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Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the conference over to Mr. David Kinney, Head of Investor Relations. Sir, please go ahead. David Kinney: Thank you, operator, and welcome, everyone, to today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies the call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our third quarter results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions, and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures such as EBITDA and earnings per share, excluding identified items. Additional documents on our investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until December 1 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746-207. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Agustin Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins; Aaron Ledet, our EVP of Intermediates & Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you, Dave, and thank you all for joining today's call as we discuss our third quarter results. The LYB team is making excellent progress on managing the cycle with meaningful progress from our cash improvement plan, which contributed to our very high cash conversion of 135% in the third quarter. We're well on our way to delivering on our $600 million target by year-end and our actions are expected to increase cash flow by at least $1.1 billion by the end of 2026. Let us first take a moment to review LYB's safety performance with Slide #3. Safe operations are fundamental to our core values and essential for our future success. This is demonstrated by our September year-to-date total recordable incident rate of 0.12, which is even better than last year's top decile result. Safety performance improved year-on-year, and this sustained trend is a direct reflection of the dedication and commitment of all our employees and contractors to operational excellence. Please turn to Slide 4 as we discuss our financial performance. During the third quarter, cash generation improved as LYB continued to navigate the cycle. Earnings were $1.01 per share with EBITDA of $835 million and $983 million of cash from operating activities. We returned $443 million to shareholders in the form of dividends. Turning to Slide 5. Let's discuss some encouraging trends developing in polyethylene markets. In recent months, PE demand has started to improve following the multiyear post-COVID downturn. In both North America and Europe, 2025 domestic demand for polyethylene is the strongest we have seen since the start of the downturn in the third quarter of 2022. Despite the recent volatility in U.S. exports caused by shifting trade and tariff policies, third quarter year-to-date North American demand is up by 2.5% relative to 2024. After a prolonged weakness following the onset of the Russia-Ukraine conflict, August year-to-date polyethylene volumes in Europe are up approximately 3% compared to the same period last year. Consumer packaging demand remains resilient, reflecting the essential role of polyolefins in everyday applications despite changing consumer behavior. At the same time, investments in durable goods to support trends in energy, digitalization and infrastructure are also driving demand growth. Renewable energy and data center construction requires durable, high-performance polymers for wire and cable jacketing, conduits and water piping. Electric vehicles use approximately 10% more plastic by weight than vehicles powered by internal combustion engines. LYB's broad portfolio of innovative polymers position us well to meet the stringent performance and sustainability benchmarks required to address these attractive and growing market opportunities. Let me be clear, these are not yet green shoots for our financial results. Markets will need to absorb new capacity and operating rates will need further improvement before suppliers develop meaningful pricing power. But these inflections in demand trends are encouraging and could be the early indicators of a market recovery. With this in mind, let's turn to Slide 6 and take a longer view on demand growth for polyethylene and polypropylene. As shown in the top chart, global polyethylene demand has consistently grown at GDP plus rates of over 3% for at least 35 years. Unlike other markets like automobiles or housing, polyethylene markets have exhibited consistent growth. Even after recessionary downturns and pandemic-related spikes, polyethylene demand quickly returns to its long-term trajectory. This reflects the power of the underlying trends driving global consumption, population growth, urbanization and a rising middle class. Some observers questioned whether the flatter growth rates seen in 2022 and 2023 after the 2021 spike were reflective of a secular change. But as you can see, in 2025, we are reverting to long-term global historic growth rates of over 3%. Most consultants are predicting continued growth through at least 2035 with some shifts in share of production from fossil-based feeds towards circular feedstocks. Looking at the bottom chart, mature markets such as North America and Europe leads in per capita consumption aligned with established demand patterns. Meanwhile, emerging regions such as India and Africa, provide significant long-term growth opportunities as living standards improve in these regions. China continues to demonstrate strong volume growth, supported by its extensive manufacturing base and industrial activity. In contrast, South America reflects comparatively lower consumption, which can attribute it to a smaller manufacturing footprint and lower industrial intensity relative to other regions. These trends reinforce the importance of regional dynamics, shaping the growth of polyolefins in the global market. While mature markets remain critical for stability, demand growth within these regions will be increasingly driven by infrastructure developments, electrification, EV mobility, home care and pharma, while emerging economies will drive meaningful volume growth. Importantly, this demand growth is not negatively impacted by circularity. In fact, we are seeing growth shifting toward innovation, efficiency and circularity in these markets. LYB continues to lead in sustainable solutions by investing in innovative feedstock sourcing, positioning us to capture value across diverse markets as we advance our strategy. On Slide 7, let's shift to the supply side and discuss how capacity rationalization trends are accelerating and reshaping the global ethylene supply landscape. As seen on the chart to the left, announced and anticipated closures and idling from 2020 through 2028 add up to more than 21 million tonnes of ethylene capacity, representing roughly 10% of global supply. Asia is leading the way with recent government announcements highlighting the magnitude of this trend. South Korea is targeting closures of up to 25%, while Japan recently announced closures of 1.5 million tonnes. China is also a critical driver for global rationalization. With high costs for feedstocks, much of the Chinese petrochemical industry is on the wrong end of the cost curve. China's anti-involution measures are focused on reducing uncompetitive capacity and approvals for new facilities are facing increased scrutiny. In Europe, regulatory burdens, persistently high operating costs and weak margins are driving massive reductions in petrochemical capacity. Announced rationalizations total approximately 20% of regional capacity, and we expect more announcements will follow. The domino effect of these rationalizations is leading to an acceleration. Smaller petrochemical clusters are finding that the economics for cogeneration or industrial gas partners no longer work when a few assets are shuttered in smaller industrial parks. About 30% of all global closures have been announced in just the past 12 months, underscoring the speed and magnitude of this shift. We're confident that these closures will help to partially offset the overhang from the substantial capacity additions underway in China. At LYB, we're leveraging the market trends that reinforce our strategy. We're growing our presence in cost-advantaged regions, upgrading our challenged positions and leveraging our technology to ensure a strong presence in attractive markets. We're also cultivating deep partnerships with governments and regulators to ensure a fair trade environment and working towards smart policies, especially in Europe that will provide critical support for our industry. Now with that, I will turn it over to Agustin to discuss capital allocation and the progress on our cash improvement plan. Agustin Izquierdo: Thank you, Peter, and good morning, everyone. Let me begin with Slide 8 and review the details of our third quarter capital allocation. As Peter mentioned, we generated $983 million of cash from operating activities, an improvement of over 2.5x relative to the prior quarter. During the quarter, we returned $443 million through dividends while funding $406 million of capital investment. Our team remains focused and committed to balanced and disciplined capital allocation as we navigate the cycle. Our investment-grade balance sheet remains our priority while we invest in safe and reliable operations and work to preserve shareholder returns. We continue to advance our strategic initiatives to build a stronger and more resilient LYB. Today, we are announcing a further reduction in our 2026 capital expenditures to $1.2 billion. We will continue to work to complete our MoReTec-1 chemical recycling facility in Germany as we work to optimize our 2026 spending on maintenance. We are continuing to make good progress on the value enhancement program, which remains on track to exceed our target for 2025. Similarly, our cash improvement plan is on track to deliver our $600 million target of incremental cash flow. Year-to-date, we have achieved $150 million in fixed cost reductions. I will review the progress on our cash improvement plan in more depth on the next slide. We are taking clear actions to ensure that we can continue to successfully navigate the cycle with a commitment to our investment-grade credit rating as the foundation of our disciplined capital allocation framework. Please turn to Slide 9, and let's continue by reviewing the progress on our 2025 cash improvement plan. For this year, we are targeting $600 million of improvement through a combination of working capital, fixed cost and CapEx reductions as part of our total commitment to deliver $1.1 billion of improvement by the end of next year. We are making progress on working capital reductions through our traditional levers of managing inventories and payables. With this in mind, we are on track to meet our target of realizing approximately $200 million of working capital reductions. As you all know, LYB has historically led the industry with a low-cost operating model. Nevertheless, we have identified further opportunities to streamline our operations and are on track to exceed our $200 million fixed cost reduction target by the end of 2025 with year-to-date fixed cost reductions at approximately $150 million relative to our 2025 plan. And from a CapEx reduction standpoint, we are making progress to reduce spending on an accrued basis, but these reductions are impacted by timing of payments with cash realization currently trailing. We continue to prioritize safe and reliable operations while making progress on MoReTec-1 and delaying construction of Flex-2 and MoReTec-2 until we see market conditions improve. Together with working capital and fixed cost initiatives, these actions position us to deliver on our target to achieve $600 million of incremental cash flow in 2025. Now please turn to Slide 10 as we outline our cash generation. Over the past year, LyondellBasell generated $2.7 billion of cash from operating activities. Our team converted EBITDA into cash at a rate of 99% over the past 12 months and 135% during the third quarter, well above our long-term target of 80%. In the third quarter, we were able to maintain robust shareholder returns with dividends and share repurchases totaling $2 billion over the last 12 months. Our cash balance increased during the third quarter to end at $1.8 billion. We will continue to take proactive steps to protect our investment-grade balance sheet as we navigate the cycle. Now let's turn to Slide 11, and I'll provide a brief overview of our segment results. Our business portfolio generated $835 million of EBITDA during the third quarter. Profitability in Olefins and Polyolefins Americas improved with lower cost of ethylene due to co-product contributions, coupled with less downtime following the successful completion of turnarounds at our Channelview complex in the second quarter. In Intermediates and Derivatives, improvements in oxyfuel margins were partially offset by planned maintenance at our La Porte, Texas acetyls facility and the normalization of unusually high second quarter styrene margins. In technology, subdued licensing activity impacted third quarter profitability and all segments benefited from our progress on fixed cost reductions. Third quarter results included identified items of $1.2 billion net of tax, primarily associated with asset write-downs in our O&P, EAI and Advanced Polymer Solutions segments related to the prolonged downturn in the European petrochemical and global automotive industries. We have also updated the guidance for our 2025 full year effective tax rate to negative 13%, primarily due to these noncash impairments recognized during the third quarter. In addition, our cash tax rate is expected to be substantially lower than our prior guidance. Please refer to our updated 2025 modeling guidance in the appendix to this slide deck describing impacts from planned maintenance and other useful financial metrics. With that, I will turn the call over to Kim. Kimberly Foley: Thank you, Agustin. Let's begin the segment discussions on Slide 12 with the performance of the Olefins and Polyolefins Americas segment. During the third quarter, O&P Americas EBITDA was $428 million, an improvement of 35% quarter-on-quarter. Seasonally higher demand and increased utilization following our Channelview turnarounds supported sequential growth. Our third quarter operating rates for the segment was approximately 85% with our crackers running at approximately 95%. During the third quarter, North American olefins industry operating rates remained high, driven by favorable margins and good demand. Although industry margins declined, LYB integrated polyethylene margins improved by approximately 23% quarter-over-quarter, supported by the restart of the Channelview assets. During 2025, operations of our Hyperzone Polyethylene plant in La Porte have significantly improved with more uptime, higher rates and increased on-spec production of the full range of premium products. We will perform some modifications at the plant in early 2026 that should allow our Hyperzone PE technology to reliably deliver high-quality premium products with performance advantages that our customers desire. This is part of our portfolio transformation towards more specialized applications. In the fourth quarter, we expect typical seasonal trends of softer demand and customers' desire to minimize year-end inventories will pressure sales volumes. Nonetheless, producers are also seeking to minimize inventories and reductions in the industry operating rate are providing evidence of adjustments to market conditions. The balance of supply/demand will ultimately determine the success of our price increase initiatives. Sequentially higher natural gas and ethane prices are likely to result in somewhat higher costs during the fourth quarter, but we expect that this will be partially offset by our fixed cost reduction initiatives. Despite volatile oil prices, the favorable oil-to-gas ratio continues to provide an advantage to North American ethylene producers relative to oil-based production in other parts of the world. We remain focused on aligning our operating rates to manage working capital while serving domestic and export market demand. We expect to reduce our operating rates by 5% and are targeting 80% utilization across the segment during the fourth quarter. Please turn to Slide 13 as we review the results of the Olefins and Polyolefins Europe, Asia and International segment. During the third quarter, the segment generated EBITDA of $48 million. Altogether, EBITDA for both O&P segments improved by 31%. In EAI, segment EBITDA remained relatively flat as operational improvements helped offset margin pressures in polymers due to weak demand. Despite fewer operational constraints on some of our own assets, polymer margins declined due to increased competition from imports originating in cost-advantaged regions such as North America and the Middle East. We continue to advance our strategic objectives in the regions as we progress on the proposed sale of the select European assets. As part of this transaction, I am proud to share that we have achieved a major milestone with the signing of the sales and purchase agreement. This marks another step towards closing the transaction, which we expect to occur in the first half of 2026. The transaction is another example of our strategy to grow and upgrade the core through optimizing our portfolio for long-term value creation. Additionally, as part of our second strategic pillar to build a profitable CLCS business, we are making good progress on the construction of our MoReTec-1 facility in Wessling, Germany. Major equipment deliveries are underway and structural steel is being installed to position us for a successful ramp-up in 2027. Looking ahead to the fourth quarter, we expect similar seasonal softness in Europe. Rising feedstock costs are expected to add further pressure on margins. In response, we are taking steps to significantly reduce fourth quarter production. We intend to idle the larger of the 2 crackers in Wessling, Germany, OM6, for at least 40 days during November and December. As such, we are targeting operating rates for approximately 60% across the segment during the fourth quarter. With that, I will turn the call over to Aaron. Aaron Ledet: Thank you, Kim. Please turn to Slide 14 as we look at the Intermediates and Derivatives segment. In the third quarter, segment EBITDA sequentially increased to $303 million as improved margins for oxyfuels were partially offset by planned maintenance downtime at our La Porte acetyls assets. Oxyfuels margins were supported by planned and unplanned outages that reduced the supply of high-octane gasoline blend stocks in the Atlantic Basin. Our Bayport facility had a 3-week unplanned outage related to a third-party supplier, impacting EBITDA by approximately $15 million, while other notable outages included competitors along the Gulf Coast and in Western Africa. As a result of our downtime, LYB operating rates across the segment fell 5 percentage points, short of our goal of 80% rates for the third quarter. Styrene margins normalized following second quarter supply disruptions across the industry. In September, we began a planned turnaround of our acetyls assets that will continue into the fourth quarter. The turnaround will support the first steps of our catalyst conversion initiative aimed at improving margins and productivity while reducing our reliance on costly precious metals. As we navigate the cycle, our focus on operational excellence continues to deliver results. In addition to executing on the La Porte turnaround, we recently achieved a milestone with our Channelview PO/TBA facility exceeding benchmark production rates during the quarter, reflecting focused execution and reliability across the site. Moving into the fourth quarter, we expect oxyfuels margins to moderate as typical year-end trends take hold in both gasoline and butane prices, although perhaps not as pronounced as in previous years. As part of our work to manage inventories, we will idle one of our PO/SM units in Channelview at the beginning of November for approximately 40 days. With this additional downtime, we expect to operate our I&D assets at a weighted average rate of approximately 75% during the fourth quarter. With that, I will turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Please turn to Slide 15 as we review results for the Advanced Polymer Solutions segment. Third quarter EBITDA was $47 million as our cost discipline supported margin improvement to overcome headwinds in automotive markets. Global automotive production volumes declined as OEMs experienced typical downtime in the third quarter and our volumes slightly declined due to lower demand from customers in the construction and electronics industries. EBITDA for the first 9 months of 2025 exceeded full year results for 2023 or 2024, clearly demonstrating the excellent progress the APS team is making to transform the business despite the challenging market environment. Looking ahead, we expect near-term demand to remain soft across key sectors and regions. Pricing pressures are partially offsetting the benefits of fixed cost reductions achieved through our cash improvement plan. Despite the challenging market backdrop, we remain laser-focused in our work to transform our APS segment to a customer-centric growth business. With a 75% improvement in our Net Promoter Score with customers since 2023 and having been recognized with supplier excellence awards by customers like Toyota, Nissan and Stellantis, amongst others, we continue to increase our growth funnel and improve our win rates to gain new project qualifications. We are proactively managing the business portfolio and remain confident that the work we are doing will profitably transform the APS business and enable us to achieve our long-term goals. With that, I will return the call to Peter. Peter Z. Vanacker: Thank you, Torkel. Please turn to Slide 16, and I will discuss the results for the Technology segment on behalf of Jim Seward. Third quarter EBITDA of $15 million was lower than the guidance we provided during our second quarter call. Licensing profitability decreased as revenues declined and market dynamics remain challenging with very low licensing activity and lower catalyst volumes. We see licensing activity has dropped nearly 2/3 since its cyclical peak in 2018 with current levels comparable to the lows seen in the early 2000s. Underscoring the significant slowdown of investments in global petrochemical capacity. In contrast, margins for our catalyst increased on sales mix improvements. In the fourth quarter, we expect improved profitability as previously sold licenses achieve revenue milestones. Additionally, catalyst demand is expected to improve from the unusually low levels seen in the third quarter. As a result, we estimate that the fourth quarter Technology segment results will be similar to the first quarter results. Let me share our views on our key regional and product markets on Slide 17. In line with earlier comments, we expect typical year-end seasonality and our actions to proactively reduce operating rates will create headwinds across most businesses, resulting in lower fourth quarter profitability. In the Americas, exports will continue to play a critical role in balancing markets. Despite a small uptick in fourth quarter ethane costs, the U.S. feedstock-based cost advantage is durable and will sustain regional competitiveness despite trade volatility. As global trade flows adjust, these structural advantages will continue to allow LYB to capture opportunities from cost advantaged U.S. production. Within Europe, fourth quarter demand is particularly weak and polyolefin pricing remains under pressure from increased imports from the Middle East and North America. Nonetheless, circularity initiatives continue to benefit from supportive regional regulations, reinforcing consumer preferences for sustainable products in the region. In addition, accelerating capacity rationalizations will help to improve supply and demand balances across the industry. In Asia, near-term capacity additions will continue to pressure regional supply and demand dynamics. That said, we remain cautiously optimistic as recent rationalization efforts in the region as well as China's anti-involution measures could provide partial offsets over the medium term. Within packaging markets, demand remains good even amid broader economic uncertainty as a shift towards value-driven consumption for packaged foods and other essential products sustain steady demand for our products. In building and construction markets, while lower interest rates are driving an increase in mortgage applications, affordability continues to constrain pent-up consumer demand for new and existing homes. In automotive markets, forecasts have become less pessimistic in the industry as recent trade agreements are providing greater clarity and reducing uncertainty across the sector. Lastly, in oxyfuels, despite a strong October, the seasonal compression in gasoline crack spreads are expected to reduce profitability for the remainder of the year. However, we expect industry downtime will provide some modest support for margins relative to typical fourth quarter trends. As we conclude today's call, I would like to acknowledge the resilience and discipline our team continues to demonstrate. Throughout the third quarter, we faced market headwinds, and we will undoubtedly face more challenges before the year is done. But our team continues to make smart decisions while operating our assets safely and reliably to deliver on their commitments and provide value for customers. We continue to navigate the cycle with discipline, agility and a clear vision that will position LYB to emerge stronger and deliver lasting value for all our stakeholders. I am proud to lead this dedicated team as we continue taking strategic actions to reshape LYB, create value and position our company for sustainable success. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Patrick Cunningham with Citigroup. Patrick Cunningham: I guess just on polyethylene, we seem to sit in a position of pretty resilient demand and you have some confidence exiting into next year on this growth trajectory. But with $65 crude net capacity additions more likely to accelerate versus this year before closures become meaningful and then some trade flow uncertainty on top of that, how would you weight the likelihood of any sort of inflection point in supply and demand or underlying prices and margins into next year? Peter Z. Vanacker: Thank you, Patrick. Let me make a couple of comments on your question, and then I will hand over to Kim. Rightfully so, yes, as we've shown in the presentation, you see that spike of additional capacity coming on stream in China during the next couple of years. But as we have also shown about 21 million tonnes of ethylene capacity is about to disappear as well. That's our estimation. Of course, not all of that has been really communicated and decided yet. But we believe that, that will be a good balancing out of the overcapacity. Please remind, I mean, that a lot of that capacity in China is at the wrong side of the cash cost curve, as we said in the prepared remarks. So they will have continuously difficulties to compete as well. And therefore, if margins remain low, then they would run at minimum technical capacity. So one may not, and I've said that before, look at nameplate capacities only. One needs to look at economical feasible capacity based upon current market conditions. We continue to see that polyethylene globally is very robust in terms of demand. That, of course, has to do with the different application that it goes in. Consumer packaging continues to be very robust, what we have seen also in the past during critical periods in time, like, for example, a pandemic. We also see that there is more and more support by having lower inflation rates, lower interest rates that, of course, we would expect will lead to more demand in durable goods. One may expect during the next couple of years that then the housing market would be more positive than what we have experienced in 2025. And the last thing that I want to point out is that, I mean, government spending on infrastructure is one element that is driving demand. Tech, artificial intelligence, data centers, utility construction for power, EV cars and that they all demand -- I mean, applications -- these are all applications that increase demand, not just for polyethylene, but also for polypropylene. Kim, anything you want to add? Kimberly Foley: I think the only thing that I would add to all those comments, Peter, as it relates to LyondellBasell and our ability for an inflection point in 2026 is going to be -- there's been new capacity -- derivative capacity brought online this year by one of our competitors. And there's another proposed set of assets coming online next year. So you're going to see a tightening in the ethylene market, and that's going to likely improve chain margins as we think about '26. Peter Z. Vanacker: And with regards, I mean, to the oil and gas ratio, I mean, we continue to believe that the high oil gas ratio is sustainable. We've seen oil gas ratios in the range of 15% to 25%. It would actually have to go down to, let's say, around 6, 7 for the productions in the Gulf Coast to, let's say, have a flattening cost curve. And we don't see that happening. We don't see that happening. We're more looking at something in the range of 12% to 15% in the immediate foreseeable future. Operator: Our next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, in China, can you just discuss what's happening there? You have a unique perspective getting your JV. So how -- why and how are these plants still running? Is it cheap Russian crude? Is it government support? Are they not allowed to close? Maybe you could relate that to your own experience with the [ Ningbo ] JV. Peter Z. Vanacker: Thank you, David. That allows me, I mean, then also that question to again highlight what I said in the prepared remarks. I mean, you said it rightfully. We have a unique access to the Chinese markets also due to our licensing activities. And the licensing activities, they have dropped about 80% from its peak in 2019. So that's really what you see, I mean, that slowdown, that cyclicality because, of course, on one hand side, there is no profitability in China. On the other hand side, you hear more and more in the next 5-year plan, discussions locally going on around Italian-related projects, the burden, I mean, to get the approval from central NDRC is much higher than eventually it has been by local NDRCs in the past. If you look at our joint venture, we are running at technical minimum capacity. If you look at -- and we are in first quartile lowest cost in China. If you compare that to the others, why are they running, I mean, at minimum technical capacity and not shutting down, I think it continues to be mainly because of safeguarding employment. But everybody knows and everybody talks about the anti-involution measures. And even if it's still early and we don't have the full visibility, you saw the chart in our presentation, we do expect and hear that on the ground that there will be quite some closures that will flow out of that anti-involution. So our level of confidence from quarter-to-quarter is increasing that there will be capacity shutdowns in China. Kim? Kimberly Foley: I think the only thing that I would add is just this week, we announced at our JV that we have added ethane to the feed slate. So we're looking to improve our cost position even more. Operator: Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Matthew Blair: Could you talk a little bit about the security of the dividend? I think the current yield is up to 12%. And despite the strong cash conversion this year, your free cash flow appears pretty unlikely to cover the dividend. So how are you thinking about this? And with the cash that you spend on the dividend, would that be better served in areas like shoring up the balance sheet or maintenance CapEx or things like that? Peter Z. Vanacker: Thank you, Matthew. And of course, I mean, we were expecting that someone would ask that question. So thank you for asking the question. Let me highlight, I mean, 4 points on our thoughts on our dividends. First of all, as you all know, we were very careful in how we were managing our cash during the last couple of years. And I know some people have asked us questions why are we keeping that cushion. Today, I'm happy that we did those -- take those decisions in the past. So we started 2025 with a cash balance that provides us a cushion. It's a robust cash balance of $3.4 billion, which has been much higher than the cash balance that we had in the past, which was more around $1.6 billion, $1.7 billion. That's the first point. Second point, we continue to take a balanced approach to capital allocation, especially as we are navigating the cycle. We reminded you again, we are on track on the cash improvement plan, $1.1 billion at least until the end of 2026. The first tranche of $600 million until the end of 2025, we said well on track. And we also communicated today when we look into more details on our CapEx for next year that we could further reduce our CapEx from $1.4 billion to $1.2 billion again in 2026. The third point is our investment-grade balance sheet remains, of course, the foundation of our capital allocation strategy. You all know, I mean, that investment grade makes it cheaper to do business, avoids -- I mean, having to make dramatic changes to our strategy or portfolio to address, I mean, the balance sheet. And we continue to have very proactive dialogues with credit agencies. We are also fully aware of their expectations and the sensitivities. So also as part, you saw our actions of navigating the cycle, we proactively renegotiated the net debt-to-EBITDA covenants on our RCF in September from 3.5 multiple to 4.5 turns and that through 2027. And that's, of course, also -- these are activities that build trust with the rating agencies. And the last point I want to make is safe and reliable operations and sustaining CapEx remains a core priority for us. So we're not making -- we're not shortcutting. We're not putting safety and reliability in jeopardy. But as we have transformed already our portfolio, it means that also moving forward, we can do with less safe and reliability, so sustaining CapEx. And the last element is progressing, as we said, very well in that portfolio management, and that is the exit of the 4 sites, the sale that we have, as said, with very good involvement of AEQUITA in the entire process. They are very committed, so therefore, we continue to believe that we will be able to close in the first half of 2026. And that, of course, will continue to free up CapEx for LYB. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: Your CapEx number for next year that you project $1.2 billion is below your depreciation and amortization. Are there any growth projects that are left in the capital budget for next year? And if there are, which ones? And for Agustin, do you expect your accounts payable to be very different in the fourth quarter than they were in the third quarter? Peter Z. Vanacker: Thank you, Jeff, for your question. Let me take the first part, and then I will hand over to Agustin to take the second part. If you remember well, I mean, then we have been investing quite above, I mean, depreciation during the last at least 4, 5 years. And that gives us opportunities because we are not fully leveraging upon those opportunities yet because of where the market today is. Let me remind you that we have our Hyperzone that was standing for $170 million per year improvement. We are ramping it up. We do some additional smaller investments in Hyperzone, so to make it very further reliable. We do the investment in acetyls reliability and the debottlenecking, the new technology standing for $75 million, all of that, of course, mid-cycle margins. Our MRT-1 continue to progress, which is standing for about $25 million plus per year in EBITDA. MRT-2, we have progressed it up to a point where we said, okay, we will see, I mean, how the market further develops, but we can activate it relatively quickly if the market develops further and in addition to that, if we also -- if it fits from a cash, I mean, perspective. PO/TBA, as you know, was standing for $450 million mid-cycle margin. We've worked, I mean, on capacity creep, which adds another $50 million on top of that $450 million. We've done productivity improvements in our PO/SM, $25 million. APS, even if the market is very challenging, we continue to make very good progress. We have invested in NATPET. We're still working on the second phase. And remember, we've launched, I mean, about 3 years ago, our value enhancement program. We're well on track to exceed, I mean, the $1 billion exit run rate mid-cycle margin target for the end of 2025. Of that, real contribution is about $700 million, so what we call in period is $700 million up to the end of this year. So the delta between the $1.15 billion and the $700 million, which is about $450 million is something we did not capture yet on one hand side because of future potential growth and on the other hand side, because we are substantially below mid-cycle margins. So if you add it all up, I think we have some -- quite some impressive growth opportunities as the market continues -- as the market returns back, let's say, and we hope that, that will happen already in 2026, but definitely 2027, '28 and beyond. So with that, Agustin, the second part of the question. Agustin Izquierdo: Sure, Jeff. Thank you for the question. Happy to answer. I think it's just consistent with the remarks and comments on operating rates that we're expecting for Q4. It is also normal that our payables will be lower, probably in the neighborhood 40, 50 lower versus what you saw in Q3. But I would also highlight that we are expecting a working capital release in Q4 close to $1 billion. This is consistent also with the cash improvement plan with all the very good measures we're taking throughout the year and not dissimilar actually to what we did during fourth quarter of 2024. So we know how to do this, and we will again be very focused on cash generation. Operator: Our next question comes from the line of John Roberts with Mizuho Securities. John Ezekiel Roberts: When you sell or out-license technology, the customers' plant starts up several years later, and you noted the low activity currently. But you have your catalyst sales kind of lag that. When do your catalyst sales peak? And more importantly, when is the drop off then in the new start-ups of the companies that you've licensed out-licensed to? Peter Z. Vanacker: Thank you, John. Very good detailed question. I mean, normally, the catalyst sale, I wouldn't say it really peaks and then it drops down. It's more dependent on the run rates of the assets. So what you see today is assets that are buying our catalysts. Like, for example, in China, when they run at minimum technical capacity, then, of course, the sales of catalysts are slower because you don't consume the catalyst as fast. But as if operating rates would go up or, for example, if new investments then come on stream, then you would continue to see that our catalyst sale is going up. We've done in the last couple of years, I didn't mention that when answering the question of Jeff. But of course, during the last couple of years, we had done some investments, some debottlenecking also on the catalyst side to be prepared if the market picks up, then we would be able, of course, also to then produce and sell those catalysts. Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: Peter, a comment and a question. My comment or I guess to summarize your thoughtful response on the dividend is that, yes, we will pay it in the near term. Am I interpreting that correctly? And then secondly, from a high-level perspective, looking at the fourth quarter, you outlined $110 million sequential headwind from turnarounds. Obviously, we'll layer in some seasonality that's typical in the fourth quarter. Are there any other material puts and takes that we should be aware of looking at the fourth quarter relative to the third quarter? Peter Z. Vanacker: Thank you, Frank, and thanks for wishing us a nice Halloween. I'm not going to tell you if we are having Halloween costumes here in our room. To your first question, again, as I said, on the 4 points and what you see from our actions in navigating the cycle, we have that very sharp focus on cash conversion. We have our cash improvement plan. We're proceeding very well in that. We have a strong balance sheet to start -- that we have started with, and it continues to be in very good shape. And I mean, from our history, I mean, this is a fantastic team that is really focused, I mean, on execution. The team has shown in the past that we are excellent in execution. So from that perspective, that's what we are doing. I mean, control the controllables, focus on the execution and make sure that we continue to make progress. So I don't know what else, I mean, that I should say, I mean, to that. I'm very pleased, when I see, I mean, how aligned everybody in the company is and how everybody is doing its best diligently by controlling the controllables. To your second question, Q4 outlook, you're right. I mean we -- when we looked at the market environment, and we had some work, I mean, that we wanted to do in Wessling at OM6, some work that we had to do, I mean, in Matagorda and then also looking at acetyls and PO/SM and I&D. So we said, let's take the opportunity now. Let's do it now in Q4 instead of waiting until, I don't know, maybe the second half of 2026. So then we are ready, and we don't have a lot of these downtimes with its respective impact on the bottom line for 2026. So that's a decision that we took. And as said, you rightfully recall, I mean, what that delta is compared to Q3. We have polyethylene price increases on the table. We, of course, continue to look at everything what is happening in the market. I mean, PE, polyethylene has grown. Exports continue to be robust based upon low delivered cost positions that manufacturers, including ourselves have in the Gulf Coast. So we will continue to, of course, push, I mean, for price increases because we believe it is appropriate that polyethylene prices go up. Too early to say if we will be successful, but it gets a lot of attention, of course. Maybe I want to hand over also to Aaron to talk a little bit about MTBE raw material margins, seasonality to give a little bit more color on that because October was very strong in this area. Aaron Ledet: Yes. Thanks, Peter. I appreciate the opportunity to talk a little bit about MTBE. So it has, to your point, been a really good start to the quarter with premiums carrying over from September into October. As I mentioned in my planned remarks, much of the third quarter benefit was from both planned and unplanned outages, not only in the U.S. Gulf Coast, but in the Atlantic Basin. And as we've seen those premiums carry over into October, I just want to remind everyone that 20% of U.S. Gulf Coast capacity remains offline and should be back in operation maybe second half of November. So it's still possible that we see positive premiums carryover into November and what we would usually say is a seasonally low quarter for oxyfuels margins. Peter Z. Vanacker: Yes. And I mean have a look, I mean, also Europe, I mean, diesel cracks are very strong with everything that is happening around Russia. Gasoline is performing better. I would point you to our gasoline inventories. They are materially lower than normally at that point in the cycle. And we're not done yet with our fixed cost reductions in our cash improvement plan. We've delivered very well in Q3. But of course, you will see more that is flowing in Q4 as well. So if I take everything together, yes, I mean, there is an impact that we have from that -- those decisions on the increased downtime in Q4, very deliberate decisions, do the turnarounds, do the maintenance work now instead of postponing it or doing it as normally we would probably say we would do it in 2026 somewhere. Operator: Our next question comes from the line of Matt DeYoe with Bank of America. Salvator Tiano: This is Salvator Tiano filling in for Matt. I want to ask about the slide where you show already happened in projected ethylene capacity closures. And firstly, can you discuss how many of these have already happened in prior years before 2024? Because I believe the notes says this goes back to 2020. And for both ethylene as well as polyethylene, can you talk about where operating rates are today? So essentially, how important would the incremental closures be from today rather than just focus on the 2020 to 2024 period? Peter Z. Vanacker: Let me give it the first shot, Matt. Thank you for your question. If I look at the closures and the announcements that have been made so far, it's somewhere, let's say, in the ballpark of 9.5 million tonnes of ethylene capacity. So there's still things that have been communicated and have been talked about that we would expect to see to come up with that 21 million tonnes. The -- and again, on the 21 million tonnes, especially also on regions where it's -- these assets are not very competitive, like in Europe, for example, even if there is 20% of ethylene capacity that we expect to disappear based upon the announcements, we don't believe that we are at the end of all the announcement yet. We still expect there will be more to come. Kim? Kimberly Foley: Yes. I think the simple answer and the reason that we created this chart the way that we did is so that you know what is closed today because so many people are announcing closures in the future, and then there's this anticipation. So I will also go back to some of the comments that Peter made in his prepared remarks. You'll notice, for example, in China, we don't show any anticipated closures, yet we all are hearing comments every day about anti-involution and what that will be. And whether you believe the criteria about 300 kt plants and 20 years or some of the new evolving criteria that is being discussed in China now, you have the potential for another 4 million to 8 million metric tons that comes out there. And then the last comment that I want to reiterate is this domino effect. A lot of these are ethylene cracker announcements. So now the feedstocks are coming out of these derivatives and industrial parks, and it leaves a lot of ambiguity around what's the steam provider going to do? What's the natural gas provider going to do? Is this still going to be an economic situation for all parties involved in the complex. So I do believe there's dominoes that we will also see. Peter Z. Vanacker: And I want to point out to your second question on operating rates. I mean, we need to differentiate. That's a key message that I had in one of the first questions because low-cost delivered assets are running at very high capacity at this point in time because they are competitive. If you look at European capacities, if you look at Chinese capacities, then there, I would say, yes, they are running at minimum technical capacity. So that may be 70%, 75%. Some of them minimum technical capacity, if they don't have the flexibility is close to 80%. But that's the scenario that you see unfolding during the entire year 2025. And that's what you would expect also in a market where supply and demand is not balanced is that the low-cost delivered capacities will continue to make good returns, create good cash flow and run at maximum capacity, whereby the other ones are either forced, I mean, to consolidate to idle, to shut down or run at technical minimum capacity. Operator: Our final question this morning will come from the line of Vincent Andrews with Morgan Stanley. Turner Hinrichs: This is Turner Hinrichs on for Vincent. I'm wondering if you all can help provide some thoughts on the bridge to 2026 in I&D. Specifically, there are some items that we may need to level set for, including a sizable U.S. propylene oxide closure, potential headwinds to octane cracks from a refinery in Nigeria, assuming the rates return to high levels, reversal of this year's acetyls turnarounds for you all and U.S. Gulf Coast competitor capacity coming back online in MTBE. It'd be great to hear some thoughts. Peter Z. Vanacker: Aaron, a question for you. Aaron Ledet: Yes. Thank you for the final question. So maybe I'll point to a few different comments, and we have reason for optimism as we look to 2026. I'll start with PO rationalization, to your point, 10% of global capacity has been announced to come offline in the last 12 months. And so in the primary regions that we serve, we're already seeing market share improvement, particularly in the U.S. and in Europe. You spoke to acetyls. That's an investment that we've been waiting to make really at this level since COVID. We've been pushing capital out and waiting to invest in the asset. But the investment that we're making, we do expect it not only to show in terms of improvement from reliability, but we'll also see additional capacity coming out of our acid unit next year. I already mentioned in my planned remarks from a PO/TBA capacity perspective, we've demonstrated that we can run beyond benchmark rates, a little less than 10%. And remember, that's CapEx-free capacity. So I'd say that's -- combine all 3 of those, and that's the reason why I look to 2026 and have some optimism. Operator: That concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all your thoughtful questions. Let me make some final comments. Our sharp focus on cash conversion, our cash improvement plan and our strong balance sheet is allowing us to successfully navigate through this prolonged downturn. And our execution track record clearly demonstrates our progress. We've captured some of the value from our past investments in the new PO/TBA facility, Hyperzone PE, the NATPET joint venture and our value enhancement program. These investments will provide further upside as markets recover. In addition, with our ongoing investments in MoReTec-1 and our acetyls technology, LYB is well positioned to capture market growth and create additional durable long-term value for our shareholders. Over the past 3.5 years, we've actively managed our business portfolio, and we are progressing well with the execution of our European strategic assessment. Upon completion, we will have established a much more focused industry-leading low-cost model. And we're finding some tailwinds for 2026 and 2027. Monetary policy is becoming more accommodative for the industrial economy. And LYB is prepared. After several years of heavy maintenance, we expect next year, we will have less downtime and our smaller footprint will require less sustaining capital to support our results over '26 and '27. We hope that you all have a great weekend and a great Halloween. Stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Allison Chen: I hope you can hear us. If you guys -- if you cannot hear us, please let us know. So before we get into it, let me share the agenda for today. So we will have Tan Choon-Siang, who will get us through the third quarter key highlights. After that, we'll delve into the Q&A. And then please also note that this meeting will be recorded. A quick round of introductions of the management. We have today here Choon Siang, our CEO; Mei Lian, our CFO; Mei Peng, our Head of Investment; Yi Zhuan, our Head of Portfolio Management; and I'm Allison, Investor Relations at CICT. Okay. Now let's bring on Choon-Sian to share his highlights. Choon-Siang, please. Choon-Siang Tan: Good morning, everyone. Thanks for joining us today. I know you guys are excited to ask us questions. So we'll try to spend just a couple of 3 minutes. You probably have gone through the slide deck. I think safe to say this is quite a good quarter in terms of operating performance as well as financial performance. You can see that we are pretty much firing on all engines. Office is doing well. Retail is doing well. AEI is getting complete contributing and acquisitions are helping to help with the growth of the operating numbers as well as the financial numbers as well. So NPI up about -- for the year-to-date, we are up 0.2%, but that's, of course, due to the fact that we sold 21 Collyer Quay. Like-for-like up about 1.4%. On a quarter basis, it's quite similar numbers. Gearing is up 39.2%. I think some of you might be surprised why the number went up compared to last quarter, but it is because of the distribution that we did as well as the advanced distribution that we did as a result of the EFR. So there's a reason why the gearing creeped up slightly. Cost of debt, as expected, came down slightly, 3.3%. Bear in mind that this is a year-to-date calculation of cost of debt. So you don't expect it to move by quantum leaps because you are averaging over 9 months, whereas the previous quarter, we are averaging 6 months. We did a good financing, $300 million for the quarter. You guys have seen the news, 2.25%, probably the lowest financing done by the REIT this year. Operating metrics, maybe I'll just quickly skip to the next slide. I think operating metrics, we can talk about it a bit later. So AEI, we have -- I think we have announced some of this earlier, but we have now started works on these 3 projects already, at least from this quarter onwards. Lot One, we have gotten commitment from FairPrice to expand into Basement 2. This will be a conversion of the existing carpark. So that will be a good uplift in terms of NLA and should help contribute meaningfully from next year -- towards the end of next year onwards. Tampines Mall, we have already started work. If you have visited, you would have seen some of the works at the entrance area. We will also be moving the works further in once that exits. We have already got a commitment from some of these key tenants that you see here. So a very exciting list of new tenants that we hope will uplift the overall mall. And then we are also starting work on Raffles City. But this is not really a significant asset enhancement. It's more an upgrade of existing facilities given some of the facilities and some of the amenities that are lacking compared to some of the newer buildings. For example, end-of-trip facilities, which is common for new buildings now, which is not present for R City. We're trying to add that as an amenity for our tenant in Raffles City Tower. Next slide, please. I think financial performance, we've talked about that. We are up 1.5% year-on-year in terms of gross revenue, NPI as well, about 1.6%. So fairly happy with the numbers. So contributions from all areas from rental reversions, from improvements in occupancies as well as the acquisitions are contributing to the numbers. Next slide, please. Next slide, I think year-to-date, we talked about it. Leverage ratios and capital management numbers, we've touched on the key numbers in terms of gearing and average cost of debt. So I don't think we need to dwell too much. Next slide, please. I think we don't have to focus on this. Maybe just go through the rental reversions and occupancy. Next slide. Yes, maybe just a quick one on occupancy. I think all of our assets are doing well, all in Singapore, Germany as well as Australia. Office occupancy has improved due to improvements in Australia as well as Germany. We have leased out some additional space in 100 Arthur as well as MAC. So that's a very positive news for us, given the lack of momentum over the last few quarters for leasing some of this. And now we are seeing some green shoots. So we are very happy with the outcome. Integrated development occupancy came down slightly due to mainly Raffles City. It's a accumulation of a few different buildings. So it adds up to about 0.5% due to Raffles City Tower as well as Funan. There are some exits, but we have already backfilled some of the spaces and we are continuing to see some momentum in terms of backfilling. So I don't think we see that as a major concern. Next, Rental reversions, very pleased to say that improvements against the last quarter, you guys probably have seen the numbers already. If you look at it compared to second quarter, these numbers are up compared to last quarter. Last quarter, overall, retail, we are probably up 7.7%. Now we're up 7.8%. I think the more meaningful number actually is office. Office is up 6%. Rental reversion is 6-plus percent compared to 4.8% last quarter. Retail sales, very positive quarter. So I think as we highlighted in previous briefings, I think second quarter was a bit muted, partly due to liberation day, right, it was purely based on effects of that, in April and May. So we had a slight -- I mean, excluding ION, we had a slight downtick in terms of tenant sales, but now it's back up about 1% per annum year-on-year growth if we exclude ION. If you ION, of course, there's a more significant growth rate. So I think overall, it does look like the momentum is swinging back to positive. So very pleased with the outcome as well in terms of operating numbers. Next, some of the new brands, I don't think we want to spend too much time, but I think if you have visited some of our malls, I think we have quite a lot of exciting brands. Hai Kah Lang, if you have gone to Funan, you'll see that every day, there's a long queue there. Legendary Hong Kong in Tampines Mall is doing very well, some new brands in some of the others. I think it's probably not your focus. Maybe just one last bit, one last slide. This is the improvements in occupancy across the 3 countries, as you can see, we are indeed improving the occupancy as what we promised. I think we wanted to improve the asset performance for some of our overseas assets, and we have delivered on that. Germany is now up to -- we leased out a major space in bank, which has been quite stubborn. So now occupancy there is about 86%. And bear in mind, this is you excludes Gallileo. So if you include Gallileo, that number will probably move a little bit higher. Australia, we also managed to lease up -- actually, the only challenging asset in Australia was 100 Arthur, so that we have leased up quite a big space over there. So now that moves the average of the 3 buildings up from 88% to 91.2%. Okay. Sorry, I think that's probably more than 3 minutes, but maybe we can move to Q&A. Allison Chen: [Operator Instructions] I see quite a few raised hands, but perhaps then we will go to Mervin. Mervin Song: Congrats, Choon-Siang and team. Very good business update. I can't see many negatives per se. Can you touch on the tenant sales? FCC also reported improvement. I'm just wondering what's happening for third quarter? And do you think this will continue into fourth quarter considering the last 2 Decembers has been down year-on-year? And the second question I have is in terms of cost of debt guidance noted it did fall Q-on-Q. Do you have updated guidance for year-end as well as FY '26? Choon-Siang Tan: So I think -- I think that -- I would say that Q2 is more an anomaly. So we are back to normalized pattern, I mean going up. Normally, you wouldn't have been so excited if we tell you tenant sales are up 1%. I think you will see that as business as usual. I think it was because second quarter, we were down and now it looks like an uptick. But I feel that second quarter was more an anomaly because of Liberation Day, there was a lot of caution thrown into consumer spend. So I think some of that savings that people locked up in second quarter might have contributed to the uptick in third quarter. And of course, if you look at year-on-year, 1% growth means that the third quarter sales was higher than 1%. So it's quite strong momentum. I think part of it was also contributed by CDC vouchers, right, because those went up in July, but probably did not account for that full delta. But in fact, we probably saw an increase overall across most of the trade categories and not just supermarkets. Okay, so I think our second part of the question is whether we can see that continuing in Q4? I think that's a bit hard to -- I mean, hard to extrapolate. It always depends on how much time people spend traveling outside of Singapore. I think that's always a big determinant of whether a lot of them spend days in Singapore. Sorry does answer your question on December numbers? Mervin Song: Not a problem, yes just wondering your thoughts. A lot of negativity in the retail space, but I think this is a positive data point. We will just to need to keep writing on LinkedIn about how great retail in Singapore is. Choon-Siang Tan: I mean negative news always gets more eyeballs. That's all I can say. So don't always believe everything you need in the newspapers. Mervin Song: And cost of debt... Choon-Siang Tan: At the macro numbers from [indiscernible] right? I think the retail sales numbers are actually up in third quarter quite a bit as well. So it's not just limited to sales in malls. I think overall macro across the country, retail sales are up quite a bit. I think if I'm not wrong, it was about August or July up about 4% to 5%. Yes, I think August 4.6% retail sales. Mei Lian Wong: Then there was a question on cost of debt. So the averaging down of Q-on-Q is that we're actually seeing lower cost per Q, it is close to about 3.17%, so guiding towards the end, we continue to see the cost of debt slightly down. But to the nearest decimal point, it is probably close to 3.3% -- but when we round it up to the nearest, it is still around 3.3%. Mervin Song: Sorry, you're a bit softer. So can I say that -- so the third quarter itself was 3.17%? Mei Lian Wong: Yes, yes. Mervin Song: Yes. Okay. So next year, it will be at least 3.1%, if not 3%. Mei Lian Wong: Yes, yes, closer to 3.1% to 3.2%. Mervin Song: Next year. Allison Chen: All right. Next, shall we move on to Geraldine? Geraldine Wong: Choon-Siang team, maybe just following on to Mervin's question. If your full loan book resets at today's rate, what could your average cost of borrowing look like? Choon-Siang Tan: Well, theoretically, it should be the same as what we just borrowed, I mean it is 2.25%, right? Geraldine Wong: Okay. Choon-Siang Tan: Yes. I mean I'm just giving a very simplistic -- I mean, we have the capability of borrowing at 2.25% today. So if we reset the whole loan book, it should be that or even lower because there was a 7-year bond, right? Technically, our average term to maturity is 4 years typically because you have some nearer data ones and some floating. Floating are usually even lower. So if you -- I think 2.25% is probably conservative if you reset today, but yes. Geraldine Wong: Okay. Yes, it's the lowest rate we've seen in a while. Maybe just on office, if I just look at 3Q reversions, it looks to be closer to 10%. So just wondering what's driving the numbers? Is it more Australia? And how much of it is due to the CapitaSpring consolidation? Unknown Executive: Our reversion numbers does not include the overseas properties, just the Singapore reversion numbers. We saw some of the leases in some of the properties, but currently however the reversion number is pretty strong. Geraldine Wong: Okay. So it's [indiscernible] plus CapitaSpring console. Unknown Executive: Yes, there's a bit of a blend across the board. Geraldine Wong: Okay. Okay. Maybe just last quick one on acquisitions. Now with CapitaSpring already under your belt, what could be next for us to excite the market? Choon-Siang Tan: You're not excited enough? Geraldine Wong: Very exciting, but... Choon-Siang Tan: Well, we are looking at a few things that I'm quite excited about, but I don't think I'm ready to share with you. Okay. I think in terms of things that are visible, the only thing we can share, I guess, is sponsor pipeline, right? I mean those are at least clearly visible. Sponsor pipeline, I think what is left in the books is Jewel and Jewel is quite an exciting project, but we don't know whether -- yes, I guess that's a matter of timing as well. So that's one potential. I'm not sure whether it's something for '26 or '27 or '28. So we'll see what happens. Also looking at some other stuff, but yes I think the other thing that is getting us also excited is also I think we do -- we are trying to do a few AEIs. And I think those have quite meaningful contributions. I mean they are a bit smaller in terms of capital deployment, but they do add vibrancy, add some new tenants and also contribute meaningfully to our numbers on a consolidated basis. We're also exploring new potential AEI for some of the other malls. So as and when they are ready, we'll be sharing that next year if they come to fruition. Allison Chen: Next, [indiscernible]. Unknown Analyst: Three questions. The first one is on ION. Tenant sales have been very strong. How long can this sustain? Choon-Siang Tan: So far, I think so good. I will say that ION sales, if you look at it compared to -- I mean, the numbers are because it's absent last year, right? I think on a year-on-year basis, I will not say that it's -- I will not say that it's stronger than our other malls. I think they are probably more in line. So actually, they do trend quite similarly to some of our downtown malls. So I wouldn't treat ION sales as separate in terms of trending. They still remain quite correlated with, for example, Raffles City or even some of the suburban malls. Even though we see it as slightly higher end and maybe slightly higher tourist content, but I think at the end of the day, it's still about 70% domestic. So it's still highly correlated with our domestic traffic. But we are hopeful that the numbers will continue because bear in mind, ION is not operating at 100% capacity. If you go to ION today, you will see that some of the shops are still not fully operational because we have been doing a bit of a rejigging, moving some of the tenants and trying to elevate the experience on the ground floor and moving some -- shifting some of the tenant. So if you ask me on that basis, actually, there is some room to grow because if all the tenants are operating, actually, you should expect tenant sales to improve. And I think if you look at tourist numbers in Singapore, I think ION does have some reliance on tourism in terms of spend, right? If you look at tourist numbers, while we do not have big concerts like Taylor Swift, which contributed quite meaningfully to last year, but the government and tourism board still does -- makes a very good effort. If you look at tourist numbers, actually, it is still -- it is higher -- we are tracking higher than last year. So there is still strong momentum. There are a lot of -- my calendar is very strong. And bear in mind, this year, F1 was actually in October, not in September. So F1 numbers on a like-for-like basis actually have not contributed to September numbers. So that you might see some skew and some positive momentum in the October numbers. Unknown Analyst: Okay. Then my second question is on your comment on Jewel, right? What's the passing rent for Jewel? Can you share? Choon-Siang Tan: Oh, it's not our asset. I don't even know the numbers. Unknown Analyst: Then is there anything on the market right now that is exciting -- that is making you excited other than your sponsor pipeline? Choon-Siang Tan: I mean, you know in Singapore, there aren't that many opportunities... Unknown Analyst: Others on the market are not so exciting in terms of pricing? Choon-Siang Tan: No, I think if it's a third party, unfortunately, I think in terms -- it could be exciting, but the pricing usually is not as exciting. If you have to run through a competitive process, it's usually a bit harder. We also want to stay disciplined in terms of acquisitions. We want it to be exciting, but we also want to price to be exciting also. It doesn't really answer your question. But we are looking at a few things also. Unknown Analyst: Yes. I was just thinking about next year, what's the plan? Is it going to be a quiet year? Because this year has been relatively busy for you from the beginning of the year to date. Choon-Siang Tan: Yes, we hope it won't be quiet. Unfortunately, it's hard to articulate very clearly. If you ask -- if you look back 9 months ago, you probably thought this year might be a quiet year too. Unknown Analyst: Yes. Because I look at AEI. AEIs doesn't really leave much to your -- it doesn't bring much to your portfolio because your portfolio is so huge, right? You add another $10 million, it's like it doesn't move the needle, yes. Choon-Siang Tan: Unfortunately, it's very hard for us to share things that we are working on unless it's quite finalized anyway. So usually, this question is very hard to answer. But, we are excited a lot. In any case, next year, actually, we do still will benefit from the existing organic. I mean we have only -- even for this year, CapitaSpring has only contributed 1 month starting from September onwards. So it will still continue to contribute next year. There are things that are announced already. I mean, while it's not a new acquisition, like, for example, it has not contributed for the last 18 months, but we are quite excited that it will contribute -- start contributing early next year. And this one is substantial because it's an entire building, right? Allison Chen: We shall move on to Rachel. Unknown Analyst: Can you hear me? Choon-Siang Tan: Yes. Unknown Analyst: Yes, I don't know why my video is not working anyways. Yes. Maybe just following on, on this exciting transactions or assets that you're looking at. Is it still Singapore office or retail? Choon-Siang Tan: If we were to look at -- if you were looking at staff, it will probably be Singapore for now. Unknown Analyst: Okay. Office or retail or both? Choon-Siang Tan: I think we are open to both depending on -- we are quite pragmatic people. I mean, at the end of the day, it depends on pricing, right? So we are value hunters. We like -- as long as we think it's -- it adds value to our portfolio, and we think that we are able to acquire something at a reasonable valuation, yes. So it's a matter relative to market. Although if you look at -- I mean, most people -- if you look at it simplistically, you know that retail trades at a higher yield, right? Technically, it's more feasible and easier to do retail. Of course, the risk is different. So people cannot just look at you solely as well. Unknown Analyst: Okay. Is the Paragon's portfolio still in your this exciting assets or not really? Choon-Siang Tan: I think Paragon, I'm not... Unknown Analyst: Paragon REIT. Choon-Siang Tan: So I suspect that might take a while. I don't think it's in -- I mean, I don't know, but it doesn't feel like it will be in the market in the near term given that they have to do AEI. Unknown Analyst: Okay. Okay. But there are other assets in Paragon as well, right, Paragon REIT, ex-Paragon. Choon-Siang Tan: I think that's Clementi Mall, they're running a process now, right? I think that's public knowledge. And the other one -- they only have Marion after that, which is in Australia. I think these are the 3 assets that you have. Unknown Analyst: Okay. All right. Then my next question is on Gallileo. Now that you have leased up, is looking good. Are you keen to sell? And is the market ready to sell? Choon-Siang Tan: I think we focus on handing over to the tenant first. Actually, it's not completely done. While we have started -- actually, it's a multiphase handover. So we will only be completing the handover to the tenant, probably coming close to the end of Q1, which is another 5 months from -- 4, 5 months. So I think we want to focus on -- and when you do handover, there could be issues at the beginning. So we'd rather try to be a good landlord and sort of all these issues with the tenant to ensure a very smooth handover first. Unknown Analyst: Okay. But the income from this Gallileo will be full contribution starting from end first quarter, is it when you are fully handing over? Is it full? Choon-Siang Tan: Yes. No. So it will be staggered. So it will also -- contribution will also be based on phases. We only get rent for the area that we have handed over. Unknown Analyst: Okay. So when should we expect like the full... Choon-Siang Tan: Full contribution was -- partial maybe Q1 and full probably Q2 onwards. Unknown Analyst: Okay. Got it. Choon-Siang Tan: We already own 94.9% of the asset. So when we say full, we mean the full contribution from our share. Unknown Analyst: Yes. Okay. And just one last one, quick one. In terms of ION, I know there's some rejigging. When can we expect all this rejigging to complete and then we will see some flows in income? Choon-Siang Tan: It will probably take a while because we are actually -- because actually, we are doing a few movements, and you cannot do all at one time. So that's sort of as a bit of a musical chairs. Tenant A move to tenant B, tenant B moves to tenant C. So it will be ongoing for a while, I think, at least it will continue until next year. But at least those that are not operating now when they open and contribute, then you will it will be incremental. Yes, we don't expect everything to open up to get the... Allison Chen: Next, we hear from Brandon. Brandon Lee: I just want to touch a bit on your asset sales, right? Can you share what's your guidance here? I mean we have been seeing cap rates compressing quite a bit domestically. So are you still looking to sell if we do see that, is it more office or retail? Choon-Siang Tan: I think we have done some divestments in the last 12 months already. In fact, yes, it's really still within the last 12 months. We've done 2 asset disposals [indiscernible] and the service residence at CapitaSpring. So I don't think we are in a hurry. But as you rightly pointed out, it does seem like the market yields are compressing quite fast, partly due to probably no good assets available for sale in the market and also coupled with the sharp decline in interest rate in the last couple of quarters, right? So there's been -- I mean, we are looking forward to what currently the mall transacts at eventually. But we do think that, yes, the cap rate compression is quite significant. So -- it could make us reevaluate our portfolio a little. But I think safe to say we are generally quite happy with our portfolio construct now. We do think that most of our portfolio are very strategic and quite core to our business. I would say that if we were to divest, we may want to look at -- I mean, I think some of you alluded to some of our overseas assets that will be more meaningful for us to look at in terms of divestment. In Singapore, I don't see us divesting significantly. We could potentially look at 1 or 2 assets, but not urgently because they are all yielding quite well. So we will also have to evaluate. So when they are yielding well, unless we get a very significant uplift to our valuation of book value, it's likely to be dilutive. So we have to evaluate that quite carefully. So it depends on what kind of yield I can get. Brandon Lee: So basically, at the current 39.3% gearing, you're