: Thank you. Appreciate it. Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Chris Nassetta for any additional or closing remarks. Please go ahead. Christopher Nassetta: Thanks, Chuck. Thank you everybody. As always, we appreciate the time. As you can see, I remain pretty darn optimistic about what the next several years are going to look like. And even I think if you look at all the numbers and everything we talked about today, even in the midst of what's been a bit of an air pocket as we sort of get through this time to a little bit higher growth time, the resilience of our model business model and our execution I think is been really, really good and we're continuing to deliver and outperform on unit growth, deliver and outperform on the bottom line with taking what the world gives us and and doing everything we can to make it better. So we're feeling good about the business. Feeling good about where we are, feeling good about where the future is going. And we'll look forward on the next call to giving you a fulsome update once again. Thanks again and talk soon. Operator: The conference has now concluded. Thank you for your participation. You may now disconnect.
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