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Operator: Good morning, and welcome to InspireMD Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Web Campbell from Gilmartin Group for introductory disclosures. Please go ahead. Webb Campbell: Thank you for joining us for the InspireMD Third Quarter 2025 Conference Call. Joining us today from InspireMD are Marvin Slosman, Chief Executive Officer; Mike Lawless, Chief Financial Officer; and Shane Gleason, Chief Commercial Officer. During this call, management will make forward-looking statements, which are based upon management's current expectations, beliefs and projections, many of which, by their nature, are inherently uncertain. These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed in such forward-looking statements. For more information about these risks, please refer to the risk factors described in InspireMD's most recently filed periodic report on Form 10-K and Form 10-Q or any updates in its current reports on Form 8-K filed with the U.S. Securities and Exchange Commission and InspireMD's press release that accompanies this call, particularly the cautionary statements made in it. This call contains time-sensitive information that is accurate only as of today, November 4, 2025. Except as required by law, InspireMD disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Marvin Slosman, Chief Executive Officer. Marvin, please go ahead. Marvin Slosman: Thank you, and good morning, everyone. I'm pleased to welcome you to today's call. Joining me on the line is Mike Lawless, our Chief Financial Officer; and Shane Gleason, our Chief Commercial Officer. We are dialed in live from VIVA, the Vascular InterVentional Advances Conference in Las Vegas, where we're hosting many conversations on the introduction of CGuard Prime following our approval in June. I will share more on our market traction shortly, but I want to start with a detailed overview of the results of the third quarter. I'm happy to share that our business is advancing with velocity and intention. In the third quarter, we reached $2.5 million in total revenue, representing year-over-year growth of 39% and sequential growth of over 40% since the last quarter. Our growth was driven by strong early momentum in the U.S. and continued demand for our CGuard stent platform internationally. Our strong performance was a result of months of significant internal preparation, which positioned us to hit the ground running upon the FDA approval. Following approval, which we received in late June, our team immediately activated our planned commercial efforts in the United States in July. When we say commercial activation, we mean a focused and deliberate effort to make sure that our device is accessible to U.S. providers and their patients who are at risk of stroke. Our team has been engaged with many physicians and hospital systems and are working through value analysis committee approvals, contract completions and case initiation. We are building traction methodically with the goal to drive sustainable penetration and growth in the market. Demand for CGuard Prime has been strong. As of today, we've completed more than 100 cases in the U.S., and many of these procedures were performed within some of the largest IDNs in the country. The demand and excitement for our technology reflects the foundational work we've done over the years, establishing value and awareness for our best-in-class clinical results. Globally, we are now approaching 70,000 stents sold to date as the carotid interventional market shifts to a stent-first approach. We believe the established CMS reimbursement, combined with our innovative protective mesh stent design, evidence and real-world experience provide a pathway for us to lead the carotid market. We are equipped with high-caliber sales leadership and clinical support, reflected in the remarkable progress our group has made in just a few months post FDA approval. Their deep experience in vascular market and established relationships with physicians and administrators combined with a best-in-class implant forms the backbone of our early and progressive success. The team is tasked with our commitment to expanding treatment to the vast patient population who could benefit from our technology. As a reminder, over 3 million people globally are diagnosed with carotid artery disease, yet only approximately 400,000 are treated annually. This massive gap in treatment leaves patients vulnerable to catastrophic stroke events. CGuard Prime aims to redefine success for these patients and their providers by lowering the risk of strokes and other major adverse events to levels never achieved with first-generation stenting or surgery, validated with rigorous evidence, proven clinical results, reimbursement and real-world outcomes. As I mentioned earlier, we are living the excitement of our technology firsthand here at VIVA. Today, we are here in Las Vegas with many members of our team and Board of Directors, engaging with our physician partners and champions as we continue to launch CGuard Prime in the U.S. The energy of our commercial-facing teams and the unmistakable momentum around endovascular intervention gives me incredible optimism for the future of our company. Before I provide a detailed update on our clinical trial work, I wanted to take a moment to welcome our new Chief Medical Officer, Dr. Peter Soukas. Dr. Soukas will oversee clinical and medical topics, further building on our best-in-class data as well as advancing awareness of our technology stent platform to the physician community. This transformational time for carotid intervention requires continually building a world-class team and support, and Dr. Soukas will be a tremendous contributor to our work ahead. We're thrilled to have Dr. Soukas join as our CMO. Now to the clinical pipeline, a critical piece of our long-term growth strategy. We continue to advance multiple programs in clinical studies as we work to expand our reach of our technology by building clinical evidence, potentially unlocking additional market opportunities. Starting in TCAR with C-GUARDIANS II, which evaluates a short TCAR-indicated version of CGuard Prime designed to be compatible with neuroprotection systems that are already in use in the field today. I'm pleased to report that we are on track to complete enrollment by the end of the year and potential approval anticipated in mid-2026. Simultaneously, we're advancing C-GUARDIANS III, the next phase of our TCAR strategy, evaluating our fully integrated TCAR solution, combining the CGuard Prime 80 stent with our proprietary SwitchGuard neuroprotection system. This study is designed to showcase the full potential of our purpose-built solution for TCAR, offering physicians a comprehensive streamlined option that we believe can set a new standard in the field. We currently expect FDA clearance and launch in mid-2027. The impact of these 2 studies highlights the versatility and clinical value of our platform and are expected to give us extremely competitive position in TCAR, a U.S. market that already exceeds 30,000 procedures annually. We also continue to make progress on our tandem lesion early feasibility study to expand the potential use of our technology in acute stroke care. The study is being conducted in partnership with Dr. Adnan Siddiqui and the Jacobs Institute in Buffalo, New York. This study evaluates the use of CGuard Prime in acute stroke patients with tandem lesions in conjunction with thrombectomy. I'm happy to share that enrollment is over 50% complete. It is inspiring to hear physicians' excitement for having an option to treat this critical need with our technology in a challenging patient population. Let me also mention our awareness of the upcoming CREST-2 data that's scheduled to be presented at the VIIF and SVIN meetings in the coming weeks. We believe the culmination and sharing of this data is another reminder of the advancement of awareness of carotid intervention and the importance of decoupling categories of therapy with specific implant-based performance to demonstrate the specificity and granularity of results. Clinical outcomes have been redefined with best-in-class evidence with CGuard implant across a large population sample of both symptomatic and asymptomatic patient cohorts measured in both short- and long-term outcomes. The baseline of nearly 70,000 implants sold and 2,000 patients studied and peer reviewed to date speaks volumes to the validation of our exceptional results. Our strong performance in the third quarter, combined with the establishment of a robust commercial foundation gives me tremendous confidence in our ability to deliver meaningful growth and value over the coming quarters and years. Now I'll turn the call over to Mike to walk us through the financials. Mike? Michael Lawless: Thanks, Marvin. For the third quarter of 2025, total revenue increased by 39% to $2.5 million. This increase was predominantly driven by the launch of CGuard Prime in the U.S., increased penetration of international markets with CGuard and the favorable impact of foreign exchange. U.S. revenue for the third quarter was $497,000, driven by the launch of CGuard Prime. This is the first quarter we recorded U.S. commercial revenue following the FDA approval in late June. International revenue for the third quarter was $2.0 million, an increase of $223,000 or 12% compared to $1.8 million for the third quarter of 2024, driven by increased usage in over 30 markets and the favorable impact of foreign exchange. Gross profit for the third quarter of 2025 increased by $450,000 or over 100% to $864,000 compared to gross profit of $414,000 for the third quarter of 2024. This increase in gross profit resulted from higher revenue and a favorable shift in sales mix towards higher-margin revenue from our commercial launch in the U.S., partially offset by higher production variances and training costs. Gross margin increased to 34.2% of revenue during the third quarter of 2025, up from 22.9% of revenue during the third quarter of 2024, driven primarily by the previously discussed favorable revenue mix and volume leverage of fixed operating costs. We expect continued expansion of gross margins in future quarters as our commercial sales ramp in the U.S. drives continued favorable mix and volume leverage. Total operating expenses for the third quarter of 2025 were $13.9 million, an increase of $5.0 million or 57% compared to $8.9 million for the third quarter of 2024. This increase was primarily due to higher headcount-related expenses as we continue to expand our U.S. personnel, particularly our commercial team to drive the U.S. commercial launch of CGuard Prime. A second driver of the increase in operating expenses was occupancy and infrastructure expense related to the establishment of our U.S. headquarters. Financial income decreased by $229,000 to $343,000 from $572,000 in the third quarter of 2024. This decrease was primarily due to $118,000 decrease in financial income from investments in marketable securities and money market funds and a $104,000 increase in financial expenses related to changes in exchange rates. Net loss for the third quarter of 2025 was $12.7 million or $0.17 per basic and diluted share compared to a net loss of $7.9 million or $0.16 per basic and diluted share for the same period in 2024. As of September 30, 2025, cash and cash equivalents and marketable securities were $63.4 million compared to $19.4 million as of June 30, 2025. The increase in cash resources is a result of 2 financing events with significant impact during Q3. First, we raised gross proceeds of $40.1 million through a PIPE offering with existing and new investors. Second, we raised gross proceeds of $17.9 million from the exercise of the second of 4 milestone-based financing tranches pursuant to our May 2023 equity private placement. The exercise of the warrants was triggered by the receipt of premarket approval from FDA for our CGuard Prime carotid stent. The 2 remaining tranches are triggered by future milestone events, including: first, the completion of 4 quarters of commercial sales of CGuard Prime in the U.S., which we anticipate in the back half of 2026; and second, receipt of FDA clearance for the SwitchGuard TCAR neuroprotection system, along with TCAR indicated CGuard Prime stent, which we expect during 2027. So turning to our financial outlook. We're encouraged by the initial traction for sales of CGuard Prime in the U.S. and the continuing solid performance of CGuard internationally. For the fourth quarter, we expect sequential growth in U.S. sales and steady demand trends internationally, resulting in revenue of approximately $2.5 million to $3.0 million in the fourth quarter. When we report our fourth quarter 2025 results, we will share our 2026 growth expectations informed by insights from an additional quarter of U.S. launch progress. This concludes our prepared remarks. We will now open the call for questions. For the Q&A segment, we will be joined by Shane Gleason, InspireMD's Chief Commercial Officer. Operator? Operator: [Operator Instructions] And we'll take our first question from Adam Maeder with Piper Sandler. Adam Maeder: Congrats on the progress. Can you hear me okay? Marvin Slosman: We can, Adam. Adam Maeder: Okay. Perfect. I was getting a little bit of feedback there. Maybe just to start, would love to hear a little bit more about the initial physician feedback that you're getting from U.S. customers that have started to use CGuard Prime? And then the second part of that is maybe it's a little bit early, but curious how CGuard is being used in the doctor's armamentarium. Is this kind of being used as kind of the workhorse carotid stent for customers? And then I had a couple of follow-ups. Marvin Slosman: Adam, thanks for the question. We're really enthusiastic in the response from physicians. I think that there has been a buildup to anticipating CGuard Prime's launch in the U.S. because of our baseline of experience outside of the U.S. And we purposefully launched this product over the many years outside the U.S. to build a very solid foundation of best-in-class clinical data and real-world experience. As you know, this world operates globally, and it was no secret anticipating this coming launch. So we're very enthusiastic about it. Frankly, we're trying to make sure that we follow a very deliberate controlled approach to things to get on top of all the opportunity that we see in front of us, but to do it the right way and deliver deliberately. We're following our playbook that was designed for a long view and leadership in this space with durability over time. But I think the early days, even though it's 1 quarter of data really give us a lot of enthusiasm and encouragement. I'm going to ask Shane to kind of jump into the second part of your question in terms of where this fits in the armamentarium of our customers across a pretty broad base of carotid users. Shane Gleason: Yes. Thanks for the question, Adam. The excitement has been really strong. And as we mentioned earlier, we're at the VIVA meeting. We're at the TCT conference last week. There are a number of other ones upcoming. And the team is in the field every day having these conversations. So the product has been very well received. And a lot of the discussion at the meeting has been exactly that. Where does this fit in to people's carotid toolkit. And up until now, there tended to be trade-offs between different stent platforms, a lot of advocacy for being comfortable with both an open cell stent and a closed cell stent for various anatomies. And one of the great things about CGuard Prime is that it really meets both of those. So we envision this to be a workhorse product. That's what the folks at the podium are saying as well. So that's our expectation going forward. Adam Maeder: Okay. Perfect. I appreciate all the color there, guys. And for the next question, I was hoping to just go a little bit deeper into U.S. launch and wanted to see if you could share some metrics, I guess, more specifically, device ASP versus volume in the quarter, number of accounts that have implanted CGuard at this point and visibility around that process for how we should think about onboarding accounts in Q4? Marvin Slosman: Thanks, Adam. I'm going to let Shane jump in on those topics. Again, early days and early data points, but I think thus far, the expectations across that spectrum that you just mentioned have been really encouraging and sort of above expectations. But Shane, do you want to add something on those. Shane Gleason: Yes. I'll say in terms of pricing, our approach has been that we are coming in at a premium to the market, but not a prohibitive one. The conversations that we have frequently are that our major adverse event rates are half or 1/3 of what the first-generation stents have. So we could have taken the approach that we're 2 or 3x as good, so we're going to charge you 2 or 3x as much. Price it like a drug-coated balloon or drug-coated stent newly into the market. But we know that while that may eventually get us on the shelf in some places, it would likely limit adoption certainly to being a workhorse product. So our communication is that we're requesting a, I'll call it, a modest premium, something versus the CAS and TCAR stents, something in the hundreds of dollars, not thousands of dollars. and saying that we want it to be a workhorse stent. We don't want it to be priced to the point where you only use it in case of emergency, you only use it in the worst of your worst cases, but we want to be used in all of their cases. So I'd say a more modest premium to the market, which has been well received by physicians and administrators as well. Adam Maeder: And just any color on accounts -- yes, sorry, go ahead, please. Shane Gleason: Yes. I was just going to clarify the other question. So we mentioned that we've done over 100 cases since launch. Obviously, that number is growing every day. And in terms of accounts open, are we -- yes. We've had about a dozen reps in the field until very recently. And I'll say that we on average opened several accounts per rep even in the first quarter, which we've outpaced expectations where you kind of think VACs and product committees tend to be measured in quarters to years, not weeks or months, but we've actually had a lot of approvals in months and not quarters. And we've done cases in a lot of the key IDNs around the U.S. So we've made a lot of traction there in terms of opening accounts. Marvin Slosman: Yes. Adam, I would just add that this is a foundational build for us. When we talk about activation, it's all of those things. But the benefit of having a team on the field at approval, thanks to our capital strategy was really important for us so that we could get into that activation mode quickly, and we'll obviously benefit as that continues to mature. Adam Maeder: Sure. Totally makes sense, and I appreciate the color. And just one last one, if I may sneak one more in. Just I think you just mentioned, Shane, 12 reps in the field in the U.S. until recently. Can you just remind us kind of how we should think about the sales force expansion plan as we get into this quarter, Q4 as well as 2026? I'll leave it there, guys. congrats again. Shane Gleason: Yes, absolutely. So what we communicated last time that we have a U.S. commercial organization that was north of 20 people with most of them in the field. I mentioned the number of reps just a minute ago, but then you add in the sales directors and clinical specialists. We were exiting this year with more than 30, again, with most of them in the field. And the additions that have all been territory manager, customer-facing sales roles. And then in terms of going forward, our plan has been to get to that point here as we exit the year, let them start to throw down some routes in their accounts and then scale accordingly as we get into and through 2026. Operator: [Operator Instructions] And we'll take our next question from Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Congrats on the solid initial launch. I was hoping to follow up on, I think there was a guide right at the end of $2.5 million to $3 million. I think I heard that was for total business. Can you maybe help us parse out OUS versus U.S. in that $2.5 million to $3 million? Apologies if I missed it. Michael Lawless: Yes, sure. Frank, this is Mike. Yes, the breakdown of the guidance really consists of stable international sales relative to Q3 with expectations for some growth in the U.S. market in Q4. Frank Takkinen: Perfect. Okay. That's helpful. And then maybe one, I know it's probably early days here, but any comments around those who have started to use it, how they are ordering product initially? Are they starting with a few units and then reordering? Are they putting half dozen units on the shelf? How are they, generally speaking, ordering product to start. Marvin Slosman: Yes. Frank, I'll jump in there and hand it off to Shane for the back half of that question. So far, patient outcomes are great. The stent performance is great. We're thrilled by the fact that expectations are certainly being met in those 2 parameters, which is what's most important and consistent with how we've done this globally and how the stent has performed globally. I'll let Shane kind of answer the general theme that we're following in terms of how we're stocking shelves, doing cases and most importantly, how the matrix of our products fits well into the size expectations that are on the shelves. Shane Gleason: Yes, our goal is to -- we want our team in the cases as we launch this product. One of the nice things about this space is that eventually, that won't be the requirement. We know that's a question of do you build a model where you need to be present in every single one of your cases. I'd say in the short term, as we launch the product, we want to be present in those cases. And then as we open things up going forward, we won't need to be. So what that tells is that we're not stocking shelves and running away and hoping they use it when we're not there, but primarily running the cases out of reps stock with reps present in the cases as we get started and we make sure that the users and the accounts that could use it are trained and familiar with it before we leave a bunch of products on customer shelves. Marvin Slosman: Yes, Frank, I think it's all about utilization at this point. We want to make sure that this is the go-to product and it's utilized effectively as such. Frank Takkinen: Got it. That's helpful. And then maybe if I can just sneak one last one in, gross margin commentary. How should we think about where gross margins can go with scale? Michael Lawless: Yes. Well, I think as I mentioned on the call, the clear driver of that is the increasing mix of U.S. sales as we go forward into the future. As our volumes grow, we'll get some scale leverage just from the higher revenue, but we'll also get the benefit of the much higher margin mix of sales in the U.S. market. And so I mean, I think at this point, I don't want to start giving forward guidance on margins, but suffice it to say that as U.S. becomes a larger and larger percentage of our revenue, we would expect that our margins would approach typical medical device type margins. Operator: At this time, we've reached our allotted time for questions. I will now turn the call back over to Marvin Slosman. Please go ahead. Marvin Slosman: I'd like to thank everyone for joining today's call and the continued support for our mission to lead and transform the carotid intervention market. We're really proud of the strong performance the team delivered globally in the third quarter and especially here in the U.S. and our first commercial quarter as we advance our activation efforts and accelerate momentum. If you happen to be here in Las Vegas at VIVA, stop by the booth, we'd be happy to see you and look forward to great progress on our business. Thank you.
Operator: Good day, everyone, and welcome to JBT Marel's Earnings Conference Call for the Third Quarter of 2025. My name is Jim, and I will be your conference operator today. And as a reminder, today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to JBT Marel's, Senior Director of Investor Relations, Marlee Spangler, to begin today's conference. Marlee Spangler: Thank you, Jim. Good morning, everyone, and thank you for joining our third quarter conference call. With me on the call is our Chief Executive Officer, Brian Deck; President, Arni Sigurdsson; and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8-K filing. JBT Marel's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the IR section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the IR section of our website. With that, I will turn the call over to Brian. Brian Deck: Thanks, Marlee, and good morning. As you saw in our earnings release, we significantly exceeded our expectations for revenue and earnings in the third quarter of 2025. Primary drivers of our outperformance were excellent manufacturing and supply chain productivity, which enabled higher backlog to revenue conversion, a favorable equipment mix and an acceleration of synergy savings. In light of our strong third quarter performance, we have raised our guidance for full year 2025. At the same time, demand remained healthy with combined JBT Marel orders of $946 million, an increase of 7% from the prior year period. In particular, we experienced continued equipment investment from the poultry industry, our largest end market, and our pipeline for poultry-related projects is expected to provide support well into next year. Beyond poultry, orders from pet food and pharma were robust in the quarter. In the ultimate display of the benefits of diversification, we took 2 large orders in support of a major pharmaceutical firm's investments in GLP-1 production capacity. Geographically speaking, demand was strong in North America. While Europe and Asia were softer sequentially, we enjoyed a good quarter in Latin America with some large pet food, poultry and juice orders. We ended the quarter with a backlog of $1.3 billion. That, coupled with our resilient recurring revenue, provides visibility for the remainder of the year and support as we enter 2026. Additionally, as Matt will discuss, we made further progress on deleveraging our balance sheet. And as Arni will highlight, the integration of JBT and Marel's remains on track as we take actions to capture synergy savings and enhance our value proposition to customers. I will come back at the end and talk about a few ongoing initiatives that will make JBT Marel an even stronger partner to our customers over the long-term. Let me turn the call over to Matt to discuss our third quarter performance and revised outlook for the year. Matthew Meister: Thanks, Brian. For the third quarter of 2025, total revenue was approximately $1 billion, an increase of 7% sequentially. We exceeded our revenue expectations by approximately $65 million as we benefited from excellent manufacturing and supply chain productivity, which allowed us to convert approximately $45 million more backlog to revenue than originally expected. Additionally, we had about $20 million in higher book and ship revenue in the quarter compared to our expectations. Revenue in the quarter included approximately $26 million in favorable year-over-year foreign exchange translation impact, which was in line with expectations. Our third quarter adjusted EBITDA margin of 17.1% exceeded our expectations by about 140 basis points. Beyond volume flow-through, margins were better than we forecasted due to favorable mix of poultry equipment and shorter-cycle products, coupled with better-than-expected synergy savings. For the quarter, we realized year-over-year synergy savings of $14 million. Third quarter GAAP EPS was $1.28, and adjusted EPS was $1.94. Adjusted EPS excludes certain onetime items and acquisition-related costs, which were outlined in yesterday's press release and investor presentation. As it relates to the tariffs, based on what is currently understood, we still believe in the quarterly impact of JBT Marel's material costs. Before any mitigation efforts would be in the range of $22 million to $25 million. Because of our cost mitigation efforts, the net tariff impact before any pricing actions was approximately $15 million in the quarter, slightly less than anticipated. We expect the net cost impact before pricing actions to increase to about $20 million in the fourth quarter, with the increase primarily due to recently enacted additions to Section 232 tariffs. In the immediate term -- in the intermediate term, we will look to increase the utilization of our domestic facilities for production and assembly and further localize JBT Marel's supply chain. In terms of the additional proposed Section 232 tariffs related to the import of robotics and industrial equipment under consideration. As we currently understand the scope, we do not include equipment associated with food production. Therefore, while we may see some modest component cost increases, we do not expect a material impact on JBT Marel. As we progress further into the integration of JBT and Marel and are successfully operating as one combined entity, the allocation of revenue and expenses between the legacy companies is becoming less meaningful. As such, during the fourth quarter of 2025, we plan to introduce our new segment reporting, which reflects the way we will operate the business. The new segments will be Protein Solutions and Prepared Food and Beverage Solutions. Protein Solutions will include the JBT Marel businesses that focus on initial stages of processing and harvesting of animal proteins. The Prepared Food and Beverage Solutions segment predominantly focuses on the downstream value-added preparation, preservation and packaging of foods and beverages into ready-to-eat or drink products. In order to provide comparability, we will recast historical annual results for 2023 and 2024, and quarterly results for 2025. We plan to make those historical financials available prior to the release of our fourth quarter and full year earnings. In terms of our third quarter segment results, JBT segment revenue of $465 million increased approximately 2%, both year-over-year and sequentially. JBT segment adjusted EBITDA of $71 million decreased 13%, both year-over-year and sequentially, with an adjusted EBITDA margin of 15.3%. The decrease in margins is the result of unfavorable mix of equipment, one-off project variances and a higher share of corporate-related costs carried in the JBT segment. Marel segment revenue in the third quarter was $537 million, an increase of 12%, sequentially. Marel segment adjusted EBITDA was $100 million, representing a margin of 18.6%. Marel's strong profitability in the quarter was a result of favorable mix from higher-margin poultry equipment, integration synergies and volume leverage as well as continued improvement in the fish and meat businesses. Through the first 9 months of 2025, we generated operating cash flow of $224 million and free cash flow of $163 million. For the third quarter, we achieved record quarterly operating cash flow of $88 million for the combined company. We continue to make significant progress on deleveraging our balance sheet. From an initial leverage ratio of 4x at the close of the combination. At the end of the third quarter, our financial leverage decreased to 3.1x. And by year-end, we expect that our leverage will be below 3x. Previously announced in the quarter, we completed the issuance of $575 million of senior convertible notes with a coupon of [ 37.5 ] basis points due in 2030. The notes enable us to prefund the upcoming May 2026 convertible notes maturity at a lower interest expense relative to high-yield debt. And with the call spread, we have effectively mitigated shareholder dilution until the share price reaches approximately $283. As Brian mentioned, we have increased our guidance for full year 2025 to reflect the strength of our third quarter results. We are expecting revenue between $3.76 billion to $3.79 billion, including approximately $70 million to $85 million in favorable year-over-year foreign exchange translation effect. We are forecasting full year adjusted EBITDA margin to be 15.75% to 16% and adjusted EPS of $6.10 to $6.40. For full year 2025, we now anticipate in-year synergy savings of $40 million to $45 million, slightly above our previous target and run rate savings of $80 million to $90 million as we exit the year. We remain on track to achieve annual run rate savings of $150 million within 3 years of the combination. Let me now turn the call over to Arni, who will discuss the progress and specific benefits we are realizing as a result of the business combination and integration. Arni Sigurdsson: Thanks, Matt. It is clear that our results demonstrate the benefits of JBT models complementary solutions, diverse end market participation, increased scale and continuous improvement efforts. As Matt said, we have increased our estimates for in-year realized synergy savings, a testament to the disciplined execution of our integration plan and the dedication of our team. For example, on the supply chain side, we are actively realizing synergies by rightsizing our supplier base and optimizing our procurement strategies as JBT model. That is with the goal of improving terms, quality, delivery and pricing. We recently renegotiated our air and ocean freight contracts, reducing the number of suppliers from more than 150 to 5. Given these efforts, we expect to capture more than $5 million in annualized cost savings, a very meaningful number. Following the implementation of our new organization in the second quarter, we have also continued to capture operating expense savings. This includes consolidating contracts, the sales and service office footprint and third-party spend across our finance, legal and IT departments. During the quarter, we inaugurated a new global production center in Pune, India, with a full new JBT model branding. The location positions India as key expert hub and brings JBT Marel's application expertise to the broader Asia Pacific region. Our global scale provides the flexibility to produce products in the region where our customers are located, adding optionality as tariffs continue to evolve. We now have dedicated low-cost manufacturing platforms in Asia, Latin America and Eastern Europe to support in-region profitable growth. As we outlined in our last call together, JBT and Marel are an even more valuable partner to our customers. We achieved that with our customer-centric approach, which features account managers representing the entire portfolio, our expanded service network and full-line solutions and process know-how across the value chain. We can simplify the buying process, installation and service for our customers and provide a one accountable vendor. In our conversations with customers at trade shows and on specific projects, it is clear that they recognize the value of our expanded capabilities. A good example is a recently secured hamburger line order, which includes meat preparation, forming, weighing, lean measurement, freezing and software from the JBT and model portfolio. Sustainability also remains top of mind for the food and beverage industry. At JBT Marel, sustainability is embedded in who we are as an organization. During the third quarter, we published JBT Marel's first joint sustainability report. In it, we discussed how we deliver sustainable and efficient outcomes for our customers through application expertise and leading technology. And that focuses on minimizing food and package waste, lowering energy and water usage and improving food traceability and safety. I am proud of JBT Marel's role in advancing sustainability as we transform the future of food. With that, let me turn the call back to Brian. Brian Deck: As you heard from Arni's remarks, we are making excellent progress on the integration and have delivered quantifiable benefits in terms of supply chain and operating expense savings. And there is more to come as we enhance our holistic solution offerings with an emphasis on service and digital capabilities. For example, as we have discussed over the past several years, our software and digital platform further enhance JBT Marel's value proposition, providing control and connectivity that improved performance across the system and optimizes machine yield, throughput and uptime for our customers. Similar to our equipment portfolios, JBT and Marel's digital ecosystems are complementary. We have now combined our digital teams and have aligned our technology infrastructure platform. We continue to work on how to integrate the customer software interface, feature content as well as the development of the intermediate-term technology roadmap. Our goal is to provide a path forward that offers the best technology specifically designed for the needs of the food and beverage industry without disruption to our customers. We are also engaged in the process of integrating our service resources and capabilities. And in addition to leveraging our expanded reach, core to our strategy is continually enhancing the quality of our service offering and as such, are instituting a rigorous customer-facing performance measurement system. We recognize that essential part of the JBT Marel value proposition is the reliability, responsiveness and quality of our service and parts offering and strive to provide customers with best-in-class performance. This development of our software solutions and the performance of our service and parts franchise go hand-in-hand as we further our integrated value proposition with our customers. As we approach the end of our first full year as JBT Marel, I believe our commercial success and financial performance have reinforced our conviction that we are better together. Our complementary portfolio of solutions, enhanced service capabilities and global footprint are making us an even more valuable partner to our customers. Internally, we have continued to optimize our operating efficiency and productivity. And our strong cash flow has enabled us to quickly delever our balance sheet and provides the liquidity to support our growth strategy. My heartfelt thank you to our teams around the globe who have enabled JBT Marel to bring greater value as we transform the future of food. Now let's open the call to questions. Operator? Operator: [Operator Instructions] We'll take our first question today from the line of Mig Dobre at Baird. Joseph Grabowski: Joe Grabowski on for Mig this morning. So I wanted to start with the Marel EBITDA margin in the quarter, really impressive, actually 330 basis points over the core JBT EBITDA margin. And even if we back out all of the $14 million in synergies from Marel, it's still above core JBT. I know you mentioned in the prepared remarks, favorable mix and some improvement in meat and fish, but maybe drill down a little further as to what's driving that EBITDA margins much higher than where they were pre-acquisition. Brian Deck: Sure. Yes, we're really, really proud of the performance of the legacy Marel business in the third quarter. Specifically, as we mentioned, we got a lot of volume through the system in the quarter, and you get a lot of operating leverage out of that. That was, first and foremost, the benefit that we saw. And moreover, the higher share synergies, as you mentioned, the reduction of the corporate overhead has benefited the Marel segment and meat, and fish just continued to improve. And just further to the topic, one of the things we've talked about over the years -- over the last 2 years as we've considered this opportunity is the strength of the Marel technology. And that really starts to come through as you build your volume and get -- and as the market improves. So that's really just starting to come through really strongly in the quarter. So there was a lot of opportunity with the Marel margins, and we just saw that really good execution on both the commercial side and on the factory side. Joseph Grabowski: Got it. Okay. Great. That's very helpful. And then my second question, I guess, you raised your full year EBITDA guidance at the midpoint by $20 million. It seems like Q3 maybe came in at least $20 million above where you were expecting. So maybe talk about some of the moving pieces in 4Q, you had some additional revenue out of backlog in Q3. Did that -- is that going to impact Q4, tariffs, synergies, just kind of moving pieces for 4Q versus your expectations 90 days ago? Brian Deck: Sure. I'll talk a little bit about the commercial side and have Matt talk about the cost side. So we do expect lower revenue in the fourth quarter relative to the third quarter. So some of the cadence and the flow-through of that operating leverage and the profits on that lesser revenue flows through. The primary reason for that is we did have a bit of a pickup in the third quarter just as it relates to -- as I mentioned, some productivity and supply chain improvements. So there were some things in, I'll say, in our backlog that were stuck on the port because of some of the issues with tariffs and whatnot. We cleared a lot of that up. So that allowed us to get a little bit extra volume in the third quarter that we don't expect in the fourth quarter. And on the cost side? Matthew Meister: Yes. I think on the cost side; we do expect to see a bit of a ramp on the tariff expense impacting margins in Q4 with additional 232 tariffs that should have an unfavorable impact on margins sequentially. In addition to that, as Brian said, we did see some supply chain benefits that impacted Q3. We don't expect that to recur in Q4. So there's a little bit of sort of a onetime impact from those supply chain benefits that doesn't recur sequentially in Q4. Brian Deck: And then just lastly, as we think about 2026 and thinking about our growth trajectory for there, we will make a little bit of investments in preparation and in commensurate with that expected growth. Joseph Grabowski: Got it. Okay. And if I could maybe just sneak in one more. If you could talk about just how automation is trending through the business as we progress through the year? Brian Deck: Yes. Automation remains a key theme for us, particularly on the proteins side as we see pressures on the labor environment for the food factories, the area that we see the biggest opportunity and seeing a good -- we saw a good amount of orders in the third quarter and expect that trend to continue in the fourth quarter is what we would call the secondary side. So that is where you typically would see slicing and dicing and removing meat from the bone, so to speak. That is the biggest opportunity clearly on the protein side. We see similar challenges of labor availability on cutting up things like fruits and vegetables, anywhere where there's humans involved in things that are typically well suited for dexterity and precision. But as the technology continues to evolve and with the combination of our portfolios together, we have a great offering on that secondary space. So that does continue to play out as we had hoped. Operator: Next question today comes from the line of Ross Sparenblek at William Blair. Ross Sparenblek: Maybe just starting with the order book. Can you give us a sense of any cross-selling orders to call out and maybe help us size that as we think about the revenue synergy capture? Arni Sigurdsson: Yes. I mean -- this is Arni here. I mean what I would say is we continue to see improvement in our pipeline on the cross-selling opportunities. And we feel kind of very, very good where we are. I mean I did highlight one particular order in the prepared remarks, for example, where we had a hamburger line. And what kind of -- as we look to some of the pipeline and the opportunities that we have there, we're very pleased with the mix that we're seeing. We're seeing kind of all the way from kind of current JBT customer, not a Marel customer, we're selling there and having opportunities there, vice versa. And kind of the main themes that I would kind of maybe give you a little bit of color on kind of the freezers are being bundled a lot into some of the convenience lines that we have. And then we also see a lot of like the fryers with the [ mass ] oven kind of on the Marel side. So I would just say, overall, we're pretty pleased with where we are considering the pipeline. Ross Sparenblek: Okay. So I mean do you get the sense -- I mean, it sounds like it's expanded in scope here just outside of the obvious moats around the poultry side? Arni Sigurdsson: Yes. I would say it is general. I would not say it's kind of very different from expectation. We do -- we've obviously been quite focused on the poultry side just due to kind of the strength of that market and also kind of our position in that market. So for example, we're seeing kind of the combination of the DSI water cutter and the SensorX bone detector, that's a very good combination. But we're also seeing it kind of more broader. And then we see kind of some things that we didn't expect. We've sold kind of some FTNON equipment into the fish industry and so on. And these happen as well, kind of something you don't plan for. But overall, I would say it's broadly in line with expectation, but we're very pleased with how we're kind of consistently building up a stronger pipeline. Brian Deck: And just to add to that a little bit, as we mentioned in previous quarters that as we move to this account management model, which allows our sales force to sell the entire portfolio, over the last 2 quarters, there's been a tremendous amount of discovery of the legacy Marel salesmen, understanding the depth and the breadth of the JBT portfolio and vice versa. So as that discovery occurs and you start to experiment and realize that there's application that we can apply that we hadn't even thought of, that is starting to come through. So we're feeling really good about the cross-selling and the synergistic sales as we go into 2026. Ross Sparenblek: Maybe one more in here. Brian, when we last spoke last quarter, it sounded like you had 12 months of visibility in poultry and we -- you take the share gains out of it and just think about end market demand. where is your visibility today? And what are you hearing from your customers as it pertains to pork, fish and the other protein markets as well? Brian Deck: Right. So I would say that strength we still see continuing well into 2026. It's hard to precisely say how long that's going to last. But for sure, the market is strong. And really, what we're seeing is, I think we've talked about quite a bit is, again, and it's not just poultry, we're seeing some improvements in pork and fish, but poultry does continue to lead the market. But again, as we see the cash flow and the strength in our customers, they do have a fair amount of, I'll say, longer-term plans to get the benefits of greenfields and line expansions, et cetera. There are some -- there was many -- a couple of years of deferred investments. So we do see that coming through here in 2026. And frankly, we're already quoting into 2027. Operator: Our next question today will come from Saree Boroditsky from Jefferies. Saree Boroditsky: Starting off, building on the Marel margin question. One of the items you highlighted was improvement in meat and fish. I believe those product lines had lower margins at the time of acquisition. So just curious if you could provide some color on the improvement there and some of the actions, you're doing to raise the margins. Arni Sigurdsson: Yes. So I mean, like we've talked about previously, I mean, one of the areas that we've been focusing on is one of the tools that we have is 80/20 analysis. So basically, looking at kind of what are your -- what are the top 20 products that you have that represent 80% of the volume. And you can look at that through different lenses, kind of whether it's geography, customers, products and so on. So it's really looking at and trying to understand kind of where are you kind of well positioned, where you kind of have the right resources, the right margin, so you can actually take the appropriate actions and resource the different value streams appropriately. And so what we have found out through that is really kind of figuring out what is the right resource level. And we're also looking at kind of where are the projects where we're more challenged in terms of variances or kind of differences between kind of what we expected to achieve and what we actually achieved. And then we are taking appropriate actions there as well. So we're actually really focused on improving profitability and less so on driving top line growth because we want to build the foundation there and then be ready to build on that profitable foundation to grow the business instead of continuously growing an underperforming business. And that's really kind of where the focus has been. And I think it's nice that we're kind of reaching that kind of foundation as the market is starting to kind of stabilize and gradually improve. And I would say you saw -- we saw some improvement in Q3 and we're very confident on our journey to reach mid-teens margins for those businesses in 2027. Saree Boroditsky: I appreciate on the color on those. I think you've mentioned a couple of times 2026, you mentioned investing ahead of growth along with the support of backlog. So could you just talk through any early thoughts on the growth outlook for 2026 and your visibility into this? Brian Deck: Right. It's a little early to be giving revenue color for -- and growth color for 2026, but I will say this, and I'll have Matt talk a little bit about the backlog. We do have fairly decent visibility given the strength of our backlog. As we just mentioned a moment ago, the markets are supportive. Certain markets are very supportive and certain markets less so. But overall, it's a healthy demand environment. So we do expect 2026 to be a growth year, and we'll provide more specifics on that. Matthew Meister: Yes. Just to build on that. I mean, where we're at with our backlog as we exit Q3, that coupled with where we see our order pipeline and the strength and resiliency of our recurring revenue. As we exit Q4, we're expecting to have visibility above 70% to the 2026 revenue. And that, as Brian said, is inclusive of growth in 2026. So we feel very good about sort of where our pipeline and backlog sits to support a growth year in 2026. Saree Boroditsky: And I could squeeze one more in. Obviously, you're going to be reporting in 2 different segments. Just curious how those 2 categories differ from a growth and margin perspective or just any differences in how they go-to-market? Brian Deck: Right. So they will actually be relatively similarly sized and relatively similar margins. We'll get -- we're working through all those details as we speak. So I don't think you're going to see huge differences. I think that the general outlay is that the Protein Solutions will be more, I'll say, legacy Marel weighted, and the Prepared Food and Beverage Solutions will be a little bit more, I'll say, legacy JBT weighted. But both should be decent margins and overall growth profile. So we'll give more color on that. As Matt said in the prepared remarks, before we issue our 10-K and our Q4 earnings, we'll provide all that detail so you can get all the history and be well prepared as we go into that earnings call. Operator: Our next question today will come from the line of Walt Liptak at Seaport Research. Walter Liptak: I wanted to ask about selling prices and just kind of the tariffs. I wonder if you could talk first about third quarter and if you could parse out kind of the volume versus price that you got for JBT and Marel. And how are you guys doing like the fourth quarter headwind with tariffs? Is that surcharges? Or is that special tariff pricing? How does that work? Brian Deck: Sure. So I would -- first of all, let me tell you that the revenue in Q3 was overwhelmingly on the volume side. There was some pricing benefit because as we mentioned earlier, we enacted price increases in the second quarter in anticipation of some of the flow-through from the tariffs. So there are some pricing benefit. And then obviously, year-over-year, there's some FX benefit, which we have outlined, but really was a volume play in the third quarter here. As we go into the fourth quarter, as Matt mentioned, we'll see an extra $5 million or so on the cost side in connection with the 232 -- Section 232 incremental tariffs that are out there. Things are starting to stabilize, it seems, absent any new news. But -- so we continue to price into our projects themselves, everything that we know about tariffs today. As it relates to the parts, we'll just keep an eye on it. If we see incremental issues or outsized issues as it relates to the cost side, we'll consider it. But we did do a price increase. We think we're in decent shape, and that's all reflected in the guidance for the fourth quarter. Walter Liptak: Okay. Great. And it sounds like you're making some -- some more permanent shifts, if I heard that right, with the manufacturing footprint? Have you started those? What's the timing of that? And what's the timing of unexpected benefits? Brian Deck: Yes, we have started. That does take -- that will take some time overall. However, where we have what I would call sister plants. So for example, on the poultry side, we have a facility in Boxmeer, Netherlands, and they have a sister plant in Gainesville, Georgia. So we have, I'll say, already a supply chain established. So it allows us to move more volume than we otherwise might absent tariffs into Gainesville. So that's happening, and that's relatively in the grand scheme of things, easier to do. Longer term, we're looking at where we can, again, utilize and further develop that supply chain for some of our other facilities. So that will take 2, 3, maybe 4 quarters as we consider that. So it's a -- obviously, it's a mix of things we can do quickly and other things that will take a few quarters. Operator: And next, we'll hear from the line of Justin Ages at CJS Securities. Justin Ages: Shifting topic slightly. I know it's smaller, but any update on the AGV business? How is it doing? How you guys are thinking about that business? Brian Deck: Sure. Yes. So as you know, the AGV business is in a tremendous market in terms of all the trends as we see on factory automation, warehouse automation is their big end markets. So longer term, very, very strong. The third quarter wasn't their best quarter. That was one of the businesses that was more affected by some of the tariffs and some handful of delayed orders and revenue. However, we're expecting a strong fourth quarter here in terms of demand and into 2026. Justin Ages: I appreciate the color. And then one more on the tariff mitigation. I know you've had some price increases out there for a bit. Are you seeing any pushback on repricing, any order cancellations or anything along those lines? Brian Deck: Yes. We've been very balanced as it relates to really looking through the eyes of our customers where it's fair. As you know, we're -- as you could see from our remarks that we are eating some of the tariff impact. So I think we're being fair with our customers. And so -- and as you can see from the order side, our orders remain strong. So we feel we've done a nice job in that balance of, I'll say, sharing some of the pain. And then as we go into 2026, we feel really good about our position with our customers. Operator: And that was our final question from the audience today. Mr. Deck, I will turn it back to you, sir, for any additional or closing remarks that you have. Brian Deck: Great. Thanks, everyone, for joining us today. As always, if there's any questions, please direct them to Marlee Spangler. Have a great day. Operator: Thank you, ladies and gentlemen, for joining today's session. You may now disconnect your lines. Have a great day.
Operator: Good morning. My name is Sergio, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. Third Quarter 2025 Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Scott Kirker. You may begin your conference. W. Kirker: Thank you, Sergio, and welcome, everyone, to our discussion of Topaz Energy Corp.'s results as at September 30, 2025, which the 3 and 9 months ended September 30, 2025 and 2024. My name is Scott Kirker, and I'm the General Counsel for Topaz. Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and the MD&A available on SEDAR and on the Topaz website. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Marty Staples, Topaz President and Chief Executive Officer; and Cheree Stephenson, Vice President, Finance, and Chief Financial Officer. They will start by speaking to some of the highlights of the last quarter and of the year so far. After their remarks, they will be open for questions. Marty, Cheree, please go ahead. Marty Staples: Thanks, Scott. Good morning, everyone. Topaz had a strong third quarter, marked by royalty production growth, infrastructure processing revenue growth and record Clearwater royalty production volumes. Topaz's third quarter royalty production was 21,600 BOE per day and increased 15% from the prior year. Q3 2025 royalty production included record heavy oil production of 3,400 barrels per day, 17% higher natural gas royalty production and an 11% increase in total oil and liquids royalty production over the prior year. Topaz generated total third quarter revenue of $76.4 million, 49% from crude and heavy oil royalties, 20% from natural gas and NGL royalties and 31% from our infrastructure portfolio with full processing revenue and other income of $24.2 million, which increased 16% over the prior year. Topaz's infrastructure assets generated a 99% average daily utilization in the quarter. We estimate that operators invested between $500 million and $600 million of development capital across our acreage in Q3, with total operator spending across our royalty lands year-to-date between $2 billion to $2.1 billion. During the quarter, drilling activity on our acreage remains strong at a 161 gross wells, 6.3 net were drilled and 12 gross wells were reactivated with 52% of the drilling activity coming from the Montney and Clearwater operating areas. During Q3, 184 total gross wells were brought on production. And as at September 30, 94 gross wells were drilled but not yet completed, which represents approximately 58% of the Q3 2025 new wells drilled. Based on operator drilling plans, we expect that the current 27 to 31 active drilling rigs on our royalty acreage will be maintained through the fourth quarter of 2025. Topaz generated third quarter total revenue of $76.4 million and cash flow of $74.8 million or $0.49 per share and free cash flow of $73 million or $0.47 per share, both of which increased 7% per share over the prior year. Our Q3 2025 free cash flow margin of 95% also increased from 88% last year due to lower operating costs, a 24% reduction to our effective borrowing rate under the company's credit facility and an $8.7 million hedging gain realized during the quarter. Topaz's third quarter realized a hedging gain of $8.7 million includes a $7.1 million gain on natural gas-based financial derivative contracts, which represents a 144% premium to Topaz's third quarter realized gas price. For the fourth quarter of 2025, approximately 30% of Topaz's natural gas growth production is hedged at a weighted average fixed price of CAD 3.06 per Mcf and approximately 30% of oil and total liquids royalty production is hedged at a weighted average floor price of CAD 97.64 per barrel. Topaz distributed net $52.3 million in quarterly dividends, $0.34 per share during Q3, which represents a 5.4% trailing annualized dividend yield to the third quarter average share price. During the quarter, Topaz completed its previously announced Northeast BC Montney tuck-in royalty acquisition from Tourmaline for $71.7 million. This acquisition provides a new royalty interest on approximately 134,000 gross acres, of which over 65% is undeveloped and includes 410 future Tier 1 Montney drilling locations. This acquisition fully aligns Topaz to each of Tourmaline's future growth projects under their multiyear Northeast BC Montney build out plan. We have reconfirmed our 2025 guidance estimate ranges and expect to exit 2025 with net debt between $500 million and $510 million or net debt to EBITDA of 1.5x, while generating a payout ratio at the lower end of the 60% to 90% long-term targeted range, which provides financial flexibility for acquisition growth. At this time, we're pleased to answer any questions. Back to you, Sergio. Operator: [Operator Instructions] Your first question comes from Josef Schachter from Schachter Energy Research. Josef Schachter: My normal question, can you talk about what the M&A landscape looks like right now, especially with E&P companies being stretched with these low commodity prices. Is there more opportunity now in the infrastructure area, either for facilities that are in great shape and then you could be a partner there or in projects that are in the pipeline that once they're completed, then you can be in the deals at that point? Marty Staples: Josef, we continue to see a lot of opportunity inside the M&A landscape. In Western Canada right now, there's a significant amount of assets for sale. We just saw a couple of those close over the last month that have been publicly announced. And we always continue to look for ways to participate, but don't feel like we need to participate in every single opportunity that's available. And so we'll be interested to see where we fit in some of these potential acquisitions. We have kept our payout at the lower end of the ratio, and that's by design. We want to use our excess free cash flow if it's available first. And as you saw us do kind of in the latter part of the quarter, we did use some debt to facilitate a deal with Tourmaline for $71.7 million. So we'll continue to be interested. And if there's something that fits, we'll try to be reactive to that. And then from a royalty infrastructure weighted opportunity set, I think there's opportunities on both sides. And we've proven that over the year. At the start of the year, we did a deal with Logan Energy, where it was a royalty infrastructure hybrid deal, and we completed a deal just recently that was a pure royalty deal. So we'll look to be kind of opportunistic on both sides of that. Josef Schachter: Okay. Some of my clients have asked me if you're going to -- how does the royalty structure work with an NCIB? Is that something that if you saw the stock was trading below what you consider your fair value, would that be somewhere where you could allocate capital? Cheree Stephenson: Josef, yes. So we've definitely looked at an NCIB, and we definitely like the thought of it. There's definitely a good reason and a rationale to reinvest back into our own portfolio as per se. But with liquidity and Tourmaline shareholdings, we have sort of pinpointed that as something we do once Tourmaline sold down a bit further. So at this time, we've decided to stick with the dividend strategy and not confuse that messaging, but it's definitely something that we continue to evaluate for future as liquidity continues to improve. Operator: [Operator Instructions] There are no further questions at this time. You can proceed. Marty Staples: Thanks, everyone. Look forward to talking to you in Q4. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to Otter Tail Corporation's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I will now turn this call over to the company for their opening comments. Beth Eiken: Good morning, and welcome to our third quarter 2025 earnings conference call. My name is Beth Eiken, and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our third quarter financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call are Chuck MacFarlane, Otter Tail Corporation's President and CEO; and Todd Wahlund, Otter Tail Corporation's Vice President and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So please be advised against placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments or otherwise. I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane. Chuck MacFarlane: Thank you, Beth. Good morning, and welcome to our third quarter earnings call. Please refer to Slide 4 as I begin my remarks with a summary of quarterly highlights. . We are pleased with our Q3 financial results as they outpaced our expectations. Our team members continue to execute well on our growth plan despite dynamic market conditions. Otter Tail Power continues to deliver on its regulatory priorities. Our South Dakota rate case, previously filed in June of this year, continues to progress; and in late October, we filed a rate case with the Minnesota Public Utilities Commission. The second phase of Vinyltech's expansion project is progressing well. We continue to target early next year for adding another 26 million pounds of capacity. Once complete, we will have increased our Plastics segment total production capacity by 15% through our multiyear investment plan. We are also introducing our updated 5-year capital spending plan today. Otter Tail Power's new capital investment plan totals $1.9 billion and is expected to produce a rate base compounded annual growth rate of 10%. With our updated capital investment plan, we are increasing our targeted long-term earnings per share growth rate to 9% to 7% from 6% to 8% of a 2028 base year. This results in a targeted total shareholder return of 10% to 12%. Slide 5 provides a summary of our quarter-to-date and year-to-date earnings. We generated $1.86 of diluted earnings per share in the third quarter, a decrease of 8% from the same time last year. This expected decline in earnings was driven by the continued decline in Plastics segment sales prices and earnings. Despite the year-over-year decrease, our results outpaced our expectations. We are increasing the midpoint of our 2025 earnings guidance to $6.47 from $6.26 per share. The increase in guidance is primarily due to better-than-expected Plastics segment financial results in Q3 and our revised expectations for the remainder of the year. In a moment, Todd will provide a more detailed discussion of our quarterly financial results and our updated 2025 outlook. Transitioning now to an operational update for Otter Tail Power. As noted on Slide 7, we filed a request with the Minnesota Public Utilities Commission for a net revenue increase of $44.8 million. This is based on a requested ROE of 10.65% and an equity layer of 53.5%. The increase is driven by investments in infrastructure and grid resilience, the impact of inflation since our last rate case filed 5 years ago and accelerated recovery of the Minnesota portion of Coyote Station. We requested accelerated recovery of Coyote Station as the Minnesota Public Utilities Commission directed us to no longer serve our Minnesota customers with power from Coyote beyond 2031, as part of our integrated resource plan. Even with the proposed increase, Otter Tail Power is expected to continue to have some of the lowest electric rates in the region and country. Affordability remains a priority for us, and we are committed to selecting cost-effective investments to serve our customers with reliable energy while prudently managing our operating costs. Our updated 5-year capital spending plan is expected to have limited impact on our customer rates due to lower fuel costs associated with renewable generation as well as the favorable impact of renewable tax credits. Additionally, a significant portion of our capital spending plan relates to regional transmission projects. The cost of these projects will be allocated to either new generation interconnection customers or across the entire MISO footprint, of which our customers comprise only a small portion. We continue to partner with our customers to identify ways to save, whether through energy efficiency programs or innovative pricing solutions. Turning to Slide 8. Our South Dakota rate case is progressing. The procedural schedule has been established, and we expect a decision in the first half of 2026 unless a settlement is reached in advance of that date. Interim rates, which amount to $5.7 million on an annual basis, will commence on December 1, 2025. Turning to Slide 9, Otter Tail Power updated its 5-year rate base CAGR to 10%. We continue to expect Otter Tail Power to convert its rate base growth into earnings per share growth near a 1:1 ratio over the long term. This is made possible by identifying high-quality customer-focused projects, effective project execution, efficient financing and reducing regulatory lag. We currently expect approximately 90% of our updated 5-year capital spending plan to be recovered through existing rates or riders allowing for timely recovery of our capital investments. Slide 10 and 11 provide an overview of ongoing future capital projects. Our Wind Repowering project is nearly complete. We finished upgrading the wind towers at our Luverne Wind Energy Center in Q3 and expect to complete the remaining 2 repower sites later this year. Once finished, we expect the increased energy production from these facilities to total approximately 40 megawatts of new generation, which equates to over a 20% output increase. Our 2 solar development projects also continue to progress. During the quarter, we transitioned Solway Solar from a project development to start of construction and look forward to adding additional cost-effective solar generation to our portfolio. Development work continues on our MISO Tranche 1 and 2.1 portfolio projects as well as our JTIQ project. We are working through landowner and local government resistance associated with citing and certain permits for one of the Tranche 1 projects. Additionally, in July, a complaint was filed at FERC against MISO's Tranche 2.1 projects, citing a concern with benefit calculations. North Dakota, in one of the jurisdictions in which we operate, joined the complaint. We are closely monitoring developments around the FERC complaint docket, and at this time, continue to expect these projects to move forward due to their reliability-related benefits, but some delays are possible. Turning to Slide 12. Otter Tail Power remains well positioned to attract and support large load. Our team continues to engage with companies looking to add new large loads to our system. In the coming weeks, we look forward to bringing online the 155-megawatt load secured earlier this year. The 155-megawatt load is comprised of 3 megawatts of firm load and approximately 152 megawatts of nonfirm loan. We expect this load to positively contribute to earnings starting next year. We have and will continue to be thoughtful in our negotiations to ensure we are appropriately mitigating potential adverse implications of adding new large loads to our existing customer base. Adding new loads, if appropriately managed, would not only benefit us, but also our current customers as it enables us to spread out existing fixed costs. In what is a challenging economic environment for many, affordability has become increasingly important. As shown on Slide 13, Otter Tail Power's electric rates have remained well below the national and regional average for many years, and we expect Otter Tail power rates to remain among the lowest in the nation. However, we know that our customers still feel the impact of rate increases. We're deeply focused on identifying cost-effective investment projects and are committed to prudently managing costs. We aim to partner with our customers to continue to identify ways for them to save. Transitioning to our manufacturing platform. Slide 15 provides an overview of industry conditions impacting our Manufacturing segment. BTD continues to face end market demand related headwinds. Sales volumes remain below historic levels after sharply declining in the third quarter of last year. The lawn and garden and agricultural end markets continue to be most heavily impacted. Recreational vehicle and construction have shown signs of improvement and the industrial end market remains strong as our products are ultimately used to support the growing data center energy demand. While the down cycle impacting BTD's volume continues, we saw some month-over-month stabilization in volumes during the third quarter. This could indicate reaching the bottom of the business cycle. At this time, we expect our current low demand environment to continue through most of 2026 and we'll give a fulsome update regarding 2026 expectations during our Q4 call. We have seen some improvement at T.O. Plastics horticulture end market, but low-cost import competition remains a challenge for our team. We continue to monitor the tariff environment to determine what impact, if any, it will have. However, in the meantime, we remain focused on aligning costs with current demand across our Manufacturing segment. I want to take a moment to recognize and thank our Manufacturing team members for their commitment and efforts during challenging market conditions. Slide 16 provides an overview of our Plastics segment's pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 17% from the same time last year. Sales volumes increased 4% due in part to capacity added to Vinyltech late last year. We also continue to benefit from lower material input costs, including resin. The cost of PVC resin has decreased from the same time last year due to global supply and demand dynamics resulting in elevated domestic supply. Turning to Slide 17. Our manufacturing platform remains well positioned for future growth opportunities. Our BTD Georgia facility is ready to support our customers in the Southeast once market conditions improve. Phase 2 of our Vinyltech expansion is progressing well. Once complete, we will have increased our total production capacity for the Plastics segment by approximately 50 million pounds over the past 2 years. I'll now turn it over to Todd to provide his financial update. Todd Wahlund: Thank you, Chuck, and good morning, everyone. Turning to Slide 19. Our quarterly financial results exceeded expectations. We generated $1.86 of diluted earnings per share compared to $2.03 during the same time last year. Please follow along on Slides 20 and 21 as I provide an overview of quarterly financial segment results by segment. Electric segment earnings decreased $0.03 per share in the third quarter. The decrease in earnings was primarily driven by unfavorable weather and the impact of seasonal rate differences between interim and final rates in North Dakota. This timing effect does not impact our revenue on an annual basis. These drivers were partially offset by higher quarterly sales volumes, excluding the impact of weather, as well as lower operating and maintenance expenses. Manufacturing segment earnings increased $0.04 per share. The increase in earnings was primarily driven by a lower cost structure following our efforts over the last year to align the costs in our business with the current demand environment. We also benefited from enhanced production efficiencies with a smaller but more skilled workforce. The timing of pass-through steel cost fluctuations and the selling of lower cost inventory also contributed to improved profit margins. These drivers were partially offset by the impact of lower sales volumes and higher SG&A expense. Turning to Slide 21. Plastics segment earnings decreased $0.26 per share compared to the same time last year. Plastics segment earnings exceeded our expectation for the third quarter, even as we continue to progress towards a more normalized earnings level. The decrease in earnings was driven by lower average sales prices, partially offset by lower input material costs and higher sales volumes. The average sales price of PVC pipe declined 17% compared to the third quarter of 2024. This continues the downward trend experienced in the sales prices of our PVC pipe since it reached its peak in mid-2022. Partially offsetting the decline in pricing are lower material input costs, which decreased 16% from the same time last year. Our Plastics segment earnings also benefited from a 4% increase in sales volumes, largely driven by the incremental volume from the capacity added at Vinyltech. Finally, our corporate costs improved $0.08 per share in the third quarter from the same time last year. This improvement was driven by an increase in income tax benefits, lower workers' compensation expenses and lower employee health insurance claims. Turning to Slide 22. Our balance sheet remains very strong, and we are positioned well to fund the utilities updated customer-focused growth plan without the need for external equity through at least 2030. We have $325 million of cash on hand and continue to produce a utility sector leading return on equity of 16% on an equity layer of nearly 64%. On Slide 23, we are increasing and narrowing our 2025 diluted earnings per share guidance to a range of $6.32 to $6.62. We are increasing our 2025 earnings guidance primarily due to a better-than-expected Plastics segment financial results in the third quarter as well as our revised margin expectations for the remainder of the year. We are increasing our margin expectations as we expect raw material costs to be lower than previously projected for the remainder of the year. We are also increasing the midpoint of our Electric segment earnings guidance and narrowed the range. Our updated guidance is primarily based on better-than-expected financial results in the third quarter of 2025, which was largely driven by higher-than-anticipated sales volumes. We are maintaining the midpoint of our 2025 earnings guidance for our Manufacturing segment, but are narrowing the range. We are also narrowing the guidance range for our corporate cost center. With the increase to our 2025 earnings guidance, we are forecasting our consolidated 5-year compounded annual growth rate to be approximately 23%. As shown on Slide 24, we have a proven track record of delivering outstanding earnings per share growth with and without the impact of Plastics segment earnings. Our updated capital investment plan for 2026 through 2030 is included on Slide 25. Our Electric segment's revised 5-year capital spending plan increased by approximately 35% and now totals $1.9 billion. The increase is primarily driven by moving into the construction phase of our previously discussed regional transmission projects. It is important to highlight that our updated capital plan does not include any investment to serve new large loads. Additionally, we project approximately $350 million of potential incremental utility capital investments to our base plan. The incremental opportunity includes the wind generation and battery storage projects previously approved in our Minnesota integrated resource plan as well as delivery-related investments for any new large loads added to our system. We estimate that for every $100 million of incremental capital investment, our rate base compound annual growth rate would increase by approximately 65 basis points. Slide 26 summarizes our updated 5-year financing plan. Even with our updated utility capital spending plan, we expect to finance our growth without any equity issuances. We plan to issue debt at Otter Tail Power on an annual basis to help fund the investment plan and maintain the authorized capital structure. We have $80 million in parent level debt that matures in late 2026 and expect to retire this debt. We will have no outstanding parent level debt upon retirement. As included on Slide 27, our long-term expectations of normalized Plastics segment earnings remains unchanged. We believe Plastics segment earnings will continue to decline through the end of 2027 such that 2028 is our first full year of normalized earnings. This assumption is based on the average sales price of our PVC pipe falling at a rate similar to what we have experienced since late 2022, increased sales volumes due to our expansion projects at Vinyltech and cost changes generally in line with the rate of inflation. Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings and the timing or level of earnings could vary materially from this projection. However, the Plastics segment remains an important component to our overall strategy due to the enhanced returns and earnings it generates. Even as earnings normalize over the coming years, we expect the segment to produce an accretive return and incremental cash to help fund our electric utilities rate base growth plan. Slide 28 summarizes our uplifted investment targets. We increased our long-term earnings per share growth rate to 7% to 9% and also increased our targeted total shareholder return to 10% to 12%. We anticipate delivering on these targets once Plastics segment earnings normalize in 2028. Our long-term earnings mix target has also been updated. We now expect 70% of our earnings to be driven by our Electric platform and 30% from our Manufacturing platform. We anticipate reaching this earnings mix in 2028, as Electric segment earnings continue to grow in line with its rate base growth rate of 10%, Plastics segment earnings have normalized, and the Manufacturing segment has rebounded from the current down cycle. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our revised investment targets over the long term. Otter Tail Power continues to be a high-performing electric utility, converting its rate base growth and earnings per share growth at an approximate 1:1 ratio. Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash, which will be used to help fund our rate base growth plan without any equity needs. It is this combination of companies and performance that has and we project continuing to provide excellent benefits for our customers and our investors. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We are now ready to take your questions. Operator: [Operator Instructions] Our first call comes from Michael Pelletier from KeyBanc Capital Markets. Michael Pelletier: Congrats on the updates this morning. Chuck MacFarlane: Thanks, Michael. Todd Wahlund: Good morning, Michael. Michael Pelletier: Just curious on the updated EPS long-term growth rate there, just on the shaping of it and kind of expect that to grow linearly or any movement on a year-to-year basis? Todd Wahlund: Yes. Over the long term, we do expect our utility earnings to grow in line with our rate base. There will be year-to-year fluctuations depending upon timing of recovery. But over the long term, we do expect our earnings for the utility to be in line with the rate base growth plan, and we do provide the rate base projections by year. And certainly, as we're going through the manufacturing and on the Plastics side, we're seeing that normalize and on then the Manufacturing segment, we're in a down cycle right now. So we will have some fluctuations year-to-year, but beyond 2028 when we reach that normal level of Plastics earnings and are through the Manufacturing down cycle, we expect to achieve the 7% to 9% long term. Michael Pelletier: And then just a quick modeling question, but what are you currently assuming for your 2025 tax rate? And how are you tracking towards that? And has there been any change in your assumption since your initial guidance this year? Todd Wahlund: Just to make sure I understood that, Michael, our tax rate, is that what you're asking about? Michael Pelletier: Yes. Todd Wahlund: I don't know that I have that specific information in front of me. Michael Pelletier: Okay. And then just on the antitrust case, and just curious if you could provide any update there? And then how does the Department of Justice's involvement affect the proceedings or time line? Chuck MacFarlane: Michael, this is Chuck. During the quarter, the -- there were amended complaints filed in the class action lawsuits in the U.S. in. As you mentioned, in October, the DOJ intervened to stay the discovery in the civil litigation, which is not uncommon when there's a parallel investigation going on. There is also a class action complaint filed in British Columbia, Canada, with similar allegations to the civil complaint in the United States. And then finally, last week, defendants filed a motion to dismiss in the civil litigation case. We argue that the complaint should be dismissed in their entirety. There's no deadline for the court to make a decision, but we anticipate that in calendar year '26. Michael Pelletier: Got it. And look forward to seeing you in Florida in a few days. Chuck MacFarlane: Thank you. Operator: Our next call comes from Tim Winter of Gabelli Funds. Timothy Winter: Congrats on the quarter. I know you guys talked a little bit about the 64% equity ratio and the [ $8 ] of cash on the balance sheet with some near-term need to take out that $80 million in debt. But I was just wondering if you could talk a little more how you're thinking about using that cash long term? I know you have plenty to use utility over the long term, but over the near term, just wondering if there's -- if that's the best way to maximize the cash or what your thinking is regarding that? Todd Wahlund: Yes. So in terms of our capital allocation priorities. Certainly, our priority is investing in our businesses and with the significant rate base growth we have with Otter Tail Power, we do expect that cash balance will decline over the 5-year period as we invest and provide equity for that. We don't have any external equity needs. We'll be able to fund that with our cash that we have on hand. Beyond that, certainly looking at the dividend payout ratio, we did increase our dividend payout ratio or our dividend by 12% earlier this year. Beyond that, we would look at are there opportunistic M&A opportunities or opportunistic returns to shareholders. But our primary focus is on the first 2 with funding the utility growth plan as well as providing capital back to our shareholders through the dividend. Timothy Winter: Okay. Great. And on the M&A opportunities, what sorts of things are priorities of yours as you look at the environment out there? Chuck MacFarlane: We would -- look, on the utility side, some potential assets. From M&A, we've not put a specific -- a lot of focus on that right now due to our internal growth opportunities available at the utility. In the Manufacturing or Plastics segments, we would review bolt-on opportunities, but we are not currently looking to add in any additional platforms or new companies that way. They would be smaller add-ons like we have done with BTD over time. Todd Wahlund: And I'd just add, Tim, that we're positioned very well to execute on our growth plan without M&A for scale. We're positioned well to attract large loads. We've got the cash to fund our growth plan that's very significant. Timothy Winter: Okay. And if I could just ask one more. Can you talk just a little bit about the large load customer and maybe how the electric service agreement is structured, that 155-megawatt customer? Chuck MacFarlane: Yes. Tim, this is Chuck. It's a customer that is an interruptible type load. And so we have very minimal capacity needs. In the site location, the customer had limited interconnection costs, primarily distribution at that point. So it's a customer that will use low-cost energy in a storage function. And we don't see a large capacity need or a large investment need right at this point, so it's not driving significant earnings in the 2026 time frame, but it is reducing fixed costs across a big amount with that type of load. Timothy Winter: Okay. All right, and we'll see you in sunny Florida. Chuck MacFarlane: Thanks, Tim. Good to talk to you. Operator: As there are no remaining questions in the queue, I will turn the call back over to Chuck for his closing remarks. Chuck MacFarlane: Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team, and we look forward to speaking with you next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning. Welcome to the Aurinia Pharmaceuticals Third Quarter 2025 Conference Call. [Operator Instructions] I will now turn the call over to Peter Greenleaf, President and Chief Executive Officer of Aurinia. Peter Greenleaf: Thank you all for joining us to discuss Aurinia's third quarter 2025 update. Joining me on the call today are Joe Miller, our Chief Financial Officer; and Dr. Greg Keenan, our Chief Medical Officer. Before we begin our discussion, I'd like to direct your attention to Slide 2, which contains important information regarding forward-looking statements. Additionally, we note that on November 2, Aurinia filed a complaint against Dr. George Tidmarsh arising from his statements about voclosporin. The complaint is pending in the United States District Court for the District of Maryland and is available online. If you have questions regarding the complaint, we refer you to the complaint itself as we will not be commenting further on this matter. On today's call, we will report third quarter 2025 financial results and provide an update on recent business progress. We're pleased to report that third quarter 2025 LUPKYNIS sales experienced continued momentum following last year's inclusion in the American College of Rheumatology lupus nephritis treatment guidelines, growing at a rate of 27% for the quarter year-over-year. As a result, we're raising LUPKYNIS sales guidance for 2025 for the second time this year to $265 million to $270 million. Further, we have conducted new LUPKYNIS data analyses, which we will share shortly that reinforce LUPKYNIS' robust clinical profile in the treatment of patients with lupus nephritis. And lastly, following the positive Phase I results that were announced in June, we're excited to be advancing aritinercept toward clinical studies in 2 autoimmune diseases. I'd like to turn the call over now to Joe to review our financial results. Joe? Joseph Miller: Thank you, Peter. For the third quarter of 2025, total revenue was $73.5 million, up 8% from $67.8 million in the same period of 2024. As a reminder, the 2024 period included a milestone payment of $10 million associated with LUPKYNIS regulatory approval in Japan. Excluding the onetime milestone, total revenue increased by 27% over the same period in 2024. Net product sales of LUPKYNIS were $70.6 million, up 27% from $55.5 million in 2024. Net income was $31.6 million, up 119% from $14.4 million in 2024. Diluted earnings per share was $0.23, up 130% from $0.10 in 2024. Lastly, cash flows from operating activities were $44.5 million, up 162% from $17 million in 2024. For the 9 months ended September 30, 2025, total revenue was $205.9 million, up 17% from $175.3 million in the same period of 2024. Again, the 2024 period included a $10 million milestone payment associated with LUPKYNIS approval in Japan. Excluding the onetime milestone, total revenue increased by 25% over the same period in 2024. Net product sales of LUPKYNIS were $197.2 million, up 24% from $158.6 million in 2024. Net income was $76.4 million, up 1,677% from $4.3 million in 2024. Diluted earnings per share was $0.55, up 1,733% from $0.03 in 2024. Lastly, cash flows from operating activities were $90 million, up 529% from $14.3 million in 2024. As of September 30, 2025, we have cash, cash equivalents, restricted cash and investments of $351.8 million compared to $315.1 million at June 30, 2025, and $358.5 million at December 31, 2024. As previously mentioned, for the 3 and 9 months ended September 30, 2025, cash flows from operating activities were $44.5 million and $90 million, respectively. For the 9 months ended September 30, 2025, the company repurchased 12.2 million shares for $98.2 million and diluted shares outstanding were reduced from 149.8 million to 138.2 million. As a result of LUPKYNIS continued momentum, we are pleased to increase our 2025 guidance for the second time this year. For total revenue, we are increasing guidance from a range of $260 million to $270 million to a range of $275 million to $280 million. For net product sales, we are increasing guidance from a range of $250 million to $260 million to a range of $265 million to $270 million. Now I'd like to turn the call over to Greg for some scientific updates. Greg? Greg Keenan: Thank you, Joe. We are pleased to share some new analyses of the results of the clinical studies that form the basis of the FDA's approval of LUPKYNIS. These analyses were recently shared with the FDA in response to an information request. As a reminder, LUPKYNIS was granted full FDA approval based on a statistically significant and clinically meaningful improvement in complete renal response at week 52 and was bolstered with the supplemental NDA with 2 additional years of evidence. New analyses, which show that LUPKYNIS also was associated with a statistically significant and clinically meaningful reduction in the risk of renal-related events or death, reinforce the robust efficacy and favorable safety profile of LUPKYNIS. As you can see from the Kaplan-Meier curve on this slide, LUPKYNIS was associated with a statistically significant and clinically meaningful 53% reduction in the risk of renal-related events or death. This analysis used the AURORA 1 Phase III population. We have included the complete tables contained in our information request response in the appendix of this presentation, which is available on our website. Turning to aritinercept. We are very excited about the potential of this novel biologic in the treatment of a wide range of autoimmune diseases. Aritinercept is a dual BAFF/APRIL inhibitor that contains a BCMA-engineered extracellular binding domain optimized for superior affinity to BAFF and APRIL and an IgG4 Fc domain with no appreciable effector function. As a reminder, BAFF and APRIL are cytokines that regulate B cell survival and differentiation with BAFF more targeted at differentiating and mature B cells and APRIL more targeted plasma cells. By targeting both BAFF and APRIL, aritinercept depletes a broader set of B cells, including plasma cells compared to antibodies such as Benlysta that target only BAFF. In our Phase I study, we enrolled 61 healthy subjects in a standard single ascending dose study design. The study investigated aritinercept doses of 5, 25, 75, 150, 225 and 300 milligrams and placebo, administered by subcutaneous injection. The study included an expanded cohort of 150 milligrams, which will be our starting dose in our next studies. You can see our safety results on this slide. Aritinercept was well tolerated at all dose levels tested. There were no treatment-related Grade 3 or higher adverse events. There were no treatment-related serious adverse events, and there were no discontinuations due to treatment-related adverse events. Adverse events that occurred in more than 1 subject were injection site reactions, headaches, upper respiratory tract infections and back pain. All injection site reactions were grade 1. While antidrug antibodies, or ADAs, were detected in the majority of subjects at dose levels of 25 milligrams and higher, the presence of ADAs was not associated with any changes in safety, pharmacokinetic or pharmacodynamic parameters. On this slide, you can see the pharmacodynamic effects of aritinercept treatment. Single doses of aritinercept led to robust and long-lasting reductions in immunoglobulins. Specifically, mean reductions from baseline to day 28 of up to 48%, 55% and 20% were observed for IgA, IgM and IgG, respectively. Importantly, we believe that these long-lasting pharmacodynamic effects support once-monthly dosing. With that, I will turn the call over to Peter. Peter Greenleaf: Thanks, Greg. We're obviously very excited about these results. Aurinia is on track to initiate clinical studies of aritinercept in 2 autoimmune diseases by the end of 2025. We're very excited about the wide range of therapeutic possibilities for aritinercept and look forward to disclosing further details about our development plan in early 2026. So in summary, we continue to drive growth in the commercial LUPKYNIS business, while at the same time, advancing the clinical development of aritinercept. We want to thank you all for joining us on today's call, and we look forward to taking your questions. So now let me ask the operator to open up the line for Q&A. Operator? Operator: [Operator Instructions] Our first question is from Stacy Ku with TD Cowen. Stacy Ku: Congrats on the quarter. If you could put the LUPKYNIS regulatory questions to the side, just given your positive commentary around ACR guidelines and LUPKYNIS use, just hoping you could provide a few metrics may be around prescriber habits that you're seeing in real time. In addition, obviously, still very early days, but how are clinicians using LUPKYNIS versus Gazyva? Peter Greenleaf: Thanks, Stacy. So why don't I start with just giving you a little bit of more qualitative feedback on what we're seeing and why we feel good about the LUPKYNIS business. And then maybe, Greg, you can build in a little bit on that. If you look at where -- and as we've said previously, we're not going to give down to patient level metrics at this stage of launch because we're now into the fifth year of being on the market, and we think the consistency of our performance somewhat speaks for itself as you look at now consecutive changes in our guidance for the year and year-over-year growth that's been and quarter-over-quarter growth that's been fairly consistent. But to answer your question more directly, our strategy and where we're probably seeing the majority of growth coming from is, one, we first off, sharpened our commercial focus on high target, high-volume prescribers and primarily in the rheumatologist space, where we have seen each quarter consistent growth in rheumatology new and existing prescribers. Second, we think the ACR guidelines have been truly a wind in our sails. I think this goes for patients. It goes for more new drugs coming into the market. And I think it also applies to both the balance between rheumatologists using the product and nephrologists. But remember, the guidelines themselves are more aggressive on diagnosis criteria. We ask that every patient actually gets a proactive screening, urinalysis on every visit. And then when they do actually hit certain criteria that the treatment with aggressive therapies, triple concomitant immunosuppression be consistent across the board. So whether it's the ACR guidelines, the KDIGO guidelines or recommendations from the nephrology groups, the guideline exercise in terms of what they're at least outlining for the treatment of lupus nephritis has been aggressive. And then lastly, we continue to see our efficacy profile pulling through for the product, and we continue to see hospital sales growing pretty consistently for us. So Greg, do you want to give any commentary on how -- we don't have any early read on Gazyva, but Greg being a rheumatologist could probably give some good perspective coming off of the most recent ACR conference. Greg? Greg Keenan: Yes. Thank you, Peter. So Stacy, just to close what Peter was saying, at the ACR meeting this year, I think my takeaway was that the clinicians are that much more familiar with the lupus nephritis portion of the SLE management guidelines, and they do very much believe getting aggressive quickly with triple therapy is a key thing. They also, at least in my impression, perceive Gazyva to be something that will replace rituximab in their treatment armamentarium. I'd point out relative to B-cell-mediated treatments such as Benlysta and Gazyva, LUPKYNIS is a T cell-mediated agent as well as helps protect podocytes. So there is a complementarity there going with one doesn't exclude the other. And then finally, I think in discussions I've had with individual rheumatologists, they are increasingly impressed with the speed with which you can achieve goals with LUPKYNIS relative to B cell modulators, which take longer and also the ability to aggressively taper steroids. So there's a lot of attributes of our drug that are increasingly being thought of as important for the management of lupus nephritis as clinicians increasingly gain familiarity with LUPKYNIS. Operator: Our next question is from Olivia Brayer with Cantor. Olivia Brayer: Can you talk through some of the trends that you're seeing into 4Q so far and just overall level of confidence in continued growth from here, especially thinking through 2026 dynamics? Asking in light, obviously, of Roche's recent approval. And then what can you tell us at this point about your APRIL/BAFF program? Have you internally selected which indications you'll be moving forward with and trial design? And if you can't disclose that today, can you tell us how and when you plan to announce your strategy and time lines? And just any feedback from the agency that you've gotten so far from that program? Peter Greenleaf: Thanks, Olivia. So first off, we're obviously very pleased with the positive momentum of LUPKYNIS. And then we've had the opportunity to raise guidance for the second time this year. I don't think we see anything inconsistent with that as we now move into the fourth quarter. So as I said, we're obviously very excited with the continued positive momentum we've seen with the product. As to your question around our APRIL/BAFF program, during our call, we mentioned that in the early part of 2026, we -- and we have not given specific guidance as to when. But in the early part of 2026, we look forward to disclosing more about the program. Olivia Brayer: Okay. Understood. And maybe if I can just sneak in one more. Anything at ASN this year that we should be focused on from you all? Peter Greenleaf: Greg, do you want to -- I mean, outside of the normal LUPKYNIS stuff and anything new we produce with aritinercept as we move forward. But this year... Greg Keenan: Yes. I mean we -- so we just have a couple of presentations talking about use in the real world are our presentations. I think increasingly nephrologists are the bedrock of management for lupus nephritis, and we're looking forward to participating in the meeting and hearing more of their thoughts, but there's nothing terribly notable from our perspective going into ASN this year. Operator: Our next question is from Maury Raycroft with Jefferies. Maurice Raycroft: Congrats on the quarter. Just wondering for the FDA information request, can you say more about what triggered that? I guess, is that related to the Tidmarsh issues or... Peter Greenleaf: We can't speak specifically to why we received an information request from the FDA. But I think as you can see through the slide deck and through our comments through the actual commentary that we did during our actual call today, the data that we've disclosed and is out there publicly is actually quite favorable for the product. Greg, do you have any additional comments? Greg Keenan: Yes. I'd just say that the FDA's prerogative is to ask for comments and questions at any time. And concurrent with that, I'll just point out to slightly different way than we've looked at our data before. But to Peter's point, the evidence is very favorable, and that was one of the reasons why we wanted to share this specific set of results with the community as we have sent this all back to the FDA as well for their consideration. Maurice Raycroft: Okay. Understood. And for aritinercept, can you clarify if you're in a MAD phase with healthy volunteers? And would you report more data in early 2026 along with the selected indications? Peter Greenleaf: As we've said, we're going into 2 autoimmune diseases, moving into 2 autoimmune diseases. And then on the back end of that, that we would disclose in early 2026 more details on those programs, Maury. Maurice Raycroft: Okay. Are you in MAD dosing though, with the healthy volunteers? Or is that... Peter Greenleaf: We're in the process. And I think in order to achieve the objectives we've laid out in the call, we would have to be moving into that phase. Operator: Our next question is from Joseph Schwartz with Leerink Partners. Will Soghikian: This is Will on for Joe. Congrats on a strong quarter here. I have one question on the FDA request and then one on AUR200. So just to start on the request, do you expect a response from the FDA? Just curious about that. And then for AUR200, I can appreciate that you guys are going to provide additional updates in early 2026 on that. But could you just help us give us a little bit more information on the process of selecting these indications and perhaps the puts and takes of choosing one or the other? Any color there would be helpful. Peter Greenleaf: Thanks, Will. Well, let me first just reinforce one more time that we received and responded to an information request regarding LUPKYNIS. To reinforce, this data set contained our responses included in the slides in your deck that has been posted on our K, 11, 21 and 22 of today's presentation. It is also available on our website. The data contains measurement requested by the FDA, and each of these measurements is defined by the FDA, what the FDA actually requested. As you can see, if you look at these slides and these analyses, you'll see that we actually had new data, at least in terms of presenting that new data. We had a 53% reduction in risk of renal-related events and/or death. We think this reinforces the robust efficacy and favorable safety profile of the product. We can't determine and/or predict whether the FDA will have more questions. As Greg just mentioned, FDA holds the ability to ask questions whenever they want, but we think this request and response was actually quite favorable. In terms of disclosure of how -- and what we were getting about in terms of the indications for aritinercept, I think just like any company when looking at different indications, you have to think about how we think APRIL/BAFF could play a role in the disease, one. The unmet medical need in each one of these major disease areas. And I think you have to connect that back somewhat to how we think APRIL/BAFF play or do not play a role in those diseases. And probably third, market size, of course, and probability of success. These are all the normal things that any company would think about when going into these indications. And I can just tell you that these are all things that we've considered, and we look forward to disclosing more as we enter 2026 and beyond. Operator: Our next question is from Arthur He with H.C. Wainwright. Yu He: Another strong quarter. So just a couple of quick ones. So first of all, so traditionally, fourth quarter will be the strongest quarter for you guys. I'm just curious what possible holdback or risk-wise can prevent you guys to outbeat the fourth quarter? And regarding the impact from the ACR guidance, what's your thinking about the impact or the positive impact from that? It's more like first couple of innings or getting in the middle of -- I'm not sure -- I don't think it's getting late innings yet. Peter Greenleaf: Well, thanks for the question, Arthur. First off, on the ACR guidelines, and this is not necessarily, and I welcome Greg's commentary here because we've done this at a couple of companies with a couple of drugs in different categories as it relates to rheumatologists and other diseases, but specifically rheumatologists. The guidelines -- I mean, listen, they're written the way we think the evidence drives they should be written, and they're quite positive for patients and quite positive probably for our drug and other drugs. They take time. Physician treatment behaviors don't change overnight. And I think we're seeing positive momentum, but I think that positive momentum will only continue to improve over time with better diagnosis rates and better treatment rates that better align to those guidelines. Your first question related to the guidance that we've given for the year in the first and the fourth quarter. You're right. Historically, that has been the trend for our product. I think we have been in a mode of wanting to ensure that we give a guidance range that we intend to hit and/or beat. And I think that's what you've seen in our guidance range of $265 million to $270 million for the full year. And I think that's all we're going to comment on at this stage of the game, Arthur. Thank you for the question. Yu He: Maybe just a quick one regarding the BAFF/APRIL program. Given this -- in the space, multiple players came in and also angle differently in terms of indication-wise, given the history of the company and strong suit from you guys, have you contemplating a non-kidney indication? Or you can give us more color later on? Peter Greenleaf: What I can tell you is we take into account strategically the fact that we have a focus on rheumatology. I mean, I think often we forget lupus is treated by rheumatologists and lupus nephritis, while it is a separate condition, it is an associated condition with lupus. So our concentration is rheumatologists and nephrologists. So I think you can feel comfortable that we take into account both of those, nephrology and rheumatology. And I guess I would just conclude too, that we're not blind to the fact that an APRIL/BAFF inhibitor, we believe, has every ability to work in a multitude of different diseases. And we've mentioned historically that our internal work has shown upwards of 20-plus indications that could be affected through further development in this class and area of drugs. So we're not boxed in, Arthur, in our thinking to just rheumatology and nephrology. And as I said, we look forward to sharing more about that as we move into 2026 and beyond. Operator: Our next question is from David Martin with Bloom Burton. David Martin: You did a great job of describing all the positive drivers bringing new patients on to LUPKYNIS. I'm wondering, are you seeing positive trends in persistence? Are the patients staying on it longer? Peter Greenleaf: Yes, David, we've seen an upward trend in persistency that directly aligned to when we published, issued the data around the extension trial and the subsequent data around the biopsy sub-study. I mean, you've been covering us for a long time, and I think you know this area quite well. Obviously, calcineurin inhibitors are new for -- not new because they understand the class of drugs, but rheumatologists in their day-to-day practice don't use calcineurin inhibitors as often or as aggressively as nephrologists do. So I think these data sets showing that we had safety and efficacy and that the drug was well tolerated all the way out to 3 years in the AURORA study and then subsequently to have an 18-month biopsy confirmed substudy of that study to show that not only was there no negative effect on kidney function as measured through eGFR and histology, but that it looked like it could have some at least balancing effect, if not improvement effect on those patients. All have been very helpful in terms of the comfort level of rheumatologists and nephrologists continuing to keep patients on drug over longer periods of time. I don't think any of those changes have hit a materiality sort of level, but I can tell you that they've not declined and they continue to improve over time. Operator: Our next question is from Doug Miehm with RBC Capital Markets. Douglas Miehm: Congrats on the quarter. Just one question from me on aritinercept. Peter, are you contemplating bringing the 150? I want to make sure I heard that or the 225 ahead in the clinical trial program in terms of what you're going to dose? Peter Greenleaf: Yes. We've not sent out the exact way we intend to structure these trials. And as I said, look, we look forward to sharing more about that in the future. But I don't know, Greg, if you want to -- I mean, obviously, the 150 and above seem to hit the mark. But Greg, do you have anything? Greg Keenan: Well, that way, we were just trying to provide a little bit more color on our confidence that we have a dose that ought to be efficacious relative to what we've seen with regard to pharmacodynamic marker changes. So we indicated in our prepared statement that 150-milligram dosing will be one of the dosing levels that we'll use going forward. But of course, we're embarking on kind of multiple ascending dose studies, so we'll have higher doses as well. But what we indicated was 150 is definitely viable and we're taking that forward. Douglas Miehm: Okay. Because I just have a follow-up question then. So the 150 is where you had the expanded cohort, seems to be on a risk-reward basis, maybe one of the more attractive levels. I'm just wondering why then when you look at the data that you provided versus the competitive products, you were calling out the 225 versus the 150? And the 225 does look better than everything else, all measures that we can see here. But I'm just wondering why you weren't providing the 150 in terms of those data. Peter Greenleaf: Well, I think it's a great question. And I think it gets to wanting to understand at a deeper level how we intend to go forward with the multi-ascending dose study and/or studies that will help us better understand and tease out what the exact dose we're going to want to be going forward with when we move into even further clinical development studies. So your question, I think, is appropriately -- it's a good one. But at this stage of the game, we're not disclosing all of those details, and we look forward to disclosing them in 2026. So thank you for the question. Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Peter Greenleaf for closing remarks. Peter Greenleaf: Thank you very much, everyone, for joining us on today's call. We're excited about the momentum we've seen now through 3 quarters of the year, and we look forward to providing details on year-end and 2026 in our next call. Have a great day. Thank you very much. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, and welcome to the Voyager Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Adi Padva, Senior Vice President, Corporate Development and Investor Relations. Please proceed. Adi Padva: Thank you, and good morning, everyone. Welcome to Voyager Third Quarter 2025 Earnings Call. I'm joined today by: Dylan Taylor, our Chairman and Chief Executive Officer; and Phil de Sousa, our Chief Financial Officer. Today's call include forward-looking statements, which involve risks and uncertainties detailed in our earnings material and SEC filings, including the Risk Factors section of our IPO prospectus. We undertake no obligation to update these statements. We will also discuss non-GAAP financial measures. Reconciliation of these measures is available in our earnings material on our website. I will now turn the call over to Dylan. Dylan Taylor: Thank you, Adi, and good morning, everyone. I'm pleased to kick off Voyager's third quarter earnings call recapping a very successful quarter. Our third quarter results reflect continued strength in our core business; an acceleration of our innovation road map; strategic expansion of our technology stack through targeted acquisitions; and steady advancement of Starlab milestones. This translated into strong revenue growth, solid earnings performance and robust growth in backlog. Building on this momentum and despite the impact of the government shutdown, we expect our revenue for the full year to be at the upper end of the previously communicated range, which we'll talk through in more detail later in the call. We built Voyager to lead the next era of defense, national security and space innovation, and we continue to execute on this vision. Missile defense modernization is front and center. The Golden Dome initiative and Space Force budget expansion are driving demand for advanced tracking and interceptor systems. Voyager's next-generation interceptor, known as NGI, propulsion and intelligence, surveillance and reconnaissance, known as ISR capabilities are directly aligned with these national priorities, and we've actively engaged across key programs supporting the next generation of missile defense architecture. At the same time, the space industry is ongoing a structural transformation. Launch costs are falling, satellite architectures are shifting to LEO constellations and both public and private priorities are accelerating investment. This is unlocking new opportunities for agile, vertically integrated players like Voyager. We're also seeing the commercialization of space infrastructure take hold. Voyager's leadership in developing Starlab, a commercial successor to the ISS and a generational investment opportunity positions us at the forefront of the evolution of space infrastructure, research platforms and national security. We are designed to scale, adapt and win these attractive and growing markets that demand speed, innovation and mission-critical capabilities. From propulsion and signal intelligence to secure communications and orbital infrastructure, we are executing with precision and accelerating momentum. Voyager's success is anchored in 3 strategic pillars: first, high growth and profitable and growing national security and defense segments; second, a relentless commitment to leading with innovation; and third, the transformational opportunity of Starlab Space stations. Voyager is a high-growth platform expected to deliver an organic CAGR of over 25% with additional upside through disciplined and accretive M&A that presents additional opportunities for growth. We operate within a $179 billion addressable market spanning missile defense, space-based systems and advanced deterrent capabilities. Our robust pipeline of $3.6 billion in qualified opportunities underscores our ability to convert visible opportunities into long-term revenue and generate meaningful returns for shareholders. We've built a company that can operate with the scale and discipline of a prime contractor, but with the agility and innovation engine of a high-growth technology company where product development, IP creation and accretive capital allocation are core to our business model. Over 18% of revenue is invested in innovation and developing proprietary mission-critical capabilities with much of that funded by our customers. This foundation makes Voyager fundamentally different from traditional defense and space contractors. As a commercial platform, we are CapEx-light, IP-focused and operationally efficient. Furthermore, we maintain a fortress balance sheet with $413 million in cash, $200 million in available credit and no debt, which is highly differentiated amongst our competitors. And additionally, we offer a once-in-a-generation opportunity through our Starlab joint venture, where Voyager is the majority shareholder and lead developer. Turning to Slide 4. For the third quarter, total revenue was up 15% when adjusting for planned wind down of the NASA services contract within the Space Solutions segment. Defense and National Security revenue increased very significantly at 31% year-over-year, driven by continued execution on key propulsion and sensing programs. As a reminder, in Q2, we completed critical design review for our NGI second stage roll control system, a major technical milestone that positions Voyager to deliver a flight-qualified subsystem for one of the most strategic missile defense programs in the U.S. portfolio. Golden Dome is emerging as an exciting new opportunity. Voyager is actively engaged across multiple mission threads with the Golden Dome architecture with opportunities spanning the space layer, propulsion, guidance and navigation, sensors, communications and mission-critical electronics. We have submitted multiple Golden Dome-related proposals in partnership with several major primes and neoprimes, further strengthening our position as a trusted technology partner across the defense and space industry. The Defense and National Security segment remains our largest and fastest growing, supported by multiyear visibility and expanding demand across missile defense and advanced surveillance. We remain very active in pursuing strategic M&A opportunities. During the quarter, we acquired BridgeComm's optical communications technology, fast tracking our ability to deliver secure, high-speed connectivity for defense and commercial customers. The deal shortens development time lines and strengthens our position in the rapidly growing market for advanced communications. For defense, it supports DoD missions with resilient low latency links in contested environments. For commercial use, it boosts data capacity for global networks like aircraft to satellite connections. This acquisition expands our tech stack and reinforces Voyager's leadership in next-generation space and defense communications. During the quarter, we also made a minority investment in an AI platform, Latent AI, which specializes in optimizing AI for contested and constrained environments. By embedding advanced models directly at the Edge, they enable faster targeting, sharper situational awareness and resiliency, real-time decision-making, and these capabilities are mission-critical in environments where every second counts and traditional cloud-based AI is impractical. This investment underscores Voyager's commitment to staying at the forefront of innovation, bringing the decisive advantage of Edge AI to missions where outcome depends on speed, precision and resilience. I will discuss our additional acquisitions of EMSI and recently of ExoTerra in more detail on the next slide. Lastly, Starlab continues to advance as a transformational growth engine. We completed 2 additional development milestones during the quarter, resulting in $4 million in milestone-based cash receipts from NASA. To date, we've completed 27 milestones under our $218 million funded Space Act Agreement, marking steady progress towards launching the commercial successor to the ISS. This quarter, Starlab selected Vivace Corporation to manufacture the primary structure for its next-generation commercial space station. We are excited about this important development and partnership with Vivace, a company with advanced aerospace engineering expertise, high technology readiness level or TRL, deep capabilities and world-class facilities. The aluminum-based structure will be one of the largest single space-flight structures ever developed for launch and will be built at Vivace's Engineering and Manufacturing Center located within NASA's assembly facility in Louisiana. As the majority owner and lead developer of Starlab, Voyager is building a scalable multi-decade infrastructure platform with significant recurring revenue potential. Once operational, we expect Starlab to generate over $4 billion in annual revenue and more than $1.5 billion in free cash flow, anchored by long-term demand from government, commercial and international customers. This program not only reinforces our leadership in commercial space infrastructure, but also complements our broader platform strategy, leveraging shared technologies across propulsion, sensing and mission systems to drive innovation and value creation. Turning to Slide 5 and focusing on our M&A engine. We continue to execute against our strategic growth priorities, combining organic momentum with disciplined capital deployment. Our M&A strategy is focused on acquiring high-impact technologies that diversify and deepen our platform, solidifying our role as a key enabler in defense and space innovation. Recent acquisitions underscore our strategic focus, enhancing capabilities in radar-based analytics, electric propulsion and vertically-integrated subsystems. During the quarter, we completed the acquisition of ElectroMagnetic Systems, known as EMSI, a radar AI software company serving high-priority U.S. defense and intelligence missions. EMSI specializes in synthetic aperture radar exploitation using proprietary AI-machine learning models and synthetic training data pipelines. With prime positions on NGA's Luno program and DARPA's Midnight Earthquake initiative, EMSI brings differentiated IP, a cleared technical team and a commercial SaaS model with strong margin potential. Following the quarter, we closed on the acquisition of ExoTerra, a market-leading manufacturer of electric propulsion systems for advanced satellites. Their turnkey propulsion modules, Hall-effect thrusters and domestic manufacturing capabilities align with our road map across LEO, GEO and cis-lunar missions. ExoTerra expands our ability to deliver integrated propulsion solutions and supports our strategic shift towards hardware-enabled space infrastructure. Together, these acquisitions reinforce Voyager's differentiated strategy and strengthen our vertical technology stack, bringing together propulsion sensing and software into a unified platform. They enhance our ability to compete for higher-value programs, accelerate the innovation curve and expand our relevance. Most importantly, they support our long-term growth strategy by deepening alignment with national security priorities, unlocking new market opportunities and creating durable accretive value for shareholders. And with that, I will turn it over to Phil to walk through the financials in more detail. Phil, over to you. Filipe de Sousa: Thanks, Dylan. Turning to Slide 6. For the third quarter, we delivered revenue of $40 million, flat year-over-year or up 15%, excluding the planned wind down of a legacy NASA services contract, thus reflecting strong demand and growth in our Defense and National Security segment. Bookings this quarter totaled $49 million, reflecting a 1.25 book-to-bill ratio as we continue to see momentum across missile defense and space platforms, thus reinforcing our alignment with national defense priorities and the relevance of our technology stack. Importantly, backlog expanded 10% sequentially to $189 million. We generally see backlog levels decrease in the early part of the year and increase later in the year, driven by the timing of budget releases, OEM order cycles and the exercise of options under existing contracts. Given the strength of our current pipeline, we are tracking well to end the year with backlog that exceeds the level at which we entered the year. Adjusted EBITDA for the third quarter was a loss of $17.7 million compared to a loss of $8.8 million last year. The year-over-year change reflects planned investments in innovation, talent acquisition and our corporate infrastructure. These investments are intentional and placed ahead of growth, establishing the operational foundation to ensure we scale efficiently. On the bottom line, adjusted EPS was a loss of $0.22 compared to a loss of $1.56 in the prior year, with the per share improvement reflecting IPO-related dilution. Turning to Slide 7. I'll cover our operating performance by segment. Defense and National Security, our largest and fastest-growing segment, continued to perform well in the third quarter. Revenue increased 31% year-over-year, driven primarily by higher volumes across key programs, including the ramp-up of our NGI and other undisclosed programs. Segment adjusted EBITDA was a loss of $2 million, reflecting increased research and development investment and continued talent acquisition. Switching over to our Space Solutions segment. Revenue was $11.7 million, down year-over-year as expected and primarily due to the planned phase down of the multiyear NASA services contract and a tougher year-over-year comparable. The segment continues to reflect the inherently lumpy nature of space-related awards and revenue recognition, which can vary quarter-to-quarter based on program timing and funding. Segment adjusted EBITDA was a loss of $0.6 million, primarily reflecting lower volumes. Starlab continues to make measurable progress. During the third quarter, we accomplished 2 additional development milestones and received $4 million in milestone-based cash receipts from NASA, part of our $218 million funded Space Act Agreement. To date, we've completed 27 milestones totaling $174 million in NASA funding and materially offsetting our investment in the program. Starlab's next major milestone is our critical design review scheduled in December 2025. Wrapping up here, we're encouraged by the momentum across our businesses and are increasingly confident in our ability to execute on backlog, scale and deliver long-term value through disciplined growth and strategic investment. Let's turn to Slide 8, and I'll cover our financial position. We continue to operate from a position of financial strength that enables both focused execution today and strategic growth over the long term. As of September 30, we ended the quarter with $413 million in cash, no debt and access to a $200 million undrawn credit facility, resulting in total liquidity of $613 million. This fortress balance sheet provides flexibility to scale production, invest in innovation and execute our targeted priorities within M&A. During the quarter, we deployed capital to expand our technology stack and enhanced capabilities through the targeted acquisition of EMSI. Following the close of the quarter, we also deployed capital to complete the strategic acquisition of ExoTerra as outlined in Dylan's remarks. Turning to Slide 9. I'll cover off our outlook for fiscal year 2025. We now expect revenue to come near the upper end of the guidance range of $165 million to $170 million, reflecting year-over-year growth of approximately 18%. Excluding the impact of the NASA services contract within Space Solutions that is winding down, year-over-year growth in fiscal 2025 would be in the mid-30s percent range. This growth reflects both organic expansion and contributions from acquired businesses while also factoring in uncertainty related to the government shutdown. For the full year, we reiterate adjusted EBITDA between negative $60 million and $63 million. In summary, we are scaling rapidly and focused on delivering high growth, executing effectively across high-priority programs, investing in mission-critical innovation and driving improved financial performance. Our CapEx-light operating model, combined with disciplined execution continues to support margin expansion and strong cash flow conversion potential over time, especially when layering in Starlab. With that, I'll hand it back to Dylan for his concluding comments. Dylan Taylor: Thank you, Phil. In summary, everyone, we are executing with focus and momentum, supported by a platform purpose-built for this dynamic market. The opportunities ahead for both Defense and National Security as well as commercial space are significant and measurable, and I'm confident in our team, strategy and technology to capitalize on them. Before we open it up to Q&A, I also want to highlight our upcoming Investor Day, which will be held November 20 and 21 in Houston. We look forward to spending time with many of you as we take a deeper dive into each of our business segments, walk through our long-term strategic opportunities and showcase how recent acquisitions are enhancing our technology stack and further accelerating our road map. Given limited capacity, participation is by invitation-only and does require an RSVP, please reach out to us with any questions. So with that, over to you, operator, to take any questions we may have. Operator: [Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe if we could just start off one question and one follow-up. If we could dig into the 2 acquisitions and the partnership you announced, the investment you announced, maybe focusing on ExoTerra, it seems to have a nice overlap with content areas such as SDA, PWSA. How can we think about the benefits from these acquisitions to your portfolio? And the follow-up would be, how do we think about it impacting the financials for 2026? Dylan Taylor: Sheila, thanks for the question. Dylan speaking. Yes, so ExoTerra, why don't we start there? Super exciting acquisition, does a few things for us on our technology and strategic road map. First and foremost, as we've talked about previously, we're really focused on power and propulsion as a key capability. And of course, with the Hall-effect thruster technology, which ExoTerra brings to the table, it allows us to have a capability for in-orbit movement of mass that's going to be very relevant, not only to things like Golden Dome and those capabilities, complementing our existing power and propulsion capability on NGI, but it also allows us to be relevant to constellations that being built in LEO as well. So we're very excited about that capability. The other thing which I want to note is it really enhances our U.S.-based manufacturing capability as well. And as you and others know, there's a huge push to ensuring, making sure that the entire supply chain is derisked and is U.S.-sourced. And that's another key vertical capability that ExoTerra brings to the table as well. I think you also referenced BridgeComm and perhaps the Latent AI investment. I'll just touch on those briefly. BridgeComm, again, as I mentioned in my remarks, really enhances our comms technology portfolio. As you know, we're very relevant in laser communication. This further enhances that technology stack. So we're very bullish on that IP portfolio acquisition. And then on Latent AI, our grand vision here in partnership with Palantir and others is to really build that entire technology stack for Edge computing. And where Latent AI comes in is really at the firmware level, so that as you're collecting data and you're passing it off to, call it, the operating system level, that's [ semi-processed ] data happening literally at the ASIC level. And so we're very excited about what Latent AI brings to that technology stack. So just kind of to wrap that up into a broader theme here, these are acquisitions that are on our technology road map that are strategically relevant to our capabilities going forward. These are very accretive transactions. I'll ask Phil to chime in on that, proprietarily-sourced and really thematically very consistent with kind of what we talked about in our roadshow that we would execute our capital deployment on. So over to Phil. Filipe de Sousa: Sheila, as Dylan mentioned, both acquisitions are extremely attractive, enhance our portfolio, not just from a technology capability perspective. But from my financial lens, I see these acquisitions as driving our overall growth up significantly in 2026. More to come on that front at our Investor Day. We'll provide the analyst and investment community with a framework about how to think for '26. It's still a bit premature to provide overly specifics there. That said, given the profile of these acquisitions, I'm excited because they're both accretive from a gross profit margin perspective to our overall portfolio today, in some cases, significantly more accretive than our existing portfolio today, and both businesses bring positive EBITDA to us immediately. And so extremely excited to get both businesses integrated into our overall portfolio. I think over the longer term, revenue and -- revenue synergies that these businesses bring to enhance our overall portfolio are quite significant. So in addition to the 2026 contribution that you'll see is quite significant, over the coming 3, 4, 5 years, I think that these businesses will be real standout performers. Dylan Taylor: Yes. And just maybe one final point, Sheila, just to emphasize, our growth prospects for 2026 look very solid, and we're super confident as we look into next year. And these acquisitions are a big part of that theme. So thanks for the question. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: I just wanted to dive a little bit deeper on Starlab and the opportunity set there. It looks like the government shut down, they're laying off some employees related to the ISS in preparation for the deorbiting. So I was wondering how does this government shutdown and changes in employees affect priorities and potentially the timing of award for ISS replacement in 2026. Do you anticipate that the government shutdown kind of delays some of that time line? And then also my follow-up would be just generally related to the government shutdown. How does that affect your expectations for strong orders for 4Q to get your backlog higher than last year? Dylan Taylor: So starting with Starlab, right now, the current time line remains intact so far as we know. And that time line, just to remind everybody, we have a critical design review on Starlab with NASA scheduled -- currently scheduled for December. So yet this year is the plan for that. We still anticipate an RFP for Phase 2 award sometime late this year or early next year. And then we anticipate a contract award for Phase 2, where they're going to pick who effectively wins Phase 2 sometime in early 2026. So obviously, if the government shutdown continues longer than anticipated, let's say, past Thanksgiving into December and even into early next year, that could impact, obviously, the timing that I just communicated. But as of right now, based upon what we know, we think that timing will hold. Also, I think you're referencing some of the job cuts, I think, at Marshall Space Flight Center. A lot of that has to do with ISS payloads. So that doesn't necessarily impact the CLD Phase II contract awards. But to your point, I think NASA is obviously looking at the budget with a lens towards the commercialization of the ISS long term. But I wouldn't read too much into those specific cuts. I don't think that's a change in strategy or anything like that. I think that's just a little bit of reorg consistent with some of the other budget pressures that NASA has. But in general, we feel very good about the Starlab program. As we indicated, we completed another 2 milestones in the quarter. The program is on track. So we're very bullish and optimistic about where the program is. And again, it's anyone's guess on when the government is going to reopen. But as of right now, we would expect it would be open sometime before Thanksgiving, but we'll have to wait and see. But right now, I would say the timing is on track. Phil, would you add anything? Filipe de Sousa: Just Kristine, I appreciate the question. I think your second part of your question is more tied to our expectations around orders and confidence around orders and how that builds over the course of the fourth quarter heading into next year. And so I'll just reiterate what I mentioned in my prepared remarks. Extremely confident we'll enter the year next year with total backlog well in excess of the $200 million that we entered the year 2025 with. As you see, we already built backlog here in the third quarter. We were up to $180 million, up $18 million or 10% coming off of Q2. From a pipeline perspective, I don't believe the government shutdown will impact our ability to not just capitalize and convert our pipeline into orders, whether it's here in the fourth quarter or early first quarter, we're terribly excited by the pipeline that we have, particularly supporting our Defense and National Security business. It's not just, as you guys know, NGI that we've been executing on. There's quite a number of Golden Dome opportunities that we've been actively pursuing and I'm -- have me excited about the prospects for 2026 and our ability to build backlog. Dylan Taylor: And one other final point, Kristine, I'm not sure schedule-wise, you'll be able to be at the investor event, but one kind of cool thing that's happening right now, I'll just mention is a full-scale mockup of Starlab is being constructed on the floor of Building 9 at NASA's Johnson Center. And so as part of that Investor Day, you'll actually see the full scale of the Starlab 7-plus meter design. And that's literally on the floor next to the ISS mockup, the Dragon capsule mockup and others. So cool that we received kind of this coveted position, if you will, on the floor of Building 9, I think really showcases our partnership with NASA and the progress that the program has made. So we're excited to show that to investors in November. Operator: Your next question comes from the line of Greg Dahlberg with Wolfe Research. Gregory Dahlberg: I just wanted to ask on capitalization for the build-out of Starlab. You talked before about the use of third-party equity raises. And I think most recently, you brought in space applications based in Belgium. So I was just curious if you could give an update on the timing and sizing of what to expect for future capital raises. Dylan Taylor: Yes. Thanks, Greg. Great question. So we are actively raising a Series A for the Starlab joint venture. That raise is actually going quite well. We look forward to making some announcements related to that, again, not to put too much pressure on Investor Day, but we anticipate being able to talk about that raise and some of the other marquee investors coming into that capital stack at Investor Day. But these are quite notable investors, name brand investors. So we're very confident that the capitalization of Starlab is on track. And again, we're coupling that with continuing to achieve milestones and triggering payments there. And then, of course, the Phase 2 award early next year. So capitalization for Starlab looks extremely solid at this point. We're very confident in where that stands. Operator: Your next question comes from the line of Alex Preston of Bank of America. Alexander Christian Preston: Maybe just to get back to M&A strategy a bit broader. It seems like you're building capabilities around various high-value subsystems on satellites, payloads. I know you've highlighted staying CapEx-light as a key part of the business. Are you approaching this from sort of high-value merchant supply only? Or is there an appetite towards potentially even doing your own satellite development at some point? Dylan Taylor: Great question, Alex. CapEx-light, capital efficient for sure, is really our ethos, and that's what we're leaning into. That being said, as I mentioned earlier, having an integrated U.S.-based supply chain is actually relevant, especially in the National Security community. So we're going to continue to find ways to make sure that we're as vertically integrated as we can be. But to your point, let's take, for example, missile defense. We're on the optical navigation and control system. That's a great part of the technology stack to be on. We're on the Proprietary Propulsion and Roll Control System. That's a great part of the technology stack to be on. Would we make the missile body? No, we wouldn't do that, right? So I think similar to that on -- if you look at power and propulsion as a subsystem on a satellite system, that's an area we want to play. Would we actually build the satellite and assemble the satellite? Never say never, but I don't think that's leaning into our strengths necessarily. As we look forward in our M&A pipeline, which, by the way, is quite robust, we might do some additional, what I would call, vertical integration on, let's say, the energetics side of propulsion. I think that's an important strategic objective that the government has identified is something that's important to the national security and national interest. So I think that's something we would consider. And again, we're -- as I say, we return all phone calls, and we look at a wide swath of opportunities in the market. But we definitely want to lean into advanced technology, lean into innovation and make the model as CapEx efficient with generating strong operating cash flow as possible. That's really has been our success, and that's what you can anticipate from us going forward. Alexander Christian Preston: Got it. And then I think just there, you covered my follow-up what it would have been. So I'll keep it at one. I appreciate it. Operator: Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to ask on the NGI program and the visibility you have there. Could you provide some color on the next milestones or key watch points for NGI in order for that program to ramp to its target for LRIP in late '26. Are there any additional capacity expansions to hit your targets? Or anything else we should be aware of there for NGI? Filipe de Sousa: Mike, it's Phil here. I'll take this one and let Dylan chime in. But from an NGI specifically perspective, just as a reminder, we have the capital infrastructure, if you would, that's necessary and required to deliver on this program. That said, and yes, a great question there, I would look and turn towards our success in passing CDR back during the second quarter and how that leads and has led to significant activity, significant discussions around other programs. As we continue to cultivate that and convert that pipeline into our backlog, there may be a time where we're required to invest further into CapEx. I think just to dovetail off of the previous question around M&A, we're quite thoughtful. We've actually used the M&A lever to acquire intellectual property to advance our innovation growth and opportunity. I think as we look ahead in our pipeline, there's also opportunities there for us to add other capabilities, both manufacturing as well as engineering. And so I just keep the door open there. Coming back to NGI specifically, a fantastic quarter. Just as a reminder, NGI, that program is up over 130% year-to-date year-over-year. And we had significant growth again in the third quarter. It drove a significant composition of our overall Defense and National Security revenue. As we look out to fourth quarter, I anticipate sequentially, NGI will continue to grow. As we move into 2026, we'll continue to work closely with Lockheed as we start to move into our low-rate production and high-rate production in the years ahead. Dylan Taylor: Yes. And just one other thing to chime in on, Mike. We're seeing a lot of interest and traction on our technology for these other missile defense programs as we have previously communicated. And then on Golden Dome, some really exciting things happening there, especially as it relates to space-based interceptors. So we're on several teams of both primes and neoprimes. I think those so-called SBI awards will be made in the near term here. And I'm confident that if there are multiple awards, I think we have multiple paths to the glory, as I would say, because our technology is extremely relevant to the SBI, space-based interceptor component of Golden Done. So more to come, but we really like what we see, as Phil said, and we've talked about previously, now that we've passed critical design review on NGI, that's really opened up the aperture for us to sell this technology into other programs of record in emerging programs of record like SBI. So we're super bullish on that. Michael Leshock: Great. And then a follow-up on Space Solutions. Should we expect the Space segment to return to growth in 1Q '26 as that NASA services contract lapses? And any way to frame what the sales growth could be there for the segment in '26 and beyond? Filipe de Sousa: Yes, Mike, it's Phil again. I'll take this one. Well, again, we'll cover off our 2026 framework at Investor Day. But as a reminder, everybody, that legacy contract rolls off -- has rolled off effectively here in the second half of 2025. So the full lapping of that will happen in the second half of next year. So we'll continue to see some pressure in the first half, not suggesting that Space Solutions won't return to growth. We do anticipate we're excited about Space Solutions as it also if it dovetails and leads and feeds our Starlab opportunities there. So really exciting times for Voyager in the space sector. As for that specific contract, anticipate those headwinds to be over by the end of the first half of next year. Dylan Taylor: Yes. The only other thing I would say, Mike, is there are other things we're working on in Space Solutions that we're very optimistic will significantly build that backlog in 2026. So stay tuned on that. We've got -- we're competing for some things that are very interesting in that regard. So we still see growth in Space Solutions. I want to really emphasize that. It's just a matter of timing on when that hits. So I just want to -- rest assured that it's still a growth business for us. It's just a matter of getting the timing right in terms of when some of this stuff hits. Operator: Thank you. I will now hand it back to Adi Padva for more questions. Adi Padva: Thank you. Before we conclude today's Q&A, we'd like to take a moment to address a few questions that were submitted by members of our retail investor community. First one for you, Dylan, about M&A. How does ExoTerra acquisition positions Voyager to compete on Golden Dome? Dylan Taylor: Yes. So we covered that a little bit with some of the questions asked by the analyst community. But the short story is the way to think about Golden Dome is layers of a defense shield, if you will. At the outer most, we're very relevant to that, that's next-generation interceptor. So that's literally hypersonic missile interception for nuclear tip warheads from adversaries. But if you think about in-space capability, not only tracking and defending against threats, but also intercepting in space. There are lots of technologies that are relevant there. Electric propulsion is specific hall-effect thrusters are very relevant there, especially if you can integrate both the propulsion and the power into a single integrated unit, which is what ExoTerra is known for. So long story short, it enhances our ability to compete for different architectures and different designs of Golden Dome. And it's just another piece of the puzzle that makes us more relevant to the entire missile defense capability. Adi Padva: The next question about power generation and space. Is Voyager planning to integrate nuclear power for space-based platforms? Dylan Taylor: Yes. In fact, we are bullish on nuclear as a technology. Something that we haven't previously talked about is we actually made an investment in a nuclear power company called Helicity. We did that a couple of years back, and we did that really as a strategic investment to monitor that technology, and further enhanced our ability to use that technology in the future. So the short story is, yes, it is part of our long-term road map, and it is something that we're actively monitoring. And again, we made that strategic investment in Helicity, which is one of the leaders in nuclear propulsion. Adi Padva: And lastly, on Starlab, what are the key milestones [ toward ] including the launch date? Dylan Taylor: Yes. So reinforcing some of what I've said previously, we have critical design review coming up with NASA, currently scheduled for December. The RFP for Phase II award is due out late this year or early next year. And then we anticipate a CLD Phase II award sometime in early 2026, probably late Q1, early Q2. And then in terms of the launch date, we are currently on time and on target for a 2029 launch date, which would be well ahead of the ISS decommission date in 2030 and the orbit date in 2031. Adi Padva: Thank you, Dylan. This concludes the Q&A, and I'll pass it back to you for closing remarks. Dylan Taylor: Wonderful. Well, thank you all for joining us today. We really appreciate your interest in Voyager Technologies. We're super excited about the significant momentum the company has going into the fourth quarter and 2026. And we're looking forward to speaking with you again next quarter, and we hope to see many of you at the Investor Day in a few weeks in Houston. So thank you, everybody. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to the Q4 FY 2025 Cabot earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Investor Relations and Treasurer. Please go ahead, sir. Steven Delahunt: Thanks, Michelle, and good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our fourth quarter of fiscal 2025, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2024, and in subsequent filings we make with the SEC, all of which are also available on the Company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in the table at the end of our earnings release issued last night and available in the Investors section of our website. Also, as we do typically each year, I would like to remind you that over the next several weeks, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards. I will now turn the call over to Sean, who will discuss the fiscal 2025 highlights, our cash flow results and our strategic highlights for the year. Erica will review the corporate financial details and business segment results for the fourth quarter and fiscal year. Following this, Sean will provide a 2026 outlook and some closing comments and then open the floor to questions. Sean? Sean Keohane: Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call. Before we move into year-end highlights, I'd like to take a moment to share an important update regarding our Investor Relations leadership. As a [Technical Difficulty] Operator: Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Ladies and gentlemen, please stand by. We are having technical difficulties and your conference will resume momentarily. Ladies and gentlemen, thank you for standing by. I would now like to hand the conference back over to your speaker, Sean Keohane. Please go ahead, sir. Sean Keohane: Thank you, Michelle, and apologies everyone. We seem to have a challenge with our connection there. So let me pick up where we left off. I want to first begin by taking a moment to share an update regarding our Investor Relations leadership. As announced earlier, Robert Rist will be stepping into the role of Vice President of Investor Relations and Corporate Planning. He'll be transitioning into the role over the course of the first quarter of fiscal year 2026, succeeding Steve Delahunt, who will continue with Cabot as Vice President and Treasurer. Rob has been with Cabot since 2007 and has held a number of key leadership roles across the company in corporate strategy, corporate planning and within our Reinforcement Materials segment and finance organization. He brings a strong understanding of our business and financial priorities, and his strategic insight and financial acumen will be instrumental as he helps lead our engagement with the investor community. I want to sincerely thank Steve for his many contributions to our Investor Relations function over the past 9 years. His leadership has built a strong foundation for our investor engagement, and we are grateful for his continued service and treasury. Steve and I have worked together in this capacity for my entire tenure as CEO, and I've always been impressed with his intellect, teamwork and most of all, how he lives our Cabot values of integrity, respect, excellence and responsibility. I'm confident that this transition will be seamless, and we look forward to continued momentum in our IR efforts. Fiscal year 2025 was characterized by a turbulent macroeconomic, geopolitical and global trade environment, but it was a year in which the enduring strengths of Cabot were exhibited. We executed well and delivered strong results. In fiscal year 2025, we delivered a record adjusted earnings per share of $7.25, which represents an increase of 3% year-over-year. I'm very pleased with our performance, particularly in light of the fact that volumes across both segments were down year-over-year and substantially below our expectations at the beginning of the fiscal year. Total consolidated EBIT increased year-over-year with Reinforcement Materials EBIT down 5% and Performance Chemicals EBIT up 18%. We continue to generate strong cash flow, which supported our capital priorities and a significant return of cash to shareholders. I'm immensely proud of the Cabot team for the resilience they demonstrated and the countermeasure mindset that they brought to their daily work to support our customers and deliver earnings growth in a very difficult and dynamic environment. Looking a bit deeper at our financial metrics, fiscal year 2025 marked another year of strong overall performance in terms of profitability, cash flow generation and balance sheet strength. For the year, we generated adjusted EBITDA of $804 million, which was up 3% year-over-year and represents a 22% margin. While our end market volumes were down, we were able to more than offset this weakness by optimizing across our global footprint of assets, reducing costs and driving disciplined execution across our operating platform of commercial and operational excellence. The quality of our returns remained strong with an adjusted ROIC of 18%, and we delivered these results while maintaining our strong balance sheet. In dynamic and turbulent times, balance sheet strength and liquidity are essential, and Cabot continues to exhibit these distinguishing features. We finished fiscal 2025 with net debt-to-EBITDA of 1.2x and liquidity of $1.5 billion, which gives us tremendous flexibility to invest in strategic organic and inorganic projects to grow the long-term earnings of the company while returning a significant amount of cash to shareholders. Overall, I am very pleased with our performance across our financial metrics, and this puts us in a good position to navigate these uncertain times and remain committed to our long-term strategic growth priorities. The Cabot portfolio has robust cash flow characteristics and fiscal 2025 marked another year of strong performance, where we generated operating cash flow of $665 million and free cash flow of $391 million. The cash generation power of our portfolio is a central element of our shareholder value creation strategy. With these strong cash flows, we seek to allocate capital inside a balanced framework focused on 3 priorities: first, ensuring our asset base is well maintained to provide a reliable and sustainable offering to our customers; second, underwriting high confidence organic and inorganic growth investments to deliver long-term earnings growth; and third, returning capital to shareholders through dividends and share repurchases. The strength of our cash flows allows us to execute against these priorities while maintaining our strong investment-grade balance sheet. In fiscal year 2025, we paid $96 million in dividends, including a 5% increase announced in May, reflecting our confidence in the long-term cash flow outlook of the company. We've maintained a continuous and growing dividend since 1968, and we would expect to continue raising the dividend over time as our earnings and cash flows grow. We also repurchased $168 million of shares in fiscal year 2025, which reduced our outstanding share count by 3% and when combined with dividends, totaled $264 million of capital returned to shareholders. Overall, we feel very good about our long-term cash generation power and balance sheet strength, which provides us with great strategic flexibility. During our fiscal year, we also made important progress on key elements of our Creating for Tomorrow strategy. I'll spend a few minutes now highlighting some important accomplishments that are part of our strategy to deliver long-term shareholder value creation. In July, we announced that Cabot has entered into a definitive agreement to acquire Bridgestone's reinforcing carbon plant in Mexico. This manufacturing facility is located in close proximity to Cabot's current reinforcing carbons facility in Altamira, Mexico and strengthens our partnership with Bridgestone through the long-term supply of reinforcing carbon products from this plant. The facility also has the capacity to manufacture additional reinforcing carbons, providing flexibility to support broader customer needs and future growth opportunities for Cabot. The transaction is expected to close in the second fiscal quarter, subject to regulatory approvals and to be accretive in the first year. This is an example of how we are deploying our strong cash flow to fund an attractive acquisition that strengthens our portfolio, drives incremental growth and is accretive to earnings. We are pleased with the earnings progression and strategic developments in our Performance Chemicals segment despite persistent end market weakness in certain important sectors such as automotive and construction. While we believe the end markets of automotive and construction will improve over time from their current cyclical lows, we are focused on targeted applications where the macro trends are favorable. Specific sectors include infrastructure and alternative energy, digitalization and consumer-driven applications. Success across these sectors was an important contributor to the earnings -- increased earnings in the segment in fiscal '25. The demand for conductive carbons for power distribution cables is supported by growth in power generation and distribution, and this application is expected to grow in the 8% range through the end of the decade. Fumed silica for the CMP application is one where we saw a strong double-digit growth in 2025 as broad digitalization and automation trends drive a greater need for semiconductor chips. And finally, consumer spending has been a pretty resilient driver of economic growth globally and our specialty carbons, specialty compounds, fumed silicas and aerogel materials are all benefiting from this strength. Sustainability is central to who we are at Cabot, and we continue to be recognized for excellence. As we discussed last quarter, we are proud to have received a Platinum rating from EcoVadis for the fifth consecutive year. EcoVadis is the world's largest and most trusted provider of business sustainability ratings with more than 150,000 rated companies. A Platinum rating is the highest level of achievement and places Cabot among the top 1% of companies in the manufacturing of basic chemicals. This prestigious recognition underscores Cabot's commitment to transparency and provides our customers with visibility into our sustainability performance. In the fourth quarter, we also published our 2025 sustainability report, outlining our progress to date and our direction for the future. In this publication, we reported our strong progress against our calendar year 2025 goals and also unveiled our 2030 sustainability targets, which reflect our ambition to continuously drive measurable impact for our stakeholders. And finally, we continue to make strong progress in building a leading Battery Materials business that we believe can become a material contributor to Cabot over the long-term. Our strategic development approach is based on a mix of organic technology development efforts that build on our core conductive carbons and thermos management technologies, coupled with strategic M&A to broaden our product lines and access new technologies. In fiscal 2025, we executed well against our strategy, growing total contribution margin by 20% year-over-year. We continue to pursue what we call a bifurcation strategy with tailored approaches to China, coupled with a focus on building incumbency in the western geographies, where local supply and service is of strategic value. Product development is essential in this fast cycle industry, and we made important progress on this front in 2025. We recently launched a new conductive carbon product developed for use in lithium-ion batteries for energy storage systems, or ESS. This high-performance conductive additive delivers enhanced conductivity, longer cycle life and improved processability for ESS cells used in residential, commercial and industrial applications. The global ESS market is growing rapidly, driven by the rising demand for grid flexibility, the transition to renewable energy and the need for storage solutions that support the rapid build-out of data centers. Our LITX 95F solution addresses these challenges by delivering key performance and efficiency advantages that are vital for accelerating ESS adoption. In addition to our segmented efforts to capture the ESS opportunity, we continue to realize strong volume growth in our high-performance conductive additive blends. This was a core thesis of our decision to acquire Shenzhen Shanshan Nano Materials (sic ) [ Shenzhen Sanshun Nano New Materials ], and I'm very pleased with the strong growth in sales of these products to leading global battery producers in 2025. As we look ahead in this business, our outlook remains positive, supported by the expectation that the lithium-ion battery market will grow at a compound annual rate of approximately 20% over the next 3 years. We believe we are well positioned to capitalize on this growth opportunity and build a global leadership position that creates significant long-term value for our shareholders. I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail. Erica McLaughlin: Thanks, Sean. Adjusted EPS in the fourth quarter was $1.70. This performance was 6% below the same quarter last year, driven by lower EBIT in both our Reinforcement Materials and Performance Chemicals segments. Cash flow from operations was strong at $219 million in the quarter, which included a working capital decrease of $69 million. Free cash flow was $155 million in the quarter. We ended the quarter with a cash balance of $258 million, and our liquidity position remains strong at approximately $1.5 billion. Capital expenditures for the fourth quarter of fiscal 2025 were $64 million, and we expect capital expenditures in fiscal 2026 to be between $200 million to $250 million. Additional uses of cash during the fourth quarter were $25 million for dividends and $39 million for share repurchases. Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x. The operating tax rate for fiscal year 2025 was 27% as compared to 26% in fiscal 2024. The higher tax rate was driven by the geographic mix of earnings and the new OECD global minimum tax implementation, which increased our tax rate in certain lower tax jurisdictions. We anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%. Now moving to Reinforcement Materials. EBIT decreased by $4 million in the fourth quarter compared to the same period last year, primarily due to lower volumes, which were down 5% year-over-year. The decline in volumes was due to weaker customer demand driven by the uncertainty from tariffs and a weaker global macroeconomic environment. In the Americas, the lower volumes were also driven by the continuation of elevated level of Asian tire imports. Regionally, volumes were down 7% in the Americas and 6% in Asia Pacific, while volumes in Europe were up 5%. The lower volumes were partially offset by continued optimization and cost reduction efforts in the segment. EBIT for fiscal 2025 was $29 million below the prior year, driven by 5% lower volumes. Volumes declined in both the Americas and Asia, and the decline in volumes was partially offset by lower costs and favorable foreign currency impacts. Looking to the first quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $15 million to $20 million, driven by lower volumes in the Americas and Europe and increased competitive intensity in Asia. Seasonally lower volumes in the Americas and Europe are also expected to negatively impact regional mix. Volumes are also expected to be sequentially lower as customers manage their year-end inventory levels. Now turning to Performance Chemicals. During the fourth quarter of fiscal 2025, EBIT for the segment decreased by $2 million as compared to the same period in the prior year. The decrease in the fourth quarter was due to lower volumes. Volumes were lower by 5% year-over-year, primarily due to lower volumes in the European region, particularly in construction-related applications. EBIT in fiscal 2025 was $30 million higher than the prior year. The increase was driven by higher volumes in the fumed metal oxides and battery materials product lines. The segment also benefited from continued optimization and cost reduction efforts throughout the year. Looking ahead to the first quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the fourth quarter, as modest sequential volume improvement is expected to be largely offset by the timing of higher costs. I'll now turn it back to Sean to discuss the 2026 outlook. Sean? Sean Keohane: Thanks, Erica. Fiscal year 2025 certainly developed differently than we expected just 1 year ago. Automotive production in the Western economies contracted in 2025 and elevated Asian tire imports into Western geographies continue to persist. Additionally, global manufacturing PMI was in or near contraction territory for most of 2025, and the expected interest rate cut cycle was slower than expected, leaving the housing and construction sector in a trough. In addition, 2025 was characterized by global trade turbulence, which is making it very difficult to determine long-term durable demand levels. As we look to 2026, we don't yet see signs of improvement across these dimensions. While trade policy is trending toward regionalization, and this aligns well with our model of make in region, sell in region, it will likely take some time for end markets and supply chains to find their new normal. In 2026, we now expect light vehicle auto production in North America and Europe to decline for a third year in a row. In terms of the tire sector, the persistent elevated level of tire imports from Asia has reduced domestic tire production in the Americas and Europe, thereby creating a more challenging competitive environment for tire manufacturers and their suppliers, including carbon black producers. Furthermore, global manufacturing PMI continues to straddle 50 with no clear catalyst to move firmly above 50 and into expansionary territory. With this as a market backdrop, we expect adjusted earnings per share in fiscal year 2026 to take a step back from our strong performance in 2025. Acknowledging there is significant uncertainty in both end market demand and the range of outcomes in our annual tire contract negotiations, we expect fiscal year 2026 adjusted earnings per share to be between $6 and $7. Our range includes various scenarios related to volumes and pricing outcomes across our businesses. The lower end of the range would reflect a weak demand environment and pricing pressures in 2026. The higher end of the range would reflect the ability to largely offset pricing pressures with volumes, optimization, cost savings and benefits from our growth investments. As we think about the segment outlook for fiscal 2026, in Reinforcement Materials, we are currently negotiating our calendar year contracts. While we expect outcomes to be varied across customers, our expectation is that overall contract outcomes will be lower than the prior year. Our customers are facing challenges in the Western regions from Asian tire imports along with macroeconomic uncertainty and are pushing hard on suppliers given these dynamics. This is causing challenging contract discussions with our customers that are taking longer to close. In addition, I would say the utilization situation in the Western regions is similar or slightly worse than the prior year. Tire imports from Asia have increased modestly year-to-date into the U.S. They've decreased modestly into South America, and they have risen more materially into Europe in 2025. Therefore, it is a challenging picture for local production of tires in the Americas and Europe, which in turn impacts our business in those regions. Our capacity in Asia enables participation in demand in Asia, but it is a competitive market at this time, requiring us to balance volumes and margins. Regarding Performance Chemicals, in 2025, we have seen rather strong demand in Asia, muted levels of demand in the Americas and challenging demand patterns in Europe. We anticipate these trends will continue in 2026. The challenges in Europe are also related to end product imports from Asia into Europe, which is impacting demand pull-through from our customers in the region. We are seeing positive demand in Asia as our customers benefit from strong export levels, and we're utilizing our capacity there quite well. While end market demand in construction and auto remains in a cyclical trough, we are seeing strong and improving demand in attractive end markets like battery materials as well as specific sectors, including infrastructure and alternative energy, digitalization and consumer-driven applications. We expect these growth areas, along with continued optimization across the segment to enable year-over-year growth in segment EBIT. We expect cash flow from operations to remain strong and our net debt to EBITDA to remain in a similar range to 2025. We expect the cash flows from operations will fund our capital expenditures, a strong dividend and share repurchases in the range of $100 million to $200 million. As we think about our longer-term outlook and the targets we set for 2027 at our Investor Day last year, it is clear that the assumptions we had 1 year ago are not playing out as planned. The targets were established based on a certain set of assumptions for our key end markets. Specifically, automotive production was forecasted to grow at a higher rate than we now see, and the Western markets were projected to be positive, which has not been the case in 2025 or the 2026 forecast. We expected tire production to grow globally, including in the Western markets, but the persistent level of Asian tire imports has impacted demand for our product in the Americas and Europe, resulting in a negative regional mix. With the change in the U.S. administration's policy towards electric vehicles, the outlook for batteries in the U.S. has also been reduced. And finally, the interest rate cut cycle that was projected at that time has been slower to develop, resulting in a delayed pick up in housing and construction sector. In addition to these end market factors, the global trade negotiations are creating significant uncertainty, and we have not yet seen a stable period to interpret a new normal for our key end markets. Given where we are today and our expectation for 2026, the implied recovery needed to achieve these targets by 2027 is not expected. We will, of course, monitor the external environment and its impacts on our business and continue to update you as our visibility improves. Certain of our end markets are suffering from cyclical headwinds, particularly the automotive and the building and construction sector, but we expect volumes in these applications will improve over time as interest rates are cut and strengthen the consumer. The biggest dynamic that is yet unclear is the impact of Asian tire imports on tire production volumes in the Western markets. At this point, we are observing mixed signs. In the U.S., there is a range of tariff levels that impact tires and antidumping duties have been levied on certain producers. We have not seen a decrease in imports into the U.S. based on the most recent data, which is year-to-date July, and it remains too early to determine if these actions will have a material impact on the flow of tires. In South America, we are seeing some evidence that trade actions are having a positive impact on the level of tire imports into Brazil. Currently, there are tariffs on passenger car and truck tires as well as antidumping duties on tires from certain countries, including China and Thailand. On a year-to-date basis through August, we have seen a decline in tire imports into Brazil. So that sign is encouraging. In Europe, there are very modest tariffs in place at this time on passenger car and truck tires. The EU is currently investigating allegations of dumping of passenger car tires from China and potential provisional measures may be introduced as early as December 2025. On truck tires, there are currently antidumping duties in place. Whether these levels are sufficient to change trade flows remains unclear. In addition to trade policy by different countries, we are also observing that the global tire majors appear to be taking steps to improve competitiveness and defend their Tier 2 brands. Both trade policy and actions by the global tire majors to defend their brands could have a favorable effect on tire production in the Western regions, but the magnitude and timing remain uncertain at this time. While there is uncertainty from the global trade dynamics and its impact on our end market demand, we are focused on leveraging our strengths to navigate the situation and position Cabot for long-term success. It starts with our capability as a strong operator. Over the past decade, we have created significant value through disciplined execution of our operating platform of commercial and operational excellence. In this turbulent time, our efforts on operational excellence will skew more towards yield and cost rather than asset availability. On the commercial excellence front, our strategy will seek to balance pricing and volume, and we will remain laser-focused on executing in key end markets where there are favorable tailwinds. As a global leader in our respective product lines, we have a large network of competitive assets and leading technologies that enable optimization to best serve our customers and maximize returns. In the current environment, our focus will be on global asset optimization, efficiency programs and cost reductions. Despite the more challenging environment, we expect cash flow and liquidity to remain strong, and our investment-grade balance sheet offers great strategic flexibility to execute our Creating for Tomorrow strategy. And finally, we will continue to be disciplined in our allocation of capital. We expect to deploy capital against high confidence strategic growth areas such as battery materials while maintaining a meaningful return of capital to shareholders. Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience and disciplined execution, both of which are important in these dynamic times. Thank you, and I will now turn the call back over for our question-and-answer session. Operator: [Operator Instructions] Our first question will come from the line of John Roberts with Mizuho. John Ezekiel Roberts: Are you seeing any volatility in your rubber black operating rates regionally? Or is it relatively stable? I know it's shifted, but I don't know if it's shifted and it's stabilized or it's still volatile. Sean Keohane: Yes, John, I would say it's largely stable, but stable in the context of the elevated tire imports and how those have had an impact on demand in any given region. But if you look, for example, in North America, you'll see that tire imports were up modestly on a year-to-date basis. So that translated into largely stable operating levels in North America. So that's really the factor that's at play here, but we've been largely stable. John Ezekiel Roberts: And then are you being impacted at all by Dow's silicone rationalization efforts in Europe? Sean Keohane: So as you know, Dow has announced the closure of their siloxanes plant in Barry Wales, and we have a fumed silica plant next door to them where we exchange some feedstock and materials as part of a long-term agreement that goes out through the end of 2028. And we're currently in discussions with Dow on exactly how they'll perform against that contract. Operator: Our next question comes from the line of David Begleiter with Deutsche Bank. Emily Fusco: This is Emily Fusco on for Dave Begleiter. Maybe a question on tire contract prices. How much do you expect 2026 prices to be down or expectations by region? And maybe if you could give some color on what percentage of negotiations have been settled. Sean Keohane: Sure. So what I can tell you is that we have completed roughly 25% of our contracts at this point, which is behind where we were at this time last year, where we were closer to 45% of the negotiations complete. And I think it's taking a little longer this year in part because everyone is having a difficult time trying to project exactly where their demand expectations should be for 2026, given all of the turbulence. I can't comment on final outcomes here as we're obviously far from done, and this is competitive information. Operator: Our next question comes from the line of Joshua Spector with UBS. Christopher Perrella: It's Chris Perrella on for Josh. Could you elaborate on the -- for the Performance Chemicals, the underlying assumptions that you have baked into the guidance for this year in terms of volume and growth -- volume and price expectations or mix expectations? Sean Keohane: Sure. So in Performance Chemicals, if you think about the basket of applications that we sell into, it typically over a longer period of time, will grow at sort of 1.5x to 2x GDP. Now what we are seeing in this segment is certain applications, particularly those in automotive and construction related are currently in what I would say is a cyclical trough. And so over time, we certainly expect those to improve, but the expectation of any material improvement into 2026, I think, is fairly limited. Now where we do have very positive expectations is in our targeted growth areas that I commented on in my prepared remarks, areas, including battery materials, the infrastructure applications, the broad trends around digitalization and how that's driving increased demand for our fumed silica for the CMP application for chip manufacturing. Those types of applications continue to exhibit strong growth, and we are performing well there. So when we look at the overall expectation for volumes, we certainly expect volumes to be up in 2026. But again, a mix of some headwinds that are more than being offset by these targeted applications with strong tailwinds. Christopher Perrella: And is there -- with -- depending on the application mix and your expectations, is there a mix uplift? Or is this -- I know the battery materials is kind of higher value, but is there a mix uplift expected this year? Sean Keohane: Yes. I would say the mix is probably pretty balanced. These applications that are growing well have good strong margins. But as you might recall, volumes that get pulled through from the automotive sector typically have pretty high margins as well because that business tends to be specified. So I would say the margin uplift from mix would be fairly, I would say, fairly balanced. The trade-offs would be fairly balanced there. Operator: [Operator Instructions] And our next question will come from the line of Kevin Estok with Jefferies. Kevin Estok: I'm asking on behalf of Laurence. I was wondering if you could share a little bit about how maybe the regional utilization rates kind of shook out during the quarter, maybe by region, if you have that sort of data? Sean Keohane: Sure, sure. So the regional picture has not really changed much from our prior comments. Certainly, in the Western regions, the impact from tire imports from Asia has reduced domestic production from our customers. I think if you go around the world, what you'll see in North America is that utilizations are somewhere between 75% and 80%. They're higher in Europe, I would say, somewhere in the 85-ish percent range, in part because Europe is a region that is net short of carbon black capacity and there's value that's placed on local supply. And we also had some contract volume pick up in last year's agreements. So overall, the utilizations are running in a higher place there. South America, they are lower and South America is a region that has been impacted by tire imports. But as I commented, we're starting to see trade policy and tariff policy begin to impact the level of tire imports. They're reducing the level of tire imports in the most recent data. So that's encouraging and hopefully will shift things back a bit in the region there to improve utilizations. But right now, those remain in the 70s at this point. And then if you look at Asia Pacific, we're running at quite high utilizations across our Asia assets as we typically do. And here, we're really choosing carefully the customers and products that we are supplying to maximize the value out of our Asian assets and to align our capacity with customers that really value our value proposition of product performance and quality and supply reliability. So that's a bit of a walk around the world in terms of utilization. I would say that's largely been the story throughout 2025. So no recent shift in that. And again, the question as we move forward is how do regional volumes develop in large part, given how tire imports are likely to play out. Operator: And I would like to hand the conference back over to Sean Keohane for closing remarks. Sean Keohane: Great. Thank you very much for joining us today. Apologies for the technical difficulty at the very beginning there, but glad we were able to get back connected here. Thank you for joining. Appreciate your support of Cabot, and we look forward to talking to you again throughout the next quarter. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead. Jenny Neslin: Thank you. Good morning, everyone, and welcome to the Third Quarter 2025 Earnings Call for AG Mortgage Investment Trust. With me on the call today are T.J. Durkin, our CEO and President; Nick Smith, our Chief Investment Officer; and Anthony Rossiello, our Chief Financial Officer. Before we begin, please note that the information discussed in today's call may contain forward-looking statements. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in our SEC filings, including under the headings Cautionary Statement regarding forward-looking statements, risk factors and management's discussion and analysis. The company's actual results may differ materially from these statements. We encourage you to read the disclosure regarding forward-looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2024, and our subsequent reports filed from time to time with the SEC. Except as required by law, we are not obligated and do not intend to update or to revise or review any forward-looking statements, whether as a result of new information, future events or otherwise. During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. To view the slide presentation, turn to our website, www.agmit.com and click on the link for the Q3 2025 earnings presentation on the home page. Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to TJ. Thomas Durkin: Thank you, Jenny. I'm pleased to report MIT's third quarter results in which the company had one of its most active and successful quarters in recent memory. During the third quarter, we were able to increase our book value from $10.39 to $10.46, inclusive of our previously announced strategic acquisition of an additional 4 -- 21.4% of Arc Home through the issuance of approximately 2 million shares, creating a onetime dilution event of 1.8%, while also fully supporting our $0.21 dividend. The company continues to provide stability in book value performance, navigating both challenging markets and executing on growth initiatives like the one I just mentioned. We continue to believe growing the company's size and float is in the long-term best interest of its shareholders. Moving on to earnings. We increased our EAD to $0.23 per share, driven by strong earnings from our core investment portfolio. In this first quarter, with our larger ownership percentage of Arc Home, we are happy to report it contributed $0.03 towards EAD as the business continues to execute on its growth and profitability objectives. Lastly, it is important to note, we were able to deliver this growth in EAD despite turning off the accrual of our legacy WMC CRE loans this year as we work through the monetization process. So as we look forward, the ability to rotate this equity capital currently invested in the CRE loans into our residential securitization strategy, combined with Arc Home's profits should enable us to unlock even more earnings power from our portfolio in the coming quarters. I'll now turn the call over to Nick. Nicholas Smith: Thanks, T.J. The company had an extremely active quarter. We have made significant progress in rotating equity into core strategies, growing the investment portfolio, derisking and optimizing financing and accelerating growth at our portfolio company, Arc Home, along with other significant steps forward. Getting into specifics, starting with rotation. We monetized close to $55 million market value of legacy WMC securitized non-QM positions after restructuring these holdings and unwinding expensive and under advanced debt that came with the WMC acquisition. I will speak more about this later. An additional $11 million of equity came back from a legacy WMC's CMBS position that paid off at par. In aggregate, the company freed up nearly $66 million of equity for redeployment. With this capital, we significantly increased the investment portfolio by over 20% this quarter. We acquired over $1.7 billion of residential mortgage loans. Approximately $900 million was allocated to agency-eligible investor loans and over $800 million to home equity loans, including both closed-end seconds and HELOCs. Most of these acquisitions were immediately financed into 4 separate securitizations. We'd like to point out that this significant growth was achieved without incurring risk to the company through outsized gestation periods or warehouse financing exposure. Likewise, the company's leverage increased modestly from 1.3 to 1.7 turns quarter-over-quarter, which we see as more normal levels. Moving on to the company's financing activity. As alluded to earlier and mentioned briefly in our previous quarter's prepared remarks, we refinanced high-cost, inefficient debt backed by retained interest in WMC issued non-Agency securitization. This refinancing freed up $55 million of equity to redeploy and materially lowered the cost of capital while significantly increasing the market value advance. This quarter's EAD was boosted by approximately $0.03 by this refinancing, which normalizes to $0.04 to $0.05 for a full quarter looking forward. Moving on from financing to Arc Home. Simultaneous with the announcement of last quarter's earnings, we acquired an additional 21.4% ownership of Arc Home. We are happy to report earnings of over $2 million this quarter, which contributes approximately $1.2 million to MITT, the highest since the end of 2021. In September, they achieved record [ HELOC ] volumes. We believe this growth and profitability is sustainable as the non-Agency market continues to increase its share. Before passing the call over to Anthony, I would like to touch upon an item others have been addressing, call rights. Prior to quarter end, we initiated the sale of the underlying collateral to a third party in connection with the termination of a transaction issued in 2022. We see significant value in call rights from transactions issued in 2022 and 2023. We expect the termination of this transaction, along with others in the future to return capital that can be opportunistically redeployed into our core higher returning investment strategies. Over to you, Anthony. Anthony Rossiello: Thank you, Nick, and good morning. The third quarter was a pivotal one for MITT. We rotated a significant amount of capital from legacy WMC assets, boosting our earnings power, executed 4 securitizations, acquired an additional 21.4% interest in Arc Home and delivered EAD in excess of our dividend. During the quarter, book value rose 0.7% to $10.46 per share. Including our dividend of $0.21 per share, we generated a 2.7% economic return for our shareholders. It's worth noting that our book value grew even after accounting for 1.8% dilution from the shares issued for the additional Arc Home interest, which underscores the strong performance of our investment portfolio. GAAP net income available to common shareholders was $14.6 million or $0.47 per share. Strong asset appreciation driven by spread tightening on residential mortgage loans and non-Agency RMBS offset the dilution from Arc Home and unrealized losses on commercial investments. Residential investments continue to drive earnings with net interest income increasing by $1.7 million or 9% from prior quarter, resulting from refinancing high-cost legacy WMC debt and rotating a significant portion of capital into higher-yielding assets. EAD increased to $0.23 per share from $0.18 in Q2. Net interest income, including interest from our hedges, was $0.67 per share and exceeded our operating expenses, income taxes and preferred dividends of $0.47, resulting in net earnings of $0.20 per share. In addition to EAD growth from our investment portfolio, Arc Home contributed $0.03 per share to EAD, supported by continued growth in originations and margins. We grew our investment portfolio by 21% to $8.8 billion through securitization activity and continue to operate with a low level of economic leverage at 1.7 turns. During the quarter, we purchased and simultaneously securitized $764 million of agency eligible loans and $647 million of closed-end second liens. We also securitized $301 million of HELOCs held on warehouse at June 30 and purchased an additional $122 million to continue growing that portfolio. Since expanding into home equity in the fourth quarter of 2024, our investment portfolio includes $1 billion of loans and $52 million of non-agency RMBS collateralized by home equity loans, now representing 30% of our equity allocation. As mentioned earlier, we acquired an additional 21.4% interest in Arc Home for $16 million, bringing our ownership to 66%. This investment was completed through the issuance of 2 million shares of restricted common stock and as discussed last quarter, will continue to be reported as an equity method investment at fair value. Lastly, we ended the quarter with total liquidity of approximately $104 million, consisting of $59 million in cash, $44 million of committed financing available on unlevered home equity loans and $1 million of unencumbered agency RMBS. This concludes our prepared remarks, and we now like to open the call for questions. Operator: [Operator Instructions] Our first question from Doug Harter with UBS. Douglas Harter: Hoping, Nick, hoping you could expand a little bit more about the call rights, either kind of the amount of capital that could be freed up or how you think about the return differential on the called deals versus freshly deployed capital? Nicholas Smith: Certainly. So near term, we see, call it, $15 million to $30 million of equity that can be redeployed, more of an intermediate term, call it, 3 to 4 quarters, that could be $50-plus million. If you think about sort of 2022 and '23, the capital markets were fairly inefficient, spreads were relatively wide. So given sort of where interest rates have retraced along with credit spreads, we see a good amount of upside to be able to unlock that and redeploy. The equity, obviously, we could just refinance those. But I think our current -- given sort of how those loans have performed well, there's a good chance that we'll look to recycle that equity via the sale of loans, but are open to other alternatives, but either way accretive versus how we currently hold those positions. Douglas Harter: Great. And then can you give us an update on the CRE loans, the nonaccrual, what's their status potential for timing of resolution? Thomas Durkin: Yes, sure. So the hospitality loans are still progressing towards our original resolution plan. At this point, we think it's realistic to have that capital return in the first half of 2026. So that's just kind of going through the original motions. I think the retail property actually just hit its maturity date this quarter. And so we're in the early stage of say, working through the options there. On that note, I would say, Doug, it's important. That note is actually still cash flowing from the underlying properties. So I think we have some more options there as well. Douglas Harter: And can you just remind us the amount of capital that could come back on the hospitality. Thomas Durkin: Well, it's $30 million on the total. I think it's about $23 million on the hospitality. And then $7.5 million on the retail. Operator: And we will move next to Crispin Love with Piper Sandler. Crispin Love: First, can you just talk a little bit about securitizations, just how the receptivity has been, you did 4 in the quarter. And just as you look forward, what do you think a normal cadence could be on the securitization side? Nicholas Smith: Yes. The expectation going forward is probably not as many as we did this quarter, but it's probably more like 1 to 2 a quarter. The securitization markets themselves are healthy. If anything, we've sort of transitioned into positive net supply. And if anything, the inflows across different investment type vehicles, companies have been robust and have met that supply. We are off of sort of the beginning of the year's tights at the top of the capital stack, but at the bottom of the capital stack is a good amount tighter. We see issuance as a relatively healthy period. Crispin Love: Okay. Perfect. And then just if you could just share your thoughts on credit broadly. And then within that, they're kind of -- there started to be some concerns from banks, albeit some fraud involved, some weakness in the consumer. But curious on your thoughts on credit and then drilling down into MITT, whether it's non-QM or other areas. I know the delinquency metrics are still fairly low, but just want to get your sense there. Thomas Durkin: Are you focusing on like performance or the fraud issues, Cris. Crispin Love: Performance. Nicholas Smith: On the performance side, look, we have had a differentiated strategy. Our book has outperformed both on the agency-eligible investor side and non-QM side along with the home equity side. I think it's worth noting, and we've thrown these statistics out in the past that our agency eligible investor book is actually performing better than prime jumbo. And our non-QM continues to outperform the broader market issuance. So I think there's a credit selection story there. We have seen some slight weakness in other people's production, but we feel like that's isolated. And I feel like the housing story is well telegraphed that while there is some weakness geographically, it's in places where supply has mean reverted or have gone through sort of 2018, '19, '20 levels. But we believe that is contained, and we feel strongly about our current position and our current portfolio. Operator: And we will go next to Bose George with KBW. Bose George: Just given the timing of the purchase of the Arc, the incremental piece, did you guys get the full quarter of that this quarter? Or is there sort of a catch-up on that as well? Anthony Rossiello: No, the transaction was executed on August 1. So it's really only 2 months of that EAD that you see coming through. So to the extent performance continues, it will have a pickup in out quarters. Bose George: Okay. And just your commentary suggested that the EAD there should be -- should be flat to up going forward, just given the trends you've seen there. Nicholas Smith: That's right. Bose George: And then can you give us an update on book value quarter-to-date? Anthony Rossiello: Yes. Bose, just given where we are in the process, we don't have an update for you today. Bose George: Okay. That's fair. And then you guys noted that growing the company is in the best interest of shareholders, which definitely makes sense. What are some of the options? And is buying in more of Arc a possibility? Can you just talk about potential options for you guys? Thomas Durkin: Yes. I mean I think we're very inquisitive on other types of opportunities to build a more robust investment platform for the company. So whether that's working with other originators, other platforms, obviously, being conscious of dilution, et cetera. But I think we're certainly open to other ideas. Operator: [Operator Instructions] We will move next to Trevor Cranston with JMP. Trevor Cranston: Can you just give us an update on kind of where you guys see the ROE and economics on doing new securitizations given the spread tightening we saw during the third quarter and how it compares to kind of where things were earlier in the year. Nicholas Smith: So broadly where you can place debt versus the tightening still shakes out to largely similar equity returns. Obviously, that matters on what part of the capital stack you're attaching to and the amount of leverage you take. Given our current leverage profile and the assets that we're trafficking in, we still see comfortably equity returns with modest leverage in the mid- to high teens. Trevor Cranston: Got it. Okay. And then with the rally we've seen in mortgage rates, have you guys seen any kind of notable increase in prepay speeds on either the non-QM or the agency eligible part of the portfolio? And does that have any sort of meaningful impact on the expected returns on those retained investments? Nicholas Smith: Yes. So we have seen some uptick in prepayments, albeit modest and albeit relatively early on. From a return standpoint, we feel like the portfolio was well balanced between sort of the derivative portions and then the credit portions and don't expect book value to be materially impacted by large pickups in prepayments. It is worth noting that there are large portions of the portfolio that even into a pretty meaningful rally are still wildly out of the money, which provides a good amount of stability even into a rate rally. Operator: And there are no additional questions at this time. I'd like to turn the program back over to Jenny Neslin for any closing remarks. Jenny Neslin: Thank you, everyone, for joining us, and very much appreciate your questions. Look forward to speaking to you again next quarter. Have a great day. Operator: Thank you for your participation. This does conclude today's program. You may disconnect at any time. .
Carlos Almagro: Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Third Quarter 2025 Earnings Video Conference. TGS issued its earnings release yesterday. If you did not receive a copy of the release, please contact us at investor.tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. [Operator Instructions] I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions or company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Accounting Reporting Standards, IFRS, and are stated in constant Argentine pesos as of September 30, 2025, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin. Alejandro Basso: Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 third quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. As you remember, back in June '24, a private initiative was submitted to the government to expand the transportation capacity of the Perito Moreno pipeline by 14 million of cubic meters per day. As a result, ENARSA launched a tender offer in May. By the closing of the tender on July 28, only TGS had presented a bid. The project was finally awarded to TGS on October 17. The expected CapEx amount is $560 million, and it involves the construction of 3 compressor plants as well as the expansion of the Tratayén compressor plant, totaling an additional 90,000 horsepower. By April 2027, we must commission the incremental capacity while operating and maintaining the Perito Moreno pipeline for a 15-year period. We are also entitled to commercialize the incremental capacity and collect a dollar-denominated unregulated tariff during the period, after which the facilities will be reverted to ENARSA. Last week, we filed this project with the RIGI authorities in order to obtain the approval soon and get the tax benefits this regime provides. In addition to that project, TGS will invest another $220 million to expand the capacity by 12 million of cubic meters per day for its regulated pipelines between Salliqueló and Great Buenos Aires by adding 20 kilometers of pipeline and increasing compression capacity by 15,000 horsepower in one of the compressor plants. Moving to Slide 4. I will briefly highlight the key financial results for the third quarter of '25. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of September 30, '25, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported a total net income of ARS 112 billion during the third quarter of '25 compared to ARS 68.8 billion reported in the same quarter of '24. These higher earnings were mostly explained by the better performance of the liquids business, which contributed with a higher EBITDA of ARS 37 billion and the continuous EBITDA growth in the midstream business segment, which rose by ARS 14.5 billion. In the quarter, we also recorded lower negative financial results amounting to ARS 31 billion, which boosted our third quarter earnings, but were partially offset by the natural gas transportation EBITDA decline of ARS 10.5 billion. Moving on to Slide 5. EBITDA for natural gas transportation business in the third quarter of '25 totaled ARS 102.4 billion, which is slightly below the almost ARS 113 billion recorded in the third quarter of '24. The ARS 10.5 billion EBITDA reduction in the regulated business segment was mainly due to that the tariff adjustment from August 24 to August '25, which resulted in a ARS 29.2 billion revenues nominal increase were insufficient to offset the inflation adjustment effect of ARS 42.2 billion. In addition, operating expenses rose by ARS 2.4 billion, while revenues also increased by ARS 4 billion, mainly due to incremental interruptible transportation services provided during the third quarter of '25. On Slide 6, you can see how EBITDA for the liquids segment tripled amounting to ARS 55.2 billion during the third quarter of '25 compared to ARS 18.2 billion reported in the same quarter of '24. Most of the EBITDA increase was explained by the higher volume exported of 61,000 metric tons, rising for 43,000 to 104,000 metric tons, which contributed to a higher EBITDA by ARS 18 billion. In addition, higher ethane volumes of 38,000 metric tons were sold, rising from 53,000 to 91,000 metric tons and adding ARS 11.7 billion to the third quarter EBITDA of '25. This higher volume is mainly related to a higher production, which increased from 173,000 tons to 315,000 metric tons as a result of the higher richness of the natural gas process in this quarter and the 3-week program plant shutdown for maintenance works implemented during the third quarter of '24. In addition, EBITDA increased by ARS 13.2 billion due to higher butane prices in the domestic market following the deregulation of the butane price under the Program Hogar starting January '25, which allow us to sell at export parity price. To a lesser extent, operating expenses decreased by ARS 5.4 billion and monetary effects were positive by ARS 1.1 billion. The positive effects on EBITDA were partially offset by ARS 8.9 billion extraordinary expenses incurred as a result of the March 7 flood, which we expect to recover from the insurance company in the coming months. Additionally, natural gas price increased from $3.1 to $3.4 per million BTU, which impacted negatively the EBITDA in ARS 4.3 billion. Turning to Slide 7. EBITDA from midstream and other services rose to ARS 61.2 billion compared to ARS 46.7 billion in the third quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, totaling almost ARS 21 billion. Transported natural gas billed volume rose from an average of 29 million cubic meters per day in the third quarter of '24 to 32 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 16 million cubic meters per day to 29 million cubic meters per day. In addition, the monetary effect increased EBITDA by ARS 3.2 billion. These effects were partially offset by ARS 10.4 billion in higher operating expenses. As seen on Slide 8, we recorded a positive variation in the financial results amounting ARS 31.1 billion. This was mainly due to a ARS 43.4 billion increase in income from financial assets given the much higher yields achieved in the domestic financial investments. Additionally, inflation exposure loss decreased by ARS 10.7 billion. These positive effects were partially offset by a higher foreign exchange loss amounting to ARS 21.8 billion during the third quarter of '25, following the Central Bank's decision to make the U.S. dollar exchange rate float starting early April and the consequent depreciation of 15% compared to the 16% rate in the same quarter of '24 under the previous regime of 2% monthly crawling peg. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased by 22% or ARS 160 billion during the third quarter of '25 to ARS 875 billion, equivalent to approximately $638 million at the official exchange rate. EBITDA generation during the third quarter amounted to almost ARS 219 billion, of which 47% was generated by the regulated transportation business and 53% by the nonregulated businesses. CapEx for the period amounting to 87 billion. Working capital decreased by ARS 36.4 billion, and we paid interest amounting to ARS 29 billion and income tax payment totaled ARS 61 billion. In addition, we obtained short-term loans by ARS 28.6 billion. We finally recorded higher yields from our financial investment by ARS 53 billion in real terms, resulted mainly due to the higher increase of the foreign exchange rate over inflation of this quarter. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions. Thank you. Carlos Almagro: [Operator Instructions] The first question is from Santiago from Allaria. The question is regarding the CapEx to be made in the expansion of the transportation system and our final tranches. How is the breakdown of the deployment of the new $780 million? So this is the first question. Alejandro Basso: Well, regarding the deployment of the $780 million from the expansion project, for this year, we have some advances to suppliers amounting and some part of the works amounting up to $150 million. Then for the following year '26, we are expecting to spend $450 million and the remaining $27 million in the first 5 months of '27. The financing of the project, we already have almost 70 million bank loans to fund the imports, which is a regulatory requirement under [indiscernible]. And we are currently considering other source of financing for the remainder. Carlos Almagro: Second question is regarding the insurance claim status for the [indiscernible] event. If you can share what is the total expected recovery amount from the insurance and the time line for collecting the payment? Alejandro Basso: Regarding the recovery amount, we are estimating this amount could be more than $50 million. And the expectation for the collection maybe $10 million this year and the remainder in the following year, I don't know, maybe in the second quarter. Carlos Almagro: We have a question from [indiscernible] regarding the strong recovery of the liquids in this quarter. If we can comment on whether the current levels of production and margins are sustainable into fourth quarter of this year? And how do we see prices in 2026? Alejandro Basso: Okay. Well, regarding the level of production at [indiscernible] level, which was driven by the very -- the richness of the gas stream coming from Vaca Muerta. You know that nonconventional gas is replacing the conventional and also the increase in oil production with associated rich gas, the level of the richness of the gas is higher. And I could say that this level of richness could be substantial for the next years, okay? Regarding the fourth quarter in special, well, it's a different time of the year. So the gas production is lower in the fourth quarter as compared with the third quarter. So the richness could be there, but the gas production should be lower. In spite of that fact, the gas stream coming in our plant is higher than the total capacity of the plant. So it's going to be a sort of arbitration between these 2 variables. Regarding prices for '26, well, current level of international prices are lower than we used to have a couple of months ago. So maybe liquids prices could be lower than the average of this year, but you can know it's very hard to anticipate that. Carlos Almagro: Next question is from [indiscernible]. Well, this is her first question is regarding what you just explained regarding the liquid business in the future. And her second question is if we expect an acceleration in cash CapEx deployment until year-end. Alejandro Basso: Regarding our CapEx, our cash CapEx is going to be higher than previous levels as we have already started out with the private initiative project, okay, in the Perito Moreno expansion. As I previously mentioned, we are expecting to spend $150 million this year, mostly in the last quarter. Carlos Almagro: Next question is from [indiscernible] regarding the Perito Moreno pipeline that we provide all the explanation that we can share. And his second question if we are interested in participating in the project to build a brand new gas pipeline to [indiscernible] provide gas to LNG facilities that is planning [indiscernible] by 2027 and 2028. Alejandro Basso: Well, regarding the new gas pipeline, currently, we are evaluating our participation in this project. I cannot anticipate any news on that by now. Carlos Almagro: Next question is from George [indiscernible] Securities. He was expecting to pay significant cash income taxes against -- again next quarter? Alejandro Basso: George, well, regarding income tax payments, the payments could be quite similar in the fourth -- in the fourth quarter as compared with the third one, okay? The bulk of the income tax payment was paid in May this year. And then you have advances that are quite similar from June to April next year or March next year. So as compared fourth quarter with third quarter, the payments should be in pesos quite similar. Carlos Almagro: Next question from Daniel Guardiola. When do we expect to reach FID for the Tratayén facility? Alejandro Basso: Well, we are working very, very hard on the project. The FID could be in the first quarter of next year, hopefully. Carlos Almagro: Next question from [indiscernible] well, his question was answered because it was regarding initial project that was answered. Next question from [indiscernible] well, his question regarding the initial project was answered and both questions are regarding the initial project, so it was answered. [indiscernible] with partners or perhaps how many companies engaged with both of this -- from the balance sheet perspective of the participation on the in the project and joining with partners or perhaps tapping equity markets? Alejandro Basso: Well, we are working on that. The idea is to have partners especially in the part of the liquids project that comprise of the transportation and fractioning and dispatching facilities. Our idea is to go with partners in that part of the project, and we are working on that. Up in equity markets, I think that's not -- we are not analyzing that at this moment. Carlos Almagro: Next question from [indiscernible] regarding the financing of the CPM project that Alejandro explained. Another one, [indiscernible] asking the same question regarding the financing of the Perito Moreno pipeline project [indiscernible] capacity of the CPM? Alejandro Basso: Well, the answer is yes with additional [indiscernible] expansion of the CPM, our extreme business is going to benefit from that with higher volume also, okay, to the limit of the capacity of our pipeline, of our gas treatment facilities, okay? In the pipeline, we have plenty of space in the [indiscernible] pipeline. Carlos Almagro: [indiscernible] first 9 months of 2025 [indiscernible] the beginning of September that impacted on the 9-month period. Another question from Guido from Allaria regarding the Perito Moreno [indiscernible] project and we provided all the information that we can share. [indiscernible] same question regarding the financing of the Perito Moreno that we explained. Another question from [indiscernible]. For the time being, we have no other question. This concludes the question-and-answer section. Now we will turn to Alejandro for final remarks. Alejandro Basso: Well, thank you all for participating in this year's third quarter '25 conference call. We look forward to speaking with you again when we release our '25 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.
Operator: Good morning. Welcome to the PJT Partners Third Quarter and 9 Months 2025 Earnings Conference Call. Joining the earnings conference call today is Paul Taubman, Chairman and Chief Executive Officer; Helen Meates, Chief Financial Officer. During the course of this conference call, management may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors are described in the Risk Factors section contained in PJT Partners' 2024 Form 10-K, which is available on PJT Partners' website at pjtpartners.com. The company assumes no duty to update any forward-looking statements. Also, the presentation made today contains non-GAAP financial measures, which the company believes are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, please refer to the financial data contained within the press release the firm issued this morning, also available on the firm's website. With that, I'll turn the call over to Paul Taubman. Paul Taubman: Good morning. Thank you all for joining us today. This morning, we reported record results, revenue, adjusted pretax income and adjusted EPS, all reaching record highs for both the 3- and 9-month periods. Third quarter revenue was $447 million, up 37%. Adjusted pretax income was $94 million, up 86% and adjusted EPS was $1.85, up 99% from year ago levels. For the 9 months, revenues increased 16% to $1.18 billion. Adjusted pretax income increased 34% and adjusted EPS increased 43% from year ago levels. Since our last earnings call, we have seen further improvements in the macro environment. Equity prices are near record highs, volatility across equities and credit near historic lows, debt issuance is strong, and the IPO market has reopened. This favorable capital markets backdrop has been an important catalyst in the M&A recovery. Greater clarity on regulatory outcomes as well as increased CEO confidence has further amplified deal-making momentum with many companies revisiting their strategic wish list. That said, we still operate in a world fraught with risk, continuing geopolitical uncertainty, a weakening labor market, stubbornly high interest rates, tariff dislocations, coupled with concerns of an AI bubble have the potential to derail this pickup in activity levels. While we remain optimistic about the near to intermediate operating environment, it is a tempered optimism when balanced against these risks. After Helen takes you through our financial results, I will review our business performance and outlook in greater detail. Helen? Helen Meates: Thank you, Paul. Good morning. Beginning with revenues. Total revenues for the third quarter were $447 million, up 37% year-over-year. And for the 9 months ended September 30, total revenues were $1.179 billion, up 16% year-over-year. Revenue growth for the third quarter and first 9 months was primarily driven by strategic advisory, which was up significantly for both periods. Restructuring revenues rose slightly in the third quarter and first 9 months, while PJT Park Hill revenues were flat in the third quarter and down modestly for the first 9 months. Turning to expenses. Consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, which are more fully described in our 8-K. First, adjusted compensation expense. We accrued compensation expense at 67.5% of revenues for the first 9 months of the year compared to 69.5% for the same period last year. This ratio represents our current best estimate for the full year 2025. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $51 million in the third quarter, up 5% year-over-year and $153 million for the first 9 months, up 10.5% year-over-year. As a percentage of revenues, 11.5% in the third quarter and 13% in the first 9 months. The main drivers of the expense increase for the first 9 months of the year were higher occupancy costs, which are up 19% year-over-year, reflecting the expansion of our New York and London offices and higher travel and related expenses, which are up 25% year-over-year, primarily reflecting higher levels of business-related travel. Overall, for the full year, we continue to expect that our non-comp expense will grow at around 12%, a similar rate to our 2024 growth rate. Turning to adjusted pretax income. We reported adjusted pretax income of $94 million in the third quarter and $230 million for the first 9 months. Our adjusted pretax margin for the third quarter was 21% compared with 15.5% for the same period last year and 19.5% for the first 9 months compared with 16.9% for the same period last year. The provision for taxes, as with prior years, we presented our results as if all partnership units have been converted to shares and that all of our income was taxed at a corporate tax rate. Our effective tax rate for the first 9 months of 2025 was 15.5%, which now represents our current expectation for the full year. This rate is slightly below our previous full year estimate of 16.5%. As a result, the effective tax rate for the third quarter was 14%. The reduction in the full year rate is primarily due to an updated estimate of our income allocation across state and foreign entities. Earnings per share. Our adjusted if converted earnings were $1.85 per share for the third quarter, up 99% and $4.43 per share for the first 9 months, up 43% from the same period last year. For the quarter, our weighted average share count was 43.8 million shares, down 2% versus a year ago. And during the third quarter, we repurchased the equivalent of approximately 186,000 shares primarily through exchanges. Our repurchases in the first 9 months of the year totaled approximately 2.3 million shares. We are in receipt of exchange notices for an additional 115,000 partnership units and subject to a Board approval, we intend to exchange these units for cash. On the balance sheet, we ended the quarter with $520 million in cash, cash equivalents and short-term investments and $558 million in net working capital, and we have no funded debt outstanding. Finally, the Board has approved a quarterly dividend of $0.25 per share. Back to Paul. Paul Taubman: Thank you, Helen. Beginning with restructuring. Notwithstanding favorable economic and capital markets conditions, demand for liability management and restructuring activity remains high. Even with a relatively benign credit environment, our market-leading restructuring team continues to deliver strong performance with third quarter and year-to-date revenues at record levels. At the same time, certain corners of the economy are feeling the weight of relatively high interest rates, dislocations caused by higher tariffs, disruptions resulting from accelerating technological innovation and changing consumer preferences. While these headwinds may not yet be broad-based, they are being felt in certain industries, including technology, media, health care, automotive and consumer. For the current year, we expect our restructuring results to meet or exceed last year's record results. Looking ahead, we expect our restructuring bankers to remain highly active as they continue to address liability management opportunities resulting from this concentrated stress. Turning to PJT Park Hill. The primary fundraising environment continues to be challenged by historically low levels of capital return, coupled with a significant increase in the number of managers seeking to raise capital. This, in turn, has elongated fundraising timelines and pressured the quantum of capital raised. As GPs and LPs seek additional paths to liquidity, the same forces that have dampened primary fundraising activity have also served to catalyze continuation fund activity. And more capital has flown into the space as investors have come to better appreciate the attractive return profiles associated with secondary products, creating a virtuous cycle. For PJT Park Hill, third quarter revenues were comparable to a year ago with strength in private capital solutions offsetting lower primary revenues. For the full year, we expect overall PJT Park Hill revenues substantially in line with last year's record levels. Turning to strategic advisory. Many of the pieces necessary for a meaningful rebound in M&A activity have fallen into place as the year has progressed. However, the recovery has been uneven. While we have seen a market increase in larger M&A transactions, we have not yet seen an increase in the overall number of transactions. Even though the average deal size is up almost 40%, the aggregate number of transactions has actually declined. For the 3- and 9-month periods, our strategic advisory business delivered record revenues substantially above prior year levels. Our mandate count has increased meaningfully from a year ago and now stands at record levels. Overall, our strategic advisory business remains on track to deliver another record year as the significant investments we have made over an extended period of time continue to bear fruit. On the talent front, we continue to add talent as we invest in our strategic advisory franchise and the firm more broadly. As a result of our active recruiting efforts, our headcount overall has increased 7% from a year ago and 4 partners joined our strategic advisory franchise in the third quarter. A decade ago, we set out to build a next-generation investment bank. We envisaged a firm where complex challenges would meet creative solutions, where top professionals would build their careers and where success would be defined by excellence, impact and integrity. 10 years in, our firm has grown substantially and so too have our aspirations. Today's mission is clear, to be the world's best investment bank. As we celebrate our 10th anniversary, we would like to take this opportunity to acknowledge the dedication of our colleagues and the trust and support of our clients. And to our shareholders, thank you for your partnership. We continue to see tremendous opportunity ahead, and we remain determined to capitalize on our enormous potential. As before, we remain confident in our near, intermediate and long-term growth prospects. And with that, we will now take your questions. Operator: [Operator Instructions] We'll take a question from Devin Ryan of Citizens. Devin Ryan: Congratulations on 10 years. Paul Taubman: Thank you. Good to speak, Devin. Devin Ryan: Yes, absolutely. So, I want to start, Paul, on the restructuring outlook and appreciate the framing that you gave and still sounds like you expect a strong kind of backdrop there. We've been hearing somewhat mixed trends, I would say, through earnings. And so, I just want to get a sense of how you're thinking about PJT specific relative to the broader macro backdrop for trends because you guys have a leading practice and so potentially outperform the industry in different environments. So, do you still see the environment being very good? Or is this more just about PJT maintaining or even gaining share as your kind of always going to be active in that business? Paul Taubman: Well, it's always hard to deconstruct the market versus your position in the market precisely. But we don't see any real diminution in restructuring activity. We just don't see it. So, we're operating at elevated levels relative to historic levels. But as I pointed out repeatedly, for most of that history, we're looking back at a baseline where the macroeconomic environment was far more constructive than it is today and where money was nearly free, and interest rates were nearly 0. We're also looking at a baseline where the quantum of debt outstanding was meaningfully less. And we're also looking at a baseline where there was not as much disruption, innovation and what we refer to as concentrated stress. So, in an overall accommodative environment, you can have a higher baseline of restructuring activity. We've talked about this repeatedly. We continue to see that. Now as it relates to our practice, the growth pillars beyond what the overall market conditions are, continued penetration of sponsor clients, which will give us a broader addressable market. Second is continued growth outside the United States as we build out local presence around the globe. And the third is, as we continue to build out our industry footprint, we have more relationships with which to leverage. So, I don't spend a lot of time talking about or thinking about the exact interplay of the 2. But as we look at our activity levels, they remain elevated, and we expect them to be elevated for the foreseeable future. And I do think there's a call option on a meaningful shock to the system because we're not experiencing any of that today. I'm not predicting it, but none of this assumes any real deviation from the current environment. Devin Ryan: I appreciate all that color, Paul. And then just for my follow-up, when I look at partner productivity, I appreciate it's kind of a crude number from the outside. But on a blended basis, it looks like you're on track for a record year productivity on my numbers at least. And I appreciate some of that's very strong restructuring and then you have strategic advisory ramping pretty materially as those partners on the platform mature. So, I'd love to just get an update on how you think about the productivity potential of partners from here, particularly as strategic advisory still feels like the environment is getting better, but then also the bankers on the platform are maturing as they've been doing. And I guess in that question, just love to hear about how you think about what is a reasonable number of kind of revenue per partner for strategic advisory when you're hiring somebody externally? Are you targeting $15 million to $20 million? Or is there a number? Just any more color you can give on how you're thinking about the potential from here given that you're going to have it looks like a record year there. Paul Taubman: Yes. I never think about a number. I never talk about a number. I don't believe in a number. What I believe is if you hire difference makers, you ultimately make a difference in your financial results to the positive. I really do. And I think it's so hard to come up with a number because you need to assume an environment. You need to assume how active that sector or that product is at that time. You need to look at what else has been built out at the firm, which creates either tailwind or headwind for those individuals. And then you need to ask yourself, are you looking in year 2, year 4, year 6, year 8. So, we don't believe in that. And as far as the number, in a perverse way, I'd love nothing more than to take the number down. I mean, if tomorrow, we could find 10 incredible partners to add to the platform on day 1, by definition, our so-called partner productivity would go down because those same revenues would be divided by an extra 10 individuals. So, it's a number that we don't spend a lot of time with, but we have great confidence that what we're building is highly additive and accretive to our overall financial results and to our brand and to the service of our clients. And that's how we think about it. And I think it's more of the relative construct. And if you ask me, do I think we've hit maximum levels, I'd say no, not close because there are a lot of partially built systems in our franchise, whether it's just beginning to put our toe in the water in a geography or just beginning the journey to build out an industry group or we have that, but we don't yet have full recognition or we have the recognition from the clients, but it hasn't yet translated into revenue. So, I think we feel very good about the direction of travel, but I don't spend a lot of time thinking about it as a number. Operator: We'll take a question from James Yaro of Goldman Sachs. James Yaro: Paul, I'd love to just get your perspective on the impact of the government shutdown on the business. Do you expect this to have an impact on the fourth quarter? But really more importantly, how are you thinking about the impact going forward? Is there anything beyond the temporary impact? Paul Taubman: Look, I think it has real implications to a lot of individuals in this country who are suffering because of the shutdown, but I don't think that it really affects our business in a meaningful way. It creates some complexities and complications and maybe some timing issues, but I think those pale in comparison to other implications. What I worry about more is ultimately what does this do to the broader macroeconomic environment in the country, which is really a function of how long does this shutdown continue, which workers aren't paid for how long, what resolution do we end up with and what are those implications? I think it's the macro implications that matter more. And the reality is no one has answers to that. So, we're all watching and waiting. I think that's the bigger question is what, if anything, does this do to overall economic output and consumer confidence and business confidence. James Yaro: That's super clear. Just maybe turning to the primary fundraising business. I'd love to just get your perspective on the ability for that to continue to improve. Obviously, it was down for a couple of years there, and you've seen a nice bounce back there over the past few quarters. So, is this sustainable? And how are you thinking about the outlook for that business? Paul Taubman: Well, there's good news, bad news and then back to good news. So, the good news is it's getting better. The bad news is, as it gets better, everyone is going to want to come to tap the market because they've been on the sidelines. So that's going to make it a crowded trade. And then the good news from the bad news is in a crowded market, they're going to want the best fundraising team, and that's going to play to our strength. So, I think overall, it's positive, but it's like everything else, it's never 100% positive. There are some puts and takes there. Operator: We'll take our next question from Brennan Hawken of Bank of Montreal. Unknown Analyst: I was hoping that you could -- I know, Paul, I heard you sort of loud and clear that the 67.5% is your expectation for the full year. But taking a step back, what's the best way we should be thinking about operating leverage, right, and the path for pretax margin as you continue to see this strong revenue growth as you see the -- as the investments that you've made in strategic advisory begin to bear fruit. How should we be thinking about that either in the year-end and then, of course, into the coming years? Paul Taubman: Well, I think into year-end, we've given you our best estimate for this year. You talked about operating leverage, which I appreciate the question because to me, operating leverage is what's the pretax margin because ultimately, that's what drives shareholder value. And if you look at our operating margin for this year and you look at it in the historical context of where we've operated, I suspect that if you ex-out 2020 and 2021 when we lived in this surreal world where there was no travel, there was no entertainment, there was no discretionary spend and margins were overly inflated. I think our margins this year are going to be at the high end of anything we've produced in our 10-year journey as a public company. So, we're quite proud of that and we are focused on it. We don't like to focus on any one individual component of that because, a, there's a lot of interrelationships between all of these line items; and b, you're trying not to manage the firm for the here and now, you're trying to manage it for the long-term. But if you're asking me, do we think that there's further margin improvement along the journey, I think the answer is yes. And I just don't want to lose sight of the fact that while we may be running with comp to revenue margins that are higher than our historical levels have been, we also have run this firm at, I think, the lowest non-comp to revenue margins that we've had as a firm. And if you take all of that together, the overall output is quite attractive. But to answer your question, there's more upside from here, and we're going to get at it. But exactly how and when, I don't know. But when I look at it over 10 years, this is going to be ex those 2 aberrational years, I think our best operating margin year in a decade. Unknown Analyst: And then when you think about the operating margin improvement that you guys are likely to generate here in 2025, is that a good way to be thinking about a path forward sort of you never want to anchor overly on one particular year, obviously, because things will move around. But is that a decent way to be thinking about it going forward? Or are there other factors -- what other factors should we consider? Paul Taubman: Well, look, I think as a general matter, there's -- we believe in operating leverage in the business. Let's just start there. We also believe in disciplined cost, but not an obsession with cost at the expense of long-term value-enhancing growth. So that's the mix. And since we continue to believe that we should be able to grow our top line faster than our expenses, we think that there's more operating margin to be had. But in any given quarter, any given year, you're buffeted by a lot of very specific things, which makes it very difficult to manage to a number in the short-term, which is why I like to sort of step back a little bit. And what I just suggested is if you look back at our journey as a public company over 10 years and you take out the 2 fantasy years where it just wasn't a normalized world because no one was traveling, no one was entertaining, there were no conferences. There was no travel expense. There was no entertaining expense. If you just strip those out, we're sitting here today saying we're still seeing the fruits of our investment, and we're going to post on a relative basis, our best or near best operating margin. So that, to me, is just a proof point that, a, there's operating leverage in the business; and b, we can get at that operating leverage. Operator: We'll take a question from Brendan O'Brien of Wolfe Research. Brendan O'Brien: To start, I just wanted to touch on the dynamic you flagged, which is the divergence of deal value versus deal count, which is something we've been keeping an eye on ourselves. The drivers of the increase in the larger activity is apparent around derive and things of that nature. But I just wanted to get a sense as to what you think is behind the lack of breadth and activity so far and what could maybe drive an improvement in that dynamic over the next coming year? Paul Taubman: Look, I think there's -- some of this is there's -- you have to really deconstruct the market. So, I'll just give you 2. I don't want to turn this into 3, I'll give you 2 thoughts. Number one, we clearly are dealing in a more favorable regulatory environment. Where is that going to create more momentum? It's going to be in the larger transactions. And if you're dealing with sub-billion dollar deals or $1 billion to $5 billion sizes and everything, but it's probably a pretty good correlation that that's not where there's regulatory complexity. So, it should be no surprise that as you're dealing with a more pro-growth, pro-business administration, you would see more of a skew to the high end, and that gets picked up in dollar values, doesn't get picked up in number of transactions as much. The second would be the velocity of capital with sponsors. And I continue to think that we haven't really gotten the reset with sponsor activity. We will. We hope. And when we get that, you'll start to see that reflective in number of transactions and in transaction count. I think those would be the 2 that I would highlight. Brendan O'Brien: That's helpful color. And for my follow-up, I just wanted to unpack your commentary on the Park Hill business a bit. You noted in your prepared remarks that Park Hill revenues were down year-on-year so far this year and PCS revenues were up, but the placement line was also up. So, I just wanted to -- if you could just unpack that piece a bit more, whether there's some non-Park Hill fees in that placement line. And then also last quarter, you noted that you expect a significant acceleration in PCS fees in the second half. Based on the commentary, it doesn't seem like that came through in 3Q. So, I just wanted to get an update here. Paul Taubman: Well, just let me just take the latter part. I think it did. And just to recall, those get booked in advisory. So just to be clear, what we said is exactly what happened, and that strength is counted as advisory as distinct from placement in most instances, and that's reflected in our financials. But on the former, I'll turn it back to you. Helen Meates: Yes. And then on the -- just a reminder that the placement line includes Park Hill placement, but it also includes any corporate placement. So, we did have some placement fees that were outside of Park Hill. Paul Taubman: Which is just another -- I think all you're doing is you're putting a highlight on the fact that I think we maybe need to transition away from these advisory placement designations because I'm not sure it helps give anybody any real clarity on the business. And we don't spend a lot of time apportioning it one way or the other. At the end of the day, they're advisory with a capital A revenues because they all relate to intellectual capital and intellectual advice. But I appreciate your question. Operator: We'll take a question from Alex Bond of KBW. Alexander Bond: Just wondering if there's anything that stood out from you in your recent dialogues with clients in regard to the overall credit backdrop. Curious how you're thinking about this broadly given your obviously strong presence in the restructuring market, the fact that private credit remains in the headlines, and we've got a couple of high-profile bankruptcies here recently. So, any color you can add here would be great. Paul Taubman: Well, look, I'll just make some general observations. One is when you see spreads tighten as much, I'm not sure that credit has been appropriately priced. I think that's maybe more the issue. And I suspect that over time, you'll probably see sort of more normalized spreads. And as it relates to these situations, unfortunately, malfeasance is a risk factor, and it occurs in bull markets, it occurs in bad markets. And I'm not yet seeing evidence that this is widespread. But when you're putting out an enormous quantum of capital, it does put pressure on diligence, diligence standards. And if you're dealing with individuals or entities that are not forthright and are engaged in improper activity, you're not going to catch all of it, which is why I just come back to some of this may not have been fully reflected in just how credit overall has been priced. What we're much more focused on is the fact that you can't have a world of enormous technological dislocation, all this innovation changes in market sizes, customer behaviors, demand and not have losers alongside winners. Everyone can't be a winner. And we're creating all of these new economy technology companies and new ways for efficiency, there are going to be companies left behind. So, I suspect that if you just take a slightly longer-term lens, the number of companies that are going to need to address their balance sheets is probably more likely to grow than to shrink. It may not happen immediately, but I think there's a longer-term trend at play here. Alexander Bond: And then maybe for my follow-up, I suppose just trying to understand to what degree maybe the strong restructuring activity has been a benefit to the comp ratio in recent periods. The headcount here is obviously a little bit lower than the strategic advisory business. So, I guess just in a scenario where maybe the restructuring activity does slow a bit, is it -- is there anything that would lead you to believe that there might be less comp leverage just given the smaller headcount there? And maybe if there's anything else we should be considering in that regard? Paul Taubman: Look, obviously, if there are big dislocations to our revenue, good or not, that will affect because this is a roll-up of all of the businesses. But if we continue to have steady growth or if we're going to have a reasonable match between the headcount growth and revenue, then you're just going to see a steady decline in the comp ratio. If you see a disconnect between those as we saw in '23, where you have the overall strategic advisory market meaningfully down. At the same time, you're adding meaningful heads, you're going to see real pressure to the comp line. So, it's like anything else, we see a baseline direction of travel, which is to get our comp ratio lower. But if there is a shock to the system in one place, good or bad, that could either accelerate or retard the improvement. But that's why we never want to lock in precisely to a number. We're much more comfortable talking about the direction of travel and what factors would cause that to no longer be operative. Operator: We have a follow-up question from James Yaro of Goldman Sachs. James Yaro: I just wanted to ask a nitty-gritty one. Any, I guess, pull forward in the quarter that we should be aware of? Helen Meates: It was relatively modest. It was $8 million this quarter. Last year, it was $6 million, so pretty similar. Operator: That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Taubman for closing remarks. Paul Taubman: Well, we thank everyone for their interest and for participating in this morning's earnings report, and we look forward to speaking with all of you in the new year when we report full year results. Thank you, and have a good day.