quite comfortable. Choon-Siang Tan: Okay. So 39% is not -- actually because we did advanced distribution, right? So in a normal quarter, if we didn't do advanced distribution, this gearing would have been lower. So when we were comparing it to like, say, a few quarters ago, it does look a bit higher. But we must bear in mind that we have advanced distribution. Other quarters, we normally don't have advanced distribution, right? So without -- if you remove that effect of the advanced distribution, the gearing would probably have been 38% plus. But I guess the underlying message in your question is that should we be comfortable with 39-plus percent gearing? I think we would like it to be a bit lower. Brandon Lee: Okay. And just one last one, right, for the potential inorganic, right, would you be keen to look at some of these GOS mixed use with a retail component like something like -- along Central Mall -- because in the past, we did see like CSE going for Bedok site, right? Choon-Siang Tan: I think we will evaluate all opportunities. So it all depends on how it affects our numbers in terms of whether we have the capacity to do it and whether it's overall accretive or makes sense for us from a portfolio perspective. Yes. So I think to answer your question is, yes, we will look at all opportunities as long as the -- it's relevant to our portfolio. Brandon Lee: Okay. Sorry, just one quick one. Is [indiscernible] considered your sponsor? Choon-Siang Tan: No. Brandon Lee: No, okay. Choon-Siang Tan: What do you mean by sponsor? I guess when we say sponsor, we mean we have a ROFR to their pipeline, right? Then, the answer is no. Allison Chen: Derek, please go ahead. Derek Tan: Just a few questions, right? Firstly, on acquisitions, right, I'm just looking at some of your peers, I'm not sure whether they're peer, but gone into suburban Australia. I'm just wondering whether is that part of the world interesting for you? Or you still want to focus on Singapore for now? Choon-Siang Tan: I think we want to focus on Singapore for now. We still see opportunities in Singapore, so until such time where we think that we run out -- I think -- but for now, I think we still see some pipeline in Singapore. So we -- I think our investors would rather want us focus on Singapore for now as well, I think. Derek Tan: Certainly. Okay. Got it. Got it. And just to also reconfirm, I think previously -- I mean, we hear from a great buyer that this Bukit Panjang Plaza was on the market, right? So that is off the market already. Just any thoughts on that? Choon-Siang Tan: I mean, was it in the market? Derek Tan: Don't know. So not in the market? Choon-Siang Tan: I just want to make sure because maybe it was there in the market before I joined, so I need to clarify. So, I cannot answer for those. Well, I think I'm just checking with my colleague whether it was in the market, right? No, right. We never said that was in the market. Mei Lian Wong: Normally, it wasn't. Choon-Siang Tan: Yes, I saw the newspaper article, so I wasn't sure whether it was from us. Derek Tan: Okay. No problem, no problem. Sorry, my last question, I mean, just a quick one. I mean results are really good and straightforward. Could you give us the guidance for your reversions and maybe going to next year? I think my thinking behind it is that this year, you had the consumption vouchers, right, and boosted spending a little. I'm just wondering whether at this moment, are you still okay to push reversions to the same level? Do you think you can maintain? Choon-Siang Tan: No, I think we have always said that high single, probably not so sustainable. We're probably going to target between mid to -- yes, about 2% per annum sounds more reasonable, right? I mean, Inflation is also not that high. Derek Tan: Got it. Got it. Got it. Sorry, just last one. If you think about the ION, the LLP potential, right, is that still something you're working on? Is there a time line that you can look forward to, to convert -- sorry, convert to LLP? Choon-Siang Tan: Yes. So I think we have -- I think at the last briefing, we have also said, you already are in the long time, not to be -- probably not something that you want to work into your numbers in the short term. But of course, rest assured, at the back end, we are running at 100%, but doesn't -- even when you run 100% to try to get it, it will still take a very long time because yes -- so yes, I will not assume it in the short term, but you have to get it done. Derek Tan: I'll leave that as a surprise. Allison Chen: Next, can we hear from [indiscernible], please? Unknown Analyst: Can I follow up on the reversion, I guess you were guiding for reversion to moderate for some time, but it seems that things are actually improving. So what's actually driving this positive surprise here? Choon-Siang Tan: I think -- I guess, overall, Singapore economy is doing quite well. If you look at GDP growth, it's always -- it's been surprising on the upside every single quarter as well. So I guess -- yes, I think generally, equity market is doing well, CDC vouchers does seem like people are prepared to -- I mean, when people are prepared to spend -- continue to spend when the market moved, it's general market is doing well. What is driving it? I guess, while we have always said CDC vouchers is driving part of it. Some of it was probably due to -- like I mentioned, I think Q2 was a slightly lower base, right? So improving from Q2. Q2 was probably muted because of Liberation Day. I think we probably felt it most in April and May in terms of tenant sales. And some of the bounce back is not as surprising actually. And then you probably have some savings, right, because people spend less in the last quarter. But I think overall, market and economy is doing well. So we do expect sales momentum to improve. Unknown Analyst: Second question on tax transparency, right? So our forecast is usually 3 years forward. So by saying that we should not factor this in, does it mean we shouldn't expect it to happen within the next 3 years? Choon-Siang Tan: No, I wasn't thinking from your point of view. I was thinking from my point of view. My point of view is 12 months. Allison Chen: Jonathan, you're up next. Unknown Analyst: First question, for those of us who missed the first 3 minutes, don't mind, could you run through what's driving the higher occupancy for the office portfolio? And then second question, as we come towards end of the year, do you expect sizable revaluation gain when you do your revaluation for December? Do you expect cap rate compression for retail and office portfolio? Which segment would contribute more divestment gain? Would it be office or retail? Choon-Siang Tan: Okay. So office occupancy went up largely because we managed to lease out our 2 assets in Germany and Australia quite well. So we -- in Germany, occupancy went up 5%, right, close to 5% because of MAC, which is only a single property. So that was a single tenant, large lease. So we're quite happy with the outcome. Australia, actually, 2 of our office buildings are pretty much fully leased already. It's just 100 Arthur Street. We managed to lease out 100 Arthur Street and also a fairly large long-term lease as well to Flight Centre, which took quite a big space. So that improved our -- and this is a 3 percentage point increase in Australia over 3 buildings, right? But actually, the stand-alone building was more significant. So these 2 contributed to the uptick in office occupancy. So that was your first question. Second question is on valuation, right? We do hope for our Singapore assets to be -- to show improvements in valuation. As to how much, I think it's hard to say. If you look at some of the other REITs that have year-ends in September or June, they have reported a healthy valuation uplift for the Singapore portfolio at least, yes. Unknown Analyst: Yes. I mean would it come more from retail given like maybe transaction in the market? Choon-Siang Tan: I think it will be both office and retail. You might look at retail, I guess, because I think office cap rate is already quite tight, right? So the room to move is probably slightly less than retail. And of course, if you look at our performance reversions and in terms of occupancy, it's also slightly higher for retail. So all of those get factored into future cash flows, right? I mean I'm just giving like some of the drivers and what could potentially move. So at the end of day, it depends on how the valuers do their numbers as well. But if you look at broad numbers, of course, retail number seems to be -- have a higher -- better momentum in terms of rents. Allison Chen: Vijay, you have a question to share? Vijay Natarajan: Just adding on to this Jonathan's question. In terms of overseas markets, do you think -- see that things have bottomed out over there? Do you expect this occupancy gain to sustain? And probably can give some color in terms of incentives for some of these leases you have signed? Choon-Siang Tan: Okay. Maybe Yi Zhuan do you want to take some questions. The other questions, I have to defer to my colleagues. Lee Yi Zhuan: Yes. So I'd say generally, the overseas markets, and I will go into Australia first, right? So for Australia, at this point, we do see a bit of signs of bottoming out in terms of some of the occupancy vacancy that we are seeing, but we are also, at the same time, right, incentive levels are stabilizing, but it's nearing the peak. As for the leases that we signed, I won't go too much into the details, but for the 100 Arthur one it's pretty much in line with what we are seeing some of the newer buildings in the area doing -- so unfortunately, for North Sydney at this point, is on the elevated side of things compared to the main Sydney core CBD area. But the good thing is generally, while we are seeing North Sydney compared to a couple of quarters ago, the Flight to Centre would be right where a lot -- which has been benefiting the core CBD for a while. We are seeing a lot more inquiries now also coming for North Sydney coming from some of the Macquarie Park or Chatswood and some of these other tracings that is further out. So hopefully, some of these translates eventually into more deals in the area. For MBC side, I think it's pretty much in line with what the market is doing. The rent free is a little bit long for the submarket in airport district at this point. But at this, we do not really see something that is odd in that. The good thing about some of these leases is that the commitments are coming quite early like Flight Centre, we are already seeing the tenant taking the space early next year. Vijay Natarajan: Okay. Would you say the occupancy has bottomed? Lee Yi Zhuan: Sorry? Vijay Natarajan: Would you say the occupancy has bottomed out? Lee Yi Zhuan: We will still see a little bit of volatility in the next few quarters in terms of the occupancy for our assets because there will be some exits. But I think right now, the momentum in getting them back still is essentially quite the key. Vijay Natarajan: Okay. Got it. My second question is in terms of portfolio, broadly looking at next 3 years, do you have any redevelopment opportunities in your portfolio like CapitaSpring or CapitaGreen, which you see in your portfolio, specifically in your portfolio or even with the sponsor assets combined together like Class assets or CLIs assets, which you can redevelop together in the next 3 to 5 years? Lee Yi Zhuan: Redevelopment. So for redevelopment is, of course, we do study some of the possibilities in view of some of the things we see in the master plan. But a lot of all these things, we have to actually engage the authorities as well as look at what eventual schemes we are getting because it only makes sense for us. Most of our -- if I say we get a very good GFA uplift. But if you look across most of our properties, right, they are trading pretty well, the kind of occupancy and it is actually also quite strong. So there must be meaningful upside for us to undertake redevelopment. Vijay Natarajan: Okay. But at this point of time, you don't see any? Lee Yi Zhuan: We will have to study and see what the market can bring us. Allison Chen: Can we hear from Terrance, please. Unknown Analyst: Congrats on the strong results. Can I ask on the office -- what drove the stronger office reversions this quarter? I mean you report on a 9-month basis versus first half basis. So it's actually quite strong, specifically for this quarter. And how is tenant demand trending, especially I understand AST2 had a bit of lower occupancy in the first half of the year. So how is that doing? Lee Yi Zhuan: I would say that generally, if I look at Singapore office market, right, the key trends -- trends are still pretty much the same, right? The flight to quality, people are paying for quality at this point, limited supply. And of course, we see some of the upgrading demand, even though generally relocation is still something that a lot of companies are a bit careful because of the CapEx commitment. And we also start to see like some of the landlords in the market are starting to look at, especially for the smaller spaces, right, looking at fitted out suites and fitted out options. For this quarter, in particular, we do see pretty strong reversions for 2 properties, mainly Capital Tower as well as Six Battery Road. It's very hard to say why suddenly because actually, like, for example, if I go a quarter before, these are the assets that probably the reversion is on the lower end. And then -- but this quarter is on the slightly higher end of things. So it's really deal specific rather than anything that is jumping out for -- as a key driver. Unknown Analyst: And for AST2, how is that doing occupancy-wise? And is that something that we have to worry about? Lee Yi Zhuan: Yes. AST 2, I think generally, that area has a little bit of activities in the past few quarters because we have Marina 1, we also have IOI filling up. So definitely, when it comes to filling spaces, it's a bit more competitive. But we are in talks with some of them to backfill. I think we are in some advanced discussions with some of the tenants. Hopefully, you can convert them soon. But with some of the supply and tightening around the area, those will -- I would say that this will probably give us a bit of opportunity to see a bit of improvement in the occupancy in the coming quarters. Unknown Analyst: Can you share the occupancy this quarter for AST2? Lee Yi Zhuan: Just give a second. Unknown Analyst: Yes. And then I'll just ask a final question. For retail side, any concerns on cinema or tenants? And maybe could you give us a sense of which segments are doing better, which segments are a bit more challenged? Lee Yi Zhuan: Okay. Maybe AST2 this quarter, our occupancy is actually slightly higher at around 95%. Yes. As for the retail, you were talking about retail, right? Yes. So for retail side, our good thing for cinema trade is that we are not overly exposed within our portfolio. It's less than 5% from NOA perspective. And generally, the rent contribution is even lower. So I think sub-2% from GRI contribution perspective. And -- but so far, at least we don't have a real issue with our cinema. And hopefully, I think we will promise that next year, there's a better lineup of shows. So hopefully, it converts with less cinemas around better shows, hopefully translates to better performance from the cinema side. As for the rest of the trades, I would say, generally, we do still see for F&B, right, the operators generally are still -- quite strong interest coming from there. So dining out has been still quite resilient demand across the board. So actually, a lot of the well-capitalized overseas operators are showing quite a lot of interest coming to Singapore. Having said that, I think generally, manpower limitations, wages, cost of supply also means that a lot of all these operators tend to get a bit more strategic in the way they choose and also in terms of the size. So we also see a little bit of shift from what used to be a lot of traditional fine dining now moving more into experiential kind and affordable food. So -- and I think this trend will probably persist in the coming quarters. You will see a lot more new concepts in terms of food. For fashion side, generally, the fashion retailers are a little bit careful for expansion now. And a lot of them are trying out like the new-to-market brands tend to look for pop-up space. So actually, there's a lot more inquiries for pop-up where they want to come in, take a space, either have these or take up even some of these space for pop-ups, right? And then they will try to do like a short campaign, and they will seek to test the market whether there's acceptance for it and before they look at a more permanent space. But this quarter, one of the standout performance is actually the hobbies. Generally, hobbies are doing quite well this quarter. The hobbies trade. So your [indiscernible], ActionCity, some of those are doing quite well. Last year, for -- if I talk about entertainment, partly because maybe we will have to see how the F1 weekend goes. But generally, if you look at it, last year, there are a lot of recovery for the nightlife, the entertainment. So -- but year-on-year, we see the entertainment coming off a bit this year, yes, for the clubs and the bar. Allison Chen: Derek. Derek Tan: Just a quick follow-up on that cinema percentage of GRI, that's for retail, right? So overall, it will be even lower, right, sub 1%... Allison Chen: You're breaking up. Can you repeat your question? Derek Tan: No. Just following up on Yi Zhuan's answer on cinema operators accounting for less than 2% of GRI, that's retail GRI, right? So overall be even lower? Lee Yi Zhuan: This is actually your GRI retail. Derek Tan: Okay, this is retail? Lee Yi Zhuan: Correct. Derek Tan: Okay. Okay. Got it. And just can I also ask on the occupancy costs for retail, given that I see a disconnect between the reversions and the tenant sales, what's the occupancy cost right now? And how does that compare... Lee Yi Zhuan: Our occupancy cost, if I compared to first half of 2025, actually, it came up a little bit, very marginally. But I would say quite stable around [indiscernible]. Derek Tan: Okay. Okay. Is there a breakdown between downtown and suburban? Lee Yi Zhuan: Just if we are talking about cost, if you're talking about downtown, suburban generally is around 16.5%, plus/minus. So it will fluctuate around the area. Downtown is about 18%. Derek Tan: Okay. And just moving to office. I'm not sure if I caught -- was there a reversion outlook for office in Singapore next year? Lee Yi Zhuan: Probably around the same low to mid-singles, I would say, for those at this point. Derek Tan: Low to mid-single digit. Okay. Got it. All right. Got it. And just lastly on potential acquisitions right now. I think Choon-Siang did mention a more of a preference for malls for retail. Within that, would suburban or downtown make more sense to you right now? Choon-Siang Tan: Derek, I think we didn't say that -- we said that retail yields are higher, but I don't think we have a preference for that. It all depends on the relative value. We are open to both -- as evident in our last 2 acquisitions, right? One was office and one was retail. So it depends on what's the pricing for each of them. But of course, to make the numbers work, retail yields are higher. So it's always a bit easier in terms of that, but we have to look at it from a portfolio construct point of view as well. I think your question is whether it's retail -- the thing about Singapore acquisitions and pipeline is -- it always depends on what's the opportunity. So it's hard to -- I don't think we are necessarily try to ring-fence around a specific area. I think it always depends on the specific opportunity. I think we are more concerned about the location advantages and whether there is a great catchment and whether there's a great transport node attached to the asset. So these are more important considerations rather than whether it's retail or whether it's suburban or office or downtown. Derek Tan: And I guess following on that, what we sensed also is the dominant nature of the mall, right, let's say, if it's 200,000 square feet, that's imminent -- that's far more attractive to you? Unknown Executive: Yes. Yes. So I think definitely for us, it has to add meaningful scale. I think not so interesting for us if it's a very small asset, it doesn't move the needle for us. Derek Tan: You spoke about pricing as well. I guess would it -- could we benchmark against on a per square foot basis, maybe the current assets that you have, some of the more better mall -- suburban malls, for example, at 3,003, 2,006 per square foot. So that will be a number that's more comfortable for you, right? Choon-Siang Tan: Yes. So I think we have to look at a few metrics. One is cost per square foot, as you rightly pointed out, that's relevant. I think the other thing, of course, because also cost per square foot can vary depending on whether it's a more horizontal mall or more vertical mall, whether there's basement or no basement, that kind of stuff. So I think the other more important metric, of course, is yield. I mean, because at the end of the day, that's the income that we'll be getting. And also the third number that we always focus on is accretion and whether how it contributes to our overall portfolio. So these are the few things that we typically focus on and try to be disciplined around it. Allison Chen: Next, we have Terence from UBS. Terence Lee: My first question is on tenant sales. Do you mind sharing a bit on the third quarter year-on-year trend for retail because it seems to be flat for 9 months and it appears to lag that of peers. And it's kind of counterintuitive because I would expect that you should have gotten the lift from the SG60 vouchers coming in from July onwards. Choon-Siang Tan: Yes. So I think these numbers are year-to-date, right? So if you look at it from that perspective, this quarter actually is higher than 1%. As to what it should have been, you sound like you are expecting a much larger number. Terence Lee: No, your peers are reporting somewhere around, say, 3% to 4% year-on-year increase. Choon-Siang Tan: Is that for 3 months or is that for 9 months, though? Terence Lee: It is probably in the third quarter. Choon-Siang Tan: Yes. So that's a difference. That's why I highlighted that this is the year-to-date numbers. But maybe we can share a bit more color. Yi Zhuan can share a bit more color. Lee Yi Zhuan: Okay. So for third quarter, if I -- year-on-year, if we exclude just like-for-like properties, excluding ION are also around 3-plus percent for the retail portfolio. Terence Lee: Okay. And perhaps do you mind sharing perhaps your thoughts next year when SG360 vouchers roll off, like should we then expect sales to flatten out, potentially even decline? Lee Yi Zhuan: Actually, I wouldn't think so, to be honest, because they were offset with at least some of the growth that we see and the broader economy, how it is doing. So I wouldn't particularly say that, that on its own will actually really -- because actually, right now, we see the SG60 vouchers, probably there's a little bit of transfer effect between people having a bit more disposable income to spend given that some of the other day-to-day things they already use the voucher to offset. But we also see some of them take the money and travel overseas and spend it overseas. So I wouldn't say that actually next year, we would expect this number to really come off. Terence Lee: Okay. Got it. And on -- I think in Tampines Mall is done to close down in November 2025. Should we expect that there will be some vacancies? Or how is the backfilling progress? Lee Yi Zhuan: Yes. Definitely, that one on its own space is about, if I'm not mistaken, around 38,000 square feet, right? So as it closes down, there will be a transitional vacancies that we will see. But actually, at this point, we have already been in advanced discussion with a lot of the tenants to -- some names are already very, very close to some of these names to just a choice. It's already kind of like well backfill. Because actually there's -- sorry, maybe I'll just elaborate a bit on this because it's actually sitting on 2 floors, the ground floor and the upper floor. So the ground floor as the first space of some of the works that we are carrying out, right? Those we have actually largely kind of gotten the name kind of filled it up. The second floor is the one that's some of the details we still have to work through to finalize with the different brands because it involves a bit of reconfiguration. Terence Lee: Is it fair to say that this might involve some degree of cutting up large plate into small plate and there is that effect of like positive reversions coming out thereafter? Lee Yi Zhuan: Yes, there will be a bit of reconfiguration. Some of the floors will definitely become the smaller ones, especially the ground floor, you probably see a bit more of that. Net-net, we will expect it will generate higher income. So basically, the per square foot rent for some of the spaces will be much higher than what it is getting today. Allison Chen: Next, Rachel. Unknown Analyst: Just some follow-up question. In that Isetan, if I look at your numbers, your Tampines Mall ROI is only roughly about 7%. But now you are cutting up space in Isetan, should we expect more ROI? Lee Yi Zhuan: But we have to offset with a slight loss in NLA also. Unknown Analyst: Oh, okay. Unknown Executive: I mean, 7% is taken into account... Choon-Siang Tan: [indiscernible] contribution. Yes, we have taken into account the effect of reconfiguration. Lee Yi Zhuan: Sorry, yes, if there's a question, yes, the whole project's ROI includes everything. Unknown Analyst: Okay. Okay. All right. And then for the retail leases that was signed during COVID, has that all already been mark-to-market already? Or do we still have a few more left? Lee Yi Zhuan: It is mostly mark-to-market right now, yes. Unknown Analyst: Okay. And on the office side, you said that the key trends are still there. So I'm just wondering because of the limited supply, are you still able to push rents up or generally, the rents are actually quite stable now as you discuss with tenants? Lee Yi Zhuan: I would say that at this point, generally as a market, while there's limited supply, we also see that there's actually -- I wouldn't say the new demand coming in is very strong. Even though some of the leases we have seen recently, especially done at IOI and Central -- sorry, Marina One, right? Actually, you see big companies who actually book marginally bigger space than what they had previously. So that kind of reflects also within our portfolio, if we see this year-to-date, right, we actually see a net expansion of space among our existing tenants. So -- but a lot of the movements in the market is actually a bit of musical chairs, right? So I would not say that at least at this point, there will be a lot of -- I would say it's actually flattish and very moderate growth rather than to expect a very -- landlords are really stretching rents a lot. But of course, in some instances where we actually have tenants that moved out and some of these tenants probably have been with us for quite a while, right? And then some of the new tenants that we bring in like what we see in City and what we see in Six Bounty Road, there are those where opportunistically, we are able to get pretty strong reversions. Unknown Analyst: Okay. Got it. Yes. And the new tenants -- new to Singapore tenants are very, very small now, right, for office. Lee Yi Zhuan: Yes, I would say new to Singapore tenants demand not really that much. In fact actually, if we see startups, there's actually -- what we hear is that there are a bit of more start-ups coming from Chinese and Indian companies, right? Some of them also coming through for the tech space of things. And usually -- some of these smaller setups, they usually either go for fitted offices or they go for those kind of co-working spaces that we see. Allison Chen: We'll circle back to Mervin again. Mervin Song: Yes. I just had a question in terms of the office NPI margins. It fell Q-on-Q and year-on-year. Just wondering what's happening there? Is it the incentives you're having to pay for Germany or Australia? In terms of second question I have is electricity costs. How much you're paying today? And do you still expect further savings ahead? And for 101 Miller in North Sydney, are we getting closer to doing a more substantial AEIs, especially the retail space, which is connected to the train station or at least the forecourt to activate the space, perhaps have a more comfortable clock. Lee Yi Zhuan: I'll probably take the last 2 questions first. And so for Greenwood Plaza, we are having plans to actually do some of the repositioning works for the Greenwood Plaza sometime next year. Some of the plans we are working through, and we are also talking to some of the brands working with our JV partners definitely. So we do expect to see a little bit -- because earlier this year, we did a bit of work around the lobby for the office side. So I think the whole repositioning exercise for the office was quite well as we can see the uptick in the occupancy. Right now, then the next one to focus on is with Greenwood Plaza. With station completing later part of this year, we also see that there's a bit of a shift in the gravity of where the traffic flows in the center of gravity, right? So definitely, we need those a little bit of things to kind of anchor where and what GWP can bring in terms of footfall, in terms of the sales and stuff. In terms of electricity rate, I will only say that in '26, we probably expect tariff rates to come off what we have currently in '25. And for the occupants -- sorry, the NPI margin for the office side, I think partly came off maybe includes CapitaSpring. We have that little bit -- CapitaSpring's margin on average kind of have a little bit of impact on the overall office portfolio and what is the... Mervin Song: And this -- the NPI margin hasn't been this low for a while. Should it normalize higher over time or this is the new level? Or the first half was normally higher, and it is only 6.4%? Lee Yi Zhuan: I would say that normalized should be around [indiscernible] . Mervin Song: Okay. Sorry, just on electricity costs, would it be in the mid-20s at this point in time, going to low 20s? Lee Yi Zhuan: Do you mean as in? Mervin Song: The tariff rate? Lee Yi Zhuan: It's probably around, it is slightly [indiscernible]. Mervin Song: But it will be going to low 20s next year, I presume? Lee Yi Zhuan: Oh you are saying 2025 of 2026? Mervin Song: So, on 2025 going into 2026. Lee Yi Zhuan: So, it is slightly above, right now we are going slowly below. Mervin Song: Okay. And your contracts, 1-year contracts or you do more longer term? Lee Yi Zhuan: The contract is always long... Mervin Song: Look forward to exciting pipeline in the future. Allison Chen: Any more questions? No. Okay. So it looks like we've got everything covered for now. If anything else comes to mind, you know how to get to us. And thank you for the time today. Have a good week ahead. Choon-Siang Tan: Thank you, everyone.
Shirish Jajodia: Hello, everyone, and good evening. I'm Shirish Jajodia, Corporate Treasurer and Head of Investor Relations at Strategy. I will be your moderator for Strategy's 2025 Third Quarter Earnings Webinar. We will start with the call with a 60-minutes presentation, starting first with Andrew Kang, followed by Phong Le and then Michael Saylor. This will be followed by a 30-minutes interactive Q&A session with four Wall Street equity analysts and four Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in this presentation regarding our future expectations, plans, guidance and prospects may constitute forward-looking statements, including, without limitation, our guidance with respect to earnings and our KPIs contained in this presentation. Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed in our most recent quarterly report on Form 10-Q filed with the SEC on August 5, 2025, and our current report on Form 8-K filed with the SEC on October 6, 2025. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, the CFO of Strategy. Andrew Kang: Thank you, Shirish. And I'll start with some highlights for the quarter. We now hold 640,808 Bitcoin or over 3% of all Bitcoin ever to exist. This reinforces the scale and the dominance of our corporate Bitcoin treasury company. We have a market cap of $83 billion, which positions us among top publicly listed companies in the U.S. And we have four listed preferred securities in the market, STRF, STRK, STRD and STRC. With STRCs or Stretch being the largest U.S. IPO of 2025 so far, and all which continue to grow in liquidity and investor interest each and every day. We've also raised $19.8 billion in capital year-to-date to acquire more Bitcoin. And our capital markets platform continues to deepen in liquidity and investor interest, and we continue to show positive performance in our Bitcoin metrics, all central to generating long-term shareholder value. Moving on to EPS results. Turning to our Q3 2025 GAAP financial results. We reported $3.9 billion in operating income, $2.8 billion in net income and earnings of $8.43 per share. That's a transformative improvement year-over-year, reflecting a strong performance in Bitcoin, the fair value treatment we now have on our Bitcoin and disciplined capital raising activities. This marks our second consecutive quarter of significant positive GAAP earnings and over $8 billion in positive earnings in the last four quarters. Next slide. Our results for the first nine months of the year showed $12 billion in GAAP operating income, $8.6 billion in net income and earnings of $27.80 per share, continuing our record-breaking year of performance. Moving on to Bitcoin per share. Bitcoin per share, as we introduced last quarter, measures the accretion of Bitcoin on a per share basis by calculating the ratio between the company's Bitcoin holdings and assumed diluted shares outstanding here represented in Satoshis. Through October 26, our Bitcoin per share was $41,370 compared to Bitcoin per share of $39,716 as of July 31. We are consistently accumulating more Bitcoin per share each quarter, the highest of any Bitcoin treasury company, creating direct and measurable value for our shareholders. Next slide. Since adopting our Bitcoin strategy in 2020, we've consistently increased Bitcoin per share. We began with 56,598 Bitcoin per share in 2020. And as of October 2025, that has grown to 200,197 Bitcoin per share, more than a 3.5x increase over that period. We've also grown BTC yield year after year through disciplined capital raises and immediate conversion into Bitcoin on our balance sheet, reflecting a 26% BTC yield year-to-date. This sustained growth reinforces our ability to deliver Bitcoin yield to our shareholders through market cycles and by continuously executing on our capital markets and acquisition strategy. Next slide. Here, we highlight our year-to-date Bitcoin performance metrics versus our full-year 2025 targets. Year-to-date, we've achieved a 26% BTC yield compared to our revised full year target of 30%. Our year-to-date BTC gain is 116,555 BTC, up from 88,000 at the end of Q2, reflecting disciplined capital deployment and the strengthening of our Bitcoin balance sheet. Our BTC gain performance translates into approximately $12.9 billion in BTC dollar gain year-to-date compared to our $20 billion full year goal. Next slide. We now hold 640,808 Bitcoin or $71 billion, purchased at a total cost of $47 billion or an average $74,000 per Bitcoin. And we now hold approximately 3.1% of all Bitcoin that will ever exist. And as in the past, 100% of our Bitcoin remain fully unencumbered. This next slide highlights the transformation of our balance sheet over the past year and the continued strength we've seen through the third quarter. Year-over-year, digital assets grew from just under $7 billion in Q3 of 2024 to just over $73 billion in Q3 of 2025, driven by both additional Bitcoin acquisitions and the adoption of fair value accounting at the beginning of the year. The accounting change alone added approximately $18 billion to our digital assets and $12.7 billion to total equity at the time of adoption. Quarter-over-quarter, digital assets have continued to climb from $64.4 billion in Q2 to $73.2 billion in Q3, alongside steady growth in total equity on our balance sheet, reaching now $58.1 billion at the end of Q3. Overall, fair value accounting has made our balance sheet more transparent for our investors, while execution in introducing innovative digital credit through our preferred equity IPOs this year has continued to expand shareholder equity and reinforce the company's position as the leading Bitcoin treasury company. Next slide. In Q3, we recognized an increase in our Bitcoin holdings from $64.4 billion at the end of Q2 to $73.2 billion at the end of Q3. This increase was made up of $3.9 billion of fair value gain in our Bitcoin holdings, which was due to the change in Bitcoin price between the first and last day of the quarter and also through the addition of $5 billion of new Bitcoin added to our balance sheet in Q3. Next slide. As of October 24, our enterprise value was $98 billion with a market cap of $83 billion, which is supported by a Bitcoin net asset value of $71 billion or 72% of total enterprise value. Our $8.2 billion of convertible debt is equal to just 11.6% of our total Bitcoin NAV and the $6.6 billion of prefs represent just 9.3% of our Bitcoin holdings. Our annual dividend and interest obligations totaled $689 million, which is less than 1% of our total Bitcoin, reflecting the efficiency and sustainability of our balance sheet. And our capital structure is built to endure volatility, provide stability, scalability and long-term shareholder confidence. Next slide. We continue to have $8.2 billion in total notional debt across our converts with all but two that remain in the money with a total weighted average maturity of 4.4 years. The total current notional value of our outstanding preferred equity as of October 24 stands at approximately $6.7 billion, up from $6.3 billion as of July 29. Next slide. Our total annual interest and dividend obligations are $689 million, which consists of $35 million in interest expense on our converts which is about 42 basis points average cost. And we have $522 million in dividend obligations from our cumulative preferreds, STRF, STRC and STRK and an additional $125 million related to our noncumulative preferred STRD. Here, we show we have more than sufficient access to liquidity to manage our total annual interest and dividend obligations through our proven track record of capital raising activities. Our total annual obligations represent only about 1.7% of total capital raised in the last 12 months and only about 2.6% of total common equity raised in the last 12 months. As a measure of our strong financial performance, our fixed obligations represent only 6.1% of year-to-date GAAP operating income. Next slide. Finally, we are extremely pleased with the IRS interim guidance that was issued on September 30, which now excludes unrealized gains from our Bitcoin holdings from adjusted financial statement income for purposes of CAMT. Not only does this important clarification directly benefit strategy, but it also paves the way for other corporations to hold and grow Bitcoin on their balance sheets. We are grateful and appreciative for the support of treasury, IRS, Congress and the administration for aligning on the importance of clarifying the specific rule under CAMT and lifting what otherwise would have been an extremely burdensome rule that would have targeted digital assets. and for continuing to support the growth and innovation of the digital asset economy. I'll now turn the call over to Phong Le, Strategy's President and CEO. Thank you. Phong Le: Thank you, Andrew. I will go through an update on our capital markets activity, and then I will review the guidance that we provided for 2025. So, first, I want to welcome and invite everybody to join us in four months in Las Vegas at the beautiful Wynn resort for Strategy World 2026 and our fifth annual Bitcoin for corporations. So hopefully, those who are listening or watching this presentation and have been a fan of strategy software or strategy and our Bitcoin strategy can come out and join us. So, next slide, Shirish. So taking a step back, we used to compare ourselves to other companies that have Bitcoin on their balance sheet. And as you know, with over 640,000 Bitcoin and nearly over 3.1% or nearly 3.1% of all the Bitcoin effort to be created in the world, we found it best to compare ourselves to the largest corporate treasuries in the world. You'll see here with $71 billion of Bitcoin on our balance sheet, we're fifth when comparing cash and short-term investments and excluding financial services companies. And our aspiration in the next year is to be #2 and the next 5 to 10 years to be #1. And so how do we do that? Next slide. What we've done in the past in the last two years is raise a significant amount of equity and capital through the capital markets. In 2024, we raised $22.6 million and about 27% of that or $6.2 million was from the convertible debt market. Year-to-date this year, we've raised $19.8 billion. And what you can see here is the way we've raised it has changed significantly. We've reduced our convertible debt raises to about 10%, and we've increased our raises through preferreds to $6 billion or about 30%. And that was all happened -- that has all happened this year. It's really just been since the end of January of 2025 that we've launched our preferred strategy, and it's been very successful so far year-to-date. As we start to reduce our reliance on convertible notes, our plan is to allow those to equitize over time. And based on the earliest potential equitization dates, you'll see here that by 2029, we'll have no more convertible debt on our balance sheet. And instead, what we'll do is we'll start to season the preferred market. You'll see through the course of this year through four IPOs, and as Andrew had mentioned, the largest IPO coming three months ago with STRC or Stretch, we've been able to raise $6.7 billion through the preferred market. And interestingly, as you look at this, a largest portion of that raise has come from the retail market. The initial offering of Strike had about 4% access or raises through retail. And the latest one stretch had about 23% through retail. Next slide, Shirish. So how do we seize in the market and how do we grow our preferred offerings and raising more capital through our preferred offerings. Three real techniques that you'll see us continue to use. First is distribution. Recently, in the last month, we've seen more brokerages list our preferreds. Robinhood listed each of our four preferreds in the last month, and we've seen significant volume and liquidity through Robinhood. And they listed those as the first ever preferreds on the platform because of demand from other folks that were on Robinhood. We're also going to continue to distribute through wealth management, broker-dealers, RIAs, Morgan Stanley participated in our latest preferred, which gave us significant access to their wealth management channel, retail customers. And we'll start to work with different banks and financial institutions to explore other types of products, potentially ETF wrappers and structured finance products that have our preferreds underlying them. We're doing more and more in terms of field marketing, industry conferences, leveraged finance events where we seek access to customers and buyers who are interested in credit and debt products. We're also doing more and more teach-in, so just feet on the street meeting with financial advisers, brokers, RIAs and family offices. And last is you'll see more digital marketing. You're already seeing us provide some information and advertise some of our preferreds, namely Stretch and social media on X. We plan to have even greater presence on YouTube, traditional media potentially, channels like Wall Street Journal and Bloomberg. We continue to use our strategy.com website and our strategy app, which if you have not downloaded it, I suggest you do so and more and more presence on interviews and podcasts. So these are three different ways we'll continue to create distribution and awareness of our credit instruments. The other area of distribution that we are going to look to access with our preferred credit instruments is international expansion, right? Currently, our products are listed on the NASDAQ and our U.S.-based products, U.S. dollar-based products. But there's a significant access to capital that we can get if we were to, as an example, launch a Canadian product on a Canadian exchange in Canadian dollars, launch a European product on a European exchange, euro or potentially other areas of the world like Asia or Latin America also. And we think by accessing these markets and by providing new products that are similar to our preferred products like Stretch or Strife that we can access even greater pools of capital to provide more funding for us to ultimately buy more Bitcoin that's accretive to our shareholders. We announced this week on Monday that we have now the first ever published rating of a Bitcoin treasury company by a major credit agency. S&P has assigned us a B- issuer credit rating to strategy. We think this is a big milestone, not just for strategy and for Bitcoin treasury companies, but a big milestone for Bitcoin in and of itself. There's been a lot of discussion around whether we think this is a good rating or not a good rating. I think it's a solid starting rating. And I think even more importantly, to have a rating, it gives us access to more pools of capital. So what does a B- rating mean? By definition, it means that there's a stable outlook and it reflects the expectation that we'll continue to manage our capital structure prudently and retain that we maintain market access. We are rated under a structure that's a framework that's called nonbank financial institutions. That's a framework that S&P uses to rate us. And importantly, at this point in time, Bitcoin is -- we don't get any credit for the Bitcoin on our balance sheet when it comes to our rating, it's deducted from our equity. And this drives negative risk-adjusted capital. So what needs to change for the rating to improve? Well, one, I think it's appropriate at some point in time that Bitcoin be treated differently and as a capital asset at full credit, and that would require the risk-adjusted capital or the Basel frameworks to change or for S&P to change how they look at capital at Bitcoin as capital. And I think that will start to happen over time. We see already other banks seeing Bitcoin as potential collateral. We've seen the U.S. housing agencies suggest that Bitcoin should be collateral for mortgages. So as that starts to evolve, I think the risk-adjusted capital and the Basel frameworks will start to evolve. And I think the S&P will evolve in its view on Bitcoin. But it's good to have a stake in the ground. I mentioned the potential equitization of our outstanding convertible debt because these are senior to our preferreds and are at the top of our capital structure in terms of seniority. As these start to roll off, that will start to reduce our maturity risk, and that should also improve our rating. And finally, what we've been doing for the last five years, we've demonstrated strong access to capital markets. We demonstrated in 2022, the ability to service our debt during a Bitcoin bear market as we continue to show, improve consistent leadership in this area, we'll start to see a better rating, too. But I'll go to the next slide, and this is probably the most important point about getting a rating because we are now S&P rated, it gives us access to larger pools of capital than we had before, right? And the unrated credit market is about $2.8 trillion worldwide. Now we have access to what we call a high-yield rated, right? B- is in the high-yield category, which is a market that's about 3x the size of the existing market that we're in. And over time, our hope is if Bitcoin was to be treated as a true capital on our balance sheet that we would be considered an investment-grade rated company. And when we get to that point, we would be able to access a market that's 11x what it is today. So, in summary, on the S&P rating, I think it's a good starting point, and it's important that we're rated. And I think an agency like a credit agency like S&P validates our company, starts to validate Bitcoin as an asset class, and it's a good starting point for us. The other part of S&P, so their index business has also started to embrace crypto, right? The S&P 500 has in successive quarters, added Coinbase, then Block, then Robinhood to their index. And we now meet all of the criteria that's required to be in the S&P 500 Index. We're # 131 by market cap of U.S. publicly traded companies. And unlike the NASDAQ 100 that sets its criteria purely by market cap, S&P also has some other criteria. I have to be a U.S. company, U.S. listed, which we are. I have to have a minimum of $23 billion market cap, which we have and 250,000 shares traded each month for six months, which we have. You have to have a last quarter with positive earnings. We've had two now. And some of the last four quarters have to have positive earnings, which we also have. So now that we meet all the criteria, the question we get often is why are we not included? We don't know exactly, right? This is an S&P 500 process that they don't publish exactly why someone gets added or not. But first of all, we just became eligible in the last quarter and eligibility doesn't mean immediate inclusion, and that's pretty typical. Many other highly successful companies, Tesla and the ones I mentioned here, Block and Robinhood were not included in their first quarter of eligibility. But we hope to access the index in $13 trillion of capital that tracks the S&P 500 at some point in time. The other big development that's happened really just in the last three months with the passage of the GENIUS Act and with more and more government clarity on regulations related to Bitcoin and related digital assets is big banks further embracing crypto. Morgan Stanley has dropped their restrictions in which wealth clients can now own crypto funds. In fact, they can solicit Bitcoin-backed securities and including Bitcoin-backed ETFs, and they are recommending as much as, in some cases, 5% to 6% of clients' portfolios owning Bitcoin. They also underwrote our most recent offering, stretch. And as I mentioned earlier, gave us access to the wealth management channel. Citibank recently launched coverage, the first, I'll call it, bulge bracket bank that's launched coverage on our equity, and they also provide now a price target. And they've announced that they're going to launch crypto custody services next year, which I think is going to be transformative in terms of major banks now custody Bitcoin and other digital assets. Societe Generale, which is a large bank in France, which became the first major bank to launch dollar peg stablecoins and even banks like JPMorgan now are allowing Bitcoin and Ether as collateral with their banks. And I mentioned that Citi has launched coverage on strategy, and they've also given a Bitcoin price target, which is a major improvement. And you'll see here of all the banks that are covering us and all the research analysts that are covering us. There's an average price of Bitcoin for 2025 of $156,000, average price at the end of 2026 of $180,000. You'll also see here strong price targets and ratings on all of the banks that are covering. So let me move to 2025 guidance and review the guidance that we provided last quarter and talk through some of the additional guidance that we'll provide this quarter. The first piece is I want to reaffirm the BTC guidance for 2025. This is all assuming a Bitcoin price of $150,000 at year-end, which is based off of the consensus targets that I just reviewed. We have a BTC yield target at the end of the year of 30% and a BTC gain -- dollar gain target of $20 billion. And we have activities underway to try to achieve those, which include capital raises and such. As for our earnings guidance, I also want to reaffirm what we communicated three months ago, which is an operating income target of $34 billion, a net income target of $24 billion and an EPS target of $80 at the end of this year, again, all assuming a Bitcoin price of $150,000. Stretch, which we just launched three months ago, I also want to reaffirm the guidance that we've given on how we think about the dividend rate. If the five-day VWAP of the price of stretch is above $101, we recommend a rate decrease or potentially a follow-on offering. If the 5-day VWAP is between $95 and $99, we'd recommend a 25 basis point rate increase to get the price -- to try to get the price of stretch within our target price range of $99 to $101. And if the five-day VWAP is below $95 at the end of the month, we would recommend a 50 basis point rate increase. And so let me show you what we've done so far since we've launched Stretch and what we will update today as far as our dividend for the next month. So as you recall, when we launched the product in July, we launched with a 9% dividend rate. We increased that to 10% in August. We increased it further to 10.25% in September. And today, we're announcing that effective November 1, we will increase another 25 basis points our dividend and we'll be at 10.5% on November 1 paid monthly. The last guidance I want to talk through is something that's new to this group, which is what we're calling return of capital guidance. And Mike will talk about this a little bit more, but this is a pretty unique feature to all of our preferred equity, which is that the dividends are paid -- the dividends that are paid are taxed as a return of capital. And if it's tax as a return of capital, it means that it's tax deferred until you sell the underlying asset. And so if you hold on to the underlying asset, you can expect that you're paying essentially zero taxes on that. That compares to a qualified dividend, which is at a rate of anywhere between 20% and 35%, depending on the state you live in and the city that you live in, in the U.S. and compared it to an interest income, which is what you would pay on something like a money market or a bank account at 37% to 55%. We call these ROC dividends. It's a pretty unique feature and one that I think is not as clear and it may be lost on folks. But when you invest in our preferreds, for the foreseeable future, you can expect ROC dividends. And so why do we have ROC dividends? It's fairly unique to our company, which is that we have negative taxable earnings and profits, which is a function of the business that we're in, and it's a function of our intent to buy and hold Bitcoin and not sell Bitcoin, where it's negative from a tax perspective and not engage in activities that will result in significantly positive taxable earnings and profits. And our guidance here is that we expect that this ROC treatment continues for the foreseeable future for 10 years or more, and we can impact that guidance, and we can impact our negative E&P with how we run our business. So the summary here is that our preferred dividends are tax-free or tax deferred and that we expect that to continue for the foreseeable future. It could be 10 years, it could be more than that. So, with that, I want to hand it over to our Executive Chairman, Michael Saylor. Michael Saylor: Thank you, Phong, and thanks for joining us today. I'm really excited to talk to you about digital capital and digital credit. So let's go to the first slide. The first point that I want to make is that Bitcoin has emerged as digital capital. What is digital capital? Digital gold. Capital is a long-term store of value, Bitcoin is a store of value. The U.S. government has embraced Bitcoin as a store of value, and that means every major cabinet member, and I'm showing them here. And of course, the decision that America is going to be the Bitcoin superpower is an endorsement along with the President's point that you don't ever sell your Bitcoin. Let's go to the next slide. Wall Street has embraced Bitcoin as digital capital. Now you've got 1.5 million Bitcoin held by the spot ETFs, about $170 billion worth. The most successful ETF in the history of Wall Street is IBIT. And IBIT has explosively grown even in the past few months. The daily liquidity in IBIT is now approaching $4 billion or more a day. Open interest in BE has gone to more than $50 billion in open interest. And so this is wildly successful. Next, public companies have embraced Bitcoin as digital capital. We were the first public holder of Bitcoin, then there were two, then there were four. About a year ago, there were 60. Now there are 200-plus publicly listed companies holding Bitcoin. That's more than 1 million Bitcoin, and it's about $116 billion in value. I've got a few metrics here on this slide that show just the scale of the Bitcoin market. It's a $2.3 trillion market cap. It's $58 billion of daily liquidity, $76 billion in BTC open interest in the derivatives market, and it's backed by 26 gigawatts of power. That's 26 full-on nuclear reactors. It's -- and the hash rate keeps going up. We're now up to 1,100 exahash. And you have 30% of all voters in the United States that are registered -- of the registered voters that are crypto holders. The industry crypto is $3.9 trillion, and there's 700 million crypto users and of course, 300 million Bitcoin holders. So this is a global movement at this point. Bitcoin is the capital asset at the center of the entire crypto industry. And it is traded on 1,000 exchanges. Next. Now what do you do with digital gold? Well, what do you do with gold? You issue credit on gold. For 300 years, the Western world ran on gold-backed credit. Bitcoin is digital gold. What we've realized is that the killer application of digital capital is digital credit. And strategy enables a wide variety of securities based on that digital capital. What you can see here is that the baseline is IBIT. IBIT is digital capital in an ETF wrapper, and it's got a 53% annual -- 53% return on average for the past five years. And the volatility is 38% right now. Now what we have done is created four digital credit instruments that strip the volatility and extract or distill the performance out of IBIT. So Strike's volatility is 28%, and it gives you a 9% effective yield and some upside. Stride's volatility is 16%. It gives you a 13% effective yield. Strife's volatility is 14%, and we extracted a 9% effective yield. And of course, what we're doing is we're extracting a certain type of risk or we're mitigating I'm stripping off a bunch of risk. We're extracting a yield. We're damping the volatility. And the largest piece or the greatest piece of financial engineering we've performed is Stretch, which has converted that 38% volatility into 8% and extracted that effective yield of 10%. And of course, as you can see, since we damped the volatility, there is sort of a conservation of energy or a conservation of volatility in the thermodynamic universe. And so where does the volatility go? It goes to the Equity's So -- the volatility that we strip off of BTC accrues to MSTR, of course, the performance and the opportunity that we strip off of BTC also accrues to MSTR. So what you see here is a fairly straightforward financial engineering exercise. We are a structured finance company, and we are starting with a blob of high energy capital, long duration, highly volatile, high performance. We are engineering out different durations, different volatilities, different risk profiles, different performance profiles. We're even transforming it from the BTC currency into the USD or to different currencies. And that is the exercise. Next. Now this chart shows the economic landscape we work in. Here, you see Bitcoin's performance of 53% over five years, almost double the MAG 7. You can see gold performed 15% a year. It's slightly edged out the S&P at 14%. S&P is the conventional cost of capital. Real estate is underperforming the S&P dramatically in this time frame, only up 6% a year. Money market instruments, those short duration treasuries in the U.S., on average, have provided 3% performance a year and mid-dated to long-dated bonds are minus 3%. Strategies equity is plus 83%. And of course, all of our financial engineering is based upon taking advantage of a lower cost of equity and a lower cost of credit and then using that in order to acquire Bitcoin, which then accrues to the benefit of the equity holders. Let's go to the next slide. So let's look at our products, Strike. Strike is structured Bitcoin. It's convertible preferred. So it has some upside via the equity component at 33% of Strike is equity. It has some dividend, an 8% dividend at par right now an effective yield of 9.1%. And then Strike pays ROC dividends, which means they're tax deferred as you step down your basis. And so the tax equivalent adjusted yield is 21.6%. How do you get to that? Well, you take the cost of strike, you subtract the equity component and then you look at the effective yield of the remainder and then you look at the tax adjusted effective yield and you end up getting to 21.6%. So this is a misunderstood security, but it's got very compelling offers because on one hand, it's an indefinite a perpetual duration call option on the stock. And it's also a perpetual dividend. So if you're a very long-term investor that wants the best of both worlds, some upside, some income. And if you want risk stripped away, well, we've got a BTC rating of 5.2%, which means that Bitcoin could fall by 80% and you would still be overcollateralized. If you bought Bitcoin and it fell by 80%, you lose 80% of your money. If you buy this and Bitcoin falls by 80%, you still keep your money, right? It's a principal protection. And so down here at the bottom, I've got a table, and you can see the effective yield of the things that Strike competes against are 1% to 4%. And so this is a very unique thing. It's really -- it's higher yield, more upside, longer duration than alternative investments. And let's go to the next slide. Stride is our second credit instrument. This is long-duration, high-yield credit. The effective yield is 12.5%. That makes the tax equivalent yield nearly 20%, 19.9%. It's still 4.8x over collateralized. So Bitcoin can still fall by 75%. You're still over collateralized. And it's got a duration of eight years, which is a Macaulay Duration. But really, what you're getting is you're getting the 10% dividend at par perpetually forever. And so if you compare it to the universe it competes against, the effective yield on most high-yield corporate bonds is 6%, and they're taxable, 6.2%. Leveraged loans are 6.8%. They're taxable as normal income. Preferred stock ETF, 6.2%; emerging market debt, 5.6%. So the effective yield of Stride is double, but the tax equivalent yield of Stride is triple. And so you get triple tax equivalent yield with more collateral coverage. This, again, is a misunderstood instrument, but if you're seeking maximum cash flows, right? And if you trust Bitcoin minimally and you trust the company, then this is a very interesting opportunity for you. The next instrument is Strife, STRF. Well, that's long-duration senior credit. It's cumulative, and it's got more protections because there are penalties if the company were ever to suspend a dividend, but -- and it's also more highly collateralized. The BTC rating is 7.5x. So $7.50 of Bitcoin for every dollar of Strife outstanding. The effective yield is 9.1% because it trades above par. And the tax equivalent yield is 14.4%. So when you look at this against comparable assets, the effective yield is double, the tax equivalent yield is triple and the collateral coverage is 2x to 3x more. This has got a duration of 11 years. It's a longer duration. What that means is that if interest rates move up or move down, there's going to be more volatility on this. If you believe interest rates are going to die, then this is a great thing. You would like a long-duration instrument. If you believe that interest rates are going to go up, then that would be the opposite. You probably wouldn't. Now let's go on to Stretch. Stretch is the highest degree of financial engineering we've engaged in because with Stretch, our goal was to strip the volatility, strip -- compress the duration, convert the BTC into a pure USD yield and then offer that to the investor. So, right now, Stretch is 10.4% effective yield, but that's a tax equivalent yield of 16%. It's just slightly under 6x over collateralized. And of course, it's the lowest volatility. Our goal with Stretch is we want to give everybody something that's competitive with the money market that pays you 10.4%, that is tax deferred. If you walk down the street and you say to someone, do you want a convertible bond, not sure. Do you want a 20-year crypto bond? Not sure. Do you want a crypto junk bond? Not sure. Would you like a bank account to pay a 10% tax deferred? Yes. Yes, everybody wants a bank account to pay some 10% tax deferred, right? Why wouldn't you, right? And so this is -- to be clear, it's not a bank account. It's not even a money market. But we are structuring it to compete with that source of funds. That's what we call a treasury credit. It's for corporate treasurers. It's for your family treasury. It's the money that you probably need to spend in the next 12, 24, 36 months. If you didn't need the money for four years or more, I would say you probably ought to go look at buying Bitcoin. If you don't need the money for a decade, you buy Bitcoin. It's a better deal. But if you need the money in four months or eight months or two years or you have 30% of your working capital that's stable. That's a treasury obligation. And right now, your options aren't great. So here, we're offering 10.4% effective yield, but 16% tax equivalent yield. If you look at bank accounts, they yield nothing. Money markets are 4% in the U.S. So this is 4x better, 4x better than the tax equivalent yield of a money market. Now you'll note, it's more volatile, right? The money markets managed to get down to less than 1% or about approximately 1% volatility. We're still 8% volatility. And I think that's in some part because we're still seasoning. And so we are going to continue to work to get this volatility down below 8% to 7% to 6%. We got to 5% about a week ago. We don't know how low we can get it, but our goal is to make it the least volatile of our credit instruments. Let's go to the next slide. Phong spoke about return of capital. The point that I want to make is ROC dividends have been around -- this is settled tax law since 1910. Return of capital has been around since 1910. You'll find hundreds of companies that have issued dividends that are return of capital. You'll find oil pipelines, natural gas companies, real estate companies, et cetera. We just happen to have a very compelling business model. The treasury business model allows us to have much greater visibility to return of capital than if you were just a REIT or you were a gas pipeline or something. And so the difference really is it's 0% upfront dividend tax rate versus 20% to 30% or 30% to 55%. And if you got your money in a money market and you live in California or New York City, it's a pretty heavy tax load. And so presumably, New Yorkers or San Francisco dwellers, when they start to look at this, are going to find it to be pretty compelling. The fact that we expect this to continue for the next 10 years means that we're not just announcing that this quarter is a return of capital. We're expecting the next 40 quarters to be return of capital. And I think that's a pretty material thing. Let's go to the next slide. Now all of those credit instruments have one impact. They amplify our Bitcoin exposure. So, right now, strategy has 11% leverage, 21% amplification, okay? Amplification is the leverage that comes from debt plus the improved performance that comes from equity. Our goal, our target as a company is to drive leverage to zero. When we equitize the convertible bonds and if we don't issue any more bonds and we don't intend to, Leverage will go from 11% to 9% to 7% to 5% to 3% to 1% to zero. So our leverage is going to 0. Our target for amplification is to drive the amplification to 30%. So we're going to drive amplification up and drive leverage down. And of course, here, you can see on this chart, if we run at a 30% amplification level, what naturally happens is your 200,000 Satoshi per share become 560,000 Satoshi per share over 10 years. That's a BTC factor of 2.8. That means that we actually perform 2.8x better than an ETF. That is the source of the premium and the equity. That is the value that's being created by the -- the digital treasury model. And of course, the value creation is a function of the amplification. When you increase leverage, you increase risk. But when you increase amplification, you just increase value creation. So if we get to 30% amplification, then we may very well go to 35% or 40% amplification because we're doing it with digital credit and digital credit doesn't have the risk profile of debt. Let's go to the next slide. We are at a historic point. We're kind of at an inflection point, we believe. Our multiple to NAV, mNAV has been trending down and has been trending down over time as the Bitcoin asset class matures, as the volatility decreases. The volatility, by the way, is decreasing in part because of the growth of companies like ours, the maturation of the Bitcoin treasury industry. It's decreasing because of the success of IBIT. It's decreasing because the derivatives market onshore has grown dramatically. The derivatives market in IBIT has gone from $10 billion to $50 billion. And so people are using those derivatives to damp volatility, and that's very good for the asset class. It's very good for the industry. In the near term, it's resulted probably in some pressure on our mNAV. But we think that over time, as the credit investors start to understand the appeal of digital credit, they're going to want to buy more, and we're going to sell more and issue more credit. And as the equity investors start to appreciate the uniqueness of the Bitcoin treasury model and especially the uniqueness of our company and our ability to issue digital credit worldwide at scale, we think that, that's going to drive an appreciation of the equity. Next slide. Why am I so enthusiastic about digital credit? Well, there are seven innovations in digital credit that make it better than traditional credit. So I'm going to take you through the seven things. First of all, traditional credit, like a mortgage. Well, it's built on a depreciating house or depreciating warehouse or a traditional credit, it's built on collateral that's a depreciating asset, a bunch of fiat currency, a corporate product, a corporate service, a corporate warehouse, a bunch of hardware, a data center full of NVIDIA chips that are depreciating with a four-year useful life. That is collateral, which is collapsing. It makes it hard to pay a higher yield when you have depreciating asset. But our collateral is Bitcoin, it's digital capital and Bitcoin is an appreciating asset. So whereas $10 billion of warehouses are most valuable the day they're built, $10 billion of Bitcoin is only going to get more valuable, not less valuable. And so that digital capital is the first big innovation. Next. The second innovation is we're replacing traditional risk with digital risk. Traditional risk, it's opaque, it's heterogeneous. It's discrete. You own 8,700 houses or you own -- you're exposed to a portfolio of 47 junk bond issuers. And maybe they're fine, but then there's a tariff or there's a trade war or there's a competitive change or maybe there's a strike or maybe an airplane crashes or there's a COVID lockdown. Whenever you have these kind of conventional real-world issues, you have a discrete explosion of risk, a forest fire, an earthquake or a change in a political regime or a change in tax rates or change in customs duties. So traditional risk is opaque, it's heterogeneous, it's discrete. On the other hand, digital risk is transparent. It's homogeneous, it's continuous. You can go to our website and we update the risk model every 15 seconds. And so it is completely continuous. We update the price of Bitcoin. We update the volatility of Bitcoin on a continuous basis. We update the BTC ratings. You can plug in your statistical models into them. And of course, all the risk is based upon your outlook of BTC ARR, BTC Vol, BTC price and BTC rating. So digital risk is something where you don't have to wait for a year for a credit rating agency to publish a new report. to tell you whether your favorite airline or your favorite restaurant chain is riskier or less risky. With digital risk, you can literally plug into the website and you can recalibrate and calculate your risk every 15 seconds on Saturday morning. And that's a big upgrade. Now there's a third innovation in digital credit. Our third innovation is we don't just -- all credit is not created equal. We don't just issue debt. Debt is credit. Bank deposits are credit. When a bank takes your money, they're creating credit and that -- and your bank account pays you whatever they pay you. When you put money in a money market, it's credit. Of course, junk bonds, sovereign debt, mortgage-backed bonds, they're credit, but they're debt -- and debt and deposits are liabilities. They amplify risk. If there's a run on the bank, people withdraw their deposits, right, you're going to have a collapse of the entire banking system. When the debt comes due, when your three-year note comes due, when you get to month 34, everybody goes crazy and loses their mind because the capital is getting called away from you, right? If you have a bad quarter in the 12th quarter and you've got four-year debt, you amplify risk that the equity collapses people go crazy. What we've done is use preferred equity. It's not debt. Sometimes people think, okay, well, it's a liability. It's equity. It's actually counted as preferred equity is equity on the balance sheet. It's not debt. It's an asset, not a liability. And so therefore, it mitigates risk. How does it mitigate risk? Well, I mean, the first obvious way it mitigates risk is when you sell $1 billion of bonds, you have to pay them back in five years or seven years or three years. When you sell $1 billion of preferred stock, you never pay it back. So there's $1 billion of refinance risk that just goes away. The second way that it mitigates risk is that the dividends are approved by the Board. They're not coupons. You miss $1 million of coupon payments, you're in default. Whereas if you're short $1 million of a dividend payment, you can suspend $1 million, you're not in default. So you could think about preferred equity is permanent capital and shock absorbers. -- to the business model of the company. And therefore, digital credit based on preferred equity is dramatically better than digital credit or credit that's based upon debt or deposits. The fourth innovation is we didn't just issue preferred equity. We issued perpetual preferred equity. Sometimes banks or issuers issue equity, which has got a three-year life or a five-year life or a refinance option or a call option or a put option. That creates some sort of refinance risk or withdrawal risk. But when you have a perpetual equity, it is permanent capital, right? Your bank might have $100 billion that's overnight money. Someone can take the $100 billion away from them. You have $100 billion of debt at your airline. It's going to be taken away from you in three to five years. When we have $100 billion of preferred equity, we have it forever, like forever 1,000 years. It just goes on and on and on. Perpetual life. When you have permanent capital, you can make indefinite investments. We can buy Bitcoin to hold for 100 years if we have capital for 100 years. When you have a five-year junk bond, you can't make a decision that's going to -- the truth is you have to have decisions that are no longer than like two or three years, because you have to keep rolling them because of the refinance and the withdrawal risk. So the perpetual life of the instruments is the fourth big innovation. The fifth big innovation is that we took these securities public. This is public credit. A lot of times, people sell their credit instruments via 144A offerings to a private market. It's like I sold it to 50 investors and they're traded over the counter. Those are illiquid. They're unbranded. Can anybody name the 17th tranche of bank credit sold by one of the large banks in the U.S. They have CUSIP numbers. They're traded on Bloomberg's between 37 counterparties, and they all know each other. So it's unbranded, it's illiquid. It's local. It's very difficult to buy it even if you wanted to buy it. You would need a professional money manager to even find it for you or buy it for you. When you do, there would be 300 basis point credits or bid-ask spreads, very big spreads. The thing traded last two weeks ago. That's the problem with private credit. Public credit like STRC, it's liquid. I mean it traded nearly $100 million today in the market. It's branded. It's got a name, Stretch. It's global. You can buy it if you're in the U.K. from your retirement account. It's easy to access. You can buy it on Robinhood. You can buy it on Schwab. And so public securities become public brands. And if you're going to buy a credit instrument, what would you rather have a credit instrument that's traded by 12 funds in Italy that know each other? Or would you rather have a credit instrument that's held by tens or hundreds of thousands of investors worldwide that all refer to it by the name Stretch. And if it ever gets mispriced or it gets undervalued, they're going to leap in and they're going to put lots of money behind it. When we did the IPO of Stretch, we priced it at $90. We said we're targeting par 100. There were individual investors that bought $250 million of that instrument, $250 million, right? The value of a public security, a public credit instrument is if someone goes wacky, crazy and decides they want to misprice it, there are people that will walk in and they'll buy $50 million or $100 million or $500 million to fix the market because they can. That does not happen in private credit markets. And so public branded global securities are just better. Let's go to the next innovation. Digital creation. Ask yourself, how long does it take for a bank to create $1 billion worth of home mortgages? How long does it take to issue a 1,000 $1 million loans? It's very difficult. It's very -- it's slow, it's expensive, it's labor-intensive. So the creation of traditional credit is very hard. The reason that you have banks with 37 floor buildings that have 27,000 people in them is because the creation of credit is expensive and difficult. On the other hand, we can create $1 million of credit, $10 million of credit, $100 million of credit or $1 billion of credit in 60 seconds on any given trading day. It's all automated. It's efficient, it's instant. So digital creation makes this completely scalable, right? We have a very scalable business model. And you can understand why if someone wanted to buy $10 billion of commercial credit backed by airplanes, it's kind of hard to create the airplanes to back the $10 billion. You can't just create the airplanes in 60 seconds. But we can buy $10 billion of Bitcoin to back $10 billion of digital credit, and we can do it contemporaneous with the demand. So that's the sixth advantage of digital credit. Let's go to the last point. The last point is traditional credit is taxable, whether it's fully taxable as a debt instrument or it's partially taxable as qualified dividend. Digital credit is tax deferred income, right? We pay ROC dividends. We pay ROC dividends because of the business model, because we have digital capital as the underlying asset because we have a digital treasury company and a digital treasury company business model, we pay ROC dividends and ROC dividends are a profound competitive advantage for the credit issuer and for the credit investor. Let's go on. Next slide. Here, you can see the value of the Bitcoin treasury model. We have created a flywheel. It's a scalable, tax-efficient fixed income generator. You issue digital equity and digital credit that's tax deferred. We pay dividends on that credit. They're tax deferred. We purchase Bitcoin with those proceeds, and we hold it definitely, that's tax deferred, right? So it's a triple tax deferred business model, scalable, new, never been seen in the history of the capital markets. That's why it will take people a while to get their head around it, but it really is a beautiful instrument once you understand it. Let's go to the next slide. This digital treasury model allows us to create a digital credit factory. If you look at the company, what we're doing is we're manufacturing USD yield for credit investors. And we're delivering them that yield in the form of ROC dividends. So we're generating tax deferred dividend yields in USD, and they're giving us capital. We are then buying Bitcoin with that capital. So we are funding the crypto economy. So the crypto economy is the 750 million people that are growing by millions every day that believe in pure global finance and they're engaged in everything under the sun and 1,000 exchanges. So we fund that economy, and they return to us Bitcoin and Bitcoin is 121 million of all of the capital in that economy. And so the credit investors get their yield, we get our Bitcoin and then we're shipping and delivering BTC yield to the equity investors. So the equity investors want to outperform Bitcoin. And so the equity investors get amplified BTC exposure, which you can quantify via BTC yield. The credit investors, they get their USD yield. The equity investors, they're getting tax deferred growth. The credit investors get tax-deferred dividends. It all creates a very powerful feedback loop. And our long-term forecast is Bitcoin outperforms the S&P. I expect it will go up 30% over a year for the next 20 years. So we're generating BTC NAV growth, and we're generating operating income, and that is tax deferred. And so it's a very powerful business model once you understand it. Let's go to the next slide. If you want to quantify ROC dividends a little bit better, if you actually have a $100 instrument, $100 credit instrument that pays you 10% at par, if you reinvest those dividends every quarter and it's a taxable dividend or it's a taxable coupon at 37% tax rate, and that's what a bond would be or a money market or a corporate bond or a junk bond, you're going to have $187 at the end of the 10 years. If you get that payment in a qualified dividend and you pay a 20% tax rate, you're going to have $221 at the end of the 10 years, so it's 18% more. And of course, if you receive those dividends as ROC dividends and reinvest the ROC dividends every quarter for 10 years, you're going to end up with $269 at the end of the period, that's 44% more. So, clearly, ROC dividends are compelling for the investor, and they get more compelling as you live in a higher tax jurisdiction. And as the tax rates go up, they get even more compelling. Let's go to the next slide. So digital credit opportunities, how do you break this down? Next. This is Stretch versus every other credit instrument in the United States on average. What you can see is stretch is offering 16.5% tax equivalent yield. The hottest thing in traditional credit is private credit, it's 7.6%. Investment-grade bonds, 4.7%; money markets, 4.1%; commercial paper, 3.9%, your bank account, 40 basis points. So what you can see is stretch is offering more than double anything in the traditional credit market, but it looks sort of like 4x better in the U.S. Let's think about all the digital credit instruments. What you see here is that digital credit is simply superior to conventional credit. Like the worst instrument or the lowest yielding instrument we have, STRF, Strife, has a tax equivalent yield of 14.4%. It's double the best thing in the traditional credit market. Stretch is quadruple. Stride is 5x what you'll get from a money market and Strike is even higher after you adjust for the equity component. So you can see these numbers are off the charts, and it's going to take a while for credit investors and for the market in general to adjust and digest this. But we believe that digital credit is the killer app of digital capital. And we believe that the most compelling business model is a digital treasury company built on digital capital issuing digital credit, and this chart shows you why. Now this is the U.S. The U.S. has the highest risk-free rates in the Western world. So let's look at the next chart. What I'm showing you here is the stretch rate, it's our short duration sort of one-month adjusting credit instrument versus the one -month rate for the U.S. dollar. And then let's look at the currency in Australia, it's 3.5%. Canadian one -month rate is 2.7%; Korean won, 2.5%; European 1.9% and falling, Singapore, 1.4%, JPY, the yen is 50 basis points, and the Swiss franc is negative. So what you might take away from this is that we have an opportunity not just in the U.S., but in the Middle East, in Great Britain, in Australia , in Canada, in Korea and everywhere in Europe, in Singapore, in Japan and in Switzerland. And we're studying each of these markets, and we're thinking very hard because we can create a digital credit instrument in Great British pounds or in Canadian or in euros or in Swiss francs. So we create the currency we want. We put the appropriate amount of risk on it. We strip away the duration and then we start selling pure yield. That is the compelling use case. And so are we on a mission? Yes. We're on a mission. We're on a mission to basically give everybody a bank account that yields 10% or in this case, a money market that yields 16.5% tax equivalent, right? We want to change people's view toward money, change their view toward credit. And it's not very complicated to figure out why you might want to do it. And I don't think it will be complicated for people to figure out why they might want to own these instruments. Next slide. So let me just end with an observation. We're in the business of creating digital equity by harnessing digital capital and using the digital capital to create digital credit instruments. So the equity, MSTR is digital equity. If you want amplified BTC because you kind of want enhanced exposure to digital capital and you want exposure to digital credit, then you would buy the equity. The price you'll pay is 62 vol. It will be very volatile. Now the next option you have is Bitcoin. And so let's look at that. If what you want is to strip away the counterparty risk and the currency risk, right? And you want a long-term store value, you don't buy the equity, you buy BTC, and that's 42 vol. Now what if you want a mixture of upside and quarterly income, you would buy Strike, 28 vol. If you just want to maximize your cash flows, then you would buy STRD, 16 vol. And if your idea is you want the highest seniority and the greatest degree of investor protection, then you would go to Strife and you get a lower vol, 14 vol. And then the final option, of course, is if you're looking for stability, simplicity and minimal volatility, you go to a treasury credit instrument, which is STRC, Stretch. And when you put all these things on the same chart, I think it becomes pretty clear what we're doing and why we're doing it. And every one of these instruments is aimed at a different type of investor. we couldn't create the credit without the equity and without the capital. And of course, they're all reflexive, right? The more credit we sell, the better it is for BTC and for the equity. And as the equity appreciates, that's good for the credit, and that's good for BTC. And as Bitcoin appreciates, that's good for the credit, that's good for the equity. So it's a very elegant business. We're very blessed and we feel honored to have the opportunity and couldn't be more excited about it. Let's go to the next slide. So what I would say here is if you're not sure what you want, and you've listened to me so far, then you want Stretch, right? For those people that aren't sure what they think about Bitcoin or how they feel about the company or digital credit or anything, right? The simplest idea is 10.5% dividends paid monthly for those who like money. It's just that simple. You like money, you trust the company, but you don't understand anything else, you collect 10.5% dividends, they're tax deferred. They're paid monthly. Tell your friends. And I'll just end with our last slide, which is our principles, and I want to remind everybody, our principles are to buy Bitcoin, hold Bitcoin treat all our investors with respect, prioritize the equity, generate positive yield, innovate with fixed income securities, maintain a healthy, robust balance sheet, promote global adoption of BTC as a treasury reserve asset. And I want to thank everybody for your time and also for your support. We couldn't do it without you. Thank you. Shirish Jajodia: Thank you, Michael. We are now going to proceed to the interactive live Q&A session of our webinar. I would like to invite all of our Q&A guests to come on video. And we look forward to hearing your questions. We'll go one at a time. I'll call your names and you can direct your question to the management team. For the first question, I would like to invite Andrew Harte, a research analyst from BTIG. Andrew? Andrew Harte: Team, thanks for having me on. I appreciate all the details in the presentation as always. So a lot of our investor questions are focused on the company's ability to pay dividends, especially as the preferred equity strategy continues to grow. Can you just shed some additional color and light on plans to fund those dividends? And then if there was a period where the mNAV compressed or was even below 1x, how could that plan potentially change? Phong Le: Yes, I can cover this one. And Andrew talked about this a little bit earlier. Right now, our dividends and interest on our convertible notes totaled $689 million annually. And our primary strategy when our mNAV is above 1x is to fund that through ATM issuances. And just to remind everybody, in the last 12 months, we've issued about $27 billion of equity, which means that, that's about the $650 million or so is about 2.6% of how much equity we've raised. So we clearly have the ability to raise equity to cover our dividend payments and our interest. The big question is what happens when it becomes dilutive to shareholders to issue equity and when we're below 1x NAV or if we go below 1x NAV, what would we do? And there are other things that we've explored and talked about. We would -- we could sell equity derivatives, we could sell Bitcoin derivatives, and we could sell high basis Bitcoin to cover our dividend needs for our preferreds. What's important when we do those things, and we've talked about it, is we want to preserve the ROC dividends on our preferreds. So we'd have to do them in ways that are avoid positive tax E&P right? We wouldn't do things like sell equity or Bitcoin derivatives that would cause our E&P to be above zero. We are able to sell high basis Bitcoin potentially at a loss and cause negative E&P and offset that with other Bitcoin that would cause positive E&P. We wouldn't sell the software business. I know there are questions about that because that would cause income and positive E&P. And so we want to preserve the ROC dividends, the preferable tax deferred treatment of our preferreds. So those are some of the things that we would do in that scenario. We don't anticipate that scenario, but we do have plans in place. Shirish Jajodia: Thank you. For the next question, I'd like to invite [ Pierre Rochard ]. Unknown Analyst: Thank you for organizing this, and thank you for the invitation. It was mentioned that there would be marketing and advertising around the preferreds. What do you anticipate that expense looking like? And what the return on investment would be for those efforts? Phong Le: I can cover that. We're just starting to get into this. Actually, you just saw one of our advertisements for those who like money stretch, right? And so we'll start to experiment with paid advertising on platforms like an X or YouTube. I think whatever the expense is, it would be quite minimal compared to the increased inflows that we hope to drive into our preferreds, right? And I think we've gone through in the past, if we're able to raise an incremental $1 billion in a preferred, we immediately turn around buy Bitcoin, and that's immediately accretive to Bitcoin yield and Bitcoin per share. I don't expect we're going to spend a ton of money upfront. We'll experiment and see what are the right channels and what causes people to wake up and understand the Bitcoin credit machine that we have. And then in addition to just digital marketing, we're out meeting with investors, meeting with potential investors quite a bit now. And I think there's just an about a feet on the street between Mike, myself, Andrew, Shirish, CJ and the entire team. Michael Saylor: Yes. I would just piggyback on that by saying, I just spent a lot of time in the Schwab studios and recording content to go on the Schwab network. I was in Vegas at Money 20/20. I was in Austin at a credit conference. I'll be in Naples, Palm Beach. I've got a big road show throughout the Middle East for 1.5 weeks coming up. So there's a lot of outreach. We get invited to speak at a lot of conferences. We also get invited to speak on television, right? So some of the better marketing channels is just go on Bloomberg, go on Fox, go on CNBC. And I think that the difference between what we're doing now and what we're doing a year ago is a year ago, people said, well, what is Bitcoin? Is it going away? And can you sell me on Bitcoin? Now we're beyond the Bitcoin going away. Everybody has embraced it as digital gold. Now when we go on Bloomberg or Fox or CNBC, we're saying, stretch, it's 10.5% dividends tax deferred. You might want to check it out. So we have it -- by the way, you know how I used to say it takes like 1,000 hours to understand Bitcoin or 100 hours to figure this out. It doesn't take that many hours to figure out that something that yields 10.5% tax deferred is better than your existing money market or bank account. So we've got simpler messages, and we're taking them to every channel. We will try TradFi. We don't think we can sell the Bitcoin message in 30 seconds to 70-year-old conservative traditional retirees. But we do think that we can sell Stretch in 15 seconds or 30 seconds to military retirees that want to live happy ever after. And we know this anecdotally because it's happening everywhere we go, everybody we talk to. It's the simplest product for us to explain. It's hard to sell convertible bonds. It's hard to sell 30-year crypto bonds. It's hard to sell Bitcoin to the rank and file, but everybody wants a bank account that pays 10% that you don't have to pay tax on. So we're going to work every possible marketing channel in order to get the word out. And the good news there is we're getting an avalanche of request to speak. Everybody wants to talk to us now, right? So just around the time that everybody wants to interview us, everybody wants to talk to us, we have the simplest message. You can put it in 30 seconds. And so it's a very exciting time for marketing. Shirish Jajodia: Thank you, Pierre. For the next question, I'd like to invite Mark Palmer, our research analyst from Benchmark. Mark Palmer: We have already seen the beginnings of consolidation within the digital asset treasury space. Is there a circumstance under which Strategy would step into the market as an acquirer of a Bitcoin treasury company that was trading at a materially lower mNAV in a transaction that would be, by definition, accretive as a means of accelerating its acquisition of Bitcoins. Michael Saylor: I'll give my opinion, and then Phong can chime in. We've done 84 acquisitions of Bitcoin, and every one of them was homogeneous, transparent, and you could instantly calculate whether it's accretive or dilutive, and they were generally all accretive. And our focus is to do high-speed transparent digital transactions and sell digital credit and buy Bitcoin. And we think that it's a big advantage of the company that the business model is so transparent, predictable, clear. Because the business model is predictable, that makes it easy for the equity analysts to make their decisions. And it also makes it easy for the credit analysts to assess the credit quality. So, generally, we don't have any plans to pursue M&A activity, even if it would look to be potentially accretive. It might be, but there's just a lot of uncertainty, and these things tend to Stretch out six to nine months or a year. And an idea that looks good when you start might not still be a good idea six months later. And it can be very distracting for the management team while you're either integrating or pursuing those things. So our management team is laser-like focused on selling the four credit instruments that we have and then expanding the reach of our digital credit instruments internationally and, of course, improving the quality of our balance sheet, equitizing the convertible bonds. Those are all the things that we're very excited about. as an operating company, the great thing about operating company is, yes, you have the option sometime in the indefinite future to do something. And if you're walking down the street and there's $1 billion and you can bend over and pick it up for a nickel, you have the option to do it. And I don't think we would ever say we would never, never, never ever. But what we would say is the plan, the strategy, the focus is sell digital credit, improve the balance sheet, buy Bitcoin and communicate that to the credit and the equity investors. Phong, do you have anything to add on that? Phong Le: No, I don't have anything to add. I would generally agree with what you said. We've been a software company for nearly 30 years or over 30 years and software technology M&A is very difficult. There's always something hiding behind what you actually think you purchase. And I think I would say that the same thing is about acquiring Bitcoin treasury companies. Mark Palmer: Okay. And just one more question. With regard to your intention to tap international markets from a capital raising perspective, is the idea that you would effectively market the same four perpetual preferred instruments that you currently have, but just to different markets around the world? Or would you be designing new instruments that were specific to those geographies? Michael Saylor: It will be the latter. We will design -- if we're going into Canada, we would design an instrument that's denominated in Canadian CAD, and we would offer it to Canadian investors on a Canadian exchange. So it will be a native product because if you're the investor there, you don't want to take currency risk. And if we go into Europe, we would create a euro-denominated instrument. So -- and we would offer something that represents everything we've learned from the first four credit instruments. If we could improve it, we would. But primarily, the Europeans want a euro currency instrument in Europe and every international investor does. What we've discovered is a lot of European investors, they can buy the American instruments. So if they wanted a U.S. dollar-based treasury credit instrument, they would buy stretch. And so they can already get to it. In fact, one of the more pleasant surprises I learned is we accumulated a ton of European and British investors in 2020 because they could buy MSTR and they couldn't buy Bitcoin. So our digital credit instruments are already global. If you want U.S. dollar credit instruments, then you're already buying them globally. We think the big unlock is that we can create a digital credit in any currency. We can take JPY risk or we can take euro. We can solve that problem. And there's people that will buy $1 billion of something if they don't have to take the currency risk and they'll buy nothing if they have to take the currency risk. So our job is to bridge that capital divide. And so when we do it, we'll do it with a native instrument and a native currency on a native exchange that is going to be presumably the most compelling credit instrument in that capital market that anybody has ever seen. Shirish Jajodia: Thank you, Mark. For the next question, I would like to invite [ Natalie Brunell ]. Unknown Analyst: Beyond Bitcoin price action, can you identify two or three very specific challenges that are serving as headwinds for the growth and performance of strategy and even the Bitcoin treasury industry more broadly? And what actions can be taken to overcome those? Michael Saylor: I think Phong highlighted some of them in the discussion of S&P credit ratings issues, right? The fact that Bitcoin is not viewed as capital by the traditional credit ratings industry. So I think the view of Bitcoin as -- and the collateral value of Bitcoin and the traditional views under Basel rules under the rules that govern our banking system, our insurance companies and our credit rating agencies. I think that, that's a structural thing. Like when FASB didn't allow you to recognize gains, but they made you recognize losses, and you didn't -- you had indefinite intangible accounting. That was pretty crippling. I think that we fixed that, and I think that fixing capital risk rules will be a big one. I think the second is banking acceptance, custody and credit banks issuing credit on Bitcoin. So -- we're hearing rumors and we've heard that a number of major banks in the U.S. in the first half of 2026 will start to buy Bitcoin, sell Bitcoin, custody Bitcoin and issue credit and margin lines against the native Bitcoin asset. That will be great for them. That will be great for Bitcoin. That will be great for us. That will accelerate adoption. And so I would say neither of these are things that I would ask for government help for, like we don't need a law to fix it. What we do need to do is lobby the banks, lobby the insurance companies. Maybe I should replace that word with educate, educate the banks, educate the insurance companies, educate the credit rating agencies. And then finally, educate the traditional fixed income investor, the retiree and the corporate treasurer, educate them that there actually now is a better option. And so I think that's what we need to do in order to grow the industry right now, and that's going to be our focus over the next few years. Shirish Jajodia: Thanks, Natalie. For the next question, I would like to invite Brian Dobson, research analyst from Clear Street. Brian Dobson: Yes. So you received a credit rating, and I agree that, that's a very important first step to opening doors at pension funds and insurance companies. I know it's very early days, but are you already having conversations with those investors? And if so, what's the feedback? And then as a second part to that question, would you have the preferreds and converts rated separately? I mean I think a lot of investors will probably just infer instrument ratings from the general company rating. But what are your thoughts on that? Phong Le: I can start on that, Brian. We had before we received a rating conversations with large institutions, insurance companies, pension funds that said that they could not easily without significant capital penalties invest in an unrated instrument and that they were quite interested in the structure of what we provided, but just couldn't do it. So that was why we went and pursued a rating with a major rating agency is one of the reasons. So I do think this opens up doors to some of the categories that you just mentioned before. And I think it's not going to be an avalanche like tomorrow, but as we go out and market and Mike has discussions and I and Andrew all go out in the market and we start talking to these folks, I think their thought process will certainly change over time. Brian Dobson: Yes. And then I just wanted to follow up on an earlier question about selling into Asia and Europe. Both of those markets represent or have rather unique regulatory hurdles. I guess how far along are you in those markets? Phong Le: We're pretty far along. You're right, but that's part of the reason why we need to create products that are very specific. What exchange, is it retail focused? Is it institutional focused? Is it regulated? Is it unregulated? What is the tax regime? Look, what we've done since the beginning of the year with preferreds is we went uphill against a market that wasn't familiar with the Bitcoin back perpetual preferred with a return of capital tax structure. And it took us nine months, and we were able to raise $6.5 billion or $6 billion, right? And because we did that, I think we've sort of cornered this market for a good period of time. I think our ability to go understand the regulatory structures, the tax structures, yes, it's harder than in the U.S. But once we've broken through that, that creates a competitive moat for us to be able to offer products that clearly are superior to what's out there. So we welcome the challenge, I guess, is what I'd say. Shirish Jajodia: Thanks, Brian. For the next question, I would like to invite [ Adam Livingston ]. Unknown Analyst: Congrats on the great quarter and the credit rating. The Japanese Bitcoin treasury company, Metaplanet, has recently announced a share buyback program with the intention of being able to strategically deploy buybacks at times that would increase Bitcoin per share for the equity holders. Would Strategy ever consider adopting a similar program as a means to increase Bitcoin exposure for shareholders if MSTR ever trades below a 1x mNAV? Michael Saylor: Phong, do you want to start? Phong Le: Yes, I'll start with that. I don't think there is anything that we wouldn't do that would create incremental Bitcoin yield that increases more Bitcoin per share for our shareholders and preserves our ROC dividends for our preferred holders, right? And so we have an open buyback authorization already. We've done it a long time ago. I think the last buyback we did was 2018 or so. It's not our primary strategy, but it's an option if we were to go down that path. Mike, do you want to add anything? Michael Saylor: Yes. I would say we're open-minded toward a variety of options. Right now, our preference is to grow the capital base. But if it was compelling enough, we would look at it. Shirish Jajodia: Thanks, Adam. We have two more questions to go. So for the next one, I will invite Lance Vitanza, our research analyst from TD Cowen? Lance Vitanza: The 30% BTC yield target for 2025, I'm surprised you maintained it given the recent decel in Bitcoin accumulation. And getting to 30% would seem to require you to raise at least another couple of billion dollars, and we only have 2 months left in the year. You're not going to get there on ATMs alone. Are you currently contemplating a big underwritten transaction perhaps in an overseas market? Is that sort of how you get to the 30%? Phong Le: Yes. We need to raise roughly $2 billion in a non-dilutive fashion to -- of capital. And you've seen us do that at quick pace in a short period of time. We have two months left to go. And so we'll be racing and we'll see what we can accomplish, right? We're always working, always trying new things, developing new things and this credit factory that Mike talks about, we're very bullish on. Obviously, we can't say exactly what we're going to do when. But it's two good months, 60 days, right before the holidays. Shirish Jajodia: Great. And for the last question, I will invite Ben Werkman from Strive. Ben Werkman: Over the last 12 months, strategy has been extremely successful at building the capital base and expanding the balance sheet using primarily equity in the IPOs from the preferred markets. And over that 12 months, you saw MSTR underperform Bitcoin in a fairly significant manner. Do you guys view the strategic priorities moving forward as focusing more on increasing amplification and less on expanding the balance sheet? And how has this past year informed your go-forward strategy and how you might prioritize the prefs over the common equity moving forward? Michael Saylor: Yes, that's an open-ended question. So I'll start, and then Phong or Andrew may have something to add. Clearly, with equity, I would say, if you're going to own Bitcoin you a four-year or longer time horizon, if you're going to own amplified Bitcoin, a company that aims to be more volatile than Bitcoin, you can't have a lower time horizon. So you probably need a longer time horizon. So we manage the company such that we think 10 years from now, we're going to create an insane amount of shareholder value. And that doesn't mean we're looking for 10-year payoff. We're generally thinking if it doesn't return what we expected within four years, we'd be very disappointed. But we never do anything where we demand to get the payback in four months. And so we don't have a four-month time horizon or even a year time horizon. And we think that generally, I would say, if your time horizon is 12 weeks, you should own the STRC, right? You really should go to the short end of the risk curve and the short end of the duration curve because that one we're trying to strip volatility away. And if your time horizon is 10 years, and if you are a Bitcoin Maxi, then maybe you like the equity or you like Bitcoin. The credit instruments, I would say, if we wanted to raise the maximum amount of capital then we could do two things that we don't do. One thing we could do is we could just open up the ATM and we could sell stock at any mNAV, any week all the time. And what you've seen is we don't do that. After the red sweep, when there was a massive enthusiasm, we would sell $1 billion or $2 billion or $3 billion of stock, like $1 billion in a week or $2 billion in a week. And so you see we're not shy when the market is strong and the premiums are high. We would go very hard, but you see a lot of weeks where we sell nothing. And we could have sold $1 billion of equity a week. We chose not to sell any equity. If the equity is weak and it's crashing, it's almost certain. In fact, it is certain we're not the ones doing it, right? We're watching, right? Because our view is we only sell into strength and we only sell in the strength when we like the premium. So we have actively decided we don't want to maximize capital by selling equity. And then I think the other thing is just like we could raise $1 billion of equity in a few days if we wanted to. I could also pick up the phone and I could raise $1 billion overnight in debt. If I just said we wanted to do a pipe deal with a debt investor, I would have 12 firms over the weekend. And by Monday morning, we could have raised $2 billion, $3 billion, $4 billion, $5 billion, $6 billion. They would be licking their chops and delighted to give us the capital. They would want to be senior to all the other creditors in the capital structure. And what they would do is they would undermine the creditworthiness of the preferred instruments that we actually want to sell. So you could just assume with our $75 billion of capital right now, we've already chosen not to raise $20 billion or $30 billion. We could be $100 billion, but we'd be $100 billion and the risk profile -- the leverage wouldn't be 11%, the leverage would go up. And so we actively decided that we don't want to generate leverage, right? We're literally on a path to drive leverage down. We're also on a path -- we've decided we don't want to do deals that don't have positive BTC yield. But more importantly, we're on a mission. The mission is to create the digital credit market. So I think the company has two speeds. Maybe more than two speeds. When we're coasting, when the credit markets don't offer us anything compelling and the equity markets aren't compelling, we are coasting. And in my mind, I think that, that is a $75 billion company growing 30% a year for the next 20 years. So that is idle. And then I -- for those of you who know me, know I believe in the hippocratic oath, do no harm. And so the risk-free rate, the rate -- the company is going to get to 30% a year for 20 years if we take no risk. So how do we -- what can we do where we feel like it's worthwhile? And of course, if we sell credit, we can take that 30% to 40% or to 50% -- but we have an agenda here. The agenda is not to artfully manage the balance sheet. And it's like if you told me, well, you could issue $10 billion of junk five to seven years and roll them every year and roll them every quarter, and you could pursue a credit strategy based on debt that gets you a lot more capital and you're continually rolling it, and you would do that with 144A offerings. We could like fire up a $2 billion 144A offering next week, and we just go do it. But the point is we don't want to be the revolutionary company that adopted digital capital that grew the company with conventional traditional credit. We want to be the revolutionary company that discovered digital capital that then went on to discover and found the digital credit market. And when you're just rolling a bunch of five- to seven-year bonds and when you're opportunistic, then you're careening toward the future with an advantage. I want MSTR to stand for monster. We want to create a monster company. We don't want to Korean toward the future with an advantage. We don't want to be the talented fighter that kind of wins and loses and mostly wins and is a little bit sloppy on disciplined. We want to create the digital credit instruments that are 2x to 4x better than everything in the $300 trillion market, and we want to eat the world, right? And we want to sell $100 billion of them. And after we sell $10 billion, then $20 billion and $40 billion and $80 billion, when people go, well, aren't you levered? We want to say, well, you know actually, our leverage is zero. Wait, what? We have 30% amplification, but we don't have $100 billion of debt. We have $100 billion of equity that happens to actually amplify the common equity. Let me educate you on a new way to build the company. So I would say you want to boil that down. It's a very disciplined growth strategy. We would rather coast and have a bulletproof balance sheet and a $75 billion company growing 30% a year than to Stretch for capital or Stretch for some kind of yield, but undermine the balance sheet and take on credit risk because someone says, I'll give you $10 billion tomorrow, and it's senior to STRC, we just created volatility and we crumbled the credit of the instrument that is going to provide a comfortable retirement to 1 billion people. I don't want to be the dude that made a good trade that made $25 billion or made $50 billion by trading Bitcoin by using cheap corporate money. We don't want to be the company the made $25 billion or $50 billion or a Hail Mary or maybe we lost it by whatever borrowing money, however we can get it to buy Bitcoin. We want to be the company that provided a comfortable retirement to 1 billion people and changed the world, right? We want to change the monetary system. I want everybody to get up in America and say, I'm not getting paid 10% tax deferred from my bank or from my money market. That's not fair. That's an abomination. I'm going to tell all my friends I'm going to -- I'm so mad about it. I'm going to go tell my 100 people that I know. They all need to pull their money out of the money market. They need to buy stretch, and we want to be in a position where we can accommodate that demand. And so what you have is the money that comes easy is always the money that comes with strings attached. And I've learned that over 35, 40 years, and I think the people in the Bitcoin treasury market, they're learning it now. The easy money is the toxic money. What you really want is you want to create a revolutionary new product that solves a problem for $300 trillion of investors and for billions of people. And you know what, when we sell $1 billion worth of digital credit, they're giving us the money forever, and we're taking no credit risk. But the quid pro quo is we're giving them 10% tax deferred, right? And so I would rather pay 10% tax deferred and get the money forever than pay 5% and get the money in the form of a junk bond and pay a taxable 5% coupon. Even if you wanted to give it to me. And then, you can see the obvious reason why. The world is full of 50,000 companies that will give you the 5% taxable. How many companies are in the world that will give you 10% gleefully, enthusiastically as a ROC dividend and then do everything in their power to actually issue more dividends. So, for us, the credit is the product, right? The aspiration or the offering is a comfortable retirement to everybody who's a credit investor. That's the offering. If we can do it by selling equity, we will. But when the equity is dilutive, we won't. And we won't do debt because debt is a conventional credit idea. It's a 20th century idea. I think I laid out with my seven differentiators of digital credit, we think that digital credit is an inversion of everybody's value system. Every other credit issuer in the world gets up and says, how do I cripple the credit and pay you the lowest coupon and maximize the advantages to my company. And we get up every day and say, how do we create the greatest credit instrument that pays the highest tax equivalent cash flows that's going to be best for the buyer, right, for the investor. So that's the answer to your question, hopefully. Shirish Jajodia: Excellent. So this concludes the Q&A portion of the webinar. I would like to thank all of our analysts for their questions and all the attendees for tuning in live. We had over 25,000 people across YouTube, X live stream and the Zoom webinar. So thank you all for joining in. And I will now turn the call over to Phong for the closing remarks. Phong Le: I also want to thank the analysts for joining us and being on video and asking questions. I want to thank everybody who watched us our earnings call and all of our supporters and all of our shareholders out there. And I invite you all to join us in Las Vegas, February 23 to 26 at the Wynn resort. And for everybody else, have a great holiday season, and we'll see you in three months at our next earnings call. Thank you.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Black Diamond Group Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Emma Covenden, Vice President, Investor and Stakeholder Relations. Please go ahead. Emma Covenden: Good morning, and welcome to Black Diamond Group's Third Quarter 2025 Results Conference Call. With me this morning is Chief Executive Officer, Trevor Haynes; and Chief Financial Officer, Toby Labrie; as well as Chief Operating Officer of Modular Space Solutions, Ted Redmond; and Chief Operating Officer of Workforce Solutions, Mike Ridley. Please be reminded that our discussions today may include forward-looking statements regarding Black Diamond's future results and that such statements are subject to a number of risks and uncertainties. Actual financial and operational results may differ materially from these forward-looking expectations. Management may also make reference to various non-GAAP financial measures in today's call such as adjusted EBITDA or net debt. For more information on these terms and others, please review the sections of Black Diamond's Third Quarter 2025 Management Discussion and Analysis entitled Forward-Looking Statements, Risks and Uncertainties and non-GAAP financial measures. This quarter's MD&A, financial statements and press release may be found on the company's website at www.blackdiamondgroup.com and also on the SEDAR website at www.sedarplus.ca. Dollar amounts discussed in today's call are expressed in Canadian dollars, unless noted otherwise, and may be rounded. The format for today will be similar to prior conference calls. Trevor will start with a high-level overview of the company's performance and highlights from the third quarter and year-to-date results, including our view of the current and forward-looking operating environment. Trevor will then pass the call over to Toby for a more in-depth summary of the financials, and then we will open the line for question and answer. I will now turn the call over to Trevor. Trevor Haynes: Thank you, Emma. We appreciate everyone joining this morning for our third quarter 2025 results conference call. Following the solid performance of the company in the first half of the year, we are pleased with our third quarter results and very appreciative of the hard work being done by our high-performing teams across the platform. Consolidated quarterly revenue of $105.3 million increased 4% from the comparative quarter, contributing to adjusted EBITDA of $31.8 million, 10% above the comparative quarter. Profit for the third quarter increased 65% to $12.2 million, pushing basic EPS up 58% to $0.19 per share. Rental revenue, which we consider the core of our business reached $41.3 million on a consolidated basis, a 9% increase from the comparative quarter as we continue to see the positive impact of capital investment in the fleet assets and a constructive operating environment underpinned by customer activity in our primary industry verticals of construction, major infrastructure, energy and education. Our growth strategies are backed by organic capital allocation and operational excellence, and our approach has not changed. We continue to focus on databased prudent capital allocation methodologies to maximize returns over the life of our assets. Capital expenditures within the quarter were $19.6 million, down 18% from the comparative quarter of $23.8 million, with year-to-date capital expenditures of $69.3 million, down 6% from the same period last year when excluding the $20.5 million for the onetime acquisition of a fleet of 329 space rental units in British Columbia. Capital commitments of $39.5 million at the end of the quarter were up 124% from the comparative quarter, with 75% of this per capital allocated to project-specific fleet units backed by long-term contracts driving our stable recurring rental revenue and the balance of the CapEx was for real estate investment and sustaining maintenance. This underscores the volume of opportunities across the business to continue investing shareholder capital and compounding growth at high rates of return. As of September 30, the company had $159 million of future contracted rental revenue at a decrease of 3% from the comparative period, but an increase of 4% on a sequential basis underpinning our confidence in a stable outlook for rental run rate into the future. Based on the recent performance trends of the business, combined with continued multiyear growth we've announced an increase to the dividend of 29% to $0.045 per share or $0.18 annually, starting with the fourth quarter of this year. This marks the fifth consecutive annual dividend increase since its reinstatement in 2021. What stands out in this and recent quarters is the consistency from all areas of the business. While variability in certain revenue streams and market activity or customer and project delays are always factors that we monitor closely, the strength and stability of our core rental platform, the benefits of diversification by geography, customer and product lines and the nonspeculative nature of our growth CapEx position us well for sustained growth. Strength of our Modular Space Solutions business unit continued with yet another quarterly rental revenue record, reaching $28.1 million, up 15% from the comparative quarter. Rental revenue has grown at a 23% compound annual growth rate from Q3 2020 to Q3 2025. A clear indication of the successful execution of our growth and operating strategies for this area of the business. Contracted future rental revenue for MSS remains healthy at $129.8 million, an increase of 2% from the comparative quarter. As we look ahead, we expect rental revenue stability with moderate growth in concert with organic fleet additions. There is always a degree of variability in the MSS sales and nonrental revenue streams, which may impact quarterly comparisons. However, utilization of the fleet is within the optimal range and customer activity across key end market verticals, including construction, major infrastructure and education remains steady. Shifting focus to our Workforce Solutions business unit. We are seeing a degree of stability in this area of our business. We consider primary revenue against our fleet assets as a combination of both rental revenue and lodge services revenue, which generated $21.5 million in the quarter, in line with the comparative. Consolidated WFS revenue increased by 12% to $43.2 million, driving a 7% increase in EBITDA to $14.2 million. Although we are currently seeing increased bidding activity and customer project planning, stemming from prospective nation building projects in Canada, we do not anticipate meaningful growth correlating with this activity earlier than the latter half of next year. Therefore, as we look ahead to the next several quarters, we anticipate reasonably consistent to slightly elevated results for the WFS business unit. Within the quarter, we announced the definitive share purchase agreement to acquire all of the issued and outstanding shares of Royal Camp Services and continue to expect that acquisition will close by the end of 2025, pending clearance under the Competition Act Canada. On combination, we will effectively double the size of Black Diamond's Canadian workforce accommodation fleet and expand our capabilities to service our customers and their large-scale projects with the inclusion of self-performed hospitality and catering services. At Black Diamond, we have a strong track record of successfully integrating high-quality businesses to further our growth strategies, better service our customers and deliver compounding shareholder returns. And we look forward to welcoming everyone from the Royal and Summit teams to our company very soon. Switching to LodgeLink. It also had a solid third quarter as room night bookings reached over 148,000 driving gross bookings to $35.7 million, up 31% from the comparative quarter. This resulted in net revenue of $4.3 million, up 26% from the comparative quarter. As this platform scales and we realize the benefits from both the Spencer Group of Companies acquisition that closed in the quarter and the accelerated investment in product development. The expectation is for accelerating growth as we focus expansion efforts in the United States and now also in the Asia Pacific region. Looking further ahead, we are confident in Black Diamond's performance and expect to see stable compounding rental revenue growth given our rate of organic investment in the business and our long-term prudent approach to capital allocation. We're also well attuned to the growing market tailwinds, specifically in Canada and are of the view that should those come to fruition, it will be a significant benefit to our company. We look forward to the successful close of our acquisition of Royal Camp Services and remain highly optimistic that this will occur by the end of the year. We will continue to focus on profitable, sustainable growth and diversification as we scale our portfolio of specialty rental accommodation and workforce travel management businesses, generating positive returns and compounding shareholder value. Overall, we are very pleased with the results of the company in the first 9 months of the year, which were in line with internal expectations and provide the free cash flow to fuel future growth. We have confidence in Black Diamond stability through to year-end and are optimistic about the numerous sizable opportunities as we look forward into 2026 and beyond. With that, I'll now turn the call over to Toby to provide some more specifics. Toby? Toby Labrie: Thanks, Trevor, and good morning, everyone. I'm pleased to provide additional context on the results, review free cash flow and net debt position and provide an update on our ERP implementation project and then open the call for questions and answers. During the third quarter, consolidated fleet utilization was 75.8%, flat with the comparative quarter. Breaking that down further, MSS utilization of 80.3% was unchanged year-over-year and is at the high end of our optimal range, while WFS had a small pullback of 130 basis points to 62.2%, leaving ample spare capacity for us to bid on large scale projects as they materialize in our pipeline of opportunities. Looking beyond the 9% increase in consolidated rental revenue, WFS non-rental revenue improved 28% to $16.2 million, mainly from increased installation activity on major projects which signals increasing recurring rental revenues ahead. WFS sales revenue of $5.5 million was up 28% from the comparative quarter, driven by higher used fleet sales in Australia, which was offset by decreased used fleet sales in Canada and custom fleet sales in the United States. While there is growing demand for asset sales in the market, we continue to prioritize rental and lodging opportunities over sales of fleet assets to position WFS to meet expected future demand, particularly in Canada. MSS non-rental revenue of $18.2 million was down 17% from a strong comparative quarter. Sales revenue of $15.8 million was down 3% from the prior year due to lower custom sales, which will remain variable depending on the number and timing of projects. While increasing profit in the first half of the year is indeed indicative of our commitment to profitable growth, it must be noted that the sizable increase of 65% in the quarter is due in part to insurance proceeds and the related write-off of a small number of assets destroyed by wildfires in Northern B.C. earlier this year and a wildfire that occurred in Northern Alberta in 2024. As a result of these events, the company recorded a gain of $6 million and $8.8 million for the 3 and 9 months ended September 30, 2025. Partially offsetting this income were $1.5 million of expenses in the quarter related to the acquisition of Royal Camp. Business' ability to generate stable and growing free cash flow backed by a strong balance sheet is a defining characteristic of Black Diamond. Third quarter free cash flow of $23 million, up 17% from the comparative quarter was driven by higher revenue and declines in maintenance capital and interest costs. At quarter's end, net debt was $197.1 million, down $34.9 million from Q2 2025 as proceeds from the bought deal were used to repay debt. With liquidity of nearly $230 million, we are well positioned to fund the acquisition of Royal Camp, which is expected to close before the end of the year. We expect that the acquisition of Royal will further bolster our free cash flow generation, which, combined with our debt capacity will enable us to continue to pursue our organic and inorganic growth strategies. Currently, our net debt to trailing 12-month adjusted leverage EBITDA ratio is at 1.6x, but we anticipate this will fall into the low end of our target range of 2 to 3x upon the close of the Royal Camp's acquisition. This provides us with significant flexibility given the continued strength of our balance sheet pro forma the acquisition. The average interest rate paid on debt during the quarter was 4.55% and 146 basis points lower than the comparative quarter as benchmark interest rates have continued to decline. Lastly, we continue to work through the ERP upgrade, which is expected to improve operational efficiency and be supportive of the company's long-term growth objectives. We have passed the halfway point of this long and complex project. But thanks to the hard work of our team, it continues to progress on time and on budget towards the scheduled go-live of this phase of the project in the first half of 2026. At the present time, we have invested $6.3 million and approximately $5.6 million remains from the initial budget. To reiterate Trevor's commentary, we are confident in the stability of the business performance over the next few quarters with the potential for a positive inflection point as early as the second half of 2026, pending progress of major nation building projects in Canada. Our team is committed to rigorous safety and operating standards and is ready to continue our strong track record of delivering innovative solutions and exceeding our customers' high expectations. On the anticipated close of the acquisition of Royal Camp Services and Summit Camps, we raised that bar even further in combining the strengths of both our platforms to better serve our customers and stakeholders including our indigenous partners and the communities in which we operate. With that, operator, I'd like to turn the call over for questions. Operator: [Operator Instructions] Our first question is from Matthew Lee with Canaccord Genuity. Matthew Lee: Maybe starting one with the nation building bids that you're currently involved in. How confident are you in Black Diamond's ability to win a fair share of those contracts? And has there been any increase in visibility around those projects has given you confidence to share the H2 '26 revenue expectation at this point? Or maybe the logic behind that? Trevor Haynes: Thanks, Matt. What gives us confidence in providing whatever you want to call it, an outlook to second half of '26 is mostly rooted in the activity that we're seeing in our bid pipeline with regard to engagement with numerous projects around pricing and logistics planning, et cetera. We have confidence of our positioning with regard to everything from availability of assets, quality and positioning of assets, quality of solution and then strategic partnerships with indigenous communities around certain of these projects. So we have a reasonable degree of confidence from all of those contributing factors. Some of the remaining variables have more to do with decision-making in and around permit approvals for these projects as well as with the project proponents themselves securing their internal FIDs. And so that's where we continue to talk in terms of having some degree of caution. But thematically and the volume of bidding activity and sort of the level of detail that we're seeing around the bidding process with a number of large projects that are reasonably well known but there's also a fairly significant number of projects that don't quite hit the sort of national news cycle that we're also seeing being moved forward. So reasonably high confidence, but there's still variables out there. Matthew Lee: And would you say that activity has maybe increased since we talked last in the last quarter call? Trevor Haynes: Certainly, the activity has been steadily increasing since March, April of this year, a significant step change. And I think it mirrors public policy changes, et cetera, along with the strength of commodity prices and demand in world markets for our customers' goods, et cetera. So yes, I would say, over the last 90 days since we last held our conference call after Q2, the level of detail and activity around these projects and the bidding process has continued to build. So I think we have more visibility on the breadth and scope of what could occur over the next several years. But there's still a number of key hurdles that these projects need to clear before we anticipate receiving any contracts and notice to proceed, et cetera, from a camp. And keeping in mind, these projects also require space rentals type of assets, which would engage our MSS businesses. Matthew Lee: Okay. That's helpful. And then you guys mentioned inorganic growth a couple of times on this call already. Just given the fact that you're still digesting your Royal acquisition, is there appetite to do more M&A right now or in the medium term? Or is the Royal integration kind of the focus for you right now? Trevor Haynes: Our intent is to ensure that we do a very good job in transition and integration of the acquisitions that we've made. However, when assets come to market and they're a good strategic fit for our platform, we will certainly be in the market and assessing those opportunities. And we continue to have a very active pipeline of opportunities. So I think the answer to your question is, Yes, we want to be very focused and do a great job of bringing the Royal assets and the team into our platform. We're very excited by that, and that's our first priority. But there continues to be a number of interesting opportunities that fit well into our fairway that we'll be looking at as well. Operator: The next question is from Kyle McPhee with Cormark Securities. Kyle McPhee: I just want to drill in a little bit more on derisking of this big WFS demand wave. Thanks for the comments on when we might see the kind of momentum start to increase in the back half of next year. But when should we see big new rental contracts start to snowball in the backlog for your report, I think you call it contracted future rental revenue. Will that start to snowball well before the utilization ramp starts? Or is it kind of in the same quarter, we're all going to see that stuff? Just looking for kind of color on some leading indicators we can watch for. Trevor Haynes: It's a good question and something to touch on here is that when we deploy large camp facilities, there's a reasonably long front-end period for positioning of assets. The logistics are often quite complicated and even sequencing amongst the sort of early service providers, everything from building roads to clearing sites in preparation for camp access to go in. And so it can be quite complicated. And there's a high likelihood we'll have secured contracts and have visibility on forward revenue, but there will be a reasonable ramp-up certainly, operations revenue where under our scope, we're doing some of that logistics work of positioning assets and assembling assets. We'll see some revenue there. But for the real sort of bulk of the contract being the asset rental. And with Royal, we fully anticipate that we'll be handling full turnkey operations, which will substantially increase the size and value of these contracts. There will certainly be a delay from securing contract to the full revenue streams coming online. So I think to your point, we'll see the add to our future contracted revenue and then a bit of a gap until the utilization and the cash flow starts rolling. Kyle McPhee: Got it. And when you secure a contract, is that one that's going to show up in your backlog that contract the future rental revenue as soon as it's signed and secured? Trevor Haynes: Yes. Yes. We do have that on the workforce side. We do track only the rental component of that committed contract in the numbers we report. But yes, on the workforce side, once we have that contract secured, we log that in our backlog. Kyle McPhee: Got it. Okay. And we keep talking about the bigger kind of nation building project as one of the big demand drivers in WFS. But should we see any utilization ramp up before those bigger things start to contribute in the back half of next year? I think you guys have a lot of other pockets of demand that are growing as well, for instance, the mining sector across multiple commodities projects being built, projects being expanded. Can we expect any utilization ramp up kind of before the back half of next year from that stuff? Trevor Haynes: Yes. What we're seeing is more broad-based than just the nation building projects that are talked about through the major projects office that's been created by the current government and across different verticals. And perhaps, Mike Ridley, you can sort of give some color around sort of the breadth of what we're seeing what we -- within reason, what we expect over the next little while. Michael Ridley: Yes, you bet. Thanks for the question, Kyle. I mean a lot of what we're doing and what we see ahead outside of these nation building projects is just kind of a continuation of our strategy. The mining pipeline across Canada is quite active right now with commodity prices to where they're at. And we have numerous projects right now in Canada tied to disaster relief housing both workers and residents. Going over to Australia, we anticipate seeing utilization growth in that market in the year ahead for sure. And in the U.S., while not a big part of our business, it's been a really nice add-on and expect to see kind of stabilized utilization in that market. So all in all, I think we'll see an improvement over the first half of the year and then if and when these nation building projects get contracted, that's where I think you'll really see the dramatic upside kind of out the tail part of next year, the mid- to the tail part of next year. Kyle McPhee: Okay. And then just last one for me on your -- the total company growth CapEx budgets. Can you comment on the budgets for this year, if it's changed at all since what you last told us and what the budget is shaping up for next year, again, just on the growth CapEx side? And how that kind of should be splitting up into MSS and WFS? Trevor Haynes: Yes. We switched just in the last couple of years to a different methodology where we use a rolling capital allocation framework, which allows us to adjust according to the cash generation of the business. And then we're looking at not pushing capital but matching where we see demand in our system and ensuring that it meets our return on investment at the asset level hurdles. And so what you're seeing through our system is sort of the true demand from our customer verticals aside from a couple of small branches where we're greenfielding into new areas for ourselves. And what we're looking at is when you normalize for the one acquisition we did in '24, we're looking at fairly consistent numbers for this year. We had expanded, as we said, about $69 million through to the end of Q3. We've got a fairly sizable, I mean on the CapEx committed, contracted through our manufacturers, et cetera, which leads us to believe that we'll catch up to last year over Q4 here. And then we've already committed capital that supports projects where assets will come into our system in Q1, which is probably earlier, I think, Ted, than we've seen in previous years. So we've got pretty good visibility of capital going out. Typically, we've got contracts in hand before we've ordered the equipment. So we've got good comfort that we're going to generate commensurate rental streams for that -- those capital adds. So we're pretty comfortable we'll be a similar cadence of net CapEx this year to last year and that continues on into the first half of next year. Kyle McPhee: Okay. I suspect a lot of this growth CapEx is weighted to MSS. Correct me if I'm wrong. But if that's the case, I see some of your MSS peers out in the market kind of pulling back on growth CapEx, not spending much anymore, just given utilization rates are softening a bit. But you guys seem to have visible growth still. I mean what's the explanation there on why you guys seem to be facing more organic growth opportunities and therefore, thinking growth CapEx versus what some of the peers are saying right now? Trevor Haynes: Yes. To your first point, we are expanding CapEx -- capital in each of the businesses. There are certain asset classes in our Workforce business that are very highly utilized, and we've been adding capital, which is a bit of a change versus the last several years, but the bulk is going into our MSS business. And I think that in terms of we're seeing a little bit asymmetric where we're seeing demand. Edward Redmond: Yes. So we -- as Toby said, our utilization is flat and right in our optimal range. So -- and as Trevor said, we allocate capital based on demand. A significant amount of that is actually based on customer bids that we've done and if we win the bid, then we allocate the capital for a specific bid, and those are typically long-term 2 to 5 years, but more on the long end of that. So those -- that's a real demand and that increases utilization when we get those projects. And then every market we're in, we have strategies or what equipment does that market need, what do customers need? So any speculative capital we do is to address specific needs with a high level of confidence those assets are going to go to work. So we're trying to match capital with the demand. And unlike maybe other competitors that are building -- maybe must be building more spec fleet if their utilization is dropping. Operator: The next question is from Frederic Bastien with Raymond James. Frederic Bastien: There's been a fair amount of discussion around utilization on the workforce side. And I'm curious about pricing. Is there enough cheaper Black Diamond to kind of benefit longer term from the same kind of dynamics that you have enjoyed on the MSS side for the last couple of years with seeing very good rates of -- good rental rate increases. Trevor Haynes: We truly believe that will be the dynamic we'll experience as utilization picks up. A key difference, though, Frederic, is when we deploy assets around our workforce business, they tend to go out in larger packets of assets. And so we will see more of a step change in pricing as opposed to a gradual iterative change like we were able to demonstrate with our MSS business, where assets tend to go out at least on a percentage of the fleet basis in smaller packets. And so you can adjust your rental rates as you see utilization gradually climbing. And so it will be interesting to see how the industry addresses this fact as projects start to absorb the spare capacity. Even at this point in time, we're seeing a little bit of strengthening on rates of assets that are going up right now, which is encouraging. But yes, absolutely, as utilization rises on Workforce platform, we will see rental rates increase. And we're well aware that the replacement value or the cost for incremental square footage on the cap side of the business requires rates to be pretty much 3x what the trailing average rate has been. And so I believe the aggregate demand we're looking at will require incremental capacity to be added to the consolidated Canadian camp fleet. We've not seen that in over a decade. And to warrant that type of CapEx, we're going to -- we need commensurate rates and commitment on term. But I think we're seeing the dynamics that will probably get us there over the next couple of years. Frederic Bastien: Great. I got stuck on one of the comments you made around LodgeLink is seeing good growth opportunities in Australia. And also you mentioned Asia. Would you mind just elaborating on that, please? Trevor Haynes: We mentioned Asia Pacific. What we're finding with our Australian customers and prospective customers, especially around the resource sector is that they look regionally. As some would be aware, the Australian miners are also active in places like Papua New Guinea and areas of Indonesia, the Trans-Tasman sort of travel concept that includes New Zealand, et cetera, and so as we bring on Spencer Corporate Travel and we began scaling the LodgeLink offering into that part of the world, more positioning to be able to service a regional territory Australia as the base. So we're just generally calling it Asia Pacific. I know APAC is actually a much bigger region than what we're talking about here, but we're finding travel in Asia Pacific is really quite interesting in that it's quite a bit more balkanized, so to speak, or many more participants, which means more complexity and even more value to what LodgeLink brings to our corporate customers moving workforce. So we think what we're doing is very prospective for that part of the world. Frederic Bastien: And then lastly for me on the -- you mentioned a little bit of hesitation on the education side in the U.S. Does that mainly pertain to custom sales? Trevor Haynes: It certainly shows up predominantly, Ted, in custom sales in the near term. But I think there's a correlation to rental as well. And we think there's a base explanation of why we've seen this in this year, particularly, but maybe Ted can give some more color. Edward Redmond: Yes. In any given year, the mix between sales and rentals and education can change depending on government funding primarily and then school board budgets, I guess in times of less government capital, they're switching to rental because they still -- it's the demographics that are driving the student demand, and we see steady population growth in most of the markets that we're in. So this year, we've seen more rentals and less capital. And then overall, there is some uncertainty around government funding as those of you that follow the news in the U.S. know. So we think that's kind of immediate type of headwind. But over time, we expect that to be resolved and we haven't really seen a big overall impact in our business, but has generated a bit of volatility in the sales this year. Operator: The next question is from John Gibson with BMO Capital Markets. John Gibson: Congrats on another solid quarter here. I just wanted to dive in a little bit on WFS pricing ahead of these nation-building projects. I know you talked about it with Frederic's question, but wondering if early pricing terms could look like? Would it -- if things tighten, is there an opportunity to increase pricing with the first wave or maybe you have to wait until things tighten closer to full capacity to really move the needle? Trevor Haynes: Thanks, John. This is a very good question, and it's something where we're trying to answer internally here. Certainly, the first projects to go out. I think the industry, the camp industry, are offering probably the best rates that any of these projects we'll see over the next few years because we do have spare capacity of almost 50% in terms of rooms or bed count. And so even at current rates or slightly higher than average ratio over the last few years, it's still incremental value in terms of cash generation. So I do believe the first projects and keeping in mind that these -- a number of these projects have been running competitive pricing processes for a couple of years now, even before the discussion of nation building, et cetera. So some of this is already active and various degrees of commitments in terms of pricing offers already out there. So I think it's the subsequent ones. The other thing we're looking at, when we look at offering on a turnkey basis with the Royal capabilities is looking at pricing into a full, what's referred to as mandate rate. So that's including all catering services plus the return on the asset itself, which becomes a much more sophisticated way of pricing versus fair rent against assets. And I think we'll see those type of rates show a step change in the asset rate when it's blended together. And so it will be really interesting once we've closed on Royal and are approaching the market in a different way than we traditionally have. So I think you could see what's attributable to the asset growing more incrementally than step changes on base rent. So we're playing around with all kinds of pricing models, price discovery. Clearly, we're working with our customers, and we're well aware of the project pressures on costs, et cetera. So there's a lot going on. John Gibson: Okay. Got it. Last one for me. Just in the U.S., MSS revenue was down a little bit year-over-year. Are there -- and we're seeing that -- we're seeing some pressure from some of your peers as well. Is this specific to certain regions or end markets? And do you see this recovering or kind of staying flat here over the next few quarters? Trevor Haynes: Toby or Ted? Edward Redmond: Yes. Again, this is total revenue. So this would include sales and rentals. So I think it reflects probably primarily the lower education sales we already talked about. Toby? Toby Labrie: Yes. Yes, exactly. I think this kind of comes back to the question we were discussing earlier around the lower sales in U.S. education and how Ted was describing that dynamic. We continue to see revenue -- rental revenue increases in the U.S. And so -- and fundamentally, we don't think that, that decrease in sales revenue is a longer-term phenomenon. So we do continue to see strength in the U.S. market despite some of these near-term pullbacks in certain revenue categories, but the core rental revenue remains healthy. Edward Redmond: And that's just Q3. If you look at year-to-date, we're up 13%. So again, this is any quarter are non-rental and sales revenues can fluctuate. John Gibson: For sure. I've just seen some of your peers express a little bit of weakness in cost, some end markets. I'm just wondering if you haven't seen that, I guess, it doesn't seem to be the case. Operator: This concludes the question-and-answer session. I'd like to turn the conference back over to Trevor Haynes for any closing remarks. Trevor Haynes: Thank you. Thank you, everybody, for joining us today and for your interest in Black Diamond. We're very pleased with the performance of the business at this point in the year, and we're optimistic with regards to performance going forward and what we're seeing in our end markets and look forward to updating you again after the next quarter. Thank you, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Second Quarter Fiscal Year 2026 Cavco Industries, Inc. Earnings Call Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations. Mark Fusler: Good day, and thank you for joining us for Cavco Industries Second Quarter Fiscal Year 2026 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, Chief Accounting Officer. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets or future market conditions. All forward-looking statements involve risks and uncertainties, which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco. For a detailed 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. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, October 31, 2025. Cavco undertakes no obligation to revise or update any forward-looking statements, whether written or oral, to reflect actual events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill? William Boor: Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results for fiscal 2026. We saw focused execution across our operations that led to the strong overall results we're reviewing today. Revenue was up 9.7% year-over-year and flat sequentially. Our operating profit was up about 27% over last year's Q2 and up 3% over last quarter. All operations contributed to these results, as I'll touch on. I want to start by discussing the general market as there were some notable regional differences. Using published industry data, year-to-date national shipments are up over 3% through August. In many regions, mainly across the Northern U.S., year-to-date shipments are up double digits. Recent months continued to show strong year-over-year shipment comparisons in those states and regions. In contrast, last quarter, we spoke about the Southeast, showing some volume risk. And clearly, the region did slow in the quarter. Shipments in the area bounded by the Carolinas and Tennessee down to Louisiana and East are down about 4% year-to-date and down 10% in July and August compared to last year. The point being industry shipments are currently showing significant regional differences. Shifting to our operations. In recent quarters, we have pushed production across our system, knowing we can adjust back if needed. And we did need to slow our Southeast production in Q2 and the plants reacted well. That reduction was accomplished through a combination of extended downtime during the 4th of July holiday and production rate reductions where plant backlogs were low. Across that Southeast region, we're operating our plants just above last year's pace, while all other regions maintained elevated production rates from Q1 to Q2 and at a significantly higher pace than last year. Pointing out these regional differences is not intended to be alarmist in any way. Sitting here at the end of October, we've seen backlogs in our plants that serve the Southeast stabilize and edge up over the last month. There's nothing systemic we can point to that explains the regional shifts, and we'll keep monitoring and adjusting production to manage appropriate backlogs. On the subject of backlogs overall, we remained at about 5 to 7 weeks. Unit backlog was up slightly quarter-to-quarter. And as explained, that was the result of selectively pulling back on production. Overall, wholesale orders were down just slightly. Turning to average selling price, and I want to really make it clear here that my comments are sequential, not year-over-year. Our consolidated average selling price was up this quarter. When we separate the various drivers, wholesale prices were essentially flat. Pricing did hold up across the board, including in the Southeast, with what I consider to be basically insignificant variation by geography. The significant upward movement in reported ASP was primarily the result of a higher percentage of recognized units from retail and to a lesser degree, a mix shift toward multi-section homes. We've seen a few quarters where multi-section homes increase relative to single sections after a string of quarters where it went the other way. We aren't reading too much into that variation at this point. I spent a lot of time noting the relative strength across the Northern U.S. in comparison to the Southeast because the divergence is noteworthy during a period with continuing market uncertainty. We're making no prediction about forward demand in the Southeast. At the moment, the market seems in balance with manufacturer production. And frankly, there are scenarios that it strengthens and others that it weakens from here. We're comfortable operating in this environment because we've demonstrated the ability to closely monitor and adjust as we did this quarter. I don't want to miss the opportunity to highlight the continuing strong performance in financial services. In the first 2 quarters, revenue is up about 5%. However, operating profit is up $14 million from a loss last year to an $8 million profit this year. This has been driven by our insurance business. Weather has played a part, but the majority of the increased profitability has resulted from aggressive actions taken to pair unprofitable policies and changes that were made to underwriting and claims management. I want to really acknowledge the insurance operation for the great job they've done and it's clearly showing in our results. As previously announced, after Q2 ended, we were able to close the American Homestar acquisition. After almost a month together, integration is moving quickly and very well, thanks to the people from both companies who took advantage of the time between the announcement and closing to plan all aspects of integration. The combined company is off to a great start. The commitment to the smooth transition by the American Homestar leadership has been very apparent, and it's made all the difference. And finally, while I have the floor, I can't help touch on capital allocation. Allison will cover it in more detail. We continued investing in our existing plants. We closed on the American Homestar acquisition immediately after the quarter using cash on hand, and we were able to repurchase $36 million of our common shares. All of this, of course, was enabled by our strong balance sheet and cash generation, and this balanced capital allocation approach will continue going forward. Now I'll turn it over to Allison to give more details on the financial results. Allison Aden: Thank you, Bill. Net revenue for the second fiscal quarter of 2026 was $556.5 million, up $49 million or 9.7% from $507.5 million in the prior year quarter. Sequentially, net revenues decreased $0.3 million, driven by a decrease in homes sold, partially offset by an increase in average revenue per home sold. Within the factory-built housing segment, net revenue was $535.1 million, up $48.8 million or 10% from $486.3 million in the prior year quarter. The increase was primarily due to a 5.4% increase in homes sold and a 4.4% increase in average revenue per home sold. The increase in average revenue per home sold was primarily due to a higher proportion of homes sold through our company-owned stores with more multi wides in the mix and product pricing increases. Factory utilization in the second fiscal quarter was approximately 75% versus 70% in the prior year period. Financial Services segment net revenue was $21.4 million, up $0.3 million or 1.4% from $21.1 million in the prior year quarter and sequentially up $0.2 million. These increases were due to higher premium insurance rates, partially offset by fewer loan sales and fewer insurance policies. In the second fiscal quarter, consolidated gross profit as a percentage of revenue was 24.2%, up 130 basis points from 22.9% in the same period last year. In the factory-built housing segment, gross profit was 22.9% in the second fiscal quarter of 2026, flat with the prior year quarter. Financial Services gross profit as a percentage of revenue increased to 55.6% in the second quarter, up from 21.8% in the prior year quarter. This increase is primarily due to fewer claims from storms in the insurance business. Selling, general and administrative expenses in the second quarter was $72.2 million or 13% of net revenue compared to $67 million or 13.2% of net revenue during the same quarter last year. The increase in these expenses was primarily due to higher incentive compensation and deal costs from the recently announced American Homestar acquisition. Interest income for the second quarter was $5 million, down from $5.7 million in the prior year quarter, primarily driven due to lower interest rates on our invested cash balance. Pretax profit for the second quarter was $67.3 million, up $12.3 million or 22.4% from $55 million in the prior year period. Effective income tax rate was 22.1% for the second fiscal quarter compared to 20.3% in the same period in the prior year. This increase was driven primarily by a reduction in expected tax credits, partially offset by [ benefits ] from stock-based compensation. Net income was $52.4 million compared to income of $43.8 million in the same quarter of the prior year. And diluted earnings per share this quarter was $6.55 per share versus $5.28 per share in last year's second quarter. Before we discuss the balance sheet, I'd like to take a minute to talk further about capital allocation. Shortly after the close of the second quarter, we completed the American Homestar acquisition. During the second quarter, we also repurchased just over $36 million of common shares under our Board authorized share repurchase program, and we have approximately $142 million under authorization for future repurchases remaining. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions, assessing opportunities within our lending operation and continuing to buy back shares. Now I'll turn it over to Paul to discuss the balance sheet. Paul Bigbee: Thank you, Allison. In the quarter, we had an increase in cash and restricted cash of $31.6 million, bringing our balance to $400 million. Cash provided by operating activities was $78.5 million. Cash used in investing activities was $12.4 million and cash used in financing activities was $34.5 million, primarily due to share repurchases. When we compare the September 27, 2025 balance sheet to March 29, 2025, the increase in accounts receivable is related to organic growth in the factory-built housing segment with unit shipments up 2% in the period over the prior year-end. Inventories increased from higher finished goods at company-owned retail stores. The decrease in prepaid expenses and other current assets is a result of lower prepaid insurance and prepaid taxes. Property, plant and equipment increased from continued investments in our existing manufacturing facilities. Deferred income tax changed from an asset to a liability primarily due to acceleration of certain expenses that were previously capitalized and bonus depreciation, both due to changes in new tax law. Accrued expenses and other current liabilities increased from higher volume rebates and warranty accruals on increased sales. And finally, treasury stock increased due to stock buybacks year-to-date. As a reminder, we closed on the American Homestar acquisition after quarter end. Therefore, the cash balance does not reflect a reduction for the purchase price, which is $190 million before certain customary adjustments and funded with cash on hand. Now with that, I'll turn it back to Bill. William Boor: Okay. Josh, can we open it up for questions? Operator: [Operator Instructions] Our first question comes from Daniel Moore with CJS Securities. Dan Moore: Let me start with Bill, I'm trying to just really good color, obviously, regionally and what you're seeing. Backlog held up nicely despite 5% growth in shipments. Maybe just talk a little bit further about how orders are trending thus far into fiscal Q3 and where you expect to be able to maintain current levels of production as we enter seasonally slower periods perhaps in some of the northern states ahead of next spring selling season? William Boor: Yes, I know I threw a lot at you with the regional stuff. And it's interesting because a lot of times, people ask about the regions, and I kind of just weave it off because I don't see any significant differences. But it's kind of -- might have beat it to death in the comments. It's a pretty marked difference between that isolated Southeastern area. And part of that message though really should be also how strong it is elsewhere. I mean we really do have double-digit growth in a big part of the U.S. geography right now. And the question about orders, our wholesale orders were down just a little bit in the quarter. That's probably not unusual. The summer can be that way. And as far as our view going forward, I won't speculate too much, but I'd say this is a quarter that's interesting. October can be pretty strong and then you kind of get into the holidays. So it comes in strong and tends to slow down through the holidays. Overall, seasonality, while we can measure it over long periods of time, a lot of years, it's really more about the general strength in the market that drives the direction of orders quarter-to-quarter. I'm not sure I said that well, but the seasonality can be overshadowed just by market strength and market weakness shifts. Right now, it still does feel like a balanced market in many ways. I said earlier, even in that Southeast that I'm pointing to a lot, I feel like we're in balance. We had to pull back a little bit in the summer on the shipments that we had in our plants serving that area. But as I indicated, given a little bit of an update through the early part of this quarter, we've seen our backlog stabilize and grow a little bit there. So we're kind of in a nice balance. And like I said, I don't know how to speculate and call whether it's going to strengthen from here, which is very possible or whether we continue to see some cracks there. So it will be an interesting quarter, I guess. But right now, we're feeling pretty comfortable with the nice balanced market. Does that address... Dan Moore: It does. If I heard correctly, your production rates staying relatively steady. You ticked them down a little bit in the Southeast, but kind of holding from here for the interim and waiting to see. Is that the best way to describe it? William Boor: Yes, I was probably focused in that comment about the Southeast that we're feeling in balance with where we've adjusted to. The other parts of the country, we have plants that are looking to try to bring on a little production right now. So it's really a very differential situation in operations. And I feel like we've been at a high level, the last several quarters have felt like this. It hasn't been blowing and going, but it's been pretty healthy, and you got to keep your eye on the ball because at a given plant, it can move on you one way or the other. So not intending to be evasive, it's more that we're just seeing all conditions across the country. And outside of the Southeast, we have plants that are still edging it up. We did have a number of our plants outside of the Southeast that from quarter 1 to quarter 2 increased production. Dan Moore: Very helpful. And Texas is obviously a big market for MH and bigger now with American Homestar for you. How would you describe that market? We've seen numbers all over the board in terms of the HUD code shipments. So what are you seeing in that market? William Boor: Yes. Well, you guys can see the HUD code stuff. I'm looking here year-to-date, it's almost flat, right, year-to-date cumulatively. And in the early summer, it was down just a little bit in Texas. But I'll tell you what we're feeling. Our retail is primarily based in or centered in Texas. That's starting to not be the case as we've expanded, but it's still the core of our retail business. And we had a really, really good quarter in retail. So the market is there. Our retail guys are doing a great job of going and getting it, which pulls through our production. So we're feeling pretty good about Texas in general, I'd say, right now. Dan Moore: Really helpful. Factory-built gross margins ticked up slightly on essentially flat revenue sequentially. Just talk a little bit about your expectations for the next quarter or 2. Do we see a little more input cost pressure, tariffs, other running through COGS or these the levels that we just saw this quarter reasonably sustainable, Allison? William Boor: Yes. I'll give the tough questions to Allison. Allison Aden: No, thank you for the question. And I think when we think about the margins, it's always hard to project forward, but let's touch on a couple of elements that we typically do look to. The strength of our business model, particularly with the backdrop of the tariffs, I think really shined through of how we focus very much on keeping this much variable cost up and fixed costs low. As far as margins in total, we think about the ASP, and I think we've done a good job, Bill has done a good job of kind of addressing where we are and perhaps different alternatives of where we can go. So let's talk about the cost component and tariffs because I think that's probably a focus of what's ahead and what investors want to know. We estimate that the impact of tariffs in Q2 was approximately $2 million of additional expenses that hit our cost of goods. And if you remember during our Q1 press release, we shared an estimate that the projected overall impact could reach, and this is over the course of the out quarters, $2 million to $5.5 million a quarter if the total tariffs that were being discussed at that time were fully implemented. So post our Q1 last quarter's earnings release, the Canadian lumber countervailing duties have been increased from their long-term 14.5% to 35%, and that actually happened at the very end of July of this year. And then subsequent to that, the duty has also been announced as an increase of 10% tariff placed additionally on top of that. These tariffs obviously are fully implemented, and we've seen the back and forth that's been going on for the last several months. So we stay close to it. Obviously, these would have a meaningful impact on the cost of our homes by increasing the price of lumber for framing, for floors, for roof, not unlike other homebuilders. So we continue to stay focused on it, continue to really lean into our -- the efficiencies and effectiveness of being a manufactured builder of affordable housing providers. And we -- the obvious focus is our ability to pass these costs through pricing will be very dependent upon local market conditions, as we've consistently said. A positive is the decision that came about in recent weeks to really kind of kick out the China tariff increase [ out a year ] that will help us reduce our estimate probably to the lower end of the range that we provided. It will clearly avoid some increases that we were anticipating to the electrical and plumbing that we purchased from China through intermediaries. So I went a little long on that, just to kind of instead of piecemeal to you all, just kind of keep it all inclusive. So all of those are what we're factoring in. Obviously, as we've talked about, the largest component that we use are the commodities of lumber and OSB as all builders. We all have access to that, as you can see in the spot market. And basically, the rates and levels that you see when you look at the commodity markets, in general, we can think about those factoring through our cost of goods at about 60 to 90 days. Does that help a bit? Dan Moore: It does. No, that is great color. One more and I'll jump back in queue... William Boor: I'll just add a couple of comments, Dan. When you're looking at Q2 specifically, you might remember that in Q1, we saw product -- like product price increases. So we had a good beginning to the quarter coming out of Q1 with prices up. And then on the cost side, a lot of these tariff risks are concerning, and we're really keeping our eye on it. But in the quarter on the cost side, we've actually continued to see lumber really at a pretty low cost. It almost defies logic when these Canadian softwood lumber tariffs have been -- tariffs and duty increases have been put in place. We're still seeing lumber at a pretty low level right now. So that really contributed to the nice gross margin this quarter and a lot of what we're going to be focused on going forward is some of these risks. Dan Moore: Very good. No, that's super helpful. Last one, turning attention to American Homestar. I guess, first off, the numbers that you gave back when you announced the deal in July, how are they trending relative to those -- I think it was $194 million revenue, $18 million EBITDA, any change there, good or bad? And second, how do we think about potential impact of maybe acquisition accounting? That's been something we've discussed in the past with some of the others for the first sort of quarter or 2 out of the box. William Boor: Yes, good questions. I mean we've had them for a month, so I'm not sure I have a huge update on kind of trends, but I do just -- I mean, they're going to fold in. It's 2 more plants in a system that now has 33 plants. So that's pretty much pro rata. They'll fall right in line there. They are heavier than our concentration before the deal on the retail side. So we'll get considerable impact from the retail side. But from a business perspective, they're folding right in as part of the business, not better or worse than the rest of the operation. I do think -- and I know we didn't put it out there with synergies, but I do think my comments about integration that, over time, we'll kind of -- pretty likely we'll kind of tell you guys how integration is going, and I think we're going to be able to add some meaningful value to the deal on top of them. So it's not just a complete bolt-on. It's a bolt-on that I think will be lifted over the next several quarters. I appreciate the question on the purchase accounting. I am going to let someone else answer it because they'll do it better, but it's an important one, and we've looked at it. Allison Aden: From the acquisition accounting perspective, we think about the potential impact on the consolidated gross margin level, it's probably going to be pretty small. And the reason for that is if we look at this particular acquisition, there is really a high markability to their type of products. So we'll be able to get to market faster and be more successful out of the gate. Also in addition to that, their inventory levels are extremely rational. So if we compare and contrast this to, say, the previous acquisitions we've done, where we have had an impact to the consolidated margin, we believe that in this particular acquisition, that will really be very low and pretty noneventful. Operator: Our next question comes from Greg Palm with Craig-Hallum. Greg Palm: I wanted to maybe go back to the market or the industry growth or, I guess, lack thereof. I'm pretty sure that the industry reported or will report, I guess, declines on a year-over-year basis in units for the recent quarter. But you've continued to outgrow the industry by a pretty meaningful amount sort of quarter in, quarter out for the last year plus. So maybe you can just better sort of highlight what are you doing right? What are you doing better? What's allowing you to outgrow the industry to that sort of magnitude? William Boor: Yes. I appreciate the recognition. I know that there is volatility in market shares from quarter-to-quarter. So I'm always a little bit hesitant to declare victory. But we've talked about things over time that we've done that I do think are really settling in. A tremendous amount of work over, frankly, a couple of years where we initially really moved forward in digital marketing. And that really didn't completely take hold until we followed that with the rebranding that we did earlier this calendar year. And the rebranding, again, coupled with digital marketing, I think our ability to generate good leads, customers, consumers that are educated on our products has just stepped forward in a dramatic way from those changes. And we're probably at the beginning of really realizing that. I think that was a strategy that unfolded. It took literally a few years to get to where we are, but I think now it's time to make hay with that. We've also talked about structurally, we were certainly different than the other large players in the fact that you know what we always talk about, we treat this as a very local market. We put a lot of decision-making and accountability on our local operations. And we didn't have a national sales team until the last several years. And the work that's been done by that group to just bring better training and accountability to sales teams across our organization, I think, is starting to gain traction. And it also has improved our selling approach to communities and developers because a lot of those communities and developers, when they're larger organizations, they need to have contact at various levels in the organization. And frankly, we had a gap. And so I think we've closed that gap. I could go on and on. I think our product team has done a really good job of innovating product design. So all these things are focused at trying to not just stay with the market, but to try to gain a little share. And I certainly believe that that's impacting the results. Greg Palm: Okay. Yes. That's helpful color. And then shifting to the mix in the quarter. You mentioned more homes from company-owned retail. Do you have that percent for the quarter and how that compares to both year ago periods as well as sequentially? And just curious what you're seeing thus far in October as it relates to the most recently completed quarter? Mark Fusler: Yes, I can take that, Greg. So this quarter, we're about 22.9% that were sold through our retail channel. And that's up sequentially 4% from 18.9% this last quarter. And then year-over-year, the percentage was 21%. So we're up about 1.9% year-over-year. Greg Palm: And any color on, at least from a high level, what you're seeing in October? William Boor: I think continuation in general. I mean, I wouldn't say any discontinuity. I think retail has been -- as I mentioned earlier in answering one of Dan's questions, retail in Texas has really been outdoing themselves. They've been doing a great job. So I think they're continuing on that path. And the market in Texas is at least supportive enough for them to dramatically improve the results. I don't think some of the percentages as Mark just went through are really -- they're essentially same-store comparisons. The system -- while we have grown the system over time, I think if we went back and looked, we've been at kind of that 80 retail store level going back through that comparison period of last year. So it really is same store, same footprint improvement on the retail side. And yes, October, not trying to get too much into it, but October really hasn't been a discontinuity with that. Greg Palm: Okay. And just remind us as it relates to Homestar, I mean, presumably that number maybe even goes up a little bit more, all else equal because of the proportion of homes that Homestar was going through company-owned stores, right? William Boor: That's right. I mean they'll bring -- with the Homestar deal, we go from 31 to 33 plants, and we go from approximately 80 to 100 in round numbers on the store side. And I think I'm right on this. I think their degree of integration through their retail is around 60%. So 60% of their manufactured homes were going through their company-owned stores. So it will shift that -- it will have an upward effect on that percent integration. Greg Palm: Okay. All right. Lastly, I'm going to throw a broad question at you because there's a whole bunch of different things going on, on the regulatory front, whether it's chassis removal or some of the financing stuff zoning. But just curious to get your high-level thoughts on the potential of some of that and obviously, the longer-term impact of some of that stuff goes through. William Boor: Yes. One thing that happened is the HUD code got updated, and we feel really pretty positive about that. I mean the HUD code updates were due and far [ be clean ] for a long time. And I've talked in the past about the relationship between the industry and HUD. It's not like they regulate us, but it's a positive working relationship. So getting the HUD code update, I think, is a positive. Some of the good things that come out of that are duplexes up to, we call them 4 plexes, being able to build more than 1 family units. That's now part of it, eliminated a lot of the bureaucracy that goes with some of the more typical -- we used to have to get specific letters to allow some deviations from what was in the code, and they fixed a lot of those problems in the code so that the bureaucracy is down on letters. It also added some cost items that -- I think the industry generally supports an update to the electrical code that requires us to put more GFI and more tamper-resistant outlets and also, they kind of lowered the strength value rating on Southern Yellow Pine. I'm going into a lot of detail here. I guess it's not necessary, but those will add some marginal cost to the homes. I think they were legitimate and valid cost increases. More broadly in regulatory, we've talked before, chassis is getting a lot of notoriety and support both sides of the aisle. It's a matter of how do you attach those kind of things to a much larger bill that actually gets through the outlet. But I think we're pretty optimistic at an industry level that we will get the chassis removal that will open up a lot of innovation. We're trying to get HUD identified as the sole regulator so that we can avoid some of the dysfunction that happened with the Department of Energy over the last couple of years and also working some things to make sure that all forms of ownership for communities are given an equal opportunity to provide more homes. So there's a lot going on in D.C., those bigger items. I'm always kind of interested because I get involved in it to figure out, okay, how do you actually like -- you can have confidence one of these things is going to get done, but the actual route it takes is a lot of times uncertain. So we'll just have to stay tuned on the timing for some of that. But those changes like the HUD that was passed in the Senate as part of the Road Bill, so now it's in the house for consideration. Operator: Our next question comes from Jay McCanless with Wedbush. James McCanless: So I guess to take the price question a little bit further, you said American Homestar, 60% of their sales go through retail. So at least something more than that 23% going forward. I mean, have you guys even trying to plan out or get an idea internally of what that split could look like? William Boor: Yes. I haven't done the algebra to be honest. [ It's shame ] to say that because it's a pretty straightforward question, but I haven't tried to figure out apples to apples if nothing changed, how much that would lift the percentage. But again, you could pretty much ratio it, Jay, that our plant ownership is going up. And I would -- just at this level to get an estimate, I would assume that their plants operate out typical to our average plant. So that's 2 divided by 30 increase on that side. And then you've got the 20 stores added to what was previously an 80-store retail system, so adding them with the 60%. So I apologize, I haven't done it, but I think we could probably get there pretty quick. James McCanless: No, that's fine. I just -- I didn't know if that was a stat you all had ready for the call. I guess the second question is nice to hear a little more multi-section business this quarter. Is that something you think continues? Is it what you're seeing in the backlog right now for the plants? William Boor: Yes. I commented that we're always watching that, and we're always interested to see if we're seeing trends. We saw quite a few quarters where it was a small movement in the other direction. So this is kind of swinging back a little bit. I'm not sure that we've really got a theory that it's a trend. We've got 2 -- I think, 2 quarters now that multi increase as a percentage. But I don't think we're ready to declare that a trend. It kind of seems a little bit more like normal variation right now. James McCanless: Got it. And then one last question on pricing. Could you talk about -- you identified the Southeast region versus other regions, especially up north. I guess how big of a pricing delta is there? And are there some modular units running through those northern markets that may up the ASP a little bit as well? William Boor: I'll have to come back to make sure I understand the second part. The pricing difference, I mean, what's been interesting is that when you look at the change in pricing because obviously, our plants across the country make different products. So it's not apples-to-apples on like a dollar amount of pricing. But the change has held up very strong. And what I was trying to point to is for all the discussion about the drop-off in volume in the Southeast, the Southeast did not give up any pricing. So pricing is holding across the country right now. You asked a question about the Northeast and modular that I'm not sure I captured. James McCanless: No, I guess let me ask it a better way. If you think about a standard like-for-like single-section home that you sell in your northern markets versus your southern markets, I would assume that there's a price differential just from higher cost markets, et cetera. Is that something you guys have identified or talked about before? William Boor: I think that's directionally correct. I mean some of them are modular and yes, even the coating can be different up there that can drive some costs up. So directionally, I think you're right. Are you kind of trying to figure out if that's a driver -- if the mix of non-Southeastern plants to Southeastern plants is a driver of the ASP increase? James McCanless: Yes, that's exactly where I'm going for. William Boor: I think directionally, it probably is. I don't know that I feel it's that significant, I guess, is what I'd say. I think it couldn't be argued that it's not an upward driver, but I'm not sure it really shows up in the calculations as a significant driver. James McCanless: Okay. All right. And then the last question I had, just kind of talking about where are chattel rates now? What type of -- is there anything that -- I know, the Senate passed their version of the bill, I guess, we have to wait for the government to get back open for the House of reps to pass their side of it. But yes, if you could talk about where chattel rates are right now and what type of -- anything new or interesting on the mortgage side we need to be watching? William Boor: On the -- just trying to touch the regulatory side of it, a lot of discussion. I've been one that's really pushed hard in D.C. for Congress directing the GSEs and to actually follow through on their duty to serve plans that involve doing some chattel lending programs. I wouldn't say that -- I feel like the discussion is right, but I'm not sure there's anything imminent on it, I guess, is my sense of that. So I'm not -- I wouldn't hold your breath that we're going to see something coming out of D.C., but we keep working on it. But then on your actual rates discussion, I think Mark has the information. Mark Fusler: Yes. Yes. So on rates, they've been trickling down just a little bit these last 3 months or so, about down 70 basis points to about 8.5%, so mid-8% range now. Operator: Our next question comes from Jesse Lederman with Zelman & Associates. Jesse Lederman: Nice job on the quarter. Bill, I remember a couple of quarters ago, when you talked about on the financial services gross margin specifically, we had a long discussion about what you were trying to do there in terms of making sure the underwriting and what's actually being covered is more appropriate. So a nice job that that's come to fruition. William Boor: Thanks, Jesse. Thanks for the good memory. Jesse Lederman: High-level question for you, Bill, on kind of the political discourse. Of course, there's been a lot of public chatter between FHFA Director, Pulte and Trump with the larger public site-built homebuilders regarding affordability and increasing production and things of that nature. I was wondering if you've been involved in any conversations where you may be or they may be coming to you in terms of manufactured housing or factory-built housing generally being a solution for affordable housing in this country. Have you been able to kind of input yourself or manufactured housing into those conversations at all over the last couple of months? William Boor: I think absolutely. And I'm not speaking just on behalf of myself, I'd more say that the industry and the industry association has done a really good job. And literally, you can compare and contrast from just a few years ago when manufactured housing was kind of on the outskirts of people's consciousness sometimes in D.C. and now we're part of every conversation. So I think tremendous ground has been taken as far as just highlighting what the industry can do. And both sides of the aisle, House and Senate, I've testified a couple of times up there, manufactured housing is front and center in people's minds. Now the challenge, I think, is that there are certain things the federal government can do that would really have a big impact. And we've talked about some things like the HUD code, definition of removable chassis, things like encouraging the GSEs, things like removing some of the dysfunctional bureaucracy that happens at times. And I think they're working on that. Where it's harder for them to impact directly are the things that are more a function at the state and local level. And that's where you really see the zoning challenges that limit the supply of what we do. So I'm not saying the federal government can't do anything, but their ability to directly impact that maybe a little bit less than we'd like it to be. And we really have to do the work at the state and local level. At the industry association, we've really been focused on that strategically trying to make sure that the industry association is working really closely with the states because I think that's where those battles need to be won. So I feel great about -- like I don't feel like we're missing any share of mind or being left out of any good discussion in D.C. about affordable housing at this point. Jesse Lederman: Great. It's to hear. Next one I think is for Allison on the gross margin. I just maybe want to clarify some things. So it sounded like encouragingly, the tariff impact was at the low end of the $2 million to $5.5 million range in the fiscal second quarter. But given since you gave those numbers last quarter, you've had some incremental tariff increases on Canadian lumber. So it sounds like going forward, you'll be maybe toward the middle to higher end of that $2 million to $5.5 million per quarter range. That's kind of how it sounded. But then I think you made a comment about being encouraged by some other aspects of what you're seeing that it might be toward the lower end. So just kind of hoping for some clarification on the gross margins. Allison Aden: Yes. Let me clear -- thank you for the opportunity to clarify. So the range that we gave last quarter was $2 million to $5.5 million. And that to us is the range that take -- if you remove any new Canadian lumber tariffs and antidumping increases, that range still holds. And if you think about that range, a good data point for us is that the China tariff increase kind of got pushed out. So that keeps us a little bit less to that range. Now take that range and add to it, what we're just now -- what we're recently learning about the increase to Canadian lumber from a tariff perspective and an antidumping. That's not within that $2 million to $5.5 million a quarter range. We're not quantifying that increase or the impact from Canadian lumber because there's still quite a few elements that are churning. And so as we -- as those unfold and those elements around, there has been an increase to 35% that was done at the very end of July, right, to the Canadian lumber. And then just recently, literally in October, discussions around another 10% increase. And if you take a step back and think about those recent articulations of what could be coming it's at this point, I feel like it's too early for us to put a box around that range. And so we'll continue to watch that. But those would be incremental costs to that $2 million to $5.5 million a quarter range. Does that help? Jesse Lederman: Yes. That's very helpful, Allison. I appreciate that. A couple more. I think on last quarter's call, Bill, you talked about kind of the secondary market, you're maybe holding a few more loans on balance sheet, some fewer loan sales. Have you seen any shift since then in the secondary markets appetite for chattel loans? William Boor: Yes, a lot of good discussion, and we're working pretty hard to generate some partnerships there to free up additional lending capacity because as we've said a lot of times, we are willing to hold these loans to a point, but we really prefer to have buyers of the loans we originate. So there's been a lot of discussions. It's not really an update that I could provide as far as anything that's broken at this point -- broken through. And I think -- I guess your question partly too, is appetite. I think there is an appetite out there for these loans. It's a hard process. A lot of the people that are talking to originators like us are folks managing insurance money, which is a really good fit, frankly, from a tenure perspective. And it's a complex process to get to an actual agreement with those folks. So they're showing a lot of interest, but the deals are a lot of work to get done. Jesse Lederman: Okay. Two more for me. One on the Southeast, you mentioned that you didn't really give up any pricing in the Southeast, which obviously is encouraging. But on the other hand, how do you think through maintaining price, albeit at kind of lower order rates and shipment rates versus perhaps giving up a little bit of price and trying to stimulate some more demand or some more orders to increase capacity a bit? William Boor: Yes. It's a good question. It gives me a chance to probably put a different point in here in the discussion about the Southeast because I knew when I was talking about it that much, I might heighten people's sensitivity to it, just trying to draw the contrast for the most part. The capacity utilization, at least in our system, and I think it was probably a more general statement for the industry, is not at a terrible level. I mean plants are operating. They're making money in the Southeast. And so every plant has kind of this ongoing decision every day about pricing strategy. And right now, I think it's not -- it's far from a Doomsday situation. So people feel like they're getting appropriate orders, and there hasn't been a motivation at this point to really aggressively compete on price. A lot of what our plants do, and this is a general statement is they go out and look at our product compared to other product that's in their local markets and make sure that they're priced accordingly. And that's I'm sure how the other competitors do it. And at this point, no one is at a state of concern about the direction of the Southeast where they've kind of said we're just going to drop price and try to win market share that way. So I like that. I think it means that there's stability even with -- even though it's lagging the rest of the country from a market demand perspective. And that allows us to kind of stay the course and adjust as we need to going forward. Jesse Lederman: That's helpful. Yes. I guess it sounds like giving the great commentary on the Northeast that's particularly strong, I guess, has made it sound a little worse than it is in the Southeast on a relative basis. William Boor: Yes. And just to clarify that real quick, Jesse. I mean it's -- the strength is across the entire north. You just go right across the entire northern part of the U.S. and pretty much where you're outside of that localized Southeast area that I talked about things are pretty strong. Jesse Lederman: Great. And then last one on the CapEx, roughly $10 million this quarter, about $9 million last quarter. You noted there was investing in the plants. Can you maybe give a little color on the progress of those investments, what you're actually doing in the plants? Are those AI -- are those automation initiatives? Maybe just a little color on how that will come to fruition. William Boor: Yes, absolutely. Yes, we're really happy with some of the project opportunities we've had in our system and even through the period a couple of years ago when we were dealing with really a slowdown, we were still consistently investing in these projects. And I would characterize them, we can look at a plant, and we've got some outstanding resources on the engineering side. Frankly, people that came to us through the Commodore transaction. This has been one of the value adds of that transaction many -- several years ago. We've got folks that -- I think when we announced that transaction, we talked about some manufacturing technologies where they were really able to do some things other companies hadn't figured out, like lasers, floor gantry systems for fastening that are very safe and efficient CDC machines. And so we've been seeing opportunities throughout our system to modernize using some of those technologies. I would characterize the investment in any one plant to probably be between $2 million to $5 million. And every one of those projects is feeling like a home run because they not only get us a little bit of additional throughput. And when you add several of those together, you've added a meaningful amount of capacity, but they also all seem to have very good safety and quality improvement aspects to them. So we're going to keep doing those. And that elevated -- I think the question was asked last quarter about whether that was a new level of sustaining capital. No, you're seeing investment capital in that number for sure. Operator: [Operator Instructions] Our next question comes from Daniel Moore with CJS Securities. Dan Moore: I wanted to just ask 1 or 2 more on drilling down, and we talked about a lot of -- some of the potential legislation, but I get a lot of questions recently about chassis specifically. So what's the average cost of a chassis? And roughly what percentage of your homes shipped come with the chassis today? Mark Fusler: Yes. We estimate roughly about $1,500 per floor. So obviously, if you have multiple sections, you multiply that out. William Boor: I think your point is, yes, we would basically recycle as much like they do in modular construction, right? You use a cart essentially to get the floor to the site and then you can bring that back. Dan Moore: Yes. And whether -- what are HUD codes or chassied homes today that are as a percentage of your overall production roughly? William Boor: HUD versus modular in our system? Dan Moore: Yes, really just percentage with chassis that are left on site, if you know what I mean? William Boor: Yes. Well, I can give you the break of HUD versus modular, and that's probably a pretty good rate for what you're asking. We're probably about 80% HUD code homes and 20% modular. Dan Moore: Okay. And if it did pass, how would you think about that savings kind of dropping to margins versus maybe passing it on to the consumer? I know that's 1 or 2 steps down the road, but passing on the questions that I'm getting from investors. William Boor: Yes, we'd probably find a middle ground. I think some of it would go to our bottom line and probably some would be passed through as a savings to the customer. I'm kind of -- I guess, my -- not hesitation, not hesitation, the reason why I hesitate at all is because I haven't really thought about chassis as much as a cost-driven thing as I think about it as an innovation-driven thing. But to your question on the hard numbers, I think there would be some middle ground where a good portion of that would drop to our bottom line. Dan Moore: Yes. Makes sense. And then lastly, obviously, great work as detailed on financial services, contributing $5 million operating profit, I guess, $4 million average the last 2 quarters. Were there -- would you consider those to be above the mean in terms of profitability when you sort of average out the business and what expected claims are. This was a little bit of a softer quarter, but how do we think about sort of average profitability at this stage going forward? William Boor: Yes. I'm going to take a shot and then you can tell me if I'm answering your question. We have benefited from lower-than-typical weather events and claims for sure. But as I said, and I know I'm not giving you specifics, the improvement -- we've dissected the improvement between how much we attribute to improved weather versus how much we attribute to the changes that we've made. And well over 50% of the improvement is due to the changes we've made. So I think we're at a new level of profitability in a typical weather environment. We've got a little bit of boost over the last 6 months from the weather being very friendly for us. Does that help? Dan Moore: It is. Yes. Operator: I would now like to turn the call back over to Bill Boor for any closing remarks. William Boor: Yes. Just real quickly, I know we're coming up on the top of the hour. Executing and shifting markets is really what it's all about in this industry, and we continue to tell you all that from a market perspective, there's uncertainty out there. But I think this quarter, kind of showed the nimble approach that we've embedded in our operations, and we're making real-time adjustments as conditions shift. That's what I think we're focused on here because we know the conditions will change, and we just want to react to them very well. As we've discussed over time, in addition to managing the day-to-day challenges, we've undertaken an upgrade to our ERP system. We rebranded it, as I talked about, that improves the customer experience. We've executed the string of modernization projects we just touched on. We completed the large American Homestar transaction, and it's really exciting to see the entire organization rise to all of these kind of extra challenges, which, by the way, are the things that position us for better performance over the long term, while at the same time, the organization is really delivering the kind of results we've discussed today. So I really want to thank everyone for your interest and for joining us, and we look forward to keeping you updated. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Alkami's Third Quarter 2025 Financial Results Conference Call. My name is Andrew, and I will be your operator for today's call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. I would now like to turn the call over to Steve Calk. Steve, you may begin. Steve Calk: Thank you, operator. And with me on today's call are Alex Shootman, Chief Executive Officer; and Bryan Hill, Chief Financial Officer. During today's call, we may make forward-looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties. Our actual results may be materially different. For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the sections in our latest 10-K entitled Risk Factors and Forward-Looking Statements. Statements made during the call are being made as of today, and we undertake no obligation to update or revise these statements. Also, unless otherwise stated, financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. A reconciliation of the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC. I'd now like to turn the call over to Alex. Alex Shootman: Good afternoon, and thank you all for joining us. I am pleased to report that Alkami continued to deliver strong revenue and profit results in the third quarter of 2025, which I plan to discuss. But first, I'd like to announce that Alkami has selected a new Chief Financial Officer to succeed Bryan Hill, who previously announced his intention to retire. Also, as discussed earlier this year, Alkami entered into an agreement with Bryan in which he will be available in a consulting role to the company for some time in the future. Alkami's new CFO is Cassandra Hudson. Cassandra brings to Alkami over 20 years of experience building, leading and advising companies through rapid growth, capital market transactions, international expansion and M&A activity. Most recently, she served as CFO of StackAdapt, a leading advertising and marketing technology company. Prior to that, she was CFO of EngageSmart, where she guided the company through a successful IPO and drove meaningful growth in both revenue and profitability. Earlier in her career, she spent 12 years at Carbonite in a series of finance leadership roles, ultimately serving as Chief Accounting Officer and Vice President of Finance. Cassandra comes on board next week, and I'm looking forward to the investment community spending time with her in the coming quarters. I'm grateful that Cassandra said yes to Alkami and excited to have her on our executive team. Turning to our business results. In the third quarter of 2025, Alkami grew revenue over 31% increased adjusted EBITDA to $16 million and exited the quarter with 21.6 million registered users on the Alkami platform, up 2.1 million from the prior year quarter. Q3 2025 was also a strong sales quarter, equal to our best Q3 ever. We added 10 new clients on our digital banking platform, 6 credit unions and 4 banks, and one of these clients is the largest new logo transaction in our history. Including this client, Alkami now serves 5 of the top 20 credit unions in the United States. On a year-to-date basis, our new logo performance is consistent with the last 4 years. Our sales pipeline for Q4 and 2026 is also in line with recent years. And looking further into the future, out of the top 2,500 FIs, excluding mega banks and super regionals, there are still over 900 credit unions and nearly 1,000 banks that are not on a modern platform like Alkami. For these reasons, we remain bullish about the growth opportunity ahead of us. Our MANTL business also delivered a strong new logo sales quarter with 29 new MANTL clients, 15 of which are new to Alkami. Our cross-sell efforts are beginning to materialize as year-to-date, MANTL has added 68 new logos, including 29 that are existing Alkami clients. As I mentioned in a previous call, we now have 2 strategic platforms in which we can initiate a relationship with a financial institution. Year-to-date, the company has signed 23 new logos with our digital banking platform. And in the same period, 39 new logo relationships have been created with the onboarding platform in FIs that do not have Alkami digital banking. Together, that is over 60 new platform client relationships with whom we can expand over time. From a qualitative perspective, we continue to see positive market reaction to the combination of Alkami and MANTL. In a midyear survey, 80% of bank and credit union leaders in our target market said the MANTL acquisition will have a positive impact on Alkami. Our prospects appreciate that if you want to attract deposits, acquire new account holders, increase engagement and improve operational efficiency, you need Alkami's digital sales and service platform, which is the combination of our digital banking, onboarding and account opening and data and marketing technologies. We had 6 renewals in the third quarter, and we had an amazing quarter in terms of online banking implementations. In Q3 2025, we brought 13 new clients onto our digital banking platform, the most in a single quarter in our history. 6 of the 13 are banks and year-to-date through October, we've implemented 14 banks, of which 8 are integrated to the core system that represents our largest market opportunity. MANTL also had a strong implementation quarter, bringing 15 clients onto our onboarding and account opening platform, which was as many as we implemented in the entire first half of 2025. If you combine institutions that are live on either our digital banking platform or our onboarding and account opening platform, we now serve 413 financial institutions, of which 124 are banks and 289 are credit unions. We also had an exciting quarter in terms of product progress. The design work of our digital sales and service platform, which once again is the integration of digital banking, onboarding and account opening and data and marketing is complete. We've assigned a dedicated engineering team to the build effort and expect to show product to our clients at our spring customer conference. This effort can impact future growth as we now have 17 clients under contract for all 3 technologies and delivering the planned product integration can generate a 30% uplift to our new logo ARR. We also released our new money movement hub, have our one-click SDK deployment in beta, and we showed our client community a prototype of an agentic code creator that builds tailored products for an FI. We released 2 new features for treasury management and last week added an additional 6 treasury management features to our beta client community. In onboarding and account opening, we are accelerating in-branch product adoption, have continued momentum on account maintenance and our Pioneer loan platform client originated over $4 million in loans in their first 6 months of product usage. From a partner perspective, we created a new development team dedicated to our partner ecosystem, which will double the number of partners we can onboard each year. This will create future growth potential and improve customer satisfaction by giving our clients more capabilities for their account holders. In closing, I am proud of the more than 1,000 Alkamists who achieved another strong quarter of results for our clients and our investors. As we finish 2025, I'm excited about our continued innovation and execution, a resilient growing market and a business model with several growth levers. I'll now hand the call to Bryan to discuss our financial results. W. Hill: All right. Thanks, Alex, and let's do this one last time. Shall we? Good afternoon, everyone. In the third quarter of 2025, we achieved total revenue of $113 million, representing year-over-year growth of 31.5% and organic growth exceeding 20%. We continue to improve adjusted EBITDA to $16 million compared to $8.3 million in the year ago quarter, further underscoring the operating leverage of our financial model. Subscription revenue grew 31.5% in the third quarter and represented 96% of total revenue. We increased ARR over 31% and exited the quarter at $449 million. We currently have approximately $67 million of ARR in backlog for implementation, the majority of which will occur over the next 12 months. Included in our backlog are 37 new digital banking clients, representing 1.7 million digital users. We exited the quarter with 291 live clients and 21.6 million registered users on our digital banking platform, representing registered user growth of approximately 2.1 million or 11% compared to last year. Over the last 12 months, we implemented 32 financial institutions. Because of the long-term nature of our contracts, we have 3 to 4 quarters of visibility into upcoming client attrition. In the last 3 quarters of 2025, 3 clients left our platform, representing less than 1% of ARR and 2 clients were merged with existing Alkami clients. Over the long term, we model digital banking ARR churn at 2% to 3% per year, which we have historically outperformed. We ended the quarter with an RPU of $20.83, up 19% compared to a year ago, driven by the acquisition of MANTL and add-on sales success. Excluding MANTL, RPU increased 7% over the prior year. We continue to see broad-based demand across our product portfolio. This is reflected in our sales pipeline, new client wins, client renewal success, our ability to cross-sell new products into our installed base and now the rate at which we are seeing the market adopt MANTL and our data and marketing analytics solutions. In the third quarter, we signed 10 new digital banking platform clients and renewed 6 existing clients, representing 16 total digital banking contract signings. One new client win during the quarter was a top 20 credit union representing 450,000 digital users. We expect 25 to 30 renewals in 2025. MANTL added 29 new clients in the third quarter, including 15 that are Alkami digital banking clients. We now have 44 clients under contract that subscribe to both the Alkami digital banking platform and the MANTL onboarding and account opening solution. Our add-on sales continue to increase as a percentage of total sales. Our add-on sales effort, excluding MANTL direct sales, represented just under 50% of new sales for the year, 4 percentage points better than the same period in 2024. Our remaining performance obligation was approximately $1.6 billion, representing 3.6x our ARR and up 25% compared to a year ago. Now turning to gross margin. For the third quarter of 2025, we delivered a non-GAAP gross margin of 63.7%, representing nearly 100 basis points of expansion compared to the prior year. We achieved gross margin expansion through continued improvement in our hosting cost efficiency as well as operating leverage across our post-sale operations. For the first 9 months of 2025, gross margin was 64.4%. Moving to operating expenses. For the third quarter of 2025, operating expense of $56.4 million or 50% of revenue represented year-over-year operating leverage of approximately 360 basis points. We primarily drove operating leverage across R&D and G&A, where we continue to realize operational scale. We are on track for adding engineering talent at our global capability center located close to New Delhi in India's national capital region. We now have over 110 Alchemists at this facility with an expectation of approximately 150 as we exit 2025. Related to sales and marketing expense, we continue to achieve a high level of sales team productivity and go-to-market efficiency ranking among the very best in SaaS. Sales and marketing is expected to be approximately 15% of revenue for 2025. Our adjusted EBITDA in the third quarter was $16 million, $2 million better than the high end of our expectations and representing an adjusted EBITDA margin of 14.1%. Turning to our balance sheet. We ended the quarter with $91 million of cash and marketable securities. During the third quarter, we used a portion of our cash to reduce our revolver by $25 million, bringing our current balance to $25 million. For the first 9 months of 2025, operating cash flow was $26 million, which is net of a onetime acquisition items of $7 million. Excluding these onetime items, this is over 2.5x the operating cash flow of $13 million in the year ago period. Now turning to guidance. For the fourth quarter of 2025, we are providing guidance for revenue in the range of $119.6 million to $121.1 million. At the midpoint, this represents organic growth of 22%, 200 basis points higher than Q3's organic growth. For adjusted EBITDA, we are providing fourth quarter guidance in the range of $16.1 million to $17.1 million. For the full year of 2025, we are providing guidance for revenue in the range of $442.5 million to $444 million. We are also providing full year adjusted EBITDA guidance of $56 million to $57 million, representing a raise of just under $4 million above the midpoint of our previous full year guide. In conclusion, we are pleased with our continued revenue growth and margin expansion. We remain positive about the demand environment and our continuing ability to acquire, grow and retain our clients. This gives us confidence in our ability to achieve our long-term financial objectives and drive shareholder value. Now on a personal note, it has been a great honor to serve as Alkami's CFO for the past 6.5 years and to steward the company as we expanded revenue 500% and increased profitability over $95 million since 2019. We also engaged in multiple capital raises and acquisitions and built one of the best teams in digital banking. I want to thank our shareholders and our clients and especially our team for helping make this a reality, and I'm excited to see what Alkami can do in the coming years. And with that, I'll now hand the call to the operator to take your questions. Operator: [Operator Instructions] Your first question is from Andrew Schmidt from KeyBanc Capital Markets. Andrew Schmidt: Your final call here at Alkami, Bryan. Congratulations on the transition. It was great working with you from the IPO up until today. So congrats. W. Hill: Yes. Great working with you, Andrew. Andrew Schmidt: I wanted to just maybe just go back to what you said, Bryan, on the organic growth for the fourth quarter. Obviously, we saw the revenue growth, the outlook come down just a little bit. But I think you mentioned that organic growth is actually accelerating. Maybe you can dig into that a little bit, maybe something that's inorganic or MANTL related that's affecting the outlook, but that would be a good place to start. W. Hill: No, that's a great question. Look, first, I'm very proud that 19 quarters consecutive at Alkami as a public company, we've either met or exceeded both our revenue and adjusted EBITDA guidance. So that's a mark that many companies cannot say. But as we think about our transition of revenue growth from Q3 to Q4, we've said this many times, but the timing of implementations during the year makes a big difference on any one quarter's year-over-year growth. As an example, if you compare the first 9 months of new logo implementations in '25 to '24, we actually had approximately 100,000 more in the first 9 months of 2024. But then when you look ahead to Q4 in 2025, Q4 is really our greatest implementation quarter. We're going to have close to 350,000 more users that we implement in Q4 this year versus last year. So that transition provides us the step-up in organic revenue growth in Q4, both on the top line for revenue, but also for ARR. Alex Shootman: And just to add to that, the schedule of when we're doing the implementations depends a lot on when the customer wants to do the implementations, right. And so that creates, as you said, Bryan, sometimes those dislocations between the quarterly compares. W. Hill: That's right. Andrew Schmidt: Got it. So implementation schedule, but underlying organic growth is healthy and accelerating. Understood. Maybe just a quick question on the competitive environment. So obviously, well-documented transition from a large core provider announced this week. Wondering if -- I know I understand they're more on the core side, but do you see any benefit from that just in terms of folks coming to you and maybe just reevaluating the tech stack in general, looking for advanced digital banking tools, et cetera. Just curious if that's a benefit for you. And just if you have any other comments on just the overall environment that you want to share, that would be helpful. Alex Shootman: I don't think for us, any particular company's results in a quarter make a difference in the buying behavior necessarily. What we do see in the bank market, and we've talked about this before, the credit union market has historically been a best-of-breed market. It's a buyer who is used to combining a digital banking platform that's different than their core provider. The community bank market has not been that kind of market. The community bank market was a market that very much bought digital banking from its core provider. And Andrew, that's the biggest thing that we're seeing change is the opening of momentum of people saying, I'm going to actually have a different digital banking application than my core provider. And that's why it's so important, what I shared in my opening remarks of, look, since the beginning of the year, we have brought 14 banks live and 8 of them are on a core that we consider to be our largest market opportunity. So in summary, no particular quarterly result changes the customers' buying behavior. The most important thing that we're seeing in the community bank market is the beginning of the willingness to buy best-of-breed instead of suite. W. Hill: And Andrew, keep in mind, out of the 250 million digital users that comprise our addressable market, less than 30% of those are on a contemporary platform. And so the decision to switch to a contemporary platform such as an Alkami, what we've seen through many different disruptions in this market, whether it was SVB, high interest rates, you name the issue, the demand has remained consistent through that. So if a provider in the market is experiencing problems for different reasons, whatever the case may be, that doesn't really expect the fundamental drivers of what's causing the change. And then we introduced the MANTL acquisition. We combine that with our online banking platform as well as our data and marketing analytics solution, and we think that's a game changer in the market. As we pointed out on the call, we now have 44 shared clients with MANTL under contract, and we only had 15 when we completed the acquisition. That's significant progress. We think that progress is going to continue as the market continues to understand the power of bringing these 3 primary platforms together. It's a differentiator for them. It's a moat and a differentiator for us. Operator: Your next question is from Patrick Walravens from Citizens. Austin Cole: This is Austin Cole on for Pat Walravens. And let me extend my congratulations to you, Bryan, as well on your retirement. I wanted to ask -- touch on that topic of disruptions. And I was just kind of wondering if you're hearing anything out there kind of regarding AI and the ability to kind of use some of these tools to build potentially some digital applications and if that's something that's resonating out there in the market at all or not so much? Alex Shootman: We actually just had our Customer Advisory Board -- this is Alex. We had our Customer Advisory Board last week for several hours. And probably half of that conversation was how they're either using generative AI or using agents and the different use cases that they have. And so every single financial institution is either using or experimenting with either agentic technology or with generative technology. None of them think about building their own software with agent technology. Their view is -- the level of complexity in terms of building the software, integrating that into different core technologies is not something that is on their radar screen. And once again, the thing to remember is even if 6 different customers have the same exact core the age of those cores and the way that the core is designed is all 6 of those will be completely different implementations. So once again, a lot of interest in use cases for generative AI and for Agentic AI, but nobody is talking about building their own system. Austin Cole: Okay. And then if I could just follow up quickly. When you kind of look at your own digital banking solutions and those potential use cases, where are maybe some of those areas that customers would be interested in seeing elements of kind of AI or agentic workflows? And could that be -- could that bolster the product set? Alex Shootman: Yes. Well, first of all, there's -- we have AI in our technology