Operator: Good morning, and thank you for standing by. Welcome to the Madrigal Pharmaceuticals Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to introduce Ms. Tina Ventura, Chief Investor Relations Officer. Please go ahead. Tina Ventura: Thanks, Marvin. Good morning, everyone, and thank you for joining us to discuss Madrigal's third quarter 2025 earnings. We issued a press release this morning and posted a slide deck that accompanies this webcast on the Investor Relations section of our website. On the call with me today is Bill Sibold, Chief Executive Officer; Dave Soergel, Chief Medical Officer; and Mardi Dier, Chief Financial Officer. They will provide prepared remarks, and then we'll take your questions. Please note on Slide 2, we will be making certain forward-looking statements today. We refer you to our SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. With that, I will now turn the call over to Bill. William Sibold: Thanks, Tina. Good morning, and thanks for joining us. We have delivered another excellent quarter as we continue to execute on our strategic priorities. We're maximizing the value of Rezdiffra and building our pipeline, which sets us up for continued value creation. Rezdiffra is quickly becoming one of the most successful specialty launches in the industry with sales now annualizing at greater than $1 billion in only its sixth quarter of launch. More than 29,500 patients are being treated with Rezdiffra and more than 10,000 healthcare providers have prescribed it. We've made great progress on our 2026 payer contracting strategy for first-line access. Our new U.S. Rezdiffra patent was listed in the orange book. It extends Rezdiffra's value into 2045. And we're expanding globally with our launch in Germany following European approval. On the pipeline front, we're advancing our Phase III MAESTRO-NASH outcomes trial in F4c, where we could once again be first to market this time for compensated MASH cirrhosis. We look forward to sharing more from our F4c open-label cohort at AASLD later this week. We're executing on our Rezdiffra combination strategy, where we completed the transaction of our new oral GLP-1, and we continue to evaluate opportunities to add additional assets to our pipeline through business development. So today, we'll focus on our 2 key priorities, our top line and our pipeline. Starting with Rezdiffra's third quarter performance on Slide 4, we delivered net sales of $287 million, up 35% quarter-over-quarter. The significant demand we're generating is driven by the positive response to Rezdiffra from prescribers and patients and the strong execution by our team. As shown on Slide 5, we ended the third quarter with more than 29,500 patients on Rezdiffra, up from more than 23,000 patients at the end of the second quarter. This number represents patients actively on therapy accounting for any discontinuations. As we've discussed since the beginning of our launch, we've been steadily adding patients each quarter, and we expect that to continue going forward. It's incredibly gratifying to see Rezdiffra already making a meaningful difference for so many patients. But what's most exciting is that we've only just begun. More than 90% of our 315,000 target population remains untreated. That leaves tremendous room for growth driven by Rezdiffra's highly differentiated profile and our clear first-mover advantage. Moving to Slide 6 and our continued progress on physician penetration. As I've said before, building a strong prescriber base early in the launch is one of the best indicators of long-term success. That's why the pace of adoption has been so encouraging. This quarter, we hit another launch milestone, more than 10,000 prescribers. This breadth achieved this quickly is at the high end of the benchmarks we track, and it reflects the work we've done to wire the system. Looking ahead, our focus will increasingly shift to depth. This metric is already tracking at the high end of best-in-class launches. We're also continuing to enhance our targeting. While our efforts have mostly centered on hepatologists and gastroenterologists, we're seeing growing interest from endocrinologists. These are specialists with a deep expertise in metabolic health who are interested in Rezdiffra's mechanism and its potential in MASH. In response, we've expanded our field team to further target this group. These efforts substantially started in the fourth quarter. On Slide 7, let's take a look at how we see the MASH market evolving. We see clear parallels between MASH and other large chronic disease markets like IBD, rheumatoid arthritis and psoriasis. Each of these evolved into multibillion-dollar categories through continuous innovation driven by new mechanisms and tailored treatment regimens that address diverse patient needs. We believe MASH will follow that same path. Today, this market is still in its early stages, essentially where those categories were 2 decades ago, but with one important difference, Rezdiffra's profile. As an effective liver-directed well-tolerated oral medicine, it far surpasses that of the other first-to-market products in those diseases. We believe this gives us a durable advantage and a unique opportunity to lead and shape the market's evolution, first with Rezdiffra and next with the pipeline we are building. So, we welcome new entrants to this evolving market. Wegovy's recent approval in MASH adds momentum to a market that's just starting to take shape. As seen on Slide 8, our focus remains on the 315,000 diagnosed patients with moderate to advanced fibrosis. Novo is targeting a much larger population, which will raise awareness and drive more screening, diagnosis and treatment. As a reminder, GLP-1s aren't new. They have been available for over a decade and are already used to treat the metabolic comorbidities that oftentimes accompany MASH. As we've reported, about 50% of Rezdiffra patients are currently on or have previously been on a GLP-1. We also understand the limitations of GLP-1 monotherapy in MASH. Few patients reach and sustain a therapeutic dose and tolerability remains a real challenge. Real-world data show that 70% of obese patients discontinue within 1 year. New data to be presented at AASLD show similar discontinuation rates in patients with MASLD. So, looking ahead, we expect Rezdiffra to benefit in 2 ways: as first-line therapy in a market that will expand and from the high real-world discontinuation rates of GLP-1s. We're in a strong position and are confident in Rezdiffra's growth potential going forward. As we've already mentioned, it's Rezdiffra's best-in-class profile that gives us such strong confidence as summarized on Slide 9. It is a liver-directed medicine that delivers consistent efficacy across F2/F3 fibrosis, BMI, genetic makeup in patient subtypes, including those with type 2 diabetes who comprise approximately 60% of the MASH population. It's also simple to use. It's a once-daily, well-tolerated pill with no titration requirements. That simplicity matters to providers, to patients and ultimately to adherence. We continue to see strong adherence consistent with other well-tolerated oral therapies. The seriousness of MASH and Rezdiffra's compelling profile continue to resonate with payers. Our objective is to provide first-line access to patients, preserving treatment choice for patients and providers, and we're pleased to share an update on Slide 10. We're making great progress with our payer negotiations for 2026, which to date have resulted in contracts for broad first-line access, no step edit requirements and improvements in utilization management criteria that are better aligned with clinical practice. Overall, the dialogue has been collaborative and productive and discussions are progressing really well. Payers understand the seriousness of the disease, the unique clinical value of Rezdiffra and the importance of access and choice for patients and providers. We've already achieved favorable outcomes with several national payers, while continuing constructive dialogue with others. We're encouraged by the progress and expect contracts to be finalized by the end of the year, covering the vast majority of commercial lives. Gross to net management remains a core component of our strategy and guides how we approach payer contracting. We started contracting in April of this year. And as we've said, it wasn't everywhere and wasn't all at once. In fact, through the third quarter, contracting had a minimal impact on gross to net, reflecting our disciplined approach. Now that we expect to have payer contracts finalized in the fourth quarter for either an immediate or a January 1 implementation, we expect the fourth quarter gross to net to be at the midpoint of the 20% to 30% range we had previously discussed. Starting in the first quarter and continuing throughout 2026, we expect our gross to net impact to be in the high 30% range, which is consistent with other innovative multibillion-dollar specialty medicines. So objectively, we're in a great position. We are executing on one of the most successful specialty launches in the industry with less than 10% of our target market treated, the growth opportunity ahead is substantial. We have taken a thoughtful approach to contracting, which provides for outstanding patient access and durable long-term growth. In short, this strategy paves our path to peak sales. Beyond the U.S., we are expanding access to Rezdiffra as shown on Slide 11. We're taking a focused country-by-country approach in Europe and launched in Germany at the end of September. Just like in the U.S., the team is wiring the system for a first-in-disease launch. This requires educating physicians on the risks of MASH and the urgency to treat. We are also driving change in clinical practice to develop processes for patient identification, diagnosis and use of noninvasive tests. This work happens practice by practice to help develop the infrastructure for sustained adoption. The team is off to a great start, and we anticipate our efforts will start to make an impact in 2026. Now I'll turn it to Dave to discuss the second pillar of our strategy, expanding our pipeline to extend our leadership and build long-term value. Dave? David Soergel: Thanks, Bill. It's an incredibly exciting time to be at Madrigal. Over the past 6 months, I've had the opportunity to work closely with this exceptional team. And the more I dug into our programs, the more energized I've become about what we're building. We're not just advancing a pipeline, we're laying the foundation to transform how MASH is treated. As shown on Slide 12, we already have a robust clinical program for Rezdiffra. Our Phase III MAESTRO-NASH outcomes trial in compensated NASH cirrhosis or F4c, is expected to read out in 2027. Positive results could make Rezdiffra the first approved therapy for F4c and support full approval in F2/F3. Our ongoing Phase III MAESTRO-NASH trial in F2/F3 MASH is expected to read out in 2028 and would also support full FDA approval. Beyond Rezdiffra, we're building a pipeline through our business development efforts. To date, we've added an oral GLP-1 now called MGL-2086, which we intend to develop in combination with resmetirom to deliver a best-in-disease, well-tolerated oral combination. As we think about how to build our pipeline further, we're looking for mechanisms that fit scientifically, strategically and commercially, those with complementary biology and combination potential. Continued success in treating patients will come from combining mechanisms and tailoring treatment regimens to specific risk factors, much like what we've seen in other chronic complex diseases. With Rezdiffra's patent protection into 2045, we can be thoughtful and disciplined and build the right kind of pipeline that will define the future of MASH care. The combination of our oral GLP-1 and THR beta agonist is a great example of this approach to building the pipeline. For MAESTRO-NASH, we know that even a modest amount of weight loss enhances resmetirom's efficacy. So unlike incretin monotherapies that strive for double-digit weight loss, we've seen that as little as 5% weight loss can enhance Rezdiffra's efficacy in MASH. This will allow us to dose escalate the MGL-2086 component of the combination with the goal of optimizing both efficacy and tolerability in a once-daily oral pill. It is also important to note that with the combination, patients would be on an effective dose of resmetirom on day 1 as the MGL-2086 dose is being adjusted in contrast to injectable incretin monotherapies that require a lengthy titration period. On Slide 13, we see how these mechanisms could work well together. GLP-1 works from the outside in, improving systemic metabolism, insulin sensitivity and weight loss. Rezdiffra works from the inside out, reversing hypothyroidism in the liver, restoring mitochondrial function and increasing fat processing through beta oxidation. The combined mechanisms lead to lower levels of inflammation and inhibition of stellate cell activation and downstream fibrosis. By combining these complementary mechanisms, we expect to see greater reductions in both liver fat and fibrosis. We plan to start a Phase I trial for MGL-2086 in the first half of next year. Next, let's move to our Phase III MAESTRO-NASH outcomes trial in compensated MASH cirrhosis or F4c on Slide 14. People living with F4c MASH today have no effective treatment options that prevent progression of their disease to decompensated cirrhosis. Our 2-year open-label extension data presented at EASL earlier this year demonstrates sustained efficacy of Rezdiffra in this population and supports our confidence in the ongoing MAESTRO-NASH outcomes trial. Knee liver stiffness decreased by 6.7 kilopascals at 2 years, a statistically significant reduction from baseline. More than half the patients achieved at least a 25% reduction in liver stiffness, a level tied to improved outcomes. And 65% of patients with clinically significant portal hypertension or CSPH, at baseline moved to a lower risk category by year 2. CSPH is a key driver of the most severe outcomes of cirrhosis and marks the tipping point into decompensated disease. Improvement in CSPH suggests Rezdiffra could delay or even prevent life-threatening complications. We'll be presenting new data from this 2-year open-label F4c cohort at AASLD later this week, as noted on Slide 15. And what I'm really excited about is that this data shows promising efficacy in even the most advanced F4c patients who are on the cusp of progressing to liver decompensation. This is the first time any data will be shown in such a severe population, which gives us additional confidence in our outcomes trial. Also at AASLD from our Phase III MAESTRO NAFLD-1 trial, we'll highlight how F2/F3 patients progress when Rezdiffra treatment is interrupted, demonstrating the importance of staying on therapy. We'll also share multiple posters that examine early real-world experience with Rezdiffra and the burden of uncontrolled MASH across health systems. In total, MASH will have 15 abstracts, including 2 oral presentations and 2 posters of distinction. With that, I'll hand over to Mardi. Mardi Dier: Yes. Thank you, Dave. Turning to Slide 16 and a summary of our financials. Third quarter 2025 net sales totaled $287.3 million, up 35% from the second quarter of 2025. This was another strong demand quarter. As Bill mentioned, we're making great progress with our contracting discussions for continued broad first-line access to Rezdiffra in 2026, with no step-through requirements and improved utilization management criteria. As a reminder, there are several components to gross to net, including commercial rebates, government rebates, co-pay assistance costs and channel distribution costs. Across the board, the team has done an exceptional job managing these dynamics, and we're seeing minimal impact through the third quarter of this year. As certain contracts take effect in the fourth quarter, we anticipate a step-up in the gross to net impact to the midpoint of our 20% to 30% range, resulting in a full year average near the low end of that range, a great outcome for 2025. Looking ahead to 2026, we expect the full effect of our payer agreements to begin January 1, bringing our total gross to net impact into the high 30% range, consistent with specialty medicine analogs. As noted, we are confident that we will continue to steadily add Rezdiffra patients, and we expect robust net sales growth for Rezdiffra in 2026 and beyond. R&D expenses for the third quarter of 2025 were $174 million compared to $68.7 million in the third quarter of 2024. The increase was primarily due to the one-time $117 million expense associated with the global licensing agreement for MGL-2086. This was expensed in the third quarter and will impact fourth quarter cash flows. SG&A expenses for the third quarter of 2025 were $209.1 million compared to $107.6 million in the third quarter of 2024. The increase primarily reflects the annualization of higher commercial investment to support the Rezdiffra launch. Looking ahead, we expect fourth quarter R&D expenses to be modestly higher than third quarter levels, excluding the third quarter one-time expense for our oral GLP-1 and expect fourth quarter SG&A expenses to continue to increase quarter-over-quarter as we continue to support the launch of Rezdiffra. Turning to our balance sheet. We ended the third quarter of 2025 with $1.1 billion in cash, cash equivalents, restricted cash and marketable securities. The increase reflects the $350 million initial term loan under our senior secured credit facility, a portion of which was used to repay all outstanding obligations under the Hercules loan facility, offset by the funding of operations. With this strong cash position, we continue to be well resourced to support the ongoing launch of Rezdiffra and advance multiple pipeline programs. With that, on Slide 17, let me briefly recap our third quarter progress where we remain focused on our top line and our pipeline. We are driving strong performance in our sixth quarter of our launch with Rezdiffra now annualizing over $1 billion in net sales and expect continued strong growth in 2026 and beyond. More than 29,500 patients are on therapy, and we expect to continue to steadily add patients going forward. We've reached another major launch milestone with greater than 10,000 prescribers. Our payer discussions are progressing very well, and we expect continued strong access for patients in 2026, and we're working to further expand our pipeline to solidify our leadership in F2 to F4c MASH. And now I'll turn the call back over to Tina and open up the Q&A session. Tina Ventura: Thanks, Mardi. Let's move into the Q&A portion of the call. Marvin, please go ahead and provide instructions for the Q&A session. Operator: Our first question comes from the line of Yasmeen Rahimi of Piper Sandler. Yasmeen Rahimi: Congrats to a great quarter. Team, with AASLD right around the corner, would love to learn sort of how this 2-year data, especially the NIT-driven responses could further derisk MAESTRO-NASH outcome, which is reading out in 2028? And also maybe also some color on what visibility do you guys get in terms of that it's on track based on event rates to come in at that time point? And I'll jump back in the queue. William Sibold: Yes. Thanks for the call. And look, we're really, really excited about AASLD. I'll tell you, we're just coming off of the ACG meeting in Phoenix. I guess it was just last week. And what a difference a year makes when you think about the progress that we've made with the gastroenterologists. I mean a year ago, people didn't know about NITs. They were still putting their pathways in place. And now we're seeing that Rezdiffra has really moved to being the foundational therapy standard of care with that audience and a lot of positive feedback. So, we're headed into the Super Bowl this week with AASLD. We're really excited about it. We have a lot going on. But maybe, Dave, do you want to provide a little bit of context around some of the data and so forth? David Soergel: Yes. I think your question, yes, had to do with the data that we're reading out at AASLD and how it reflects on MAESTRO outcomes. Is that correct? Yasmeen Rahimi: That's correct. David Soergel: Okay. Great. Yes. So, as we presented at EASL and as we showed in the presentation, we have an open-label cohort of individuals from the MAESTRO NAFLD study where we've been able to show sustained efficacy of Rezdiffra in this cohort, both on liver stiffness and on a variety of biomarkers, including LFTs and so forth. So, at AASLD, we're looking more deeply into this cohort and examining some of the more severe patients within this cohort and understanding whether Rezdiffra's efficacy in this group as well. And what we see is really exciting and gives us a lot of confidence about, about MAESTRO outcomes. And so the reason why this is important is because when you think about MAESTRO outcomes and you think about this open-label cohort, the patient populations are really very similar. So, the baseline characteristics are similar. And so when we see efficacy in the open-label group, it gives us evidence and a lot of confidence that the outcomes trial will end up being positive as well. Operator: Our next question comes from the line of Jay Olson of Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about the pros and cons of combining resmetirom with MGL-2086 versus some other oral GLP-1 like orforglipron? And then any other potential mechanisms beyond GLP-1 that might be synergistic with resmetirom? William Sibold: Jay, thanks for the question. Just for clarification as well, our oral GLP-1 is an orforglipron derivative. So, we were very, very specific in the criteria that we had for selecting a oral GLP-1, and we wanted to be in an orforglipron derivative. But maybe, Dave, do you want to talk a little bit about it and a little bit about the future mechanisms and just how we're thinking in general about potential combinations? David Soergel: Yes. So, I mean first, the GLP-1 mechanism and why one would combine resmetirom with the GLP-1. So, what we know from MAESTRO-NASH from the 52-week experience in MAESTRO-NASH is just a little bit of weight loss enhances resmetirom's efficacy. So, we see better antifibrotic effects with resmetirom in people who lose as little as 5% of their body weight. So, it's a natural sort of extension of that to consider combining with the GLP-1 that can produce a bit of weight loss, have some metabolic benefits and enhance resmetirom's efficacy in a fixed-dose combination. So that's the rationale for combining with the GLP-1. But your point is a great one. There are other mechanisms that may also be attractive to combine resmetirom with. And there are multiple pathways in this very complex disease of MASH that lead to hepatic steatosis, fibrosis and ultimately poor outcomes in patients. So, as we've said before, we're looking at pretty much every mechanism of action to potentially combine with resmetirom where there's a good scientific rationale for it and where we believe that the combined efficacy is going to be an advantage to patients. So, we're casting the net wide, and we're looking for the best opportunities. William Sibold: Yes, Jay, and just also a little context as well here. With the IP to 2045, that gives us time to really thoughtfully think about building this pipeline. We're not in a rush just to try to fix a problem of a pending patent cliff. We can thoughtfully think about building a franchise that's durable because starting with the 2045 IP for Rezdiffra. Thanks for the question. Operator: Our next question comes from the line of Michael DiFiore of Evercore ISI. Michael DiFiore: Congrats on the continued progress. Just 2 quick one for me. In light of the recent M&A in the space, I would love to get your thoughts on Madrigal's future competitive positioning and market access once large pharma inevitably bundles their MASH assets, if approved. And the second question I have is just any thoughts on Sagimet's plans for testing denifanstat with Rezdiffra. I realize your priority is focusing on the combination therapy with your own GLP-1, but would Madrigal be open in principle to combinations such as this? Or is this just too early at this stage? William Sibold: Yes, Mike, thanks for the question. Let me start with that one. We don't know what Sagimet is doing. We haven't spoken with them, don't know any of the plans. So, is it a combination that makes sense? Maybe, but we're not involved in that and don't really know. So that's all I'll comment at the moment there. Look, the recent M&A really for us is a validation of the MASH market. Ultimately, what we see happening in these markets, and we talked about IBD, RA and psoriasis. You would have -- and we're a little bit like that where you have a company shows that there is a market and an attractive opportunity. And then the investment in innovation, science and ultimately more products really accelerates. And that's what we think is going to happen in MASH. We're leading the way in this case. Now the recent moves of the big pharma to get an FGF21, we think validates that. And we're excited about it because that means there's going to be more attention on the space, which ultimately leads to greater diagnosis, treatment. And with the profile that we have with Rezdiffra, we think it ultimately favors us. So we -- in creating our market access strategy, we've taken a very long-term approach, just like we did from day 1 when we announced approval of the product, you almost have to start with 2045 where Rezdiffra's IP goes out to, that we're going to have F4c, that we're going to have a pipeline and there's going to be other products that enter. So, everything has been thoughtfully designed with that end in mind to preserve the most value for not only Rezdiffra, but for our franchise of the future. So, we feel we're in a really strong place. Now Dave just talked a little bit about F4c. We're really excited about the data that we've seen, and we're very confident about hitting in our MAESTRO-NASH outcome study, which we are reading out in 2027. Of course, we've got to read out. It's an event-driven study, and we'll anticipate those results. We think that from a competitive perspective, our data is going to be the leading data in that space with that population so that we will be the leaders not only in F2/F3, but from F2 to F4c. So all of this is thought out. We're thinking of things in the long term. We think of that how we build a pipeline, how we evolve gross to net and how we interact with the community. Let me just be crystal clear. Our goal is to not be leaders in the short term, but to have long-term leadership in MASH. Operator: Our next question comes from the line of Akash Tewari of Jefferies. Akash Tewari: So, we're hearing feedback that Rezdiffra's adherence rate is meaningfully higher than the kind of 40% to 60% your team cited for drugs in this category, more in the order of 80% plus. Can you confirm that? And then also, how should we think about Rezdiffra net pricing? I know you've talked about -- we've heard GLP-1 players talk about mid-single-digit net price declines annually. Is that a similar dynamic for Rezdiffra? Or should we see stable net pricing after you get into like the high 30s range on gross to net next year? William Sibold: Thanks for the question, Akash. Look, first of all, on the adherence, I think what we've said about -- at the 1-year rate, well-tolerated orals are in that 60% to 70% range. So that doesn't -- that hasn't changed our view. And we are -- the data that we have today, remember, there's still only so many patients that are getting to that 1-year mark that we are similar to well-tolerated orals. And like you, we've heard very positive feedback from a lot of clinicians that are treating patients and seeing very strong adherence. And I think that again goes back to the profile of the product. So, all encouraging and as we would expect. To the question of gross to net and what we would expect to see. Look, I think that you looking ahead to the future, gross to net only goes in one direction, right? And the difference after '26, you don't have this 0 to contracting effect. After '26, we'll have contracting right now, we're going to be bidding on 2027 Medicare. We have some Medicare in place for '26. So, you expect to see some future decline in gross to net because that's just what happens. But again, we had this effect of 0 to contracting in -- as we enter 2026. So, look, we think that we are in a really great place. Our strategy is for broad first-line access, no step edit and improved utilization management criteria. That was the goal. That's what we're achieving. So, we're really, really excited about where we are entering 2026. In fact, I would say, in my experience, I really believe that this is as good as you could possibly be for a product of this stature at this point in launch. In fact, I would go as far as to say, I think this is the best market access from a criteria perspective and everything that I've seen with any of the launches that I've done. Operator: Our next question comes from the line of Thomas Smith of Leerink Partners. Thomas Smith: And let me add my congrats on the really strong quarter. Another one on coverage. I appreciate the high-level comments here on the payer contracting efforts, I think everyone saw the recent Aetna formulary coverage decision. Could you just comment specifically on that and the potential impact of noncovered decisions? And then any comments on kind of where you are with respect to the contracting for commercial lives next year? Is there an explicit goal or expectation for what percent of commercial lives you think will continue to have that broad first-line access to Rezdiffra for 2026? William Sibold: Yes. Thanks, Tom. Maybe I'll start there. Look, we're expecting broad commercial live coverage. So, we feel really good about that at this point. As it relates to Aetna, let me start with Rezdiffra wasn't on formulary in 2025, and it's not again in 2026. So that is really no change. So, we don't expect to see a meaningful impact here. It will be available through prior authorization or medical exception. And so that's not a practical change in access for patients. And our Madrigal patient support team are really experts at helping patients navigate and helping practices navigate through that. So yes, no change, no effect. Operator: Our next question comes from the line of Andrea Newkirk of Goldman Sachs. Andrea Tan: Bill, recognizing it's still early here, but just curious if you've observed any signs of Novo's marketing campaign broadening the pool of addressable patients to date. Do you still believe that 315,000 patients is the accurate number for Rezdiffra's target population? And then, Mardi, if I can just ask quickly, just in the context of the successful launch that you've seen to date, how are you thinking about the path to profitability from here? William Sibold: Thanks, Andrea. Well, look, this is the first quarter where we've had Novo in the market. And you saw that we continue to steadily add patients. And I think by all measures, had an absolutely outstanding quarter. So, 3 months in, we haven't really seen too much. We know that they seem to be educating PCPs and trying to drive diagnosis, which we think is ultimately great for patients in the market. We're starting to hear some practices say, and this is very anecdotal at this point that they are reporting more referrals that are coming in. But it's a little early to quantify if there is additional growth to the market as we get through the end of the year and be able to do a more proper analysis, we'll come back with any real growth rates. Now the 315,000, great question. Look, let's just remind people, the 315,000 are the diagnosed patients in the 14,000 prescribers that we're targeting. And we know that we have patients that are on Rezdiffra now that weren't part of that 315 that they were newly diagnosed. And we also know that the diagnosis rate at the moment remains quite low. Originally, we saw it as around 10% diagnosis rate. So, we know that there are more prevalent patients out there. And I think what we will see and what we're excited about is having somebody else that is going to help us carry the load of increasing diagnosis. It's not something that's been a focus of ours. It still remains not a focus of ours. But when we have somebody else who needs to have literally millions of patients that are diagnosed in order to serve their needs, that ultimately helps us. That's why we said in the script, it's also -- it's the 315,000 that we win from and the increased diagnosis and ultimately people that can't tolerate or have an effect with a new competitor that will ultimately come to us. So, a little early to quantify. We'll do so in later quarters, but we see some signs that we're starting to see additional growth. Novo, we just don't really have a lot of information, haven't seen them too much out there. But clearly, they are there and starting to drive a little bit more diagnosis. Mardi Dier: Great. Yes, go ahead. Yes. Thanks, Andrea, for the question on the path to profitability. And our focus right now and into 2026 is really focused on driving our top line and then building out our pipeline, which Dave described. That's going to be our focus going forward. It doesn't mean profitability won't happen at some point. But again, we're focused on the top line and building out R&D and continuing to support our efforts in building out the MASH -- our leadership in MASH. Operator: Our next question comes from the line of Andy Chen of Wolfe Research. Unknown Analyst: It's Emma on for Andy. Rezdiffra uptake has been strong so far, and you mentioned the strong 60% to 70% adherence rate. I know it's still very early days in the launch, but I guess how do these dynamics inform your view of the drug's chronic use potential and just steady-state demand over the long term? William Sibold: Thanks, Emma. Look, I think that this is where we win. We have a profile once-a-day pill that is well tolerated and the feedback, some have reported extremely high adherence rates. So, we feel extremely well positioned for this to be a long-term chronic therapy. It's really one of the exciting parts of Rezdiffra. And as I said, versus other categories, which have become really multibillion over $20 billion categories, the profiles, especially the profiles initially of products to launch were kind of hairy, right? They just -- they weren't orals. They had tolerability issues, sometimes safety issues. We feel that we have got -- and you've heard me refer to it in the past as what I believe is kind of like a holy grail profile. That's something which is where we win in this category, frankly. At the end of the day, profiles matter. This is a product which is really designed for chronic use. So, we feel really good. David Soergel: Can I just add on one thing. The other part that also, of course, matters is sustained efficacy. And I think what we're showing at AASLD gives us a lot of confidence in the sustained efficacy of resmetirom in this group. And in fact, what we show in the F2/F3 population is that if you come off of therapy, you have reversion of your disease, which is, of course, a big challenge. So, I think those 2 facets, both the efficacy, sustained efficacy and the sustained tolerability are 2 big. Operator: Our next question comes from the line of Ritu Baral of TD Cowen. Ritu Baral: I wanted to ask, well, 1.5 questions. One on this growth forward given the 2 strategies, Bill, that you outlined, one, sales force expansion and marketing to the endocrinologists. But at the same time, you mentioned that you want depth in the going-forward marketing strategy. So, can you help us reconcile the 2 and what sort of metrics and current targets for depth that you hope to report and how GLP-1s figure into all this? And this is a very quick e-mail that we've been getting from clients. We're having a problem sort of stretching the patient numbers with the revenue numbers. Are there any elements to either stocking or Europe or some other aspect of those numbers that need to be addressed in our models to reconcile everything reported this morning? William Sibold: Yes. For the quarter, nothing to do with inventory, nothing to do with Europe. I mean, just to be crystal clear, U.S. demand is the driver of the success for the quarter. So let me take that one. Next, let's talk about growth going forward and your question about how do we manage expansion, if you will, of into endocrinology and death otherwise. We can walk and chew gum at the same time, so to speak. We have to continue to be building for the future as well. Remember, we've got 20 years ahead of us from an IP perspective. So, we are going to look for where to currently focus and where do we want to explore. And that's exactly what we're doing here. We've already from -- and you know we've been always looking at a basket of products in the last 10 years that have been great specialty launches, and we look at each metric, and we're kind of at or near the top on a number of those. Breadth, we're doing great as well. But you need to continue to grow your depth of prescribing, right? I mean we have 10,000-plus prescribers. Now your next step, and I consider that like a checkmark, now you go deeper and deeper into that set of core physicians, which are gastroenterologists and hepatologists. Now the pursuit now of the endocrinologists, that we had endocrinologists targeted as part of the 14,000. But what we've seen is additional endocrinologists have come forward and said, "you know what, I'm still seeing a lot of MASH and would like to learn more about Rezdiffra. So, there was enough interest that we said, let's put a dedicated team on that opportunity. Just to give you a sense, it's not a huge number. It's a couple of thousand physicians that we add to the target list. And that can be handled with a very concentrated dedicated effort. And we'll see how that evolves. And one of the interesting things is, as you talk about GLP-1s, if GLP-1s were truly solving MASH, there wouldn't be a need in this prescriber group that uses GLP-1s predominantly that another product would be needed. So, I think that, that is a very good sign for us as well that GLP-1s aren't the solution. They've been on the market for over 10 years. You've got a specialty that uses them, and they still are looking for Rezdiffra. So, we're putting an effort there. So, this is a little bit of a -- we have our present focus, which is driving breadth, and we are starting with these endocrinologists, which you have to wind the clock back to even before '24 because they're not familiar with NITs. They're not -- they don't have their system wired at all. So that's going to take a very long time for them to really get catch up to where gastroenterologists and hepatologists are now. But we think it's worth effort, resource, and we think there's promise for the future there as well. Operator: Our next question comes from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Bill, wondering if you could comment a little bit as we look down the road at expected GLP price erosion how that might affect access and payer decisions for Rezdiffra? William Sibold: Thanks, Jon. Well, look, I think if you -- I'll take you back to the comments that we made on the call that in January, we would expect to be in the high 30% range. That is in the presence of a rapidly, I would say, eroding gross to net of GLP-1s. So, we believe that we are well positioned for the future. As I said, gross to net only goes in one direction. But I think you have to start with the problem that we're trying to solve. This is an expensive disease. I think if you take a look at ICER recently commented again on products that they have recently reviewed. And we're seeing that once again, Rezdiffra is highlighted as a product that is looked at as cost effective and really is offsetting the very costly disease without intervention. So, I think that you have to start with the problem you're trying to solve. This is an expensive disease. I think payers understand that. Certainly, the system is starting to understand that. So, you're always going to have products that have different prices within the category. And we've seen even with the categories that I mentioned today, IBD, RA and psoriasis, there's huge variability. But there's a need for more than one medication. There's a need for multiple mechanisms, and you ultimately have to try to solve the problem in front. And we, through an independent third party, ICER, have proven twice now about the cost effectiveness of Rezdiffra. Operator: Our next question comes from the line of Prakhar Agrawal of Cantor Fitzgerald. Prakhar Agrawal: And congrats on another strong quarter. So, appreciate the clarity on the gross to net for 4Q and 2026. But maybe if you can talk about your expectations for 4Q growth and comfort around 2026 consensus estimates with this set? And maybe second question, what percentage of Rezdiffra volume currently is Medicare? And how are you thinking about the implications of semaglutide IRA pricing decision on the long-term prospects for that channel? William Sibold: Great. So let me just give you -- I'll give you the quick answer on what the distribution is. We're anticipating it's 50% to 55% commercial, 30% to 35% Medicare and then about 10% Medicaid and other. We're still -- remember, we're at less than 10% penetration here. So that's going to evolve a little bit in time, but we're staying in that range at the moment. Maybe, Mardi, do you want to talk about Q4? Mardi Dier: Yes, definitely. Hi, Prakhar, thanks for the question. So, listen, we've had a great 2025 so far in fourth quarter. We expect that to continue in terms of steadily adding patients, really sort of the driver for our business. We don't see any change there. We did have a very high base in our revenue coming into third quarter that was very much patient demand. We did have some favorability in gross to net, which we discussed in a high demand quarter from an inventory standpoint. So, we're in a very strong position. But going into fourth quarter, working off that base and taking into effect that there's fewer selling days in the fourth quarter in general, and that as we discussed, the gross to net begins to -- we'll see the commercial rebating starting to take effect in the fourth quarter. So, we'll be at the midpoint of that 20% to 30% range. All that put together, we think we'll see high single-digit growth quarter-over-quarter going into the fourth quarter, but still a very strong quarter. And of course, we're on over $1 billion run rate in revenue. So fantastic. William Sibold: And Prakhar, maybe just one comment there as well. I think more and more the measure turns to patients and patients being treated. And as you can see, we are doing really, really great in our steadily adding patients, and that's something that is going to, we've said, remain to be steadily adding in the future and feel really, really great. Again, where we are, it's less than 10% penetration. There's a ton of patients that are out there that still need to be treated, and that represents a great opportunity for us. Mardi Dier: Yes. And I just wanted to come back to 2026 that Prakhar asked about, too. So again, everything Bill just said for the steadily adding patients, we see that going into 2026 as well. So steadily adding patients, we anticipate and we said in the script, robust net sales growth in 2026. But if you think about -- just think about the phasing, right? So we're going to have the impact of the gross to net starting in January right at the beginning of the year. So you're going to see that step up from the contracting and we will be in the high 30s. And of course, we always have the Q1 effect on top of that, right? So, in terms of the phasing, you'll see some of that play through in 2026. But net-net, we see robust growth going into 2026. Operator: Our next question comes from the line of Srikripa Devarakonda of Truist Securities. Srikripa Devarakonda: Congratulations on the quarter. I was wondering if you can talk a little bit on the expected cadence for EU launch and how that -- when we think about 2026, that might add to the growth? I know it takes time for EU launches. And also the SG&A that was reported, does that include sales force in Europe? Or should we be thinking about slight increase in SG&A over the next several months to reflect sales force on the ground in Europe? William Sibold: Mardi, do you want to take that first? Mardi Dier: Yes, I'll definitely answer the SG&A question first, and we can talk about just EU launch in general. So, SG&A for building out Germany, right? So that where we're only launching there as of right now is included in our SG&A expenses. And you'll continue to see that included in SG&A. But as we said, when we move into country by country, we're going to be very disciplined, and we look at a 2 to 3-year positive contribution metric for each country. So, the spend will increase with Europe. But again, we're mindful with each country. And then just the EU launch, let's just talk about that. I'll start and Bill, I don't know if you want to add? But we did start launching in the third quarter, but really, we were just testing the channel. So just de minimis amount of revenue for 2025, we believe, and where we said we can start that -- we can start seeing some impact in 2026. So, I would say the robust sales growth that we're talking about 2026 is by far and predominantly the U.S. sales growth and adding patients, which we've discussed. And Europe, again, it's going to play out. It is slow. We have to build the system. We have to wire the system in countries in Europe. It will just be Germany next year. So it will be -- it will add, but not a significant amount. William Sibold: Yes. I think that's really, really great comment. It is Germany right now, and we're really excited. I mean, first of all, we've hired an outstanding team there. The team is great. The feedback that we're getting is that MASH is -- needs to be treated. It's prevalent, very similar to the U.S. in that sense, but it takes time, right? You got to wire the system. It's practice by practice, it's prescriber by prescriber. And we're taking all the steps in the usual next countries to look at as well. We've started putting teams in place that are evaluating the market and our launch strategy there. And again, just absolutely high-quality team that's in place. So, we feel really good about the long-term prospects, but we also know that there's a lot of wiring to do, and we've got to navigate the reimbursement process in each country, which takes some time, but we got a great team to do that. Operator: Our next question comes from the line of Kaveri Pohlman of Clear Street. Kaveri Pohlman: Congrats on the progress. Are there any systemic differences or challenges in insurance approval rates for Rezdiffra depending on whether the prescription comes from an endocrinologist versus a hepatologist or gastroenterologist. And maybe just like a connected question to that. Besides the clinical data that you showed on Slide 14, is there any real-world evidence that you have collected or showing that Rezdiffra can prevent or delay the progression of F4 cirrhosis perhaps based on the feedback from its current use by physicians? In other words, is there like any evidence leading to the preference of Rezdiffra or GLP-1s in F2/ F3 MASH patient? William Sibold: Yes. Thanks for the question. Maybe starting there. We're seeing more and more real-world evidence that's coming to life. Some of it will be presented at AASLD this week or this week into next week. And we expect as more patients start to hit the 1-year mark and beyond that there will be more. Anecdotally, we're hearing really, really great feedback. When you launch a product, you never know what's going to happen in the real world. You have your clinical data and you're not sure what real-world experience is going to be. So far, the anecdotal feedback has been extremely strong by prescribers, and they're seeing effects on, obviously, liver fat. They're seeing effects on fibrosis and all the other myriad of other things, LSTs, lipids, et cetera. So, we're really excited about the real-world evidence reading out. And we've done work with claims databases, et cetera. So more to come, but early indicators are extremely strong. So really excited about that. To your first question, it really is payer to payer about, this is this utilization management criteria, who can prescribe, et cetera. And for the most part, it is -- it refers to specialists. And in the specialists, that can be hepatologists and gastroenterologists. And then in some cases, it may or may not name endocrinologists. So, it's usually either a requirement to be prescribed by a specialist or in consultation with a specialist. But again, that's something which really varies on a plan-by-plan basis. We don't see that as a any kind of a hindrance now. And remember, our focus is the specialists. We believe Rezdiffra should be prescribed by these specialists. Now in time, that may change, but we think that this is a very serious disease. It is a very serious disease, and we want to have the specialists get experience with Rezdiffra in treating these patients before it would ever extend beyond that. And that's crystal clear we make that crystal clear with payers as well. That is our intent. Tina Ventura: Great. Thanks, Bill. And thank you all for your time and interest today. This now concludes our call. A replay of this webcast will be available on our website in approximately 2 hours. Thanks for joining us. Operator: Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.
Operator: Welcome to Nuveen Churchill Direct Lending Corp's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conference over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead. Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp's third Quarter 2025 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com. Now I would like to turn the call over to Ken. Kenneth Kencel: Thank you, Robert. Good morning, everyone, and thank you all for joining us today. Today, I will start by discussing our results for the third quarter. And then I'll discuss current market conditions, our origination activity, portfolio positioning and our forward outlook. Following my comments, I will hand the call over to Shai for a more detailed discussion of our financial performance. This morning, we reported net investment income of $0.43 per share during the third quarter compared to $0.46 per share in the second quarter. Gross originations totaled approximately $29 million in the quarter compared to $48 million in the second quarter of this year. Similar to the prior quarter, the decline quarter-over-quarter was intentional as we continue to operate towards the higher end of our target leverage range. As I will discuss later in my prepared remarks, the Churchill platform continued to see strong asset growth and new originations during the quarter. Our investment portfolio remains healthy, and our portfolio companies continue to perform well. Largely due to the strength of our Senior Loan Investments. Net asset value was $17.85 per share as of September 30 compared to $17.92 per share as of June 30. The modest decline quarter-over-quarter was primarily due to due to a slight decrease in the fair value of certain underperforming portfolio companies. Turning to the current market environment. M&A activity continued its positive momentum in the third quarter, building on the rebound in market sentiment that began towards the end of the second quarter. Investment activity has now returned to a more normalized level, following the pause in activity after a Liberation Day. Stabilizing market conditions and renewed sponsor confidence in the macro environment contributed to increased transaction execution. During the third quarter, the Federal Reserve began an interest rate cut cycle with a 25 basis point cut in September and another 25 basis point cut in October, with further rate cuts anticipated but not guaranteed. Against this backdrop, with a predominantly floating rate portfolio, NCDL and other private credit funds are interest rate sensitive. Partially offsetting this dynamic NCDL has the benefit of a floating rate debt capital structure as well as a lower interest burden for our portfolio companies. We believe the latter should drive growth dynamics as portfolio companies will have more capital and cash flow to reinvest into growth areas of their respective businesses. In addition, a lower interest rate environment typically encourages increased M&A activity due to lower financing costs for private equity-backed businesses. Despite the potential for further rate reductions, we continue to see an attractive risk-return profile for private credit and direct lending, especially on a relative basis compared to other fixed income asset classes. We also witnessed significant market volatility in private credit funds, particularly BDC stock prices over the past several weeks, following significant media attention given to two large bankruptcies. We want to make it clear that NCDL and any other Churchill vehicles do not have any exposure to either of these two investments, Tricolor and First Brands. We also do not see any evidence of broad-based challenges across our portfolio. At Churchill, we focus on sponsor-backed businesses with significant equity cushions. And we have long-standing experience focusing on less cyclical, more defensive end markets that demonstrate resilience across market cycles. As we continue to end the year strong and look towards 2026, we remain optimistic about the long-term prospects of the company given our positioning as a leader in the core middle market. Our long-standing performance track record, deep network of sponsor relationships and extensive LP commitments across the broader Churchill platform, and we remain intensively focused on continuing to invest in high-quality assets and deliver attractive risk-adjusted returns to our shareholders. Now turning to our investment activity. As I mentioned earlier, our pipeline for new deal flow started to increase and returned to a more normalized level in June of this year, following the temporary pause in April and May. During the third quarter, we continued to see an increase in transaction activity, particularly new deals for high-quality assets that are in resilient nontariff exposed sectors. At the Churchill platform level, the number of deals reviewed in the third quarter increased 22% from the second quarter of this year. And in the first 9 months of Churchill closed or committed $9.4 billion across 265 transactions, driven by a record-setting first quarter and a resurgence of activity in the third quarter. During the third quarter at NCDL, we continue to reduce allocation sizes to new deal flow, primarily due to the fact that we are operating at the high end of our target leverage range. With that said, we continue to benefit from attractive opportunities and activity at the Churchill platform level. Although the percentages of allocation to junior capital and equity were higher during the quarter, we remain focused on senior lending, which represents approximately 90% of the fair value of the overall portfolio. We also remain focused on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 million to $100 million of EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and broadly syndicated loan space. It is our view that risk-adjusted returns in this segment of the market remain among the most compelling in private credit, particularly for scaled, highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate great long-term value and enhanced portfolio diversification for our investors. In terms of our portfolio and credit quality, the continued strength of our portfolio reflects healthy overall performance from our borrowers as well as the quality of deal flow we've experienced over the last several years. In addition, our rigorous underwriting High level of selectivity and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macro landscape. As of September 30, our weighted average internal risk rating was 4.2, versus an original rating of 4.0 for all of our investments at the time of origination and our watch list remains at a very manageable level of approximately 7% of fair value. Credit fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of and interest coverage of 2.3x on traditional middle market first lien loans. These metrics are a direct result of conservative structuring, and relatively low attachment points that we target when underwriting new transactions. NCDL had two new nonaccruals during the third quarter, which were relatively smaller positions in the portfolio. Despite the slight increase in nonaccruals this quarter, we believe our percentages continue to compare extremely well versus BDC industry averages. As of September 30, nonaccruals represent just 0.4% of our total investment portfolio on a fair value basis and 0.9% on a cost basis. We believe the strength of our platform, including experienced workout and portfolio management teams will continue to drive favorable results. Portfolio diversification remains a key focus of ours within our overall investment portfolio. This has been achieved with a continued high level of selectivity, facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. As of September 30, we had 213 companies in our portfolio, and our top 10 portfolio companies represented less than 14% of the total fair value. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities. From a forward-looking perspective, we continue to have an optimistic outlook for private credit based on significant tailwinds to our business. We are encouraged by the steady growth in our pipeline and the quality of businesses seeking financial solutions. Following a period of uncertainty and volatility in the markets driven by Liberation Day in which investment activity and deal flow came to a pause, we've experienced a resurgence of M&A activity leading to the buildup in our traditional middle market pipeline. Additionally, we believe corporate management teams are now more focused on long-term strategic initiatives and investing in their businesses for sustained growth. This, coupled with an interest rate cut cycle will lead to increasing deal flow and financing opportunities in 2026 in our view. We believe we remain well positioned due to our scale, our differentiated sourcing as an LP in over 325 private equity funds. And our nearly 20-year track record of investing across interest rate and economic cycles. And now I'll turn the call over to Shai to discuss our financial results in more detail. Shaul Vichness: Thank you, Ken, and good afternoon, everyone. I will now review our third quarter financial results in more detail. During the third quarter, NCDL reported net investment income of $0.43 per share compared to $0.46 per share in the second quarter of 2025. The decline was largely due to lower interest income driven in part by the two nonaccruals we added in the quarter. . Total investment income declined slightly quarter-over-quarter to $51.1 million in the third quarter compared to $53.1 million in the second quarter of this year. This was largely driven by the modest decline in the size of our investment portfolio and a modest decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates. At September 30, our gross debt-to-equity ratio was 1.25x compared to 1.26x at June 30. Our net debt-to-equity ratio net of cash was 1.2x compared to 1.21x at June 30 of this year. In October, we paid a regular dividend of $0.45 per share, which equates to an annualized yield of approximately 10% on our quarter end net asset value per share. For the fourth quarter, we have declared a $0.45 per share quarterly dividend, which is consistent with prior quarters. Our total GAAP net income in the third quarter was $0.38 per share compared to $0.32 per share in the second quarter of this year. Our third quarter net income included $0.05 per share of net realized and unrealized losses primarily due to a decrease in the fair value of certain underperforming portfolio companies, partially offset by the realization of an equity investment in the gain. Our net asset value was $17.85 per share at the end of the third quarter compared to $17.92 per share at June 30. NCDL's investment portfolio had a fair value of $2 billion at September 30, consistent with the prior quarter. Gross originations totaled approximately $29 million and gross investment fundings totaled approximately $36 million compared to $48 million and $81 million of gross originations and gross investment fundings, respectively, in the second quarter of this year. During the third quarter, repayments totaled 3%, which is lower than our long-range assumption of 5% per quarter. We had full repayments on four deals totaling $42 million and partial repayments for another $18 million. On a net basis, we saw a reduction in our funded investment portfolio of approximately $25 million. This reduction was intentional as we redeployed capital received from repayments with a view towards maintaining leverage at the upper end of our target range. As we look forward, we expect to continue to redeploy capital received in connection with repayments into traditional middle market transactions across the capital structure. At the end of the third quarter, our total investment portfolio consisted of 213 names compared to 207 names at the end of the second quarter. We continue to remain highly focused on portfolio diversification with the top 10 portfolio companies comprising only 13.6% of the fair value of the portfolio. Our largest exposure is only 1.6% of the total portfolio and our average position size remains at 0.5%. Diversification continues to be a key focus of ours within the investment portfolio. In terms of deployment and asset selection, our new originations during the quarter were weighted towards senior loans with $22 million out of the $29 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity during the quarter. Our focus on the traditional middle market segment will benefit NCDL shareholders, we believe, as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper end of the middle and BSL markets. Spreads on new investments during the quarter were slightly down from the prior 2 quarters, with the average spread on first lien loans at 470 basis points compared to 480 basis points in the first 2 quarters of the year. Our weighted average yield on debt and income-producing investments at cost declined to 9.9% at the end of the quarter compared to 10.1% at the end of the second quarter. This decrease in yield was primarily due to overall tightening of spreads in newly originated investments as well as lower base interest rates. In terms of portfolio allocation, at the end of the third quarter, first lien loans represented approximately 90% of the total portfolio, while junior debt and equity comprised approximately 8% and 2%, respectively. Our allocation strategy remains unchanged as we continue to target 85% to 90% senior loans with the balance allocated to junior debt and equity. Turning to credit quality. We continue to be pleased with the health of our investment portfolio. Although we placed two smaller investments on nonaccrual status during the quarter, the overall performance of our portfolio companies continues to be strong. At the end of the third quarter, NCDL had three names on nonaccrual, representing just 0.4% on a fair value basis and 0.9% at cost. This compares to 0.2% on a fair value basis and 0.4% at cost at the end of the second quarter. Our weighted average internal risk rating was 4.2% at September 30, and out watch list consisting of names with an internal risk rating of 6 or worse, remains at a relatively low level of 7.3% at the end of the third quarter, in line with the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5x and interest coverage of 2.3x at the end of the third quarter. With respect to our capital structure, on the right-hand side of our balance sheet, our debt-to-equity ratio at September 30 is relatively unchanged quarter-over-quarter at 1.25x compared to 1.26x at June 30. And on a net basis, was 1.2x at September 30, net of our cash position at quarter end. As we spoke about on prior calls, our goal is to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity. Lastly, as discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. I'll now turn it back to Ken for closing remarks. Kenneth Kencel: Thank you, Shai. In closing, we are pleased with our financial results and the performance of our portfolio during the third quarter. As we enter the last 2 months of the year and look towards 2026, NCDL remains well positioned with respect to our experienced investment team, high-quality diversified portfolio and strong capital structure. And we continue to remain optimistic about the long-term future of the private credit markets and NCDL's long-term success based on the successful track record of the Churchill platform and operating across various market conditions and cycles. Additionally, with NCDL's shares trading at a material discount to our net asset value, and around a 12% annualized yield. We continue to view the shares as an attractive investment opportunity. Thank you all for joining us today and your interest in NCDL. I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Brian McKenna with Citizens JMP. Brian Mckenna: Okay. Great. So just on the few nonaccruals in the portfolio today, I'm curious, when were these investments made? And I guess, looking back to the time of underwriting, what's changed relative to those initial expectations? And why did those assets ultimately underperform. Shaul Vichness: Brian, it's Shai. So just a couple of things on the two new nonaccruals. So I think as we've spoken about in the past, just in terms of the names that are on the nonaccrual list and sort of trying to draw through lines in terms of themes, I would say, fairly difficult to do that just given the idiosyncratic nature of some of these and as they pop up. And in terms of these two names that were placed on nonaccrual, you heard Ken speak about them on the call, just in terms of the size of the position is relatively small speaking to the sort of diversification points across the portfolio. Both of these positions were junior capital names that were placed on the nonaccrual list this quarter. One of them is in the automotive sort of market accessory segment. And the other one is in essentially the freight sector. So it's a training business and recruiting business for truck drivers. So again, no real theme to draw in terms of the two new nonaccruals. In terms of when the investments were made again, they have been in the portfolio for a couple of years now. So the decline and just sort of the trend, I would say, on the one hand, the overall freight reception and just sort of what we're seeing and we've had another nonaccrual and restructuring in the portfolio in the same industry. I would say that's sort of the theme there. And then the other one, it's really just a function of softness on the top line in terms of the performance there. And both of these investments were made actually in 2021. So they've been around for quite a bit. and the decline got to a point now where we felt it was appropriate to place them on nonaccrual status. Brian Mckenna: Okay. That's helpful. And then just on the workout process more broadly, how long does it typically take to restructure a loan in the portfolio and then ultimately get to a resolution. And then can you just remind us what the historical recovery rates for your business look like? Shaul Vichness: Yes. I can come on both. So just in terms of the timing, it's obviously going to vary depending on the severity of the situation and sort of the engagement with the private equity sponsor and the ultimate prospects for recovery of the underlying business. So it's a tough one answer in terms of how long does it take. But clearly, it can be a few month process. It can take as long as a year to sort of work through the restructuring and then the timing to recovery is clearly going to be market and company-specific in terms of how well that takes. So it's sort of a tough one to vector in on a specific time line. And then in terms of the recovery rates in the portfolio, again, they tend to vary depending on the situation and depending on our spot in the capital structure. So for senior loans. We have a number of instances where recoveries have been in excess of par. We have others where they've been in the 70s and 80s and others that have been lower for junior capital, I would say it tends to be a bit more binary right, the situation works out or it doesn't and we tend to be sort of in that fulcrum security where we're then riding the equity upside in the future. So again, it's going to be variable. But obviously, recoveries, you'd expect them to be higher on senior loans than on junior capital. Brian Mckenna: Got it. Great. And then just maybe one more for Ken here on the stock. So trading at 80% of NAV, leverage is at the upper end of the target. You already repurchased $100 million of stock. But what else can you do? And I guess, what is the leadership team focused on in order to improve the valuation. And then I think the market is telling us that maybe you should think about cutting the dividend or reevaluating that. So I guess, why not reset the dividend a little bit especially given the two rate cuts we just got one at the end of September, 1 in October, and that would just put you in a position to comfortably cover the dividend, you'd likely create some incremental book value then maybe you have a little bit more capacity to buy back the stock at what I'm sure you think are really attractive levels. Kenneth Kencel: Yes. No, look, from a business and an investment standpoint, the most important thing for us is to stay focused on continuing to originate and invest in high-quality assets. We've done that consistently over a 20-year period certainly more recently now with NCDL. We actually feel very, very good about the overall quality in our portfolio and the level of new dealer and investment activity. I will say from a from a pricing perspective, while we obviously saw spreads tighten, maybe not as dramatically as the BSL market over the last 12 to 18 months. things have. In terms of spread tightening, we've seen that slow down quite a bit. Spreads seem to have settled in at that kind of SOFR 450, 500 range, which has been good to see. But deal activity overall, the quality of the opportunities we're seeing to invest in, the level of M&A activity, all the fundamentals that we can control, we feel very good about those fundamentals right now. Deal activity quality of opportunities we're seeing, ability to stay highly selective, underlying pricing dynamics. So while obviously, base rates have come down and certainly albeit more slowly than expected, we would continue to see base rates we would expect to continue to see base rates come down. From a quality perspective, from a sourcing standpoint, all the fundamental dynamics we feel very good about, including the underlying portfolio quality. In terms of leverage, we have, Shai, I don't know if you want to speak I'm happy to speak to it. And I think we alluded to this on the last call and obviously, this earnings cycle and last, it's been a topic of conversation in terms of sort of where our earnings going across the industry. And as we commented last quarter, and I think we reinforced that this quarter, we felt good about our ability to continue to earn, again, within $0.01 or $0.02. Obviously, we under-earned by $0.02 this quarter our dividend of $0.45. But again, within a range, and there were some reasons for that, including the two nonaccrual names that I alluded to in terms of reducing our earnings for this particular period. But again, looking forward in the current base rate and spread environment, we continue to feel good about our ability to essentially earn plus or minus the $0.45, and that's something that we will continue to evaluate as we go forward. As I commented last quarter, we did talk about the fact that we do have spillover income from prior periods that provide one lever that we can pull in terms of continuing to maintain that dividend for the near term. But again, your points around what do we do going forward? Do we consider additional share buybacks, et cetera, are things that we absolutely talk about. I think when we think about that program, obviously, we did put in place the roughly $100 million program at the time of our IPO. We've since exhausted that. And really, our focus going forward is on growing the BDC, not continuing to reduce the amount of equity outstanding and reduce the share count. So again, these are all the things that we're thinking about, and we'll continue to eat them going forward. But as Ken said, we feel very good about the quality in the BDC, its ability to continue to generate earnings going forward, and that's really our focus. Yes. And certainly, I'd be remiss if I didn't say we're certainly looking at the share price relative to NAV, we certainly feel that the shares are undervalued. We think there's a tremendous amount of value creation that continues to go on within the portfolio, the quality, the fundamentals, et cetera, we don't think are reflected in the share price. Operator: Our next question is from Finian O'Shea with Wells Fargo Securities. Finian O'Shea: Hey, everyone, good morning. question on the portfolio outlook. I think early in the remarks, you mentioned lighter allocation based on the being fully levered, seeing if that also implies a subdued repayment outlook? Shaul Vichness: Yes. Fin, it's Shai. Yes, so when we think about the repayments, I mean, what we saw in this most recent quarter, they were running at 3% relative to our long-range assumption of 5%. So again, I think that's really a function of essentially mix and really timing because as Ken alluded to, and we're seeing it every day just in terms of the level of deal activity across the platform, M&A has certainly picked up and sponsors are feeling good about transacting in the current environment. So our expectation is that, that repayment rate would continue close to our long-range assumption but the fact that it was at 3% this quarter, it was closer to 5% the prior quarter. So again, just the fact that we are in an environment where deal activity is picking up. We're not changing our view on repayments going forward. What we will do though is, again, be sort of dynamic about how we're investing out of the BDC. So to the extent that we get incremental repayments and we get those proceeds in, we'll look to redeploy them as quickly as possible into attractive investment opportunities, and that's what we've done and what we do. And that's one of the benefits, obviously, of being part of the broader platform. We have access to that deal flow. And as we have capital available, we're going to deploy it into attractive transactions. Kenneth Kencel: Yes. And I would just say, look, from our perspective, keeping the portfolio fully deployed is not a challenge at all for us right now relative to the deal flow platform-wide, we've obviously trying to maintain investment activity in every deal, so that we've got a position in every deal as we're making investments so that we can do the follow-on and make ourselves avail ourselves to the add-ons and other opportunities in those companies. So we want to be in them at the time of sourcing. But on an overall basis, I don't see any challenge whatsoever maintaining full investment at NCDL. And to the extent we have repayments increase for various reasons, there's been no challenge for us in terms of keeping it fully invested. Finian O'Shea: That's helpful. And just a follow-on -- piggybacking the dialogue with Brian on the stock price. Curious as to what you're hearing on -- just hit on, you have a pretty big and successful nontraded BDC. So you're very present in that market. How much of a thing is it I know it's very recent, of course, but with a lot of public BDCs trading where they are, do you feel a lot of retail shareholders in the wealth channel. Is it either a discussion? Or is it perhaps should I buy the public on or any color you could give us on that? . Kenneth Kencel: Yes. We've certainly gotten that question a number of times because they're obviously looking at the tremendous discount in the public. So it's a good question, Fin. While it's come up, it hasn't been a major theme. But certainly, at an individual level, you look at the fact that the private BDC obviously issue shares at NAV and the public BDC is trading at a significant discount. I think it just highlights the value proposition and the return dynamics and the opportunity in the public BDC, the fact that you can buy the public BDC, the publicly traded BDC at a 15% or 20% discount to NAV, I think just highlights what a great opportunity it is right now. And -- but we've gotten that question a handful of times. It hasn't been a huge amount of focus, but we've definitely been asked the question. And we try to be very straightforward on it, and that is that it is tremendous value at the current trading level. No question about it. Operator: Our next question is from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. I know you spoke about the repayments. And long term, I guess you don't expect there to be much of a difference from your long-term assumptions. But over the next quarter or 2, would you expect perhaps more elevated repayments and is perhaps the current government shutdown delaying some of the repayments that you might have been seeing in the last quarter or this coming quarter? Kenneth Kencel: No, in fact, I would say there's an interesting dynamic. If if we were, which were not heavily invested in kind of broadly syndicated loans, that market is primarily a refinancing market. So as rates come down, you might see more pressure in either BDCs or funds that are really oriented toward that market. In our world, since we are much more heavily oriented towards traditional middle market, the primary driver of activity is new deals, right? So we get a refi when a company in our portfolio is refinanced because it's sold as opposed to going out and proactively refinancing itself. . So I would say in that regard, a solid level of new deal activity, we've already been seeing that consistently over the course of the year. So I would not expect to see any material change in kind of the trends we've been seeing around our repayments, again, primarily driven by new deal activity as opposed to suddenly seeing an acceleration as a result of being driven by reductions in underlying base rates. That's really not as big a factor for us. maybe as some other funds that are more focused on the BSL world. Cory Johnson: Got it. And then just the last question. Are you seeing like any additional competition from perhaps tools coming down in market and playing a bit more in the core middle market or just any changes in the competition landscape recently? Kenneth Kencel: We really haven't. It's interesting. I get that question a lot. Institutional investors ask that we get this from new folks as well. The reality is that we're not seeing the private credit firms that are focusing historically more on BSL or those large $1 billion-plus transactions come down market nor are we seeing the new entrants really being able to step up and underwrite $400 million, $500 million, $600 million, $700 million, $800 million transactions, which we obviously can do. So I think in that sense, we're relatively insulated from pressure from the top or even pressure from the bottom, right? The new entrants are primarily playing in that lower middle market where they can deliver a $50 million, $75 million solution. And at the larger end, those folks to continue to focus on larger buyouts, refinancing activity and playing as an alternative to an underwritten and syndicated BSL transaction. So we're operating, we think in a relatively insulated part of the market where, frankly, relationships are driving that deal flow. And partnering with a lender like us or one of our peers is a very important decision for driving the underlying growth in the space. So market timers or firms that are coming down for a period of time and then maybe bouncing back up into their core market, not as appealing to the private equity firms that are looking for long-term partners to finance those businesses be available to finance add-ons and really act as a financing partner for a more extended period of time. And I think that's where we really benefit. We've been in the core middle market now for 20 years. If you look at our top sponsor relationships, we've done dozens and dozens of deals with those firms. And as a result, they come back. They come back based on the relationship about based upon the history and it's much less likely that they're going to tap a firm that's really more of a large cap player, recognizing that those firms tend to come and go in the core middle market. Operator: Our next question is from Arren Cyganovich with Truist Securities. Arren Cyganovich: Just touching on the health of the portfolio overall. Your nonaccruals ticked up, it's pretty modest. I think your costs are still below 1%. So it's obviously not a big challenge. Maybe you could just talk a little bit about the portfolio companies and how they're performing from maybe a revenue and EBITDA growth standpoint and how those trends are moving throughout the year. Kenneth Kencel: The story there has actually been very solid. Now remember, our overall criteria when we underwrite and invest is we are looking for market leaders we are looking for businesses that are in noncyclical industries. So we're typically not looking at restaurants and retail and oil and gas and chemicals and anything that has an underlying cyclical dynamic to it. We're also not investing in businesses that fundamentally don't have those underlying solid growth characteristics. So given that, given the world that we play in business services, health care services, software we've continued to see solid single-digit growth in both revenues and cash flow for our portfolio. That's probably down a bit from where it was a couple of years ago. We were seeing numbers in the kind of 20% range. But still very respectable and very consistent. So we feel good about the underlying growth in the portfolio. And again, I think it's reflective of not just organic growth and the fundamentals of the businesses we finance, but also the fact that when we do a deal, the vast majority of those transactions the private equity firm that's acquiring the business has already come to the table with a plan to grow it either through geographic expansion, product expansion, smaller strategic M&A the large percentage of our portfolio, those are the types of businesses we're financing. And that's also reflected in the fact that in many cases, we're doing a delayed draw term loan to actually put in place a facility to finance that growth. So I think the nature of the space we play in and the types of companies that we finance is going to give you an ongoing kind of built-in growth rate in that kind of call it, 5% to 10% range. And then where you're getting even stronger growth economically overall you see numbers that are closer to 20%. But certainly, we feel very good right now that kind of core growth rate in that 5% to 10% range. Arren Cyganovich: Yes, I appreciate that. And I wouldn't expect that you'd have hotline growth rates? Just want to make sure that they're not deteriorating any notably. It sounds like everything is good there. Kenneth Kencel: No, I was just going to say maybe going I was just going to say that I think as I mentioned earlier, a lot of it gets to the types of businesses we are financing. We're typically not great fans of financing kind of static companies, if you will, where the credit metrics might look okay, but the fundamentals are it's not really a great business. It's okay. The numbers are all right. The coverage numbers look okay, but you're not seeing any real fundamental growth. That's not typically the types of businesses that we would be all that excited about financing. So yes, all the credit metrics have to be there, but we want to be financing businesses that have solid underlying growth fundamentals. And I think that's reflected in our portfolio. Arren Cyganovich: Yes. And maybe touching on the origination side. You mentioned deal pipelines pretty strong heading into the quarter. what's the mix of that? And maybe you could talk a little bit about the quality of what you're seeing come to you from the various sponsors. Kenneth Kencel: So I think that -- well, it's interesting. If you look at our deal activity, for example, July, August, even through September, we were actually setting records across the platform for deal activity, right? I don't think anyone would expect August to be a record month. Typically, that's a slower period of time, end of summer. But we were extraordinarily active. In our case, we would see -- there were weeks where we were seeing 3, 4, 5, 6 investment committee memos a week right? So we were actually scheduling additional meetings of the IC in order to keep up with the level of activity. So I think that's been surprising. We certainly expected that deal activity would begin to come back as you saw rates stabilize and begin to come down, and we certainly did see that. Liberation Day was a bit of a pause in those dynamics. But starting really in June and July and going on through the summer and early fall, the quality has been quite good. overall spreads have stabilized in that kind of 450 to 500 range. underlying fundamentals quite good given the pressure on private equity to drive some realizations, we've seen a fair amount of GP-led transactions. And we have our own views as to what GP-led transactions we like and don't like. I think we like to see if there is a GP-led deal, we like to see the private equity firm roll there, carry in continue to be significantly supportive of the credit and the transaction. So we do look at those. But overall, the deal environment right now is quite good. We feel quite good about the quality. We feel quite good about the relative value. We're still getting in that 9% range for new transactions. So risk-adjusted returns, we think, very attractive relative to where they've been historically, and we still feel very good about the deal environment I didn't -- we haven't talked about it on your questions, but I mentioned it in the part of my prepared remarks, the reality is if you look at those situations like Tricolor, First Brands or even the more recent announcement on the, HPS transaction, the reality is that we see those as very idiosyncratic. Certainly in a number of those cases, there's elements of fraud. I'd also say -- and I was talking to an investor about this earlier in the week. If you look at the nature of those deals, they were essentially bulk purchases of assets in a portfolio. So that's a very different business than asset base but also just buying blocks of receivables or financing large blocks of receivables very, very different business than ours where we are financing one deal at a time, right, doing our diligence, doing our homework, fundamentally assessing the business the underlying structure, the underlying fundamentals. So we're going to stay focused on traditional core middle market directly originated transactions in that $50 million to $100 million EBITDA range where we think the risk-adjusted returns are attractive. Structures have maintained a reasonable underlying dynamic, and that's where we're going to be. So we're not going to venture into some of these other more so areas of lending that have created some of the problems. And moreover, there's certainly no evidence in our portfolio today that those very isolated situations really have anything to do with the types of lending that we're doing today. Operator: With no further questions at this time, I would like to turn the call back over to Ken for closing comments. Kenneth Kencel: Great. Well, thank you all again for joining us. I appreciate your interest in the business. Obviously, we're very proud of our performance this quarter. We continue to stay focused on delivering excellent risk-adjusted returns for our investors. And that concludes the call, and appreciate you joining us today. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Thank you for joining the Greenlight Capital Re Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It's now my pleasure to turn the call over to David Sigmon, Greenlight Re's General Counsel. You may begin. David Sigmon: Thank you, Kevin, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company's website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson; Chairman of the Board, David Einhorn; and Chief Financial Officer, Faramarz Romer. On behalf of the company, I'd like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company's current expectations, estimates and predictions regarding future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company's filings with the SEC, including the company's Form 10-K for the year ended December 31, 2024. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. Q3 2025 was a mixed quarter with an exceptional underwriting result, offset by investment losses. Overall, we reported a net loss of $4.4 million in Q3 2025, which brings our year-to-date net income to $25.6 million. Fully diluted book value per share decreased 0.4% in the quarter to $18.90 and increased 5.3% for the first 9 months of the year. We reported our best quarterly combined ratio of 86.6%, translating to a record $22.3 million of underwriting income. This result was driven by a combination of the strong underlying profitability of the book assisted by a benign cat quarter. We would be remiss not to comment on Hurricane Melissa. There are strong historical ties between the Cayman Islands and Jamaica, and our hearts are with all those who have been affected by this incredibly powerful storm. As a reinsurance professional that has closely monitored hurricanes for nearly 30 years, I was impressed by and grateful for the forecasters and their models in predicting both the erratic track and extreme intensity of Melissa. While property is fixed in place, people can get out of the way of the path of the storm with this information. The forecasters certainly saved many lives as a result. From a financial perspective, Melissa is a fourth quarter event. It is early days, but we do not expect a significant loss to Greenlight Re given positioning in the cat space and the fact that it missed the Southeastern United States. We have been confident that our underwriting portfolio is positioned to deliver a strong underwriting return. So it is encouraging to see that reflected in our results in Q3. Our open market book delivered an 84.5% combined ratio, while our innovations book delivered a 96.7% combined ratio. Both segments showed meaningful premium growth. Growth in open market was driven by our funds at Lloyd's book, modest property and financial lines growth, offset by declines in casualty based on underwriting actions discussed last quarter. For our Innovation segment, a good portion of our accounts incept in the second half of the year, and we can see evidence of previously anticipated organic top line growth beginning to emerge. Unfortunately, our investment performance for the quarter was a loss of $17.4 million. There are 2 main components of this. Our investment in the Solasglas portfolio was down 3.2% in the quarter. David will provide more color on this in his remarks. In addition, we suffered a net unrealized loss of $11.3 million on our innovations investment portfolio. The net unrealized loss on our innovations portfolio was primarily driven by a $16.4 million write-down of our highest valued investment. Our innovation investments are generally illiquid, and we revalue them as soon as we believe the valuation may be impaired or when a new funding round closes. This particular situation is idiosyncratic in that the lead investor was able to secure a new round of equity financing at a substantial discount due to a debt refinancing that fell through at the last minute. We still believe the company's prospects are bright and the financing removes an overhang from the investment. While this write-down in Q3 is disappointing, I would highlight that we hold our innovations investments for the long term, and we are focused on realized gains and the associated underwriting and fee income opportunities generated from these investments rather than mark-to-market gains and losses. Further, this position was outsized from a carried value perspective due to prior upward adjustments based on previous financing rounds. Currently, we have no single investment valued at more than $10 million and only 3 investments valued at over $5 million. So the risk of a similar write-down on a single investment going forward is mitigated absent an industry-wide event. We are now focused on 1:1 renewals. While the market is clearly softening, we believe rates and terms will remain attractive for our open market reinsurance business. Consequently, we expect to renew most of our non-casualty business and perhaps grow somewhat. As noted previously, our innovations book is less susceptible to the supply-demand pressures of the reinsurance market. We anticipate continued strong organic growth from our existing innovations clients and attractive new business opportunities. Now I'd like to turn the call over to David. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned negative 3.2% in the third quarter. The long portfolio and macro contributed 1.7% and 3.3%, respectively, and the short portfolio detracted 8.1%. During the quarter, the S&P 500 Index advanced 8.1%. The largest positive contributors were long investments in Gold, Green Brick Partners and Core Natural Resources. The largest detractors included a short position in a profitless financial services company, a short basket of homebuilder stocks and our long position in Kyndryl Holdings. Gold is the largest positive contributor as its price rose 17% over the quarter. Green Brick Partners shares also advanced 17% during the quarter as the market's expectation for lower rates lifted homebuilder stocks. While the company continues to execute well on its regionally focused strategy, we remain cautious on the broader housing market and have maintained a nearly fully hedged position by shorting a basket of national homebuilders. This hedge basket offset most of Green Brick's positive contribution during the quarter. Core Natural Resources shares advanced 20% during the quarter, recouping some of its decline from the first half of the year. The company announced significantly improved quarterly results, including an increase in free cash flow. Core used the majority of this cash flow to repurchase shares under the $1 billion share buyback program it announced earlier in the year after successfully completing its merger with Arch Resources. In addition to the homebuilder hedge basket, the largest detractors for the quarter included a short position in a profitless financial services company that transitioned from a near-term bankruptcy candidate to immune stock and our long position in Kyndryl Holdings. Kyndryl shares declined 28% during the quarter, giving back some gains after the company posted a less exciting quarterly update than its previously recent couple of quarterly results. Earlier in the year, we established a new large position in a stub created by being Long Fluor Corporation and short NuScale Power. More recently, we established a new medium-sized position in Pacific Gas and Electric. Fluor is a global engineering and construction company. In the spring, Fluor experienced a slowdown in capital spending from its customers due to tariff uncertainty, which we expect to reverse and for the business to return to growth in 2026. Away from its core business, Fluor holds approximately a 40% stake in NuScale Power, a small modular nuclear reactor company. Fluor's stake is worth nearly $5 billion pretax, which represents over 60% of its market cap. Fluor has announced plans to divest its holding and use a significant portion of the proceeds towards share buybacks. Pacific Gas & Electric is a California-based regulated utility that transmits and distributes electricity and natural gas. While the company was not exposed to January's catastrophic L.A. wildfires, its earnings multiple collapsed to below 10x on concerns that the California Wildfire Fund, an important defense against wildfire-related damage claims that its shares with Edison International will be depleted. We invested with a view that the legislature is likely to put in place funding support and make further wildfire risk reform a priority. We have since seen progress in these initiatives and expect PG&E to re-rate closer to the nearly 18x average peer multiple. In our view that outside of the boom surrounding a handful of AI and AI adjacent companies, most of the rest of the economy is floundering. In the midst of this excitement, we are simply not comfortable underwriting a long investments within the AI ecosystem and have decided for the most part, not to participate. Unfortunately, it has been difficult to make money on the long investments outside of this small cohort of stocks. Our net exposure ended the quarter at about 25%, up from about 2% at the end of the second quarter. Solasglas returned 1.6% in October, bringing the year-to-date return to 1.2%. Net exposure in the investment portfolio was approximately 20% at the end of October. Now I'd like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David. Good morning, everyone. During the third quarter of 2025, Greenlight Re reported a net loss of $4.4 million or negative $0.13 per diluted share compared to a net income of $35.2 million or $1.01 per diluted share during the third quarter of 2024. The total underwriting income was $22.3 million, resulting in a combined ratio of 86.6%, which was 9.3 points better than the same period last year. This included 8 points of improvement due to lack of cat losses in the quarter and 6 points of improvement related to underlying current year attritional loss ratio. We had 50 basis points of reserve development during the quarter compared to 3.7 points of reserve releases in the third quarter of last year. Our net investment loss was $17.4 million compared to $30.3 million of investment income in the third quarter of 2024. As Greg mentioned, most of the investment losses related to Solasglas and innovations. However, these losses were partially offset by other investment and interest income of $8.9 million. I will now break down the third quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $27.9 million, composed of underwriting income of $22.2 million and investment income of $5.6 million. For the quarter, the Open Market segment grew net written premiums by 9.5% to $140.4 million, while net earned premiums grew by 14.1%. The increase was driven primarily from growth in the funds at Lloyd's business and the Financial, Property and Specialty lines from a combination of new programs and growth in underlying premium volume on renewing programs. These were offset by the casualty premiums decreasing during the quarter as a result of our decision earlier this year to nonrenew most of the open market casualty book. The open market combined ratio for the third quarter improved by 10 points to 84.5% compared to 94.5% for the same period in 2024. The lower loss ratio and a lower acquisition ratio contributed to the improved combined ratio. The current year loss ratio improved by 11.8 points, driven by 8.3 point improvement in attritional losses and 3.5 point improvement in event losses. The segment reported a small prior year adverse loss development of $0.9 million or 60 basis points compared to favorable reserve releases of $5.3 million or 4.2 loss ratio points in the same quarter last. The acquisition cost ratio and the expense ratio improved 2.5% and 0.3%, respectively, on the back of higher earned premiums. Overall, the Open Market segment had a strong performance for the quarter. Now let's turn to the Innovation segment. The Innovation segment grew net written premiums by 57.5% to $22.3 million during the quarter. The increase was mainly driven by Syndicate 3456 and Financial lines, partially offset by the increase in ceded premiums under the Innovations whole account retro program compared to the third quarter of last year. Net earned premiums decreased by $0.8 million, mainly driven by the increase in retro ceded premiums compared to the same quarter last year. The combined ratio for Innovation segment was 96.7% during the third quarter compared to 93.6% in Q3 last year. The composite ratio improved by 1 point to 87.1%. Favorable prior year reserve development contributed 3.1 points to the combined ratio compared to unfavorable development of 0.4 points in the third quarter of 2024. Compared to the same quarter last year, the expense ratio for the Innovation segment was 9.6% compared to 5.5% due to a combination of growth in personnel and an increase in nonpayroll-related costs for this segment. We are investing in this business in preparation for higher future premiums, leading to the higher expense ratio. We expect this to normalize as we scale this segment. While the Innovation segment is an underwriting income of $0.7 million, the investment impairment that Greg mentioned led to an overall net loss of $11.3 million for the segment. Now I would like to make a couple of quick points on capital and debt management. During the first 9 months of 2025, we have repurchased 512,000 shares for $7 million, which has been accretive to our book value per share. At the end of the third quarter of 2025, our fully diluted book value per share was $18.90, an increase of 5.3% year-to-date. During the quarter, we refinanced our term loan, replacing it with a 5-year $50 million revolving line of credit. As of the end of the third quarter, we reduced our debt leverage ratio down to 5.3% from 9.5% at the beginning of the year. Subsequently, in October, we repaid an additional $15 million and currently have $20 million of debt outstanding. We have also entered into a letter of credit facility with Citibank exclusively for our funds at Lloyd's business. In October, we issued an LLC for GBP 45 million to Lloyd's, and Lloyd's simultaneously released $60.7 million of cash, which we had previously provided for funds at Lloyd's. The new revolving line of credit and the new funds at Lloyd's letter of credit facility provides us added flexibility to optimize our cash management while further strengthening our balance sheet and improving our return on equity. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: [Operator Instructions] our first question is coming from Ben Olesh from WA Capital. Unknown Analyst: This is a question to David. Could you please provide an update on the macro part of the Solasglas fund? What is your view and your position regarding to U.S. dollar, gold and short-term interest? David Einhorn: Sure. Thanks for the question. We've maintained a core position in gold that now goes back pretty much to the near the inception of the company, certainly since the IPO of the company. The gold is structured in 2 different components. One is physical gold, which we consider to just sort of be the core position that we occasionally trade around. Additionally, we buy binary digital options that are call options on rapid appreciation in gold. And those actually proved to be successful in the third quarter and also in our October results. We -- from an interest rate perspective, our position is that we are long SOFR futures out into 2026, which is essentially a view that the Fed will reduce interest rates more than the market currently expects. And finally, we maintain inflation swaps, which are a view that reported inflation over the next 2, 5 and 10 years will be larger than the amount that the market has priced in. Operator: Our next question today is coming from Daniel De Jong, a private investor. Daniel De Jong: This is more of a long-term question for David. I believe a few years ago, you evaluated the future of the company and one of the options considered given the discount to book value was closing the company. With all the work put to the company since and 7 years in a row of positive investment performance, at least year-to-date, do you see a long-term future for the company? Also, investors like Howard Marks and Warren Buffett work well past regular retirement age, could you see yourself doing that? David Einhorn: Yes. Look, I think that the company -- and we expressed this at last year's investor presentation. I actually think that the company has made enough structural improvement that we should be earning a return on equity that is greater than our cost of equity. And I believe that the shares should actually justifiably trade at or above book value as a result. It's been frustrating to us and everybody around that the shares continue to trade at a discount. But I don't believe that the solution is to liquidate the company. Were we to liquidate the company, there also would be substantial expenses that I could not quantify for you because we haven't done the exercise, but it would be unlikely that we would recognize like the full book value in the liquidation were we to go through with that. Regarding my longevity, I'm presently 56 years old, and I expect to be doing this for a substantial additional amount of time. Operator: We reached the end of our question-and-answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and thank you for standing by. Welcome to the Ferrari Q3 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicoletta Russo, Head of Investor Relations. Please go ahead. Nicoletta Russo: Thank you, Rezia, and welcome to everyone who's joining us. Today, we plan to cover the group third quarter 2025 operating results, and the duration of the call is expected to be around 45 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be covered by this language. With that said, I'd like to turn the call over to Benedetto. Benedetto Vigna: Gracias Nicoletta. Thank you, everyone, for joining us today. The past few months have been reach of important milestones for our company, among which the launch of the Ferrari Amalfi, the 849 Testarossa family, the first step of the reveal of the Ferrari Elettrica and the Capital Markets Day. Let's start from the Capital Market Day. On October 9, in Maranello, we gathered together and we shared our ambitions and plans for the future with investors, journalists and the entire world. In this current uncertain world, we shared an ambitious financial floor for the end of this decade, EUR 9 billion of revenues, 40% EBITDA margin and 30% EBIT margin. What did we say? What did we say at Capital Market Day exactly? Two things. We highlighted that Ferrari is a unique company, which combines 3 dimensions: heritage, technology and racing. It has a dual identity, both inclusive and exclusive capable to engage with tifosi, royalty and brand values across generations and geographies. We have set ambitions for each soul with unwavering goal to keep our brands strong for the longer term, well beyond 2030. In racing, we aim to win, we want to continue to be successful in Endurance and come back to victory Formula 1. We owe this to our P4 to fuel the passion and inclusive side of our brand. In sports cars, we continue to focus on managing and crafting the exclusivity of our product through an horizontal product diversification strategy, which ensures custody for each single model. We confirm our innovation pace. We will continue to offer our clients an average of 4 new models per year between '26 and 2030 across the 3 different powertrains: ICE, hybrid and electric to address different clients and different clients' needs. In 2022, we told you that the 2030 breakdown of powertrain offering would have been 20% ICE, 40% hybrid and 40% electric. Our plans were based on the environment in 2022 and our expectation about its evolution. Today, in 2025, we have deliberately recalibrated our powertrain offer to be 40% ICE, 40% hybrid and 20% electric. Why did we decide this? Two are the main reasons. One, market dynamics. We have always believed in electrification as an addition, not as a transition. Overall market adoption of electric technology has been more gradual than anticipated in 2022. At the same time, demand for thermal and hybrid models has been more sustained. Two, client centricity. We put our clients always at the center of what we do. We are very flexible and agile to adapt our product plans to the evolving environment, developing and offering models that best address our client needs and meet their preferences. Regardless of the powertrain, we will keep on harnessing each technology in a unique and distinctive way, enhancing the driving emotions and staying true to our belief that we have to be innovative, adapting to the changing times. That is what our founder did since 1947, when he dared to develop our first, first cylinder engine, although nobody believed in it. It's our responsibility. It's our responsibility to keep alive this will to progress. This technology neutrality approach is something we have chosen. We have planned for and invested in also from an infrastructure point of view. The e-building, our new facility in Maranello capable to manufacture the 3 powertrains is the perfect examples of this flexible approach. Our research and development efforts will not only focus on powertrain performance, but also on vehicle dynamics, experience on board and the new materials, all of which make our product unique. Moving to clients. We will continue to grow our Ferrari families, which today counts 90,000 active clients and to foster their sense of belonging in community through an ecosystem of unique experiences from track to road to brand. Lastly, lifestyle. This is the soul that is instrumental to enrich the client experience and to widen our audience beyond our tifosi and Ferrari. I personally believe the team did a great job in bringing brand consistency. We then cultivated everything I just said with the help of Antonio, and let me underline and -- let me highlight a couple of elements. One, we continue to grow our business to new heights in an organic and consistent way. We look at the 2030 target as a floor of our ambitions, always acting in the long-term interest of our brand, safeguarding exclusivity above all. The macroeconomic environment remains uncertain and extremely volatile. However, the visibility and solidity of our business model allowed us to commit to an ambitious plan of 6 years of growth, which we will execute with focus and discipline as we did for the previous one. We will continue to deliver on our promises. And then we concluded the Capital Market Day with our renewed decarbonization commitment. We have already achieved approximately 30% reduction in our Scope 1 and Scope 2 emissions and approximately 10% reduction per car in Scope 3 emission in 2024 versus 2021. We will capitalize on this achievement with a clear target to reduce our Scope 1 and Scope 2 emission by 10x in 2030 versus '21 and to decrease by 25% the absolute Scope 3 emission in 2030 versus the past year 2024. Moreover, the day before the Capital Markets Day, we unveiled the technology of our Ferrari Elettrica. This represents the first step of the wheel, which will be followed by the look and feel of the interior design concept in Q1 '26 and the complete car in Q2 2026. As a leaders, Ferrari as a leader takes its innovation responsibility very seriously. The Ferrari Elettrica is a new opportunity to reaffirm our will to progress as it has happened many times in the past with the introduction of innovative concepts such as with turbo engines, hybrid powertrain and most recently with the Purosangue, there is great anticipation to experience the driving emotion of the Elettrica. After the Capital Market Day, I met several clients in U.S.A., in Korea, in China and in Italy. And all of them appreciated the way we present the model. This is what they told me. The electric cars are generally heavy as elephants and not fun to drive. You did well to invest in active electronic system to transform the elephant in a horse and to engage the drivers with pedro shift like in all Ferrari. We are looking forward to driving it. We can continue to be innovative if we keep the pace of change and having the 3 powertrains in our portfolio is a clear advantage, especially in front of younger generations. With the first step of the reveal of the Ferrari Elettrica and unveiling in September of the 849 Testarossa, coupe inspired, we have concluded the 6 launches we had announced 1 year ago for the entire '25. I met many clients in Europe, in the U.S.A. and in China, who are in love with Testarossa. Last week in China, I met a young female client, younger than 40 years old, and she told me, Testarossa is the perfect harmonious blend of design and engineering, elegant and craftsmanship. I'm eager to own one and drive it. In the past few months, almost all range model in production were substantially sold out. The launches of the Testarossa family and Amalfi and the great traction in clients are initially contributing to the order intake. Indeed, the order book extends well into 2027. Over the next few quarters, we will have a significant change over of models. Indeed, in January '25, only 15% of our lineup was in ramp-up phase of production, while we will close the year with 35% of the lineup in ramp-up phase, and this is the result of all the activities of development that we did in the past years. Moving to the quarters, Q3 '25 saw continued growth. Just a few key numbers to highlight. One, total revenues reached approximately EUR 1.8 billion, a 7.4% growth year-over-year with flat deliveries. Two, strong profitability with EBIT of over EUR 500 million. And last but not least, industrial free cash flow at EUR 365 million. These are solid business performance. This solid business performance allowed us to revise upward the '25 guidance during the Capital Market Day in October. Our revised guidance exceeds the profitability target we had originally set for '26 in the previous business plan 1 year in advance. Moreover, the decision to complete the current share repurchase program within this year, once again 1 year earlier than planned, also reflects such progress and strong confidence that we have in the future. And now I will leave the stage to Antonio to explain the quarter in more depth. Antonio Piccon: Gracias Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 4, we provide the highlights of the third quarter, which once again delivered consistent growth and demonstrates solid progress. Product mix and personalization, along with rising revenues were the main drivers of revenue and profitability growth with shipments in line with the previous year. This resulted in a strong industrial free cash flow generation in the period. Let me underline that such results were accomplished notwithstanding the impact of the incremental U.S. import tariffs, which became visible in Q3, a greater foreign exchange rate headwinds and lower deliveries of the Daytona SP3, which was phased out in the quarter. On Page 5, we deep dive into our shipments. They were driven by the 296 GTS, the Purosangue, the 12Cilindri family, which continued its ramp-up phase and Roma Spider. The SF90 XX family increased its contribution. The 296 GTB decreased approaching the end of its lifecycle and the SF90 Spider phase out. Deliveries of the Daytona SP3 were lower than the prior year and concluded their limited series run. As anticipated by Benedetto, in the quarter, we started a significant changeover of models, which will be also visible in the next quarter. The SF90 family and the Roma were already phased out and the 296 family is approaching the end of its lifecycle. Indeed, those models will be progressively replaced starting from next year by the 849 Testarossa family, the Amalfi and the 296 special series, respectively, a record number of new models introduced at the same time. On Page 6, the net revenue bridge shows a 9.3% growth versus the prior year at constant currency. This translates into a 7.4% growth, including the headwind from currency, mainly related to the U.S. dollar dynamics. The increase in cars and spare parts was driven by the richer product mix as well as higher personalizations despite the lower delivery to Daytona SP3, which followed our plan. Personalizations accounted for approximately 20% of total revenues from cars and spare parts and were particularly relevant for the SF90 XX family and the Purosangue, also supported by the adoption of carbon and special paint. Sponsorship, commercial and brand also increased, thanks to higher sponsorships and the improved performance of the lifestyle activities as well as higher commercial revenues linked to the better prior year Formula 1 ranking. Moving to Page 7. The change in EBIT is explained by the following variances: Mix and price was positive, thanks to the enriched product mix. Indeed, despite the phaseout of the Daytona SP3, the product mix was sustained by the higher end of our product offering, namely the SF90 XX and the 12Cilindri families. The mix was also supported by the increased contribution from personalization. Please note that the impact from incremental U.S. import tariffs as well as from the update of our commercial policy in response are included in the mix and price variance. This resulted in a margin dilution at constant currency, particularly visible in the third quarter since the majority of our shipments in the United States was represented by model good price were protected under the updated policy. Industrial costs and R&D were lower year-over-year, in line with model life cycles, partially offset by higher development costs for racing. SG&A were also higher, reflecting racing expenses and brand investments. Other was positive, mainly thanks to racing and lifestyle activities. Percentage margins continued to be strong in the quarter despite the dilution from increased import duties with EBITDA margin at 37.9% and EBIT margin at 28.4%. Turning to Page 8. Our industrial free cash flow generation for the quarter was strong at EUR 365 million and reflected the increase in profitability, partially offset by capital expenditures, which were mainly focused on product development and the progress in the new paint of construction and the negative change in working capital provisions and others, mainly due to the reversal of the advances collected in previous quarters. Net industrial debt was EUR 116 million at the end of September, also reflecting the share repurchase program executed in the quarter, which is approaching its completion by year-end, as reminded by Benedetto, 1 year in advance compared to our plan as announced in June 2022. Moving to Page 9. We confirm our 2025 guidance, which was revised upwards during the Capital Markets Day on October 9 on the back of the solid business performance and reflecting improved sports car revenues, including personalization, a lighter-than-expected cost base despite a greater headwind from foreign exchange rate and increased U.S. tariffs. And with this in mind, for Q4, we project lower deliveries year-over-year, as we already told you in the second quarter call, and this is in connection with the changeover of models, as I mentioned earlier on, a positive product mix, although sequentially tighter, in line with the phaseout of Daytona and the first unit of F80, higher SG&A and a seasonal step-up in racing R&D expenses as well as higher SG&A dictated by the start of production of new models. Looking at 2026 and beyond, let me remind you that the introduction of the F80 will be gradual. As usual, it will take a couple of quarters to ramp up the production and the life cycle is expected to be around 3 years. The guidance of the F80 and the model changeover will imply a more back-end loaded 2026 and will shape the product and country mix throughout the year. Such developments are consistent with our plans to deliver in the year to come as smooth and as linear as possible expansion of our profitability in absolute terms. Be assured that we continue to execute on this plan with discipline and focus and today's strong results provide once again the evidence of our continued commitment. Thanks for your attention, and I turn the call over to Nicoletta. Nicoletta Russo: Thank you, Antonio. Rezia, we are now ready to take the questions. Please go ahead. Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Michael Binetti from Evercore ISI. Michael Binetti: Just a couple for me. Antonio, I think you're saying that the mix impact in the second half will be a little bit better than what you anticipated. I saw that mix added about EUR 25 million in the quarter. I think last call, you said mix would be neutral for the second half. So can you just help us think what's driving a little bit of that upside? And maybe how much we can think about in fourth quarter from mix relative to the third quarter? And then I guess just as we think about the personalization comments you made about 20% now. You guided to personalization being closer to 19% longer term. It's like it's a little counterintuitive to us with the new tailor-made studios and the paint shop coming online next year. Maybe just walk us through what drives the moderation there? Antonio Piccon: Yes, Antonio. Thank you, Michael. On the first question, yes, the mix in the... Benedetto Vigna: Can you hear well, Michael? Michael Binetti: I'm sorry, what was that... Benedetto Vigna: I was saying, can you hear well? Michael Binetti: Not very well, no. Benedetto Vigna: That's why I asked you because we understood that someone was not able to listen that we hear well. I don't know if this is... Antonio Piccon: Okay. I'll try and answer. I hope you can hear me. Yes, the mix impact in the second half of the year has been slightly better than anticipated. So I remember I answered you in the second quarter call that we would have expected the mix more neutral in the second half. Now this is a slightly improved at least based on the third quarter results. And this is mainly due to personalization that remains very, very strong. With respect to your second quarter -- second question, we said we have prepared the plan on the basis of a 19% longer-term penetration of personalization. In this respect, the contribution of tailor-made and in particularly the tailor-made center, bear in mind that have been taken into consideration mostly to come closer to our clients. So the overall consideration on the penetration of personalization takes that into account with a view to be close to our clients also in countries where such tailor-made personalization are particularly relevant, such as Japan and the Western Coast of U.S.A. Michael Binetti: Okay. And can I just ask you one clarifying comment. You said the F80 will roll out over 3 years. Is that -- am I wrong or is that a little longer than the normal cadence for one of the strictly limited or supercar models like this? Is that -- and is there a strategy behind stretching that out a little longer? I would think normally would -- you'd see the bulk of those shipments in maybe 8 or 10 quarters? Antonio Piccon: [indiscernible] line with what we've been doing on the ICONA as recently, considering the overall number of cars involved and the start-up phase that is entailed by in order to get to run rate of production. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. It looks like the person just disconnected. We are now going to proceed with our next question. And the next questions come from the line of Flavio Cereda from GAM. Flavio Cereda: So my question is, I'm taking you back to the Capital Markets Day and your projections of top line growth to 2030. So a very simple question, volume price mix, volume, you got control it, mix to a point. And I was just wondering on price, your pricing power, given all that's been done and the great results that we've seen in recent years, Benedetto, where do you think you stand on this? Do you think you're coming to an end here? Or do you think there's more to come? Benedetto Vigna: Thank you, Flavio, for the question. It's not at all an end. Actually, we feel confident that with all the innovation that we have to delight our clients, we do not see any weakening in our pricing power. We will continue to offer Flavio, car with a different positioning. All of them will benefit of the pricing power because this pricing power, just to be clear, is not coming because we will just increase the price for the same, let me say, product as it is. No, we will make richer and richer innovative, more and more innovative with the product so that by delighting the client, we are confident that we will keep our pricing power. And this is what we are working on. And this is the goal of all the money that we invest in R&D, in innovation with all the team here. Flavio Cereda: So aligned to more models, fewer volumes? Benedetto Vigna: Yes. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 2 questions, please. First, on hybrids, I think the share was lowest in a couple of years. Is it linked with the changeover of product? Or is it driven by willingness to reduce overall hybrid share to eventually address excess deliveries in certain markets and residual values? That's for the first question. And the second, could you give us the delivery figures, please, for the Q3 data on us and what -- how many F80 you're already going to launch in Q4, please? Benedetto Vigna: Okay. So the first one, Thomas, is just depends on the offer that we have on the lineup we are offering to our clients. The number of hybrid cars that we are offering is reducing because there is a change in the model. So there is no if you want, there is no surprise over there. It's a consequence of the way we launched the car. No, that's it. There is -- don't extrapolate any trend over there, okay? And it's not related to the propulsion. The second is how many F80 -- we are planning to launch to sell? Antonio Piccon: Just the initial few units, Thomas, not its number. And I [indiscernible] 40 in the third quarter. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. Stephen Reitman: Apologies I had a problem with connection. And I apologize also if this question has been asked before because I was cut off, so I had to redial in again. So thank you for your comments about the contribution of 849 extending the coverage of your order book into 2027. I'd like to know if demand is similar for both the Coupe and for the Spider. And I know you don't comment on the order intake on a model-by-model basis. But could you talk about the level of interest you're seeing in the Amalfi? Is demand strong for the entry products as it is for your higher-end products? And my second question is regarding also on the hybrids. You've given us some detail in the past about the penetration rates you're seeing for your extended warranty program for the battery program and the like. And I think the last figure we had was running at about 15% to 20%. Obviously, that's a very good way of improving the residual values of these vehicles and making these Ferrari last being cars lost forever as your intention. So could you update us on where you are with that program? How well is it's understood? Benedetto Vigna: Thank you, Stephen, and I understand that electronics is not always working well before. That is why we manage carefully electronics in our cars. Having said that, how it's going Amalfi? I think Amalfi is proceeding better than the previous model. So this is very encouraging. The second point I can tell you is that I saw -- I was in China the 21st of October, and I saw the first 2 Amalfi sold over there to new client younger than 40 years old. I can also share with you that in order book, more than 50% of the new clients -- of the -- sorry, 40% of the people that want to buy the Amalfi are coming new to the brand. And this is, let's say, we are pleased because one of the objectives of this car was to bring on board, new to the brand. So that's the comment on Amalfi. The story of hybrid, that hybrid warranty, I think that -- I mean, it's picking up, continues to pick up. It's more than 20%. But we see one simple things. we have dealers that are able to explain it well, while we still see some dealers that have not yet explained properly. So we are in the process to retrain some of our dealers because some of them are not able to explain properly the advantage of this warranty scheme. So we see improvement, but I think there is more if all the dealers are able to explain properly. So that's on the hybrid -- side. Thank you Stephen. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I think I've already asked my question. So I think you can pass on to the next speaker. Benedetto Vigna: In fact, I was surprised. Thomas Besson: Yes, me too with. Operator: And the next questions come from the line of Robert Krankowski from UBS. Robert Krankowski: Just 2 questions from me, please. And just maybe starting with the Q3. Like I think we are expecting that it's going to be the weakest quarter in the year. So obviously, something went better and maybe we heard that it was personalization. But maybe if you could talk specifically about the U.S. Back in Q2, you mentioned that there is some change in consumer behavior because of the tariffs. Have you seen it normalizing right now after we have more clarity on tariffs? And maybe the second one also related to the U.S. Obviously, there is a lot of conversation about residuals and there is some kind of concern about potential increasing order cancellations. Have you seen any unusual or any pickup in orders cancellation in the U.S. as consumers are a bit worried about potential change in residual values in the market? Benedetto Vigna: I'll take this question, Robert. So one, in U.S., the business proceeds as usual, number one. Number two, the only difference we see in U.S. that if you compare today versus the previous call, at that time, the tariff were still at 25%. Now they are at 15%. Now it's carved out in the stone, it's 15%. So that's the only difference we see. And we have been -- you remember last time, we told you when it will become, how can I say, blessed by papers, then we will update the commercial policy, and that's what we did. That's what we did before we said the price increase up to 10% when the tariffs were 25%. And now we say price increase up to 5%. That's the only difference in U.S. Then the business proceeds as usual. Antonio Piccon: And with respect to Q3 being originally thought as the weakest quarter in the year, I think the reason is simple. We were -- the level of personalization was higher than we were expecting. So that has on the top line. And in terms of the cost basis, a point that I highlighted when we revised the guidance upward, the cost base actually ended up being lower compared to our initial expectations. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: My first one, Antonio, I think I didn't hear it, and you said it, but could you please review the bridge again from Q3 to Q4? I know the Daytona's are zeroed out, but then maybe review the -- maybe the R&D and SG&A. And then I have a follow-up. Antonio Piccon: Yes. With respect to Q4, Tom, I said that there will be lower deliveries year-over-year. That's a point that we already in the Q2 call. This is to be read in connection with the changeover models that we discussed. Then I said there will be a positive product mix, although we expect it sequentially lighter in line with the phaseout of the Daytona and the first unit of the F80. And the last point is that we expect higher SG&A and a seasonal step-up in racing expenses for development of the applications for the car as well as higher SG&A that are dictated by the start of production of the new models. Gautam Narayan: Got it. Okay. That's very helpful. And then I have a kind of high-level question. I think in the past, you said that when there's a new kind of form factor, like Purosangue was a very different vehicle than you had ever made in the past that initially, obviously, there is a -- I don't know, like a margin headwind relative to -- if it was a standard product that you've done before at the same price point. How do we think about the Elettrica from this standpoint, given that it's a completely different form factor, is it safe to say that there's a similar kind of margin headwind relative to models that you make at a much larger volume requiring less incremental new spend? Is that a safe assumption to make? Benedetto Vigna: I think, Tom, you have a good memory. That's what we said about Purosangue, but we said it when everything was announced and everything was clarified. So I don't want to look like unpolite but if you are patient a little bit, then we will be more precise on that. But before I said, like you remember, we told you everything when the shape was visible and not only the shape... Operator: We are now going to proceed with our next question. And the questions come from the line of James Grzinic from Jefferies International. James Grzinic: I guess I have really a philosophical question for Benedetto just to follow up on Flavio's. I think Benedetto, you've made it very clear that you expect a higher rate of innovation to continue to really support your pricing power for the brand -- when I consider your 2030 plan, you seem to assume that, that lever, that price/mix lever is going to be much less important than in the past. Is that -- should we be thinking that the rate of innovation in the next 5 years reduces to go hand-in-hand with that price/mix lever being less important than in the past 4 years? Benedetto Vigna: No, I think that innovation rate does not slow down, honestly. I think we have several innovation in the pocket that we plan to apply to the different cars, each one for its own positioning. And I mean if we would sit on the innovation, I don't think we would be call it Ferrari. So the reason why I was very clear with the question -- the answer to the question of Flavio Cereda is because we have several levers of innovation that go beyond the traction. There is the vehicle dynamics, there is user interface, there is architecture that is the driving trails that we feel confident that once we apply this to the different model, we will be able to delight the client and thus to use properly the pricing power because we are not -- I would like to maybe underline one point. We are not a company that is increasing the price of the same object just because time goes on. No. We increased the price of what we do because we put something more innovative in it and because this innovation is going to delight our clients. I think this is important. If you see also the way we increased the price in the past years, well, Ferrari has been unique in the sense that we have not increased the price of the same object, but we have put the innovation in the product and that because of a high degree of innovation, high degree of delightment of the client, we exerted properly the pricing power. That has been and that's going to be in this way, James. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: Just one question, please. I guess frequently asked the question after the Capital Markets Day with regards to, I think, very exciting future, I think right products that you're launching into the market, but they also require some investments such as the launch of Elettrica. I think some lesser investments like the paint shop and I think all the credit facilities we saw during the Capital Markets Day. The question is to create a stability of margins in the business model, how can we think about the offsetting elements, the positive contributions you're going to have in the medium term to create that margin stability? And there might be some doubts in the market about the margin stability of the business model. How can we think about that balance between investments and then the opportunities you have to maintain and create that margin stability that you've shown, I think, in the past years? Benedetto Vigna: Let me see because there was some noise just to make sure that I understood properly, José. I think that if you want this question for me, the answer is very close to the previous one. The only way -- first of all, we are living in uncertain time. Yes. There is no difference also if you want to many other cases in the history. Now the only things we can do is to make sure that we keep innovating so to offer something that is unique to our clients, unique in the performance in engineering, unique in the design, unique in the way we do it because why are we doing the paint shop? Why are we doing -- why did we do the e-building? Because we want to be unique in the way we manufacture our cars, whatever they are ICE, hybrid and green electric. Why we are showing in a multistep way the innovation of Elettrica because we want to make sure that all the work done by the engineers -- well, it's not going to be lost because there are so many new things in this car as well as in other cars that we will make sure that innovation is properly, is properly, let's say, explained to our clients. We noticed it -- let's put it this way, we noticed that for some cars in the past, there was a lot of innovation content or there were several innovation content that were not properly explained. And this is an area of improvement we have. When we do something new, even on technology, on design, on engineering, we have the responsibility to explain well to the world because behind that -- beyond that, there is the work of many people, blue collar and white collar. So this is the philosophical question or the goal of this question of this company is to make sure that on the innovation side, whatever we do is unique. And this is, if you want, the best guarantee of the long-term sustainability of what we do. That's it. I only if you are unique, we can do something that guarantees the long-term sustainability. That's the reason why we gave you a floor for the end of this decade, and we feel confident about that because of the uniqueness of what we do. Operator: And the questions come from the line of Michael Tyndall from HSBC. Michael Tyndall: Two questions, if I can. One for Antonio. Can we talk about the F1 budget for next year? So headline number, if I'm not wrong, is USD 215 million from current USD 135 million. From where you're sitting, is that just an incremental $80 million of cost or does the scope change mean that actually the impact on your P&L is considerably lower than that headline number? And then the second one is just around can you talk a bit about FX on the order backlog? What scope do you have? And how much do you really want to push in terms of trying to offset what's going on with currencies on a backlog that now runs into 2027? Antonio Piccon: Thanks, Michael. The first one really the fuel cost increase. That's an element we need to take into account. So if the F1 budget grows, this flows into our cost, and this is to be taken as a cost increase. On FX on the order backlog, based on the agreement that we have with dealers is in principle, we could change pricing with a 90 days anticipation, I guess. So that's something that in principle is possible. We decided on a country-by-country basis and depending also on the move in terms of the exchange rate on the size of the move. Operator: Thank you. Given the time constraint, this concludes the question-and-answer session. I will now hand back to Benedetto Vigna, CEO, for closing remarks. Benedetto Vigna: Thanks for your time today and also for all your interesting questions. Thanks a lot. We remain focused on executing our plans throughout the rest of this year. And also with confidence, we'll begin to build the next phase of our new business plan. It's a business plan that is ambitious, and we are highly confident that this is going to happen. We'll deliver on our promises as we already did so far. And this -- after this, I wish you a good morning or afternoon. And I thank you again for your attention and your questions. Gracias. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Operator: Greetings, and welcome to the Hagerty Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jay Koval, Head of Investor Relations. You may begin. Jason Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third quarter of 2025. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to McKeel. McKeel Hagerty: Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's Third Quarter 2025 Earnings Call. While many of us are putting away our special cars in the fall after another fun driving season, we at Hagerty are breathing a sigh of relief that 2025 was a relatively benign year for catastrophes after a challenging start with the California wildfires. As our reinsurers have pointed out to us, even in the worst of hurricane years, our book of collectible vehicles tends to significantly outperform what their models would have predicted. Our members love their cars and they will find ways to drive them to safety. Building trusted relationships with our members through the years of delivering on our brand promise enables us to develop new products such as the recently launched Safe Storage Concierge, which provides guaranteed shelters for cars in hurricane-prone areas such as Tampa and Miami. While we hope our members never need to use the program, if they do, we will be there for them, regardless of the type of vehicle that they love, leading to lower claim frequency and consistently strong and stable underwriting results year after year as we add new members. Let me dig into the highlights from the first 9 months of 2025 shown on Slide 3. Total revenue increased 18%. New business count fueled by a 13% increase in written premium and 14% growth in commission revenue, an acceleration from the first half results as State Farm policy conversions ramp up month-over-month. October came in even stronger than September, delivering the highest Policy in Force or PIF growth in our history. Earned premium in our risk-taking entity, Hagerty Reinsurance, increased 12% and membership, marketplace and other revenue jumped 54% due to the launch of our European auction business, plus growth in inventory sales and private transactions. Moving to profitability. During the first 9 months of the year, our operating margins jumped another 350 basis points, resulting in net income gains of 73% to $121 million and adjusted EBITDA growth of 46% to $153 million. High rates of compounding growth with a relentless focus on operating efficiencies are resulting in sustained margin expansion as we work towards doubling our policies in force to 3 million by 2030. Hagerty has become one of the largest MGAs in the specialty vehicle insurance business, thanks to omnichannel distribution, best-in-class service, valuation and underwriting capabilities, not to mention a brand unlike any other with a Net Promoter Score of 82 that towers over the industry's average score of 37. Our direct business is adding new members efficiently, thanks in part to our unique ability to drive a disproportionate number of people in Hagerty's funnel on the strength of the Hagerty brand and low-cost referrals. And our distribution team has been working diligently to cultivate relationships with the leading carriers in the U.S. as the majority of the specialty cars we seek to insure sit within their bundled policies. With that, we announced yesterday that we had signed a new partnership with Liberty Mutual and Safeco. Liberty Mutual is the seventh largest auto insurer in the U.S. and has built a sizable collector car program over the past decade under the Safeco brand. Hagerty will help Liberty Mutual engage and retain their customers through a combination of our excellent customer service and expertise at valuing, underwriting and handling claims on collectible vehicles. We are very excited to work closely with the Liberty Mutual team to help ramp up this partnership into 2027. Moving on to Slide 4. A reminder of our 2025 strategic priorities built around 3 themes: simpler, faster and better integrated. First is to expand our specialty insurance offerings to protect more of the collectible market, including modern enthusiast vehicles with the launch of our Enthusiast Plus program. Second is to simplify and better integrate our membership experience across our products and services, creating revenue synergies and driving cost efficiencies as we engage with our members in a unique and authentic way. Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States. This includes 2 recent European auctions in Belgium and Switzerland, plus this past weekend's auction at the Wynn, Concours and Las Vegas, bringing our global vehicle value sold at Broad Arrow Live Auctions to $240 million through November 1. We are methodically building Hagerty and Broad Arrow into the most trusted brands for people to buy and sell special vehicles and live auctions work synergistically with our private sales transactions and financing business. And finally, we are investing in the technology re-platforming that will enable additional efficiency gains shown on Slide 5. Slide 6 shares details on the new fronting arrangement with our strategic partner, Markel, that we discussed in late July. As a reminder, we have been moving towards assuming more of the premium and risk associated with our high-quality underwriting and this 2% fronting arrangement would allow Hagerty to control 100% of the premium and risk commencing in 2026, a 25% increase compared to the current 80% quota share. We are excited to continue partnering with Markel as we build out our own capabilities to deliver a seamless experience for members with greater operational control, not to mention drive increased profitability from the additional underwriting and investment income. Let me now turn the call over to Patrick to share more details on our results and increased 2025 outlook. Patrick? Patrick McClymont: Thank you, and good morning, everyone. Let me dig into the third quarter results shown on Slide 7 and 8. We delivered 18% growth in total revenue to $380 million. New business count gains, combined with industry-leading retention of 89% drove a 16% increase in written premium. As expected, written premium growth accelerated in the third quarter, resulting in 2-year rate growth exceeding 30% as we ramp conversion of State Farm's 525,000 Classic policies to their new Classic Plus program, powered by Hagerty. Commission and fee revenue grew by 18% to $137 million. Earned premium increased 13% to $187 million. Our loss ratio came in at 42% for the quarter in the first 9 months of the year, resulting in year-to-date combined ratio of 89%. In Membership, Marketplace and Other Revenue jumped 34% to $56 million. As McKeel mentioned, we have quickly established ourselves as a leading auction house with unparalleled automotive expertise for our customers. We also continue to build our online marketplace, offering 240 Barn Find vehicles from the first tranche of The Generous Collection in October with more collections to follow over the coming months. Turning now to profitability, shown on Slide 9 and 10. We reported an operating profit of $34 million in the third quarter, an increase of 240% as operating margins jumped 590 basis points to 9%. G&A increased 17% due to higher software licensing costs from our technology transformation as well as the professional fees associated with the August secondary offering of shares from Kim Hagerty's estate and the Markel fronting arrangement. Salaries and benefits grew 44% due to higher year-over-year incentive compensation accruals, thanks to our strong financial outperformance this year. As a reminder, last year's incentive compensation was negatively impacted in the third quarter due to elevated cat losses from Hurricane Helene. Excluding professional fees and incentive comp, we are holding core growth in G&A and salaries and benefits to the mid- to high single digit range. This increase is due to merit and selective headcount additions to support future growth. We had a fair bit of activity on the tax front this quarter. Given the sustained improvement in our profitability, we concluded that the company will generate sufficient future taxable income to realize a portion of our deferred tax assets. As a result, $38 million of the valuation allowance was released and recorded as an income tax benefit. In connection with the release, we remeasured our tax receivable agreement liability resulting in an expense of $29 million, which was the driver of negative $21 million in interest and other income. Third quarter interest income from our investment portfolio was $11 million and interest expense was $2 million. In total, we delivered third quarter net income of $46 million compared to $19 million a year earlier, an increase of 143%. Net income to Class A common shareholders was $19 million after attribution of earnings to the noncontrolling interest and accretion of the preferred stock. GAAP basic earnings per share was $0.18 and diluted came in at $0.11. Adjusted EBITDA increased 106% to $50 million in the quarter. And we ended the quarter with $160 million in unrestricted cash and $178 million of total debt, which includes $75 million in back leverage for our portfolio of collateralized loans. Let me wrap up with our updated outlook for 2025, where we again increased full year expectations for revenue and profits shown on Slide 11. We now expect 14% to 15% revenue growth and are increasing our assumptions for margin expansion. This should result in net income of $124 million to $129 million, equating to growth of 58% to 65% and adjusted EBITDA of $170 million to $176 million, an increase of 37% to 41% compared to 2024. The net income range also includes a $6 million year-to-date net impact from the valuation allowance benefit of $38 million, partially offset by the increase in TRA liability of $32 million. In summary, we are delivering on our 2025 strategic priorities and are well positioned to accelerate profit growth and cash flow generation as we move into 2026 and 2027, fueled by high rates of organic growth in new members. Our brand strength and omnichannel distribution enable us to grow profitably during both good and bad times, making us truly differentiated from most P&C carriers, where profitability is dependent on the rate cycle. When you combine multiple growth levers with ongoing operating efficiencies, we believe we are pulling together all the ingredients necessary to create shareholder value over the coming years. With that, let us now open the call to your questions. Operator: [Operator Instructions] Our first question comes from the line of Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the Liberty Mutual and Safeco partnership. Can you maybe provide some quantification of how much of a PIF tailwind or premium tailwind that could be for your book kind of on a go-forward basis? And in terms of like the financials, could we see something like a book roll later on in the partnership? Or I guess, how are you thinking about that long term? Patrick McClymont: Sure. Liberty Mutual and Safeco, we're excited. It's an important new partnership and it's very consistent with our overall partnership strategy, right? They chose to work with us, because they know we're going to deliver the right product for those customers. So it's an important and very consistent step in our strategy. Think of it as tens of thousands of customers. And so it's a good-sized opportunity. It's not sort of one of the State Farm type sized opportunity, obviously. And then we continue to work through the details with State Farm and -- I'm sorry, with Safeco and how we'll be working with them and with Liberty Mutual. It's a combination of -- we are doing a book roll. We're taking this business on. And so we'll be sharing some economics with them. And we're not going to give a lot of details on this because it's partner-specific. But think of it as another important step in the process as we build out the omnichannel distribution. Hristian Getsov: Got it. And then for the Enthusiast Plus rollout, any quantification on kind of like the PIF growth that's happening there? I know you're live only in a few states and it's still early on. And then I guess, sticking with that, like how should we think about like your loss ratios on a go-forward basis, given that should be a younger, newer car cohort? And how would that kind of impact your loss ratios as that kind of like becomes a bigger portion of your mix? McKeel Hagerty: Well, what we've talked about before, this is McKeel, by the way, and again, welcome to the call. As we've talked about with Enthusiast Plus, it's early days. This is built on the knowledge that we've been gaining through years of what we referred to before as our Flex Program. So we're coming to it with a lot of knowledge, but we are opening up the underwriting aperture to be able to take on more types of risk. We are live in one state. We will start rolling out new states. And as far as loss results, it's too early to be speaking specifically about it. But we're excited about what we're seeing and so far, so good. Operator: Our next question comes from the line of Charlie Lederer with BMO Capital Markets. Charlie Lederer: Just on the strong growth in written premium, the acceleration in the quarter, I guess when we back out the PIF growth, it looks like the pricing growth accelerated. Can you kind of parse that out for us? Is that State Farm-driven? Or what's causing the kind of the premium per policy or the pricing to accelerate? Patrick McClymont: Yes. So on that one, I guess we would encourage you to think about that -- think about that on a trailing 12-month basis. Our business is very seasonal. And so if you're taking kind of -- I think if you look on a quarterly basis, you've got in your -- I think in your numerator, you've got something that's a seasonal quarter number. And then your denominator, you've got something that's a much more smooth total policies in force number. So I encourage you to think about that on a trailing 12-month basis. If you do, you'll see it's much smoother than what sort of the quarterly analysis would say. What this quarter, I think trend-wise, what we're going to see over the next couple of years is that kind of metric should actually decelerate, just because of what's happening with State Farm, right? So State Farm is coming in with a lot of policies that are typically single car and they're typically a bit lower than what our core book has been traditionally. And so we may see that that kind of written premium per PIF will start to trend down a little bit, just because of that. After we get through this massive intake of State Farm, the 525,000 cars, then you'll see that return to more historical levels. It's really tough to do year-over-year quarterly comparisons. For example, last year, we were just getting going with State Farm. And so that created a little noise in the third quarter of 2024. This year, it's ramping up. And as it's ramped up, there's a pretty meaningful change in what those -- what the premium per policy is. And so it's really hard to do this sort of at the aggregate level. The general trends you should focus on is in our core traditional book. We get typically 2%, 3% price increases over the long haul, much, much lower than what you see in daily driver. And we think that's a competitive advantage. We're able to win business because of that. So we do get price increases, but typically that low single digits. I talked about State Farm, the dynamics there. And then over time, Enthusiast Plus, that will come with higher premiums per policy. This is -- will ramp up over the next few years, but that will change the dynamic as well. So hopefully, that's helpful. As always, there's mix, there's seasonality. There's a lot of things that go into a metric like that. Charlie Lederer: That is helpful. Maybe you can help us triangulate, I guess, the upside to your guide in the quarter on revenue and EBITDA. I guess, at a high level, how much was from underwriting versus marketplace? And I guess as we think about the strength in marketplace from some of the new business you talked about, how should we think about that trending from here, since there's some seasonality in that business, too, I think? Patrick McClymont: Yes. So the marketplace business, particularly live auctions and private sales, we are having a good year. It's a young business, a growing business growing quickly. And this year, it exceeded our expectations. And so that is reflected in the increase in guidance. When you think about that business heading into next year, we should continue to see growth. We're pretty close to a full calendar. And so we've got the 4 auctions domestically and 4 in Europe. We may add 1 or 2 next year. And there's always the chance that there's a single owner sale that pops up. But the event growth will -- we're not going to add 3 new auctions next year. And so what we're going to be looking for there is now we've got a full calendar and the ability to continue to drive more volume through each of those auctions. And so I'd assume the growth rate in live auctions will decelerate next year, still grow, but it will decelerate just because we're not adding to the calendar. Private sales this year was a big year. And so we've got to take a look at that. And some of that's episodic, some of that we think is sustainable and can grow. But this year was very, very strong in that regard. And that does get reflected in the increased earnings guidance. Is that helpful? Charlie Lederer: Yes. Yes. And if I could just sneak in one more. On Slide 16 of the earnings deck you guys put out, I think the chart on the right is a new slide or a new exhibit, I guess, the $35 million collectible car target market. Can you kind of talk us through that slide? And yes, I'll leave it there. Patrick McClymont: Sure. We can talk it through. It's not a new one. This is one that we've had out there for quite some time. I think the key intuitions from this, we have strong market positions in older cohorts. And so if you go back to pre-war cars, 1950s cars, 1960s, we've got good penetration in those cohorts, but still room to grow. And so we do see growth in those cohorts. And kind of with each decade, our penetration tends to be lower, right? So it's strongest in sort of the pre-war in the 1950s, still strong, but a little bit less as you get into the '60s, et cetera. We know that there's those 11.1 million cars out there. We've got those in our database. We know where they are. And so currently, we were about 14% penetrated and there are opportunities to grow that. Post 1980 and this is just when VIN numbers became industry-wide, and so it's just that's the demarcation point. Post 1980, you can see our penetration is much lower at 3.1%. We've done a ton of work on those post-1980 cars to make sure that we really understand what in that broader 35 million do we think is core addressable. And so that's that Hagerty target market. And so we think there's about 24 million vehicles that could fit for our program. And because we're so lightly penetrated there, that's where a lot of our efforts go. And that's a big driver behind the Enthusiast Plus product. We needed to be able to price for more modern vehicles that may get used more frequently and that's why we designed that new program and launched that initially in Colorado with more to come. Every decade, you end up with a certain cohort of cars that end up being collectible. That has not changed. And so we want to make sure that we've got a product in place and marketing in place that we can continue to grow with the market. Is that helpful? Operator: Our next question comes from the line of Michael Phillips with Oppenheimer. Michael Phillips: Patrick, I guess, first, I want to make sure I heard you correctly on your comments on some of the expense items, the salaries, benefits and G&A. I think you said for the 2 combined mid-single digit growth. Was that right? And if so, what time period were you talking about? Patrick McClymont: That's what it should be this year, for 2025 versus 2024. Michael Phillips: And that was the 2 combined, correct? Patrick McClymont: Correct. Michael Phillips: Okay. I guess more high level, what's -- is there any impact on the growth of your Driver Club membership in the near term maybe from adding on State Farm and then maybe also because of -- would that also be impact any growth potential, I'm thinking negative growth potential kind of headwinds to growth there because of State Farm and maybe also because of Safeco? McKeel Hagerty: Well, so great question. And the way the Hagerty Drivers Club is typically sold is it's an add-on to the policy purchasing process. So somebody comes in, they get a quote and that's the same, whether it's a direct consumer or through an agent or through one of our big partners, including State Farm. Then the second piece of the transaction is how we sell Hagerty Drivers Club, which is a $70 package with the features that we have in it. So pretty much wherever we are filling the top of the funnel and bringing it down through quote and application, we will see a lift in Hagerty Drivers Club. And our job is to make sure it's attaching well and attaching efficiently and that we can offer it along the way. The way we think of Hagerty Drivers Club, it's a product package, but it's part of our membership strategy, which is when you treat somebody like a member, they're more engaged. There's longer lifetime value and it's all part of the core strategy. So more insurance means more Hagerty Drivers Club. Michael Phillips: Okay. No, perfect. I guess is the uptick of that not the same from State Farm and possibly from Safeco, as it is from your traditional business? McKeel Hagerty: It's too -- it's too soon to say, obviously, with Safeco, as we mentioned in the beginning of that. That is a book roll strategy there. So this is not just we put a product on their shelf and they're selling Hagerty. This is Safeco, who had a collector car program and they are going to exit that program and roll that business to us, but it's too soon to know exactly how we will be attaching there as part of that kind of book roll process. With State Farm, it's obviously our biggest new thing. The process is slightly different. The attach rates have been a little bit lower than our sort of standard through the front door process, but we're endeavoring to get that up to where it matches, if that helps. Operator: Our next question comes from the line of Mitchell Rubin with Raymond James. Mitchell Rubin: This is Mitch on behalf of [ Greg ]. My first question today, I was wondering if you could help quantify the sensitivity of your net investment income to the rate cuts and if the fronting shift change is going to have any impact on your view of liquidity of asset allocation? McKeel Hagerty: The first one was investment sensitivity relative to the recent Fed rate cut is what you're saying? Mitchell Rubin: Yes. McKeel Hagerty: I don't have it in front of me. Patrick? Patrick McClymont: Yes. Mitch, appreciate the question. We have allocated most of the investments into high-grade corporate and government bonds, duration of 2 to 3 years. So it's not sitting in money market accounts. So we think we're pretty well protected there. Mitchell Rubin: And my follow-up question, you had talked a little bit about the seasonality to the marketplace. Is there any seasonality to the loss ratio and acquisition costs in the fourth quarter? Patrick McClymont: So the way we think about loss ratio, there's, of course, seasonality in the underlying business because our business is so seasonal. Typically, what -- and we talked about this in other calls, in the first and second quarter of the year, we accrue to our planned loss ratio for the year. In the first quarter, it's a relatively quiet quarter from a seasonal perspective. The actual loss activity is going to be quite low in the first quarter. In the second quarter, it's starting to ramp up as we get into season. And so typically you'll see we're going to book to plan basically in Qs 1 and 2. Q3 is the first quarter that we may make an adjustment to that, which is based upon experience, we're now deep enough into the year that it may warrant an adjustment. And then obviously, in Q3, you've got some information on cat season, not complete, but most of cat season has unfolded. And then in the fourth quarter, that's when we'll make any final adjustment. So that's our policy. So far this year, we have been booking to plan. That's why you're seeing the 42%. And then in the fourth quarter, we'll make any final true-up. Fourth quarter underlying business is one of the more quiet quarters, right? Anything that's more north, you're going to have less driving activity. People put the cars to bed for the winter and so you just see less activity. What was the other part of the question? Mitchell Rubin: Yes. That's helpful. No, that was it. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: You mentioned that the October PIF growth was really good. Do you feel like sharing any specific details? And what was the driver of the improvement in the month? McKeel Hagerty: Well, Mark, you've been with us a while and it's nice to hear your voice again. What I will say is it's the State Farm flywheel beginning to really turn. We've been working on this integration for a long time. We started off the year -- we came into the year with kind of 4 states active for new business and our target is to finish -- our target was to finish the year with 25. We may be able to actually get up to 27 states. So this is what we've been planning for and the reality is really starting to hit us. So teams are excited. But normally, in this very seasonal business when things start to quiet down in October, we're really humming along. So it's an exciting time for us. Mark Hughes: Okay. Very good. In the presentation on the page where you talked about the change with Markel, you mentioned you secure expanded underwriting and claims authority. Is that just kind of an operational pro forma change? Or is there anything material to your business with, I guess, that increased authority? McKeel Hagerty: Well, some of it is technical. I mean, in reality, we've had this great close partnership with Markel for a long time. The underwriting decisions very templatized, pricing decisions really driven through the data that we were driving, all of those things through the years when it was just a quota share arrangement. By flipping this over to where we're taking 100% of the -- both the results and the risk of the program through a fronting arrangement, there are some technical new jobs that we'll be taking on as part of it. So some of it will be part of Patrick's organization on the finance side, a little bit of it will be part of Jeff Briglia's organization on the insurance side, but pretty minimal from a headcount and G&A standpoint. It's just sort of the last bits of the technical aspects of running that insurance company fully. So we've been preparing for it for months and we're ready to go. Operator: Our next question comes from the line of Pablo Singzon with JPMorgan. Pablo Singzon: My first question is on guidance. Your EBITDA range for '25 suggests something like $20 million of EBITDA in 4Q at the midpoint, which is basically flat from last year on a much higher revenue base this year, right? Is there something that would prevent EBITDA growing in 4Q, maybe some quarter-specific expenses like bonus accruals or investments or the like? Or is it just talked out, because if you look at this year, you've basically grown EBITDA dollars every quarter by at least $10 million. So anything to call out for 4Q, I guess? Patrick McClymont: No, I don't think there's anything specific. Typically, the fourth quarter is seasonally a lighter quarter for us and has tighter margins. And so it could swing around a little bit. Right now that's our best guess with how things come together. There's nothing specific that we're sort of increasing spending on. So we'll just have to see how it unfolds. Pablo Singzon: Okay. And then, Patrick, second question, just as you sort of transition to the Markel agreement and I presume you'll provide more detail on the next call, but any foreshadowing in how you think EBITDA might trend next year versus this, right? And I'm not looking for specific numbers, but as you think about like the moving pieces, right? So investment income will enter EBITDA, there will be some cost deferrals in there, right? You'll retain more underwriting income, but then you lose some on the ceding commission -- or you'll retain more higher underwriting income and I think there will be some impact on the ceding commission expense as well. So if you sort of put all those items together, any sort of like big picture way to think about how EBITDA might be different versus this year? Patrick McClymont: So we actually -- there's a fair number of things that we'll need to spend time with our investors and our analysts on that are changing for next year. So the big one is we're moving from Article 5 to Article 7. So our disclosure will be more consistent with an insurance company. And that's a result of moving to 100% of the risk and continue to grow that business. A consequence of that is, yes, we will have the investment income move kind of above the line, right, whereas now it's below the line. That's just geography. That will be hopefully pretty easy for people to get their heads around. Disclosure will look different, right? We no longer have --balance sheet disclosure looks different. So we'll spend time walking people through that. And then the change in the Markel relationship also is meaningful. And we previewed this back in August in advance of when we did the equity offering and we shared with the market sort of a page that reconciles big picture how to think about that. The key thing is on a go-forward basis, we're no longer going to have the commission income related to that activity. That still happens internally, but that gets eliminated upon consolidation. And as you mentioned, we're also now in a world where we're going to have deferred acquisition cost. So we're sorting through all those changes. And our plan is on the fourth quarter call next year we're going to -- Jay and I will work hard to create a road map and kind of walk people through exactly what the changes are. I think directionally, it all goes back to this is a business that our insurance business, putting aside State Farm, which is kind of the pig going through the snake, wonderful, beautiful pig. Putting that aside, we're going to grow in the kind of low teens written premium. And now we're going to own 100% of that business instead of 80% of that business, because of the change with Markel. Layer on top of that State Farm, you've got incremental commission activity from that. So the business is growing. We have proven that. We've been able to drive margin expansion. Those things will continue. The presentation of it is going to get complicated or different. And so we just need to walk everybody through that. Operator: Our next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: Just staying on that topic, one piece perhaps you can kind of help us drill into a little bit just is the policy acquisition costs that will start getting deferred and amortized over the policy term. Can you give us some early indications to how impactful that can be? Because it does seem like that could be a material change that could be accretive to earnings. Patrick McClymont: Not at this time. I need to make sure that we nail it all down and we're very clear on what the outcome is and share that with everybody. It's just still work-in-progress. Thomas Mcjoynt-Griffith: Okay. No problem. And then going back to the marketplace side, that business line has seen very strong revenue growth this year. Can you help us map how much of that is falling to the bottom line? It looks like the sales expense has been rising in tandem and I know there's some sort of cost of goods sold there. So I'm just wondering what are the incremental margins on this revenue growth in that marketplace line? Patrick McClymont: Yes, it's a good question. And we plan for that business to be slightly operating profit positive this year. And it's certainly more so, but that more so is measured in single-digit millions of dollars, because it's still a relatively small business. So it's definitely flowing to the bottom line, but we're not at a scale yet where you're talking about many millions of dollars. The private sale business, it's just a little bit tricky because it is so episodic. We've had a very, very good year and the team has done a phenomenal job. But when we think about what does that mean for next year, that's one of those ones that's hard to predict. The way to think about that business, though, is essentially, we're making brokerage commissions, right? Sometimes we're actually buying things and reselling those and making some merchant economics. But oftentimes, it's really just an agency trade or maybe it runs through our balance sheet, because we do actually take title for a moment in time, but we're not really taking risk. And so if you think about our auction business, where you're talking about kind of 10%-ish type buyers premium, the private sale business is not at that level. It can be high single digits, but it also can be low single digits. And so you're making those kind of fees. And then your expenses related to it, a lot of the commissions that get paid to the frontline people. And then there's some operating cost overhead associated with it. So it's a good business. On a contribution basis, it's very profitable. But right now it's -- it contributes to the bottom line, but it's not something that's fundamentally changing the outcome. Is that helpful from a framework standpoint? Thomas Mcjoynt-Griffith: Yes, that is. Operator: Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to management, McKeel Hagerty for closing comments. McKeel Hagerty: [Audio Gap] support. We are highly encouraged by our results over the first 9 months and we have a long straightaway in front of us. Given the long lead times in the insurance industry, you will always need to plan and think long term out as you launch both products such as Enthusiast Plus and you cultivate new partnerships, including State Farm and now Liberty Mutual and Safeco. And sustaining our double digit growth trajectory year after year requires investing in our teams and technology so that we can scale up efficiently and deliver compounding profitable growth. And that is exactly what we're doing at Hagerty. We are executing with excellence on our near-term objectives, while investing in the company to capitalize on our growth potential over the next decade. With that, we hope you and your families have a great holiday season and to consider searching through Hagerty Marketplace to find that perfect gift for your loved ones. Our team has pulled in some amazing collections and no reserve vehicles looking for the perfect owner, so happy shopping. Until then, never stop driving. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to the TPG's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin. Gary Stein: Great. Thanks, operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. Our President, Todd Sisitsky, is also here and will be available for the Q&A portion of this morning's call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements, except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the third quarter, we reported GAAP net income attributable to TPG Inc. of $67 million and after-tax distributable earnings of $214 million or $0.53 per share of Class A common stock. We declared a dividend of $0.45 per share of Class A common stock, which will be paid on December 1, 2025, to holders of record as of November 14, 2025. I'll now turn the call over to Jon. Jon Winkelried: Good morning, everyone. Thank you for joining us today. TPG delivered strong results in the third quarter. Our total AUM grew 20% and quarterly fee-related earnings grew 18% year-over-year. The flywheels across our business continued to accelerate, led by robust capital formation across all asset classes and a record quarter for deployment. I'll spend a moment on each of these important areas. This was an outstanding fundraising quarter. We raised a near record $18 billion of capital, up 60% from the second quarter and 75% year-over-year. This was driven by a successful first close in our flagship private equity funds and strong credit fundraising, where we continue to experience a step function increase in capital formation. We've made substantial progress against our previous guidance of raising significantly more capital in 2025 compared to 2024. Year-to-date, we've raised over $35 billion of capital, which already exceeds our full year 2024 fundraising. In private equity, we raised $12.3 billion in aggregate across our strategies. This was primarily driven by $10.1 billion raised in the first close for our flagship buyout funds, TPG Capital X and Healthcare Partners III, including commitments that are signed but not yet closed. We received strong support from our existing clients who increased their commitments by 12% on average over the prior vintage. These results reinforce our confidence that TPG is positively differentiated within the private equity market where fundraising has been perceived as challenging in the current environment. Our clients continue to lean in and look for more ways to partner with us in private equity given our distinct and highly disciplined approach and consistently strong performance. As a result, we believe we are outperforming in private equity fundraising relative to the broader market and gaining share. In credit, after reaching an inflection point last quarter, we maintained our strong fundraising pace and closed $4.8 billion of credit capital in the third quarter. In middle market direct lending, we announced the closing of a $3 billion continuation vehicle, which we believe is the largest-ever private credit CV. This unique transaction enabled us to extend the duration of our capital base for a portfolio of high-performing senior loans in collaboration with several strategic partners. In structured credit, we raised $1.4 billion across the strategy and launched our new liquid securities-focused open-ended fund. And in Credit Solutions, we continued fundraising for our third flagship fund, bringing the total capital raised to date to $4.3 billion. We expect to hold a final close in the fourth quarter and for the fund to be meaningfully larger than its predecessor. Year-to-date, we've raised nearly $12 billion of credit capital in what has been a breakout year for our franchise. As a result of our fundraising momentum, we ended the quarter with record credit dry powder of over $16 billion. Credit AUM not earning fees stood at nearly $11 billion, which represents over $100 million of annual revenue opportunity that we expect to flow into management fees over time. In real estate, we held a final close for our inaugural real estate credit strategy, bringing total commitments across the main fund and related vehicles to $2.1 billion, which exceeds our initial $1.5 billion target by more than 35%. We raised approximately $1 billion of capital in the final close driven by the strength of TRECO's initial portfolio. TRECO adds to our long track record of expanding into adjacent strategies through organic innovation. Early in the current cycle, we identified a compelling opportunity to invest in real estate credit at attractive risk-adjusted returns given the significant contraction in valuations and available leverage. We're seeing our thesis prove out with a fund outperforming its initial return projections and generating double-digit cash-on-cash yields. TRECO is an important extension of our investment capabilities in both real estate and credit, and we expect to scale this strategy over time. Additionally, our fundraising success has been amplified by our increasing penetration into the fastest-growing distribution channels, including insurance and private wealth. First, we've grown our capital from insurance clients by more than 60% over the last 2 years. Insurance represented 40% of TRECO's final close and over 25% of the capital raised for our credit platform in the third quarter. We're continuing to create innovative access points and cross-platform solutions for our insurance clients. For example, we've closed more than $600 million of insurance capital in our first rated note feeder for credit solutions which we believe is one of the few rated access points for this type of strategy in the market. Second, we're making strong progress in the private wealth channel, where we raised over $1 billion of capital across our drawdown and evergreen funds in the third quarter. T-POP, our perpetually offered private equity product, continues to gain momentum of approximately $900 million of inflows since its launch 5 months ago, including $250 million in October. This accelerated pace was supported by the launch of T-POP on a leading international private bank platform in September. We are experiencing strong traction in Europe and Asia and plan to launch on several additional domestic and international platforms over the next few quarters. Private wealth is an important growth driver for us, and we remain focused on further expanding access to our products across geographies and investor types, which Jack will touch on further. Moving on to deployment. As discussed on our last call, we expected our investment pace to accelerate into the back half of the year. In the third quarter, we deployed a record $15 billion, up over 70% year-over-year, and our activity was well diversified across the firm. Our credit platform drove over half of the capital deployed during the quarter with $8.3 billion invested across our strategies more than doubling year-over-year. In structured credit, we deployed $3.6 billion of capital, half of which was driven by residential whole loan investments where we continue to be a market leader. In asset-backed finance, we closed notable transactions across several of our verticals, including nonbank credit card origination. We also completed a meaningful upsize of our joint venture with Funding Circle and Barclays in the U.K. In middle market direct lending, Twin Brook generated $2 billion of gross originations in the third quarter, our highest volume so far this year. Importantly, given the steady increase in overall M&A activity, 70% of our origination was driven by new investments, bringing the total number of companies in our portfolio to over 300. Our pipeline remains robust, and we expect the fourth quarter to be our most active quarter of the year. In Credit Solutions as spreads remain at historic tights, our flexible mandate continues to create opportunities to provide tailored solutions in the private market. As an example, last year, we formed a proprietary joint venture with Bluestar Alliance and Hilco Global to finance and acquire consumer brands and intellectual property. Our unique partnership brings together significant sector, operating and financing expertise, enabling differentiated access to attractive opportunities. This was most recently highlighted by the JV's announced acquisition of the iconic Dickies apparel brand in September. Despite some recent concerns in the broader credit markets, including certain allegations of fraudulent activity, our portfolios continue to perform well. We've maintained a disciplined and highly selective approach to credit underwriting with a focus on fundamentals and risk management. As a result, our annualized loss ratio since inception has remained stable at only 2 basis points for Twin Brook, 3 basis points for our private asset-backed credit business and less than 40 basis points for Credit Solutions. We continue to uphold the same rigorous standards as we evaluate new investment opportunities, and Jack will share more details in his remarks. Across our private equity strategies, we maintained a healthy pace of deployment with $4.6 billion of capital invested in the third quarter, up nearly 40% year-over-year. At TPG Capital, we announced the carve-out of Proficy, GE Vernova's manufacturing software business. This transaction is a culmination of the relationship we've built with GE Vernova over 7 years across both our capital and climate strategies. Proficy aligns well with our expertise in corporate carve-outs and structured partnerships which comprise 11 of the 16 most recent investments in TPG Capital. Additionally, just a few weeks ago, we announced the take private of Hologic, a leading provider of diagnostic imaging and surgical products focused on women's health, for up to $18 billion. We're excited to partner with one of the premier scaled platforms in the women's health space, which has long been a thematic area of focus for us. In tech adjacencies, we closed minority investments into several leading large language model developers, expanding our exposure to Gen AI development and providing us with differentiated insights into this rapidly evolving area of the technology ecosystem. These investments follow the innovative debt financing that our Credit Solutions business recently anchored for xAI. We continue to evaluate opportunities to capitalize on the robust growth in the space and a partner with leading AI companies across each of our asset classes. In Rise Climate yesterday, we announced the acquisition of Kinetic, a leading international operator of zero emission transport and infrastructure based in Australia. Kinetic aligns closely with our deep expertise in clean electrification and mobility and represents the second investment by our transition infrastructure strategy. In real estate, we had our most active deployment quarter so far this year with $1.9 billion invested across TPG and TPG AG real estate. During the third quarter, TREP completed the acquisition of the former Broadcom office campus in Palo Alto's Stanford Research Park. This investment is consistent with TREP's continued focus on selectively investing in office markets where we see compelling green shoots emerging, such as the San Francisco Bay Area. We believe the Bay Area is reaching an inflection point in demand, driven by the growth in AI-focused tenants. In TBG AG real estate, we've maintained an active investment pace with nearly $2 billion deployed year-to-date across our dedicated regional funds. We're identifying and capitalizing on improving supply-demand dynamics in certain sectors, including senior housing and hospitality in the U.S. and office markets in Japan, Korea and London, which have low vacancy rates and attractive rental growth. Before I wrap up, I want to share what I'm hearing from my conversations with our clients across the world and how it's shaping our business and the opportunities in front of us. In private equity, institutional clients continue to face liquidity constraints and are consolidating their relationships among fewer GPs. Against this backdrop, we believe TPG is gaining share due to the consistently strong returns we've delivered. This has been driven by our focus on investing in deeply thematic areas and partner with our portfolio companies to drive growth. Over the past decade, across our TPG Capital and TBG growth funds, more than 80% of our value creation has come from earnings growth compared to less than half for the S&P 500, where over 40% of the value was driven by multiple expansion. This differentiation is resonating with our clients and driving continued fund over fund growth across our private equity strategies. Additionally, we continue to see increasing allocations into private credit. Investors are diversifying their exposure into areas such as structured credit, lower middle market direct lending and middle of the capital structure opportunities where we built scaled investment strategies. Our clients are expanding their relationships with us across our credit platform, including through multi-fund partnerships and seeding new strategies. As a result, our credit AUM has grown 23% year-over-year and it continues to be one of the fastest growing areas within our firm. And finally, in real estate, we are well positioned to play offense with over $12 billion of combined dry powder and continued positive value creation across our portfolios. Over the past 2 years, we've capitalized on the substantial market dislocation to acquire high-quality assets that are not typically available for sale. We believe the real estate market has stabilized and transaction activity is accelerating. Our clients are expressing a growing interest in real estate as demonstrated by the success of TRECO's recent fundraise. Given the strength of our distinctive portfolios, we remain confident as we prepare to launch fundraising campaigns for several of our real estate strategies in the coming quarters. We made significant progress against our strategic priorities for 2025, and I'm pleased with the strength of our business across all key metrics. Our increased scale and diversification positions us well to deliver accelerated growth and generate long-term value for our shareholders. I'll now turn the call over to Jack to discuss our financial results. Jack Weingart: Thanks, Jon, and thank you all for joining us today. As you can see from our strong third quarter results, we've been successfully executing on our growth strategy. On our last call, I discussed several key building blocks we've been putting in place to drive our next leg of growth. These include scaling our credit platform, launching our next series of private equity and real estate funds and building on new products and businesses. Our Q3 results demonstrate that we're tracking well against these objectives. Our capital formation and credit is on pace for a record year in 2025 and credit deployment through the third quarter of nearly $17 billion already exceeds our full year 2024 total. Fundraising for TPG Capital X and Healthcare Partners III is off to a great start and with more than $10 billion raised in the first close. And we continue to expand through organic innovation. As Jon mentioned, we raised $2.1 billion of capital for TRECO, our opportunistic real estate credit fund, including related vehicles, and approximately $900 million today for T-POP, our new perpetual private equity product, which I'll expand on later. Additionally, earlier this year, we launched fundraising for our second GP-led secondaries fund which is tracking to be significantly larger than its processor. We ended the third quarter with $286 billion of total assets under management, up 20% year-over-year. This was driven by $44 billion of capital raised and $24 billion of value creation, partly offset by $26 billion of realizations over the last 12 months. Fee earning AUM increased 15% year-over-year to $163 million. These figures include TPG Peppertree, which closed on July 1 and added $8 billion of AUM and $4.5 billion of fee-paying AUM. As a result of our strong fundraising in recent quarters, our dry powder has grown to a record $73 billion. This represents a real strategic asset at a time when, as Jon indicated, our teams are sourcing very interesting investment opportunities. AUM subject to fee earning growth was $35 billion at the end of the quarter, which included $24 billion of AUM not yet earning fees. This represents a revenue opportunity of more than $220 million on an annualized basis. Our management fees grew to $461 million in the third quarter, driven by the activation of TPG Capital X and the addition of TPG Peppertree to our Market Solutions platform. We generated $38 million of transaction and monitoring fees in the quarter and $163 million over the last 12 months. We continue to invest in building our capital markets franchise. And as we look to the fourth quarter and into 2026, we expect to drive further growth in transaction fees. We reported quarterly fee-related revenue of $509 million, fee-related earnings of $225 million and a 44% FRE margin, which tracks well against our previous guidance of exiting the year with a margin in the mid-40s. Our distributable earnings for the third quarter were $230 million, which included $30 million of realized performance allocations, driven by our full exit from Sai Life Sciences, which has traded up nearly 70% since its IPO in the India Stock Exchange last December and the full sale of Samhwa, a leading cosmetics packaging company in Korea. This marks a strong first exit in TPG Asia VIII less than 2 years after our additional investment in the company and is a great outcome for our Asia franchise. I'd like to take them on explain the relationship between our monetization activity and our generation of performance-related earnings for shareholders. During the quarter, we continued to drive strong realizations across our portfolio, which increased nearly 40% year-over-year to $8 billion. The reason that PRE did not increase commensurately relates to the timing of profit allocations early in a fund's life. In addition to Sai Life Sciences and Samhwa, realizations during the quarter included early exits in several other funds, such as our highly successful sale of Elite in TPG Capital IX. These exits drove attractive profits and DPI for our fund investors, but did not result in significant performance allocations as the gains went to repay fees and expenses, which is typical for the first exits in the fund. Looking forward, this sets us up for increased performance allocations from the next series of exits in these young funds. On an LTM basis, we've generated $262 million of performance-related earnings for shareholders, which is 140% increase compared to the prior 12-month period. Our clients recognize the differentiated DPI we've delivered and we've continued to drive monetization activity since quarter end. In October, we completed our first major liquidity event in our GP-led secondaries business, TGS through a partial realization of CR Fitness, a leading fitness franchisee at an attractive valuation. Since our initial investment, our sponsor partner, North Castle and the management team have driven exceptional growth at the company, more than doubling both the number of active clubs and EBITDA. And just last night, our Rise and Rise Climate portfolio company Beta Technologies, which has developed electric aircraft capable of vertical takeoff, successfully priced a $1 billion all primary IPO. This IPO was very well received, allowing the company to upsize the offering and price above the filing range. Moving on to our balance sheet. We drew on our revolver during the quarter for several growth initiatives, including funding the cash consideration for Peppertree and seeding the portfolios for new businesses such as T-POP. We issued $500 million of senior notes during the quarter and used the proceeds to pay down our revolver. As a result, our net interest expense increased to $23 million in the third quarter. As of September 30, we had $1.7 billion of net debt and $1.8 billion of available liquidity, giving us ample flexibility to continue pursuing new growth initiatives. Given our increased diversification and strong financial profile, during the quarter, we did receive an upgrade in our credit rating from Fitch to A-. The fundamentals across our portfolios remained strong, and we delivered positive value creation in each of our platforms for the third quarter and over the last 12 months. As Jon mentioned, recently, there's been a heightened focus in the market on credit quality due to a few high-profile defaults. Importantly, we have no exposure to those events, and the underlying health of our credit portfolio remains strong. In aggregate, our credit platform appreciated 3% in the third quarter and 12% over the last 12 months. In middle market direct lending, our portfolio comprises exclusively first-lien loans with maintenance financial covenants. And we are a lead lender in nearly all of our transactions. We've built in significant downside protection and take an active approach to portfolio management. As a result, our portfolio of more than 300 companies continues to perform well. Nonaccruals remain extremely limited at less than 2% and our average interest coverage ratio has remained very stable at approximately 2x. In structured credit, our asset-based credit funds net IRR since inception remained above its target range at 13.5% and at the end of the third quarter. In addition, our flagship structured credit fund MVP continued to outperform credit benchmarks and returned 3% in the third quarter. Recent stress in the structured credit market has been evident in the subprime auto space. Several years ago, we identified weakening fundamentals in auto finance and our structured credit funds proactively rotated out of the sector. As a result, we currently have zero exposure. Looking at Credit Solutions, our funds generated net returns ranging from approximately 5% to 6% in the quarter, which far outpaced the U.S. leveraged loan and high-yield bond indices. In addition, our second essential housing fund generated a net return of nearly 4% during the quarter and more than 11% year-to-date. Turning to private equity. Our portfolio in aggregate appreciated 3% in the quarter and 11% over the last 12 months. Overall, the companies within our capital, growth and impact platforms continue to meaningfully outperform the broader market with revenue and EBITDA growth of approximately 17% and 20%, respectively, over the last 12 months. TPG's real estate portfolio appreciated 3.5% in the quarter, nearly 16% over the last 12 months. We continue to see strong performance and value creation in our data center, residential and industrial investments. TPG AG's real estate portfolio appreciated by 2% in the third quarter and 3.5% over the last 12 months. Our net accrued performance balance grew by nearly $200 million in the quarter to reach $1.2 billion, driven by our strong value creation in addition to $100 million of accrued carry acquired through Peppertree. Turning to fundraising. We raised more than $18 billion during the third quarter, including more than $12 billion in private equity and nearly $5 billion in credit. Year-to-date through the third quarter, we've raised more than $35 billion across our platforms, which already exceeds the $30 billion we raised in 2024. As Jon noted, private wealth is a strategic priority and an important growth driver for TPG. I'd like to share some additional detail on our progress in increasing our penetration within this channel. During the third quarter, we raised over $1 billion of capital in the wealth channel and approximately half of these inflows came from our evergreen solutions, which continue to gain momentum as we widen our distribution partnerships globally. TCAP, our nontraded BDC, raised $235 million in the quarter and continues to grow, reaching over $4 billion of AUM at the end of September. TCAP is actively distributed by 3 of the largest U.S. wirehouses, and we recently launched on one of the largest independent broker-dealer platforms. Twin Brook's focus on the lower middle market, conservative lending standards and high credit quality is continuing to differentiate TCAP relative to other credit options available to wealth clients. We're actively expanding TCAP's distribution network and expect inflows to continue to accelerate. T-POP, our perpetually offered private equity vehicle has been very well received in the channel, exceeding our high expectations. T-POP has raised approximately $900 million in its first 5 months, and we're experiencing increasing momentum as we grow our distribution footprint and investment portfolio. From its activation date in June through September 30, T-POP has delivered net returns of approximately 12%, and as of quarter end, provided exposure to 41 individual TPG portfolio companies. We're very focused on expanding our distribution for this strategy globally in 2026. Finally, we continue to expand our partnerships with global banks and wealth platforms, adding more than 20 new relationships in the third quarter. Additionally, we're actively structuring several innovative partnerships to extend our brand and increase the accessibility of our products for the wealth community, including in the RIA channel. We look forward to providing updates here in the coming quarters. Before I wrap up, I'd like to provide an update on our fundraising outlook. During the course of this year, as we anticipated, we've been experiencing a step function increase in the pace of our capital formation with a particularly robust third quarter, driven by the strong first close for our TPG Capital and Healthcare Partners funds. Most of the remaining capital for these funds will be raised next year. Nonetheless, we still expect the fourth quarter to be an active period for fundraising across asset classes. Looking at 2026, we expect to have another robust year of fundraising similar to this year, driven by a number of ongoing and new campaigns. In credit, we expect continued capital raising across all of our existing businesses. In addition, we're working on launching several new strategies to further expand our credit platform. In private equity, we'll continue to be in the market with our capital and climate campaigns. We expect to launch fundraising for the next vintage of our flagship Asia fund as well as our fourth Rise fund. On the real estate side, we expect 2026 to be an important and significant year for our franchise. We'll begin fundraising for the next vintage of TPG Real Estate's flagship fund and TPG AG real estate funds in both the U.S. and Asia. We also remain highly focused on diversifying our sources of capital and further penetrating the fastest-growing distribution channels. In Private Wealth, we expect to grow our distribution network in the U.S. and internationally and launch additional semi-liquid and yield-oriented products across asset classes. Additionally, we continue to organically expand our insurance relationships and evaluate broader strategic partnerships and inorganic opportunities. Based on the increased cadence and consistency of our capital formation efforts over the last few years, we've clearly been successful in expanding and diversifying our business. We're excited to continue building on this momentum and delivering differentiated results for our clients and shareholders. Now I'll turn the call back to Madison to take your questions. Operator: [Operator Instructions] And we'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: I appreciate the color you gave us on the relationship between monetizations and PRE and some monetizations early in funds life. What's interesting is 69% of your net accrued performance is now in funds at 5 years are older. So I'm just curious, really good monetization backdrop according to the banks, brokers, you guys. So just how does that inform us about the realization pipeline that you're looking at given the age, timing and all the other comments? Jack Weingart: Yes, good question, Glenn. Let me start just by explaining that vintage page a little bit because I don't think we've done that in the past, and then Todd will expand a bit more on our outlook for PRE. But on that vintage chart, when we say vintage, the category vintage is before 2020 and earlier, that refers to the vintage of the fund itself not to the underlying portfolio of companies. So the biggest category there, for example, is TPG VIII, which is 2019 vintage fund. So those investments were made largely in 2021, '22 before we raised TPG IX. And then growth 5, the 2020 vintage fund, that's another big category in that kind of aged vintage bucket. And that's a 2020 vintage fund where most of those deals were done in 2021, '22, '23. So despite 2020 sounding like an earlier vintage, the vintage of the underlying investments are actually still pretty young. So that being said, that's what that page means. And Todd will expand more on our approach to monetization. Todd Sisitsky: Yes. I think just to echo what Jack said, these are a lot of newer deals. We are folks who drive growth in those investments that takes sometimes a couple of years, but we feel like we're at the appropriate cycle in terms of the liquidity in those funds. And I'd say that without repeating much of what Jack said, I do feel like DPI and liquidity has been a real differentiator for us. We approach it with a lot of intentionality. I think we bring the same level of focus and intensity that we do the investment decisions, which I think has been a differentiator for us, which is part of the reason we were net sellers in capital and growth in 2021, '22. We were net buyers in '23 when market pulled back and then net sellers again in '24. As I look forward, I feel like we are constructive on the liquidity prospects and feel like we have -- at present, we have a number of assets we're exploring liquidity around. Jon mentioned actually the majority of TPG Capital's investments in the last fund have been carved out and structured relationships. In many of the structural relationships, we actually know who the buyer of the business will be. In many of those cases, we have put call relationships, which I think is another interesting feature and a pretty unusual set of opportunities. The majority of the deals in capital over the last many years have been sold to strategics. The strategics, I think, are perking up and are active. We've also mentioned some IPO -- recent IPO as in yesterday. We've had more than 13 IPOs in India in the past few years. So we're taking advantage of those market opportunities as well. But overall, we feel good about the momentum in the portfolio. We feel good about the dialogues we're having, and we're constructive on the liquidity environment. Jack Weingart: Glenn, my comments on the call were meant to basically indicate that we are still aggressive on the monetization front. The timing issue I described is how that flows through to PRE. If the sales were made in more mature funds that had already had exits pay down the fees and expenses, which is the normal way a waterfall works, the PRE during the quarter would have been probably twice the $30 million. Todd Sisitsky: And so now eventually, we've cleared the decks. The next exit out of those funds should be -- should flow through to PRE. Operator: And our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: We also have a question on realizations, but aggregate realizations, not PRE. For the first time since you IPO-ed almost 4 years ago, it is once again raining IPO and M&A announcements. If this continues, can you help us frame the level of realization potential out of your PE and growth capital businesses over the next year? And the reason I'm asking TPG this is the last time we had this backdrop in 2021, TPG was arguably the most active in the industry of monetizing. And it sounds like your commentary today is constructive, but maybe not super bullish. Jack Weingart: Maybe I'll start on that, Craig. It's Jack. The way I think about that, as you know, we don't forecast realizations and PRE for a good reason. We're going to sell companies when it's the right time to sell companies, and we have all the complicated waterfall mechanics that I just talked about. That being said, the way I think about it from the top down is our accrued but unrealized PRE performance allocation balance is now up to $1.2 billion, right? We acquired some PRE from -- accrued PRE from Peppertree. That was half of that increase. The other half was -- so we're seeing that balance start to grow again. And as you and I have talked about, one way to frame it is through a cycle, you would expect that we would monetize that balance over, call it, a 3- or 4-year time period. And the more attractive the market gets, the more we'll tend to lean into that. But the most important question is what are the underlying companies? Have we achieved our value creation plan? And is it the right thing to do for our funds and our investors to sell that business? And that will be our framework for thinking about each exit through the course of the year next year. Jon Winkelried: Craig, it's Jon. I think your interpretation of it is slightly off. I think that what -- when we were talking about this, I think what we were trying to communicate is this intentionality around what we do and how we do it. And when you look at how we built our portfolios across Capital VIII, Capital IX and now into Capital X, again, Todd just mentioned this, the dynamics of the strategic partnerships that we have in a number of cases, actually having strategics work alongside of us to know essential -- because they want an opportunity to acquire an asset. I think that what we've done is try to set up our portfolios in a way where we have multiple pathways in terms of exit opportunities. You look at the size of our companies, the size of our businesses. One of the things that we focus on, obviously, is creating value, which I mentioned in my comments, in terms of revenue growth, EBITDA growth and also trying to be intentional about where in the life cycle of that value creation, we actually start to think about selling or monetizing assets so that there is more in the tank as we think about who's ultimately going to buy the asset. And I think that if you look at our portfolios, I think we're actually overlaying that, by the way, is sort of a perspective on where valuations are. You made the point about '21, '22. We leaned in, obviously, and we sold our entire software portfolio back then because of the way we perceive valuations in the market. That turned out to be a very good decision. I would say that the -- what we meant -- what we're meaning to communicate is that we're as focused on how we think about making decisions around the buy in our portfolio as we are on the sell. And I would say that you should expect us to be active as it relates to how we think about monetizing our portfolios. And so I just wanted to clarify because I think your interpretation is a little bit off. Todd Sisitsky: Just the last thing I would add and both Jon and Jack have referenced it. One of the reasons I think we're constructive on the exits is just the strength of the portfolio performance. We have a portfolio on an LTM basis across private equity that's growing EBITDA at 20% plus and none of the platforms on an LTM basis are below 15%. They're all really performing well. And that is, of course, when we think about the strategic exits, but also IPOs, that's the best leading indicator. Operator: And we'll take our next question from Ken Worthington with JPMorgan. Kenneth Worthington: We're seeing far more concern about AI disrupting certain parts of the software technology and business services area. Two parts here. One, as you think about your investment portfolio, do you see any risks in the investment as that theme plays out? And then maybe hopefully more interesting, how do you feel about being on the winning side of this technological shift either through Peppertree or elsewhere in your various business verticals? Todd Sisitsky: Sure. Thanks for the question, Ken. We've been very early investors in AI. We started over a decade ago with C3 AI and had a number of the early predecessors to today's company as well as a number of the companies that are in the headlines today. And actually, some even limited to the equity side. Credit Solutions actually what I think is the first substantial debt investment in AI by leading the race for xAI last quarter. It helps that we're based in San Francisco. And with a good arm, you can probably hit more than half of the AI companies from our building. And we've invested significantly in AI capabilities. So we have an AI center of excellence in which our operations and business building team drive AI adoption on each of the portfolio companies. We have a lot of investments recently in AI specific human capital, the former Chief Technology Officer at Accenture, one of the co-heads of McKinsey software business. So AI is really part of everything we're doing now. It's moving quickly. It's part of every underwriting decision. Technology, in general, software, in particular, are certainly in our power alleys. I think you were specifically focused on the impact of AI there. Our software portfolio is growing earnings at 22%, 23%. And I do think it's having a meaningful impact, but that is having a meaningful in both directions. There's some real opportunities and net beneficiaries from AI. So for us, we've been spending time in areas like vertical market software, fintech, cybersecurity. We've seen that in a number of our recent investments. We've probably been a little more cautious on some of the broader horizontal themes in infrastructure software, where we see AI changing the landscape very quickly. And again, every single underwriting decision, not just in software, but particularly in software, has a high intensity focus on the impact of AI. Even in companies like health care IT, just to use one example, one of our largest investments in the last few years is a business called Lyric, which we bought out of UnitedHealthcare. It looks at 60-plus percent of the primary claims in the U.S. health care insurance industry. And so you would think as an algorithm-based business, you would have a big impact from AI. But for years and years, we have been the only ones on an aggregated basis that have a proprietary look at all that data. So AI really isn't a threat. Instead, it's an opportunity for that business to expand its footprint beyond the primary claims editing space. So it's really a very company-by-company analysis. And in the companies that I think we lean into, we really feel like it's an opportunity. To your point, AI has a huge impact on health care. It has a huge impact outside of equity in -- on the credit side as well. And we feel like we have assembled the right team and the right internal rigor to make sure that we're thinking quite dynamically and in an intentional way about how to make sure that we're on the right side of AI and then leveraging AI to drive performance in our portfolio companies. Operator: And we will take our next question from Alex Blostein with Goldman Sachs. Alexander Blostein: I wanted to spend a minute on credit. It feels like momentum in that business is finally starting to take off. We saw it with fundraising for the last couple of quarters, but it looks like deployment is also starting to catch up. So maybe spend a minute on how you see the growth evolving from here, where the incremental benefits on fundraising are coming from. And I think one of the items you highlighted also launch of new products when it comes to credit into 2026. And I was hoping you could expand on that as well. Jon Winkelried: Yes, sure. Thanks, Alex. It's Jon. Look, I think as we said in our comments, this has been the underlying thesis of when we acquired the Angelo Gordon business was that it was a platform that had a multi-strategy approach in terms of across lending, structured credit solutions, total return opportunities. And that inside of this firm, it would essentially step to the next level, both from the perspective of capital formation, but importantly, in terms of the overall ecosystem to originate and source transactions. And I would say that it's hitting on every cylinder in terms of the ability to scale the businesses. If you recall, one of the things that we said early on in the acquisition was that the businesses were out originating the capital base, essentially being undercapitalized and that's fundamentally changing now. You can see it in the scale of our capital formation across all of those businesses. You can see it in the uptick in relevance of our open-ended vehicles as well like TCAP that Jack talked about in terms of the acceleration. If you look at the inflows, for instance, into TCAP, our inflows are -- the slope of the line is steepening in terms of our inflows and the relevance of that product in the market. Same thing is happening in MVP in our structured credit business. What we've done is we have begun now also to really think about sort of the next level with respect to the various cost of capital -- the cost of capital of various investment strategies, particularly to serve our insurance company clients. I mentioned in my comments, the substantial increase in engagement with insurance clients. That is continuing -- continued in this past quarter. It's continuing again and really structuring various types of vehicles for our insurance company clients, whether they're funds of one or SMAs and moving now into things like IG risk in terms of being able to serve the insurance client across a range of assets and across a range of returns, which is obviously what is necessary in order to serve that market. We continue to have -- one of the things that we're observing in that part of the market is that I think there is an increasing awareness on the part of most of the life and annuity players in the market, but it's also getting broader than that, that not being -- not having partnerships in the alternative side of the business is very dangerous from a strategic competitive position. So as a result of that, because we don't own a captive at this time, we continue to see that dialogue increasing with respect to various forms of partnerships with a variety of different insurance clients, both here as well as internationally. And so I think that that's going to be -- I believe that what will happen over the course of the next number of quarters, over the course of the next year or so is we're going to continue to see sort of step function increases in the engagement that we have in that market. Likewise, I think we're working on expanding our capabilities with respect to the kind of retail wealth markets. And one of the things that we've been focused on is how do we access that part of the market more effectively, more efficiently in much bigger size. And Jack alluded to this in his comments, but I think that hopefully, we'll have some things to talk about over the next couple of quarters where we've had some meaningful progress and that's really all we can say about it at this time. But we're very focused on the ability to deliver return streams that, in many cases, are a combination of liquid and illiquid or liquid and alternative products. And so we're putting ourselves in a position and growing our capabilities to be able to deliver that. Lastly, I would say that other areas of growth for us there -- we've talked about this before, and I think you'll recognize this, but we have a best-in-class lower middle market lending franchise in Twin Brook. And one of the things that we have identified as a result of the sourcing capability that we have in both Twin Brook as it relates to our relationship as well as from Credit Solutions, where we're seeing larger kind of bespoke transactions and sourcing in some cases, even that's coming through relationships we have with sponsors from our private equity business, we are building into the next level of lending. We like to call it sort of graduating companies. It's a little bit broader than that, but we'd like to call it graduating companies where we have companies, over 300 portfolio companies in Twin Brook. They start life as companies that are generating $25 million of cash flow and less. And then they end up life at $40 million, $50 million, $60 million, $70 million, $80 million of cash flow, and we've been the lender to those companies for 3, 4, 5 years. We know those companies better than anyone. And so the risk dynamics of us extending into that part of the market is something that we have a reason to win. And so we are -- and we'll have more to say on this again also over the next quarter or 2, where we'll formalize this, but we are building into the next leg of growth in that, and we're already seeding a portfolio and we already have some traction with respect to some LP partners of ours that will anchor the strategy for us. But it's just a little bit too early to kind of roll it out, but we will be rolling it out over the next couple of quarters. So hopefully, that gives you a sense for sort of what the growth drivers are. Jack Weingart: I think, Alex, when you cut through all that, we're basically early in a multiyear period of growth in fee-earning AUM in credit, right? As -- you alluded to the fact that we're starting to see deployment pickup and fee-earning AUM. While that's been happening, our dry powder in credit over the past year has also increased by 35% or more percent. And as Jon said, we have multiple channels for additional fundraising and AUM growth that will flow into FAUM. So we expect the next several years to be attractive growth years for our credit business. Operator: We can move next to Steven Chubak with Wolfe Research. Steven Chubak: Can you guys hear me okay? Jon Winkelried: Yes. Can you hear us? Steven Chubak: Yes, loud and clear. So I wanted to ask on FRE margin lever. It came in above expectations in 3Q, 69% incremental margin, certainly a market improvement versus a 51% in 2Q. So while you reaffirmed the mid-40s FRE margin exiting the year, thinking about this longer term, just given prior comments supporting meaningful upside to FRE margins as the business scales, whether that higher mid-60s incremental margin is, in fact, a sustainable run rate, even with all the investments you had spoken of and how it informs your outlook for the FRE margin trajectory next year and beyond? Jack Weingart: Yes. Good question. We are reiterating our guidance to exit this year in the mid-40s. As I've said all along, that is not an end point for us. I think you're exactly right to be looking at the incremental margins in connection with growth in FRR. And we do see that to be well above the mid-40s. How far above will depend because we are investing and building what we want to grow in the next 5 or 10 years as a business. We're investing in things like building out our private wealth distribution business and many other areas. And we're going to continue to invest in our business. That being said, I would expect continued FRE margin expansion in the next couple of years. We have not yet given guidance on when we might get, for example, 50%. But 45% is a step along the way. Operator: And we will move next to Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe just to go back to your comments on fundraising outlook. Great to see the really strong momentum here. I think, Jack, you mentioned '26, you obviously expect to be a robust year similar to '25. Just in terms of the new funds that you're bringing to market, just wanted to -- it seems like '26 should be even stronger than '25. I just wanted to make sure if I understand that correctly. And the reason I'm asking is because I think you've got Asia coming. Real estate, obviously, is a large stem function of Rise IV is coming to the market. You still have capital in the market and then probably continued growth in credit and wealth. So I just wanted to understand if that's the case. And if I could just throw in a question on the deployment and the transition infrastructure fund with Kinetic. Is that continuing to increase that deployment capability in terms of how you're seeing that form for fundraising for the Rise Climate segment of funds? Jack Weingart: Yes, thanks for the one question, Brian. We -- look, on the outlook, I was intentional in my words. I think next year will be a continued robust year. There are some puts and takes versus this year. Obviously, we had a very large initial close for TPG Capital and Healthcare Partners. We do expect to raise some more money for that in the fourth quarter. So that next year will be likely less capital risk because we've already raised well over half of our target we will have by the end of this year. On the growth side, we had a big final close for growth earlier this year. And our growth franchise in the U.S. won't be in the market next year. On the real estate side, one of the things that might be throwing you off, I think when I talked about our flagship real estate launch being an important launch next year, the way we're currently thinking about it is the majority of that capital will probably raise the following year because we probably won't have our first close until the back half of '26. So -- and you're right that we absolutely do expect continued robust fundraising on the credit platform, as Jon mentioned. So when you cut through all that, we see some puts and takes. But this year being as strong a year as it was, up more than 50% over last year, some might have expected a step down next year. We don't expect that. Jon Winkelried: Just on your sneak in second question on deployment around TI and climate, I guess, generally. I think, first of all, we're -- across the strategies, I would say that we are seeing really unique deployment opportunities, really unique. And we like what we're seeing. We think we're going to generate differentiated returns. And again, we've said this before, but we think that across these various types of climate strategies between private equity and infrastructure that it's a generational investment opportunity, and it's a global opportunity as well. So I think that we've been quite active. Just to give -- just to put a pin in that, I think we've deployed $2.3 billion of capital this year across those strategies. And obviously, Kinetic being the most recent on the TI side, that was our second investment in TI. And so that continues to be a portfolio that we're building, and we're fundraising alongside of it contemporaneous with that. And I think when you look at the trends going on around in the world in terms of the demand for power on a global basis, electrification, colocation opportunity, storage, et cetera, we're seeing really interesting opportunities. And again, we're seeing it on a global scale. So we're very enthusiastic about what that ultimately will look like, and we're -- it's a very active strategy. Operator: And we will take our next question from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about M&A. You guys have done a number of inorganic transactions already over the last couple of years. So just curious, as you look at the platform today, what's left to fill in to accelerate one scale or presence? Where might inorganic activity be helpful? I'm just curious what you're seeing on that front. And how do the recent transactions inform your approach as you look forward? Jon Winkelried: Yes, sure. Thanks, Michael. Look, I think, first of all, I would say that we have been -- as you know, we've been very focused and intentional about the type of inorganic activity that we've engaged in. And we feel like where we have executed, we're executing really, really well. And there's a lot -- there's -- I think you have an appreciate -- we've talked about this before. You have an appreciation for the fact that it begins with the deal and -- but that's sort of like the tip of the iceberg and most of it is underneath from there in terms of execution, integration and really making it work, cultural engagement and then growth. And we feel like we have been very successful at it, and we feel like we've devoted a lot of skills in terms of understanding how to do it. So it's something that we feel will be a kind of arrow in our quiver in terms of growth on an ongoing basis. One of the other things that I think we see happening is that because of the overall trend line in our industry, which is, I think, the kind of the bigger getting bigger, a trend towards consolidation, I think that one of the things that we see happening is we -- because of our having established our bona fides and being able to do this well, I think we are the recipient of a lot of incoming across a range of different strategies. And that is very helpful because obviously, we have a good look at what's going on. And in many cases, what we're finding is that potential targets or counterparties want to engage with us on a proprietary basis which is also an attractive way to kind of at least evaluate whether or not it's something that makes sense for us. And if so, then execute on it on terms that make sense. So we're -- I would say that our overall kind of business development effort is pretty active just in terms of seeing opportunities and evaluating them. We're going to be picky as you would expect. There are areas that I think, without getting into too much detail, I think there are areas in the market that continue to be interesting to us. Obviously -- and there's not only product strategies, but also geographies as well. I think that we're continuing to focus on how to continue to broaden our footprint in Europe, as an example. And there may be sort of opportunities there that develop for us. Nothing to do right now today, but I mean that's just an area that interests us because we are a global firm. We could find opportunities that I would describe as kind of tuck-ins or fill-ins in our credit strategy that might be interesting to us. There are areas potentially related to the build and infrastructure that might be interesting to us because obviously, we have 2 pieces to that now, TI and then also Peppertree. And I think we want to continue to think about how does that part of the market expand for us. There's a lot of interesting developments going on in the market as it relates to secondaries in our market. As the primary markets across all the asset classes grow, I think the secondary flows are going to become more and more important to the market. So that's another really interesting area. Operator: We'll take our next question from Bill Katz with TD Cowen. William Katz: I appreciate all the guidance and discussion so far. Maybe just 2 areas of growth seems still being the wealth and the capital markets areas. So I wondering if you can maybe update us on maybe where you see the incremental spend. And then on the wealth side, in particular, just sort of curious, you mentioned a number of times, new products, new geographies, maybe unpack that a little bit in terms of where you see the greatest opportunity in the near term. Jon Winkelried: Jack, why don't you start with wealth? Jack Weingart: Sure. Bill, thanks for the question. Look, wealth is a multiyear build for us, right? The starting point was launching T-POP alongside our existing products and the existing evergreen products, MVP and TCAP and getting kind of the flagship private equity product in the wealth channel on the evergreen side launched effectively. And that, as I mentioned, is off to a great start with lots of room to grow from here. The $900 million is the latest AUM number we've announced there, and we see substantial continued growth through the rest of this year and next year. Part of that growth, all of that so far has been almost entirely on 3 platforms. In the platforms in which we are selling T-POP, we are one of the most attractive or high volume private equity evergreen products, if not the most active. That -- so it's extremely well received, but we're very early in the expansion across additional distribution partners. So through the course of next year, you'll see that. You'll see us expanding partnerships to broaden out and globalize effectively the placement of T-POP. Along with that, there are several additional products that we feel like we're well suited to bring to market. The first would probably be a multi-strategy credit interval fund. We talked about how well received TCAP is as a direct lending BDC. The other businesses, as we've talked about, that we have in credit through Angelo Gordon are also distinctive businesses in structured credit, Credit Solutions, et cetera. So having a credit interval fund that much like T-POP feeds on all of our private equity deal flow that benefits from all of the flow across our credit platform, we're seeing on demand for that in early -- I'd say, mid-stage discussions with potential channel partners who want to see that product. And then the next tent pole would be in real estate. We have no nontraded REIT at this point. We have an excellent real estate business that's diversified across lots of different components. So we're in active discussions with channel partners who would like to see a real estate product from us. So that's kind of a near-term road map with more to come. Jon Winkelried: I think on capital markets, I think that you should expect that our capital markets business will continue to grow. Obviously, it's a transactional business. So the general flow of opportunities is correlated -- capital markets will be correlated to that. But one of the things that has happened over the course of -- I'm sure you've seen it in the trajectory of our revenue over the course of the last several years is that as we have been embedding our capital markets capabilities into each of our platforms in each of our product areas, we're involved in as a capital provider, as a capital arranger across almost all of our businesses now. And with the addition of our credit franchise, it's taken sort of a next step with respect to our ability to use the broker-dealer and use our capital markets capabilities to distribute and to source. So I think that our outlook for that is that as the firm grows, it will continue to grow. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks. Gary Stein: Great. Thanks, operator. Thank you all for joining us today. If you have any additional questions, please feel free to follow up directly with the IR team. Operator: This concludes today's TPG's Third Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.