today. We use AI in our data and marketing platform to create precise audience segments for clients. We have AI embedded into chat products that are in our products. But if you're specifically talking about either agentic AI or generative AI, one of the things that I mentioned in the prepared remarks, so today, we have a software development kit or an SDK in which a client can build functionality that extends Alkami. Today, what they have to do is they have to have a developer that builds that functionality. What we've done is we've taken all of the code that's ever been submitted into Alkami. For example, we've had over -- almost 3 million lines of code submitted to Alkami since the beginning of this year, and that's customers extending Alkami. So we've taken all of that code, and we've been training an LLM with the code, the instructions, et cetera, and think we'll have the ability to create a prompt-based code creator for an FI. So that would be extremely attractive to an institution. The team that builds onboarding and account opening and building the loan platform and building the account management platform has built out an agent-based banker capability, if you will. So for the banker who's interacting with somebody, how can they rapidly understand everything about that client across all of the systems within the bank. So to answer your question, there are dozens of use case areas where we can bring capabilities to clients that they're excited about, and we're excited about doing it. We've got -- as I said, we've got 2 pilot projects underway that I just described. Operator: Your next question is from Saket Kalia from Barclays. Saket Kalia: Congrats on hiring Cassandra and Bryan tip my cap to you on your next phase. W. Hill: Great. Thanks, Saket. Saket Kalia: Absolutely. Alex, maybe for you. It sounded like the selling activity in the quarter was really strong, but maybe some of the implementations are a bit more Q4 weighted than at least we were thinking. And if you look back at the last few years, it's been that third quarter that's been the strongest quarter in terms of adding new users to the platform. So was maybe some of this -- the push from -- or the timing from Q3 to Q4, is this because there's just maybe a couple of few customers? Or is there maybe some shifting seasonality that you're starting to notice in the business? Alex Shootman: If I separate it between signing and implementing. If I could talk about those 2 separately, and I'll start with implementing. There is a small amount of seasonality in terms of implementing. So when we are talking to a client about the implementation schedule, when you think about the rhythm of their year, they would prefer to implement sometime in late -- either sometime in late Q1 into early Q2 or after Labor Day and before Thanksgiving. So if you just thought purely of the seasonality of their business, there is some preference that the clients have in terms of the time of year that they want to implement. And if I just look back over the last 4 or 5 years of all the implementations that we've done, it does -- there is a little bit more that happens in Q2 and a little bit more that happens between Labor Day and Thanksgiving. That tends to be what I would say, some type of seasonality. Nothing in terms of online banking happens over the Christmas holiday, right, because that's when everybody has to be able to access our digital banking. And then we really don't experience -- there's not any implied seasonality from a bookings perspective, right? A lot of that just depends upon historically when did the clients' contract end, when do they need to get a contract signed so that they can get the implementation scheduled. So I don't really see a lot of seasonality necessarily in terms of signings, and then there's some customer behavior in terms of the implementations. Saket Kalia: Got it. Got it. That's super clear. Bryan, maybe for my follow-up for you, I just want to -- just around the same topic, I just want to make sure I understand how the timing of implementations maybe impacts the revenue guide and understanding it's very small. But it sounds like because these implementations are maybe happening, again, maybe a quarter later than what we were expecting, that's one less quarter of revenue for the full year. But it sounds like from an ARR perspective, we still get the ARR that we were expecting by the end of the year, kind of in line with what we were originally expecting. So we get a quarter less of revenue for the year. But from an ARR perspective, it really shouldn't change that view. Is that the right way to think about it? W. Hill: That is the right way to think about it, Saket. You can have ebb and flow during the year in terms of implementation dates pushing back, moving forward, and that can impact in-year revenue. But the key takeaway is we're going to have a step up to 23 -- 22%, 23% in live ARR growth as we exit the year, which is in line with our expectations at the beginning of the year. The comment I was making in responding to Andrew was really a year-over-year comparison. And so let's separate that from when you have one quarter of visibility what can happen in a quarter. And when you look at Q3, we had some new client implementations shift out during the quarter, which can have an impact on in-quarter revenue. We had 13 implementations for new clients on online banking in Q3 of this year, which is our highest. We had some resource reallocation that occurred to those new online banking client implementations, and that had some marginal impact on add-on sale implementation. Now the good news is we go into Q4 and we have $67 million of ARR in the backlog. A lot of that is add-on sales and MANTL and much of that backlog associated with those lines of businesses will implement in the fourth quarter, further driving us to hit the step-up in live ARR growth in the quarter. So that's a lot of different moving parts, but I wanted to provide you a perspective that there are several different levers here that we can push, but the end result is where does live ARR end and how does that compare on a year-on-year basis. Operator: Your next question is from Jacob Stephan from Lake Street Capital Markets. Jacob Stephan: I'll echo the congratulations to Bryan as well. It's been a pleasure working with you. So there's -- you guys made an interesting comment about 900 middle market institutions that are not on a modern platform yet. If I recall, there's -- you guys have always kind of said there's about 2,000. Just curious, maybe you could help us think through the segments of the remaining 900. Are these -- are we through a lot of the low-hanging fruit and people that are ready to switch immediately and maybe now we're starting to work into longer sales cycles? Or maybe just help us think through some of that commentary. Alex Shootman: Yes. And let me get -- make sure that we've got the specifics correct. What I said is of the top 2,500 FIs, excluding mega banks and super regionals, there are still over 900 credit unions and nearly 1,000 banks that are not on a modern platform like Alkami, right? And so as we've always said, the -- all these clients are on multiyear contracts. So that means a portion of them come up every year to make a decision. And some of them decide to make a change and some of them decide to stay with their incumbent provider. But the main takeaway for us is we've got -- Bryan, how many live online banking? W. Hill: 291. Alex Shootman: Yes. So we've got 291 live online banking customers. And we still have a lot of runway in this market from a digital transformation perspective. And that 2,500 is our target market. So that's the main point I'd like you to take away from it is within our target market, even given the size that Alkami is today at almost $0.5 billion of revenue, we still have quite a bit of market that we can sell into and continue to grow. Jacob Stephan: Got it. Okay. That's helpful. And then maybe just touching on gross margin here. I think -- in Q2, it looked like we were trending well above kind of the 2026 framework at 65%, but we did see a sequential step down, and you guys are obviously seeing some nice operating leverage. But maybe help us think through some of the gross margin pressures in Q3. Is this strictly MANTL increased cloud costs or just kind of drill down on that. W. Hill: No, it's really related to some of the third-party IP that we sell through our platform. Some of the excess fees associated with those sets of products were lower than what we had originally anticipated in the quarter, and that had the effect of driving down gross margin. But that's the main impact sequentially. Year-over-year, we still expanded gross margin 100 basis points. And we'll exit the year just under 65% gross margin for the full year, and we feel really good about where we could actually perform from a gross margin perspective in 2026. Alex Shootman: And remember, when Bryan and I came out and shared with you all a longer-term view of the business model, it would get to 65% gross margin by the end of 2026. So we feel like we're ahead of what we had planned to do. Operator: Your next question is from Ella Smith from JPMorgan Chase. Eleanor Smith: So first, I was hoping to ask about the record or near record number of implementations. I'm curious what is enabling you to implement more customers in a given quarter? Alex Shootman: Thanks for the question. The services team has continued to rebuild their implementation methodology and the services team and the product and engineering teams have some different ceremonies that they've created that allow them to collaborate on changes that they need to make. Our code is not a code where you do any custom development. You're doing configuration in the code for the client. And so the teams studied their -- the best implementations that they do. They looked at the behavior of the company and the best implementations versus the ones that took longer. And then they just started replicating -- I don't mean to minimize because it was a big piece of work. They started replicating the behaviors of the best implementations. And that included things like how can we help the customers test the code. That included things like taking over on behalf of the customer, all of the third-party relationships that were going to be necessary during implementation. And then a lot of cycle times that have been increased from a speed perspective in terms of the product, the engineering teams and the services teams. So I would just characterize it as just really good old-fashioned work that went into understanding what it takes to make a great implementation and then figuring out how to replicate that. I'm very proud of the company, very proud of the services team to be able to implement 13 clients in a quarter. And we also, last week, had 3 clients go live in the same day. And we've only done that one other time in our company's history. So that team is really performing well. W. Hill: And this is a scale game. So I mean, you can't perform at this level unless you've scaled your business to a point to where you're over 20 million digital users. So our ability to implement is definitely a differentiator for us in the market. And I'd like to echo Alex's compliments towards this team because if you drill down into the numbers, and Alex mentioned this in his prepared comments, but we also implemented 6 banks during the quarter. We now have 33 banks live. So 20% of the banks that we have live were implemented during the quarter that we had our highest new client implementation quarter. So that says a lot to the progress that this team has made. It also says a lot to the progress that we're making and now how we can go to market and sell to a bank with this level of track record and success in implementing a bank financial institution. Eleanor Smith: That's very helpful. And if I can throw in a quick follow-up. Can you speak to the factors that led to your backlog ticking up in the quarter? And if you can provide any color on its composition, that would be really helpful. W. Hill: Well, we have 1.7 million digital users in our backlog now. If you look back a year ago, that number was about 1.2 million. So one of the largest factors is the fact of the number of digital users that we have in backlog. It's almost a year's worth of digital user growth, which provides significant visibility. And then also MANTL, MANTL is contributing in a big way to our implementation backlog. When we acquired MANTL, we suggested that MANTL would reach $60 million of ARR under contract. So that would include the backlog. we're almost at that level as we cross over Q3. So MANTL is doing a very good job in selling their products direct. As we mentioned in our prepared comments, we're doing a great job of cross-selling MANTL into either a new client win or into our installed base. We now have 44 shared clients under contract, which is 29 more than when we acquired MANTL. And then also the attachment rate of Segmint, so our data and marketing analytics product for the year, we're attaching at a rate of 75%. So if you step back from this and you go, well, what's the significance of the company being able to sell these 3 individual platforms into a client. Well, when you add Segmint and MANTL on a new client win or even a sell into our installed base, it increases the ARR 30%. So it's a pretty significant boost in ARR growth and ultimately subscription revenue growth. Operator: Your next question is from Chris Kennedy from William Blair. Looks like that question was disconnected. The next question is from Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: And Bryan, great working with you. Best wishes to you going forward. I wanted to talk about, Bryan, I know we've talked about the high visibility into revenue you have entering any given year. Could you maybe talk a little bit about the pieces outside of that, right? Maybe some of these surprise cross-sells that you get in any given year that would ultimately lead to the outperformance versus the visibility that you have in a given year? How are some of those cross-sells and upsells tracking relative to historical trends? W. Hill: Our cross-sells actually, as we mentioned on the call, as a percent of our total sales, excluding MANTL to keep the comparison consistent was just under 50% through the first 9 months of this year, which was a step up from last year. So our view is we're ahead of where we would like to be from a cross-sell perspective. Our ultimate goal was to be at 50% in 2026. So of our new client wins, 50% of those banks, 50% are credit unions, but of our total new sales, 50% derived from cross-sell activity. And MANTL is only going to accelerate that. Adam Hotchkiss: Okay. That's really useful. And then one of the things that struck me intra-quarter was some of the MANTL announcements like the Taktile partnership and the bulk account opening product. Can you maybe just give us some color around what MANTL provides you from an innovation perspective now that you have them under your roof? Does it allow you to accelerate and pull forward some of these innovation projects that you've been thinking about? Any color around that would be useful. Alex Shootman: Yes. Well, the biggest thing that it provides us is the ability to deliver one of the most important business capabilities that a regional and community financial institution wants. Let me go back just a little bit. These institutions are institutions that have great relationships in their community. They want to grow. But as with everything over the last couple of years, the digital experience makes a huge difference in terms of whether or not they're able to grow. The experience that they're able to create today without something like Alkami and MANTL technologies coming together, the experience that they're able to create today for a new customer or member that wants to sign up or a new customer or member that wants to buy a new product is not a very good experience at all. It's a choppy experience that goes between 3 or 4 different systems, sometimes requires a call into a call center, sometimes might even require a piece of paper to be signed. And so their growth strategy depends upon having an integrated front-end experience that is seamless and intuitive. So I would tell you the biggest opportunity that we have, and this is actually the work that is underway right now where we are building the integration between the 3 products between the data and marketing platform, the onboarding and account opening platform and digital banking is that a new customer of an institution or an existing customer of an institution who's buying a new product, that's a completely seamless experience with a great user experience. And that is a business capability that every single one of our customers and prospects absolutely wants. Now beyond that, what's great about the team that we put together with Alkami from MANTL is it is a highly innovative software -- product software team. And so they already have 3 or 4 ideas like how can we build out an account maintenance application. As we talked about earlier, innovating from a loan origination platform perspective. So that team has a very high velocity of new product development and a lot of creative ideas, and we expect them to be adding product to the portfolio that we can monetize. So we remain really excited about the acquisition that we did. W. Hill: And Adam, think about -- so it's important what Alex just shared as it relates to where we can have innovation. And there's other areas in the company where we can drive innovation. But when you have a financial model that affords the visibility such as Alkami and you're scaling your profitability at a very high rate, it provides you the luxury to pull forward some of those investments and invest in those areas while you're still over delivering on your commitments from a profitability perspective. And I think that's a key differentiator as you think about the investment thesis in Alkami is what fuels the engine in a public company that fuels the engine of innovation, but yet still allows that business to deliver on its profitability goals. That's a balancing equation you have to walk through. But because of the visibility we have into our revenue and profitability, it provides us that luxury. Operator: The next question is from Chris Kennedy from William Blair. Cristopher Kennedy: I'll just echo the comments to Bryan and Cassandra. Congratulations. It's good to see the 4 new bank wins in the quarter. Can you just talk about what you're seeing there? And was it related to combining the sales forces of Alkami and MANTL? Alex Shootman: Yes. I mean the one -- I would say the main thing that we're seeing -- remember, this is a risk-averse marketplace. They're having to move from a suite to a best-of-breed, and they want to know that a company has got a track record to successfully move them on to a modern digital banking platform. So our success in bringing previous clients onto the platform is creating confidence in the market. The other thing that's happening is we're accelerating building capabilities in our treasury management portfolio. And so we're able to meet with prospects and show them the capability that we have in treasury management, show them the advanced capability that we're building, show them the teams that we have dedicated to building that capability and project the rate and speed that we're going to be adding those capabilities. So if you think about a client, right, they're making a decision today knowing that they're coming on the system in 9 to 12 months. And so they're evaluating, for example, the treasury management capability that we have right now -- they're evaluating the wisdom of our road map. Do we know what we ought to build? They're evaluating our track record for building those features and getting them into production, and they're making a decision on a year from now, is this company going to have, a, the capability to connect me with the core I have to their digital banking system? And is this company going to have the commercial, whether you call it, commercial business banking, treasury management? Are they going to have the capabilities that I need to run my business? And what we're seeing is that all the hard work that we've been doing over the last couple of years is now starting to create traction in the market where people can see that we're bringing customers live and people can see that we're building software. They want a modern platform and they're picking Alkami. Cristopher Kennedy: Understood. And it's great. And then as a follow-up, it's great to hear MANTL is nearing $60 million of ARR, about a quarter ahead of expectations. Can you just talk about the loan origination initiative for MANTL and kind of what you see as the opportunity with that? Alex Shootman: Well, let me remind everybody what we've talked about in terms of the loan origination platform. As we said, there are a set of lighthouse clients that are collaborating with Alkami and MANTL to build a loan platform, and we're going to be bringing those lighthouse clients on the loan platform. We're going to be evaluating product market fit and our ability to do a great job for those clients. And sometime, towards the end of this year or the beginning of next year based upon our valuation of our ability to go to market with that product, then we'll make a decision to go to market with that product. That is not a generally available product that our sales team can sell right now. So to frame your expectations, it's a market that would like us to be in it. It's a product that we're building, but we're going to make darn sure that it's got great product market fit, and we've got live customers that are satisfied before we put it in the bag of the sales team. Operator: Your next question is from Jeff Van Rhee from Craig-Hallum. Daniel Hibshman: Alex, Bryan, this is Daniel Hibshman on for Jeff Van Rhee. On MANTL, I think what really stuck out to me a lot about some of the numbers you were quoting there, the signings this quarter, if I have it right, 29 new clients for MANTL, 15 of which were new to Alkami. So call it, half of the MANTL signings this quarter were Alkami clients. And I assume cross-sell plays a really big role in that. I mean the MANTL base can't be half Alkami clients. I think you said I would infer the MANTL base is closer to sort of market share division in terms of Alkami. So half of new signings coming on -- coming from the Alkami base, I mean, are we looking at MANTL's new signings almost doubling as a function of being tied up with Alkami? Just your thoughts on the pace and impact that Alkami being part of MANTL is bringing. Alex Shootman: I'm going to give you a qualified answer and let Bryan talk to the numbers. What you're seeing from our base is a demand for a great highly intuitive onboarding and account opening product. And so when they see MANTL and what that team has built, they want to buy the product. So it's had great reception in our market. I would never project doubling sales. W. Hill: Yes. I mean -- and so MANTL joined Alkami. So let me kind of put that out there. I think you said Alkami joining MANTL. But MANTL joined Alkami. And so when we acquired MANTL, we've tried to compare that to our Segmint acquisition, which is our data and marketing analytics products. And what we had at the time of the acquisition as an investment thesis is the fact that the acquirer, the purchaser within an FI of the MANTL solution is generally the same or close to the same and it's closely situated to the individual who buys online banking. So we have a good contact from a cross-sell into our installed base perspective that would allow us to leverage those relationships. Now comparing that to the data and marketing analytics product, we see a very, very high attachment rate on a new logo sale, a new client win when the C-suite is involved in the decision. The challenge that we initially had with that acquisition was it's a different buyer in the financial institution. So the relationships that we had for cross-selling into our installed base weren't necessarily the relationship to champion that purchase decision, that buy decision within the FI. We don't have that challenge with MANTL. So that's what we should point out, and that's why we're seeing very early success and much greater success than what we experienced with the Segmint acquisition in the first 2 to 3 quarters. Daniel Hibshman: That's helpful. And then just on the ARR and backlog for implementation, I believe I heard that was $67 million, just for a fact check if that's correct, $67 million in ARR in backlog for implementation. And then -- if that was $68 million last quarter, I have written down here. So a slight tick down sequentially there. Just given the 10 new signings to the digital banking platform, strong signings for the quarter like you called out, just why would that not tick up? What are the dynamics there? W. Hill: We had a significant implementation quarter. We had the largest number of online banking new client implementations that we've had in the history of the company. And within that, there were 6 banks, and there was also a very large client that went live as well. So... Alex Shootman: Also MANTL had as many implementations in Q3 as in the entire first half. W. Hill: Yes. MANTL continues to improve their throughput of implementation. So there's other -- so there's -- that's the factor that pulls out of your backlog, and it was just a significant implementation quarter, which what gives us confidence in the step-up in organic growth, both for revenue and ARR as we exit the year. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron Corporation, Mr. Jake Spiering. Please go ahead. Jake Spiering: Thank you, Katie. Welcome to Chevron's Third Quarter 2025 Earnings Conference Call and Webcast. I'm Jake Spiering, Head of Investor Relations. On the call with me today is our Chairman and CEO, Mike Wirth; and our Vice President and CFO, Eimear Bonner. We will refer to the slides and prepared remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on Slide 2. Now I'll turn it over to Mike. Michael Wirth: Okay. Thanks, Jake. In the third quarter, Chevron delivered record production and strong cash generation, supporting sustained shareholder distributions. The period was marked by several key milestones as we execute our plan for resilient and industry-leading free cash flow growth. Worldwide production exceeded 4 million barrels of oil equivalent per day, driven by strong growth and high reliability across the upstream. Hess integration is on track. Synergies are being realized and asset performance has exceeded expectations. The Ballymore tieback project reached design capacity ahead of schedule, taking us another step closer to delivering over 300,000 barrels of oil equivalent per day in the Gulf of America. And we achieved first production at the ACES green hydrogen project in Utah. Earlier this month, a fire occurred at our El Segundo refinery. Importantly, there were no serious injuries and we continue to meet our supply commitments. We're cooperating with all regulatory agencies and have our own investigation underway. Our top priority at Chevron is always the safety of our people and the communities we work with. Now I'll turn it over to Eimear to go over the financials. Eimear Bonner: Thanks, Mike. For the third quarter, Chevron reported earnings of $3.5 billion, or $1.82 per share. Adjusted earnings were $3.6 billion, or $1.85 per share. Included in the quarter were special items totaling $235 million. These included severance and other hedge related transaction costs and were partially offset by the fair value measurement of Hess shares held at the time of closing. Foreign currency effects increased earnings by $147 million. Organic CapEx was $4.4 billion for the quarter. We expect full year organic CapEx inclusive of Hess to be $17 billion to $17.5 billion, in line with guidance. Adjusted third quarter earnings were up $575 million versus last quarter. Adjusted Upstream earnings increased due to higher liftings and were partially offset by higher DD&A. Legacy Hess assets contributed $150 million in the quarter. Adjusted Downstream earnings increased due to higher refining volumes, improved chemical margins and favorable timing and OpEx results. Other segment earnings decreased due to higher interest expense, corporate charges and unfavorable tax effects. Adjusted third quarter earnings were down $900 million versus last year. Adjusted Upstream earnings decreased due to lower liquids realizations and higher DD&A from increased production at TCO, the Gulf of America and the Permian. The increase in OpEx and DD&A includes the impacts of the Hess acquisition. Adjusted Downstream earnings were higher, primarily due to improved refining margins. The Other segment was down mainly due to higher interest expense and other corporate charges. These results include benefits from our structural cost savings program. Our new operating model is live, and we've captured approximately $1.5 billion in annual run-rate savings so far, and expect to see further benefits in the fourth quarter. Cash flow from operations, excluding working capital, was $9.9 billion in the quarter. This represents a 20% increase compared to the same quarter last year when crude prices were $10 higher. Adjusted free cash flow, which includes equity affiliate loans and asset sales was $7 billion, and included the first loan repayment from TCO of $1 billion. Cash returned to shareholders totaled $6 billion and was more than covered on adjusted free cash flow. We expect strong cash generation to continue even in a lower price environment, underpinned by the increased capital efficiency and growth in high-margin assets. Third quarter oil equivalent production was up 690,000 barrels per day from last quarter, primarily due to legacy Hess production. In addition, strong execution drove production growth in the Permian, the Gulf of America and TCO. We expect full year average production growth at the top end of our 6% to 8% guidance range, excluding legacy Hess. Back to Mike to wrap it up. Michael Wirth: Okay. Thanks, Eimear. Before we close, I'd like to say a few words of remembrance in honour of Chevron Board member, Dr. Alice Gast, who passed away earlier this week. In 1978, as a 20-year-old sophomore at Stanford, Alice served an internship at Chevron's Richmond refinery. She went on to earn her PhD in Chemical Engineering at Princeton. Her career came full circle 34 years later when she joined the Chevron's Board in 2012. Alice was an internationally known scholar and researcher who served as President of both Lehigh University and Imperial College London. She encouraged us to stay curious, value teamwork and believe the best solutions come from listening to one another. Her legacy lives on in the questions we ask, the way we work together and the respect we show one another. And lastly, I have a final reminder that we're holding our Investor Day on November 12. You can find details and instructions for the webcast on chevron.com. We look forward to sharing our outlook to 2030 and highlighting our diversified and resilient portfolio. You can expect to hear about a consistent, disciplined and stronger Chevron. We hope you can join us. Over to you, Jake. Jake Spiering: That concludes our prepared remarks. Additional guidance can be found in the appendix of this presentation as well as the slides and other information posted on chevron.com. We are now ready to take your questions. We ask that you limit yourself to just 1 question. We will do our best to get all of your questions answered. Katie, please open the lines. Operator: [Operator Instructions] We'll go first to Sam Margolin with Wells Fargo. Sam Margolin: I expect we'll probably reserve kind of strategic and long-dated questions for the November day. So we'll stick to the quarter. Maybe in the Permian, good production result there. Capital efficiency has been kind of an ongoing talking point and the distinction between co-op and NOJV acreage. Can you elaborate a little bit on what drove the Permian result? And if you're seeing some better results in the field? Or if it's just part of a broader kind of industry trend of efficiency gains? Michael Wirth: Yes. So look, we had a strong quarter. We're 60,000 barrels a day over the 1 million-barrel where we said we kind of moved towards a plateau. It really highlights the efficiency gains. The team continues to deliver. We've got no change to our plans to moderate growth and focus on cash generation. We're focused on executing the program as efficiently as possible. Production is an outcome there. It will move up and down. I would expect we're going to see some quarters where it's back down a little bit based on when we're popping wells. But we've been able to continue to deliver strong performance with fewer rigs, fewer completion spreads, a lot of progress on little things including technology. And I think you'll hear more about this from Mark when we get together at Investor Day. So performance across the portfolio, co-op, NOJV, royalty has been strong, and we expect to move into 2026 with good momentum. Operator: We'll take our next question from Devin McDermott with Morgan Stanley. Devin McDermott: Mike, I wanted to ask you about Kazakhstan. My understanding is you had the chance to meet with the President alongside the UN back in September. So I was wondering if you could just give us a little bit of an update on how some of the discussions around the concession extension are going, where we are in that process? Any broader color on the dialogue would be helpful. Michael Wirth: Yes. So I did see the President in New York during the UN General Assembly. It's actually the second time that I've seen him this year. And we had a good conversation about where we are. It was grounded in the fact that TCO has created enormous value for all stakeholders over the last 32 years as a stand-alone entity that has had strong partnership and performance with the Republic. Tengiz is performing well. You saw it this quarter. It's very visible in our results. It's bringing significant value both to shareholders of TCO and to the Republic. And we are off to what I would characterize as a good start to the negotiations. These are going to take some time. It's a complex contract. It's important to the Republic and it's important, obviously, to the shareholders. I wouldn't expect quarterly updates on this just due to the nature of the work. We've got technical teams engaged. We've got commercial teams engaged. And so the overall structure and governance and negotiations has been defined and they're beginning, but we really are just at the beginning. And so we'll update you from time to time as there is something more for us to say. Operator: We'll take our next question from Neil Mehta with Goldman Sachs. Neil Mehta: Just wanted your perspective on the Bakken asset. You've had this under your portfolio here in Bruce's portfolio for a couple of months now. I mean it seems you made some adjustments to the activity plans. So what are some initial observations, thoughts on whether this asset is core? And do you view it as part of a broader Rockies corridor that can compete for capital in the portfolio? Michael Wirth: Yes. We're excited to add the position to our shale and tight portfolio. Hess had a long-standing plan to grow it to 200,000 barrels of oil equivalent per day and to maintain that plateau for the foreseeable future. We're at that level now. We see some opportunities to continue to capture efficiencies from drilling cycle time improvements, the use of longer laterals. So similar to what we've described for the Permian, we're going to look to optimize capital efficiency, operating efficiency. We'll bring experiences from other parts of our portfolio to the Bakken. And just as we saw with Noble and PDC, I'm sure we will bring some best practices from Hess' Bakken operation to other parts of our portfolio. We're in no hurry to make a decision on the longer-term role in the portfolio. I've mentioned this before, so I won't belabor it. But we had underestimated the quality of the DJ and its ability to compete in our portfolio. And as we really get a good look at it, we were pleasantly surprised. So we want to be sure that we've applied all the things that we've developed in other areas to the Bakken, take a look at how we'll compete for capital. We've got the midstream piece of it as well, which has to be factored into the thinking here. But we'll be thoughtful and thorough as we assess that and really focus on value. And we'll update you in due course as we reach any conclusions. Operator: We'll take our next question from Ryan Todd with Piper Sandler. Ryan Todd: And maybe a follow-up on that. I mean overall, the Hess contribution came in at the high end of expectations or at least the guidance that you had provided earlier including very strong production. Can you maybe talk a little bit about what were some of the drivers of the strong performance? And any other kind of key takeaways a little bit into the ownership there? Eimear Bonner: Yes, Ryan. It's Eimear. I'll take this one. Yes, strong production growth was really the main driver and then delivery of the synergies that we had expected. So both of those -- both of those things are really contributing here to the stronger performance. Just maybe to double-click a little bit on the synergies. We're moving at pace through integration. So this really applies not only to the back-end part of the portfolio, but the entire portfolio. We had $1 billion synergy target. Post close, we confirmed that we will deliver that, and we'll deliver those run rate savings this year. And so that is all on track, combination of utilization of NOLs, productions that were canceled or closed and then operating efficiencies now that we've integrated the assets through -- into the Chevron system. We see this show up in the 3Q results and we will expect to see more of that in the fourth quarter. Michael Wirth: Ryan, the one thing I might just add, we did see the start-up of Yellowtail in the quarter in FID for Hammerhead. I had a chance to sit down with the legacy Hess team that has been working Guyana and go through it for an entire day. And I got to tell you, I was impressed with Guyana, obviously, but I was really impressed and pleased with the quality of the people, and I have high expectations for the contributions that we're going to get out of all the Hess employees that are part of Chevron now. It's the thing that maybe doesn't get quantified or talked about as much in these kinds of calls. But in my experience, a huge amount of value when we combine with another organization is bringing in people that have different experiences can help us innovate and improve. And I have seen that again. So that's another real positive, I just want to emphasize. Operator: We'll take our next question from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Mike, I'm guessing you might touch on some of this in a couple of weeks, I'm not trying to front run you in any way, but I want to ask you about exploration. So you just made the point that you've hired or you've inherited a lot of people presumably exploration folks on Guyana from Hess. But you also just hired the ex-Head of Exploration from Total. You used to be the top explorer, if you go back pre-shale 2010 through 2015, spending a significant amount of capital and exploration. I'm just wondering, as you think about shale maturity, not necessarily for you guys, but in the industry generally, what is your prognosis for exploration, the role of exploration and the associated spending that could fit in Chevron going forward, let's say over the next phase of your development? Michael Wirth: Yes. Thanks, Doug. Over the last several years, you're right, we've constrained our exploration spending, and we narrowed our focus into near infrastructure opportunities. We were adding a lot of resource and reserves in the unconventionals. And we're very serious about capital discipline. And so we made some trade-offs within the overall capital program. We now are at a point, I think, where we've characterized our unconventional position. It's a big and very attractive one. And we need to ramp up some of the exploration activity beyond just the focus on near infrastructure opportunities. So we'll move to a more balanced approach of mature areas that are well known and also early entry into high-impact frontier areas. We've added a lot of new country entries over the last couple of years in the South Atlantic margin, the Middle East, the West Coast of South America as well. So we will look to have a broader program in some of those areas, countries like Suriname, Brazil, Namibia, more opportunity in Nigeria and Angola, where we like some of the prospects that have added both blocks and have been shooting seismic recently. So we're looking for more out of that. We've modified our internal organization as part of the overall restructuring that you've heard about to simplify decision-making and speed it up. We're going to be bringing new technology to bear and have some really interesting things going on there. We've got some new people from Hess, also now Kevin joining us from Total. And our current Head of Exploration, Liz Schwarze has reached the end of a long and very wonderful career. It's a natural time to move on to a new person. And often, we look both inside and outside the company. And I think Kevin brings some unique experience that we expect will be helpful as well. And so, we will talk about that more in a couple of weeks when we see you. But the short story is more emphasis on frontier exploration. I think you'll see a little more commitment of resource. So that would be both people and capital to that. Operator: We'll take our next question from Biraj Borkhataria with RBC. Biraj Borkhataria: Actually, it's just another follow-up on the exploration front. It has been notable the new country entries. The one that caught my eye was in Namibia. I believe you're planning a 10-well campaign there. It doesn't seem like the first well has sort of put you off the basin. So a couple of questions related to that. Could you give us your updated thoughts on the prospectivity of the basin? And secondly, whether you feel like you have enough exposure through the exploration campaign or whether you'd be looking to add more from any inorganic opportunities that might arise? Michael Wirth: Yes. So look, we've got a portfolio of opportunities that's been identified from seismic on our blocks. We've drilled 1 well that didn't yield commercial hydrocarbons, but it was very well executed. And a lot of valuable information from that, that we're using to evaluate options to drill some other blocks on these licenses. We recently completed a farm-in on a couple of other blocks in the Walvis Basin, and we've got an opportunity to play some plate concepts from the Orange Basin into the Walvis with a well that we'll drill in '26 or '27. So that's an area that, obviously, there's been a lot of interest. And folks have had some success. We had success there a long time ago with the Kudu gas discovery, which is several decades back. And we remain optimistic. It's exploration. And so you've got a -- you've got to do the work to see what you find. The 10 wells you referred to, we've got an environmental permit that will allow us to go up to 10. I wouldn't interpret that as a plan to actually go to that number, unless we see things that would suggest that's the right thing to do. In terms of inorganic, we don't really comment on commercial activity or discussions, but we always look at everything to make sure we get a good understanding of the market. And as I mentioned, we've actually farmed into some things. And you'll continue to see, I think, us optimize our portfolio in Namibia as well as other locations. Operator: We'll go next to Paul Cheng with Scotiabank. Paul Cheng: My -- just -- when I look at your results over the past year or 2, your base operation has done really well. Just curious that have you changed the way that how you manage your base? And so has that become a repeatable? And honestly though, it's not just you, but the rest of the industry also seems to be doing better. So should we assume going forward, the underlying base decline is going to be far more modest for you, I think it's about 3%. So is that on the ballpark, we should assume or that could even be lower in the future for you? Michael Wirth: Yes. Thanks, Paul. I appreciate you paying attention to our base operations around the world. There's probably a couple of things I would point to for us, and I can't necessarily comment on others. Number one, we are focused on doing all the little things right. The restructuring of the company that's underway has created in the upstream, an organization now that is aligned around asset classes primarily. So offshore, unconventional. We do have a couple of big assets that are reporting uniquely in places like Australia and Kazakhstan. But we're aligned in a way now to drive best practices and technology more effectively across those operations. And as we improve in one place, we should see those improvements show up in other places more quickly. We are applying a lot of technology, and we'll talk about this a little bit more in a couple of weeks, but particularly the information technology that allows us to automate things and make decisions faster, stay on top of things, I think, is going to yield further results, but we're already seeing the early returns on that. The other thing that I would just remind you of is we have a portfolio, Paul, that as compared to, say, a decade ago, for sure, but you can look at different time periods. We have a lot more of our production now that is in either a facility limited position. Think of TCO or think of Gorgon and Wheatstone, as fields that could deliver more, but the facilities limit that. So you essentially don't see a decline there because those are very plateaued at low capital. And increasingly, Permian, DJ, Bakken, we have unconventionals that are being managed that way as well. And so at much more efficient capital, and you're seeing that in the Permian right now, the production for the basin can hold flat in a very capital-efficient manner. Now each well has -- new wells have that peaky production profile. But in aggregate, as you go from hundreds and hundreds into thousands and thousands of those wells that are in that kind of longer, flatter portion of their life, they also have kind of shallow decline that you can offset with this capital efficient program. So the point I'm making, and sorry for going on is it's a combination, I think, of portfolio effects, which yield less capital-intensive work to hold production and assets that have facility limits on them. And those combine to give us the attributes that you're observing. And that is intentional. That's not an accident. It's a portfolio that's been designed to do that. So we don't face the massive capital investment to offset big decline and are faced with that year after year after year. Operator: We'll take our next question from Steve Richardson with Evercore ISI. Stephen Richardson: Mike, I'd love your perspective on the California refining market. We've got a couple of pretty notable shutdowns in process and some proposed pipeline projects to bring products to the West Coast and obviously, more waterborne imports. So I would love to hear your perspective on that, the policy backdrop and what this -- where this leaves your business in the state? Michael Wirth: Yes. So the 2 recent, I guess, one that's underway right now and one that is set to close in 2026. Again, a lot of attention. Remember, there's a couple of other facilities that have been converted from petroleum-based feedstock to bio feedstocks with much lower overall production capacity. So you've seen a market where supply has tightened. It is a function of policy, pure and simple. Others have spoken to that as they've made changes either in the way a refinery is being used or announced plans to close it. And so, the policy is yielding the desired results. I think you're seeing some discussion now where the policy is being reconsidered, and there may be some small steps in the right direction we've seen, but nothing that I would say is significant. The other thing that is underway is people have to think about how do they get product to the state now because it is not going to be balanced to long. It is going to be balanced to short. And so marine imports are going to have to become a more regular feature. People are going to have to figure out how to do that. The recent talk about pipelines is interesting. California doesn't have inbound product pipelines or crude pipelines for that matter. These are interesting announcements. They're ambitious projects. There's many moving parts. These are complicated to permit. They're complicated to build. But I think fuel suppliers are looking for ways to meet the demand. One thing I think, as [indiscernible] the supply is going to come from somewhere. So to the extent California starts to pull product from other markets, that has other knock-on effects as well. And so we'll see if these projects get built, we'll see how the market dynamics play out. But it's clearly a changing market. We've got a strong refining and marketing presence there. And to this point, can compete and deliver acceptable returns, but that's something that will continue to be tested. And the policy moves by the state will have an impact on the decisions get made by us and I suspect by others. Operator: We'll take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: This was true before Hess, but now more so, Chevron's portfolio is more weighted towards upstream than many of your integrated peers. Are you happy with that mix? Or is that something that you might seek ideally to even out over time with more downstream or CHEM's exposure? Michael Wirth: Yes, Jean Ann, our portfolio post Hess is back to kind of 85% upstream, 15% downstream. And that's kind of where we've been over the last couple of decades. And so I don't think -- we don't feel compelled to try to weighted up in the downstream further than that. Over the cycle, and I came out of the downstream, I love the downstream business. I got a lot of affinity for it, but upstream is a declining depletion business. Downstream is a business of capacity creep in facilities that often get bigger over time, not smaller. And it's hard to close refineries down. We've seen some rationalization over the last 5 years as COVID and some other market imbalances kind of drove that. But historically, and I think going forward, we're still of a view that downstream returns over time are going to be more pressured than upstream returns, which tend to be a little more self-correcting. The one piece of the downstream, we've been pretty clear that we would like to grow is petrochemicals. We've got a couple of projects underway at CPChem right now. Tough market conditions in that sector. But over the long term, we like the demand growth and economic opportunities in petrochemicals. But I think you should expect to see us stay with a portfolio weighting that's not too different than where we are today. Operator: We'll take our next question from Jason Gabelman with TD Cowen. Jason Gabelman: It looks like equity affiliate distributions have been running much higher than guide year-to-date. I think every quarter, it beats guide this year by about $700 million. Wondering what's driving that beat? Is it TCO outperformance? Is it higher LNG prices? And should we expect that to continue into 4Q and next year? Eimear Bonner: Jason, I'll cover that. Yes, I mean, the affiliate dividends performance has really exceeded expectation, and it comes down to TCO's performance since starting up early in the year. They've operated safely and reliably and the results just speak for themselves. So it is really a TCO story. When we look at the guidance, though, I mean, no change to the guidance even with that outperformance. Given that in fourth quarter, we've got a pit stop plan for TCO. So you'll see production come off in the fourth quarter due to that pit stop. And so they also -- TCO have to conserve some cash because they've got 2 loan repayments to make next year, one in the first quarter and one in the third quarter. So those 2 factors are really driving the change in guidance that we've provided that on the surface looks like it's coming down, but really, it's being driven by those 2 things. Operator: We'll take our next question from Arun Jayaram with JPMorgan. Arun Jayaram: Just a quick follow-up on TCO. That was a driver of the earnings beat this morning. Your production on the liquids side grew 5% sequentially, notwithstanding the turnaround in fourth quarter, but are you essentially ramped to capacity there? Michael Wirth: Yes. We're really pleased with how TCO has been performing. We had another quarter of very reliable production, and I want to emphasize reliability, starting up a new complex set of processing trains like we did there. Historically, can offer some reliability challenges. And this one has been touch wood exceptionally smooth. So we're pleased with that. We didn't have any planned maintenance here in the third quarter. And so you see things running, yes, very much at planned nameplate. We continue to also -- one of the things that Mark mentioned when he was on the call last time is we now have 3 generations of surface plants to process both the liquids and the gas. The original complex technology line area of the facility, which goes way back. The second generation plant, which was started up last decade and now the third generation plant, which is this decade. We have an integrated control center that can route streams optimally across all 3 of these facilities. We're using a lot of high-end information technology to automate this to a greater degree. And so we've got more knobs to turn and levers to pull to really optimize plant performance. And we've got a field now that's producing us less back pressure, and so we're seeing all of that come through. The history on these great, big, complex facilities, a little bit like I mentioned about refineries is we do find ways to creep capacity and debottleneck them over time. It's premature to reset any guidance on that, but the history suggests that there's an opportunity there. And certainly, those are the kinds of things that our people are working on. Fourth quarter will reflect the pit stop that Eimear mentioned, but we'll be working on that and talking to you more about it over time as we see how things perform. Operator: We'll go next to Phillip Jungwirth with BMO. Phillip Jungwirth: One of the big U.S. upstream themes has been getting more value for Permian gas. There's been a number of pipelines announced FID-ed. I know Chevron is already relatively well positioned here. But given that you produce, I think around [indiscernible] day net from the Permian, just was hoping you could talk about what you're already doing on the marketing side here and also what you think you can do in the future to further maximize value? Michael Wirth: Yes. Thanks, Phil. I know this has been getting some attention recently. In the Permian, we market all of our company-operated production. So that would be oil, NGLs and gas, and just a little less than half of the NOJV production. So you can think about it in total, that kind of, call it, 70% or so of our production gets U.S. Gulf Coast pricing. The remaining portion of NOJV and royalty volumes that we don't market can be exposed to in-basin pricing and Waha pricing on gas. So our Waha exposure can vary a little bit each quarter. Last quarter, it was a little closer to 20% rather than the 30% that would be implied by what I just told you, because we were able to use some of our own excess firm transportation capacity out of the basin to capture value from others that didn't have an opportunity to move out of the basin. So we can capture some of the arb that opens up from time to time there to offset some portion of that volume that we don't actually market ourselves. Going forward, I think you should look for us to do more of the same. We're covered on all 3 streams right now for out-of-basin transportation. To the extent we're long, sometimes we can use that to capture additional value. And we tend -- because we're running a very steady, well-planned program, we can commit in advance because we've got a high degree of confidence on the composition of the production and the volumes that we're going to need. Obviously, for shippers -- or for midstream companies, we're a desired shipper given the credit quality and reliability that we offer to them. And so we'll continue to use that to ensure that we're well covered and that we can optimize value across the entire value chain. Operator: We'll take our next question from Lucas Herrmann with BNP. Lucas Herrmann: I just wanted to briefly go back to the Downstream and Chemicals. And as you mentioned, I mean you've got 2 very large facilities coming on stream in partnership with Qatar Energy next year. And the question is simply, as they come on or as they build the capacity, what's the increment at current levels that you'd expect from -- for cash flow? And to what extent a little bit like TCO, can one expect to see CapEx across CPChem fall and distributions to the central to yourselves increase? Michael Wirth: Yes, Phil, we'll talk about this a little bit more at Investor Day. Two things I would just point out, these are world-scale facilities. They have very advantaged feedstock positions and they will be very low on the cost curve. And so they're highly competitive facilities that will be coming into the market. At the margin, some of the length in the market tends to be in countries where they're cracking naphtha. They tend not to be world-scale facilities, and they're feeling a lot of economic pressure right now. So we think both of these projects are well positioned to deliver returns over the long term. They're kind of 20% type IRR expectations on these projects. We're very pleased with our relationship with QE. Chevron's exposure comes through a joint venture in CPChem and then a further venture with QE. So you have to think about that as you think about how exposed we are and how much cash those might generate because it flows back through the dividend policy at CPChem and we're only exposed to a portion of each of those facilities. So more to follow at Investor Day on that subject. Operator: We'll take our next question from Paul Sankey with Sankey Research. Paul Sankey: Mike, I know you can't talk obviously about the specifics of the analyst meeting, but I wanted to ask you -- if you just set the table a bit here in terms of the macro environment. And the reason I'm asking is just that this analyst meeting is going to be your first since 2023, which is the longest gap that you've had between meetings as far as back as I know. And so given the world, I just wanted to get your perspective on how the world has changed, perhaps some of it is cyclical, some of it is structural as we go into this meeting. And to answer the question a little bit and help you out here with what I'm thinking, I mean, you've got the continued war in Russia since 2023 Russia, Ukraine. There's a massive shift in ESG that we've seen since then. The AI boom completely new. OPEC policy, I think, has changed. And of course, the big one is the second Trump administration. And then finally, the interest rate environment, I guess, has changed. I'd just like you to kind of set the stage, if you want. Michael Wirth: All right. Well, Paul, what you've done is you've kind of teed up the answer I give to people when they say, isn't this kind of yesterday's business and there's not a lot going on in it. I mean the world changes constantly. And in 2.5 or 2 years and 8 months, whatever it will have been since our last meeting, a lot has changed. The war in Russia had only begun or the war in Ukraine. The Middle East hadn't seen the hostility breakout. We hadn't seen Iran hit the way that it now has been. You're right. We were kind of at peak ESG. At our last meeting, there was not much interest in AI at the time or not much public acknowledgment of what was probably going on behind the scenes there. OPEC was responding, I guess, at that point in time, still we've been in a high-price market due to the start of the conflict in Ukraine. But before long, they started constraining. And we had President Biden in the U.S., not present Trump. So we always have a changing context in this industry. The last few years might have had a little more interesting change than most. But the fundamentals really are what we try to look through and the global economy continues to grow. The population of the planet continues to grow. Economic development continues to advance. And affordable and reliable energy is fundamental to that progress. And I think the conflict in Ukraine has pointed that out. What we're seeing with AI and the stress on the power system in the U.S. is pointing that out. And so affordable, reliable energy is the lifeblood of a modern economy. That's the business that we're in and the fundamentals of that, we continue to believe offer value-creating opportunities for wise capital investment long, long into the future. So we'll talk about that. We'll give you some guidance on our business out to the end of the decade. Right now, I think most of our guidance goes to the end of next year. I think one thing I would say, Paul, is you should expect us to be consistent in what you're going to hear from us. Our strategy has stood the test of time over a pretty volatile period, as you just described. And we know you're interested in cash and earnings growth through the decade. What we'll also talk about is how we'll deliver that through continued capital and cost discipline, through innovation, through technology, through a very strong portfolio, through one that is low risk and high confidence, as I've seen in my career and is set up to continue to reward our shareholders with continued strong cash returns through the dividend policy where we have been a leader. And through a steady through-the-cycle share repurchase program, where I think we've been very predictable and consistent. So that maybe says no huge surprises. But it does say that a good story is continuing to get better. Operator: We'll take our next question from Bob Brackett with Bernstein Research. Bob Brackett: There's a view out in the macro market for oil that the market is oversupplied in '26 and that shale has to make some room for OPEC spare capacity. You all touch more barrels in the Permian than anyone through your operated, your non-op JVs and your royalties. What's the state of the Permian today? And how would you forecast that, say, into next year? Michael Wirth: Yes. I mean the current rig count is somewhere in the neighborhood of 250 rigs, I think, that is at or at least close to multiyear lows. I think most third parties seem to think that level of rigs is an appropriate number to maintain current production levels. And that's, of course, dependent upon are they still finding good productive opportunities beyond the top-tier acreage? Are companies still able to deliver cash back to shareholders, which is a promise that I think we've seen a lot of the Permian operators now commit to, that may be tested as we go through a period of lower prices, and see how they handle the trade-off between capital and cash returns to shareholders. We continue to see efficiency and productivity gains in our fleet. I think others are probably seeing similar kinds of gains and we continue to work on technology and things that will improve not only the ability to execute well, but the ability to recover more. So most companies seem to be guiding to kind of flattish or maybe slightly reduced CapEx as we go forward. I would say that's probably not a bad proxy for where production is likely to go. So not growing at the rate that we've seen before, probably plateauing. But as all of you that have watched the Permian over the last 15 or 20 years have seen these things change. And it's a dynamic basin. It's a highly responsive basin with a lot of players in it, and it can be quite responsive to market signals. Operator: We'll take our next question from Geoff Jay with Daniel Energy Partners. Geoff Jay: My question is on Argentina. I noticed that you had to produce a reasonably high percentage uptick in this quarter. And given that you -- I think you have roughly the same amount of acres there as you do in the DJ. I'm kind of curious as to how you think the potential of Argentina production could be over the next 2 or 3 years? And what are the key gating factors to that growth? Michael Wirth: Yes. Well, let me start by just reminding everyone that we've been in Argentina for many years. We've been in vertical production through some acquisitions that go back decades. And it's been a place where we've got a lot of history. We understand the subsurface. We really like the quality of the subsurface and our position in the Vaca Muerta both in the South at Loma Campana, where we're partnered with YPF and up North at El Trapial, where we operate ourselves. I'll also say it was encouraging to see the support for President Milei in the recent election. We've been pleased with some of the macro signposts in Argentina that have improved since the current administration took office in 2023, efforts to stabilize the banking system to reduce or remove capital controls, lower inflation, invest in regional infrastructure. Those are the types of policy reforms that can make Argentina more attractive for investment and more competitive within our portfolio. We don't really have a change in our near-term plans. We want to continue to see some of these signposts evolve. But we like the quality of the rock. We have seen some modest growth this year with kind of 25,000 barrels a day expected in 2025. We're taking lessons and talent and technology from these other basins to Argentina to improve outcomes. And with continued progress in the policy arena, this could compete for capital very effectively as we go forward. We certainly hope that it does. There's a lot of running room. I'm not going to quantify it, but it's got -- it's certainly got upside because it's got scale, as you say, and the quality of the rock is highly competitive. So the DJ might not be a bad analog, but we're going to be one step at a time. Operator: We'll take our next question from James West with Melius Research. James West: Quick question on the Permian for you. I'm curious, as other operators are dropping CapEx, dropping rigs, dropping frac spreads, you guys recently hit 1 million barrels a day. You're having a lot of success there. What's the differentiator on your operations versus, say, the smaller peers? Michael Wirth: Yes. Well, welcome, James. It's nice to hear your voice, and we look forward to seeing you in New York in a couple of weeks. Look, we operate on a long-term plan. We've got a factory or a manufacturing type approach to developing this asset. We plan our work and work the plan. We don't whipsaw it much on near-term commodity market dynamics. Smaller operators that may be not in the same balance sheet position, may not have a diversified portfolio, may have other financial constraints can operate -- may operate differently. We just find that a continued steady, consistent manufacturing approach allows us to pilot and trial new techniques, new technologies continue to improve. And we just grind out better efficiency and productivity each and every day. And so we're 40% more productive on drilling wells than we were just a few years ago. The same thing on completions. And I think the scale and the steady approach to development yields the steady improvement. And I think smaller companies just don't quite have the same ability to do that without having to reset the program. But look, I'll comment quickly on our NOJV. We partnered with some of the largest operators in the basin. And we're not seeing a lot of change in activity levels there at this point. Their activities remained aligned with our business plan. We've got very good line of sight on the 2025 performance through the balance of the year and pretty good line of sight on 2026 production where we've got plans, we've got visibility of wells that are either online or under construction today, AFEs that are already being processed for 2026. And so at least relative to our performance, there are not signs that we would see the NOJV piece of our business significantly constrained or contracting as we go through next year. Jake Spiering: I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call, and we look forward to seeing you in a few weeks. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron's Third Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Greetings, and welcome to the Weyerhaeuser Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor, you may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's Third Quarter 2025 Earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us today. Yesterday, Weyerhaeuser reported third quarter GAAP earnings of $80 million, or $0.11 per diluted share, on net sales of $1.7 billion. Excluding special items, we earned $40 million, or $0.06 per diluted share. Adjusted EBITDA totaled $217 million for the quarter. Our third quarter performance reflects solid execution by our teams against a very challenging market backdrop. Notwithstanding recent headwinds, we remain well positioned to navigate the current environment given our deeply embedded OpEx culture and competitive cost structure. We've done considerable work over the last several years to align our strategy with the cyclicality of our businesses. As a result, Weyerhaeuser is a much stronger company today than at any point in recent history. And we continue to demonstrate the durability of our portfolio, the strength of our balance sheet and the flexibility of our capital allocation framework across market cycles. Looking forward, we remain constructive on the longer-term demand fundamentals that support growth for our businesses, and we're ready to capitalize on opportunities as market conditions improve. Before getting into the businesses, I'd like to provide an update on recent actions to further optimize, improve and grow our Timberlands portfolio. Our recent Timberlands transactions are summarized on Page 18 of our earnings slide. In the third quarter, we completed two high-quality acquisitions totaling $459 million. This includes our previously announced transaction for timberlands in North Carolina and Virginia and another acquisition of exceptional timberlands in Washington state. Additionally, in the third quarter, we advanced three divestiture packages of non-core timberlands, one of which closed earlier this month, and the other is under contract and scheduled to close later in the fourth quarter. These two transactions will result in $410 million of expected cash proceeds by year-end. We anticipate closing the third divestiture in early 2026, and expect total proceeds from all divestitures to exceed the cash outlay required for our recently completed acquisitions. These transactions represent strategic opportunities to improve the quality and value of our portfolio. As we've demonstrated over the last several years, we're committed to active portfolio management across our timber holdings and it remains disciplined and nimble in our approach to growing the value of our timberlands. Through this process, we've achieved the multiyear timberlands growth target we announced in September of 2021. Over a similar period, we've also returned a substantial amount of cash back to shareholders through dividends and share repurchase and announced a compelling engineered wood products growth opportunity, all while maintaining a strong balance sheet. Moving forward, we will continue to evaluate capital-efficient opportunities that enhance the return profile of our timberlands while also balancing other levers across our capital allocation framework to drive long-term value for our shareholders. Additionally, in the third quarter, we completed the sale of our Princeton mill in British Columbia for $85 million. In September, we received $61 million of the proceeds in conjunction with the closing of the sawmill portion of the deal. We expect to receive the remainder of the transaction proceeds over the coming months following the transfer of associated timber licenses in the province. It's worth noting that our other lumber operations in Canada are not affected by this transaction, and we continue to serve our customers from our 2 sawmills in Alberta. Turning now to our third quarter business results. I'll begin with Timberlands on Pages 6 through 9. Timberlands contributed $80 million to second quarter earnings. Adjusted EBITDA was $148 million, a $4 million decrease compared to the second quarter. In the West, adjusted EBITDA decreased by $9 million. Log pricing in the domestic market faced downward pressure in the third quarter as supply remained ample, and mills continue to carry elevated log inventories and navigate a very challenging lumber market. As a result, our average domestic sales realizations decreased moderately compared to the second quarter. Per unit log and haul costs increased in response to higher elevation harvest activity that's typical this time of year. And forestry and road costs were slightly lower than the prior quarter. Our fee harvest volumes were moderately higher and exceeded our initial plan for the quarter, largely driven by fewer operational restrictions given a relatively light wildfire season. Moving on to our export business to Japan. Log markets in Japan softened somewhat in the third quarter in response to ongoing consumption headwinds in the Japanese housing market. As a result, our customers' finished goods inventories increased and log prices decreased. Despite this dynamic, our customers remain well positioned relative to imported European lumber, which continues to face headwinds in the Japanese market. For the quarter, our average sales realizations for export logs to Japan were moderately lower and our sales volumes were moderately higher, largely due to the timing of vessels. Turning to the South. Adjusted EBITDA for Southern Timberlands was $74 million, a $5 million increase compared to the second quarter. Southern sawlog markets moderated slightly in the third quarter as log supply increased with drier weather conditions and as mills further adjusted to weaker lumber markets. In contrast, Southern fiber markets were relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs remained steady given our delivered programs across the region. That said, our average sales realizations decreased slightly in response to a higher mix of fiber logs from increased thinning activity. Given favorable weather conditions, our fee harvest volumes increased slightly compared to the prior quarter. Per unit log and haul costs were lower and forestry and road costs were comparable. In the North, adjusted EBITDA increased slightly due to the higher sales volumes, resulting from the seasonal increase in harvest activity that is typical in the third quarter. Turning now to Real Estate, Energy and Natural Resources on Pages 10 and 11. Real Estate and ENR contributed $69 million to third quarter earnings and $91 million to adjusted EBITDA. Third quarter EBITDA was $52 million lower than the prior quarter, but $28 million higher than our initial outlook for the segment, largely driven by the timing and mix of real estate sales. It's worth noting that real estate markets have remained healthy year-to-date, and we continue to benefit from strong demand and pricing for HBU properties, resulting in high-value transactions with significant premiums to timber value. Notably, our average price per acre has steadily increased in 2025 and reached its highest quarterly level since late 2022. I'll now turn to our Natural Climate Solutions business. First, on our carbon capture and sequestration project with Occidental Petroleum, which is expected to reach first injection in 2029. In the third quarter, Occidental announced the formation of a joint venture for the construction and operation of pipeline infrastructure between regional customers in the CO2 storage facility in Livingston Parish, Louisiana. This represents another important milestone associated with our CCS project and underscores the importance of selecting sophisticated counterparties with strong technical, commercial and project development expertise. Turning quickly to forest carbon. We have now received approval on our fourth project and currently have 5 additional projects under development. We continue to see solid demand for our credits given our commitment to developing projects that meet a high standard for quality and integrity. For 2025, we still expect a significant increase in credit generation in sales relative to the last couple of years. And overall, we remain on track to reach $100 million of adjusted EBITDA from our Natural Climate Solutions by year-end. I'll note here that we are excited to go into much more detail on our Natural Climate Solutions business, including multiyear growth targets at our upcoming Investor Day in December. Now moving to Wood Products on Pages 12 through 14. Excluding a special item associated with the sale of our Princeton mill, earnings for Wood Products was a $48 million loss in the third quarter. Adjusted EBITDA was $8 million, a $93 million decrease compared to the second quarter. These results reflect extremely challenging lumber and OSB prices in the quarter, which reached historically low levels on an inflation-adjusted basis. Starting with lumber. Third quarter adjusted EBITDA was a $48 million loss as several ongoing headwinds persisted across the North American market. The framing lumber composite began the third quarter on a slight upward trajectory, largely supported by improving Western SPF pricing and broader concerns around the pending increase in duties on Canadian lumber. As the quarter progressed, demand softened seasonally and buyer sentiment turned much more cautious. In addition, the supply-demand imbalance worsened in response to elevated shipments of Canadian lumber into the U.S. market, ahead of the increasing duties. Collectively, these dynamics drove composite pricing significantly lower through the balance of the quarter. It's worth noting that we have seen pricing stabilize and move slightly higher for certain species over the last several weeks. At this point, the industry has largely worked through the excess lumber volume that entered the U.S. prior to Canadian duties moving higher. Although we do expect the typical seasonal softening of demand as we enter the colder winter months, leaner inventories, combined with elevated duties and the new 232 tariffs should support product pricing and bridge the market until we start ramping up for next year's building season. For our lumber business, production volumes decreased by approximately 3%, compared to the second quarter. This reflects our election in September to slightly moderate production across our mill set in response to the softer demand environment as well as the volume impacts associated with the closing of our sale of our Princeton mill late in the quarter. As a result, our sales volumes were slightly lower compared to the second quarter, and unit manufacturing costs were higher. Our average sales realizations decreased by 11% in the third quarter and were generally in line with the framing lumber composite. Log costs were moderately lower. Now turning to OSB. Third quarter adjusted EBITDA was a $3 million loss, primarily driven by weaker product pricing in response to subdued residential construction activity. Following a steady decline for most of the year, the OSB composite stabilized in August and was generally range-bound for the balance of the quarter, albeit at a much lower level than the prior quarter average. For our OSB business, average sales realizations decreased by 18%, compared to the second quarter. Our sales volumes were comparable to the second quarter. Unit manufacturing costs and fiber costs were moderately lower. I'll note that pricing has remained stable through October. And similar to lumber, we do expect demand to improve early next year as we approach the spring building season. Engineered Wood Products adjusted EBITDA was $56 million, which was comparable to the second quarter. It's worth noting that third quarter results included a onetime $7 million benefit from insurance proceeds associated with the fire at our MDF facility in Montana earlier this year. As for the performance of our EWP business, we continue to align our production with customer demand and single-family homebuilding activity, both of which softened somewhat in the third quarter. As a result, our sales volumes decreased for most products compared to the second quarter and unit manufacturing costs increased. Notably, our average sales realizations for solid section and I-joists products were comparable to the prior quarter. And raw material costs decreased primarily for OSB web stock. In Distribution, adjusted EBITDA decreased by $4 million compared to the second quarter, largely due to a decrease in sales volumes. With that, I'll turn the call over to Davie to discuss some financial items and our fourth quarter outlook. David Wold: Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 16. In the third quarter, we generated $210 million of cash from operations and ended the quarter with approximately $400 million of cash and total debt of just under $5.5 billion. Our balance sheet, liquidity position and financial flexibility remains solid, notwithstanding the challenging market backdrop, and we are well positioned to navigate a range of market conditions. Share repurchase activity totaled $25 million in the third quarter, and as of quarter end, we had completed approximately $150 million of share repurchase activity for the year. Capital expenditures were $125 million in the third quarter, which includes $32 million related to the construction of our EWP facility in Monticello, Arkansas. As we previously communicated, the total investment for the facility is expected to be approximately $500 million to be incurred through 2027. For full year 2025, we anticipate approximately $130 million of investments for Monticello. And as a reminder, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our cash return framework. Excluding CapEx for Monticello, we have lowered guidance for our typical CapEx program to a range of $380 million to $390 million in 2025. It's worth noting that we are always evaluating our capital allocation levers and have the flexibility within our framework to make adjustments in response to market conditions, alternate uses of cash and to fund growth opportunities. Given the timing of cash inflows and outflows associated with recently announced timberland transactions and typical liability management activities, we took advantage of the beneficial rate environment in third quarter to secure a 3-year $800 million term loan with an effective interest rate of 4.3%, and we used $500 million of the proceeds to prepay a portion of our 2026 maturities. Third quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment increased by $30 million compared to the second quarter primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the fourth quarter are presented on Page 19 and updates to full year outlook items are presented on Page 20. In our Timberlands business, we expect fourth quarter earnings before special items and adjusted EBITDA to be approximately $30 million lower than third quarter of 2025, largely driven by lower sales volumes and realizations in the West. Turning to our Western Timberlands operations. Log demand in the domestic market remains soft at the outset of the fourth quarter as mills continue to work through elevated log inventories and navigate a challenging lumber market. That said, log supply typically moderates into the winter months, which should provide some support for log pricing as the quarter progresses. On balance, our domestic sales realizations are expected to be moderately lower compared to the third quarter. Our fee harvest volumes are expected to decrease largely due to fewer working days in the fourth quarter and the pull forward of volume over the summer with minimal wildfire-related operational restrictions. Our per unit log and haul costs are expected to be lower and forestry and road costs are expected to decrease seasonally. Moving to our log export program to Japan. As Devin mentioned, log inventories have expanded in the Japanese market in response to ongoing consumption headwinds. As a result, we expect softer demand for our logs in the fourth quarter and lower sales volumes compared to the prior quarter. That said, we anticipate our Japanese log sales realizations to be slightly higher, largely driven by freight-related benefits. It's worth noting that we expect demand for our logs to improve over time as inventories normalize in the Japanese market and as our customers continue to take market share from competing imports of European lumber. Turning to the South. Sawlog markets remain muted as mills continue to navigate lower pricing and takeaway of lumber and work through elevated log inventories. However, we anticipate a slight uptick in log demand as supply decreases seasonally into the winter months. In contrast, fiber markets are expected to remain relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region, and we anticipate our sales realizations to be comparable to the third quarter. Our fee harvest volumes and forestry and road costs are expected to decrease seasonally and per unit log and haul costs are expected to be higher. In the North, our fee harvest volumes are expected to be moderately lower due to seasonal wet weather conditions, and we anticipate slightly lower sales realizations due to mix. Moving to our Real Estate, Energy and Natural Resources segment. Real estate markets have remained healthy year-to-date, and we have capitalized on strong demand and significant premiums to timber value. As a result, we are increasing our guidance for full year 2025 adjusted EBITDA to approximately $390 million, an increase of $40 million from prior guidance. We now expect Basis as a percentage of real estate sales to be 25% to 30% for the year, and we remain on track to reach $100 million of EBITDA from our Natural Climate Solutions business by year-end. For the segment, we expect fourth quarter earnings before special items to be approximately $5 million lower and adjusted EBITDA to be approximately $15 million lower than the third quarter of 2025 due to the timing and mix of real estate sales. Turning to our Wood Products segment. Excluding the effect of changes in average sales realizations for lumber and OSB, we expect fourth quarter earnings before special items and adjusted EBITDA to be slightly lower than the third quarter of 2025. We anticipate a slightly softer demand environment for Wood Products in the fourth quarter as housing and R&R activity typically moderates into the winter months. Looking further out, we would expect demand to increase into next year's spring building season and more broadly as the macro environment improves. Composite pricing for lumber and OSB has been relatively stable through October. That said, pricing for both products remains at historically low levels on an inflation-adjusted basis and slightly below third quarter averages. For our lumber business, we slightly reduced our production at the end of the third quarter in response to the softer demand environment and have maintained a similar operating posture through October. Assuming we continue with this reduced posture for the remainder of the quarter, combined with the effect of the Princeton sale, our lumber production would be approximately 10% lower quarter-over-quarter. As a result, we anticipate lower sales volumes in the fourth quarter. Unit manufacturing costs are expected to be comparable to the prior quarter and log costs are expected to decrease moderately. Looking forward, we will continue to ensure our operating posture is aligned with driving optimal financial performance. For our OSB business, we expect sales volumes and fiber costs to be comparable to the third quarter. Unit manufacturing costs are expected to be higher due to planned annual maintenance outages that are typical in the fourth quarter. For our Engineered Wood products business, we continue to align our production with customer demand, which is most notably tied to single-family home building activity. As a result, we anticipate lower sales volumes for most products compared to the third quarter, with our average sales realizations and raw material costs expected to be comparable. For our Distribution business, we expect adjusted EBITDA to be comparable to the third quarter. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, Davie. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets. Starting with housing. Overall, housing activity has remained lackluster this year with total starts hovering around 1.3 million units on a seasonally adjusted basis and single-family starts below 1 million units. Based on conversations with our homebuilder customers, the biggest issues continue to be ongoing affordability challenges and weaker consumer confidence. While mortgage rates have declined to the low 6% range, many potential homebuyers remain on the sidelines given elevated uncertainty about the economy, inflation and employment. The ongoing government shutdown is likely also not -- also having an impact on overall sentiment. All said, consumers have been less inclined to jump into the housing market in 2025, given all the noise in the broader macro environment. Moving forward, it seems we could see some of the tariff-related concerns easing over time. We might also get additional support from the Fed on interest rates in the coming months. And hopefully, the government shutdown will end soon. Perhaps clarity in these areas could alleviate some of the uncertainty that's been weighing on consumers in the housing market. And while I suspect we'll see the typical seasonal pattern of slowing construction activity over the winter months, we do expect to improve as we approach next year's spring building season. Over the longer term, our outlook on housing fundamentals remains favorable, supported by strong demographic tailwinds and a vastly underbuilt housing stock. In addition, there seems to be a growing appreciation that government policies need to better accommodate building activity to address housing shortages across the country. All of this will ultimately support healthy demand for housing over time. Turning to the repair and remodel market. Activity has been softer this year compared to 2024, largely driven by many of the same factors impacting the residential construction market, namely lower consumer confidence, higher interest rates and concerns around the trajectory of the economy. We've also seen less R&R activity in response to lower turnover of existing homes given higher mortgage rates and the lock-in effect. Looking forward, while we do expect seasonal moderation in R&R activity around the holidays, we're optimistic that demand will recover as interest rates move lower and consumer confidence improves. In addition, we think the dynamic around deferral of large discretionary projects over the last few years will ultimately serve as a tailwind as the macro environment improves. And longer term, many of the key drivers supporting repair and remodel activity remain intact, including favorable home equity levels and an aging housing stock. In closing, I'm extremely proud of the focus and resilience demonstrated by our teams in the third quarter. Despite the challenging market backdrop, we continue to execute against our strategy and demonstrate the durability of our portfolio and capital allocation framework across market cycles. Our financial position is strong, and we continue to capitalize on strategic opportunities to enhance the value of our portfolio. And looking forward, we maintain a favorable outlook on the longer-term demand fundamentals that support growth in housing, repair and remodel and climate solutions. And we remain focused on driving operational excellence, serving our customers and creating long-term value for our shareholders. And finally, we look forward to connecting with many of you at our upcoming Investor Day on December 11. Davie and I will be joined by other members of our senior management team to present a detailed overview of our strategic growth plan, enterprise capabilities and financial targets through 2030. For those of you who plan to attend the event virtually, please visit our website to register in advance for the live webcast. And with that, I think we can open it up for questions. Operator: [Operator Instructions] My first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on -- I want to talk a bit about how you're thinking of lumber and OSB capacity. Appreciating the comments around the fact that your lumber production will be 10% sequentially lower in the fourth quarter and expectations that housing activity could pick up as we get into the spring. But I guess as we think about what the builders are telling us, especially the big publics that they're going to slow starts late this year. And that sounds like it could hold into early 2026 as well. How are you thinking about the potential for further capacity to come out of your business. What are you watching for, for signs to determine if that's necessary? And how are you thinking about balancing the near term and the initiatives that you've put through with OpEx, which are obviously coming together and allowing perhaps for some share gains relative to the longer-term demand outlook? Devin Stockfish: Yes. I mean great question, Sue. The reality is this has been a really challenging year from a lumber standpoint and of late from an OSB standpoint. And that's largely been driven by just the dynamic that we've seen in the housing market primarily, but to a certain degree, by repair and remodel as well. And I think there are a lot of reasons to expect that over the medium to longer term, we need a lot of housing in the U.S. And so we're still very bullish on housing in the U.S. But as you say, in the near term, both from the standpoint of just the general consumer confidence environment, affordability. And then obviously, we're going into that time of year where we typically see some slowdown in residential construction. I don't think we have an expectation that we're going to see the demand environment for those products pick up dramatically here as we close out the year. So as we think about our operating posture, we look at a number of different factors, as you would expect. We think about consumer commitments. We think about balancing our fee volumes to maximize profitability across our integrated portfolio. We think about trying to maximize our earnings at both the mill and the regional level. Because of the nature of our portfolio, there are some dynamics that play with us maybe that wouldn't necessarily be the case for less integrated companies. We think about it from a short-term and long-term perspective. And really, we also look at it from a competitive dynamic in our space and really how we want to position ourselves with our customers. And that includes our position on the cost curve, all the levers that we can pull with our integrated scale business, the cost structure, the OpEx, the environment. So there are a lot of things that go into that. For us, I do think that look, from an operating margin perspective, I think we've demonstrated we're best-in-class. I think we're well positioned on the cost curve. And so we're going to continue to watch that as we progress through the quarter. I will say stepping back from our operating posture specifically when we look at the industry as a whole, it's been a tough environment, and we've seen some level of capacity announcements here recently. I think there's some quiet downtime going on in the market as well, but producers are not going to continue to operate below cash breakeven indefinitely. Something is going to have to change, and absent some dynamic with the demand environment that's going to have to come on the supply side. And that's just kind of the reality of where we are, at least until we start getting ramped up for the building season. Susan Maklari: Yes. Okay. I appreciate all those comments. And then maybe turning to the timberland side of the business. It's nice to see the acquisitions and some of those sales that you announced this quarter that will be coming through. I guess as you think about your timberlands portfolio and having reached the goals that you have set for yourself at the last Investor Day. How are you thinking about the positioning today? What should we expect going forward? And can you talk a bit about how you're thinking of the general footprint there? David Wold: Yes, look Sue, I mean we're really pleased with the Timberland portfolio activity that we've been able to complete over the course of this year and advance into early next year. Look, that's something that is a core part of who we are and what we do. We're always going to be active in this space. We're very pleased to have completed the target that we set out a few years ago. As a reminder, I'd say that was really our view of what we thought was a realistic level of programmatic M&A that we could affect in a disciplined fashion over a multiyear period. And so as we said at the time, we expect to be active, looking for opportunities to optimize our timberlands portfolio in a disciplined fashion, and that will continue to be true going forward where we can find acquisitions that we think create value. So I think we've demonstrated that we can create value anytime we transact, whether on the buy or sell side. So we'll continue to look for opportunities to optimize our portfolio moving forward. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: I appreciate the commentary. So I wanted to dig in a little bit more into the portfolio transaction that you made in Timberlands. Devin, what do you think the net cash generation has been benefited by the acquisitions relative to the divestitures. What do you think the sort of cash flow, if you had to look at it per acre has benefited just across what you sold relative to what you gained? David Wold: Yes, George, this is Davie. I'll take that one. And I'll dimension that in a couple of ways. Obviously, we've got the transactions that we're executing on here in the current environment. I think if you look back to 2020 over the series of acquisitions and divestitures that we've completed, that's somewhere in the neighborhood of $50 million of an increase to our annual EBITDA that we've been able to generate through the buy and sell activity. So it's a phenomenal way for us to continue to look to increase the cash flow generating capabilities and optimize the portfolio. The transactions that we've -- that we're working on this year, on the buy side, we've said that, that's on a 21x EBITDA multiple compared to the 45x multiple. From a divestitures perspective, we've disclosed the cash yields. So I think you can go do the math on what you think that looks like. Again, I think it's really important to note that we have the ability to create value anytime we're transacting on our portfolio, whether on the buy side, whether on the sell side, and I think our integrated portfolio, the scale and diversity, that gives us a way to unlock value on these types of transactions that others may not be able to do with the tools and teams that we've invested in over time. I think it uniquely positions us to execute in a disciplined fashion in this space. George Staphos: I guess my other question would be aimed at lumber, in particular. So again, recognizing that you are low on the cost curve and you have the higher margins in the sector from what we can see. Nonetheless, black at the bottom was born from kind of an absolute need way back when coming out of the crisis to improve the cash flow kind of irrespective of what everybody else was doing, where you're at and recognizing there's been a lot of progress. When we look at EBITDA losses this quarter versus, I guess, last year's third quarter, pricing was about the same, but the EBITDA loss was a bit further. What -- and maybe we'll talk more about this at the Analyst Day, but what are you doing to lower cost and try to get to a breakeven at these very, very labored, if you will, price levels for lumber? Devin Stockfish: Yes. I mean, I'll make a few high-level comments on that, George. I mean we've been focused on cost and OpEx for going on a decade at this point. And I think you can see that in our relative position against most of the industry. The reality is we are operating in an environment that is extremely challenged at present. The pricing dynamic that we are seeing currently is really one of the toughest pricing environments we've seen in a very long time. Now I think when you think about black at the bottom, I do think kind of pre-pandemic and the high single-digit inflationary environment that we saw for a few years, we were there. The reality is when you see inflation go up like that, it's going to take us a little bit longer to kind of work all the way back down there. There's just -- there's a scenario in any environment where prices go so low that it's going to be very difficult. I think that's where we are right now. And you can kind of see that hitting the entire industry. Again, we're well positioned on the cost curve. I think we're navigating the environment better than most. But the driver for negative earnings was just the weak price environment. And we did elect to reduce our operating posture a little bit in September, and we're carrying that through to October. But we're going to keep focused on efficiencies. We're going to keep focusing on reliability and cost and all the things that we do to make sure that we have world-class manufacturing operations, and to the extent that we do see a little bit of improvement in pricing, we'll be back in the positive from an EBITDA standpoint on lumber. George Staphos: Devin, if I could just -- if prices held at these levels, and we recognize why they can't because of where prices are for everybody in the fourth quartile and so on. But let's assume just for instance, that prices held at these levels, would you be able to, within the course of a year or 2 years through whatever actions and things that you know you have on your whiteboard to actually get to a breakeven level on a cash basis. Devin Stockfish: Yes. I mean we've got a path there. Every mill has a road map to get to first quartile cost structure. We're frankly largely there at most of our mills. So we have lots of things on the drawing board, and we're going to talk about some of that at our Investor Day and the continuing OpEx work that we're doing, and we're supplementing that with some of the things that we're doing from an innovation standpoint. So we're never done. But again, tough environment right now. It's not going to stay this way forever. It's unsustainable, and we'll be well positioned to take advantage of the market as things start to improve. Operator: Next question comes from Anthony Pettinari with Citi. Anthony Pettinari: When we look at leverage, net debt-to-EBITDA at 4.3x, I know that's backwards looking on what should be kind of trough Wood Products earnings. But I'm just -- if we do have a more muted year in '26, like it seems like we have had in '25, can you just talk about kind of guardrails on leverage, the levers that you can pull potentially to delever capital allocation priorities, maybe in -- if we kind of imagine maybe a bit of a tougher scenario in '26? Or just generally, kind of how you think about that given what's kind of optically at least elevated leverage? David Wold: Yes. Look, Anthony, I mean I think Devin laid it out well in his prepared remarks. We've done considerable work over the last several years to align our strategy with the cyclicality of our businesses. So with the strength of our company today, we have a tremendous number of levers. I think you hit on it right. I mean, really, the -- from an LTM net debt-to-EBITDA perspective, what you're seeing there is that with the EBITDA coming down, you're seeing that number tick up. But importantly, that's a number that's designed to be a mid-cycle evaluation, and we expect to be well under that target as EBITDA levels normalize over time. I mean I think from the starting point, we remain committed to maintaining that investment-grade credit rating, and that's going to be a guiding principle as we think about all the ways that we navigate these challenging markets. But again, I think our view is that eventually, we're going to see these markets improve, and we'll see that number normalize over time. Anthony Pettinari: Okay. That's helpful. And then your two public timber REIT peers are combining into one company. And I'm not asking you to comment on competitors, but I'm just wondering if you can share any thoughts on the consolidation we've seen in the timber space over the years. Maybe you can remind us how much you actually face off against Potlatch and Rayonier in your local markets? And if public timber REITs are moving, I guess, to Coke and Pepsi, like how should investors think about Weyerhaeuser's relative value proposition? Devin Stockfish: Yes. I mean, like you said, we're not probably going to comment too much on that acquisition. I will just say from a high level, we obviously agree that there is a significant benefit to scale and to having an integrated business. We've been operating that way for a very long time. We think that there are a lot of opportunities to create value in having a scaled integrated model. We compete against each of them in local markets as we compete against other landowners, both small private landowners, TMOs, et cetera. We'll compete against them in more or less the same way once they combine. I do think, from our standpoint, it's important to keep in mind, right? So we have 10.4 million acres. We're one of the largest wood products manufacturers in North America. I don't think this fundamentally changes in terms of the competitive operating environment in any region in any sort of meaningful way. But again, I do think scale and integrated business makes sense. So there's some logic in the deal. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: First, a small one, maybe leads into a bigger one. So on the HBU, you had pointed out that prices have been rising over the course of this year. Is that a function of just the mix of what you're selling? Or is it that you're seeing higher pricing for like properties than you were before? Devin Stockfish: Yes. I mean I think it's a little bit of both. There's always a component of mix, right? Because every quarter, there's going to be a slightly different mix of the properties that you're selling. So there's a part of it that's that, and there's some geography dynamics at play there as well. But I would say on balance, what we are seeing is -- on a like-for-like basis, we're continuing to see the prices that people are paying for this go up. And I think so it's a combination of both of those things, Mark. Mark Weintraub: Okay. Great. And then also, I hear you on the buying and the selling of timberlands and how optimizing the portfolio is very, very beneficial, makes total sense. At the same time, it's very interesting that the per acre at least to me, the per acre values that we're seeing as well as the multiples of cash flow that you were relaying, are as high as they are, if anything, it does seem like timberland values, like HBU, in the private market transaction seems to be trending higher, too. And obviously, your stock hasn't fared as well, lots of other variables at play. But does that color your appetite to be more aggressive on the sell side than on the buy side? And also, as you've gone out, particularly and sold some acreage, is your sense that there's a fair bit of money still looking to be deployed in the timberland space. Kind of color on that would be great. David Wold: Yes, Mark, let me comment just broadly on the overall timberlands market. I mean we continue to see very strong interest in the asset class. We've talked about the amount of capital that's been raised to pursue these assets. There's a lot of that that's still sitting out there, several billion dollars that's not yet been placed. Really, if we go back to the genesis of our 2021 target in timberlands, that was really coming from the standpoint of there's going to be an increasing scarcity in the availability of high-quality timberlands. And that's really played into all of the decisions that we have made over the last several years. And so I think that's guided our strategy, and I think it's an important element as we move from here. Devin Stockfish: I would just make one other kind of comment generally on that, Mark, and that is when you think about both the values that we're paying to bring the timberlands into our portfolio and the value of the timberlands that we're selling. Embedded in that is really, a, our team on the A&D side spends a lot of time out looking for high-quality deals. And I think you can see that really in all of the transactions that we've brought in. We're looking for very high-quality timberlands with good cash flow generation that can also create value through our integration, NCS alternative values. And so to some degree, the value that we're paying is reflective of the team's work and what we're looking for. But also even on the sell side, I think -- and maybe this was part of your question, we have a very high-quality timberlands portfolio existing. And so even when you think about some of the deals that we're selling, which are noncore to us, it is reflective of what is a very high-quality timberlands portfolio that we've assembled over, frankly, 100 years. And so I think both of those things play into the value that you're seeing on the buy side and sell side when we do deals. Mark Weintraub: That's helpful. And speak to maybe just one quick follow-on. Given that is the case, it would seem that, that discrepancy between how the public markets are valuing your stock, recognizing it's tough times in Wood products, and that's certainly playing a role. But are there other things that you're contemplating to help bridge at least what is a temporary seeming very, very wide gap between NAV and where the stock trades? David Wold: Yes. Look, Mark, that's always on our mind. I mean we're always out here trying to think about how we can create shareholder value. And part of that means looking at that very item. I think we're going to have a lot of items that we'll walk through at our Investor Day in December on that topic. I think we've been focused for a while now on how we can ultimately grow the value of the company and drive cash flow improvement through the cycle. So I think we'll have more to say about that in December. Operator: Our next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: I think Mark had a lot of good questions there. But maybe just dovetailing and trying to kind of wrap it up. Like Davie, you talked about remaining kind of active from a portfolio management perspective. Does that mean that we should expect that you guys will remain acquisitive going forward? Or just help me understand kind of that balance between being a buyer versus maybe a net seller looking ahead? David Wold: Yes. Look, again, we're going to consider all the options to create shareholder value. We think we can create value on both the buy side and the sell side. I mean I will note one of the realities here in the current environment as we look at all of the capital allocation alternatives that are available to us, when the inputs on some of the other alternatives are more attractive, that does raise the bar on what it's going to take from a timberland acquisition perspective. But I think it's indicative of the quality of the acquisitions that we're completing this year that they cleared that bar. And that's something we're always going to be looking at as we make those decisions. Kurt Yinger: Okay. Switching gears to the Wood Products side. A little bit surprising to see the EWP realizations up a bit in Q3. It sounds like you're expecting pricing to be stable in Q4. Is there anything temporarily benefiting that? I mean it seems to kind of diverge at least from what we've heard around the market? And how are you thinking about kind of overall competitive dynamics and what you're seeing out there? Devin Stockfish: Yes. I mean, well, look, the EWP market has been under some pressure this year, just as residential construction activity has been soft for a bit. As you know, EWP demand is largely driven by residential construction. And with the housing market being stuck in second gear, no doubt that's been a bit of a headwind. And we've seen pricing come down somewhat over the course of 2025. But that being said, I do think that we've managed the environment fairly well. We've mitigated some of the downward pressure, and that's largely a function of the power of our Trus Joist brand, the quality of our products and really I think, to a large degree, the service model that we provide to our customers. And so while there has been some pressure on pricing, we're doing everything that we can to bring value to our customers in what is a tough environment. And I'd also say in this environment, which has been challenging, we're also out there working to take market share, take market share from competitors, take market share from Open Web. So we're out there really pushing. And I think it's a testament to the team that we've been able to keep our market share, grow our market share, keep the pricing relatively stable in what is a very challenging environment. And we'll adjust our operating posture as needed through Q4, as we said. But ultimately, we feel like we have a really good brand, a really good business here in EWP, and we're going to continue to look to find ways to take advantage, whether we're in good markets or bad markets. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with, on the timberland side, particularly in the U.S. South, we've seen a lot of pressure on pulpwood prices here in the last 4 to 6 quarters, I mean these are kind of multi-decade lows right now. Some of it is -- sure has cyclical weakness, but we've also seen a lot of pulp and paper mill shutdowns, which it seems like kind of will be hard to reverse here. So can you sort of talk to kind of what you guys are seeing out there on the pulpwood side? And how you at least in your sort of wood baskets, what can you do to help mitigate some of that. I guess the Engineered Wood plant that you're building will help, but anything outside of that? Devin Stockfish: Sure. Well, the reality is, as you say, I mean it's unfortunately been the case that we have seen a lot of pulp and paper capacity coming out of the system. And that's something -- it's not new. This has been going on for a while. But even this year, we've seen several fairly large pulp and paper mills shutting down. Now I will say one of the benefits to the diversification that we have geographically as well as just the integrated model that we have, the scale that we have, we do have levers that we can pull when you see those market dynamics. And even with the mills that have shut down recently, we're typically able to just move volume to different customers. So it probably impacts us maybe to a lesser degree than some others. We also have some levers, for example, one of the IP mills that shut down, we were able to move some of that volume to our OSB mill. And so we have some levers. As you say, the Engineered Wood Products, Timberstrand facility that we're building in Arkansas will be using a fair bit of pulpwood in that geography. But it's an issue. It's an issue for the industry. I think it's going to be challenging. We do have some ideas. And frankly, we're going to lay some of those out at our Investor Day. So I'm not going to front run that, but it's an issue. I would say, though, for us, on balance, fiber demand has been pretty steady lately. You see a few dips here and there on pricing, at least temporarily when you see a mill close down. But I think we're doing a pretty good job overall in navigating that... Ketan Mamtora: Got it. No, that's helpful. And then Switching here to sort of capital allocation. Obviously, a lot of discussion here on the call around both acquisitions and divestitures in timberlands. I'm curious on the downstream side, given how extended the downturn has been in lumber, would that be sort of an area of interest from an inorganic growth standpoint for Weyerhaeuser? David Wold: Yes. Look, Ketan, we're -- we've had a focused M&A strategy. I think you've seen us be really active on the timberland side over the last several years with the portfolio improvement opportunities. But we're always evaluating and looking at opportunities for bolt-on as well as potential larger scale M&A opportunities. But of course, as always, they've got to meet our stringent criteria. We are focused on making sure that the assets are complementary or accretive to our industry-leading portfolio. They've got to be cohesive with our longer-term strategy and drive significant value for our shareholders. So that's really how we think about it. Operator: Our next question comes from Hamir Patel with CIBC. Hamir Patel: David, I was just wondering how you think about the opportunity to grow Southern pine log exports. I know China has cut off, but what sort of opportunity do you see in India over time? Devin Stockfish: Yes. I mean we're really excited about the opportunity. Obviously, we would prefer that the China market get opened back up, and I can tell you we're having conversations with the administration about that topic on an ongoing basis. But in the interim, I do think the silver lining behind the China log ban has been it's really increased our focus on India. And I do think that there's a pretty significant opportunity there. We've been growing our India export business as well as, frankly, trying some additional markets in Southeast Asia. Again, we're going to go into a lot more detail about that opportunity at our Investor Day, but I would just leave you with I think it's a real opportunity for us. We have been growing it, and we have some plans to grow it meaningfully from here. Operator: Our next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just two quick questions on Japan for me. First, should that inventory destocking phenomenon be relatively short-lived in your view, maybe a one quarter headwind? Or could that persist longer? And then second, you addressed demand conditions, but I was wondering if you could also provide some perspective on how supply has trended over the last quarter or so. Is there anything we should be thinking about around trends on the supply side, maybe around imports from Europe or elsewhere that maybe also contributed to this situation? Devin Stockfish: Yes, happy to answer that. I do think it's going to be relatively short-lived. The issue -- without getting into too much detail, there was a regulatory change in Japan that impacted the timeline in getting permits for smaller houses and that created a real backlog in managing those permits. And so what you saw was a bit of a slowdown in the housing environment. We expect -- our customers expect that will resolve itself and things should normalize. I mean they have some headwinds from a demographic standpoint, of course. But that being said, our customers are really, really well positioned in that market. And candidly, notwithstanding some of the challenges that they have in Japan, the customer base that we have, the cost structure that they have, the mill investments that they're making, I'm as optimistic about the Japanese opportunity in the midterm as I have been in a while. So we think that, that will -- the headwind on consumption should resolve itself relatively soon. The big dynamic at play currently is just that relative cost position of our customers with our logs from the Northwest competing against European supply. In Europe, log costs in many of the key producing regions have been going up fairly dramatically, add in some other cost competitive dynamics at play. It's just a really challenging environment for European lumber coming in that market. And so our customers taking advantage of this and they're really looking to grow market share. And so like I say, I'm pretty optimistic about that opportunity over the medium term. Operator: Our next question comes from Hongliang Zhang with JPMorgan. Hong Zhang: I guess you've adjusted lumber production in response to the weakness in prices, but with OSB pricing where it is, would you potentially reduce production as well? I'm just asking relative to your guidance of comparable volumes in the fourth quarter. Devin Stockfish: Yes. I mean, so OSB, just like lumber, it's something that we're going to continue to watch and monitor. We'll adjust as necessary. Most of the same considerations that I talked about earlier with respect to our decisions on lumber capacity are equally applicable. I will say, as we mentioned with lumber from a cost curve standpoint, we're in a pretty good spot. And so that certainly plays into our consideration there. But like lumber, we're going to continue to watch that, and we'll make adjustments if necessary. Operator: Our final question is from Mike Roxland with Truist Securities. Michael Roxland: One -- the first one I have is, Devin, you mentioned that there are some items that you consider as an integrated producer in terms of running lumber, that smaller nonintegrated producers don't have to consider. Any way to expand on what factors you're referencing? Devin Stockfish: Yes. I mean, so there are a few things, right? So we can adjust log flow to our mills to make sure they're getting the optimal log mix to maximize profitability. You can take a little bit more risk on log supply because you know you have the full power of the timberlands business. If you have a rain event or a weather event and you start to lose inventory, you can flex that very quickly. I would say just in general, the planning on ultimate product mix coming out of the lumber mill when you work closely with your timberlands business, you can get that dialed in to make sure that you're optimizing the mix to maximize profitability. So there are a bunch of planning things that you can do when those two businesses are working together to really maximize profitability across market cycles. It's always important, but I would say particularly in the environment that we're in today where every dollar counts. And so our teams, as you can imagine, are working together every single day to make sure that we're maximizing the profitability across our portfolio. David Wold: And Mike, I would just add, I mean, those are a lot of the things that we can do from a day-to-day operational perspective, but when you think medium term, longer term, some of the larger-scale strategic things we can do like putting a Timberstrand facility in a place that's very advantageous for our timberlands business. That's another huge advantage that we can drive with that integrated portfolio. Michael Roxland: Got it. And in this one, I know we're running over here, but just one quick second question. In terms of Natural Climate Solutions, any concerns over the government cutting funding? I know you've spoken about this in past calls, but obviously, the government from the get-go has been aggressive with wind. From the outset, it's become more -- it seems to have become more aggressive on solar. So any concerns about government and maybe restricting federal funding for these types of projects. Devin Stockfish: At a high level, I'm not particularly concerned about that. Certainly, some of the things that came out of the Big Beautiful Bill did impact, particularly on the renewables side. I do think for our partners, we align with more sophisticated larger partners who, to a large extent, saw this coming, and so their pipeline feels pretty good. So I don't think it's going to have any meaningful impact over the next several years. There may be an air pocket when you get towards the end of the decade on some of these renewable projects, but these are typically long term. And I would just say CCS with the 45Q tax incentive that did make it through the bill. And overall, even though the rhetoric certainly has changed in this current environment, behind closed doors, most big company management teams understand this is a long-term issue that they're going to have to address. And so I haven't really seen a meaningful drop-off in the level of interest in these solutions even in this current environment. Operator: There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: All right. Well, thank you, everyone, for joining us today. Thank you for your interest in Weyerhaeuser, and we look forward to seeing you at our Investor Day in December. Take care. Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Carlyle Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Daniel Harris, Head of Public Investor Relations. Please go ahead. Daniel Harris: Thank you, Michelle. Good morning, and Happy Halloween, and welcome to Carlyle's Third Quarter 2025 Earnings Call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; Chief Financial Officer and Head of Corporate Strategy, John Redett; and incoming Chief Financial Officer, Justin Plouffe. Earlier this morning, we issued a press release and a detailed earnings presentation, which is available on our Investor Relations website. This call is being webcast, and a replay will be available. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided a reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz. Harvey Schwartz: Thanks, Dan. Good morning, everyone, and thank you for joining us. We delivered another strong quarter of results, as we continue to execute our strategic growth plan. For the third quarter, we delivered FRE of $312 million and now have generated $946 million year-to-date, up 16%; record AUM of $474 billion, up 7% year-to-date; organic inflows of $17 billion in the quarter and nearly $60 billion over the past 12 months with significant capital coming from credit, secondaries and global wealth. With this momentum, we feel confident about exceeding the financial targets we updated last quarter, which included full-year FRE growth of approximately 10%, up from our prior outlook of 6% and full-year inflows of $50 billion compared to our prior outlook of $40 billion. Before I dive into more specifics of the quarter, I'd like to address the macro environment. As we look across markets today, this remains a somewhat complex, but quite resilient environment. While the markets have been impacted by ongoing headlines related to policy shifts and geopolitics, the underlying health of the global economy continues to be strong. Inflation has moderated, balance sheets are healthy, and overall, consumers are still spending. With official government data delayed by the shutdown, earlier this month, we released Carlyle proprietary U.S. economic data. These indicators are derived from our portfolio of nearly 300 operating companies and more than 700,000 employees. These insights provide one of the few real-time views into the economy, steady EBITDA growth, continued investment in technology and AI infrastructure and resilient consumer demand. Turning to credit markets. There's clearly been a lot of focus here over the past several weeks. To date, our own market and portfolio data are not signaling any broad deterioration in overall credit quality or systemic risk. Consistent with the economic data I just walked through, fundamentals remain pretty solid and credit events have been idiosyncratic. Of course, the credit cycle is evolving, as it should, repricing where necessary, but again, not flashing broad stress. Capital markets activity has meaningfully accelerated. Announced M&A volume was up more than 40% year-over-year in the third quarter. IPO volumes are up 60% year-to-date with increased activity during the quarter. Now turning to our global private equity business. We've capitalized on an improving transaction environment, returning capital to our limited partners. Over the past year, we have returned $19 billion in capital to investors in global private equity, 150% of the industry average. Note, this does not include $5 billion of signed transactions. Our momentum internationally continues. In Japan, we announced the successful IPO of Orion Breweries. This marks a positive indicator for the broader IPO market and is another important milestone for our team in the region. In Europe, we recently completed the sale of Calastone and announced the sale of HSO. Lastly, in private equity, we recently announced the EUR 7.7 billion carve-out of BASF's coatings business, leveraging our global industrial platform and deep carve-out expertise. In the past 20 years, Carlyle has done 19 industrial corporate carve-outs with an average IRR of 25%, another great example of the unique operating skill set we bring to our investors. In Carlyle AlpInvest, the team continues to deliver exceptional growth with FRE more than 80% year-to-date. Last month, we closed our largest-ever secondaries fund of $20 billion, further scaling the business. We recently closed a $1.25 billion publicly rated, GP-led collateralized fund obligation, the largest of its kind to date. This underscores Carlyle's leadership and innovation within a rapidly expanding segment of the marketplace. We also recently completed a $550 million credit secondaries continuation vehicle, reflecting the evolution of our business across newer asset classes. Carlyle AlpInvest is a market leader at the forefront of an industry with strong secular and cyclical tailwinds. In Global Credit, our platform continues to scale. During the quarter, inflows into our asset-backed finance strategy were almost $2 billion, highlighting the continued demand for private investment-grade assets. Our strategic approach to insurance solutions continues to pay dividends across all aspects of our investment management capabilities, including our partnership with Fortitude Re and with our third-party insurance clients. Justin will get into more details about Fortitude Re, but insurance remains a key driver of growth for Carlyle, and we continue to see momentum across the platform. Finally, moving on to Global Wealth, our momentum remains strong. When I first joined Carlyle, we were attracting about $300 million per quarter in evergreen wealth inflows. Today, we're running at 10x that level at $3 billion of inflows, our best fundraising quarter in Global Wealth ever. To be successful across all aspects of wealth, retail and retirement, you need experience, scale, brand recognition and diversification. Part of our strategy is partnering with extraordinary brands, like our recent announcement with Oracle Red Bull Racing. This marks the first ever private markets partnership in Formula One and aligns directly with our long-term global wealth strategy to reach new clients and deepen engagement in key markets. Over the last 2.5 years, we mobilized quickly to capitalize on the growth of private markets and retail. We continue to invest heavily into the business, adding resources and platform partnerships to drive growth. To wrap things up, we are well on our way to exceeding our financial targets for this year and have very strong momentum heading into 2026. With that, let me turn things over to Justin. Justin Plouffe: Thanks, Harvey, and good morning, everyone. Q3 was yet another strong quarter, consistent with the long-term growth trajectory we've established. We generated $368 million of distributable earnings or $0.96 per share. Year-to-date, distributable earnings totaled $1.3 billion or just over $3 per share, up 10% from last year. Fee-related earnings were $312 million for the quarter, up 12% year-over-year. This increase in FRE has been fueled by organic topline growth. For Q3, total fee revenue increased 11%, and year-to-date, a 13% growth rate represents our fastest pace of growth in the last 3 years. Roughly 55% of firm-wide FRE now comes from Global Credit and Carlyle AlpInvest. That's up from about 25% just 5 years ago. FRE margins remained strong at 48% for the quarter and year-to-date, exceeding last year's record of 46%. Capital markets and transaction fees were $32 million, up almost 20% year-over-year and have more than doubled over the past 12 months. As we said throughout the year, our FRE growth is entirely organic and reflects the scalability of our model and operating discipline across the firm. We are on track to exceed our full-year target of at least 10% growth in FRE while continuing to invest for the long term. Let me turn to a couple of highlights for our businesses. Carlyle AlpInvest delivered another excellent quarter, raising $6.3 billion of capital, bringing the year-to-date total to more than $15 billion. Third quarter inflows were driven by both institutional demand and strong momentum in our global wealth products. AUM at AlpInvest now sits at $102 billion, up more than 20% year-to-date. FRE at AlpInvest now represents 23% of Carlyle's FRE, about triple the level from just 2 years prior. Global Credit generated nearly $10 billion of inflows this quarter, and over the last 12 months, inflows have totaled $31 billion, helping lift total AUM to $208 billion. Global Credit AUM now comprises 45% of firm-wide assets and has grown at a 33% CAGR over the past 5 years. And Global Credit's FRE is now nearly 1/3 of Carlyle's total. Our Global Credit business is comprised of a diverse set of platforms that deliver attractive risk-adjusted returns for our investors. Our $87 billion insurance solutions platform is anchored by our strategic partnership with Fortitude Re and has been quite active over the past few months. It closed its $4 billion reinsurance agreement with Unum, its fourth reinsurance transaction this year, issued an inaugural $500 million funding agreement-backed note and recently launched a reinsurance sidecar focused on driving growth in Asia. Together, we believe these initiatives will lead to more than $20 billion of new AUM in the intermediate term. Our leading nearly $50 billion global CLO platform had inflows of more than $3 billion in the quarter. Credit quality remains strong, and the business has recently been recognized for having among the best performance across all U.S. CLO managers this year with the faults running well below the industry average. Our $13 billion direct lending platform has been growing at a 20% CAGR in the past 5 years. We believe the market opportunity for direct lending will continue to grow, and we are continuing to invest in this platform, adding resources across leadership and origination. Credit quality remains healthy across the portfolio with realized losses running at an average of just 10 basis points per year over the past decade. Our $10 billion asset-backed finance business raised $2 billion just this quarter, and our leading $20 billion opportunistic credit strategy continued to deploy its third vintage fund and is quickly approaching its next fund raise. Shifting now to Global Private equity. Over the past year, we have attracted nearly $9 billion of capital into our GPE strategies. And today, we have $40 billion of available capital to deploy across the platform. We're excited about our growing transaction pipeline as we head into the fourth quarter, including the recently announced EUR 7.7 billion transaction with BASF in partnership with the Qatar Investment Authority. We also have nearly $5 billion of announced exit transactions that we anticipate to close in the coming quarters. While Q3 was a lighter realizations quarter, we expect a significant step up in Q4. In addition to this, as you may have seen, one of our U.S. bio portfolio companies, Medline, filed a registration statement with the SEC in connection with the proposed IPO. We remain excited about the future of Medline and congratulate the management team on all they have accomplished so far. In Global Wealth, our evergreen vehicles continue to scale quickly. We currently have more than $32 billion of evergreen capital, and we raised $3 billion across our evergreen wealth products this quarter. The $6 billion raised over the past year reflects a 90% growth rate from the same period last year. Notably, our new Carlyle AlpInvest CAP solution in partnership with UBS saw strong demand in its first full quarter and has already surpassed more than $1 billion in assets. Finally, I'd like to say a few words about the state of our balance sheet and capital management activities. During the quarter, we took advantage of strong debt markets and issued $800 million of 10-year notes at 5%. This extends the duration of our liabilities and leveraged our strong credit rating. This capital provides additional flexibility to invest in growth initiatives in the coming years. We also repurchased over $200 million of stock in the quarter, reflecting our conviction that Carlyle shares continue to be an attractive investment. We are disciplined and opportunistic when allocating capital, balancing share repurchases with investments to drive future growth. Our balance sheet is strong and well positioned to support our organic initiatives and the firm's long-term financial flexibility. To summarize, our third quarter results highlight continued growth earnings diversification and operating momentum across the platform. We're executing well, scaling efficiently and delivering attractive results for both shareholders and investors. I look forward to meeting and working with all of you more over the coming months. And before we get to Q&A, I'd like to hand things over to John for some concluding thoughts. John Redett: Thanks, Justin. Good morning, everyone. Let me make a few points on the progress we've made on our strategic plan over the last 2 years. We grew AUM 25% to nearly $475 billion. In the last 12 months, we grew FRE more than 50% to $1.2 billion. Not only did we grow FRE, we improved FRE margins by over 1,200 basis points. We overhauled our capital allocation and compensation strategy. We returned more than $2 billion in capital to shareholders through dividends and repurchases. We also implemented a strategic update to our compensation strategy to increase alignment with all stakeholders. This allowed us to pay more carry to our employees and more fee-related earnings to you, our shareholders. We overhauled our global wealth strategy. As Harvey said, we increased our inflows 10x. And lastly, our focus on capital markets has clearly generated momentum. We have more than tripled our revenues over the last 2 years to almost $240 million. The positive momentum we carry into 2026 is the direct outcome of the extraordinary work of our people. I'm excited to begin my next role, leading global private equity, a business with world-class investors and significant momentum. With that, let me turn the call over to the operator for your questions. Operator: [Operator Instructions] And our first question will come from Brian Mckenna with Citizens. Brian Mckenna: So looking at inflows for the -- hey, how's it going Harvey? So looking at inflows for the quarter, it was clearly a little bit lighter in private equity, but credit and solutions both came in above expectations, and there's a lot of momentum there. It would just be helpful if you could talk about the outlook for inflows by business into year-end. And how you're thinking about flows throughout 2026 and some of the different drivers there? And then, I guess, do you have any visibility into some of the larger insurance transactions that might be coming in over the next couple of quarters? John Redett: Thanks, Brian. It's John. Look, we feel very good about where we are in terms of inflows. This is an area where I think we have tremendous momentum and really reflects we have strong investment performance across the firm. And I would say client engagement remains positive and remains elevated. So $17 billion in the third quarter, obviously, a very strong quarter, it's nearly double the third quarter from 2024. If you look at kind of an LTM basis, we're $60 billion, and year-to-date, we're around $45 billion. So we feel good about the revised guidance that Harvey alluded to in his script, which we provided last quarter, which was around $50 billion. Again, we're at $45 billion year-to-date. We obviously had a very strong quarter in credit and AlpInvest. Harvey talked about how we closed on the secondaries platform, where we raised $20 billion, but we had a really strong quarter without any real private equity funds in the market. So I feel good about the diversification that's driving this growth. So overall, I'd say in terms of inflows, we have tremendous momentum going into the fourth quarter, but more importantly, going into 2026. Operator: And our next question will come from Alex Blostein with Goldman Sachs. Alexander Blostein: Justin, welcome to the call, and John, congrats again on the new role. Harvey, maybe just building on that a little bit. You alluded in your prepared remarks, in the script as well, just around the strong momentum you guys think for 2026. Maybe expand on that a little bit. What are the key top-of-the-house priority in terms of growth for next year? What do you find to be most needle moving? And what do you guys ultimately that could mean for management fee growth into '26? Harvey Schwartz: Great, Alex. So I would say at this particular point in time, the momentum for the firm has never felt better. And I say that in terms of client engagement globally, the strategic execution of the team. And I think that, when I say that, I'm talking about all aspects of the firm. So you see it in solutions, you see it in the wealth channel, you see it across credit. It's a quiet year for private equity and fundraising, but the performance by the team, as I mentioned, has been remarkable, returning 150% of the average of capital. When you think through 2026, the demand for capital is going to be quite high. So I think deployment will be good, and I think the opportunities would be great. We see opportunity virtually in every part of the platform. If you think about credit, they're building quite quickly in the asset-backed business. You'll see more activity there. Same across insurance, the pipeline remains very good and fortitude and the engagement just broadly speaking, with insurance clients, as they continue to invest in private credit. So the team has done a remarkable job there. We have the 2 flagship wealth funds, evergreen funds, up, CPEP will really be in the market next year. And so you'll see another wealth flagship vehicle, which will give our wealth investors the opportunity to participate there. So really when you sort of look at all aspects, either through the client lens or the specific business, I feel very, very good about the momentum and about flows and about growth. And then, capital market still has a lot of room to run, and that's just going to be levered to activity. And so all the pieces now that we've been putting in place over the last couple of years, and I have to thank John for his leadership and partnership in that role, you're really starting to see it, but we're -- really feel we're just very much at the beginning of that. Operator: And the next question will come from Glenn Schorr with Evercore. Glenn Schorr: So I'm curious, you had a lot of good things to say about the forward momentum in realization pipeline, and all the banks are super supportive in the deal environment coming through. So when you go through your comments of your $5 billion of announced transactions, I don't know if you can help us a little bit on timing with that. But fourth quarter better than third quarter, Medline IPO happening, I guess my question is if we could peel back that onion a little more because I think that's the part of softness in the quarter and just a light realization quarter. And then, as you move into next year, I think that's where the extreme bullishness on the bank's part was, as we head into early '26, does your forward pipeline align with that? And then, again, trying to get at what some of the other questions get in that is what does that mean for an FRE story for next year? This year, you beat your 10%, is it shaping up to be a bigger story than that next year? Harvey Schwartz: Sure. I think that was 4 questions. Glenn, I just want to point out you're violating Dan's rule, but we're going to address it all. So I'm going to ask John to talk to the extreme bullishness in the pipeline. One thing I will say is that's not a quarter-to-quarter thing in our business, and so I think people should understand it. But John, why don't you give a little more color on how we think about that pipeline, monetizations and realizations? John Redett: Yes. I would just echo a little bit what Harvey said, Glenn, we as a management team don't look at quarter-to-quarter. It's much more of a multi-quarter view that we take. I mean, it's just part of the private equity business. It's hard to control when deals close, and it's just -- it is what it is. I think just taking a step back in terms of -- we have been very -- this management team and our investors have been very focused on performance, and we are incredibly pleased with our investment performance. And I would say the team -- the investment teams have been very focused on realizations, and the numbers show that. Realization activities are up 35% in the last 12 months. In global private equity, which I think most people focus in on in terms of realizations, that's where most of our carry funds are, we've returned nearly $20 billion in the last 12 months, and that's 30% higher than the prior period. And as Harvey said in his prepared remarks, as of third quarter in Global Private Equity, we're 150% of the industry average. So clearly, we're an outlier in a positive way. I would also say -- our engagement with our investors is very positive. But let's just focus in on your question in terms of the pipeline. In our U.S. private equity business, I would say we are returning more capital than we have -- than our goals or our targets. Since we had the end of the third quarter, we've closed on $1 billion of transactions. That includes the Calastone transaction, which was a very good transaction across a couple of different funds for us. We also will likely close -- announce and close on a deal today, which is in our U.S. private equity business. In terms of the $4 billion of deals that are signed and pending close, that does not include, Glenn, the Medline IPO, which, as you know, we publicly filed for an IPO on Tuesday. But -- look, I can't say all of this $4 billion of pipeline will close in the fourth quarter, but it's a big number. Most of it will probably close in the fourth quarter. Some of it might spill over into the first quarter. But we feel very good in terms of we are giving our investors in our private equity business. We are giving them back more money than we are investing, which is a positive in the environment we're in. In terms of just kind of high-level pipeline going into 2026, I'd say our deal teams are very busy, both in terms of deployment and realizations. And I think the pipeline, including the Medline IPO, speaks volumes to kind of how our business is positioned in terms of momentum and realizations. Operator: And the next question will come from Bill Katz of TD Cowen. William Katz: Okay. Maybe just a 2-part. Just to want to make sure I understand the math, if it's $4 billion to $5 billion of announced transactions, is the typical MOIC 2x to sort of think through the realization opportunity? And then a broader question is just as I think about you getting towards the end of your repurchase activity, can you maybe refresh a bit on capital management priorities? How are you thinking about maybe where the stock is trading today versus any kind of inorganic opportunity now that the core business has stabilized? John Redett: It's John. So I -- we are near the end of our $1.4 billion authorization. We repurchased $200 million in the quarter. I think year-to-date, we're around $500 million of repurchases. I would expect a similar amount probably in the fourth quarter. And look, just more broadly, how do we think about capital allocation. There are various ways we can allocate capital as a management team. One of them is we can invest in our businesses for growth. We are clearly doing that. That's our first priority. We are laser-like focused on growth. So any time we can invest capital in the business to accelerate or achieve growth. That is our first priority. We can give capital back to our shareholders via dividends or via repurchase. We still think, and you should assume, based on our repurchase activity that we still view our stock as an expensive and attractive investment. And the other use of capital can be something on the inorganic front, but we focus on all 3 areas with driving growth our main priority. Operator: And the next question will come from Steven Chubak with Wolfe Research. Steven Chubak: Welcome Justin to the call. So I did want to ask on the FRE growth just looking out to next year. I recognize you're tracking above the 10% year-on-year guide. You spoke of the strong momentum heading into next year. At the same time, you do have some headwinds just in the form of elevated catch-up fees that may not repeat as well as the fee rate step down from CP VII. So just wanted to gauge