Operator: Good afternoon, everyone, and a very warm welcome to the Quarter 2 Analyst Meet of Mahindra & Mahindra Limited. For the main presentation today, we have with us our Group CEO and MD, Dr. Anish Shah; ED and CEO of Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. Once the presentation concludes, we will start with the Q&A session. Just a reminder, this meeting is being recorded. For the purpose of completeness, I wish to read this out. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. With that, I now hand over to Dr. Shah for opening remarks. Anish Shah: Thank you, Divya. Good afternoon, everyone. Just before this at the press meet, I started by saying that I'm delighted to announce results for this quarter. And as many of you know me well through many, many quarters, I don't think you've heard the word delighted from me so far as yet. It's always been good, steady performance. We are doing well. We are on track. But this one is different, because we've seen all our businesses come together. And take in the challenges of the quarter, it wasn't an easy quarter overall. But despite that, I would give a lot of credit to our teams across businesses. And therefore, you also see a simplified version of a key messages page, because sometimes when the numbers say what they have to, you don't need to say much beyond that. And what you see is a strong performance across businesses with Farm profits up 54%, with Auto at 14%, but impacted by the GST transition, because a number of vehicles were not delivered from September 8 onwards, or rather delivery was postponed to October. And 14% generally is a very good number, but in the context of our overall numbers, we feel that it could be higher, and that's again because of the transition. Mahindra Finance delivers. We've been talking about Mahindra Finance for some time, and we'll give more details on that. But I look at this as sort of the end of Phase 1 in terms of what we had to deliver for Mahindra Finance and a very strong quarter with 45% operating profit growth. TechM, on track, profits up 35%. This does include exclusion of a one-off gain from land sale last year, and that is, therefore, an operating number of 35%. Growth Gems are accelerating. As you heard before, I typically don't talk much about profits for Growth Gems, because we are looking at investing in these businesses and growing them multiples and therefore, we will look at profits for a few years down the road, not today. But despite that, we've got a good outcome for Growth Gems right now. And on balance, consolidated profit is up 28%. Accounting for three one-offs, first is gain from land sale last year. Second is gain from PLI this year in this -- what was recorded in this quarter, but for prior quarters. And therefore, we've countered the prior quarters' part obviously as a one-off and are not taking that gain into account. And third is the tax payment on SML Isuzu transaction of about INR 217 crores. So, those are the three that we've taken out. And therefore, we want to show the operating profit numbers, which is up 28%. ROE annualized is up 19%. With my standard caveat, which is, please do not expect 19% going forward, it will always be in the range of 18% and could be slightly higher or below that. Consolidated numbers, revenue up 22% year-over-year. Year-to-date, up 22% as well. So, it's not just a quarter. It is performance for the year. Profit operating up 28% for the quarter, 29% year-to-date. And therefore, I want to go back to the reason for the word delighted is, this time we've got all our businesses really contributing in a very meaningful way. It's not just the numbers, it's the quality of the numbers behind all our businesses contributing that delivers that outcome. Drivers of consolidated PAT. Auto and Farm up 28%. Tractor volume, strong at 32%. Auto volumes, given the transition, a little lower at 13%. You'll see a steady margin expansion, completion of the SML acquisition. And that has driven again a very strong outcome for the Auto and Farm businesses. TechM and Mahindra Finance, both businesses that are on a track to meet peer averages and then over time, exceed peer averages. I think Mahindra Finance has completed that first phase, as I mentioned. And what you see here, again, is great results for both businesses. And Growth Gems, where we've got a 5x growth challenge, what you see is 22% increase, a one-off here, which is not a one-off we captured in our overall numbers. There was a onetime tax impact, which we've just basically shown for the Growth Gems only, and because our overall numbers are smaller. But real estate is strong. Aero has continued strong wins. The Airbus helicopter fuselage, that we will supply globally, is a big win for the Aero structures business and Accelo has continued growth momentum. Auto, a little more details on the Auto business. Revenue up 25%. As you've heard from us before, there will be a mismatch between revenue and profit growth for a few reasons, and Rajesh will cover that in more detail as well. SUV penetration from an electric standpoint is 8.7%, up 90 basis points sequentially quarter-on-quarter. And export momentum is strong. This is a growth vector for us, and we are seeing a 40% growth in exports. And hopefully, we continue to see that be a meaningful growth vector as we go forward. Market share, this is a remarkable number, up 390 basis points from a revenue standpoint year-over-year for the same quarter, literally 4 percentage points of market share gain. LCV market share, despite it being 50% plus, has increased as well by 100 basis points to 53.2%. And that has resulted in the profit numbers that we've talked about. Farm, just outstanding execution on the ground. Premium segment growth, albeit from a small base. Operational execution driving both profits and cash. You'll see the cash numbers a little later as -- presents them. And we've completed the sale of SAMPO in Finland. We continue to maintain that discipline. And what we've always said is where we need to exit a business, we will. And this is what we've done with SAMPO. And market share up 50 basis points. Farm revenue starting to deliver the potential that we've been talking about for some time, up 30%. INR 330 crores of revenue for the quarter is starting to move towards profitable -- is profitable now as well. And therefore, you see again the remarkable number of profit after tax growth of 54% for the Farm business. As you think about achieving full potential, Mahindra Finance is one where, I look at this as a breakout quarter. We've talked earlier about improving asset quality, about tighter controls and technology and data being a key part of the business. All of that is done. Asset quality is maintained steadily at less than 4.5% for GNPA. It's at less than 4%, in fact, for this quarter. Controls, a lot of work has been done, and the business has a much stronger set of controls now. We are looking to pivot to growth. Because we've got technology and data also largely in place with the UDAAN stack that we've talked about in the past going live and very strong adoption across our teams for UDAAN, which is effectively creating a whole new system architecture, a much better customer experience and a much easier process that will result in not just customer delight, but also lower costs as we go forward. And that digital transformation is done. We also see a NIM improvement this time of 47 basis points. AUM growth of 13%. This is despite not really focusing on growth for the last couple of years, but we will, as I said earlier, pivot to growth now. And that has overall resulted in a very strong number of operational performance, 45% profit after tax growth for this quarter. Tech Mahindra, on track. Gains in BFSI, Manufacturing and Retail in a tough industry. Accelerated our AI effort have launched Orion. Margin progression is on track, it has been outlined by us as well. And therefore, we feel good about where this business is and again, reflected in some ways in the operational PAT number of 35% growth. As you look at our scalable Growth Gems. Logistics, with Hemant coming in has seen just a remarkable improvement across various parameters from an operational standpoint. We will start seeing the benefits of that from a financial standpoint as well, but that will take a little bit of time, not too long. But we're starting to see some very, very strong execution. And we see the first quarter for a positive gross margin for the Express business, white space reduction, which is excess warehouse space that we had has been reduced quite significantly, not at the level where we want it as yet, but still more work to be done on that. E-commerce segment growth, revenue is up 11%. EBITDA is up 70 basis points at 5% and putting the business on a very solid turnaround track that we'll start seeing more results for. Hospitality, occupancy hurt by some of the weather-related issues in this quarter. And that's been offset by average unit realization being much higher at 85%. We're starting to focus a lot more on quality and on the average unit realization as compared to just number of members. So, number of members, you will see 1% growth, but this is a key area for us. Some geopolitical headwinds for our Holiday Club business in Finland, but it's a business that's still profitable, a good asset overall, but it's one that we feel can do a lot more as we think about holidays going to the next level. Room inventory of 5% and on balance, what you'll see here is a good, strong business that delivers very well for its customers, has a potential to grow to a lot more. And we will come back with details on how we do that in not so distant future. Real estate on a very strong trajectory. You saw GDV last year being extremely strong. That trend continues this year as well. Last year, if you remember, we had the 37-acre land in Bhandup as part of our GDV and resulting in maybe somewhere around INR 18,000 crores. I don't have the exact number, but somewhere in that range. And this year is also on a very, very strong track. So, you're seeing this business be one that has broken out again the plan for GDV growth for -- of a presales growth rather, which is a key metric from a real estate standpoint for this decade is 14x, from what we had in fiscal '20 to what we planned for in fiscal '30. And the business is still looking at how do we grow faster than that. And that's really what we've seen here. The GDV that's required for the presales growth over the next 5 years is largely in place as well, which gives us confidence that the delivery is more based on execution now, not based on external market factors. And that's what you see in the launch pipeline. In addition to that, good realization from the IC business. So, residential presales up 89%. GDV acquired up 3x, still coming from a fairly good year last year. And that brings me to the slide that you've been very used to seeing. Consistent delivery on our commitments. ROE continues to be in the range of 18%. This quarter, it's 19.4% and EPS from the time we had committed 15% to 20% EPS growth, we've delivered a 35% EPS growth. So, all-in-all, very strong execution across businesses for us, and that's where the word delight comes from. And with that, Rajesh, over to you. Rajesh Kajuria: Hi, everyone. Thanks, Anish. Just a quick look. You've seen a lot of this. I'm just going to zip through quickly. The volumes were up 32% for the quarter. Of course, we had the preponement of the Navratras. So, it's not completely like-to-like, but still a very robust growth and gain in market share of 50 basis points. The trend continues to be a strong trend with 44% market share in the first half of this year. 70 lakh tractors rolled out between the two brands, of course, over decades, but 45 lakhs for the Mahindra brand and 25 lakhs for the Swaraj brand. Both milestones got achieved between September and August this year. Farm Machinery business saw a very good quarter, INR 330 crores. Every month clocked INR 100 crores plus. So, it was a very, very strong quarter performance. And we are seeing good momentum now kicking in into the Farm Machinery business. The farm margins were very strong. Core PBIT for -- core tractor PBIT was upward of 20% to 20.6%, which is a very strong performance and something which makes us feel good about -- normally, quarter 2 is not a very strong profit quarter. It's quarter 1 and quarter 3. So, 20.6% in quarter 2 is a very strong margin performance. This is the chart we normally show you with respect to market growth, how we are able to keep a band of margin. And we've seen now consistently last three quarters of 20% plus core tractor margin. The PBIT growth has been 44%. This is consolidated with a INR 1,600 crores profit. On the Auto side, 7% growth, as Anish mentioned, impacted by complex logistic issues starting right from 15th August and then the GST announcement on 4th September, after which we completely stopped all ICE products. So, we then had a huge bundling towards the end. But as you saw, the October numbers kind of made up for the loss in September billing numbers. Very positive trend that we are beginning to see on LCVs finally. Quarter 2 saw 13% growth for us, and we gained some market share. So, as you'll see, when we come to the LCV chart, after many quarters of flattish volume, we're finally seeing growth in the segment. The volume dip in quarter 2 is a reflection of the transition of GST and the billing. So -- but overall, depending on whichever cut you look at it, we are in the mid- to high teens. So, if you look at April to September, April to October, only festival days, retail, we are in the mid- to high teens irrespective of the cut by way of how our SUV growth has happened. Revenue market share still continues to be #1, come down marginally from the previous quarter, because of the reasons that we spoke, but otherwise, a strong performance. We introduced the two new Boleros. They got delayed a little bit because of liquidation of the older versions as GST transition was happening. But the response has been very, very strong. All versions are priced below INR 10 lakhs, which is a great opportunity to create category. And with the changes that we've made, we ourselves are pleasantly surprised with the kind of response that the market has brought forth for both of these changes and both the new versions that are out there. The Thar 3-door with the ROXX interiors coming in, some minor exterior changes, also has got a very good response. And the benefits of all of these, because both of these were mid-cycle, in the middle of festival transitions, we will see the benefits of that as we move into the next quarters. We sold 30,000 electric SUVs totally cumulative till date. Very good feedback from customers, very good word of mouth, very good analytics that we now have on the kind of usage, how much of it is more than 1,000 kilometers per month usage, 20 days more per month, so on and so forth. We will put out this analytics. We were thinking of whether we should do it today, but then we said we'll reserve that for 26th November, which is the first anniversary. And we will put out a more comprehensive customer understanding with numbers. Because, these are all connected vehicles, and we have some really good analytics on how the vehicle is being used and profile of people and percentage of customers who've run so many kilometers per day, so many times in their ownership cycle. So, there's some really good analytics. We'll put that out in a comprehensive release on the 26th of November. The Batman edition has been a huge revelation and a huge learning for us. It just shows us what -- it actually came out of customers who -- when they started seeing the Black BE 6, started calling it the Batmobile. That's what gave us the idea to do the Batman edition. And then, we tied up with it. We announced it at 300. We saw the demand is going to be way more. So, we increased that to 999, which got sold in no time. So, we're in the process of completing the deliveries. And it's -- we'll talk more as we go forward, but we've learned a lot out of how to use special editions out of the Batman experience. The penetration in our portfolio is now 8.7%, which we think is a very good number at this stage of the launch with the two products that are out. This should strengthen further as we introduce and add more products into the portfolio. In the first half, we've been at revenue #1. In quarter 2, we were #2. We had a competitor who had a new product in. And you can see that there's a small gap, but we were in the quarter marginally below #1. This is the point I was making on LCV. You see a reasonably large period of time, which was flattish. And then, we've seen 69,600 volume in one quarter as a very positive turn in the segment. The auto margins are -- this is a stand-alone without contract manufacturing. The next chart will explain this as a format we put out. So, 10.3% is, we believe, a very strong performance. This is how it breaks up. So, what you see as reported is 9.2%, which is 10.3%, which is a stand-alone business. Contract manufacturing, we make INR 10 crores on the INR 2,900 crores. So, that drops it to 0.3%. And the weighted of that is 9.2%. So, we will continue to show it like this, so that you are able to see the operating auto performance without the contract manufacturing getting merged into that. We'd also said that you will see the end-to-end of the electric performance. And hence, you see Mahindra Electric as a company, which had an EBITDA of INR 173 crores in the quarter. This only reckons the PLI for that quarter. As Anish mentioned, the PLI that we got for quarter 4 of last year and quarter 1 of this year is treated as exceptional. So, this is only the quarter 2 PLI accrued, which takes the EBITDA to INR 173 crores. And we earned INR 29 crores as contract manufacturing. So, the end-to-end of that is INR 173 crores plus INR 29 crores, which is the INR 202 crores that you see up. Last Mile Mobility had a very good quarter, 42.3% market share. And as you can see, a very strong electric volume of 32,000. The Auto consolidated, you've seen this. Revenue grew 25%, PBIT grew 14%. Coming to the event on 26, 27th, so this is my closing couple of videos. We see a huge opportunity to build on the equity we have around racing. India has become much more conscious of racing. Two things that changed. One is the Netflix show on Formula racing. The second is the movie F1. Both of these have heightened awareness around racing. We had a really good season last year. We were #4 ahead of many strong pedigree brands. So, we do want to leverage this as we start the new racing season in December in Sao Paulo. So, we have a video which we've been running over the last couple of weeks, leading into the 26th event, where we will reveal some of the new livery and the prep going into the December races. So, the first video is really about that. This is on air for the last few days. [Presentation] Rajesh Kajuria: So, this is one part of what's going to happen on 26th November in Bangalore. We've also started teasing the 9S, as we're now calling it. So, the first teaser was out yesterday, which I'll play for you now. [Presentation] Rajesh Kajuria: And the second teaser is just getting out as we speak. [Presentation] Rajesh Kajuria: So, thank you. With that, I'll hand over to Amar. We're excited about 26, 27 November. Amarjyoti Barua: Thank you, Rajesh. So, you've seen this chart, but I just -- after the media interaction, I got a few questions. So, I just want to reiterate a few things about how we call out one-offs. We don't call out something we hadn't called out last year when we are doing a comparison to last year. If you look at our charts for last year, we had the INR 304 crores gain for land sales called out last year, because it was truly a one-off event and is not likely to repeat. And so, the intent of showing that again this year is to make sure you have an operational baseline to compare to. Similarly, if you see, even though there was a big PLI gain in the current year, it was offset by the tax -- one-time tax we paid on SML, which is why that is -- the net impact of that is the INR 14 crores that's called out. You will see exactly these numbers reflected next year when you see that. So, we are very consistent in this. I just want to reiterate that, because I got a lot of questions on it after the media interview. And even the criteria for calling out something as a one-off, it is not a sub INR 100 crores or even sub INR 200 crores, we would typically take something which is above INR 200 crores as even for consideration in our one-offs, okay? So, I just wanted to clarify that. This chart gives you the picture that Anish showed on one page. So, I just wanted to reiterate again the key messages there. You see the Auto growth, you see the phenomenal Farm growth. Even in Services, you can see the TechM and Mahindra Finance. And as he called out on his chart on Growth Gems, that Growth Gems and investment line item does include a onetime charge we took for Mahindra Holidays. Details of which you can see from their reports. It is a -- truly a one-time, and it is a tax catch-up that we had to do. And we have proactively done that in line with our very strong governance standards, okay? And you can see that reflected here the big contribution from Farm, but also very meaningful contribution from Auto and the Services franchise. Stand-alone results, exactly same principle. You'll see the INR 201 crores out of the INR 304 crores, INR 201 crores was land sale of what we used to call K land, which is what was reflected last year as well. So, we've called that out. And the INR 219 crores is the tax we had on the SML transaction, that is also called out. As I mentioned, again, it's one-off. So, 23% year-to-date growth in revenue, 31% year-to-date growth in profitability, excluding those two one-offs that we have called out, okay? So, clearly, very, very strong performance. This is a chart that most proud of. Because, I think this reflects a lot of effort from the teams. Because you've got to keep both in sync. You've got good profitability, but if you don't have good receivable management, payables, et cetera, you could get out of sync. And this is something which reflects the strength of the results you have seen in the first half. You can see we started the year at INR 27,000 crores. We have spent close to INR 2,500 crores on CapEx. We have done the right -- three rights issues that you're well familiar with. We've done the SML transaction, and we paid out dividends, yet the total cash balance has increased in the first half. So, it reflects very, very strong operational results of -- across the group, but a special call out also for the Auto and Farm team for what they have done on working capital management through, as Anish mentioned, some very trying circumstances that we have seen at least in the second quarter. Okay? So, I'll wrap up with that, and we'll take questions from here. Operator: Okay. We can start with the Q&A. We'll take the first question from Kapil of Nomura. Kapil Singh: Yes. Thank,s, Divya. Congratulations team, I think it was a really tough quarter. So, solid performance. My first question is on the GST cuts, if you could just share your thoughts on what is the impact across your portfolio. So, on the Automotive side, we have the 40% GST bracket and the 18% GST bracket. What are your thoughts on how the consumers are reacting? Because some of your peers have said that the industry growth may be around 6% going ahead with 10% growth in small cars and not so much effectively growth coming from SUVs. And then, some -- maybe you can share some thoughts on LCVs and Tractors also, if you feel with the GST cut there will be some impact on demand there as well. So, I'll leave it open for you to share the details across the portfolio. Anish Shah: So, just a couple start with an overall view and then go to your question specifically, and we'll request Rajesh to answer that. Overall, I think this is a very, very good move by the government. Because for the longer term, it simplifies things as well as reduces GST. And there will be, in our view, fairly strong multiyear benefits from this move. In the shorter term, what we are seeing is the fact that the strong fundamentals of the economy were waiting for some stimulus to be able to translate that into optimism from an overall feeling standpoint, which is important as well. And we're seeing that happen right now. So, that's a shorter-term impact. And for this, I talk about across the economy, I'm not talking about Auto and Farm in particular. We operate in, as you know, in 70% of India's GDP. And we're seeing that across businesses right now as a very positive thing. So therefore, for both of those aspects, we think it's a very good step forward. Yes, little bit of pain in the short run, as we talked about, but that's fine. We'll take that any time for the benefits that we are seeing here. And with that, I'll request Rajesh to specifically answer your question. Rajesh Kajuria: Yes. So, I'll -- Kapil, I'd like to walk through all the three segments, because it's important to understand each. So, in a way Tractors and LCV, I'm first taking as one bucket. Over the last 5 years, customers have seen unprecedented price increases. At least I have been -- if you go back many years, not seen this kind of a price increase in such a short period of time, huge commodity increases that happened starting 2020, more like 2021, regulation change that kicked in, especially with BS6 and then BS6.2 and multiple other regulatory costs that got added. So, customers have seen more than 25%, 30% cost increases. This was having, especially in the LCV segment, a major drag on ability to grow. Because the fleet owner or the vehicle owner was not able to pass on that on a freight cost charge to customer. So, it was creating a drag. So, I think this was much needed to as a fillip to boost demand. And it's not a small -- I mean, I don't think any OEM could have taken a 10%, 12% price correction. It was just way too much for anyone to do to, kind of, trigger upside in demand. So, as Anish said, I think this is a very significant move from overall approach to boosting growth in the economy. So, I think LCVs will -- and we've already seen that through the festival period, but we'll see a lot of the latent demand over many quarters, which didn't kick in, probably start to kick in. That is accompanied with positive mandi arrivals and many other things. But we've been talking about mandi arrivals for a while, but I think both these needed to have come together and that's happening now. So, that's a positive enabler. On the Tractor side, again, the same thing. It is very, very high cost increases on the Tractor commodity and other things. So, it's quite a substantial reduction again for the farmer. So, it is that along with the mood right now in rural, many enabling factors. So, both of these are clear category enabler. In both these segments, these are clear category enabler in place for the GST. Coming to passenger vehicles, which is everyone has their point of view on how this story will play out. Whichever way it plays out, it's going to play out for good. Now whether some subsegment gains more or less, time will tell. Every customer set is looking for something in particular to their life when they're making a purchase decision. So, when we think of what you were calling the 40% slab, so if you think of vehicles at the 40% slab, they actually start from interestingly from even as low as INR 10 lakhs. In fact, we had done an analytics of volumes that happen in different GST slabs earlier, connected to size and price. And you'll find in the 40% of -- earlier 48% slab. Vehicles as low as INR 7 lakhs is going up all the way to INR 50 lakhs or INR 60 lakhs or more. So, now for a customer who is in the INR 12 lakhs, INR 15 lakhs, INR 17 lakhs bracket, they're still paying 40% GST and they're at a certain budget. Now, they are able to move up the ladder of feature offering for the budget they already had. So, they are not first-time buyers who are going to come into the category or not based on a certain price. But what they choose to buy, they will -- they can upgrade based on a certain price. So, there may be customers who were till now not thinking about buying, let's say, a bigger SUV. But today can, because we've enabled it. And I just spoke about an example of, let's say, Bolero or Bolero Neo. If that product was INR 1.5 lakhs, INR 2 lakhs more, it may have excluded some set of customers. But today, when they've gone below INR 10 lakh, and hence, we are also able to get the on-road benefit, because, as you all know, most states have a differential road tax above INR 10 lakhs, you start getting the multiplier effect on on-road price. This, along with reducing interest rates, creates a compelling package for those who are in the mid end of the market to upgrade either from what they were buying earlier. And as some of our peers referring to that comment would say for those who are not thinking of buying a car earlier and are now thinking of buying a car. Right? So, you have a spectrum of buyers who are going to be reacting differently. For some people, it's a question of should I buy a car or not. And the size of the overall passenger vehicle market goes up, because more people have come in, over a period of time, they're going to upgrade. And while we may not get that customer into our portfolio today, they will be our customers for the future. So, I think at the end of the day, I'm sorry, I'm giving you a very long answer to your short question, but I think this is going to be good for everybody. Kapil Singh: No, that was the intent. Actually, I wanted a more detailed answer. But can you cover EVs also within that answer? Is there an impact because the differential has changed? Rajesh Kajuria: So far, we are not seeing that. I still think the EV propositions. Firstly, most of our EVs are in the big size and hence, play against the big SUVs, right? So, the gap still is 5 to 40. We were not in the 5 to 28 category. We were in the 5 to 48 category. So yes, the gap has come down, but 5 to 40 is still a very substantial gap. Amarjyoti Barua: Sure. And can I just add one thing, which is a fringe benefit of this is the simplification on the working capital side for the Farm business is pretty significant. I don't know whether that was as obvious earlier. That is a business which used to have a 12, 18, 28 kind of structure, right? And now it's far simpler for the team to manage and working capital will be better managed as a result and should free up some as well. It's a big benefit. Kapil Singh: Yes. Sir, second question is on the CAFE norms. We saw some changes in the draft, particularly, I was a bit surprised to see lower credits for EVs than what was originally being proposed. Where are you placed on this? What is the EV penetration required now? Is this draft final? Do you need hybrids in your portfolio as well as you move forward? And also, if you can share some color on festive bookings since your portfolio is under transition, probably if you can share some numbers there would be helpful. Anish Shah: I'll just start again by saying that we don't believe the draft is final. There are a number of inputs that have been sent after that across the industry and SIAM also has sent or is sending a set of inputs on that. And our sense is the government will look at all of those before finalizing it. Rajesh Kajuria: So the fundamental word draft means it's not final, and we treat it as such. So, we -- there is a process of dialogue and discussion, which is on, which was the purpose of the draft. And that process is right now under discussion. In either case, as we've said, we will be ready to do what we need to do manage customer expectations and part of that is managing CAFE norms. I think the journey on CAFE is a while away. We feel comfortable that with what is likely to be an outcome, not necessarily the current draft and its process, we will be able to have enough EV in our portfolio along with any other fuel types that are needed to be able to meet the CAFE norm. So, that's the direction towards which we are working. But the draft is far from final. Kapil Singh: And sir, on the festive? Rajesh Kajuria: On the festive, I, in a way indicated that, Kapil, while I was presenting. So, there are multiple ways to cut it and everybody is cutting it in the data in different ways. There isn't any one simple way to look at it. So actually, we have eight cuts of whichever way you want to look at it. The reason I'm saying that is, this time, the first 7 days of Navratri were way better, because the period before Navratri, customers were not really buying at all. Compared to normally, pre-Navratri, you had Shraddh, but South was buying, who were not so much into the Shraddh mindset. Right? So, it's just very hard to compare anything. So, we're just looking at basically April to October as a period or quarter 2 as a period or we've also looked at only September, October. So, whichever way we look at it, we are mid- to high teens on our retails as a number. So, we are in line with what we've been thinking should be the offtake. I'm not getting into first day of Navratri to last day of Diwali, because this time demand has spilled over beyond last day of Diwali as well as we've all seen, when you look at Vahan. So, I don't think there's any one right way to cut it, and we've cut it multiple ways, but we feel overall comfortable. Given the limitations that were there of having the right product mix, because of dispatch delays and all of that. So given all of that, I think we feel comfortable about the way demand works. Not specifically reacting to bookings right now, because actually booking numbers are very, very healthy. Now it's just hard to say what of that is going to convert and we've decided not to get into sharing bookings. But booking momentum has been much stronger than retail momentum. Operator: Nitin, please proceed. Nitin Arora: Just on this consumer behavior, what you talked about, people might want to upgrade, because it's not like income is increasing. It's like the price is reducing part. How do you see that mix of -- because 1.5-liter diesel becomes very attractive, especially for the mid-SUVs versus a petrol when we look at the price bracket? And some of your competitors, especially Koreans are talking about a lot of bookings coming in the diesel in the midsize, and we have that very strong product there. So any transition, any consumer behavior you have seen a change where you see because the product is very well accepted, some market share gain can happen there, how consumer is behaving to that part, diesel versus petrol, especially in that particular segment? And second question to Anish, sir, I think as an investor, I -- 2023, I asked you a lot of questions about RBL. Anish Shah: We should have placed bets as to how soon that RBL question is going to come in. Nitin Arora: Finally, it's a very big strategy investor is there. How are you thinking about now? You already owns, I think, 60% of the bank. So just any input from your side? How you're now you're thinking about that part? So, those are the two questions. Anish Shah: So I'll start with that as a shorter answer, because as we said earlier, one of the key reasons was a treasury investment as well. We saw significant value there. And that has played out. So, if we just see the gains, it's probably more than 50%. I don't know the exact number. But for us, it is in a sense, a validation of what we had seen. And it's one that we will continue to look at as the treasury investment, make decisions on that basis from a treasury standpoint. In the previous session, with the press, I was joking and saying, someone should just do an analysis of how much timeshare this gets versus the really impact on M&M. And you'll see a huge inverse correlation from that standpoint, because everyone loves this question. So, that -- it's a good one to ask. Rajesh? Rajesh Kajuria: Your question is primarily around diesel, petrol? Nitin Arora: Diesel and petrol. [indiscernible] Rajesh Kajuria: Yes. So I'll just quickly walk through different parts of our portfolio. So, 3XO is primarily a petrol offering now more than 75%, 80% is petrol. We're not seeing -- at this point, at least, I have no input that there is a shift there towards diesel. There is a lot of shift there by way of which version becomes attractive, because as prices come down, a different version becomes attractive than what was so before the price change. So, in 3XO at least, I have not so far picked up that there's more diesel demand, because of a price drop. Though it's an interesting input, and we'll watch it on 3XO, but at least, so far, I don't have that input. On the rest of our portfolio, diesel is in the region of 70% to 75%. 25%, 30% is the gasoline. It varies from product to product. Diesel can be a compelling proposition now, because of the price drop and that puts us at a competitive advantage, clearly. So, in following up on Kapil's earlier question, different people are going to get different things out of the GST rate cut. I was earlier focusing on the ability to upgrade vertically, but an interesting perspective could be gasoline diesel as well, which will give us a competitive strength. But it's something, honestly, we'll not -- at least, we've not picked up yet, and it's some -- and thanks for sharing that. We'll watch for that more carefully. Operator: Raghu, please go ahead. Raghunandhan N. L.: Congrats on the results. Sir, firstly, on the LCV side, festive season, at least Vahan shows a very strong double-digit growth. And how do you see the full year outlook? And within LCD, for your customer set, would there be a sense on for how much of the customers would the GST be a pass-through and for how many of them would the GST reduction will actually be a benefit when they are purchasing the product? Rajesh Kajuria: Just to be clear on the second part of the question, you're talking about where they are able to get a GST set off, which is a company buying, right? That's the point. Yes. So, the second one is, let me just try and get that out of the way. For pickups, we have very reasonably large market operation buying, which are individuals are not buying in companies or small aggregators of three, four, five vehicles, who I don't think will be getting the GST tradeoff. Nal, do you want to -- you have a different take. 60% are market MLOs or whatever. So, it's a fairly large chunk, which retains the benefit. On the first question, everyone will have a different view on it. I'm sticking my neck out and saying that it's -- I think we'll -- the outlook will be a double-digit growth for the year. I think, if this momentum continues, which means not just the price impact, but there isn't too much of destruction because the late -- in crops, because of the late rains and mandi arrivals continue to be good and robust. So, the rest of the economic parameters play out the way they have played out in the last 2, 3 months, along with the rate cut. I think we'll end up the year at double digit, but some may argue that it will be high single digits. But at least, I would stick my neck out to say that, I would expect to see low double-digit growth for the category. Raghunandhan N. L.: And also on the Tractor side, now you are seeing a low double-digit growth for the full year. So, how are you seeing the mix between North and other regions, because other regions seem to be growing at a much faster pace. And also recently, there are some concerns in terms of like on the rain side, unseasonal rain side, cyclone side, anything we should read into it? So, that was the part. Rajesh Kajuria: Yes. So Maharashtra, Karnataka, in particular, have seen really strong growth this year. UP is -- UP and Rajasthan has not been all that bad, they are high single digits. So, there have been, I think, from what I remember, the 8%, 9% range. So in a way, from a market share weighting point of view, that's -- weighing point of view, that's good for, that's positive for us. These are very strong markets for both Mahindra and Swaraj, Maharashtra, Karnataka, Telangana, Andhra and so on. So, now whether this will continue, I think my sense it will continue, because some of these states were on a very low base. And including for the second half of this year. So, I would expect that this mix is not changing too much for the balance part of the year. The effect of rains, we are trying to assess. I have actually struggled to see in the past a correlation between significant off seasonal range. So often, we get this happening also in Feb, March. It's not very directly correlated to Tractor sales, it's kind of my intuitive judgment on this. But in this particular case, we need to wait and watch and see what's happening and how much damage -- the fact that there has been damage at this stage is uncommon. Normally, you get a little bit more of that in the Feb, March period, when you get the early rains and you get damage, which I have not seen too much of impact of that. Hopefully, this is not going to have too much. We are not factoring in a slowdown because of the delayed rain, which has just happened. Raghunandhan N. L.: I mean, it's delightful result. Just two, three concerns, I wanted your thoughts on that. One is that Nexperia, would it have an impact on production in Q3 or Q4. Second, on the SES refund. And third, commodity prices, precious metal has been going up. Rajesh Kajuria: Second was? Raghunandhan N. L.: SESZ refund. Rajesh Kajuria: Dealer SES? Raghunandhan N. L.: Dealer SES. Rajesh Kajuria: Yes. So, on the first one, we have a reasonably high confidence that quarter 3 is under -- fairly covered. We believe that the situation will ease out by quarter 4. If not, I'm sure you've been tracking Nexperia closely. It's a very low-value commodity kind of chip, so roughly $0.20. So, it's not hard to substitute. It's not like the semiconductor issue that was there through COVID, which were all very specialized and very hard to replace and needed extensive validation. These are more commodity-type chips. So, it's a question of finding substitutes, which -- for which we need a few weeks. We have, over the last 3, 4 weeks, already solved for many, many existing parts, which now gives us comfort that by and large this quarter is covered. Hopefully, by the time we come towards the end of November, we would have covered, with options, most of our portfolio. There is -- there are multiple stakeholders hoping to resolve this issue. It has impacted Europe OEMs quite significantly, and there's a lot of work happening between a couple of countries in Europe with China to unlock this problem. So, I don't think, as of now, we do treat it as an extreme risk and hence, extreme caution by way of mitigation. So, I hopefully, this should not be an issue. But that being said, we have to be very watchful. On the SES issue, we're just treating it right now as an issue dealers have to solve for it, sub-judice, as you all know, the FARDA has gone to the government. I mean, gone to the Supreme Court, arguing for why it can't be unilaterally discontinue. There is a valid -- they believe they have a valid case and we'll see how that plays out in court. Our view will be to wait and watch that out. In any case, it's a it's a dealer liability in the books of the dealer. Whatever we had to take by way of cost that we've incurred related to SES, we've built it in quarter 2. So, we are not carrying anything in our books over. But of course, this is a dealer point of view. Can you repeat the third question? Raghunandhan N. L.: On Material inflation, on precious metals. Rajesh Kajuria: So, precious metals had gone up. It started easing off a little bit as we all know, over the last week or 10 days. That's something that we need to watch for. Each of these are volatilities that come out of nowhere. So, we'll watch for that, is all I can say. I mean, this is all part of managing life today. You don't know what's coming at you from where. Anish Shah: Just if you don't mind me adding something on that. I just want you to although feel good that the team does have a very strong focus on this and we do hedge everything. So, there was a good anticipation by the strategic sourcing team. The precious metals will see some pressure. We have taken a hedge position from January to now, on average, three precious metals have gone up between 60% to 80%. So you're absolutely right. But we are not as exposed to this phase, because we have taken hedges. We've taken the offsetting gains for the expense that we have seen. But if, of course, the trend continues, then the hedging costs will go up and that will impact. Operator: I'll now just take a few questions online. This is from Arvind Sharma of Citi. Amar, the question is, where would PLI reflect in the stand-alone numbers? And what is the broad amount? Also, how much of it accrues to XEV 9 and BE 6? Amarjyoti Barua: So PLI actually doesn't come up in the stand-alone results because it goes into MEAL books. It is reflected as a revenue item. And the total amount for the quarter was around INR 460 crores, of which INR 150 crores pertain to INR 463 crores exactly, INR 150 crores pertains to -- INR 151 crores pertains to the quarter, and INR 312 crores pertains to prior period. That's what we have called out effectively. The tax impact of -- tax affected amount of that is what we have called out in our results. And it all is for the 9e, it's -- the 6 has not yet qualified for PLI. Operator: Okay. Next question, this is Pramod of UBS. Rajesh sir, there are three questions. Can you please share a full year guidance for SUV, LCV and Tractors? Second question, PLI by which year do you expect PLI incentives to fade for the EVs? And the third question, can you share any EV booking trend post the GST cut on the ICE vehicles? Rajesh Kajuria: Just to clarify the last question, EV booking trends or ICE? Operator: EV. Because GST has been cut on ICE vehicles, so has it impacted the EV booking? Rajesh Kajuria: Yes. So, on SUV for us, Pramod, we stay with mid- to high teens, which was what we said at the beginning of the year. We're not changing that. We believe mid-to-high itself was an aggressive outlook that we had put out, and we stay with that number. For LCV, we think it will be -- I just answered that, in a way to say, we think it will be low double digits for the full year. For Tractors, we had said in the region of 5% to 7%, I think at the beginning of the year, which we are now seeing as low double digits. So, we are upping the Tractor industry outlook from 6% to -- 5% to 7% to maybe like 10% to 12% kind of thing, so low double digits. PLI, it goes on till F '28. And we expect that will continue till then, if not longer, but hopefully, it should continue till then. The claims against PLI there's enough funds left. So, it should comfortably last us till '28. Operator: And there was one on impact on EVs. Rajesh Kajuria: Yes, the EV, it's too early to say right now, Pramod. But as you can see, even through the festival period, the overall EV segment has continued to grow rapidly with the new products coming in from competitors, the segment has continued to remain strong. And we believe that will continue, because as I mentioned, especially in the segment in which we play and some of the new products have come in, the gap between 5 and 40 is still very substantial. Of course, it has come down from 5 to 48 to 5 to 40. But 5 to 40 is still a very large gap, and we don't see that deteriorating. There have been one-off issues in Haryana, we are waiting for the EV policy to get affected, which affects the NCR region, because you have Gurgaon as part of that. So there has been an uncertainty on that. UP went through a few days of old policy to new policy. So some of the state level, things are also kind of getting clarified, which also makes a difference to on-road price. So, it's not just the GST. It's you to see it as a combination. So, the new UP policy, the benefit is only on EV and not on hybrid, which was there earlier from what came in, in October. So overall, too early to say if there is an effect, but we don't see that really having an effect on EV demand. Operator: Anish, there's a question, it stays you had expressed strong confidence that India will achieve 8% to 10% annual GDP growth. Can you please elaborate on impact of the revised GST and other government incentives and initiatives on the M&M businesses other than Auto and Farm? Anish Shah: So, not revising my 8% to 10% estimate. As I said earlier, the foundation is strong. The sentiment change with this is what we are seeing play out. And that's why we felt that the economy will grow at 8% to 10% for the next few years. M&M results as you've seen a fairly strong in this current quarter. And I can't say much for future quarters, but we will promise to deliver what is in our control and deal with things that are outside our control the best we can. Operator: There's another question there that, any further right issue capital investment planned in any of the listed or other subsidiaries in the near future? Anish Shah: There are no rights issues planned in the near future. Capital investments will be made in all businesses as we need them as part of our growth plans. Operator: Next question, this is from Chandra of Goldman. The first question there is BEV's PAC1 and PAC2. Can you please discuss how PAC1 and PAC2 mix is progressing after deliveries have commenced earlier this year? Can you also share some color on the drivers that can help raise our BEV mix towards the targeted range of CAFE 3 vis-a-vis the 8% to 10% BEV mix today? Rajesh Kajuria: PAC1 continues to be sub 10%, which is what we would desire by way of delivery. PAC2, we wanted PAC2 to be a significant PAC, because it creates the right price point, which is why we had introduced a PAC2 79, which is doing well. Right now, PAC2s are roughly 35%, 40% of each of the products. So PAC1 is sub-10%, then 35%, 40% and 50% to 60% is PAC3. Broadly that's the mix on -- to meet CAFE 3 percentage, it's going to depend on multiple things once we see the final policy get play out, whether it's going to be MIDC, WLTC cycle, whether tail pipe emissions on the WLTP cycle will be treated as zero or not. So, the percentages vary a lot. But we have new products coming in. So, the 8-odd percent penetration that has been achieved has been within 5 to 6 months of launch of being in the market with only two of our products, and there's a portfolio of products that will come. So, when we are talking about CAFE 3, we are talking about roughly 2 years away. So, we have a substantial time to get to whatever is the needed percentage from where we are today. Operator: There's another question, which says, we saw a decline in the monthly numbers for SML, last month, and a strong bounce back for the month of October. Were there any production bottlenecks or any process refinements? What was the reason for the decline in the month of September? Rajesh Kajuria: I think some of it was the transition issues around GST and getting the vehicles out, but nothing more to be read into that. Of course, the SML does very well when school bus season kicks in. So, we do see a big increase in market share in the quarters or months where school bus buying happens. They are very strong as we know, in the bus segment. Operator: Okay. This is from Gunjan at BofA. Some of these are taken. So, I'll take the ones which are not there. One, it's Tractors, solid momentum. Can you give more color on underlying trends supporting this euphoria, sustainability of this, an update on TREM 5 regulations. And the second question, how should we see the margin for MEAL trending ahead? Rajesh Kajuria: So TREM 5, Gunjan, firstly, TMA is aligned has had meetings with the Agri Ministry. TMA has also met more to kind of put reality of implications or moving to a very high level of technology from a serviceability in the marketplace. So everyone understands that implementing TREM 5 in a country like ours where you -- farmers have to have service capability or very high-end technology may not be practical. So, there is an understanding that we need the right solution for rural India, so that serviceability for farmers is not constrained. Right now, there's a dialoguing on, which is the TMA proposal to move the 25 to 50-horsepower from 2026 to 2028. That's the TMA proposal. And for the less than 25 horsepower, the date was April '26. Again, there's a conversation on to postpone that as well. Both of these are under consideration. In the less than 25-horsepower the unit cost is not that high and the technology needed is also not that hard to service. But there is a conversation on between Tractor Manufacturers Association and the rest of the stakeholders on what the implications of transitioning to TREM 5 are. On what you're calling euphoria, it has been a strong festive season for Tractors across the board. GST is, of course, one factor, but many underlying factors were building up. We've been saying over the last few quarters that the rural economy has been on a path to strong recovery. The rains have helped, reservoir levels have improved. The government spending, which is a key indicator of Tractor buying, as we've shared in the past, has been strong. Farmer terms of trade have not deteriorated. Export of crops from India have grown, which adds to cash flow to farmers. So, multiple on-ground factors have favored Tractor buying. And the GST has really enabled that process of buying. So, I think part of your question was how sustainable is that. It's really hard to give an outlook for next year, but we just stay with our outlook for this year moving up from 5% to 7% industry growth to 10% to 12% industry growth. Operator: There was another question on margin for MEAL. Rajesh Kajuria: Margin for MEAL, yes. So, margin for MEAL is going to be a series of things that kick in, which is what is the right PAC mix and pricing to enable growth in the segment. We are at that stage where we are into category creation. So, we do want to make sure that we don't lose the overall objective of driving electric vehicle penetration by way of not doing the right things that are needed to make that happen. We do have BE 6, which will, hopefully, by April 2026 meet PLI as well. So multiple localization actions are in place, which will all get executed in a way by which hopefully by quarter 1 of next year, BE 6 will also meet PLI. So that will be one positive enabler. And there is, -- some of the localization benefits also flow through to current portfolio products that are there, which is the 9e as well. So, multiple actions. But we just want to say that the -- a few quarters back, we said we will -- we have a path by which we want to go. And I think just a positive EBITDA was a very good surprise for all of you. Now we are seeing a healthy EBITDA. And we don't want to lose sight of the fact that we want to create this category and have to play a role in driving volumes in this category because that is what will fundamentally ensure long-term returns and long-term margins. So, we don't want to trade off the ability to grow for driving short-term margins. That does not mean we are not taking all actions to keep costs under control, but we do want to make sure that we are driving the adoption of the category in the most appropriate way. Operator: This is a question from BII. This is Adithya Banoth. Do you see any details on first buyer penetration for the 4-wheeler EVs? Any trends that you have noticed? Rajesh Kajuria: Sorry, I didn't understand. Operator: He's saying, details of first buyer. Rajesh Kajuria: First buyer. Okay. When we say first buyer, is that -- do you mean first-time vehicle buyer? No, very, very few. What we do see is a very substantial portion of non-Mahindra, almost 85% of our BEV buyers have not owned Mahindra earlier. So, it's a completely new target group that we're getting in. Fairly large number of multiple car ownerships, but we don't really have too much of -- never bought a vehicle earlier in our portfolio. Very small. Operator: This is from ICICI Prudential, Sakshat. He's asking, we had mentioned about three new ICE SUVs in calendar year 2026, two mid-cycle announcements and one new SUV, that was the composition we had mentioned. Does this include Bolero and Thar 3-door refresh, which we have launched recently? Can you share more details on these ICE launches in '26? Rajesh Kajuria: Unfortunately, we can't share more details. The reason we don't share more details on ICE is just so that, it doesn't look like we're evading the question is, because it does affect buying of current portfolio of products wherever there's uncertainty in customers. So, we are very mindful of that being a Core part of our product that we don't announce any new ICE product too much in advance for the year that is coming. So, we wait and wait and watch as we go ahead, but we have a couple of -- three, four interesting things happening in 2026. Nal, is that number about right? Operator: Yes. The question is also that the Bolero and the Thar 3-door refresh, was that a part of the three? Rajesh Kajuria: No. Operator: This is another question. Exports had a strong growth, both in SUV and Tractors. Which are the key markets showing high growth? Rajesh Kajuria: Yes. So for us, Auto -- firstly, on Auto exports, we're seeing very good response to 3XO both in South Africa and Australia. That's really very, very good momentum there. The 7OO is also doing decently in both these markets. So Australia, South Africa become two very important parts of the export leg. The neighboring countries, which had kind of gotten to a little bit of a slowdown for multiple reasons, money availability, so on and so forth, have all begun to open up. So, Sri Lanka, Bangladesh, all of these, Nepal as well have all opened up. We've sent our first lot of EVs to Nepal. They are on the way in this quarter. So, it seems to be very good demand. That's organically got generated in Nepal for the EVs, probably spillover out of the India story. So, that's broadly what's happening on the Auto side. On the Tractor side, the neighboring countries, again, have opened up, which Bangladesh was having a lot of issues for a while availability of LC, so on Sri Lanka had slowed down. Nepal had slowed down. So, all of those have come back. Algeria, we've started doing business. And so, that's which again was shut for a long period of time, because of the government not allowing imports in without a certain license. Most India exports to Algeria had stopped for almost 1.5 years or 2 years, which have started. By and large, covered it. Operator: Just taking this one last question. This is Amit of PhillipCapital. What is the company's strategy to grow the Farm implements business? And as this business is growing, how do we look at maintaining the margin in line with the Tractor margin? Rajesh Kajuria: Yes. Firstly, I must say that right now, the margin is not in line with the Tractor margin. We're just starting to make some money. So, we have a path to go. The competitive pool has reasonable margins. So, as we evolve our volumes, the margins should be much better than what we are making now. So, the peers that we have in that segment do make a decent level of margin. Unfortunately, there's no formulaic solution to growing in Farm Machinery. It is really to get behind the product category and then work at it and grow. One of the segments in which we haven't so far been in the past done as well as the Harvesters, which goes under the Swaraj brand. We've roughly had 4%, 5% market share. We now have an enhanced improved product, which is beginning to do well. And that hopefully will help us drive overall growth of per unit value. The harvest is about 20-odd lakhs. So, that does play a key role in driving top line. Operator: Great. Thank you, everyone. On behalf of M&M, I would like to thank you for joining us today. Please join us also for our Investor Day on 20th of November. It's a very exciting day ahead. And join us for snacks in the adjoining room. Thank you very much.
Operator: Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Forrey, Vice President, Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Steve, and good morning, everyone. We'd like to welcome you to Boise Cascade's Third Quarter 2025 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our CEO; Jeff Strom, our COO; Kelly Hibbs, our CFO; Troy Little out of our Wood Products operations; and Joe Barney, Head of our Building Materials Distribution Operations. Turning to Slide 2. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income or loss to segment EBITDA. I will now turn the call over to Nate. Nathan Jorgensen: Thanks, Chris. Good morning, everyone. Thank you for joining us on our earnings call today. I'm on Slide #3. September 2025 U.S. housing starts data has not been released by the U.S. Census Bureau. However, when comparing July 2025 and August '25 housing starts to the same periods in '24, total U.S. housing starts increased 2%, while single-family housing starts decreased 3%. Our consolidated third quarter sales of $1.7 billion were down 3% from third quarter 2024. Our net income was $21.8 million or $0.58 per share compared to net income of $91 million or $2.33 per share in the year ago quarter. As expected, in Wood Products, we experienced sequentially lower sales volumes and competitive pricing pressure in EWP. Plywood markets like other commodities continue to experience weak pricing given the underlying demand environment. In BMD, our customers' expanded reliance on us for next-day delivery service across a range of products helped to mitigate the otherwise subdued environment. Given this backdrop, we were still able to post good earnings for the third quarter. We have great clarity in our business model and the strength of our financial position and unwavering commitment to our core values enable us to remain focused on the execution of our strategic priorities. Our 2-step distribution model in tandem with our market-leading EWP and plywood franchises will continue to deliver exceptional value to both our customers and vendor partners, providing reliable access to products, responsive service and operational flexibility that are vital in dynamic markets. Kelly will now walk through our segment financial results, capital allocation priorities and guidance on our fourth quarter results, after which I'll make closing comments before we take your questions. Kelly? Kelly Hibbs: Thank you, Nate, and good morning, everyone. Wood Products sales in the third quarter, including sales for our distribution segment were $396.4 million, down 13% compared to third quarter of 2024. Wood Products segment EBITDA was $14.5 million compared to EBITDA of $77.4 million reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices and sales volumes as well as higher per unit conversion costs that were influenced by decreased production rates in the quarter. In BMD, our sales in the quarter were $1.6 billion, down 1% from third quarter of 2024. BMD reported segment EBITDA of $69.8 million in the third quarter compared to segment EBITDA of $87.7 million in the prior year quarter. Gross margin dollars decreased $10.6 million from the third quarter of 2024. In addition, selling and distribution expenses increased $7.8 million from the year ago quarter, partly due to organic and inorganic growth initiatives we have executed upon in the last 12 months. Turning to Slide 5. Third quarter I-joist and LVL volumes were down 10% and 7%, respectively, compared to the year ago quarter. As expected, third quarter EWP volumes were down 15% sequentially as distribution and dealer partner inventories were drawn down to targeted levels with seasonal slowing anticipated. On a year-to-date basis, our I-joist and LVL volumes were down 6% and 1%, respectively. As it relates to pricing, competitive pressures drove sequential declines for I-joist and LVL of 6% and 5%, respectively. Turning to Slide 6. Our third quarter plywood sales volume was 387 million feet compared to 391 million feet in the third quarter of 2024. Sequentially, our plywood sales volumes were up 9% from second quarter 2025, driven by diverting less veneer into EWP production given the muted EWP demand environment and higher production rates at our Kettle Falls and Oakdale facilities. The $325 per thousand average plywood net sales price in the third quarter was down 2% on a year-over-year basis and down 5% compared to second quarter of 2025. We have to look back to second quarter of 2020 to find a lower average quarterly price realization in plywood. The longevity and levels of recent tariff announcements on plywood imports from South America remain in question and have yet to create any meaningful impact on plywood growth. Moving to Slide 7 and 8. BMD's year-over-year third quarter sales decline of 1% was driven by a 1% decrease in price and sales volumes were flat. By product line, commodity sales decreased 3%, general line product sales increased 6% and sales of EWP decreased 11%. Sequentially, BMD sales were down 4% from second quarter 2025, driven by a 2% decline in both sales price and volume. Our third quarter gross margin was 15.1%, a 60 basis point year-over-year decline. Commodity price headwinds and EWP competitive pricing pressures impacted our margins on these product lines. However, margins on general line products remained stable despite the subdued demand environment. BMD's EBITDA margin was 4.5% for the quarter, down from both the 5.6% reported in the year ago quarter and the 5.7% reported in the second quarter. Sequentially, our EBITDA margin was negatively impacted by a 30 basis point reduction in gross margins and decreased sales volumes had the effect of lowering gross margin dollar opportunity and deleveraging of our cost base. BMD's third quarter EBITDA margin is below our normalized level of earnings power, but a very good result given demand and pricing dynamics in today's marketplace. While these results reflect strong execution across product lines by our team, growth in our general line products has been a focus for us, where our proven performance and nationwide distribution capabilities enable us to provide a leading selection of general line products. The recent announcement with James Hardie is an example where we are happy to be expanding product offerings in several specific markets. At the same time, it's important to note that this announcement does not displace any existing market coverage we have with Trex. I'm now on Slide 9. We had capital expenditures of $187 million in the 9 months ended September 2025 with $99 million of spending in Wood Products and $88 million of spending in BMD. We remain committed to the capital plan presented earlier in the year with our capital spending range for 2025 at $230 million to $250 million. In Wood Products, that range includes the multiyear investments in support of our EWP production capabilities in the Southeast referenced on prior calls. The Oakdale modernization is complete, and we continue to make progress on optimization activities. Spending on the Thorsby line will largely be complete by year-end, and the line is expected to be operational in the first half of 2026. In BMD, part of our capital deployment strategy is to solidify and expand our market-leading national distribution presence. In August, we opened the doors at our greenfield distribution center in Hondo, Texas and are excited for the opportunity to better serve customers across Austin, San Antonio, Corpus Christi and the Rio Grande Valley. Looking forward to 2026, we expect our capital spending to be between $150 million and $170 million. Speaking to shareholder returns, we paid $27 million in regular dividends in the 9 months ended September 30, 2025. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-December. Through the first 10 months of 2025, we repurchased approximately $120 million of Boise Cascade common stock, which includes approximately $25 million in the third quarter and another $9 million in October. In addition, our Board of Directors recently authorized up to $300 million of common stock repurchases under a new share repurchase program. This new authorization replaced our prior share repurchase authorization. In summary, we continue to be dedicated to a balanced deployment of capital by investing in our existing asset base, by pursuing value-enhancing organic and M&A growth opportunities and returning capital to our shareholders. We are fortunate that our solid financial foundation and resilient free cash flow allow us to simultaneously advance each of these objectives. I'm now on Slide 10. Looking forward to the fourth quarter, demand weakness, trade policy uncertainties and the impact of seasonal factors will influence our financial results. Presented in the table are a range of potential EBITDA outcomes and related key driver assumptions. For Wood Products, we currently estimate fourth quarter EBITDA to be between breakeven and $15 million. We expect our EWP volumes to decline in the low double digits to mid-teens sequentially as the pace of starts moderates. EWP prices have recently stabilized, but we do expect low single-digit sequentially declines due to market adjustments previously taken in third quarter. In plywood, we expect sequential volume decreases at or near double digits. On plywood pricing, October realizations were consistent with the third quarter average with the balance of the fourth quarter market dependent. As is typically the case during the fourth quarter, we will take maintenance and capital project-related downtime across our manufacturing system and may also take market-related downtime to align production rates and inventory positions with end market demand. Important to note that although masked at seasonally weak demand levels, our number of site-specific cost improvement measures in Wood Products that when coupled with our division-wide innovation initiatives will benefit our EWP and plywood franchises into the future. For BMD, we currently estimate fourth quarter EBITDA to be between $40 million and $55 million. BMD's daily sales pace in October was approximately 5% below the third quarter sales pace of $24.3 million per day and is expected to decline further as the quarter progresses. Our recent volume changes have compared favorably to single-family starts data, a trend we would expect to continue and an indication of the 2-step value proposition and our customer partners' reliance upon us for next-day out-of-warehouse service. In addition to limited near-term clarity for end market demand, pricing volatility for plywood, lumber and other commodity products is likely given ongoing trade policy uncertainty and a number of recent capacity curtailment announcements. Lastly, we expect our fourth quarter effective tax rate to be between 26% and 27%. This is lower than our third quarter rate of 29%, which was adversely impacted by the effect of permanent tax differences on decreased pretax book income for 2025. I will turn it -- now turn it back over to Nate to share our business outlook and closing remarks. Nathan Jorgensen: Thanks, Kelly. I'm on Slide #11. Now more than ever, our experienced team remains committed to creating value for our shareholders, customers and suppliers by staying resilient, adaptable and focused on delivering exceptional products and services. Our integrated model provides increased channel inventory visibility, enabling us to better navigate market uncertainty by aligning production rates and inventory strategies with end market demand. Cross-divisional efficiencies supported by our robust balance sheet allow us to maintain our dedication to executing our strategy and creating long-term value for all stakeholders. Early industry projections for 2026 are consistent with 2025 housing start levels. Demand expectations are characterized by a cautious market in the first half of the year with gradual improvement expected later in the year, driven by interest rate cuts and normalized homebuilder inventory levels. In EWP, our planning assumption is that prices have bottomed, and we will have an opportunity to move prices higher as 2026 progresses. The extended weakness in the residential market has highlighted the resilience of our distribution business. We have seen an increased customer reliance on our auto warehouse business across our full suite of products. As the uncertainty continues headed into 2026, we stand ready to continue to demonstrate the value of 2-step distribution. Looking beyond the near-term environment, we remain confident in the long-term demand drivers of residential construction, including the persistent undersupply of housing, aging U.S. housing stock and high levels of homeowner equity. Generational trends, including millennials and Gen Z reaching peak age for household formation and more seniors choosing to age in place continue to support household formation growth. Additionally, continued declines in mortgage rates should encourage buyers who have been waiting on the sidelines to enter the market. In the repair and remodeling space, activity has been limited by low levels of home turnover and homeowners delaying major projects due to high borrowing costs and economic uncertainty. However, we anticipate consumer confidence will improve as interest rates decline and economic policy becomes clearer, creating a long runway for growth in repair and remodel projects. Strong fundamentals for both new residential construction and repair and remodeling are the foundation for the industry's robust pathway ahead. And make no mistake, investments we have made in recent years have positioned us well to capture significant upside when the market turns. Thank you for joining us today and your continued support and interest in Boise Cascade. We welcome any questions at this time. Steve, would you please open the phone lines. Operator: [Operator Instructions] First question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the general line part of the business. Can you talk to the share gains that you are realizing in there? How you're working with the various partners in this kind of an environment? And what that suggests for your ability to continue to see growth next year even if housing and the macro stays more challenging? Joanna Barney: Yes. So this is Joe. I'll start with that one. What I'll tell you is that demand held up really well with our general line product categories in the third quarter. Part of the reason, I think, is that we've made significant investments across our footprint in out of capacity, right? We've put really at most of our locations, we've added laydown space, we've added warehouse space. And we've done it intentionally so that we could bring in a broader mix of general line products, carry them on a deeper scale. Our suppliers that we work with, our key partners are consistently adding new products to their -- to what they bring to the market. And we want to make sure that we have the ability and the capacity to support their growth as well as support our own. So we've invested in that. We've also looked at bringing new products in the general line category to market. We've taken some risks there. We are -- have been focused on and achieved growth with our home center business, the special order business that we do at the home centers. So that's helped us with the general line categories. We focused on and grown our specialty dealer business certainly in third quarter. So that's been a focus for us. We've been successful at that. And we've grown in the multifamily category, and that's been a focus for us. As single-family housing starts have been flat or depressed, we focused significantly into the multifamily arena. We're going to continue to focus on the growth of our multifamily business in the quarters to come. And I would tell you that our -- we believe that our market share growth in certain general line categories that we think we've captured market share. There have been competitors of ours who have exited different product categories across the country, and they've left a void in the market as they've exited, and our teams have done a really good job of stepping in and filling that void and taking that market share. And so we expect now that we have that capacity, and we will continue to see that growth in the quarters to come. And then lastly, I think I mentioned our door and millwork business and the investments that we've made there, and we do continue to strengthen and improve our operations from a door and millwork standpoint as well as our sales growth and margin opportunities that we see there. Susan Maklari: Okay. That's great color. And then maybe moving over to EWP. It's great to hear that you think that price there has bottomed and there's the potential for some growth next year given what we're hearing and seeing from the builders. Can you talk to the competitive dynamics that you're seeing with the EWP? What gives you that confidence on the pricing side? And any thoughts on the upside or downside to that, just given the affordability pressures the builders are facing? Troy Little: Sue, this is Troy. I'll start with kind of what we're seeing -- what we've seen and what we're seeing this year and then turn it over to see if Nate or Kelly have anything. As we noted, we were down 5% or 6% quarter-over-quarter, and that was primarily due to 2 things. Early in the quarter, it was continued price pressure and matching competitive issues. And then the other one was we had the tariff of product we were shipping from U.S. into Canada. That was a 25% tariff, and we weren't able to fully pass that on. And then starting -- it looked like about August, the prices started to stabilize, and they continued to stabilize since that time, similar to what others have reported. So that's where we're seeing that maybe we've reached the bottom there. And then looking into Q4 and kind of how we started the quarter, prices have remained flat, and we would expect to continue that throughout the quarter as we don't have those other 2 issues as it appears right now. Nathan Jorgensen: Yes. I think, Sue, it's Nate. Yes, I think Troy, yes, described that well. And I think as we think about 2026, I think the backdrop is setting up okay in terms of what the demand environment is expected to be. And I think we continue to get builders really insistent in a great way on cycle times. So that's been an area of focus for them over, as you know, over the last couple of years. And as we think about EWP, it's absolutely part of that answer to make sure that cycle times continue to be -- perform at a high level for the builders and they can turn that land into cash that much quicker. So again, I think it's set up well for next year. And to Troy's comments, we feel like we're at a bottom, and we can move higher here at some point in '26. Susan Maklari: Okay. Great. Good luck with the quarter. Nathan Jorgensen: Thanks, Sue. Operator: The next question comes from Michael Roxland with Truist Securities. Michael Roxland: First question I had is, obviously, just following up on the BMD question and the mix up in general line. As you think about margins in BMD, what do you think are the constraints as you see it in terms of generating even higher margins -- EBITDA margin that is, in terms of maybe high single digits or low double-digit type margins as some of your distributor peers currently are? Nathan Jorgensen: Yes. Mike, thanks for the question. So I guess I would start with on gross margins for BMD near term here, we feel really good about our ability to maintain the 15-plus percent margins that we've been putting up of late. As you know, in markets like this, the reliance and dependency of customer base on out-of-warehouse service is certainly relevant. And again, we continue to see a good pull-through there. And then to your point, where might we go from here? Again, we continue to look to richen the product mix and that's more general line products, which do give us more gross margin opportunity. And at the same time, I don't want to discount our teams in terms of what we've been doing in terms of EWP sell-through and also commodities where we've been doing a really nice job in a really tough environment, in particular, in commodities. And with commodities at the very low levels that they are today, certainly, near term here, we -- if we get any energy in the commodity markets, we could see some near-term tailwinds in terms of our margin profile. And then I guess maybe one final point would be, as you know well, but I guess I'll just verbalize the fourth quarter as we see seasonally slower sales, as you'd expect to see, again, feel good about the gross margin percentage, but the gross margin dollar opportunity will come off as a function of just lower sales dollars. Joanna Barney: So I'd jump in there as well and just say that as our general line business becomes a larger percent of our overall sales volume, and we have seen that happening quarter-to-quarter, that's room for margin improvement there. As we become better operators in our door and millwork investments and we have -- quarter-to-quarter, we continue to move in that direction. And as we become better operators and as we invest in our pre-finished business that brings higher margin opportunities to our business, as we bring our lead times in check, as we become better operators, we are finding that we are growing in the success in our millwork business, which will add to our margin opportunity. As we push into multifamily and make a broader push there, we're seeing more margin opportunity. And to Kelly's point, I would reiterate, we are pretty good at our commodity business. And we have a line of sight across the country. We've built systems in that make us really flexible and we are able to move quickly both into a rising market and into a falling market, so we can reduce and mitigate our losses in a falling market, and we can take advantage of opportunities in a rising market, and we do it really quickly. So I wouldn't discount our ability to make margin on commodities as well. Michael Roxland: That's very helpful. Appreciate the color there, Joe and Kelly. Second question is realizing that you're beholding to the single-family housing market to some degree. Is there anything that you can do in this environment to further improve mill profitability? You highlighted a number of times how you're basically the mill -- because of the capital investments you made over the last couple of years, the mills themselves are ripe to generate significant profitability when single-family returns. But is there anything you can do now, additional cost takeout, other things that you can do that could situate the company for even greater margin expansion when the cycle turns? Troy Little: Yes, this is Troy. I'll look at it from the standpoint of the cost improvement activities that we're doing at the mill level, that's something that probably has got muted in the third quarter and may continue to get muted with the lower volumes, market-related downtime volumes. But behind that, the operations have what we call our site improvement plans. And each of the locations are definitely working on a very detailed plan for 2026 to address our site improvement plans. We are making sure that we're filling all our process improvement positions. Those are support type functions, but instrumental in our process improvement to reduce our cost, increase our efficiencies. And then we also have our group working on innovation. And so we do actually have a couple of technology-type projects planned that we're looking at for 2026 and beyond. And all of those should help contribute to improving our cost structure at the mill level as well as just operationalizing the capital projects that we've had over the last couple of years. Kelly Hibbs: So Nate, the only thing I would add to that -- to Troy's comments on cost is as you think about the market, to your point, single-family has been steady, not great. But I think the opportunity for us continues to be how do we continue to grow our presence in multifamily. And that's -- we're very good at that in terms of our EWP Key franchise. That's just, I think, an area of focus for us as we transition out of '25 and in '26, making sure that we create the right opportunities with the multifamily segment, and that goes really in some cases, beyond EWP, but it touches other product categories in BMD as well. So as we think about single-family, that's a big driver for our business, but multifamily is an important engine too, and that has our focus and resources as well. And I guess as Nate... Michael Roxland: Got it. And... Kelly Hibbs: Sorry, Mike, maybe one thing I'd add to both Troy and Nate's comments would be we've been trying to be very thoughtful in terms of not making any knee-jerk or quick reaction that we may regret later, right? I mean we feel still good about the medium to long term. And so we really need to be thoughtful about how we manage our capacity, including our crews so that when the market turns, we don't get caught behind the curve. So that always has to be part of our nuclei, our algebra, if you will. Michael Roxland: Kelly makes a ton of sense. And just one last one, I'll turn it over. Where you said growing presence in multifamily. Can you just remind us right now where that presence stands currently in multifamily, whether it be maybe through EWP or if you want to talk about the whole portfolio and where you expect it to be, let's say, in 2026 and maybe provide like a 5-year outlook? Kelly Hibbs: Yes. So it's not a large part of either of our businesses today. I don't have a number right at hand, probably, Mike, but we're probably in the -- we're probably -- single-family is still the big driver for us in terms of -- it's probably 75% to 80% of our business. And then we're probably something like 10 and 10 there between home center channel and multifamily. Operator: The next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: Troy, I just wanted to go back to the discussion around competitive dynamics in EWP. And if I heard you right, you kind of talked about a stabilization kind of coming through in August. Can you maybe just put a little bit more color around that? Is that less dealer and builder business being put to bid? Is that maybe a little bit more of a balance in terms of the trade-off between pricing and volume? What do you think was really the catalyst there to kind of reach the stabilization? Troy Little: Yes. I think as the markets started slowing coming out of Q2 and into Q3, there was capacity available. And so I think there was room to move on price in the industry and people were out there trying to preserve and/or grow share as things came off. We continue to see that for several quarters now. And I think we just got to the point where we addressed the markets where that was necessary for us to maintain our volumes. And we were able to do that by and large. And now we're in a position -- the costs have come up during that time and now prices moved to a point where I think the industry itself is in a position where there's not a lot left there to go. And so now it's just kind of the seasonal impacts as we kind of finish out the year. And so right now, we're just seeing that less of a pressure as people have adjusted production to the demand. Nathan Jorgensen: Kurt, it's Nate, maybe just to add to Troy's comments is as you think about the fourth quarter and as we head into the first quarter, working capital is always a focus for our customers. And so in EWP, but all product categories, having world-class distribution and support EWP really matters as that next-day service is important on EWP, and we have seen that we'll continue to see that going forward. So as we think about the competitive dynamics, volume and price, having world-class distribution and support EWP really matters in these moments. And so we feel good about how we're set up there to execute to that standard as we close out 2025 and head into 2026 as well. Kurt Yinger: Okay. That's super helpful. And it sort of ties into my next question. I think realistically, right, like pricing is difficult to predict, but a lot of it comes back to single-family activity. But it does seem like channel inventories are lean. Is there a scenario where seasonally we get into the spring period next year? And even if structurally housing activity isn't significantly stronger, you feel like there could really be some tension there in the market just based on what you see in terms of your customer inventories at this stage? Nathan Jorgensen: Yes, Kurt, it's Nate, I'll start. To me, the channel, I think, is really well balanced in terms of inventory levels and kind of that risk reward, both on demand and anything else. And so I think people are positioning as we close out this year and head into next year, I think the marketplace, if there's demand that shows up that's somewhat unexpected or there's maybe a supply disruption, to your point, Kurt, I think there could be maybe some different urgency in the marketplace that we haven't seen for a period of time, which would include price, I think, as part of that. So I think to me, the backdrop is, I think, set up well because it's -- there's not a lot of excess that needs to get worked out of the system. And to your point, it all it takes is a maybe a demand event we weren't expecting or a supply event we weren't expecting on the downside to kind of quickly kind of tension things up in the marketplace. So I think it's set up well, not perfectly, but I think we're -- as we think about 2026 and I think about the homebuilders, they've been pretty active in working their new home inventory levels down. That's been an area of focus for them for a period of time. And as we transition into maybe 2026, Kurt, at some point, a new home sale has to equal a new home start. And we haven't been in that kind of math for a period of time. And so I think in '26, that gets a better balance as well. So I think it's just shaping up to have more normalcy than we've frankly experienced for the last year or so. Kurt Yinger: Yes. That all makes sense. And then lastly, I just wanted to go back to the door and millwork performance. Can you just talk about, I guess, the sales performance thus far in 2025? And as some of these new facilities get up and running, is that something where you would expect even in a tepid demand environment, just given the capacity that you have and the focus there that you could really drive a healthy amount of kind of above-market growth? Or how dependent on that is underlying demand from here? Jeff Strom: Kurt, it's Jeff. I'd say overall, it's -- millwork has been challenging this year with the price pressures and everything else. There's no ends about that. However, we have a lot of new facilities, and we have a lot of new locations that we're working into this business. And every day that goes by is the day that we get better and we improve and we get the right people in place and the opportunities that's there. So we're definitely expecting to see more growth regardless of what the market does just because we're going to operate significantly better. Additionally, we have some locations that are constrained space-wise, and we are addressing those. So we're excited for what the upside is for us on the door business for sure. Kurt Yinger: All right, okay. Appreciate all the color, guys. Jeff Strom: Thanks, Kurt. Operator: The next question comes from George Staphos with Bank of America Securities. Bradley Barton: This is Brad Barton on for George. Just if we go back to the AZEK announcement, when we think about the genesis of the deal, can you just talk to the puts and takes that you were considering on the move? And then did AZEK come to you? Did you go to them? And then how do you kind of see that impacting your Hardie lineup in those specific markets and maybe even across the whole network as well? Joanna Barney: Yes, I will start with that one. So let me just first say that we are very excited about the opportunity to partner with Hardie in the Baltimore market. It's a big decade market. So we see it as a big opportunity. We have not had in a decade in that market before. So this is net new revenue for us. It's not a revenue shift from a different product category. We haven't has it. So this is net new revenue, and it's a big opportunity for us. So we're excited about that. We're excited about the full suite of products that we're going to be able to offer in that market. So we see a lot of upside revenue potential for us, specifically to the Baltimore, Pittsburgh market. Saying that we also have grown our market share with Trex across the country. So we've done really well with that brand. So our plan is to continue to support both partners, continue to grow our market share as we have in all of those markets across the country. Bradley Barton: Okay. Great. And then you -- I guess one follow-up, and I think you guys touched on this a little bit, but are there any kind of -- any signs that you're seeing early in the quarter that you can kind of point to as signs of life or green shoots, not just for the remainder of the quarter and into next year, but maybe even for the spring building season? Jeff Strom: Yes. It's Jeff. I'd just say one thing that we are seeing and experiencing is that there have been some green shoots in the multifamily space. And we're seeing some activity. We're seeing a lot of quoting that's going on. We have some projects that we know that are going to kick off to get us through the balance of the year and into the beginning of next year. So we feel good about that. Operator: The next question comes from Jeff Stevenson with Loop Capital. Jeffrey Stevenson: How much of an impact did the operating inefficiencies related to the ramp in production at your Oakdale facility have on Wood Products margins in the third quarter? And will that continue to be a drag on segment margins over the next several quarters? Troy Little: Yes. This is Troy. Yes, it's a little bit hard to tell because we've had that market-related downtime in there. But that team has been trying to work on all the machine centers, when we essentially touched all the machine centers. And so honestly, working through that, which I would describe as the operational issues coming out of a large project that they've been working through in the third quarter. So we didn't see a huge difference specific to Oakdale, say, Q3 impacts versus the first 2 quarters. But moving forward, we would expect them to continue to improve their operating efficiencies, lower that cost structure. That was a high-cost mill before. Once we get that capital in there or working, we should see the improvements there. I'd hate to put a number on it because I don't know the specifics. And then we have -- you're moving into Q4 seasonal issues. You've got the shorter months in November and December and then any market-related downtime, it's going to be dependent on what that looks like specific to Oakdale. Jeffrey Stevenson: Got it. Got it. And then over the past year, you've announced multiple expanded partnership agreements to strengthen your distribution relationship with key suppliers and the most recent one, obviously, is James Hardie. And I wondered if you could talk more about how these agreements have better positioned the company's general line distribution business moving forward and whether there could be additional opportunities to expand partnerships with other key suppliers. Joanna Barney: Yes, I'll start there. I think we're always looking for opportunities to expand partnerships, but we're also very focused on the partnerships that we've got and the new products that they bring to market. Trex is a great partner for us. We've grown market share with them. We're going to continue to grow market share with them across the country. Hardie has been a great partner for us in siding across the country, and now we're exploring a new opportunity with them in the Baltimore market. Again, I'd just reiterate, it's a significant decking market and that we haven't had that category before there. So looking at that, we're looking at new partnerships as far as doors and millwork go. So we are always absolutely looking to expand. We've added the space and the capacity to do it. So we are going to continue to look into whatever partnerships we have available that we think we can generate sales growth, revenue growth and margin growth. Jeffrey Stevenson: Makes sense. And then one last one, just on how you're planning to balance M&A with share repurchases moving forward given the market pullback. Would you expect to be aggressive with the new $300 million share repurchase program? Kelly Hibbs: Yes. Jeff, I'll take that one. So I guess just stepping back briefly, our priorities are very much the same in terms of capital allocation in priority order, invest in our existing asset base, look to do organic growth projects and then also M&A if the fit and the price is right. But I would say, absent any meaningful M&A, we would expect to continue to be active with share repurchases here moving forward. Jeffrey Stevenson: Got it. Operator: [Operator Instructions] The next question comes from Reuben Garner with Benchmark. Reuben Garner: Let's see. So if I'm doing the math right, and I know you didn't explicitly give top line guidance, but it looks like the distribution segment's EBITDA margin is going to dip into the 3s for the first time in a while. The third quarter was obviously lower than the second. And I get that there's some seasonality. How should we think about what's going on there? Like has competition picked up? Where do we think that things will stabilize? And how do we think about next year, assuming that the housing market in general is kind of consistent with what we've seen of late? Kelly Hibbs: Yes, good question. And I guess I would start with saying this isn't a market share degradation or anything like that. I feel really good about how we're positioned and how 2-step distribution shows up in these sorts of markets. So really, what's embedded in the guidance really is really truly a function of just seasonal slowing that we expect to see. November and December, you got -- you've only got 18 sales days in November and 21 sales days in December, you got weather. So you've got some seasonal events. So yes, could we dip into the high 3s in terms of EBITDA margin? Yes, sure, we could, just given the seasonal nature of it. But I wouldn't -- I would not pull back from what we view as the -- when we get to a normalized cycle over a normalized year that we can be -- it can start with a 5% in terms of our EBITDA margin. So I feel really good about how we're positioned there, Reuben. It's really just a seasonal event that you're seeing in the fourth quarter. Reuben Garner: Okay. Great. That's really helpful. And then how do we think about -- it looks like your inventory, I guess, at the Inc. level, we don't have segments on that, but your inventory as a percentage of revenue ticked up the last couple of years. Is that a function of some of the investments in distribution and growing general line? Is that some kind of signal that you're optimistic about the market coming back as we get closer to '26 and you want to make sure you have the materials? Or is there some other factor driving that delta? Kelly Hibbs: Yes, I think it's a function of the growth that we've done. We've added a handful of locations, including via M&A and via organic growth opportunities. And then it really comes back to our stated goal that we always want to be in stock and be able to serve the marketplace, especially in times like today. And so we feel good about our inventory position. We're not too heavy. I think we're in a good spot. And yes, and then we do feel good, obviously, about the -- here come back half of 2026, we are very well positioned if we start to see some more energy here in the spring building season in 2026. Reuben Garner: Okay. Great. Good luck. Kelly Hibbs: Thanks, Reuben. Operator: The next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with on the EWP side, Troy, I mean, your volumes in 2025 are still kind of higher than what it was in 2021, 2022 when housing demand was stronger. Can you talk about kind of what is driving there, whether there's some share gains or things that you are doing differently? Troy Little: Yes. I'd say throughout 2025, in terms of looking for opportunities, we believe we have some share gains that we're trying to maintain. Our order files throughout Q3 comparatively were lower but consistent throughout the quarter. And as we move into Q4, other than the seasonality around that, it still seems to be fairly consistent in what we've seen so far. Ketan Mamtora: Okay. Got it. And then just switching to the distribution side, really nice to see that growth in general line. You talked earlier about sort of doors still being under some pressure. Can you talk about sort of what is -- where you are seeing sort of growth in the general line business? Kelly Hibbs: The question is where are we seeing growth in the general line business. You guys can take that. Joanna Barney: Yes. I think we're seeing growth in the general line, again, market share gains in certain product categories, decking being one of them. So we've seen market share gains as some of our competitors or other distributors have exited different categories across the country, we've stepped in and filled those voids. And so we've seen market share growth that way in multifamily business. And I really think in the door and millwork side, we're starting to see gains, and we're moving forward, moving that capacity and our ability there forward. Nathan Jorgensen: Ketan, it's Nate. Maybe just to add to Joe's comments. is that when you think about general line, and Joe mentioned this earlier, the new SKUs that are showing up and the SKU complexity that comes from our suppliers is something that we enjoy, we're really good at. And so we certainly have experienced that in '25, and we're expecting that in '26 as well. So as they bring out new products, that creates, I think, really an important opportunity and responsibility for us to not only serve our customers but serve our suppliers as well. So I think that's the other component on the general line that continues to play in our favor, and we expect that going forward as well. Ketan Mamtora: Got it. No, that's helpful. I'll turn it over. Good luck. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nate Jorgensen for any closing remarks. Nathan Jorgensen: We appreciate everyone joining us on our call this morning for our update, and thank you for your continued interest in supporting Boise Cascade. Please be safe and be well. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Pawan Kedia: Good evening, ladies and gentlemen. I'm Pawan Kumar, General Manager, Performance Planning and Review Department of the Bank. On behalf of the State Bank of India, I'm delighted to welcome the analysts, investors, colleagues and everyone present here today on the occasion of the declaration of the quarter 2 financial year '26 results of the bank. I also extend a very warm welcome to all the people who are accessing the event to our live webcast. We have with us on the stage our Chairman, sir, C.S. Setty at the center, our Managing Director, Corporate Banking and Subsidiaries, Sri Ashwini Tewari; our Managing Director, Retail Banking and Operations, Vinay M. Tonse, our Managing Director, Risk, Compliance and SARG, Sri Rana Ashutosh Singh; our Managing Director, International Banking, Global Markets and Technology, Sri Rama Mohan Rao Amara, our Deputy Managing Director Finance, Srimati Saloni Narayan. Our Deputy Managing Directors heading various verticals and Managing Directors of our subsidiaries are seated in the front rows of this hall. We are also joined by Chief General Managers of different verticals, business groups. To carry forward the proceedings, I request our Chairman, sir, to give a summary of this Bank's quarter 2 financial year '26 performance, and the strategic initiatives undertaken. We shall thereafter straightaway go to question-and-answer session. However, before I hand over to Chairman, sir, I would like to read out the safe harbor statement. Certain statements in today's presentation may be forward-looking statements. These statements are based on management's current expectations now subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman, sir, to make his opening remarks. Chairman sir, please? Challa Setty: Thank you, Pawan. Good evening, ladies and gentlemen. Thanks for your interest in SBI. I would like to start by thanking the support of all of our stakeholders, including our customers, shareholders, employees and the broader ecosystem are supporting us all through our journey. Fairness to all our stakeholders remains at the cuts of the bank's culture, which in turn has helped us in creating sustainable value and contributing to nation's success. Let me first start with a brief description of the present global and domestic economic scenario. The global economic outlook for 2025 presents a picture of modest but uneven recovery. The IMF's world economic outlook, October 2025 projects world GDP growth at 3.2% in 2025 and 3.1% in 2026, reflecting steady but subdued momentum amid persistent structural challenges. Regarding inflation, though it has broadly moderated across most economies, the pace of disinflation remains slow. Against this global backdrop, India's macroeconomic outlook remains one of cautious optimism, underpinned by robust domestic demand and easing inflationary pressures. The RBI projects real GDP growth at around 6.8% for FY '26 and 6.6% for FY '27. Growth is being supported by strong investment activity, recovery in rural consumption and buoyancy in services and manufacturing. The GST 2.0 reforms are expected to boost private consumption and domestic demand. On banking front, scheduled commercial bank's credit growth is slowly picking up and grew by 11.5% year-on-year. Last year, it was at the same level of 11.5% for the fortnight ended 17th October 2025, while deposit growth remains sluggish at 9.5%, which was 11.7% last year. Going forward, we expect demand for credit to continue in the second half. By looking at the trend, deposits and credit growth of scheduled commercial banks may remain in the range of 11% to 12% during FY '26. However, risks persist from volatile global commodity markets and potential spillovers from the trade disruptions. Overall, India's near-term outlook is strong with macroeconomic stability providing space for sustained medium-term growth. In the above economic backdrop, let me now highlight a few key aspects of bank's performance in the half year and the second quarter of FY '26. Our Q2 FY '26 results and of several quarters before this underscore a simple point. State Bank of India is compounding on durable structural advantages, scale with discipline, growth with quality, returns with resilience. The current quarter demonstrates industry-leading credit growth at SBI scale, market share gains in chosen segments such as current account, home loans, auto loans, stable asset quality and disciplined pricing. Our domestic NIMs for the quarter improved by 7 basis points quarter-on-quarter to 3.09%, driven by repricing of deposits. Operating leverage from technology, distribution and procurement. The flywheel is clear. Our strength in low-cost liabilities derived from our brand, customers' trust in SBI and our extensive reach. These advantages allow us to expand liabilities significantly, which are then utilized to finance strategic growth with careful pricing discipline. This focus on pricing and robust risk management supports our leading return on risk-weighted assets, RORWA. A well-capitalized balance sheet enables us to achieve top-tier return on equity, which in turn helps in compounding our book value while maintaining stable capital ratios. In this quarter, we also raised INR 25,000 crores of equity capital by way of qualified institutional placement with a demand book of more than INR 1.1 trillion. This was the largest ever QIP offering in India. We thank our investors for supporting us in the capital raise. The issue was oversubscribed 4.5x with significant interest from both domestic and foreign institutional investors. What are our strategic anchors? They are brand trust and customer value. SBI is the reference brand in Indian banking. We earn trust by creating value for customers through transparent, efficient service and optimal pricing across deposits and lending. Relationship depth drives balanced stability and lowers risk through cycles. Institutionalization at scale. SBI runs on codified processes in credit, risk, collections, treasury, technology and procurement while allowing innovation at all levels. Execution is consistent and repeatable across businesses and regions. Fair outcomes for all stakeholders is the third anchor. We balance customers, employees, investors and society. Capital is allocated where risk-adjusted returns are sound. We price risk fairly, invest in people and systems and support the real economy while protecting depositors and shareholders. Fourth anchor is liability franchise strength. I think I mentioned earlier also, our total deposits of INR 56 lakh crore, CASA deposits of more than INR 21 lakh crores with CASA ratio at 39.63%, while CASA market share, 23% versus overall deposit market share of more than 22%. This granular low-cost funding is a structural advantage and the engine for disciplined growth. And finally, the anchor, which I want to mention is leadership where roadway is attractive. We lead by a wide margin in lending and liability products with superior risk-weighted returns. We choose segments where unit economics are strong and price up are deemphasized where capital is not adequately compensated. We believe SBI is positioned to grow faster than the industry at this scale and to deliver higher ROE than the industry. We will attempt to deepen the liability engine and sustain the CASA outperformance, allocate capital to high RORWA businesses and maintain pricing discipline, use technology to lower cost to serve and lift service quality and further improve capital turns. Keeping in view a customer-centric approach, bank has launched Project Saral, I think I did mention last time also, on the 31st July 2025, aligning with this year of simplification, an ambitious vision of a complete revamp and redesign of operational processes in our retail banking territory. The aim is not only to reengineer the existing processes, but also to make the bank future-ready for the evolving financial landscape and changing market dynamics. So as we augment and enhance our digital capabilities further, Bank will shortly launch the next version of YONO platform YONO 2.0, which is not just an upgrade to the previous version but a leap forward in digital banking. With state-of-the-art journey designs and supporting tech architecture, our customers can bank with confidence and in a more seamless manner. Although the current valuations of SBI are a conundrum, considering our return on equity and growth metrics, we are confident that they will eventually align with our fundamental and operational metrics, the institutionalized nature of our business and our market leadership in the coming years. SBI's path is clear. We will defend and extend the liability franchise, grow faster than industry where RORWA is superior, institutionalize execution and deliver fair outcomes for all stakeholders. To conclude, I thank you all for your continuous support to the bank. We remain committed to rewarding your trust in us with sustainable returns over the long term. I wish everyone here the best of health and happiness. My team and I are now open to taking your questions. Thank you very much. Pawan Kedia: Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. For the benefit of all, we request you to kindly mention your name and company before asking the questions. To accommodate all the questions, we request you to restrict your questions to maximum 2 at a time. Also, kindly restrict your questions to the financial results only. And no questions be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We now proceed with the question-and-answer session, please. Unknown Analyst: Congratulations, sir, for yet another good quarter of good set of numbers. And I pick up your point, which you said our valuations. So here, I would like to give some comparison. Our business is now INR 10 trillion, INR 10 trillion bank for the first time and congratulations for this again, and against the Bank, which we compare of about INR 57 trillion. But our market cap is only INR 8.82 lakh crores against the market cap of that bank of INR 15.1 lakh crores. So even GNPA now almost 1.7 to 1.2. Net NPA is only 0.4. The only difference is now in, I think ROA. But for that, whether we should be so undervalued as compared to -- with a price to earning of almost INR 22 and here INR 11, INR 11, INR 11.5. So definitely, we deserve much higher valuations on our working and the way you said on the fundamental structures, our digital existence in the road map, definitely, we deserve much higher valuations and compliments to you and your entire team for this same. Having said that, sir, in this quarter, particularly, I think, -- but for that exceptional item of, I think, Yes Bank sale of shares of INR 4,593 crores, we are down in our operating profit and net profit substantially. Now one item, which I have noticed is that while the exceptional income in the stand-alone is INR 4,593 crores in the consolidated, it is only INR 3,000 crores. So it means one of the subsidiary also booked a loss of -- exceptional loss or some of the subsidiaries or maybe associate businesses. So I would like to know about that. What is that? And sir, the profitability, of course, you already said reply. Then there was a report and recommendations, which I read in the newspaper, even your own statement also that you all appeal to the RBI for making funding available for the corporates, at least listed corporates for M&A activities and the capital. So on that, any progress -- further progress? And are we moving in that direction? And is there any immediate positive results going to be there because of that? Then, sir, this quarter, we have a little bit fallen short in the recovery and upgradation numbers also, which are almost 55% or 60% lower is -- I mean, 40%, 45% lower than the last quarter. So some color on the recoveries. And one last is that the treasury has been the biggest, which, of course, in some of the other banks also. So if you look at the segment-wise results, our treasury profit has gone down by almost 50% from INR 8,082 crores to INR 4,011 crores. So going forward, for the next 2 quarters or for the FY '26, how do we look at it with, of course, second half is expected to be a little better and maybe 20 bps more rate cut might come in. So these are my few questions and some observations. You are very comfortable on SMA, NIM is good. So there is nothing much on that. And last, as generally I ask is that in the first 6 months, our credit growth is only 3.88%. Though annualized basis, you can say it is 12%. But to get the 12%, we'll have to disburse the loan of INR 307,000 crores in the remaining 5.5 months or maybe 6 months, if you take it. So how do we plan to achieve those target numbers, targeted numbers? What is the sanction pipeline or some activity which might have been done in last 1 month. So these are the -- in first round of my questioning and observations. Challa Setty: First round is it? Okay. Thank you, Ajmera-sab, for your compliments. On the consolidation number, I think they will clarify that number. The net profit on the transaction is not INR 4,593 crores. It is lower than that, post-tax. But they will clarify in terms of what are these consolidation numbers. As far as the M&A activity is concerned, I -- more than the opportunity in the M&A transactions, it's a confidence, which the regulators have reposed are reposed in us as Indian banking system. Indian banks were not allowed to fund the local M&A transactions for so long. And the current guidelines are a matter of trust in the banking system. And as far as what SBI -- obviously, SBI has been doing outbound M&A activity financing for quite some time. This is not new to us. And we will definitely take up the suitable transactions. But current guidelines are basically draft guidelines. We have to get the final guidelines to take up any transaction. But in the meantime, we are setting up our teams to ensure that they are ready when the guidelines are released. As far as recovery numbers are concerned, I think recovery -- in written-off accounts, I think we have done fairly well in this quarter. You want to add anything... Unknown Executive: So upgradation and recovery figure is combined. So if you see the slippage itself in the previous quarter is much higher. So if you compare it, this number is better. And AUCA recovery, Chairman guidance was INR 2,000 crores per quarter. We have done INR 2,400 crores and the guidance continues. Challa Setty: On the treasury gains, Rama, you can... Rama Rao Amara: Yes. I think your observation is correct. If we exclude the exceptional items, I think Q2, the trading profit is almost 50% of Q1. But we need to be reminded that Q1 has the OMO operations from RBI and switch operations were also there, which is available to the entire industry, and we have made use of, which was not available in Q2. So that was the reason why I think that the same performance we could not repeat. But there are several. I think strategically, we are doing several things. We are taking larger positions in trading portfolio. And we do have certain investments, which are like depending on the opportunity, depending on the price that is available, we will continue to offload. So that way, we are reasonably confident that a large portion of this -- whatever we have performed in Q2, we will be able to repeat in Q3 as well. No, we don't have any losses. Rather, our AFS reserve has increased actually quarter-on-quarter. There's no MTM loss. There is no MTM loss treasury side. Challa Setty: But one thing I would like all of you to look beyond the net profit number. Obviously, the Yes Bank transaction aided us to post a good number in a difficult treasury quarter. I think what we have focused on that how do we balance your resource cost. If you have seen the cost of borrowings as well as cost of deposits have come down. And we not only have focused on reducing the reliance on the wholesale deposits where the market was going berserk in terms of pricing those deposits, we stayed away from there. And number two, that we focused on the daily average balance improvement in the current account and savings bank account. And that has contributed to the reduction in the cost of deposits and cost of resources. So your NIM uptick is basically on account of that despite that 100 basis point reduction in the interest rates on the asset side. Just to answer your credit growth, the pipeline, I think Mr. Tewari will answer. The credit growth is secular. If you see from the Q1 itself, we have had almost 1 to 2 percentage point increase across the business segment, whether you take retail personal, agriculture, SME, corporate for the first quarter after March '25, we have reversed the trend and have posted a good 7.1% credit growth. And with the pipeline, what we have the visibility of at least reaching 10% corporate credit growth in the next 2 quarters. Would you like to supplement something? Ashwini Tewari: Yes. So the pipeline is INR 7 lakh crores, INR 7 trillion, which is a consistent number across quarters. Half of it is already sanctioned and awaiting disbursement and half is in the discussions. And the other point which has to be made is in the quarter 1 and also in quarter 2, we had a lot of payments which were a result of either a large IPO being raised or an equity raise, which was used to repay loans or sometimes converted into bonds as well. A couple of airports were like that. And then there were also the large payments done by some of the government entities, which got cash up front. So these were the reasons. But as, sir, has said, that we would expect a much better performance in quarter 3. The negative growth has been reversed. So we look forward to a better performance. Unknown Analyst: Congratulations. Sir, I just had a few questions. Firstly, on margins. So what has been the interest on tax refunds this time for the quarter? That's the first question. And the second question is that usually, there's a seasonality in your miscellaneous operating expenses in the second quarter. This time, it looks higher maybe because of a low base. So if you can give the breakdown of those miscellaneous operating expenses for this quarter and the previous quarter, so Q2 '26, Q1 '26 and Q2 '25, so that will really set everything clear. And just the last one in terms of CASA, if you could give the average CASA growth. You said your average daily balances have been good. So any growth numbers you could share? Challa Setty: So in terms of margins, interest on tax refund is miniscule, some INR 200 crores, INR 300 crores or something, that's not a big -- INR 340 crores. So that is not contributing any significantly to the margins. And on the seasonality, miscellaneous operational expenses, you can... Saloni Narayan: The major hit here is actually GST on expenses, which was INR 662 crores in Q2 of FY '25, which is INR 1,180 crores this year -- this quarter. Last quarter also, it was INR 588 crores. So there's a large difference there. Apart from that, actually, software expenses for software. Challa Setty: No, not many items... Saloni Narayan: These are very small amount. Challa Setty: Very small. Saloni Narayan: Of course, they aggregate to a large number, but actually, individually, they don't add up so much. The main thing is this. And the next is the mobile banking. Unknown Analyst: Okay. But GST, why such a big rise? Saloni Narayan: GST on expense that we have -- we recover and pay that is taken on both sides. Challa Setty: Yes, you get input tax credit also. Unknown Analyst: Got it. Got it. Challa Setty: CASA daily average balance we'll give separately. Unknown Analyst: Sir, congrats on very good numbers. Sir, firstly, we did a very good job in recovery from written-off this quarter. It was almost doubled quarter-on-quarter. Sir, how much of that would be parked into interest income line this quarter versus last quarter? So there is some apportionment which happens, right? Challa Setty: Not much. Unknown Analyst: Not much. Okay. Challa Setty: Most of that has gone into the P&L directly. Unknown Analyst: Understood, sir. Yes. And sir, on ECL, as sir, your initial assessment would help. And given SMA 1 and 2 would be charged at 5% odd as per the proposed guidelines, so would we see an inch up in credit cost on a sustainable basis after the implementation of these guidelines? Challa Setty: So I think on the ECL front, we need to be a little patient. I did mention earlier that the impact on our balance sheet would be limited for 2 reasons. One is the long road map, which is given, while we have to assess the overall expected credit loss requirement on the 1st of April '27, we will have time up to 31st March 31 to take that. And we want to utilize that road map, which is going to be given to us. So which means that the impact is going to be not significant. And we will wait for the final guidelines to come to you what would be the impact and how we would like to handle it. As I mentioned, whatever is the impact, we are going to take that 4-year road map, which is given to us and to ensure that the balance sheet is not impacted in one go. And the second thing is, yes, the major impact would come from the SMA 1 and 2, which are not significantly provided now. We do have some buffers as shown here on the excess provisioning on the standard assets. What we believe that the impact can be reduced by strengthening our collection mechanism. Today, the rollbacks in SMA-1 and 2 are significant for us. They're temporarily SMA-1 and SMA-2. So while we are presenting to the regulator that in terms of the rollback -- frequent rollbacks of this category does not require such a high floor rates on the ECL but there are so many other things which we need to present to them. So I don't want to comment at this juncture. But structurally, what we are focusing is strengthen our collection mechanism. Today, in our retail side, 70% of the collections happen automatically. It is just sweeping from a savings account to the loan account. Over the years, we have focused on this rest of the 30% where the delays happen. The delay is not necessarily that the customer is delaying. It is also because salaries get delayed. We are trying to see how do we address this category. Structurally, we will be strengthening our collection mechanism intensely so that we will not have SMA 1 and 2 situation. They are not bad assets, except that they just roll forward and roll backward frequently. We need to address that issue. So ECL, I think, is too premature to talk about the impact at this juncture. Unknown Analyst: And sir, lastly, sir, you mentioned. Challa Setty: I gave a little longer answer so that, again, this question on ECL doesn't come. Unknown Analyst: Just one last question. Sir, your borrowings as that's up 12% quarter-on-quarter. And yes, as in there has been a very sharp improvement in interest on borrowings, interest expense borrowings, it is down from INR 6,000 crores to INR 12,000 crores over the last year. Sir, any insights there would be helpful. And was this INR 60,000 crores of incremental borrowings back-ended? Any color there? Challa Setty: The second part, I did not understand but the interest on borrowings is a market function. As the liquidity improved and the rates have moderated, I think the costs have come down. What was your second question? Unknown Analyst: The borrowings, we saw like 12% quarter-on-quarter inch up. So I just wanted to understand if it was back-ended or was through the quarter. Challa Setty: And borrowings -- overall borrowings. Unknown Analyst: Yes, overall borrowing. Challa Setty: Anything, Ravi, you want to say? Unknown Executive: Throughout the quarter, the liquidity was in surplus. So borrowings were very few. Only in the last week of September, we had to do some borrowing. That's why the price is low. Saloni Narayan: And interest on borrowing has also gone down by 26%, yes, while we have borrowed less, the cost has also gone down. Jai Prakash Mundhra: This is Jai Mundhra from ICICI Securities. Sir, a question on your NIM trajectory, right? So this quarter was supposed to be tough for NIM because you had the residual impact of 50 basis point rate cut but you have done phenomenally well. The margins are up. Now going ahead, sir, you would have some tailwind from continued repricing on borrowing, maybe CRR benefit, of course. And then on the opposite side, you may have some MCLR deceleration. So on balance, sir, would you believe that MCLR deceleration would be more than offset by TD repricing and maybe CRR benefit and NIM should inch up from here at least the same way what we have seen in 2Q or they can be slightly even better? What would be your sense, assuming there is no further rate cut? Challa Setty: Yes. That's the last one, which you mentioned. The caveat is that if there are no rate cut in December, we believe that -- I did mention about the U-shaped curve of the recovery of NIM and slightly front-loaded on the Q2 because of our liability management, better liability management, both on cost of deposits coming down and cost of borrowings come down. Yes, there are some definite tailwinds. How much it plays out, we'll have to see. Obviously, the CRR full cut benefit will be available by the end of November. So that will give some pickup on the net interest margin side. We will continue to focus on the CASA. CASA is a very critical component in terms of bringing down the costs. Fixed deposit repricing is -- generally takes about 12 to 14 months. That means we are -- we have completed 6 to 8 months, another 1 or 2 quarters, the repricing will continue to be there on the stock. The flow is not getting too much repriced because I don't think any of us would be relooking at adjusting the fixed deposit rate of interest unless there's a rate action by the RBI. So our guidance still stands good that we will be above 3% in Q3 and Q4. Jai Prakash Mundhra: Sure. And sir, on your core fee, right? So this has been up 25%, and there is a decent 30%, 31% growth in remittance and processing fee. Is this volume only or you have done some fee structure change also because for the last 3, 4 years. Challa Setty: It is purely volume. I think it is mainly coming from the debit card spends and interchange fee, which we got on the debit cards, very significant amount uptick. I don't know whether it is sustainable or not. One is the cards issuance itself has gone up but that is a function of how many savings accounts that we've opened. But I think the spends have gone up and the interchange fee on the debit cards has gone up. It's not about fee structure being changed. It's just volumes have contributed. Jai Prakash Mundhra: Last question, sir, on Yes Bank transaction, right? So other banks, which have sold the stake, they had very small stake but they have routed it through reserves, right? We have shown in P&L. So any insights that you can offer, plus the residual stake, which is there, right? So as per my -- I mean, the plain reading of RBI circular stated that MTM, you can actually route either through reserves or through P&L, right? So you have done the P&L for the realized amount. This is my understanding. But the unrealized understanding, could you have done or that is still pending? Challa Setty: Unrealized, we will not do because we have a significant control by having a Board seat there, which means that we don't have to -- we are not using the MTM on the residual portion. So on the other transaction, would you like to explain in terms of S Bank transaction? Even CFO can explain. Unknown Executive: We were holding this as an investment in associates, sir. And stake sale, which was sold is mark-to-market as per our we have done it. Challa Setty: We follow the same regulatory process. The one which is actually realized is routed through the P&L. And unrealized, we continue to not mark-to-market because of our control, which is still there by way of it. Jai Prakash Mundhra: And sir, on the same logic, I mean, does this new guidelines actually creates less volatility in P&L because if there is an MTM loss on bond, it will not be part of P&L, right? But if you realize, then, of course, it will come in P&L. So in a way, these new guidelines makes P&L less volatile, especially at the time of hardening of yields. Is that a right understanding? Challa Setty: I don't -- in terms of the corporate bonds? Jai Prakash Mundhra: Yes, sir, G6 bonds. Challa Setty: G6, yes. That was the purpose of that. Anand Dama: Sir, this is Anand Dama from Emkay Global. Sir, my question was related to your Express credit. So last quarter, you said that incrementally, we will see growth coming back in that. So are we on to it? Now we will see further acceleration in the second half of the year? Are you getting more comfortable in terms of the asset quality over there? If you can comment on that. Plus the mortgages. So obviously, we are growing at a relatively faster pace versus the peers. Can we see further acceleration on that front? And that basically should fuel the growth target basically, which we have increased now from 11% to 13% to 12% to 14%. Challa Setty: So the 12% to 14% guidance is because of -- across the segments, not necessarily home loans. Home loans, 15% is a good growth. I -- while we may have potential -- see, in case of home loans, our catchment is fairly large. We have set up almost more than 420, 425 home loan centers across the country, processing only the specialized sales only for home loan processing. And our acquiring the customers is also robust. So that is contributing to the home loan growth. But I think 15% to 16% growth, I would place that as the portfolio grows, 14% to 15% stability will be achieved there. And Express credit is one segment we would like to further grow. Currently, we expected this express credit to reach double digit. We were wishing for that. But the gold loans, I think some movement is there from Express credit kind of customers. Unsecured personal loan is moving to secured gold loan because the amount of gold loan is higher now because of the value and the lower rate of interest, I think, contributing to that. As the gold prices moderate, we hope that Express credit will grow. But our sanctions and disbursements have been very significant in the Express credit. It's a high churning product. You need to constantly acquire the customers. Anand Dama: Sure. Sir, the customer segment is similar, particularly when you look at your express credit and gold loan because otherwise, why would the shift happen? Challa Setty: Some overlap is there. Some overlap is there. Some of those non-CSP customers, that is corporate salary package customers only will take express credit. Non-CSP customers could be their gold loan customers but a fair amount of customer base of gold loans may not be the common customer base. Anand Dama: Sir, secondly, on your overseas credit. So that book also is now growing pretty fast. You said that you are more focused on the RORWA-based lending. How does the overseas corporate book lending places, particularly in terms of the RORWA versus the domestic credit? Is not dilutive in terms of the RORWA? Challa Setty: Foreign book growth rate in dollar terms is just about 8.7%. What you see 15% growth rate because of the rupee depreciation when we convert into rupees. So our IBG -- our international book growth is opportunistic. If we see the good value, we will do that. Otherwise, we'll just ramp up. In the past also, we have demonstrated in quarters where we feel that pricing is not attractive, we just ramp down that. So we will be comfortable. I think the IBG book constitutes about 15% of our credit portfolio. I think that is a level which we would like to maintain. Sushil Choksey: Sushil Choksey from Indus Equity. Congratulations on all your milestones. Sir, first question, recent event of the newspaper, you highlighted that you have INR 5,500 crores of human resource spend for training. And second thing, you highlighted you would not spell out or SBI doesn't talk on digital spend what they do on the CapEx side on an annualized basis. Can you elaborate on that INR 5,500 crores, which is... Challa Setty: INR 50 crores, INR 550 crores. Sushil Choksey: INR 550 crores. How does it enable our bank? The performance speaks for itself. So the steps what you've taken for today and with cybersecurity and many other measures which are required, how are we going to be future enabled with all these with all these measures? Challa Setty: So this spend on training is significant for us because most of the people who join SBI are not bankers to start with. We take mainly from the people who are writing exam and joining the bank, whether it is a clerical position or officer position. But their career paths are defined, and we prepare them for various assignments as you are familiar with. And this training system today has 2 components. We have one of the largest physical training systems in the country. Almost 55 training colleges and centers are available. The second important element, which we have done. While the physical trainings are important to bring people together, exchange of ideas happen, we have launched what is called Spark. This is a digital platform, not only provides online training for -- across the section, they can choose their training package. We have international agencies providing the inputs along with our own inputs. But more importantly, we are creating a skill inventory. And based on the skill inventory, the job profile is defined and where people want to go. And every training modules are available in this Spark, the knowledge base, which we have created. And we are using AI extensively to offer what they're looking for, and they can build their own training module. So a combination of physical training, on-the-job training and online training aided by the AI is going to be the way forward. And as you mentioned, I think we are also having a specialized training, job families so that the specialized areas of treasury, technology, are constantly improved. We have, for the first time, had undertaken the largest technical recruitment of 1,500 people. And these are the people who have not come from the market. They are from colleges and people who have first time are entering the technical jobs. And we have completely created a training module for them internally. And these are some of the investments, which we are making, so that we have the industry best attrition rate. I think we have 0.5% -- less than 0.5% attrition rate because of our investment in human resources. Sushil Choksey: Sir, you churn out a lot of CEOs and top management people from many other entities, you answered for new recruits, but the top layer of SBI management, you've specified in that event about IMs, Harvard, MIT, various other things. So these initiatives, what you spend is immaterial, but what makes the bank capable for future-ready like AI. You may not spell out the digital CapEx number or annual digital number. How are we transforming from current, like you said, 2 is going to come up. Now you have set up a global capability center or you can say back office in Delhi, agriculture and other products. A lot of other things initiative, whether your retail credit processing and this back -- so you have a 24/7 working bank, it's not necessarily you have to only do within the bank. And the cost will be far lesser and productivity may be large there. So the initiatives, which you are enabling today because your profit numbers can support any kind of future projections which you want to make? Challa Setty: Absolutely. I think today, we made a big beginning. I don't know whether I've mentioned to you, we had 17 trade finance processing centers in the country, 17 of them. We have moved to 2 global trade finance centers, one in Kolkata and Hyderabad, which is completely digital. And across the country, the global trade finance is handled by these centers. This is a beginning of our centralization aspect. And -- the Project Saral, which I mentioned in my speech, the simplification project has 4 elements. One is you identify a process and simplify it. After simplification, if it is possible, automate it and if possible, centralize it. And fourth element is that if it can be outsourced, you outsource it. This is a new paradigm, right? When you are looking for doubling your balance sheet every 6 years, the scale what we have, this scale requires out-of-the-box thinking. And this is what we are going to do through the Project Saral. And if Project Saral believes that a centralization by way of global capability center is the need, we will definitely look at it. Sushil Choksey: SBI as a parent has achieved many milestones. It will continue to figure with much higher milestones in years to come. We have very formidable subsidiaries. I'm not critical of the performance. But when will you find those milestones visible where SBI Mutual Fund is the largest, I understand. SBI Cards is concerned, a lot of concerns and ups and downs keeps coming. SBI Trusteeship, SBI Capital Markets, Insurance, it's underpenetrated market. The amount of CASA customers you have, I'm sure your fees can be 5x than where it is today. So improve all these areas, what enabling steps or how are we going to improve upon that the consolidated number of some of the members are saying we are not performing to the private bank Possibly, we are not listed on ADR, maybe one answer. Maybe you're holding now you've given a QIP done. But the underlying assets have much more strength than what we are showing today. How does it take to the next level? Challa Setty: So in case of subsidiaries, as you see, SBI Life Insurance today is the largest private insurance company. And in case of SBI Card as a stand-alone card company, the performance is always under the focus. We are working on that in terms of addressing the asset quality issues, in terms of the spends, in terms of the new card issuance. I think many things are being done in the SBI Card. AMC, as you mentioned, is the largest AMC in the country. And the General Insurance is moving up the ladder and has a great potential in terms of the non-property -- non-life insurance company. Merchant Banking unit of SBI caps is a different ballgame altogether. I don't think we should be looking at the valuation there. But among these 4 major subsidiaries, we definitely would be looking at, as I mentioned several times, SBI AMC and SBI General are right candidates for listing in our stable. It also provides some value unlocking and more importantly, value recognition for the industry. We would soon be working on that. It is also important that SBI conglomerate is leveraging one SBI value, one SBI in the sense that if any customer walking into SBI branch, he has provided the gamut of services, which manufactured by the conglomerate itself. And that has been successful, yes, if you see our cross-sell income. But more important than income, we are trying to provide one-stop solution for our customers. So we'll continue to do that. Yes, we can do better, we can do more, and we will definitely work on them. Sushil Choksey: Does it mean that CASA customers, we are able to sell 5 products, 3 products, 4 products? Challa Setty: So our PPC at this juncture is about 3.5. Sushil Choksey: Can we have 5%? Challa Setty: We can definitely move to 5. Sushil Choksey: Okay. Sir, moving back to today, RBI is indicating the deposit rates have stabilized. So how do you see the environment at least for the current year? Second thing, rupee is a little volatile and G-sec is also volatile. So what's your outlook on the next 6 months on that? Challa Setty: Deposits, what did you ask? Sushil Choksey: Deposit has stabilized. The rates have stabilized, what RBI articles... Challa Setty: I think the deposit rates have stabilized. The further deposit repricing or recalibration will only happen if there is any monetary -- I mean, repo rate action. Otherwise, I think more or less the deposit rates have stabilized. As far as treasury related, you can respond. Unknown Executive: I think your question is around the G-Sec where it is going to be a 10-year I think we have seen a lot of volatility and also specific actions from RBI, where they convey to the market that they're not comfortable at certain yields, right? I mean -- so that may happen by way of canceling some auctions. So that was taken note of by the market on that particular day when the yields came down by around 4 to 5 basis points. I think it is now range bound. We feel like the range can be 6.2% to 6.65% kind of range for the 10-year G-sec. It's just an internal house view. Sushil Choksey: Last question again. Government may have to push up bigger ticket CapEx for infrastructure because you're seeing some noise being made about nuclear tie, hydrogen and many others and SBI caps have come out with a lot of reports on solar, hydrogen. So solar integration more on backward going up to polysilicon. So these larger ticket sizes are moving up, there is no INR 1,000, INR 2,000, there's INR 10,000 crores, INR 20,000 crores. Are we getting any sense for next year, if not for this year, of some kind of a discussion on a pipeline coming up? Challa Setty: From the government side? Sushil Choksey: Government and private. Challa Setty: No, no. private side, I think we have a very robust pipeline. Our aggregate corporate credit pipeline is around INR 7 lakh crores. So this is a mix of working capital underutilized and term loans under disbursement, the new projects which are being discussed. So both in the public sector and private sector but predominantly private sector. So that pipeline is very strong. And this pipeline will -- a part of it will get converted into reality this year, and there will be a spillover to the next year in some of the projects. Sushil Choksey: You indicate that there is positivity on private CapEx? Challa Setty: Yes. Not necessarily across the sectors, but most of the sectors, yes. Sushil Choksey: This new policy about capital market funding and M&A, the yields on capital markets are much higher than home loan and car loans and any other loans which you might be disbursing today, at least from the other banks and the M&A activity, can we build INR 40,000 crores, INR 50,000 crores overnight on this? Challa Setty: I mean, see... Sushil Choksey: 40,000 crores, INR 50,000 crores. Challa Setty: Today, I think the draft guidelines put some cap on that 10% of our capital. Sushil Choksey: Capital market is possible to say. Challa Setty: Capital market, yes, I think we have done one product, which is loan against mutual funds. We have never been active on loan against shares. While we have adequate room on the capital market exposure, is underutilized cap room available there. We will see. I think we need to assess our own risk appetite for this kind of activities. And also, I think most of these activities also have to be end-to-end digital. Unless we get that right, we will not be moving there. On the capital market broker side, I think we have significantly scaled up that. Sushil Choksey: The share advance can be a 10% yield on current conditions. And second thing, you or 2 can plug in... Challa Setty: Yes. So we are -- we will develop that product mostly on the self-consuming platform. Sushil Choksey: Good luck for many milestones for the year to come. Pawan Kedia: Due to paucity of time, we will take up 2 more questions, followed by a few questions coming in through online webcast, which will be addressed by the Chairman sir. Kunal Shah: This is Kunal Shah from Citigroup. So firstly -- so firstly, with respect to standard asset provisioning, almost INR 1,200-odd crores, and this is after some release from the restructured account of INR 1,100-odd crores against INR 165,000 crores of increase in the loan book. So is there any accelerated provisioning, which has been done towards the standard assets during the quarter? Challa Setty: There's no accelerated provision. Kunal Shah: Some additional standard asset provisioning, it seems to be a slightly higher quantum. Saloni Narayan: Yes, we have done some -- for 2 accounts actually, we have done some DCCO extension. Challa Setty: This is basically whenever there's an extension of commercial -- date of commercial production, there's a requirement of making provision. And some of the reversals, what you see also related to the DCCO. The moment DCCO is achieved, the provision gets written back. So there has been some write-back and there is an additional provision, which is made where the DCCO dates are extended. Kunal Shah: And that quantum was on couple of... Challa Setty: I think, INR 750 crores or something additional provision. Saloni Narayan: INR 200 crores was write-back, sir. So INR 500-odd crores is our... Kunal Shah: Net was INR 550-odd crores. And second question is on subsidiaries. So monetization, as you indicated, SBI Mutual Fund and SBI General. So what would actually trigger that decision? The capital market environment is conducive, market sentiments are good. So should we expect it sooner? Or maybe we have just done the fund raise very recently, so we would want to wait for some time and then explore that option? Challa Setty: We are not waiting because we have done the QIP. I think we need to just look at -- see, one is, as I mentioned earlier also that these 2 companies don't require capital at this juncture, neither the parent requires because we just raised INR 25,000 crores. But we are serious about listing them. And the Boards will -- respective Boards will take a call in terms of the timing, quantum. The reasons, whatever you mentioned, all of them are applicable. Pawan Kedia: One last question, please. Okay. I'll squeeze in 2. Piran Engineer: Sir, just on -- this is Piran Engineer from CLSA. On Project Saral, how do we like measure what the outcomes will be and what the timelines would be? That's point number one. Point number two, in our current account ratio, we've seen like a steady improvement for the last 4, 5 quarters. It's growing faster than the overall deposits. Just some flavor on what's going on there. Are we gaining market share in terms of accounts or higher wallet share of existing customers, more retail SME push, what's going on there? That's it. And congrats on the good quarter. Challa Setty: Yes. The second one, I think I did mention in terms of what we are doing on the CASA side. One is you're all very familiar that when we open savings bank account, we don't have minimum balance requirement. That is USP of SBI. And we were the first bank not to charge on the minimum balance not being maintained, which also means that the customers who are -- have the ability to fund the account also so many time don't fund. So we have started a large-scale campaign to educate our staff who are opening the accounts that you politely ask the customer that whether you can fund the account. Today, the simple nudge has ensured that 70% or 75% of such account get funded within 45 days, which means that your balances are going up, otherwise, which would have remained unfunded for a long time. That is on the savings bank side. And on the current account side, I think our focus on business current accounts and focus on ensuring that you give different variants of current account to business customers based on the balance maintained, which is the usual stuff everybody does but we have intensified our effort in terms of providing services, which are linked to the balances which are maintained. And this has helped us, and we have opened a lot of a few transaction banking hubs, which were primary owners of opening the current accounts and ensuring that a solution is given, not merely opening an account. That is also contributing to CASA daily average balances going up. And we did acquire market share in the current account and 85 bps... Saloni Narayan: 185 bps. Challa Setty: So it's a significant market share acquisition there. And mind you that the largest current account balances are with us and growing on that is important. On the savings bank account, another thing I would like to say, in the overall deposit construct, what we have told all our regional managers, we have more than 730 districts in the country. And in many districts, SBI, you will be surprised, have market share more than 60% in deposits. But we said that despite whatever dominant market share you have, the focus is at least get 1% additional market share, get additional acquired market share of 1%, irrespective of what is our market share in that district. That is also contributing to the savings bank growth rate. I think these are a few things. There are many strategies which we are adopting, but there are 2 things which I wanted to call out. And on the Project Saral, I think the primary aim of Project Saral is to reduce the drudgery at our branches. We -- whatever we talk about technology, digitalization, this is a bank which we would like to position as digital first, consumer first, our customer first, which means that we would like to leverage our large physical presence and large employee base to provide that human touch. But many a times, the branches are overcrowded, branches are -- people are not able to spend enough time with the customers. We would like to focus on reducing that treasury. So the outcomes could be taking some time. Ultimately, of course, it has to be measured in terms of whether it is adding to my productivity, reducing my costs. There are definite outcomes are defined there, but we will not be discussing them at this juncture, probably the first drop from this Project Saral, is 1st of April 2026. I think April quarter, we would talk more about what are those benefits we are getting out of this project. Pawan Kedia: We have a few questions coming in through the online webcast. Now these will be addressed by the Chairman, sir. Challa Setty: Yes. First question, Kiran Shah, written-off account and recoveries from accumulated written-off. Recovery from written-off accounts, as we have presented here, INR 2,480 crores. This question on the -- what is that technically written-off portfolio is likely to give recovery rate, I think, discussed earlier also. We placed it around 6% to 8%. We started saying about 10% but as the security value is coming down based on the security value, and the accumulated written-off accounts, our recovery rates are likely to be around 8%. [indiscernible] On slippages and portfolio quality in Express credit, the GNP is showing a sharp rise. Any signs of concern there? Not showing any sharp rise. I think quarter-to-quarter, it has come down, if I remember correctly. So as the denominator, the portfolio increases, in absolute terms, there is no major concern in terms of the express credit. Abhishek Kumar, gross NPA and AUCA book position. Gross NPA as on 30th September is INR 76,000 crores and AUCA is INR 163,000 crores. Ujjwal Kumar, SBI should implement Tab Banking for onboarding of customer, either individual or nonindividual, why is SBI not taking such initiatives? I'm glad to announce that Tab Banking, we have launched last quarter. And this Tab Banking is launched initially for the corporate salary package customer onboarding. And as we fine-tune that, and there's a good number of customer accounts are being opened under Tap Banking. So the first phase we launched on the 1st of July 2025. This journey, onboarding journey takes just about 5 to 7 minutes because if it is -- most of the customer data is collected from various sources. Similarly, in the current account also, we have already started Tab Banking. Ankit Ladhani from IndusInd Nippon Life, any guidance on NIM? I think we have talked enough on the NIM. And we still are holding that our guidance, long-term NIM above 3% through the cycles. Ashish, can you provide a share of MCLR, EBLR and other loans and advances? As on 30th September, EBLR is 31%, MCLR is 29%, fixed rate is 22% and T-bill is 15%. Tarun Lala, what amount has been earmarked for pension provision? The pension provision for half year '26 is INR 6,672 crores. For the quarter, it was INR 3,525 crores. Prashant, this sector industry has maximum proposals in pipeline. This is a little diversified. I think pipeline is both in terms of capital expenditure and as well as NBFC portfolio. So from a capital expenditure point of view, power, renewable energy, commercial real estate and a bit of iron and steel. Vishal Gupta from Ak Investment. Any plans to monetize your subsidiaries in near term? I think we have had enough discussion on this but just to answer your question, these are the 2 companies we will be seriously considering and the timeline and when we are likely to go will be decided by the respective Boards. How much is the LCR of the bank? LCR of the bank is 143.8%, up from 139% as on 30th June. What is the impact of Yes Bank's stake sir on your return on assets? If we do not consider the profit in Yes Bank, the ROE is still above 1%. It would be around 1.04%. Thank you very much. Pawan Kedia: Thank you, Chairman, sir. I trust all the questions have been addressed. Challa Setty: If anybody wants to ask questions, we still can give 5 more minutes. Otherwise, we can close. But just see that you're not repeating the same question. Unknown Analyst: I just had a data keeping question. The extraordinary gains because of Yes Bank stake sale, gross of tax was around INR 4,500 crores. What is this amount net of tax? Challa Setty: INR 3,386 crores. Prakhar Sharma: Sir, Prakhar Sharma here from Jefferies. Just wanted to check, your fee growth in this quarter has been phenomenal. You haven't seen 20% plus numbers for a long time on a big number. Can you just elaborate what has helped? And what do you think is this start of a new run rate, maybe not 20%, but double digit, et cetera. So if you could just help. Challa Setty: So most of the lines of other income seem to be good ones like either in the government business or cross-sell I believe they are stable, even loan processing charges. Much of the loan processing charges are not one-off or bulky one. They're all widespread across the retail segments. The only thing which I mentioned is on the debit card interchange fee. I don't know how it is going to play out. But otherwise, I think other income streams are seem to be stable. Pawan Kedia: Okay. I trust all the questions have been addressed. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking Chairman, sir, MD sir, DMD Madam, top management team, analysts, investors, ladies and gentlemen. We thank you all for taking time out of your schedule and joining us for this event. To round off this evening, we request you all present here to join us for high tea, which is arranged just outside this hall. Thank you. Thank you so much.
Operator: Good morning. Good evening, everyone. Welcome to Catena Media's Q3 Interim Report. I am Manuel Stan, and today, I'm joined by our Chief Financial Officer, Mike Gerrow. Today, we will be speaking to our Q3 interim report, related financials and our strategy and outlook going forward. We will start today's presentation with a high-level summary of the most important developments in the quarter. I am pleased to see a solid quarter with growth in both revenue and earnings. Q3 amounted to EUR 11.6 million. This represents an improvement of 9% versus Q3 2024 and 22% versus Q2 2025. Adjusted for the weaker U.S. dollar, our primary invoicing currency, revenue increased by 15% from Q3 2024. The adjusted EBITDA improved to EUR 2.9 million, more than double from the previous quarter as well as Q3 2024. The adjusted EBITDA margin improved to 25%, a significant improvement from 14% in the previous quarter and 13% in Q3 2024. During the quarter, we continued to focus on operational efficiency and diversification. From a revenue diversification perspective, Q3 represented another step in the right direction as our performance marketing verticals, CRM, sub-affiliation and paid media, all continue to increase their share of group revenue. The full financial effect of our cost optimization program is now visible in our financials with notably lower personnel and other operating expenses. The full cost base was down 6.9% year-on-year despite the higher direct costs coming primarily from sub-affiliation growth. [indiscernible] resulted in improved efficiency across all areas of the business. While the growth of these channels comes at a lower margin, we are pleased to see the group's overall reduced reliance on the search channels. From a geographical perspective, the share of revenue coming from North America increased to an all-time high of 96%, reflecting our focus on this geography. While we evaluate other geographies, North America remains our core focus for the immediate future. While the quarter was overall positive for us, we recognize the regulatory uncertainty surrounding social sweepstakes casinos and the continued drive of generative search, both of them present headwinds for future quarters. Moving on to operational developments. One of the highlights of the quarter was the launch of our best-in-class sub-affiliation platform, Marketplace. The platform is designed to connect affiliates and operators in a modern and streamlined ecosystem. It replaces manual processes with a scalable infrastructure that enhances service delivery. It equally empowers affiliates to grow their network and operators to expand their footprint in North America. We have seen good results from our diversification efforts as both CRM and sub-affiliated verticals recorded new highs during the quarter. From a tech perspective, we have made great progress as we continue the migration of our top-tier brands to our central platform. Our search rankings improved on the back of the June Google Core update and the trend held firm throughout the quarter. We will go into more details on the next slide. The teams worked diligently to finalize the early December Missouri launch. In October, [indiscernible] return-to-office program in our Malta headquarters, which sees the majority of our workforce back in the office for at least 3 days a week. A similar strategy will be implemented in the beginning of 2026 in our North American Miami hub. Moving on to the organic search score. In Q3 last year, we started showcasing our average ranking score for the most important keywords across Catena Media's owned and operated products. The report, keyword list and criteria are continuously redefined to improve both the structure and relevance. From Q3 2025, the report includes an extended set of 100 keywords and updated logic. This was applied retroactively from March 2025 to continue to show the movement over the last quarters. We are pleased to see that the uplift showed after Google's June algo update was continued throughout Q3, reflecting the strength of our products and validating the team's strategy and execution. At the end of the quarter, we have registered the best average score for the last 6 months. Another notable success during the quarter was passing Google's Core Web Vitals assessment for all our top-tier products. Lastly, it is important to note that generally conversational dynamic has a direct impact on click-through and traffic. This is a threat for our industry as well as the wider affiliate base, but equally represents an opportunity to shift focus towards building brands and loyal communities. I will now hand off to Mike to give an in-depth update on our financial performance. Michael Gerrow: Thank you, Manu, and good day. Looking into our Q3 financials. Q3 was a strong quarter. Revenue was EUR 11.6 million, representing a 9% increase year-on-year and a 22% quarter-on-quarter increase. Adjusted for foreign exchange rate fluctuations, year-on-year revenue was up 15%. This represents our first year-on-year revenue growth since Q1 of 2022. Adjusted EBITDA was EUR 2.9 million, an increase of 119% in the same period previous year and a 12 percentage point increase in margin. Adjusted EBITDA increased 112% versus Q2 2025. The quarter-on-quarter and year-on-year EBITDA growth was an encouraging step-up driven by both revenue growth and our cost optimization program implemented in recent quarters. NDCs decreased 12% year-on-year, driven by lower sports performance and shift towards casino revenue. North America contributed 96% of group revenue, up from the 89% in the previous year. Please note that given the decreased contribution of products outside North America, we've reduced our focus on the geographical reports going forward. The sustained underperformance in legacy Rest of World casino assets and our North American sports [indiscernible], a [ $16.5 million ] impairment loss recorded during the quarter. Moving on to our segment performance. In Q3, our Casino segment contributed 85% of revenue with sports contributing 15%. I am pleased to see that our Casino revenues grew by 20% versus Q3 2024 and by 26% versus Q2 2025. This growth came from both improvements in our soft tier products and positive developments in our diversification efforts to grow paid media, CRM and sub-affiliate channels as noted by the increase in direct costs. Casino NDCs increased by 1% versus Q3 2024 and by 23% versus Q2 2025. Adjusted EBITDA in our Casino segment decreased by 4% versus Q3 2024 and increased by 82% versus Q2 2025. The year-on-year decrease is mostly [indiscernible] portion of our shared costs to the now much larger casino business as well as FX fluctuations and our efforts to diversify our revenue streams to lower-margin sources, including CRM, paid media and sub-affiliation. Our sports revenue decreased 28% versus last year to EUR 1.8 million. There was a marginal 2% increase versus Q2 2025. The slight quarter-on-quarter growth is mostly attributed to seasonality. However, the overall performance in our owned and operated sports brands remained unsatisfactory and will require more time to turn around as we continue to invest in our core sports products to improve long-term competitiveness. New depositing customers decreased by 40% versus Q3 2024, but increased by 5% versus Q2 2025, again, due to the regular sports seasonality. Adjusted EBITDA in sports grew significantly versus last year's losses and our breakeven results in Q2 2025 to a healthy 25% margin. The growth in adjusted EBITDA is primarily related to the delivery of our cost optimization measures. Please note that the Sports segment loss in Q3 2024 was also partially attributed to the remaining media partnerships that were operating at a loss for part of the quarter. Continuing on to our cost development. We decreased our cost base by 6.9% versus Q3 2024 with a slight increase versus Q2 2025, driven by our increasing direct costs. Our direct costs increased by 145% versus Q3 2024 and by 50% versus Q2 2025. This reflects our positive momentum in diversifying our revenue to include a larger mix of performance marketing channels, including paid media, CRM and sub-affiliation. In line with our communicated cost optimization program, our personnel expenses decreased by 39% versus Q3 2024 and decreased by 8% versus Q2 2025. And other operating expenses decreased by 27% versus Q3 2024 and 21% versus Q2 2025, mainly due to optimized SEO activities and lower professional fees and IT support costs. Total items affecting comparability were EUR 200,000 in the quarter. This was primarily related to movement associated with divestment of minor assets and an adjustment of H1 2025 revenues due to invalid player activity. Moving on to our financial position. Total operating cash flow from continuing operations was EUR 2.1 million in the quarter, increasing from EUR 1.8 million in Q3 2024. Our resulting cash and cash equivalents balance at the end of September was EUR 8.4 million. We do not have any remaining debt instruments, but our hybrid capital security with a nominal value of EUR 44 million has interest costs of approximately EUR 1.4 million per quarter. As mentioned in the press release before the Q1 report, we do not intend to redeem the hybrid capital security in the short term, and we have deferred making interest payments on this instrument. So far, we have deferred the July and October 2025 interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Following our annual asset value review, we have recognized an impairment of our North American sports assets of EUR 10.5 million and our Asia Pacific casino assets of EUR 6 million. This is a noncash affecting impairment, reflecting the poor performance in these areas over the past number of quarters. I will now hand back over to Manu to give us an update on the strategy and outlook. Manuel Stan: Thank you, Mike. We will now have a look into the strategy and outlook for the next quarters. Status quo in terms of new marketing openings. Overall, market penetration remains at approximately 50% for online sports betting and only 16% for online casino, indicating a remaining sizable future opportunity. As Missouri is approaching the December 1 go-live date, our teams are working diligently to prepare the launch. While this is the first launch of a legalized online sports betting market in the U.S. since North Carolina in Q1 of last year, due to the specific nature of Missouri, i.e., the 19th largest U.S. state by population surrounded by legal sports betting in 6 out of the 8 neighboring states, we expect the revenue uplift to be moderate. Alberta's iGaming bill was approved in May 2025, and the province is expected to go live at some time in 2026. There is no concrete launch date at this time. Alberta will follow a model similar to Ontario, including both online sports betting and online casino. Moving on to the strategic focus areas. As laid out in the previous reports, our 2025 strategy is focused on 3 key pillars: people, product and profit. From people perspective, the key initiatives in the recent periods included rightsizing the organization by eliminating more than 50 roles in Q2. Q3 was the first quarter where the full financial effect of this action and resulted in a year-on-year personnel cost reduction of 39%. The implementation of OKRs was partly delayed during -- due to the Q2 layoffs and was fully rolled out throughout the organization during Q3, ensuring alignment and accountability. The hubs build-out continued in Q3 with no roles being advertised or hired outside our 2 hub locations. And in early October, we rolled out the return-to-work initiative in our Malta HQ that will be also implemented in our Miami North American hub in early 2026. From a product perspective, the key initiatives included performance marketing verticals, paid media, CRM and sub-affiliates continue to grow their share of revenues for the company. This contributed to the revenue mix diversification and also equally important, helped offset the SEO reliance. The launch of Marketplace during the quarter showed strong interest from prospective sub-affiliates, and we are well positioned to grow this area further in the coming quarters. The ongoing tech consolidation work includes bringing all our product to a central platform. The top-tier products that have benefited from this work during the quarter have shown encouraging performance improvements. Our third and last strategic pillar is profit. We are pleased to see the outcome of our efforts on both revenues as well as costs, as our adjusted EBITDA margin almost doubled from previous quarter and corresponding quarter previous year, up to 25%. Direct costs are expected to trend slightly upwards as our performance marketing channels continue to grow and the cost will follow directly. The remaining cost base is unlikely to see any significant movement in the near term as we expect to see a relatively flat -- we expect it to stay relatively flat moving forward. Lastly, let us recap the key takeaways from our report. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core search channel has seen good development during the quarter reaching the best average position for our top 100 keywords in the last 6 months. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels, paid media, sub-aff and CRM showing good progress. The launch of the next-generation sub-affiliate platform, Marketplace, represents a great opportunity to develop this vertical even further in the next quarters. While the performance in Q3 was a welcome step, positive step forward, we remain cautious for the future quarters due to the potential headwinds, both by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments and have accumulated deferred interest, and our accumulated deferred interest now totals EUR 2.5 million. Thank you very much for listening. I will now hand over back to Mike to move on to the Q&A section of our call and open up for questions. Michael Gerrow: Thank you, Manu. I'll open up for questions now. [Operator Instructions] All right. I have a question coming in from Pontus. I'll let him in now. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Great stuff, seeing some double-digit growth, very exciting. I just wanted to know on sub-affiliation, you mentioned it's best in class. What should we look at in terms of metrics to back that up and so to say, and [ performance ]? And what is the ambition would you say of that vertical, given it's kind of slightly lower gross margin? If you can -- I know it's early days, but given your kind of talking about it as a very good product in the market, can you tell us anything about that? Manuel Stan: Pontus, I'll take a first stab and Mike, if you want to fill in the gaps, please do. I think one interesting anecdote is that, obviously, as a marketplace between operators and sub-affiliates, we have to earn the trust of both sides. And it happens relatively frequent that we actually get recommended by operators in North America to sub-affiliates to work as a partner bridging that partnership between operators and sub-affiliates. That is a great testament that we have built a trust to operators by being a great partner when it comes to doing the proper due diligence, being transparent and being a helpful part in that whole journey. When it comes to us saying that it's a best-in-class, I think from any perspective, you're looking at the platform, again, you're looking at the functionalities, you're looking at speed, you're looking at user experience, you're looking at a transparency. We built that platform with the idea of making it a marketplace where eventually operators and sub-affiliates can come and self-serve directly as much as possible, making that process as automated and as smooth as possible. So I don't think we have any -- well, we don't -- I'm sure we don't have any third-party opinions or user research to say particular on this criteria as the best-in-class. But subjectively speaking, when we're comparing the platform with whatever else we see out there in the market and knowing what we try to achieve, and we managed to achieve when we launch this, we're confident to say that from our perspective, this is a best-in-class platform. Unknown Analyst: Okay. And the ambitions there, would you say it's a complement? Or is it potentially a kind of substantial business in a few years? Or how do you see it when you -- it's hard for us, I think to -- it's kind of a new effort for most players. It's interesting to hear your views on it, but maybe it's too early to kind of point to that. Manuel Stan: I think I can answer the first part for sure. I think it's complementing our business. It's not replacing our current -- our existing business model. We remain a media company, and we -- our first and most important focus is to grow our owned and operated product and brand. But this is a very nice way to complement that and to diversify our revenue streams to make sure that we're well protected against anything that may change the landscape. I think, obviously, you have the direct costs in the report, and you can make an estimation of how much this is growing quarter-on-quarter, and you can understand that it's becoming a relatively important revenue stream and a focus area for us going forward. But I do see it in the short, medium term, at least for sure that it is a complementary business to our core owned and operated brands. Unknown Analyst: Okay. Good. Just a quick one on the potential impact of prediction markets. Could you say anything about that? Like is it positive or negative or no impact to go -- because there's so much noise going on there and a lot of kind of revenues going there. So can you just comment on that? Manuel Stan: Yes, of course. Thank you, Pontus. So far, we have not disclosed any particular revenues coming from this subsegment per se. We have launched our activities on different products or different brands and trying to work with the top operators in the production market space. I think it will continue to grow, and we will continue to invest in this. So related to what are the strategies for 2026, prediction market is definitely one of the areas where we want to continue to invest, and we want to grow. We see that as a good opportunity. I think there are key unit economics to take into account. The CPA for prediction market is substantially lower than sportsbook or than the casino verticals in general, which means that it's more a play of volume rather than seeing the same revenue per customer that we see in other verticals. But our products are well positioned to tap into this market. And as I said, I think it will be one vertical where we'll continue to invest into the rest of 2025, but also 2026. Michael Gerrow: And I think I'll add a little point -- I'll add a little clarification there as well for you, Pontus, which is that we report any revenue that comes in through the prediction market at this stage through our sports segment. So as a portion of that, as you can tell, with an 85% split on casino versus sports, it's a portion of the smaller portion of our revenue base at the moment. Thank you. I think that's all the questions we have on the line. So I have a few questions that are -- came in from written format. So I'll start asking a couple of those towards you now, Manu, if that's all right. So the first question, probably generic is, just are you satisfied with the performance in Q3? Manuel Stan: Thanks, Mike. I think, absolutely, there is no way to go around it, both from revenue as well as cost perspective or adjusted EBITDA perspective, we have seen growth in the quarter. The revenue -- the most pleasing thing for me to see is that the revenue came from a variety of initiatives. It was not just based on diversification or based on strength in rankings, but it came from all over the place. It came from our continuous improvement in Google rankings throughout the quarter. It came from the diversification of our revenues. It came from sub-affiliates as well as CRM. So we've seen really nice development there. And then, as you pointed out in your part of the presentation, Mike, we have seen the first year-on-year growth since Q1 2022. So that's the first year-on-year after 14 quarters of relative struggles, I guess, for us as a company. So seeing the revenue increasing year-on-year as well as quarter-on-quarter is fantastic. And again, looking at the FX, removing the FX from calculation on a year-on-year growth, we're looking at the 15%. Secondly, we've done this while putting the business in a stronger operational place with a lower cost base than we had last year. So that's also great to see and that added to having a pretty healthy EBITDA -- adjusted EBITDA margin at 25%, as we said, pretty much doubled from previous quarter in 2024 as well as Q2 2025. So all in all, I think good development across the entire P&L. That being said, realistically speaking, we appreciate the pressures that are coming from sweepstakes. We appreciate how the impact of California then will play in the short term, but also throughout 2026, how that impact may have additional effect in other states and how that will impact our business. We appreciate the challenges coming from the zero click and generative search threats. So we do have a reasonable amount of headwinds in front of us, and we have to be able to navigate that and continue to strengthen our position. But talking about Q3, I think, overall, I am pleased to see the progress that our teams have made. Michael Gerrow: All right. Thanks, Manu. Kind of related to a question Pontus asked, but I guess I'll ask that. But what is -- what initiatives do you have ongoing to reduce the dependency on Google Search? Manuel Stan: Yes. I think, first and most importantly, we've talked about diversification for a few quarters now. And we talked about the investments we're making into CRM. We talked about the investments we've made into building our Marketplace platform. We've talked about us investing more in paid media. So that's definitely one of the key focus areas for us in to reducing the dependency on Google Search. Secondly, I think very important for us, we're investing into customer engagement initiatives. Those include stuff as loyalty programs, gamification, product features and so on. Those are all a part of our wider strategic shift towards building brands and products that emphasize on customer added value and loyalty. So instead of putting all our force into acquiring new customers, we do realize that we have an equally strong opportunity to retain the customers, to engage with the customers and build our own communities and build the loyalty towards our brands and be in a much better position to extract value from those customers in a longer period of time. Michael Gerrow: Thanks, Manu. And one more for you, which is that the direct costs grew noticeably during the quarter. Why is this? And is it a concern from a margin perspective? Manuel Stan: Absolutely. Thanks, Mike. I think this is pretty much related to Pontus question about sub-affiliation. And obviously, as this grows for us, as the share of the revenues coming from sub-affiliate platform grows for us as a company, so will the direct cost. So on the positive, this is obviously a cost that's proportional to the revenues. It's a performance-driven costs, so we're pleased to see the development. But we equally appreciate that it's a lower margin than the rest of the business. I think all in all, I am happy to see this keep on growing. And the more we grow, the more it benefits us on the bottom line also. And I think it's a scalable platform, and it's a scalable part of the business that should not have any ceiling, and we should be happy to see it growing even further. Michael Gerrow: All right. We actually have, I think, a clarification question coming in from Pontus again, so I'll activate him and let him ask a follow-up here. Manuel Stan: Sure. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Sorry, to -- but I had a more -- one more question. You mentioned this Rest of the World assets basically. Some are now written down historically, and you're also very much a U.S. business at the moment. Would you say -- I guess, you still have these assets? Could we see like a selling or total closing of the Asia and European pages? Or doesn't it work like that? Or is that something you just kind of run in the background? Can you just explain what that will be in the future? Manuel Stan: Thanks, Pontus. So I think we're talking about some European assets and some assets that are targeting Lat Am, some assets that are targeting Southeast Asia. Overall, we do not see these assets performing as there -- as we would like them to perform. So over the last few quarters, one of our key initiatives that we talked about was reducing our focus when it comes to products, when it comes to brands, when it comes to geographical assets. So a lot of these products did not get the much-needed love for them to continue to perform. But going forward, for us, as we're trying to make sure that our organization is well set up and we're doing the right things for North America, we may try to duplicate some of those things in other geographies or on other products. But that is a secondary thought once we're confident that doing the right things for North America. I don't see in the near future any sizable effect of those. I don't think that we will spend significant time resources, investments outside North America, at least in the near future. That being said, for the long run, we still have a number of assets that can become at some point -- at the right time, they can become valuable for us. We did divest over the last few quarters, a few smaller assets for different geographies. And that remains part of our ongoing strategy. But I don't think that we have anything big there that it should be a game changer either as a divestment cash coming in, either as operational generating significant revenue stream. Mike, if there's anything you want to add on top of that, please do. Michael Gerrow: No, I'd say that's about right with it representing 4% of our revenue in the most recent quarter is not an area of focus, but at the same time, we would only look at divestments if they make sense, if it's still financially viable products, it makes sense to operate them even at only 4% of our current revenue base. All right. Thank you again, Pontus. Just a couple of more questions, which came in or more kind of focused in my area. So I'll ask those and answer those, which is regarding the deferred hybrid capital security interest payments, are there any plans to resume payments soon? And should investors be concerned for the future? So the short answer on that is no. According to the terms of the hybrids, we're allowed to defer the payments indefinitely, and there's no kind of default risk or anything like that towards shareholders. So I just want to make that one very clear. Our role from a cash planning perspective is to try to sustain recent growth in the healthy cash generation before making any further decisions on our capital structure. That includes any resumption of the hybrid interest payments. Building up the cash by deferring the payments, it gives us flexibility. And flexibility is important when it comes to seeing whether we should invest more tech-facing investments, strategic initiatives, and also lets us adapt as the market does change quite rapidly that we work in. And then another question that I had was that the margins have improved significantly since Q2. And can these levels be maintained going forward? And on that one, I'll say that Manu already spoke a little bit to the fact that we're trying to keep our cost base relatively flat with the exception of the direct costs, which follow the revenue streams. But overall, we're cautiously optimistic that the margins can be maintained. The improved margins reflect both the revenue growth and also the cost discipline that we've put in place. But this is only one quarter of improved results. So we need to sustain this, knowing that there are headwinds that are coming forward in the next quarter as we talked about the increased regulatory pressure on social sweepstakes, casinos. We talked about the fact that generative search is definitely highly impact across affiliation, not specific to iGaming. So we know those are in front of us, so we need to make sure that we can withstand [ those ]. The other thing is that quarterly revenue and the cost variations are always possible, but the business is now operating from a much stronger base with a more efficient structure. So I don't see significant variance coming in unless there's an adverse revenue item that happens, with one potential exception that the current cost structure could change a little bit just based on the fact that we haven't had any performance-based incentive programs that have been very, very minimal in the recent years. So that's one area that could potentially bring that up. And that's all the questions that we have that have come in today. So I guess I'll hand it back over to you, Manu, and you can handle the closing remarks. Manuel Stan: Thanks, Mike. We'll wrap up today's call with some quick closing remarks. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. This represents our first year-on-year revenue growth since Q1 2022. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core sales channel has seen good development during the quarter, recording a 6-month high performance. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels showing good progress. That being said, while the performance in Q3 was a welcome positive step forward, we remain cautious for the future quarters due to the potential headwinds posed by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Thank you all for joining today's call. Thank you for the questions. And looking forward to hosting you for the year-end Q4 report on 10th of February 2026. Thank you very much.