your confidence level and the ability to drive FRE growth next year, even in the face of some of those headwinds, and speak to some of the building blocks that support that view. Harvey Schwartz: We feel -- as we've been saying, and we'll give you guys better guidance as we come through the year, but we feel very good about the momentum across the platform. Again, you pick your sleeve, capital markets, insurance flows, investments we're making in credit, the wealth channel. And then, we'll have a bigger pickup in private equity flows into next year. So I'd say overall, coming into the end of the year, the momentum feels, as we've said, as good as it's ever felt. Operator: And our next question will come from Brennan Hawken with BMO. Brennan Hawken: The credit flows were really strong this quarter. But actually, the fee rate looks a little bit light versus my expectations. Was there anything to do with timing on those flows? I know sometimes that can kind of skew the averages and cause the fee rate to look a little wonky. Did the flows come in at a lighter fee rate with the mix? Or was that fee rate impact more of a timing thing? Justin Plouffe: Yes. Thanks for the question. It's Justin. Look, I think some of that might have been skewed by some of the insurance transactions, where the fee rate can be a little bit wonky. But overall, we have great momentum across credit. We're up 18% year-to-date in fee revenues. We're up 28% year-to-date in FRE. And we really see broad-based momentum. It's not just one business, right? Asset-backed is taking in capital significantly. Our CLO business is really hitting on all cylinders, having another great year. And we're seeing really consistent and strong flows from wealth as well with our CTAC product and our BDCs. So quarter-to-quarter, it sort of just depends on the mix, but really every part of that business is doing well, and we're really excited about the momentum we're going to carry into 2026. Operator: And our next question will come from Dan Fannon with Jefferies. Daniel Fannon: So $3 billion of wealth flows in the quarter, quite strong. Can you talk to the diversity of those flows? And then, clearly, you have momentum in that business, but -- and I think you mentioned one product and potentially coming to market next year. Maybe talk about the product roadmap, and where you see that evolving as we go into 2026? Harvey Schwartz: Yes. So as we talked about on the call, flows were up 10x since the new management team came into place a few years ago. And so what you're really seeing now is -- and I still think it's early innings on this, the strategy coming together. And the pillars of that strategy are 3 flagship funds: CTAC, which is best of credit; our Carlyle AlpInvest Solutions business; and then, CPEP, which will be really coming into view in 2026 across the private equity platform. And so the mix has been quite good. CTAC has been out longer, but a steady contributor. And then, of course, you -- what you're really seeing is the pickup in the Carlyle AlpInvest Solutions, the partnership with UBS. But I feel really, really good about the building momentum globally. Again, all of these building blocks connect together and so success on each of the strategies really provides an exponential effect to the other strategies. And it's all just about the brand, our connectivity with advisers. Obviously, you've seen us continue to invest in any number of ways. There's human resources, product development, and obviously, the partnership with Oracle Red Bull in terms of connecting with the global platform. And so you should expect to see good momentum in that business and continue to grow at a good pace. Operator: Okay. And our next question will come from Ben Budish with Barclays. Benjamin Budish: I had maybe another 2-parter on the -- your sort of public markets exposure. Maybe just in the quarter, it looked like there were a few public investments that were weighing on your private equity performance. Just curious if you could address, is it sort of timing-related end of quarter to end of quarter? Are there any sort of like impaired stories there? Or is it more market fluctuations? And then, as we think out, you've given us some commentary on big specific transactions like Medline, but maybe just philosophically, how should we be thinking about the realization pipeline in terms of strategic versus financial sponsors versus IPOs? What's the historical mix? What would you expect going over into the next couple of years? John Redett: Ben, it's John. Look, your question is obviously focused on corporate private equity. And again, I -- similar to realizations, I look at performance over a multi-quarter period. It's very hard to have a story or narrative on any specific quarter, so -- and I think this quarter actually is -- doesn't really deserve much narrative in the sense we just had some volatility in the publics. But when I kind of look at corporate private equity performance, particularly in the U.S., we're very pleased. CPA is up kind of 15% in the last 12 months. But more importantly, when I look at the operating metrics within the portfolio in the U.S., we continue to see continued strength. Revenues are up almost up double digits. EBITDA is up 8%. So I feel good about the underlying performance of the -- operating performance of the individual portfolio companies. I'd say, look, we are an outlier in terms of realizations, you can't have the level of realization activity we are having if your performance is not good. So I think that's important to understand. And again, the teams remain very focused on performance and realizations. I think some of the volatility you're referring to was largely isolated to our CAP franchise, where I think we have an outsized percentage of the assets we manage in public securities, and there has been some volatility in those markets. But fundamentally, those are very good companies we own. We don't have any long-term concerns on that in Asia. In U.S., CP VII, in particular, has some -- had some volatility in the public markets as well. It's particularly isolated to StandardAero and Hexaware. They were down from the previous quarter. If you look at where they are today, actually, we've already erased most of that down movement we saw in StandardAero and Hexaware. They're both great companies. So I have absolutely 0 concerns long term about the public securities we own in our U.S. private equity business. Operator: And our next question will come from Kenneth Worthington with JPMorgan. Kenneth Worthington: John, it's been a pleasure working with you. Best of luck back in buyout. Justin, I'm sorry, John has set a pretty high bar here. When looking at credit, the Unum block hit this quarter, so congrats. At the same time, we saw the most significant level of credit, I'll call it, distributions in both AUM and fee-paying AUM. Can you talk about the dynamics that drove the outsized, I guess, distributions this quarter? I don't know if it was Unum related or something else, recurring, doesn't recur, anyway? Any flavor would be helpful. Justin Plouffe: Yes, Ken. Look, I'd characterize it as the normal course of the business. It's not a bad time to realize some of our investments, especially in the opportunistic side. So when we have an opportunity to have a great outcome for our investors, we certainly take advantage of that. And some of it is the normal flow of our CLO business, which we've done a -- the team has done a really amazing job over the last couple of years. Two years ago, about 40% of our CLOs were in runoff. And the team has actually done 41 resets since then. And now only 12% of the CLO platform is in runoff. But that -- when you call a CLO and you reset it, that can play into the numbers. So I don't think there's anything really specific there, nothing really in the insurance side, just the normal course of raising new capital and realizing investments for our LPs. Operator: And the next question is going to come from Patrick Davitt with Autonomous Research. Patrick Davitt: Obviously, been a perfect storm for secondaries here for a while now. But to your point earlier, it feels like the realization window is opening up a bit, though in fits and starts. How are you guys thinking about the sustainability of the so-called golden era in secondaries if the realization window keeps opening up? Harvey Schwartz: Yes. So I think -- let's take a step back, there's a reason why we call it Carlyle AlpInvest Solutions. That whole business is going through sequential growth, not just because of the secondaries activity, but because of the broader capability set across the platform. Remember, that -- the shorthand, and I know you know this quite well, the shorthand for that business is secondary. But actually, what they're providing is a suite of solutions, secondaries, co-invest, really corporate finance solutions. We highlighted a few of the trends in terms of credit secondaries and obviously co-invest. So it really is, I think, a bit of the evolution of what's happening in our industry. As the industry continues to grow and mature and private capital is really at the center of capital, what you're seeing are the need for liquidity tools, so AlpInvest -- Carlyle AlpInvest creates the entire solution set for that. Now, in terms of the more narrow slice of secondaries, anything you look at, in terms of statistics, suggest that demand for secondary capital is going to grow for several years. We would see that in our pipelines, in our engagement with clients. And this is not -- again, sometimes they are sort of misunderstood or stale narratives in the world around the industry. This is not about distressed portfolios or people who can't sell things. A lot of this now is about capital allocation and repositioning of capital. And so we can be in a room with a CEO or CIO and the whole discussion is about how to reposition our portfolio. So again, we need to start really thinking about this being at the center of a flywheel of corporate finance solutions. But the narrow question on secondaries, it feels quite good. Operator: And the next question will come from Michael Cyprys with Morgan Stanley. Michael Cyprys: Wanted to ask about ABF. I think you mentioned $10 billion platform today. I was hoping you could elaborate on some of the steps you're taking to expand the platform to accelerate growth. How you see this platform contributing as you look out over the next 12 to 24 months? Justin Plouffe: Yes. It's Justin. We're very excited about the ABF platform that we've built. It really started as a partnership with Fortitude, and it's expanded from there. We have multiple partnerships with origination platforms that have been leading into that portfolio. We've had a lot of interest from the noninsurance space, which ABF has historically been really an insurance product, but we have some vehicles that we are discussing with a number of counterparties outside the insurance space to expand that business. So -- we're at $10 billion today, and it's accelerating. I actually think that is probably one of the greatest growth areas that we see in our credit business. Steve has done a fantastic job. And I think there's a lot of potential for that, as we go into the fourth quarter in 2026. Operator: I show no further questions in the queue at this time. I would now like to turn the call back over to Daniel for closing remarks. Daniel Harris: Thank you, everyone, for your time today. If you have any further questions, feel free to follow with Investor Relations. We look forward to talking to you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to Zillow Group's Third Quarter 2025 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin. Bradley Berning: Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our shareholder letter and earnings release, both of which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Jeremy Wacksman: Good afternoon, everyone, and thank you for joining us. I'm pleased to share that Zillow delivered another excellent quarter, thanks to continued momentum across both our For Sale and Rentals operations. For Q3, we reported strong revenue growth, EBITDA margin expansion and positive GAAP net income. In the housing market that's bouncing along the bottom, Zillow continues to outperform both our outlook and the broader industry, showing the strength of our execution and the durability of our strategy. Delivering growth while managing costs keeps us on track toward our 2025 targets of mid-teens revenue growth, expanding EBITDA margins and positive full year GAAP net income. Zillow has earned its success because we are a consumer-focused product-led company transforming the way people move. For consumers, that means a simpler, faster, more transparent way to buy, sell or rent a home. For real estate professionals, it means more effective tools to grow their businesses. And for our shareholders, it means sustained growth driven by innovation regardless of where we are in the housing cycle. We are delivering the seamless digital end-to-end experience that consumers and increasingly the real estate industry expect and depend on. And we deliver innovation quickly across our ecosystem and across the customer journey. In Q3 alone, that included adding virtual staging to the super listening experience in Zillow Showcase, enhancing messaging functionality and debuting the Zillow app inside ChatGPT. I will dig into our latest launches in a few moments, but first, I'll walk you through our Q3 results, which show how well our strategy is working. Total revenue increased 16% year-over-year to $676 million in Q3, exceeding the high end of our outlook range. For Sale revenue increased 10%, outperforming the broader housing and mortgage markets, which continue to bounce along the bottom. Within For Sale, residential revenue grew 7% and mortgage revenue grew 36%. Rentals revenue grew 41% year-over-year with 62% year-over-year revenue growth in multifamily. Together, this revenue growth, along with effective cost management helped us generate EBITDA of $165 million, above the high end of our outlook range and EBITDA margin expanded more than 200 basis points year-over-year. The combination of revenue growth and cost discipline also resulted in positive net income of $10 million in Q3. Our consistently strong performance reinforces the fact that Zillow can grow regardless of what the market is doing. What drives our success and differentiates Zillow from everyone else in our category is consistent execution on our integrated transaction strategy, relentless product innovation and a focus on consumer and partner experiences. Our success starts with our brand, which is loved and trusted by both consumers and real estate professionals. Our apps and sites had 250 million average monthly unique users in Q3, and we are a strong partner for the residential real estate industry. Agents who use at least one of our products, whether that's Premier Agent, Follow Up Boss, ShowingTime+, Showcase or dotloop, are responsible for an estimated 80% of U.S. residential real estate transactions. Our brand strength and quality product offerings feed our broader Zillow ecosystem and give our partners a powerful edge in building their businesses as they operate where consumers are and deliver the experience consumers want. We take the strength of our brand and audience seriously, always looking for ways to meet consumer needs in an ever-evolving and competitive landscape. The latest demonstration of that principle launched this month, the Zillow app in ChatGPT. Consumers searching for homes in ChatGPT can explore listings, maps, photos and pricing directly in the Zillow experience and can seamlessly continue on to Zillow's website or mobile app to book a tour, connect with an agent or learn about financing. It's another new doorway directly into our ecosystem, just like when we built one of the first apps for mobile. Being early matters. And as we learned then, first-mover advantage pays off when technology transforms how people use the Internet. We are currently the only real estate app inside ChatGPT, a testament to the speed and technical depth of our teams as well as our near 20-year track record of using AI to build innovative, data-driven consumer-first products responsibly. We are still in the very early innings of how AI will transform consumer experiences, but we strongly believe that the critical differentiators between those that succeed and those that get left behind in our category will be user experience, quality of audience, unique insights and providing integrated transaction services instead of just top-of-funnel lead generation. We feel incredibly well positioned to take advantage of the AI transformation given how unique our strategy is. Now I'll dive deeper into how our consumer-first product forward thinking has shown up across our business and helped us grow in Q3, starting with For Sale. Our For Sale revenue is consistently outperforming the broader market as we deliver strong revenue growth and continue to drive share growth relative to the total industry transaction value. We're executing well on our For Sale strategy to make buying, selling and financing easier for consumers and agents alike. Zillow is built for where the industry is going, not where it's been. We've moved beyond home search and become a diversified transaction-focused platform that integrates the disparate steps of the housing journey, connecting with an agent, touring, exploring financing options and more and equips agents to successfully guide consumers through it. We continue to scale our immersive listing experience, Zillow Showcase. More than 50 brokerages have adopted Showcase as a go-to marketing solution to help agents win more listings and sell homes faster. These enterprise partnerships spanning leading national brands, regional powerhouses and innovative independents reflect industry recognition that Showcase gives agents and sellers a measurable edge in today's housing market. As of the end of Q3, Showcase was on 3.2% of all new listings in the U.S., up from 2.5% last quarter and more than double our share versus a year ago. And in Q3, we launched AI-powered virtual staging on Showcase listings. This new feature uses computer vision to restyle rooms instantly with just a tap, letting buyers picture a home's potential while giving agents who use Showcase another way to make listings stand out. Whether a buyer starts by virtually walking around homes with Showcase, instantly booking an in-person tour and connecting with an agent or exploring their financing options, Zillow provides the right support at the right moment in their journey. With products like BuyAbility, a powerful tool from Zillow Home Loans that helps buyers shop based on what they can afford, we're making financing simpler and more transparent and improving how we identify high-intent buyers in the process. BuyAbility has enrolled 2.9 million people since it launched after surpassing 2 million last quarter. These buyers are more knowledgeable and ready to act when they connect with an agent through Zillow. In addition, we introduced a verified digital pre-approval and began rolling out a new borrower application designed to get shoppers quickly to a real decision and improve loan officer efficiency. These updates are live now on our website and coming soon to our apps. We also just rolled out major enhancements to our proprietary messaging system that lets buyers communicate directly with their agent and with loan officers from Zillow Home Loans within the Zillow app, thanks to an integration with Follow Up Boss. Buyers can now co-shop with a partner or co-buyer right inside Zillow, sharing homes, comparing favorites and staying aligned in one place. We expect keeping homebuyers better connected will deepen engagement, help real estate professionals provide better service to their clients and ultimately boost transaction rates. We are the company that is innovating rapidly to apply new technology where it matters most, improving the customer journey and helping real estate professionals succeed in the age of AI by giving them the tools and insights they need to serve clients better, work more efficiently and grow their businesses. As part of that effort, we've continued to invest in a growing set of features within Follow Up Boss. Recent updates include real-time call transcripts, smart summaries that recap each connection's recent communication with suggested next steps and custom Zillow Home Loans pre-approval letters for buyers who request one, each integrated directly in the Follow Up Boss system, giving agents richer context and helping them communicate faster. All of this innovation comes together and brings our For Sale strategy to life in our enhanced markets, where we're connecting high-intent movers with high-performing professionals and delivering a more integrated transaction. In Q3, 34% of connections came through the enhanced market experience, up from 27% last quarter and on our way to our midterm goal of at least 75%. Virtually all Zillow connections in the enhanced market experience are now managed through Follow Up Boss, enabling better collaboration amongst buyers, agents and loan officers. We're also seeing double-digit adoption of Zillow Home Loans across enhanced markets, a clear sign the integrated experience is delivering value as we help consumers get home. As that integrated experience expands, we're updating our invite-only pay when you close program for top-performing teams. This month, we announced Zillow Preferred, the next chapter for our Flex program that recognizes partners for delivering outstanding customer experiences and provides them access to dedicated support and growth tools. Zillow Preferred builds on the foundation of Flex and the new name helps ensure shoppers know they are connecting with a preferred partner of ours. As we expand the integrated experience in our enhanced markets to the majority of our connections, we expect our preferred program to grow in tandem. Earlier this month, we also introduced Zillow Pro, a membership that brings together Zillow's most impactful tools and services into an integrated AI-powered suite that helps growth-oriented agents scale their businesses. Zillow Pro helps agents more effectively serve all their clients in their sphere, not just those they connect with on Zillow. With features like My Agent, client insights flow into Follow Up Boss and agents can see what their buyers are eyeing on Zillow, invite any customer to connect on Zillow and keep their branding visible across Zillow as those clients shop. Zillow Pro also enables real-time touring for clients an agent found off of Zillow, unified messaging and property sharing among co-shoppers and premium profiles that let agents customize how they show up on Zillow. Over time, top-performing Pro users become eligible for Zillow Preferred. Zillow Pro gives agents the data, tools and brand reach they need to uncover opportunities, work smarter, deepen relationships and drive more transactions. It also expands the serviceable addressable market of our housing super app to more agents and all consumers. Given that agents who use our products touch an estimated 80% of U.S. residential real estate transactions, we have a strong partner base to sell Zillow Pro into. We look forward to rolling it out across the country throughout 2026. Now I'll update you on rentals, where we're seeing some of the strongest growth and momentum across Zillow. Just like in For Sale, we're focused on speed, transparency and innovation on behalf of consumers and partners. As a reminder, our strategy in rentals is twofold. First, we are building a comprehensive 2-sided marketplace of homes for rent, giving renters a single trusted destination to find every type of property from single-family homes to large apartment complexes. Second, we are modernizing the transaction experience for renters and property managers alike, streamlining how they connect and handle applications, leases and payments. This strategy works because it solves real pain points. Renters get transparency, efficiency and trust, property managers get better qualified applicants and higher ROI. And because renting is where nearly every mover starts, our progress here is expanding the top of Zillow's housing funnel and creating durable growth across the business. We are executing well on this strategy and accelerating revenue growth as a result. Rentals revenue increased 41% year-over-year in Q3, primarily due to a 62% increase in multifamily revenue. In Q3, Zillow Rentals had 2.5 million average monthly active rental listings, ranging from single-family homes to large apartment complexes. This includes 69,000 multifamily properties listed on Zillow. That's almost double the 35,000 we had 2 years ago, and there is room to expand with an estimated 140,000 total multifamily properties across the country. Multifamily is a key growth driver, and we're expanding both our property count and wallet share as more large property managers choose to upgrade to more comprehensive advertising packages with us. As proof of the real value we add for our multifamily partners as we deliver high-intent qualified renters to fill their vacancies, Zillow Rentals ranks #1 in partner satisfaction in our category for return on marketing investment. Our multifamily listing syndication agreements with Redfin and Realtor.com are benefiting consumers and property managers by expanding the reach and visibility of rental listings online, helping more renters see more available units on more sites and helping property managers connect with qualified applicants more efficiently. Beyond cultivating a comprehensive marketplace, we're innovating quickly to make renting simpler, fairer, more transparent and more affordable. This quarter, we expanded our cost transparency features across the Zillow Rentals network, showing renters a full breakdown of move-in and monthly costs and providing calculators to help them estimate total expenses before applying. This helps cost burden renters plan accurately and in turn, property managers get more qualified serious applicants. Many renters on Zillow can also reuse a single secure rental application across listings, saving time and cutting repeated fees, an example of how Zillow reduces friction and makes renting fair. We also announced a new partnership with Esusu, the leading rent reporting platform to help renters build credit through on-time rent payments. This collaboration expands credit building access nationwide, allowing any renter, not just those who pay rent through Zillow, to have their payments reported to major credit bureaus, strengthening their financial footing as they prepare for the next step. This partnership is another example of Zillow's broader effort to help renters and buyers access and afford housing. Finally, we recently launched Listing Spotlight, a premium listing option that gives single-family rentals and smaller buildings the highest exposure to this category available on Zillow. Building a better experience for renters and property managers has earned us strong rental traffic over the past few years with about 35 million average monthly unique visitors in Q3. As we execute on our twofold strategy in Rentals, we expect continued acceleration in year-over-year revenue growth in Q4, supported by growing inventory and partner adoption. The path to our $1 billion-plus annual rental revenues opportunity is clear, and we're confident in our ability to keep delivering value for consumers and partners. Our strong results in both For Sale and Rentals show how Zillow is successfully innovating on behalf of consumers and real estate professionals across the housing journey. As we continue delivering excellent results, we're also aware of the external noise that has gotten louder in recent months, and we're confident in our ability to execute through it just as we have the past few years whenever the volume has turned up. We're all eyes forward on building a marketplace that expands visibility and choice, promotes fairness and broad access and empowers consumers and the real estate professionals who serve them. Solving their problems is what ultimately matters. That's what enables success in the modern era and the AI-driven future. That's what drives results, and that's exactly what Zillow is doing with this quarter as the most recent example. We'll keep executing with discipline, delivering value for consumers and partners and leading the industry toward a more transparent consumer-first future. We have a strong brand, a lightning fast innovation cycle and consistently excellent execution. Thanks to that steady focus and execution, we are on track toward our full year 2025 goals of mid-teens revenue growth, expanding EBITDA margins and GAAP profitability with year-over-year revenue growth expected to accelerate in Q4. 2024 and 2025 have proven our strategy works, and we are proud of our ability to grow our revenue while also expanding margins. What's most encouraging is that our execution is setting us up for what we believe will be sustainable, profitable growth well into the future. We're excited about our opportunity to unlock $1 billion of anticipated incremental revenue in For Sale just by rolling out our integrated transaction playbook to more people in more places, even in a flat macro housing environment. The momentum we're seeing in enhanced markets indicates we're on the right track towards capturing that opportunity. And Zillow Pro is well positioned to meaningfully expand our potential for growth in For Sale. We also see a clear path toward our $1 billion-plus annual Rentals revenue target and a much larger business beyond that as we build our comprehensive 2-sided marketplace. Behind our strong financial performance is a clear mission, helping millions of people get home and supporting the professionals who make that possible. As a beloved consumer brand and a trusted partner platform, we're proud of the work we're doing to make the housing journey simpler, more transparent and more integrated. With that, I'll turn the call over to our CFO, Jeremy Hofmann. Jeremy Hofmann: Thanks, Jeremy, and good afternoon, everyone. We delivered strong results in Q3 that exceeded our expectations and are well positioned to continue delivering strong performance as we execute on our strategy in 2025 and beyond. Q3 revenue was up 16% year-over-year to $676 million, which was above the high end of our outlook range. Our better-than-expected revenue performance, combined with effective cost management, delivered EBITDA of $165 million also above the high end of our outlook range. Q3 EBITDA margin was 24%, more than 200 basis points higher than a year ago. Our trailing 12-month EBITDA as of the end of Q3 grew 29% year-over-year as we continue to scale revenue and control costs. We reported GAAP net income of $10 million in Q3 as a result of these efforts. For Sale revenue grew 10% year-over-year in Q3 to $488 million, roughly 500 basis points above the mid-single-digit residential real estate industry growth as reported by the NAR and tracked by Zillow. This was also well above the purchase mortgage origination volume growth for the industry, which we estimate was roughly flat. Purchase mortgage origination volume is noteworthy because the majority of Zillow buyers purchase their home with a mortgage. Within the For Sale category, residential revenue grew 7% to $435 million. Of note, residential revenue year-over-year growth accelerated 100 basis points from Q2 to Q3 despite a 400 basis point tougher comparable quarter-over-quarter. We saw contributions to this growth broadly across our agent and software offerings and within our new construction marketplace. Agent offerings include Zillow Preferred, formerly Flex, market-based pricing and Zillow Showcase. Software offerings primarily include Follow Up Boss, dotloop and ShowingTime+. Within the For Sale revenue category, mortgages revenue was up 36% year-over-year in Q3 to $53 million. Our mortgages strategy is making it easier for more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue. Purchase loan origination volume grew 57% year-over-year to $1.3 billion. Turning to Rentals. Q3 revenue was $174 million, with growth accelerating to 41% year-over-year. Rentals revenue comprised 26% of our total company revenue in Q3, up from 21% a year ago. This increase was driven primarily by our multifamily revenue, which grew 62% year-over-year, up from 56% year-over-year growth in Q2. Our value proposition to multifamily property managers and execution by our sales force to both win new properties and upgrade to more comprehensive packages is evident in our Q3 results. We increased the number of multifamily properties on our apps and sites by 47% year-over-year, reaching an all-time high of 69,000 multifamily properties as of the end of Q3, up from 64,000 properties at the end of Q2. As a reminder, we measure our multifamily property count as 25-plus unit buildings and do not include our industry-leading long-tail properties, which is a significantly larger count. When you include these long-tail properties, Zillow Rentals had 2.5 million average monthly active rental listings in Q3, the most in the category. Our Rentals offering is clearly resonating in the market today. By expanding our listings across more sites and apps through trusted platforms, including Redfin and Realtor.com, we are helping provide more visibility into available properties, a simpler search experience and the option to shop on the platform of renters' choice. For multifamily operators, we offer a compelling value proposition by providing efficient and cost-effective alternatives to reach more potential renters through the largest rental audience. The quantity and quality of high-intent renters on our platform has allowed us to expand our wallet share with property managers. We expect this formula to continue to drive growth in Rentals towards our $1 billion-plus annual revenue target. Q3 EBITDA expenses of $511 million were slightly favorable compared to our outlook. We drove leverage on our total fixed costs, which grew 5% year-over-year compared to total revenue growth of 16%. This includes share-based compensation expense, which was down 8% year-over-year in Q3. The results of our cost discipline continue to be evident as we expanded our EBITDA margins by more than 200 basis points year-over-year. The combination of revenue growth and cost discipline is also yielding robust cash flows. During the first 9 months of 2025, we generated $295 million of free cash flow, a 28% increase compared to the same period a year ago. We began reporting free cash flow as a new metric this quarter. We plan to do so going forward to help you all better understand the effectiveness of our strategy and execution and our ability to consistently generate cash from our core operations. We ended Q3 with $1.4 billion of cash and investments, up from $1.2 billion at the end of Q2. Program to date share repurchases have been $2.4 billion at a weighted average price of $48. We are very pleased with the program and expect to be opportunistic in share repurchases going forward. Turning to our Q4 outlook. We expect total revenue to be between $645 million and $655 million, implying a year-over-year increase of 16% to 18%. We expect For Sale year-over-year revenue growth in Q4 to be in the high single digits. We expect residential revenue growth similar to Q3 and mortgages revenue growth of approximately 20% with continued purchase origination volume growth of over 40%. We saw an accelerated number of loans that closed in late September, resulting in outperformance in Q3 mortgages revenue versus our expectations. In aggregate, we expect mortgages revenue to grow roughly 30% for the second half of 2025. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q4, increasing more than 45% year-over-year, driven by further multifamily revenue growth acceleration. We continue to expect the Redfin partnership to be accretive to EBITDA dollars in the second half of 2025. For the full year, we continue to expect Rentals revenue growth to be approximately 40% for Q4, we expect EBITDA to be between $145 million and $155 million, representing a 23% margin at the midpoint of our outlook range. EBITDA expenses will decrease from $511 million in Q3 to an estimated $500 million in Q4 due to normal seasonality. For full year 2025, we continue to expect to deliver mid-teens revenue growth. We expect fixed cost investments to grow modestly with inflation while investing in variable costs ahead of revenue to drive future growth, primarily in Rentals and additional loan officers and Zillow Home Loans. We are on track to deliver expanded EBITDA margins and positive net income for the full year 2025. As an early read, we expect 2026 to have similar growth and EBITDA margin expansion as we have had the last 2 years. We are planning for the macro housing environment to continue to bounce along the bottom in 2026 as well. As we look even further out, we are confident in our mid-cycle targets for $5 billion in revenue and 45% EBITDA margins in a normalized housing market. We have continued to execute on the integrated transaction experience for both consumers and agents. As of Q3, this includes continued expansion of our enhanced markets with 34% of connections now going through the experience and increasing showcase adoption to 3.2% of all new listings. This also includes rapid growth in Rentals with 69,000 multifamily properties advertising with us as of the end of Q3. As Jeremy mentioned earlier, we recently announced the upcoming launch of our Zillow Pro offering. Through Zillow Pro, the expansion of our serviceable addressable market sets us on a path to engage more customers and more agents. We plan to beta test Zillow Pro in the first half of 2026 and to expand nationwide over the second half of next year. We expect a very modest incremental contribution to revenue from Zillow Pro in 2026. In the near term, we will focus on demonstrating value for the product and incorporating learnings to support continued innovation. To close, we are successfully executing on our strategy, are on track to meet our full year goals and are very excited about the opportunity ahead of us. We believe we have the right investments in place to support our strategy and are delivering strong growth while maintaining a disciplined cost structure. That formula is driving expanding margins and positive GAAP net income. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from Ron Josey with Citi. Ronald Josey: Maybe, Jeremy Wacksman, I wanted to ask a bigger picture question for you just on all the news around AI and commentary around Zillow apps on ChatGPT. You talked about ChatGPT and app just being a new doorway to Zillow. And what I wanted to hear a little bit more is just the integration here, the risk, the opportunities of being that first mover on newer platforms. And then as newer doorways open, Zillow does have 250 million uniques, obviously, right? And so how do you balance your current traffic with these newer doorways with potentially having to spend more on brand awareness? Jeremy Wacksman: Yes. Thanks for the question, Ron. I mean we think about this as really pure opportunity. We're excited about the partnership integration we did with OpenAI to be the first real estate app and one of the first apps in this new paradigm. I think you should expect other providers to build out similar ecosystems. And this is really similar to other platform shifts that create expansion into leading brands. Think about as search exploded, think about as mobile exploded, and we were early on to the mobile platform as well. And just look at how brands like ours developed in those shifts, right? Mobile wasn't a replacement. It was additive. It was more time spent. It was incremental use cases. It was easier for us to start to build a more digital transaction than you had in desktop search and the browser only. So we think of it the same way. That's why we kind of call it another new doorway directly in. And then to your question on brand, I mean, I think that's why we feel so fortunate we have a great strong brand that consumers want whenever you get these new opportunities, it's an opportunity to be additive to that. And when our core base, 80% of our traffic comes to us brand direct. And the data and the platform and the software that we offer, those differentiators to create this really unique experience, I think, get strengthened by these platform shifts. So I know there's a lot that is written about, well, what does this mean for acquisition? It will, for sure, be an opportunity for all of us to tap into more customer demand in more new ways. But we're also equally excited about the ability to build AI into Zillow. As you know, we've been doing that for the last 20 years and really accelerate that effort the last 3 or 4 as these capabilities have come online. And so building more native capabilities into the software for our consumers and for our agents to make the transaction experience better, to make it more seamless to create more of that one-stop shop for buyers and sellers and for their agents, that's really the opportunity. So you're always going to see us lean in and be early. We're really fortunate that we can do that, and it's a tremendous testament to the technology teams we have at Zillow that we were able to do that here. And we think this is a really, really great platform shift for us to take advantage of. Operator: Our next question will come from Dan Kurnos with Benchmark. Daniel Kurnos: A couple. We've obviously done a lot of work on the Marriott court cases. Clients are particularly focused on the recent FTC suit. So maybe it would just be great to get your perspective on any impacts and how you think it plays out? And then separately, the other hot topic with investors is somewhat related, Compass proposed acquisition of Anywhere. So antitrust concerns aside, maybe your views on any potential disruption if agents choose or are forced to take their 3-phase marketing program or if anyone else bandwagons on their efforts to grow the private marketplace listings. Jeremy Wacksman: Yes. Maybe I'll try and hit both of those, and Jeremy hop on with anything I missed. With respect to the FTC case, we've been syndicating multifamily property listings to Redfin for about 6 months now. We're seeing the benefits to both consumers and property managers. You see more consumers can see more listings on all of our sites. An interesting stat is renters on Redfin now have access to 3x the number of rental properties they had when Redfin was trying to acquire those on their own. So it's very pro consumer. And then it's also very pro property manager. As a result of the syndication agreement, property managers are seeing increased ROI. As we said earlier, we're #1 in partner satisfaction for return on investment. And while we are excited about that ROI we deliver today, there's a ton of room for growth. We hear regularly from our large property managers that we are the strongest advertising channel, as they're thinking about their very complicated advertising mix, yes, they advertise on Zillow, other apartment sites, but they also advertise on Google, on Facebook, on Instagram, on TikTok, they market their own property websites. And so being a growing source of high ROI advertising for them, we feel great about that. So to us, it's obviously pro consumer and pro property manager, which makes it pro competitive, and we look forward to making that case as the process plays out. And then on the proposed merger, we don't really see any concerns to our business. We do see maybe more noise around hidden listings and the potential to push more hidden listings on to sellers and to buyers and to harm consumers. And so for us, our listing standards which help ensure that agents do right by their sellers. And if they're going to market a listing, they make that listing broadly available to all buyers. We continue to see the vast majority of the industry align with those standards. And we've always advocated for open, fair and transparent access. That's why we always have the most listings. Most folks want their listings on the Internet. They don't want to put the Internet back in the box. And we expect that behavior to continue because agents are trying to do right by their sellers and help their sellers sell their home. Operator: Our next question will come from Brad Erickson with RBC. Bradley Erickson: I have 2. First, I guess, the residential business looks like it outgrew the market by a couple of points in Q3. Can you just lay out maybe any market forces that leaned one way or the other on the resi business during the quarter that netted out to that number? And then second, can you just talk about what's embedded from a market growth perspective in the Q4 guide? And then I have a follow-up. Jeremy Hofmann: Yes, Brad, it's Jeremy Hofmann. I'll take that one. Yes, we were definitely pleased with the outperformance in Q3. For Sale grew 10%, which outperformed the housing market by about 5%. And then obviously, the mortgage market was flat. So pleased to be able to keep taking share. When we zoom out, our For Sale line has outperformed the industry by 20% over the last 2 years on a 2-year stack. So that's great as well because that's what we tend to focus on more than quarterly fluctuations. On the residential front within For Sale, I'd note that the revenue accelerated from Q2 to Q3. So we went from 6% growth in Q2 to 7% growth in Q3 despite a 400 basis point more difficult comp. So I think that's an interesting thing for you all to just keep eyes on and part of the market dynamics. And obviously, Q4 is probably an easier comp for the housing market comparatively. So when we look at what we're doing, we're pretty consistently outperforming the market. We're doing it over multiple periods and feel like the way in which we're doing so is pretty consistent. The enhanced markets are performing well. Zillow Home Loans continues to grow share alongside that enhanced market expansion. Showcase is expanding really nicely. Follow-up Boss is getting in the hands of more people across our agent base. New construction is doing well as well. So it's a really nice formula, and it's one that we're looking forward to continuing to roll out in Q4 and then into 2026. Bradley Erickson: Great. And then just a follow-up on Zillow Pro. You mentioned in the prepared remarks just several points of kind of value add. Can you maybe just expand a bit on kind of where the biggest sort of value unlocks come from with Pro? And then also just how does that get monetized? Or how do you envision that getting monetized over time? Jeremy Wacksman: Yes, I can take that. I mean I think, first, just to outline what Zillow Pro is because it is new, and we just did announce it. it's effectively an evolution of our software platform for agents. So it's a membership, it's a bundle so they can get access to all of our software. And that includes Follow Up Boss, right, the software that almost every preferred agent is using now. That includes premium branding on Zillow so premium profiles and consistent branding. That includes expansion of a feature called My Agent, which allows them to connect with all of their clients. And so previously, agents could use My Agent for Zillow clients that they had on Zillow, but now they can invite their clients from their database or their sphere of influence to connect with them and become their My Agent on Zillow and get access to great real-time client insights from us about those customers. So it really bundles all this together, and you want to think about that as a way we are trying to help them just run their business better, right? We're always going to try and help them deliver for our customers, right? But we want to help them deliver for all their customers. And then the last piece on Pro is it ends up being the pathway to Zillow Preferred, right? Zillow Preferred is the subset of agents and teams that we're trusting to handle our customers. We're going to continue to grow that audience of agents and teams as we go from 34% of our customers getting that experience to 75% plus. And this is the great way in. Many folks who are on Zillow Pro and using this stack of software will become eligible to be part of Zillow Preferred as well. So we see these things working really well together. And we're really excited, as Jeremy said, to test and learn with our initial beta customers early in the year and then roll it out throughout '26. Operator: Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: When you step back and you think about the longer-term opportunity with the Zillow Preferred program, how do you think about the impact on your share spread over time? Would you expect to see a widening gap as these markets scale and the cohorts mature there? And specifically, I'm thinking about the delta between residential and TTV. Jeremy Hofmann: Yes, I'll take that. Thanks, Nikhil. I would think about it as the expansion of Zillow Preferred is really a testament to what we're doing in the enhanced markets and how well we feel like those are going. So as we expand the enhanced markets, we will expand Zillow Preferred in tandem. And then with respect to outperformance, I think the outperformance has been strong. We expect it to continue to be strong. I would expect it from both the residential perspective and from the For Sale category as well. So much of the enhanced market experience really comes from that integration of our preferred agent base and Zillow Home Loans. And when we think about the customer experience we're building, the ability to drive conversion, the ability to drive adoption and ultimately take share, that's where we have so much confidence in not only 2025, but really towards that mid-cycle target of $1 billion of incremental revenue regardless of what the housing market does. Nikhil Devnani: And maybe if I could follow up on Rentals. You've talked about wallet share gains on the back of the increased distribution with Redfin and Realtor. It makes for a compelling sales pitch as well for your customer base. So do you think about needing to run that business any differently from a sales strategy perspective next year if this arrangement is being kind of questioned by the case? Or is it business as usual? Just wondering how we should think about how you guys run the business in Rentals in 2026. Jeremy Hofmann: Yes. I'll take that one as well. It's business as usual. Jeremy laid out how we feel about the defenses we have, and we're looking forward to sharing those perspectives. But in the meantime, business as usual, I think we're really proud of what we've done in Rentals over the past couple of years, and we're confident in our ability to grow strongly in 2026. One of the questions would be why do we feel good? I think 2025 just set us up really well, right? Property growth has been strong. We grew properties in Q1 and Q3 by 5,000 a quarter. We had that spike of about 9,000 added in Q2, and we expect to grow properties nicely in Q4 even with typical seasonal patterns. And we're actually translating all that supply growth into accelerated revenue growth throughout the year. So we grew revenue 33% in Q1, 36% in Q2, 41% in Q3, expect 45% plus growth in Q4. Supply is in a great spot. And then you're right, we've added a lot of value to property managers on the demand side because of our organic traffic and those syndication agreements, right? Each of the 69,000 properties is getting more exposure across Zillow Rentals, Trulia, HotPads, StreetEasy, Realtor.com, Redfin, ApartmentGuide and Rent. So that just puts us in this really nice position to continue to grow properties, continue to see advertisers upgrade to higher packages and continue to drive really, really good ROI. Jeremy Wacksman: And. Yes maybe just to add to that as like to zoom out and Jeremy touched on multifamily. If you think about the Rentals marketplace overall, obviously, multifamily is a big part of the revenue growth driver right now. But the strategy of building this 2-sided marketplace with all available listings or as much as we can and building the transaction experience for the renter, there's a ton of opportunity beyond that $1 billion-plus revenue target we've talked to you all about as you think about attracting even more renters and having them consume more content from, yes, multifamily, but also long tail. So I think if you zoom out and look over the last couple of years, that strategy has been working incredibly well. We were growing building count and growing audience all along the way, and it's obviously accelerated this year. But we feel great about that strategy. And yes, we feel great about multifamily revenue growth and its contributor to the midterm target, but we're not done there. We see a fantastic business beyond that as we layer on more value for the renter and for the property manager and the long-tail landlord. Operator: Our next question from Tom Champion with Piper Sandler. Thomas Champion: One question we get a lot is on the various components of residential revenue. And I'm wondering if you could just talk about the segment, the broad categories around agent software, new construction marketplace, what kind of rolls up into that number? And Jeremy, your point on the revenue acceleration was very interesting. So just curious if there was any 1 or 2 components that might have driven that. And then just really super quick, Jeremy Hofmann, if you could talk about headcount and investment into next year. I understand it's probably still in planning process, but I think you provided some early comments on '26. Just any preliminary thoughts there. Jeremy Hofmann: Yes. Thanks, Tom. I'll take both of those. So I'll take the For Sale relative outperformance first. Yes, it was a really good quarter. I think we've had a really good year so far. I'm really quite pleased with the team's ability to accelerate revenue into a tougher comp. So all of that does feel quite good. With respect to drivers, I would think of them as the enhanced markets are performing well. So we went to 34% of all connections at Zillow are now in these enhanced markets, and that's well on our way to the 75% target that we are marching towards in those mid-cycle targets. Zillow Home Loans is growing really nicely, grew nearly 60% in Q3, and we're seeing double-digit adoption of Zillow Home Loans across the enhanced markets. So that feels quite good. And then you couple it with Showcase expanding nicely. Showcase is 3.2% of all new listings today. That's more than double a year ago. And obviously, it's still early. We're learning a ton. We've only been selling the product for about 18, 20 months at this point, but plenty more to come there. And then Follow Up Boss, just getting in the hands of more people, and we just keep building better and better features to make the software more and more interesting to agents. In our Preferred base, it's in nearly everybody's hands, and the business has just done really well since we acquired it. So we're really pleased there. That's all doing quite well on the existing homes front. And then new construction team has just executed nicely. They've been able to show up for partners quite well in a challenging time and really nicely complement the rest of the For Sale business. So that's really a good formula. And then with respect to costs in 2026, the way we're thinking about it is actually pretty similar to '24 and '25. I think revenue growth formula is pretty similar. We grew 15% in '24. We're on pace for mid-teens in 2025. We think that's a good way to think about '26. And we think the expansion of margins in '24 of 200 basis points, '25, we're on track for solid margin expansion, and we think that's a good way to think about '26 as well. With respect to the cost base, you're going to hear more of the same from us. We are planning to keep fixed as flat as possible and fight inflation, but there will obviously be some inflation and headcount is going to stay pretty flat on the fixed side. And then on variable, where we see opportunities, we will invest. We've done that in Rentals, I think, quite nicely. I think we've done it well in Zillow Home Loans. And where we see these really outsized growth opportunities, we will go run at those. But the fixed cost discipline allows us to really get leverage and grow profits faster than revenue. And when you think about that together with marketing, which we dial up and down based on what we see in the market, it all nets out pretty nicely to solid revenue growth, ability to expand margins and then GAAP net income comes in there as well because as we hold our fixed costs flat with inflation, we get a lot of leverage on stock-based comp. So stock-based comp was down 8% year-over-year this quarter. We expect it to be down 10% year-over-year for 2025. And that's just a function of the fact that 90% of our stock-based comp charge really sits in that fixed bucket. So you'll hear much of the same for us, I think, in 2026, and it's a testament to the strategy and execution that the team has been able to deliver. Operator: Our next question will come from Lloyd Walmsley with Mizuho. Lloyd Walmsley: I just wanted to ask about sort of the back and forth of the funnel between the agent and Zillow Home Loan side. I think it's clear how in enhanced markets, agents can be helpful in making consumers aware of Zillow Home Loans. Where -- in terms of the other direction, people coming in, whether that's the viability calculator or otherwise, are you seeing a good flow from people who come in through the mortgage funnel and attaching them to an agent? And is that an opportunity you guys are focused on at this point? Jeremy Wacksman: Lloyd, I'll take this, and welcome back to the call. We think about them as more similar than different, to be honest. I mean you hit it right. If a consumer is interested in touring homes, whether that's virtual or booking a real-time tour and they start with an agent, making sure a Zillow Home Loans loan officer is ready for that agent and can be a choice for that customer, that's a big part of the growth. We can do that in enhanced markets, and that's how we're rolling out this formula is giving access to more and more agent teams, a Zillow Home Loans team for them to work with for us to earn their trust as one of their choices for Zillow Home Loans. But that works in reverse, right? So the set of customers that might be shopping financing or asking affordability questions, they're using viability, and that's a good proxy, right? So viability is up to now 2.9 million people have enrolled and used it and found their viability number. That's up from 2 million last quarter. Some of those folks are ready right away to go get preapproved. And we now have a digital preapproval they can do and a loan officer can help them, and that's the path they want to go down. But many of those folks end up doing that and then shopping. And so it really is not that separate funnel, right? So many of those viability customers just go tour. They're just a more high-intent customer, and they're more interested in Zillow Home Loans because they've started the process with us. And so it makes that conversation more natural for that agent to recommend Zillow Home Loans. So we see both those things kind of growing together over time. And if you just put the loan officer hat on, that's how a loan officer would think about it. These are just customers coming to Zillow. They're learning the financing answer, they're finding the home they want to buy and the loan officer is there to help nurture them along in partnership with the agent whenever they're ready and whenever they find the house. So for us, we will work on both products from a consumer experience standpoint, but they really are kind of 2 sides of the same coin more and more. Operator: Our next question will come from Dae K. Lee with JPMorgan. Dae Lee: First one for Jeremy Wacksman. Following up on your comments on the ChatGPT integration, I understand that mobile transition was an incremental for you guys. But with ChatGPT, there is kind of like an intermediary sitting between you and the consumers kind of helping you make that connection. So like when you view the consumer journey for users who start their home search in ChatGPT versus those who start directly on Zillow, are you seeing or are you expecting any differences in engagement or monetization potential? And do you expect these users to eventually come back directly to Zillow or continue engaging through ChatGPT? And I have a follow-up. Jeremy Wacksman: I mean I think it's really early to try and prognosticate how this all plays out. But I will say, if you think about like what framework could you use to think about that question, the actions you want to take in this category typically lend themselves to a very bespoke category experience. It's a very long-duration shopping cycle for a very large emotional asset where you have to make very almost regulated decisions and need regulated help to make that decision, right? If you're going to buy, you have to get in touch with an agent, you have to work with a loan officer or most people will do those things to make a very complicated financial decision. And the complications of the industry itself require a ton of local specific data and a ton of software to work through all those steps. So all of that to us says building GenAI into that platform is how we're going to make it easier, faster, better. Consumers are going to start and ask questions everywhere the way they always have. That's kind of, I think, where the -- does this feel like an app store or does this feel like a search engine question plays out. But once you start browsing and shopping, you ultimately raise your hand to want to transact and having a bespoke native kind of vertical experience is how most people are going to want to transact. They want this one-stop shop, and it's more about how can GenAI help enable that one-stop shop for them when they're ready. So we think about it as increased exposure. And we also think about it as like new ways to build that vertical experience because you now can interact with an intelligent piece of software that listens to you and remembers you and his patient. And so we're very excited to wire that up inside of Zillow. But that's why we're so excited about this. It's yet another way for us to start to build this more integrated transaction, which is what this category has desperately needed. Dae Lee: Got it. And then as a follow-up to Jeremy Hofmann. When you look at Zillow Pro and Zillow Preferred, like how should we think about like how that could change the monetization potential of your platform and profitability potential of your platform? And when you gave us an early view on 2026, does that early view include meaningful contribution from these products? Jeremy Hofmann: Yes, I'll take that. Thanks for the question. I would think about the $1 billion mid-cycle target in For Sale coming from Preferred. Pro is really on top of that. So I don't expect any meaningful changes to the way we monetize in Preferred. I think it's working quite well, and we expect to continue to roll it out steadily over the next couple of years as we march toward those targets. And then with respect to Pro, we don't expect it to be much of a contributor from a revenue perspective in 2026. We think 2026 is a year where we do a bunch of beta testing first half of the year, start to roll it out nationally second half of the year, but we're going to really focus on adoption and learning. And then ultimately, we have, I think, a really interesting opportunity to sell Pro over time and really expand our SAM. But 2026, I wouldn't be expecting huge revenue contribution. Operator: Our last question will come from Ryan McKeveny with Zelman. Ryan McKeveny: One on Showcase. So good growth and expansion of listing share. You also called out the AI-powered virtual staging rollout in 3Q. I guess any initial uplift you would say to the overall listing share based on the virtual staging? And I know that's early days, so maybe not. But maybe you could speak more broadly about virtual staging. And should we think of that offering as somewhat unique to the Showcase offering? Or could that be something of broader application over time? Jeremy Wacksman: Yes, Ryan, I'll take that. So on Showcase broadly, 3.2% of new listings, we feel great about. We're constantly testing ways to drive more adoption and how to help build it into the workflow of teams and agents that are working through listings. You're asking them to capture media differently in many ways. And so that's part of why so much of our tech focus is on how to make that easier. And then you're right to call out, we're also improving the product while we're growing adoption, right? So we added AI-powered virtual staging this quarter. We added SkyTour last quarter, which is this fantastic generative AI ability to fly around with all the drone media we capture. We've added listing dashboards. So we continue to add capabilities. With AI-powered virtual staging specifically, yes, we definitely could see that coming to more types of listings over time. I think we wanted to start with the listing experience where we have the native software built and learn and build from there. But over time, just like we want to see Showcase technology on more than 5% to 10% of listings over time, we've given you all that as intermediate-term targets. But the goal is really to create a more interactive listing experience on all listings. Photos and text are just not going to cut it. And that's what Showcase shows everybody, and that's why you're seeing the rapid growth of Showcase even in these early innings because this is just a better way for buyers to consume content. That's why buyers spend more time with it. That's why sellers and listing agents want it because ultimately, they're trying to get the homes sold faster and they're trying to win the next listing, and they can use Showcase to do both of those things. Ryan McKeveny: That's great. And then just one final one. A couple of questions ago, you were asked about the different mortgage funnels. You called out in the shareholder letter, the loan pre-approvals within Follow Up Boss. That sounds interesting. Should we think of that as kind of additive or new to the potential funnel on the mortgage side? Or is that more -- just a more efficient way of doing things that had historically been done seemingly in a different way? Any thoughts there would be great. Jeremy Hofmann: Yes. Thanks, Ryan. I'll take it. I would think of it as really just making the experience better for the shopper, the agent and the loan officer. It's a really nice integration. And if you think about what a shopper is looking to do, that shopper wants a really tightly coordinated team between its loan officer and real estate agent. And we think building functionality that helps that integration work in Follow Up Boss, which is where these agents tend to run their businesses is beneficial for all parties in the transaction. So that's the way I would be thinking about it. Operator: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks. Jeremy Wacksman: Great. Thank you all for joining us today. We really appreciate your continued support. We are very excited for what's ahead and look forward to speaking with you again next quarter. Operator: Thank you for joining Zillow Group's Third Quarter Financial Results Call. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to Alerus Financial Corporation Earnings Conference Call. [Operator Instructions] Today's call will reference slides that can be found on Alerus' Investor Relations website. You can also view the presentation slides directly within the webcast platform. [Operator Instructions] Please note, this event is being recorded. This call may include forward-looking statements and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's SEC filings. I would now like to turn the conference over to Alerus Financial's Corporation President and CEO, Katie Lorenson. Please go ahead. Katie Lorenson: Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings call. Joining me today in the Twin Cities is our CFO, Al Villalon; our COO, Karin Taylor; and our Chief Banking and Revenue Officer, Jim Collins. Joining us by phone is our Chief Retirement Services Officer, Forrest Wilson. I plan to cover a few highlights for the quarter and then spend a few minutes recapping the progress we have made as a team and as a company. Results for the quarter were consistent with expectations. Another pearl on the string as we continue to execute our long-term strategy, drive transformation across our commercial wealth bank and position the company for sustainable value-driven growth. Improved results reflect our team's strategic actions and progress towards top-tier performance. Our ultimate differentiator at Alerus is our diversified business model, which drives nearly double the average fee income compared to other banks. Due to the annuitized and capital-light businesses of Retirement and Wealth, Alerus has revenue resilience across cycles. This enables us to deliver consistent value to our clients and consistent returns to our shareholders. This quarter, we continued to deepen client relationships and expand our reach. Our seasoned team of bankers, both the new and long tenured at Alerus drove robust organic growth in both our commercial and private banking segments. Our Retirement and Benefits business remains a national leader and continues to establish meaningful partnerships across the country. In Wealth Management, we completed a major platform upgrade, enhancing both the client and adviser experience and laying the groundwork for future recruiting efforts and client growth. We continue to derisk the balance sheet with our company-wide prioritization of proactive risk management. Last quarter, we sold a portfolio of higher risk acquired hospitality loans. We previously marked this portfolio and realized a gain of $2.1 million on the sale in the second quarter. Throughout this year, we have continued to diligently work through and out of credits that are not core to where we are focused or those that we think could be negatively impacted in an economic downturn. Our emphasis on capital allocation to organic growth in full C&I relationships resulted in the investor CRE capital ratio dropping below the 300% threshold. Another example of our conservative and proactive risk management was a large recovery during the quarter of a credit we charged off only 5 quarters ago, bringing the year-to-date charge-off ratio to 8 basis points which remains below our lower-than-industry long-term history of 27 basis points of net charge-offs. Nonperforming assets to total assets were 1.13%, an increase of 15 basis points from the prior quarter. The quarter-over-quarter increase in nonperforming by one commercial relationship. The commercial relationship that was recently identified has many clients since 2010. They are a general equipment lessor for transportation, logging, construction and manufacturing industries. They experienced cash flow challenges relating to one large customer going out of business and delayed work tied to FEMA funding. There is currently a 50% reserve on the relationship, pending additional information on equipment values. Of the $60 million in nonperforming assets, our largest exposure continues to be a large multifamily loan in the Twin Cities with a book balance of approximately $32 million. We saw some progress on this credit as permanent certificate of occupancy was issued in July of this year and is currently 67% leased. The property was publicly listed for sale this month. Based on various expected outcomes, we are currently reserved at about 15% expect resolution by midyear 2026. These two loans make up nearly 75% of our total nonperformers and we do not believe the level of nonperformers to be indicative of any widespread credit concerns. We ended the quarter with a strong reserve level of 1.51%. In addition, capital accretion boosted the TCE ratio to over 8%. Tangible book value grew nearly 5%, and we returned $5.3 million to shareholders through our long-standing commitment to our dividend. As we look back over the last several years and forward through the remainder of 2025 and beyond, our strategic positioning is exceptionally strong, and our priorities are clear. Since 2022, Alerus has made transformational changes and substantial progress to return performance to top-tier profitability as a premier commercial wealth bank and a national retirement plan provider. We have completed succession at the entire negative team level and beyond and have strong leaders in place throughout all parts and levels of the organization, many of which have joined Alerus from much larger institutions and are key to our progress in making Alerus, not just bigger but even better. We have courageously transitioned the majority of our commercial making team in our growth markets over the last several years with specialized industry veterans with deep credit acumen. Key verticals have been established and teams have positioned us to grow mid-market C&I and equipment finance. In addition, we have added teams of deposit-rich verticals, including private banking and government not for profit. In 2023, we lifted out and added over 120 new team members while reducing head count over 10%. We have strategically divested business lines that are not core to our franchise and successfully acquired in key markets, including Arizona, Rochester and Wisconsin. We retained #1 market share in our hometown market of Grand Forks, despite new market entries and targeted competition. Our markets across our franchise are exceptional in terms of full relationship growth opportunities and economic and household demographics. While performance ratios are improving, we continue to monitor and evaluate opportunities to enhance our core earnings profile. This includes the engagement of a third-party consultant to ensure we have processes and systems in place to profitably and sustainably scale and grow our business with improving margins and exceptional risk management. These challenging efforts to transform and improve the returns of our Commercial Wealth Bank were critical in order to receive the recognition of the embedded value of our stable and recurring revenue from our retirement and health businesses. We remain bullish on our retirement business of which we are the 25th largest in the country. We intend to continue to build organically and inorganically in this highly scalable business. We put in place the first dedicated and experienced executive to oversee the business a year ago. With the leadership team now in place, we are doing the work to transition the operating model to optimize margins and introduce automation and AI in an industry that is growing with the support of legislation at rates well above GDP. Our robust wealth division at Alerus is more valuable than that of the typical community bank with nearly all of the business being full fiduciary management and advising clients. The conversion of the new platform went incredibly well. We have a unique and differentiated value proposition for recruiting wealth advisers. And with improved technology, we are moving forward with our plan to double the wealth advisers, mostly in our growth markets over the next several years. The fundamental foundation of the company is strong. The difficult work has been completed, and now we look forward to the ultimate goal of top-tier performance and being recognized and rewarded what they deserve in top-tier valuation. Our focus going forward is to keep growing organically by deepening client relationships and expanding in growth markets, leverage technology, data and AI to drive efficiency and deliver differentiated client experiences. Long term, we will continue to evaluate M&A opportunities, particularly in retirement and HSA businesses, where we have deep experience and catalysts to consolidation positions Alerus favorably as one of the few independent abrogators in the space. Lastly, and as always, we intend to maintain our disciplined approach to capital allocation, risk management and expense control. We are confident in our strategy and the opportunities ahead. Our foundation is solid, and our team is energized. We are committed to delivering sustainable top-tier performance for our clients, our communities and our shareholders. With that, I will now hand it over to Al to cover the financial results. Alan Villalon: Thanks, Katie. Turning to Page 11 of our investor deck that is posted on the Investor Relations part of our website. On a reported basis, net interest income increased 0.2% over the prior quarter, while fee income decreased 7.3% Net interest income was stable as deposit inflows and organic loan growth offset the impact of the CRE hospitality loan sale and purchase accounting accretion was stable. Excluding onetime items, mainly the gain from the loan sale from the second quarter, fee income was down only 1%. Our fee income remains over 40% of revenues and over double the industry average. Let's dive into the drivers of net interest income on the next slide. Turning to Page 12. In the third quarter, net interest income continued to reach new highs at $43.1 million, and our reported net interest margin remained stable at 3.50%. Total cost of funds remained stable at 2.34%. We had 45 basis points of purchase accounting accretion in the quarter. Although 45 basis points, 17 basis points were from early payoffs. We continue to remain disciplined in pricing as we continue to not price in the version of the yield curve for loans. In the third quarter, we saw a new loan spread of 259 basis points over Fed funds while the deposit costs were coming in 92 basis points below Fed funds. With the new business margin of 351 basis points, we continue to expect purchase account accretion to be replaced by core net interest income. Let's turn to Page 13 to talk about our earning assets. At the end of the third quarter, loans grew 1.4% over the previous quarter. Multifamily real estate, C&I and residential real estate were the biggest drivers of loan growth. For the fourth quarter, we're expecting around $159 million or 4% of our loans to contractually mature. Overall, our loan mix is around 50% fixed and 50% supply. On investments, we continue to let the portfolio roll off and revisit the higher-yielding loans. The portfolio has a duration of just under 5 years. For the remainder of 2025, we expect another $37 million of securities to pay down. Excluding balance sheet, derivatives remain slightly liability sensitive. Any 25 basis point cut in the Fed spun should help improve our net interest margin around 5 basis points. Turning to Page 14. On a period-end basis, we were able to grow the cost by 1.7% despite the usual seasonal outflow we see from public funds. Growth was primarily driven by continued expansion to full commercial relationships. Over 70% of our commercial deposits now have a treasury management relationship with Alerus. Loan-to-deposit ratio remained stable at 93%. Lastly, since the close of the acquisition of Home Federal, our net retention rate remains over 97%. Turning to Page 15, I'll now talk about our banking segment, which also includes our mortgage business. A focus on the fee income components now since net interest income was previously discussed. Overall, noninterest income for banking was $6.4 million for the third quarter. The second quarter included a $2.1 million gain related to the sale of hospitality loans. Excluding onetime items, net interest income was only up 1%. Mortgage saw a slight increase in originations during the quarter. We do expect the seasonal slowdown in mortgage for the upcoming quarters. We also saw very little swap income this quarter, which tend to be lumpy from quarter-to-quarter. On Page 16, I'll provide some highlights on our retirement business. Total revenue from the business increased to $16.5 million or a 2.9% increase over the prior quarter. Most of the increase was driven by asset-based fees coupled with a slight increase in recordkeeping fees. Assets under administration and management increased 3.7%, mainly due to market performance. Synergistic deposits within our Retirement Group grew 3.4% over the prior quarter. HSA deposits grew almost 2% over the prior quarter, over $202 million. HSA deposits continue to remain a strong source of funding for us as these deposits only carry cost of around 10 basis points. Turning to Page 17, you can see highlights of our Wealth Management business. On a linked-quarter basis, revenue decreased to $6.6 million, while end of quarter assets under management increased 4.3%, mainly due to market performance. Revenue declined due to a decrease in transactional revenues such as brokerage and insurance commissions. Page 18 provides an overview of our noninterest expense. During the quarter, noninterest expense increased 4.3% due to an increase from higher incentives driven by our higher loan and deposit growth, along with incentives from higher mortgage originations. The increase in incentives was offset by decrease in benefit-related expenses. We also saw an increase in technology expenses as we transition to a new wealth and deposit platform. Occupancy expense increases, we opened a new office in Fargo, North Dakota and placed two older facilities. Turning to Page 19, you can see our credit metric. During the quarter, we had net recoveries of 17 basis points. The quarter-over-quarter decrease was primarily driven by a $1.9 million recovery in the third quarter of a 2025 related to a loan that had been previously been charged off. Nonperforming assets were 1.13%, an increase of 15 basis points from the prior quarter. As Katie mentioned in her opening comments, we are currently carrying a 50% reserve in the long commercial relationship related to a general equipment lessor. On the special capital liquidity on Page 20, our capital -- our tangible common equity ratio improved to 8.24%, which is higher than a year ago of 8.11%, right before we closed on the acquisition of Home federal. On the bottom right, you'll see a breakdown in the sources of $2.6 billion in potential liquidity. We continue to utilize some broker deposits to optimize our cost of funds. Overall, we continue to remain well positioned from both liquidity and capital standpoint to support future growth, or weather economic uncertainty. Turning to Page 21 now. I will update you on our guidance for 2025 and provide preliminary guidance for 2026. We expect the following: For loans, we expect the year to end with over $4.1 billion. For 2026, we expect to continue to grow at a mid-single-digit growth rate. Total deposits should be around $4.3 billion at year-end. While we expect inflows from our public funds, we are also planning on calling in around $165 million in brokered CDs. For 2026, we expect to grow deposits in the low single digits based on the projected ending amount of $4.3 billion for 2025. Net interest margin for 2025 is now to be expected higher and end around 3.35% to 3.4% on a full year basis. For the fourth quarter, we're only expecting 23 basis points of purchase accounting accretion, which includes no early payoffs. For 2026, we're expecting our net interest margin to be around 3.35% to 3.45% which will include only about 18 basis points of purchase account accretion and no early payoffs. In comparison, we expect around 40 basis points of purchase and account accretion for the full year 2025. As a reminder, we do not embed any further rate costs in our guidance. However, the guidance does include the recent 25 basis point rate cut that was announced this week by the Fed. Again, for every 25 basis points cuts in rates, expect NIM to improve about 5 basis points. We expect our non adjusted noninterest income for the year to end around $115 million in total. This will exclude the $2.1 million gain on sale of loans in the second quarter. On the mortgage side, we expect originations to see a seasonal downturn in the fourth quarter. For 2026, we expect noninterest income to grow in the mid-single digits from the adjusted $115 million in total reflected for 2025. Adjusted pre-provision net revenue should end the year around $85 million to $86 million. Again, this is adjusted for onetime items in 2025, which is mainly the gain on sale of loans and severance and signing expenses. For 2026, we expect low to mid-single-digit growth from the $85 million to $86 million in adjusted PPNR. Lastly, we expect our adjusted ROA to end 2025 greater than 1.15%, which excludes onetime items such as the loan sale. For 2026, we expect our ROA to exceed 1.10% for the year. We expect a normalized provision in 2026 and less purchasing account accretion relative to 2025, as previously mentioned. With that, I'll now open up to Q&A. Operator: [Operator Instructions] The first question will come from Jeff Rulis with D.A Davidson. Jeff Rulis: Maybe just on that last one, Al, on the provisioning level this quarter. I guess, pretty good growth is the lack of the provision maybe on the recovery I guess you've got some confidence on that larger credit as well. I just wanted to kind of get to that. And then as we go forward when you say normalized provision, if you could refine that a little bit, that would be great. Karin Taylor: Jeff, this is Karin. I'll start. You're correct. The lack of provision this quarter was driven primarily by the recovery as well as a decrease in the requirement for pooled loans, particularly as we move that one problem owned individual impairment and then a decrease in our unfunded commitment requirement. In terms of provisioning going forward, that will be driven primarily by loan growth macroeconomic factors. Jeff Rulis: Okay. So the normalized term is kind of reserving for growth versus kind of the inputs that we had this last quarter, recoveries and such? Is that kind of... Karin Taylor: That's correct. Jeff Rulis: All right. And I appreciate the outlook on the loan growth. Interested in your view, Katie or others, just in terms of a mid-single-digit outlook. But I guess where's the upside if things were to be better, would you frame that up? If we do get lower rates, kind of where do we see higher than mid-single digits, if that were to line up. James Collins: Jeff, this is Jim. If we do see some lower rates, I think we could see some higher loan growth closer to the 10%, 11%, 12% loan growth. But that's really going to be -- we're really going to be focusing on a lot of deposit growth -- at the point, for the most part, we're really sticking and focusing on full C&I relationship growth. So depending on how that deposit full relationship goes, Obviously, that comes with loan growth. So my guess is if rates do come in, we're probably inching up closer to that 9% to 10% loan growth. Katie Lorenson: Yes. I would add, Jeff, that the headwind to the loan growth is really our continued proactive work on the portfolio in terms of pushing out credits that just are core to our focus or that we don't have full relationships with and are not in our asset class priorities. Jeff Rulis: Katie, you mean there's -- would you suggest that there's maybe a little more work to do in '26 to kind of keep that capped a little bit? Is that what I'm hearing? Katie Lorenson: I think it will continue in -- throughout '25 and perhaps the early part of '26. Operator: Our next question will come from the line of Brendan Nosal with Hovde Group. Brendan Nosal: I just wanted to dig into the margin outlook a little bit. Al, thanks for the comments on the accretion expectations for '26, I guess it kind of stands to reason even without additional rate cuts, it looks like you're baking in some improvement in the level of the core margin from here through 2026 even without additional rate cuts. Could you just maybe unpack the drivers of that a little bit? Alan Villalon: Yes. That's a good question, Brendan. I mean we are expecting what you call core margin improvement or the way we look at it here, net interest margin, excluding purchase accounting accretion, but the big drivers of that for right now is -- I commented on earlier, we're seeing really good spreads on loans, and we're also seeing good spreads on deposits. So with that -- what we call the new business margin in excess of 350 basis points we continue to expect that net interest margin, excluding purchase accounting accretion to continue to improve. Brendan Nosal: Okay. That's helpful. Maybe one for me, just turning to fee income. If I annualize this quarter, you're around $118 million just on what you did this quarter. The guide for next year kind of implies right around there, plus or minus a little bit. So I just want to kind of dig into why the lack of more robust loan growth -- or sorry, more robust fee income growth and maybe what market and organic assumptions you're using for AUA and AUM in your fee business? Alan Villalon: Yes. I'll take the first part of this is in terms of fee income growth for next year, we do expect mortgage to be under pressure just a little bit still. So that's just kind of where we're modeling we have to be conservative. The other part of it, too, is that we're not modeling much in terms of market growth. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Just going back to the last discussion point on fee income. Maybe Katie, could you just touch on some of the underlying drivers that you're seeing within the wealth and retirements in the areas these days? Particularly just curious around what you're seeing in terms of capture rate increases and just how you're kind of stemming some of the natural attrition within AUA as well these days. Katie Lorenson: I wouldn't say our trends are consistent in both the attrition side as well as the capture rate side on the retirement business. In the wealth business, again, we completed a full conversion onto a platform that is an upgrade for both the client experience as well as an adviser experience. We've had great success in recruiting and retaining exceptional advisers. And the technology now just removes a little bit of an obstacle because we do have such a differentiated recruiting profile. So those are not layered in yet in terms of the revenue growth of the expense side, but we do expect to move full force ahead in adding advisers in our growth markets. Nathan Race: That's really helpful. And just going back to the loan growth discussion, maybe for Jim. I appreciate there's potential upside to that mid-single-digit guide with lower rates. But curious how much of the M&A-related disruption the Twin Cities can also contribute to that. Obviously, there's been some distribution with a couple of notable competitors recently. So just curious if you guys can attract those clients just via your existing teams or if you're seeing opportunities or any appetite to hire additional commercial folks. James Collins: We are always very opportunistic on talent. So we always look for talent, and we do the cost benefit of that talent. We're -- certainly have upgraded talent and have a really good talented team now. And a lot of that talent has inroads to a lot of the disrupted banks in this market in the Minneapolis and some of the other markets. So we are finding success in those disruptions. So that will be part of the growth for 2026. For sure, that's some of the names that I see on the pipeline, that will be part of that growth. But we are always looking for talent, certainly in all markets where there's disruption and there's disruption in all markets, we definitely -- that is part of our strategy to take advantage of those disruptions, both with the talent and with the customer base. Nathan Race: Okay. That's great. And then, Al, I appreciate the guidance around PPNR growth for next year. Just curious, what kind of legacy expense growth you're kind of thinking about an underpinning that? There were some sequential increases across a handful of line items in the third quarter. So just wondering if there's any kind of cost that will come out as we enter 4Q or into next year? And just how you're thinking about overall legacy expense growth into 2026? Alan Villalon: Thanks for that question, Dave. We're still in the midst of the budgeting process and evaluating opportunities to reinvest and save costs as well. So that's why there's a rate for PPNR right now, it will be up low to mid-single digits. We'll have more color for that as we get probably in the fourth quarter results when we finish the budgeting process. Operator: Our next question is going to come from the line of Damon DelMonte with KBW. Damon Del Monte: Al, just to circle back on the expenses, given the uptick in the software technology line there, is that kind of like a run ratable level from this quarter? Or do you think there's some noise there that shakes out? Alan Villalon: Yes, there's still going to be a little bit because a lot of the contracts these days have escalators in them. So we'll still see a slight uptick in that next year. Damon Del Monte: Okay. Great. And then the guide for the margin for '26, I may have missed what you said, you expect the fair value accretion impact to be that's embedded in there? Alan Villalon: Yes. That's -- we're only expecting 18 basis points of purchasing accounting accretion in there, and that's with no early payoffs. Damon Del Monte: Got it. Okay. And then again, just to confirm, for each 25 basis point cut, the core margin should benefit by 5 basis points? Alan Villalon: That's correct. Damon Del Monte: Okay. Great. And then lastly, do you guys have any NDFI loans in your portfolio? Katie Lorenson: No. Damon Del Monte: Okay, great. Everything else has been asked and answered. Operator: Our next question comes from the line of David Long with Raymond James. David Long: Just wanted to touch base on a couple of things on the balance sheet. On the funding side, time deposit growth led the deposit growth in the quarter. What are you looking at in deposit growth going forward? And what is the duration of what you've been adding and the yield on that? Alan Villalon: So David, in terms of the deposits. Let me go circle back to you on that one. Let me just look this up what we've been adding on. Do you want to hit me another question and then? David Long: Yes. Sure. The other thing I want to ask is just on the asset side, thanks for giving us some of the repricing metrics with the loans and the deposits. But how do you expect the mix to look over the next 6 to 12 months? Will that differ? Will you -- is there any interest in moving some of the securities cash flowing into loans at this point? Alan Villalon: Yes. There's definitely the interest of moving the securities into loans because I mean, we basically have a low 2% yield right now in our securities book, and we're getting loans that are very much higher than Fed funds. So we definitely want to do that. Operator: Our next question is a follow-up question from Brendan Nosal with Hovde Group. Brendan Nosal: Katie, I just want to kind of follow up on something you said in your prepared remarks about evaluating opportunities to enhance the return profile. Could you just expand upon that a little bit and kind of put a scope around what sort of things you might be looking to do in that regard. And then specifically, would you folks look at securities restructuring as part of that? Katie Lorenson: Sure. Well, as I mentioned, we have engaged a consultant, which is really focused primarily inside the commercial underwriting and origination processes. We believe, first and foremost, that's about getting better, faster and a better experience for all of our team members and our clients. But we do believe there may be some efficiencies that we realized from that, that will help us improve our profile. In addition to a tremendous amount of work being done within the Retirement division to optimize how we deliver there. We think that industry, in particular, is absolutely full of opportunities for AI and automation. And so we think we can continue to improve margins over the long term in that business. And then relating to the balance sheet restructuring, that's something that we are always evaluating, those opportunities and that's not a change for us, that's been over the course of the past several years. Alan Villalon: Also just on the follow-up call from -- for Dave Long there. New non-maturity deposit accounts in Q3 came in at rates of less than 3%, and our CD term rates were kept short. Operator: This concludes our question-and-answer session. And I would like to turn the conference back over to Katie Lorenson for any closing remarks. Katie Lorenson: Thank you, everyone, for the questions and thank you for taking the time to join us today. I want to thank our employees for their unwavering dedication to our clients and our shareholders for your continued trust and support. The progress we've made together reflects the strength of our strategy, the resilience of our diversified business model. And as we look ahead, we remain focused on disciplined growth, leveraging technology and innovation, delivering sustainable top-tier performance. Our foundation is solid. Our team is energized, and we are confident in the opportunities ahead. Thank you, everyone, and have a great day. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the third quarter and the first 9 months of 2025. We are joined today by our CEO, Gonzalo Gortazar; and our CFO, Javier Pano. Just a brief reminder in terms of logistics, we will spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A, as you know, is live, and you should have received by e-mail the instructions on how to participate. Let me end by saying that my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody, and welcome to this results presentation. It's a quarter that, I think, confirms the trends that we've been seeing for the last year and even further where volume growth sort of accelerates despite the seasonality. Obviously, we need to understand that comment in the context of the weakness due to seasonal reasons in the third quarter, you see how basically, loans and customer funds are close to 7% up; premia for insurance business, 13% up; and remarkably growth in number of clients, almost 400,000 new clients in Spain on a net basis, which indicates, clearly, the group is in the right direction, growing client base for much more than population growth in Spain. So very good dynamics for the business, for the organization. With respect to NII, as we predicted last quarter, finally, we've seen an inflection point with a pretty decent increase, 1.4% quarter-on-quarter. So Javier will elaborate on the Q&A. We'll have further details on trends. But certainly, it feels very good at this stage. Revenue from services, up over 5%; asset quality, record lows. Cost of risk, in fact, we're improving guidance as Javier will sort of detail. Capital in the right direction. And obviously, this quarter, we, as per our policy, are announcing the interim dividend to be paid in November, which is the top of the range of 30% to 40% of first 6 year -- of the first 6 months results, sorry. And announcing a further share buyback, the seventh I'm keeping core equity Tier 1 above our targets and with, again, strong trends, particularly given the deduction of the share buyback that is included in the figures. We're upgrading our return on tangible equity to circa 17%, which indicates again the good trend of the business, which we obviously expect to see for the foreseeable future. The economy, the economy has again surprised on the upside. We have raised our estimates for Spain from 2.4% to 2.9% currently. A couple of days ago, we had the figures for the third quarter very much sustaining the projections that we've made for this year, this 2.9%. We expect some slowing down, but to a pretty decent level, just above 2% this year for Spain, similar level for Portugal. By the way, Portugal published their GDP figures yesterday, also very strong. So a nice outperformance of the Iberian economies, expected to last. And certainly, we are a clear beneficiary there. What's behind this? First of all, the labor growth. You can see over 0.5 million of new jobs created in the last 12 months. Disposable income and savings rates, both moving in the right direction. And obviously, that's a tailwind for our customer funds and for the economy. Consumption figures that we saw a couple of days ago, private consumption up 3.3%. Investment part of the GDP, very strong growth, 7.6%, and very remarkable export of services, close to 10%, 9.5%, and of that, the tourism-related services is only 5.8%. So it gives you an indication of the recovery and the strength of the Spanish economy goes much further beyond pure tourism, which is very relevant because obviously, tourism is going to continue to contribute to the economy, but not to the same extent that it has had in the past and as the sector has recovered. Continue to have a very low private sector leverage compared to the Eurozone, which is great news, both in terms of defensive scenario if there are issues. And certainly, glass half full opportunities for loan growth, which we see sustainable -- sorry, which we see sustained for the next year. So in that context, obviously, volume growth, 6.8% up. Client acquisition, as I mentioned. On the right-hand side, you have a reminder, this is coming from FRS Inmark of our client penetration, we have 40.4% increased during this year, along with that increasing client base. It's very important to see here the group gaining the traditional commercial strength that it has always had, and the fact that the type of relationship that we have with our banks is much stronger than the other peers. As you can see, 72% of our clients use Caixa as their primary bank, which is well above all. Market share gains, I'd say, across the board, but highlighting some of them. Payroll deposits, in particular, which is very relevant, certainly. On the lending side, consumer and business lending, in particular, not so much in mortgages, where we are stable, a slight -- a few basis points reduction in deposits and generally in life risk. But as you will see in protection, we also have pretty good trends. imagin, as mentioned in the previous quarter, we're planning to give you a brief update on representation. Continuous nice growth and number of clients, market share, particularly in payroll business volume, half of our net new client acquisition comes through imagin -- sorry, half of our gross client acquisition comes through imagin. And just to remind you, it's at this stage, a full-service bank with obviously stronger component of customer funds, but also many other products, including lending, which is not typically what you see in neobanks compared to imagin. It's been a year where we've not only focused on growth. Remember our strategic plan, we talk about two pillars. It was growth and transformation. And here, you have a few initiatives. Obviously, the world continues to change very quickly. And we're planning on taking advantage of that. We're not on the defensive. We have to defend our positions, but we think there are great opportunities in the current environment and launch of the portals and Facilitea Coches, which by the way, we won a gold award a couple of days ago in the Qorus Banking Innovation Global Award, which is very nice, and we won another three and bank in the world that has won more awards at these prestigious event. Facilitea Casa growing nicely. We have, by today, already 1 million visits to our platform. So a successful example. Generacion + [indiscernible], which is at the beginning of a very significant project targeting sort of seniors. Tap To Pay, Apple Pay Later, VidaCare, all cases where we are actually leading the industry in Spain. Stablecoin consortium, another one, and the cash back program, which we have just launched is another example. I just want to make sure you have the feeling that it's not just about the current quarter or the current year. We're spending money and planning to make sure that growth not only stays but accelerates in the future. Loan book, 5% growth, and the stock of mortgages quite remarkable, 10% plus in consumer lending, business lending 4.5%. Obviously, very good trends. I won't spend more time because I mentioned it before. Loan origination, new production, strongly as the market is in residential mortgages, consumer lending and new business lending. So pretty good trends and trends that we see for the time being certainly staying with us. Customer funds, strong performance, 6.9% year-on-year, I think pretty balanced look at figures on deposits and wealth management. There is, again, in this case, a seasonality impact. That's what you see deposits coming down quarter-on-quarter. But certainly, when we look at details and the trends, they are much better than they were in the third quarter of last year. So nothing to worry about those numbers. They are actually good numbers once you adjust them. And when you look at a comparison of how we're doing in terms of deposits, Spain obviously outpacing the Eurozone by an ample margin, but CaixaBank further gaining market share there is a great sign. The off-balance sheet business, wealth management doing very nicely. And you can see that the -- our market share continues to be much bigger than even our two main peers combined, 29% versus 24%. You really almost need to add the third peer to get to our market share, which is obviously a reflection of the kind of franchise we have in wealth management, which has been actually doing very nicely this quarter and this year. Protection insurance, as I mentioned, again, strong growth, 12.7% in total premium. And as you can see, both life-risk and non-life doing very well. I mentioned the life-risk market shares. You can see here a similar on some of the key non-life market shares, again, doing very nicely. So a key part of our business and one where we have, again, delivered a pretty good quarter. Vis-a-vis our strategic plan, obviously, there's a big gap, all of it in our favor. Market is helping, there's no question. We actually at least have that ability to identify this trend and hence, focus on the growth opportunity that we had at hand. And we're doing much better. And as you heard before, also doing better than the market gaining market share. All that gives us quite a lot of confidence. Obviously, capital distribution is a key part of what we do. Based on increase in earnings per share, we have, as I mentioned, set the interim dividend at the maximum of the range that we had announced in our dividend policy. And got recent approval for another EUR 500 million share buyback. Well, we haven't yet finished the sixth share buyback. So we have share buybacks for some time now and a strong capital position give us confidence that we will continue in this direction. Javier? Javier Pano Riera: Okay. Thank you. Thank you very much, Gonzalo, and good morning, all of you. Well, from my side, as always, the details on the P&L and balance sheet. I have to say that all trends are in line with our expectations, if not better. So we are quite a bit. Here, you have the consolidated income statement. Net income pro forma, the quarterly accrual of the 2024 banking tax, you may see EUR 1.445 billion. That is flattish year-on-year. If we move to the revenue front, well, as I mentioned, NII, we had already the trough in the second quarter. As you may see, up by 1.4% on a quarter-on-quarter basis. Revenues from services despite being in the third quarter quite seasonal, we have had a really strong quarter also. You may see up by 6.2% year-on-year, flattish quarter-on-quarter, but that's remarkable, precisely due to that seasonality. The main driver being wealth management on the back of strong inflows, also markets doing well. You may see here year-on-year up by close to 12%, quarter-on-quarter also up. Protection insurance on a growing trend, underpinned by commercial dynamism. And then finally, banking fees, flattish on a year-on-year basis, quarter-on-quarter, impacted by seasonality with strong CIB this year. On other revenues, the most remarkable, I would say, is that in the third quarter, we have strong positive seasonality from SegurCaixaAdeslas, something that is very well known. Expenses, nothing to say, on track to meet our guidance for the year. And on cost of risk, you know that we have fine-tuned our guidance for the year to less than 25 basis points. So also on track to meet our improved guidance. On the tax line on the P&L, you know that beyond the corporate tax, we have the banking tax and also, as in recent quarters, we have some DTA write-ups. With that, an overview on Portugal. For the first 9 months of the year, EUR 351 million net income. Volumes are doing even better than in Spain. So as you may see, volume growth up by 8.5%. Relentless market share gains across the key businesses, I would say. Efficiency circa 40%. Profitability is just shy in terms of RoTE of 20%, NPL 1.5% and with nice coverage, 85%. And -- well, a significant milestone because we had this quarter disposal of 14.7% of the stake in BFA, the Angolan stake. Well, this is equivalent to circa EUR 100 million. And as I say, a significant milestone, an IPO in Angola. So with that, our stake is now 33.4%, not major or not material impact on P&L or solvency from that disposal. With that, let's move to the details. NII, as I was saying, here you clearly see the drop from the second quarter. And on the right-hand side, on that usual quarterly bridge, you may see that still, let's say, client yields having a negative impact as we still have a negative index resets on the floating rate loan book. This is a trend that will still continue for a few quarters. But in any case, this is more than compensated by volumes. You may see business volumes and also the ALCO this quarter, we have increased the size of the fixed income portfolio by EUR 2.6 billion net because we had also some maturities. And also we have increased hedges by EUR 5 billion to EUR 58.5 billion outstanding. Below, you have the customer spread, slightly over 300 basis points. The evolution of yields, the back book yield of the loan book, 355 basis points, down 20 basis points, but also the cost of client funds also down to 49 basis points, including -- excluding, in this case, hedges and foreign exchange. Well, in any case, we expect a clear acceleration of NII on the -- from the second half of next year. A zoom on our deposit base, client deposit base. Here, you have the evolution of average quarterly balances. You may see steady growth, but the most remarkable is the mix precisely. That improvement in volumes of noninterest-bearing deposits, you may see, on average, the third quarter up by circa EUR 7 billion. It's true that also we have some increase of interest-bearing balances. In this case, remember that is not only retail, it's also corporate SMEs because we do more business. So also, we have some increase on that. But in any case, the weight is very well contained, as you may see, a gradual reduction 26.8% weight of interest-bearing balances. At the same time, we'll continue to reduce the cost of our interest-bearing deposits. Now standing at 1.66%, significant reduction in the quarter, as you may see, with a strong correlation with the evolution of the overnight rate as we have, as you know, circa 50% of those interest-bearing balances fully indexed and the major part precisely to the overnight rate. Changing gear, we move to revenue from services, up by 5.7% year-on-year for the first 9 months. The main driver, as commented, wealth management, up by 13.4% for the first 9 months, also an accelerating trend on protection insurance, up by 4.2% when adjusted by a positive extraordinary on the last year and flattish fees, which is, I would say, quite remarkable. And you may see on the chart on the right, precisely, that this year, we have had almost no negative impact from seasonality. So really strong trends on that front. A few words on costs, up by 5.2% year-on-year, on track to meet our guidance. Remember, for costs up by circa 5%, cost-to-income below 40%, which is, by the way, well below the peer average. Asset quality and loan loss charges, asset quality really strong. You may see here NPLs trending down this quarter by EUR 300 million. I would say almost everything is organic, that reduction with the NPL ratio also trending down 2.27%. And you may see across the different segments that there is a broad-based improvement, so not anything part of our loan book to worry about, honestly. The coverage up by 3 percentage points in the year to 72% and we still keep our unassigned collective provisions unchanged for the year, EUR 341 million. On the right-hand side, cost of risk, loan loss charges, 24 basis points on a 12-month trailing basis. So remember that we have fine-tuned and slightly improved our guidance for cost of risk to less than 25 basis points. So we are set to meet that guidance comfortably. Liquidity, the same picture as every quarter, ample liquidity sources, EUR 229 billion and a liquidity coverage ratio at 200%, 199%. 148% for the net stable funding ratio. The loan to deposits is not moving at all. It's really stable, 86%, as we are growing on lending, but also we're growing on deposits almost at the same pace, so quite nice. And you know that the liquidity ratios are well above our peer average basically due to a strong and stable deposit base composed mainly from stable retail deposits and wholesale operational deposits. Capital, we are already deducting the seventh EUR 500 million share buyback, minus 21 basis points. From there, we have plus 67 basis points capital accretion that includes net income plus DTA consumption, then we have minus 8% from organic risk-weighted assets, that's basically lending. And from there, minus 38 basis points, dividend accrual at 60% plus AT1s and just minus 3 basis points from other impacts. That results into a CET1 ratio of 12.44% by the end of the quarter. On the right hand side, additional details, you know that we are still executing the sixth share buyback. We are today announcing this interim dividend close to EUR 1.2 billion, which is EUR 0.1679 per share. And the seventh share buyback, EUR 500 million set to start at some point after we finish the sixth one. Bottom right, well, you know that the stress test results was just released a few days after our second quarter results presentation. Here, you have the CET1 drawdown under the adverse scenario for the case of CaixaBank is minus 162 basis points. And you may see here that compares extremely well versus our comparables. And finally, this upgrade on guidance, fine-tuning as there is only one quarter to end the year. So NII now expected to come down by circa 4%. And then we have cost of risk expected to be less than 25 basis points and return on tangible equity circa 17%. So thank you very much and ready for questions. Marta Noguer: Yes. Operator, can you let in the first question, please? Operator: The first question is from Maks Mishyn, JB Capital. Maksym Mishyn: I have two questions from my side. The first one is on loan book growth. It keeps on accelerating nicely, and we seem to be gaining market share across the board and even in mortgages. Some banks indicate that the market environment is very competitive there. And can you please share your thoughts on why you think you need to grow there? And the second one is on provisions. What was the reason for the quarter-on-quarter increase? Do you think that the 25 basis points that you expect for 2025 could also become the number for 2026? Or is there any reason it could increase? Gonzalo Gortázar Rotaeche: Thank you, Maks. On loan book growth, indeed, we're doing very nicely, I'd say, in terms of market share, we're gaining market share, as I mentioned, on the business front and consumer lending. In mortgages, we're not gaining market share. Actually, market share year-to-date has decreased by 10 basis points. It doesn't mean that we're not doing a lot. That's why we have this strong increase in loan production. But we're doing a bit less than our fair share, I would say, given that it's only 10 basis points, in line with our fair share. And yes, this is a very competitive business. When you look at the numbers that banks disclosed at the ACB, you actually see that the Spanish mortgages are the cheapest in Europe currently, in terms of new production, around 2.5%. So it is indeed a business that only makes sense as long as, a, you have the ability to fund it from an ALCO point of view because now the market has moved mostly again to fixed rate mortgage. And there, you will see that different banks have different capacity to add long-term fixed rate mortgages. Obviously, given that we have a disproportionate share of transactional deposits, and you can see that because of our payroll market share close to 36%, 37%. We're obviously very well positioned there. And in terms of having that in our book because it is a natural hedge and all the banks do not have the same sort of long-term duration of liabilities. So not to the same extent, I would say. And second, most importantly, obviously, to get the numbers to an attractive return, you need to cross-sell other products. And that cross-selling is absolutely critical. If you look at our franchise and how we do our business and the market shares we have in insurance, in particular, but obviously, not just insurance, you are, I think, in agreement probably with us that we do cross-selling better than the average in the market so that we have a natural competitive advantage there. We are only doing mortgages as long as they make sense. We don't have any particular sort of extra point to grow in mortgages. It's just doing the business when we think it is attractive. And in the case of mortgages, obviously, it needs to incorporate both things, the ability to fund long-term fixed rate and the willingness because it fits in your ALCO portfolio. And then secondly, that ability to make it profitable as sort of an overall relationship with the client. But again, skipping away from mortgages. The key point is growth is actually in consumer lending and on the business front, particularly on the SME front, which are the two most attractive margin opportunities in the market. That's where we're growing market share. So we're extremely pleased with our loan growth is going absolutely in the right direction. Second point was on provisions, and I'll let Javier comment on that. But I think generally, we're seeing no change in the very good trends we have in asset quality, what you've seen also in the sort of early doubtful loans, i.e., sort of less than 90 days, we continue to see very good trends. We haven't used, obviously, the overlays, as you said. We keep reducing the nonperforming loan numbers. So mathematically, you see these this kind of change. I think going forward, this is a trend. If we manage to keep bringing down our NPLs, coverage will increase for the industry generally. You remember before the sort of great financial crisis in 2005, 2006, coverage ratios in the industry were above 100 because you had very -- and actually didn't make that much sense because most of the provisions or significant part of provisions were not covering actually nonperforming loans, but all the risks of exposures potentially becoming nonperforming loan. So we'll see. But still, I think at this stage, it's very nice to see that we have a very low cost of risk, 20 basis points annualized in the quarter and still that is not affecting the quality of our coverage. It's quite the opposite, we are increasing that coverage. Then quarter-by-quarter because this is lumpy sometimes. So there may be portfolio sales and write-offs and et cetera, you may have some volatility. But I think the trend is these levels are probably the ones that we will see for the next few quarters. With that, I'm afraid I've gone into most of it, Javier. I'm sure you have things to add. Javier Pano Riera: No. On cost of risk, well, we are quite a bit on the evolution, and you just saw that we were upgrading our macro views in general. Well, the dynamics in the economy, both Portugal and Spain are so good. So we are working on our budget for next year as we speak, but I don't foresee major changes on the levels of loan loss charges for next year, honestly. So obviously, unless there is an external shock, no, but let's assume that this is not the case, and the situation continues to do as well as is the case currently. I would say that you can count on no major changes. We'll fine tune obviously, when we will comment in January, but the assumption is that it's going to be in line. Marta Noguer: Thank you, Maks. Operator, next question, please. Operator: The next question is from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I just have 2 questions, if I may. One, looking to the other side of the balance sheet to the deposit growth. If I just look to Page 20, you are clearly exceeding the target of deposit growth that you were aiming in the plan. Just wanted to see how you think about deposit growth going forward in '26 and '27. The second question, I think that Javier, you touched a bit upon this on the call, but I wanted to look to the reinvestment of the ALCO. Some of your Southern European competitors are investing around 2.6% the bond maturities have a 1.6%, 1.5%. ALCO. How should we think about the phasing of that reimbursement in the NII over the coming 3 years? Gonzalo Gortázar Rotaeche: Thank you, Nacho. I'll maybe take the first question on deposits. There are 2 main factors. One is the trends in the market and then it's how do we do in terms of relative performance, market share. On both fronts, I feel very confident at this stage. So we're definitely going to be outperforming the expectations that we had in our strategic plan. The market is still showing significant growth in disposable income. Our estimate for next year is again another 2% of gain in terms of real disposable income, so 2 percentage points above inflation. And the savings rate is sustained pretty high across -- actually across Europe, certainly also in Spain, where it used to be much lower. I think there might be a slow sort of gradual decrease. But at this stage, it doesn't seem that the numbers are going to be very different. So as long as we are in a growing market, then it's up to us. And what we're seeing this year is, I mean, we have the machine and 100% of its functionality. And actually, the quarter passes the further quarter, the more confident we become. This is a virtuous circle. It's a great organization we have. And undisputed leadership in Spain, over 50% larger than our competitors and now it seems that, that position is going to stay for the foreseeable future, very stable, that's a great advantage. We have the team very focused, and we have been doing greatly this year, particularly in the non-remunerated part, which is obviously one that creates the highest value. I say the outlook is very positive for next year. And certainly, if the macro -- the macro numbers continue to be there, which is our expectation, not just for the next year but for the following months. So pretty good momentum and likely to be sustained. Javier Pano Riera: Okay. If I may, Ignacio. On the ALCO reinvestments, well, you know that in order to manage our NII sensitivity, we are basically using both swaps and bonds. This quarter, we have added to both on a net basis in the case of bonds because we had also some maturities. You know that you have a slide on our presentation on the appendix with plenty of details on the yield of all maturities per year or even per quarter for hedges. So you can count on rolling over those fixed income maturities for sure. So we need to do so in order to keep that sensitivity, let's say, contain it within our targets. And you are right, no? So the average yield is 1.5%. So any reinvestment basically from 4 to 7, 8 years is usually the maturities. We are investing in it's going to be accretive. And more specifically, what is maturing until the end of this year is having a 0% yield. Next year, we are having close to 9 billion maturities at a yield of 0.4%. So you may see that this is clearly accretive. And this is part of the reason beyond commercial volumes where we are quite a bit on NII for '26 and '27 and beyond because this is an additional tailwind. I mentioned NII sensitivity. I would like to take the opportunity to note that we have slightly changed our NII sensitivity target to 7.5% to a parallel shift of the yield curve. This is no changes in practical terms, but it's basically allowing for some additional hedging flexibility precisely to accommodate faster volume growth, generally speaking. And keep in mind that we are disclosing sensitivity for the period 12 to 24 months. What we have benchmarked that we see that our peers are usually giving sensitivity for the first year, so 0 to 12 months. If you think about our sensitivity for those 0 to 12 months it's circa 4%. So pretty much in line with what everything is disclosing. It's a more asset view. The view that we are giving us you. So basically, please note that. So we are going to be opportunistic here depending on basically the spread between swaps and the sovereigns. We are using to add to the portfolio. And depending on that, we are more keen to use swaps or fixed income. The shorter the maturities usually, we tend to use swaps because you capture a narrower margin. So it will have a wider margin at longer maturities. Operator: The next question is from Francisco Riquel, Alantra. Francisco Riquel: Yes. My first one is a follow-up on the first question from Ignacio. So I see demand deposits are growing 7% year-on-year, time deposits are flat. So can you comment on customer behavior in a lower interest rate environment. Your strategic plan was based on a stable deposit mix. And I wonder if you see upside here. And if you can also update on your guidance for deposit costs, both with and without hedges. And my second question is customer spread. I see is proving resilient in Spain above 3%, but Portugal has fallen to below 2.9%. So you are growing faster in Portugal than Spain. So I wonder if you have noticed increased competition in this market or if it is related to different speed of balance sheet repricing, so you can give guidance for customer spread in both countries? Gonzalo Gortázar Rotaeche: I will just say an introductory word, I'll let Javier deal with it. But in terms of this mix between time deposits and demand deposits. Obviously, as interest rates have come downwards the pressure to move from side deposits to demand deposits is more or less disappeared. We're also seeing to some extent, the balances invested outside like T bills and others, generally in the systems that are coming back to the balance sheet. But clearly, there is potential to do better there. This year is -- it has been the case. But anyhow, Javier knows this inside out. Javier Pano Riera: Well, on customer behavior, I think that basically, we are being successful on 3 fronts here. So first thing we are being able to pass on lower market rates to our -- to the cost of our interest-bearing deposits. You know that almost 50% of that is indexed, so it's pretty much automatic. So there's not much commercial effort on that front. While we do that at the same time, we are growing nicely on noninterest bearing. And that growth on noninterest-bearing is not because is flows coming from interest-bearing so it's not like we are parking, let's say, whole money on noninterest-bearing that eventually will move from to another part of the balance sheet or even to outside the bank. So it's not the case. So it's basically operational balances, more clients, well, close to 400,000. As you could see in a year, more clients or more payrolls, more everything. So at the end of the day, you have more operational balances at 0 cost. And while we do all that, at the same time, we are being able to grow on off-balance sheet solutions, on wealth management solutions being mutual funds or being savings insurance. So the pace of inflows into those products is approaching EUR 1.5 billion per month, which is quite significant. While at the same time, we keep growing on noninterest-bearing and keeping our interest-bearing pretty much stable. So I think that we have -- we are mastering honestly, this -- all that. We have the right incentives internally, obviously, client first and the right fund transfer pricing system and is working nicely, honestly. And we think that this trend is going to continue. So we are quite a bit on this business. On the customer spread, yes, we are above 300 basis points. I think that eventually, we're going to be slightly below 300 in early part of '26. That does not mean that we are going to have NII pressure because you know that there are other parts volumes plus ALCO that are more than compensating that. And you asked about differences with Portugal, it's a different dynamic because first, you have a larger percentage of interest-bearing balances on deposits. It's approaching, now its circa 45%. It was 47%, now it's 45%. In the case of Spain, it's below 30%. Also there is a clear difference and as such, also considering that on the asset side, Portugal has a larger percentage of floating rate loans or mortgages, for example, in Portugal are fixed rate to maturity is not that commonly used as in Spain. So you have, at the end of the day, a little bit more NII sensitivity in Portugal than in Spain. Hence, the impact on the customer spread are not exactly happening at the same time. But in any case, Portugal NII is set to stabilize and set to grow soon also. Keep in mind also that in terms of our ALCO activity, although we have an ALCO in Portugal, we tend to manage our NII sensitivity more at group level. Hence, all strategies and ALCO hedging, et cetera, is more thinking about the broader view, not particularly in the case in Portugal. So thank you, Paco. Operator: The next question is from Ignacio Cerezo of UBS.. Ignacio Cerezo Olmos: First one is on -- I mean, the indication Javier has been given around the NII in 2027 based on volume and yield curve developments, if you can do a mark-to-market or update us on that number? And the second one is kind of a recurring question. Actually, we ask you every now and then. But is there any possibility of artificial intelligence investments kind of creating a bit of a cost angle emerging at some point in the next 2 to 3 years? Or you think the cost growth actually is going to remain around that mid-single-digit region for good? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take on the second one, maybe and Javier can provide an answer for the first one. AI definitely. We have now increased our investment spend significantly in this plan that you're seeing with, as you say, mid-single digits growth this year and also a faster than sort of trend growth next year. We start to see clear benefits from 2027 onwards. The main emphasis now for us is to make sure there is wide adoption of the technology, which at this stage, I would say, we're doing very well, every single area I wouldn't say every single employee, but almost. But certainly, every single area has a number of projects, and some of them are finalized. So those are in design stage. Others are in work in progress. And we have a team centralized that sort of prioritizes make sure that we are sort of doing products that are compatible that I can't talk among themselves and benefiting, obviously, from the scale that we have and from working with certain providers like Salesforce or Gemini or CoPilot, Microsoft, et cetera. So this is working at full speed. I have the sense that we're moving forward very well. We have a wide adoption in the organization. And we clearly have sort of use cases where the productivity impact is very obvious. Others are going to take some time. Very often, what we will aim to is to be able to do things internally rather than outsource them. And hence, we will capture a very efficient cost saving in due course. But this is not going to happen. Certainly it's not happening this year, where we're having more spend and savings. And I think you're not going to see that start until 2027 and then onwards. But generally, obviously, this is something that is very much debated everywhere, whether AI and the productivity gains from AI, who is going to appropriate them. A lot of these opportunities are going to be appropriated by clients, is -- is the nature of sort of business loss that obviously, as we become more productive and more competitive, our competitors will, at the same time, clients will be more demanding in terms of what they can expect from banks and banks, the good banks will be offering it. And hence, the appropriation of these sort of economies and productivity gains is going to be, to a large extent eventually running to clients, no. Like it has been in the past, if you think of mobile, et cetera. But we feel we are sort of at the vanguard. And hence, we will certainly be able to keep some of these gains and what is more important as long as we are a step or 2 ahead of others. I think we're going to be giving a better customer experience, bringing innovation faster to the market. And hence, also gaining in terms of additional revenues, which is, to me, the name of the game long term, the market share and the number of clients that we keep and the ability for us to sell them the services we're selling now and others. Javier Pano Riera: Well, in terms of 2027 NII. Well, first '26 where we are now very clearly seeing that it's going to be above fiscal year '25. So this is our view currently on the back of what volumes. But I would say that it's important also to say listening yesterday to the ECB press conference. It looks also that ECB is more a bit in terms of downside risk from the macro point of view. So I think that clearly the bottom and rates is also here to stay. And well, that makes us also more confident to give you guidance. We were mentioning that EUR 11.5 billion mark for NII for '27. We see really very clear upside to that currently. So we are quite a bit for '27, honestly. Probably we'll have to wait until our resource presentation in January to be more specific on that, but our view is that we have very, very clear upside into that figure. All in all, substantial upside compared to our initial views on over the strategic plan view. Remember that we were envisaging EUR 11 billion NII in '27. And now we clearly see this figure coming much earlier than expected. Operator: The next question is from Alvaro Serrano of Morgan Stanley. Alvaro de Tejada: A couple of really follow-up questions. On mortgage pricing, everyone is complaining about the pricing, but it obviously remains very competitive. The question is more, have you seen any sort of changes in behavior lately, obviously, the merger is not happening anymore between BBVA and Sabadell. We have seen some sort of banks saying they're raising pricing but have you observed that in the last few weeks is one question. And second, also a follow-up maybe for you, Javier. You -- I didn't fully follow the logic as to why you've increased the NII sensitivity now to 7.5%. Is it your -- do you think the next move in rates eventually will be up? Or are you just looking for a better moment to increase the hedging because you continue to create a lot of liquidity. So -- or maybe this is another reason that I missed? Gonzalo Gortázar Rotaeche: Thank you, Alvaro. On mortgage pricing and generally pricing in the market. With respect to the impact of the failed takeover. I think it's too early to say. I haven't seen any particular change from that point of view, but I wouldn't expect it necessarily. These things take time, even mortgages from sort of making an offer to actually getting the mortgage close. It's a long period, sometimes 2, 3 months. So we will have to see generally when the market is so competitive and so intense in terms of price pressure, I think eventually it tends to -- even if it will stay very competitive, it usually tends to at some point, sort of lean towards a more sort of rational pricing, we'll see. I think, the impact of rates coming down and now the sort of the general core being steeper than it was 12 months ago. And as all these things stabilized and credit growth continues to take place, and hence, there's impact on liquidity and particularly on capital as -- and I'm not talking only about mortgages, you may see that actually margins on the asset side get a bit more rational. But it's not easy to forecast. This is not anyone in control. This is a market, it's a very competitive one, we'll have to see. Javier Pano Riera: Well on NII sensitivity, we are allowing for some small additional hedging flexibility to accommodate a faster volume growth. So that's basically the message. Think about that. So this is a forward-looking measure. So in order to estimate your sensitivity 1 year from now, you need to work with assumptions -- your best assumption on volumes going forward, which is going to be the composition of your balance sheet 1 year from now, okay? What is happening is that we are outperforming those views constantly. So we are -- what we simply do is to get a little bit more latitude in order to have some more room to decide on our hedging as we are having this outperformance constantly. So it's very simple. In practical terms, nothing is changing. Keep in mind that this is an asset view of NII sensitivity because it's the sensitivity 1 year from now. It's not usually what other peers are reporting that are reporting the sensitivity as from today for the next year. And if what I am providing today you is that the sensitivity is circa 4% as we speak. So pretty much in line with what everyone is disclosing. Operator: The next question is from Britta Schmidt, Autonomous Research. Britta Schmidt: Just coming back to the volumes. They are generally ahead of the plan also for wealth management and protection insurance. So do you have any view as to whether in principle that could be positive for the CAGR for revenue from services included in the plan. My second question will be on operational risk. Is there anything that you would track for RWAs in Q4? And how you're thinking more broadly about the development of operational risk also in the P&L with regards to more digital risk and cybersecurity risks? And then the last question is on Portugal. What expectation do you have regarding tax rates in Portugal? And any view on the discussion around a potential sector contribution to the budget? Gonzalo Gortázar Rotaeche: Thank you, Britta. On the latter one on tax rate in Portugal, obviously, we'll have to see how things develop. And Obviously, it won't have a material impact on the group, given the relative weight of Portugal, but we'll have to see what is eventually done. On volumes, obviously both, on balance sheet, off balance sheet protections everything in terms of volumes is running ahead of the strategic plan. I would be very inconsistent if I wouldn't say that should translate into better CAGR over the 3-year period. As long as we continue to sustain these levels, we should be doing better than the strategic plan on both fronts. So how much better obviously is the question and -- there will be time to discuss certainly expectations for 2026 and then 2027. And at some point over the next few months, most of you will start looking into 2028, and we will discuss in 2028. And that I'm sure Javier can develop looks good as well, particularly on NII because we'll have a similar trends. Operational risk, a general question is, is it going to be increasing? Obviously, I don't think so. But whether -- what's the impact on the fourth quarter, that's more rather than trend specific, which Javier will explain. Javier Pano Riera: Well, for operational risk, you know that we have this impact on risk-weighted assets for the fourth quarter. We think that it's going to be in line with last year. It's going to be less than 15 basis points in our view. And I have to say also that as we are talking about the fourth quarter risk-weighted assets, we are have in the pipeline a few SRT transactions that will settle into this quarter. So this is going to have a positive impact probably more or less offsetting that impact on risk-weighted assets from operational risk. To be -- yet to be confirmed as we are finishing those transactions, but broadly in line with the impact from operational risk. Operator: The next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on corporate loan growth. If I understood well, you seem to be preparing your balance sheet for stronger loan growth. I would like to ask this is mainly related to higher corporate investment and opportunity for corporate loans. So that will be my first question. And then my second question would be on NII, please. If I calculate the Q4 NII for this year, based on your guidance, it seems to be around EUR 2.7 billion. If I analyze that assume 4% balance sheet growth. For next year, I get to EUR 11.3 million of NII for 2026. This is above consensus, and this does not include the benefit from repricing of ALCO or deposit hedges. I would like to ask if this calculation makes sense from a technical point of view. And also, if you could indicate what is the benefit in NII for next year from repricing ALCO or the deposit takers, please? Gonzalo Gortázar Rotaeche: Thank you, Borja. On loan growth, we have, obviously, the ability to grow our loan book because we were very liquid. You know that both from LCR, but particularly net stable funding ratio among the highest. Structurally, we're very liquid. And Spain generally is not very levered. And when you've seen, for instance, the numbers for these third quarter GDP, the 2.8% growth behind those numbers. As I mentioned before, you have an investment component of GDP growing at 7.6% and year-on-year. And of this part equipment was up 11%. So now somehow we have this CapEx cycle going on. We've been talking about whether this would happen for many years. And now it is happening. And hence, there is a very significant opportunity here. It is also an opportunity in consumer lending. I mentioned that SME and consumer lending are the 2 areas where we're gaining market share in a large -- or a relatively large amount case 30, 40 basis points, so there are 120 basis points in consumer lending. And also precisely the more juicy parts, not necessarily the ones that require more funding in terms of size, but the ones that have the best returns. And on the corporate front, more sort of a larger enterprise and CIB business, the reality is that we're being very active. This is a place where we have been and I don't think we've mentioned it today. But obviously, you know that our CIB fee business has been doing very well or Javier mentioned it indeed. And we see an opportunity there as well going forward. So it's good across the board today and somehow previous days because of various comments here and there, the headlines are being taken by the mortgages and the pricing, the realities were we're growing most and certainly where the returns are more attractive is in these 2 parts of the business, consumer lending and SMEs, together with CIB. So that is something that we expect to see because once you unleash this CapEx cycle, this has some pretty good inertia. Javier Pano Riera: Hi Borja. Well, we are refraining today to give you a specific figure for 2026 NII guidance. What I said is that it's going to be clearly above '25. That's pretty clear. How much needs to be seen. So we are still working on our budget. We have to fine-tune a few things and we'll come up with more specific guidance in January. As per your numbers, first thing, keep in mind that still the first half of the year we have some negative repricing on floating rate loans in general. This is going to be more than compensated by other parts of basically volumes and also ALCO, but keep in mind that this is why we say, okay, there is an acceleration from the second half because that repricing process will already be ended. And consequently, we have a clear acceleration on NII. Keep in mind also that there is some seasonalities in first quarter last day. So I will not say that you can extrapolate exactly the same quarterly evolution for every quarter. So let's see, honestly, I think that there is not -- there are not many banks already giving guidance for 2026. In our case, we are giving already plenty. So let's reconvene on in January. Operator: The next question is from Miruna Chirea, Jefferies. Miruna Chirea: I had 2, please. The first one was on customer spreads, which you were guiding that you expect in the first half of 2026 to stabilize somewhere around -- somewhere below 200 basis points. Could you please discuss if you think that there is some scope for the spreads to expand into the end of the year as maybe you are growing high -- you are growing stronger in higher-margin corporate loans and consumer credit than in mortgages. And then my second one, please, was on margin. Could you please give us a sense of what the returns are in the margin versus the traditional bank? So any sort of color that you could give us in terms of the difference in margins, the cost to serve clients and the cost of risk between margin and the traditional bank would be helpful. Gonzalo Gortázar Rotaeche: Thank you, Miruna. You want to start with... Javier Pano Riera: Yes. Well, as I was saying to the previous question, we still face some negative index resets on floating rate loans on the first half of next year. So this is adding some pressure on customer spread. It's going to be slightly below 300 basis points but not much. And yes, eventually, over time, this may recover. We have to see lending but also deposits to what extent also we can keep pushing down our average funding cost as we have not probably because we push down our interest-bearing yields, but probably because we have a larger wave of noninterest-bearing deposits. And as a consequence, we can slightly bring down our average customer funds, funds costs. So we have to see, so, I would say, conceptually, you are right. So over time, we should marginally gain on the customer spread. But it's going to be in any case hovering around 300 basis points. So that would be my best guess. The back of the envelope numbers are approximately 150 basis points coming from the loan book, EUR 150 million from deposits. So if you assume like 2% rates, market rates, so this is 350 yield on assets and, let's say, EUR 50 million on deposits. So this is back of the envelope, we can fine-tune that once we give you guidance for next year, but this is the broad message. Gonzalo Gortázar Rotaeche: Yes. And [indiscernible], I would highlight the following. Cost to serve is definitely much lower you would guess that I have to say it's different than other pure neo banks because we are increasingly putting together let's say, people and assigning relationship managers to the top of the pyramid because we have them and we have them to give service from our what we used to call in touch, the remote service, now we call it connector, to clients that are mostly digital of CaixaBank and we started about a year ago, something to offer a relationship manager to imagin clients, sort of experiencing how that would go, and we found that or inviting our emerging clients loved it. So they would call and answer the call and when we would offer that we would assign a relationship manager they would love it. And then you have all these call me, call back, et cetera, follow up that we're doing also remotely to imagin clients. But all in all, it's very much more efficient cost to share on the bank. But again, we're trying to make sure that the clients of imagin, if they want to they also have a physical remote always. And obviously, they can visit a branch if they want. That's by the finish in the case. And our branches obviously are very keen to bring imagin clients on board. So imagin benefits from the fact that we have a branch network, it works nicely. So all in all, cost of service is lower and client and business acquisition is faster. And that's why we have a much more sort of well-balanced and grounded set of products and services and our balance sheet looks much more like a bank than rather just I'm selling a time deposit that's very high or some of the things, as you've seen in many of the new entrants in Spain and elsewhere. So it's very different. The returns of the whole operation are attractive because the margins are not generally very much in line with the operation at CaixaBank. It's about a better sort of -- or a better -- it's a more specific sort of way of serving clients that is more appreciated by a certain part of the population. And that look and feel of being part of our community, which we are -- which we're doing. But as a result of similar margins and a lower cost of share, obviously, the profitability is very attractive, and it has nothing to do with some of the neo banks that have been sort of losing money for a while. We obviously spend time -- spend money and time and effort in client acquisition with a very significant success, but we actually monetize that relationship very quickly. So it's a very sustainable and growing business model and one that I think it's fairly attractive. Remember that we are not -- imagin, is not incorporated as a separate subsidiary, so we do not have proper sort of financial results in P&L. What we have is internal management accounting, which we follow very closely. And to a large extent, also finally, it depends on what do you do with the excess funds because even if we have a significant part of our activity on the asset side, imagine it's still very -- sort of has a very large surplus of customer funds and rather than having an ALCO run at the margin level, which will make any sense. Obviously, those funds are investors as part of the global ALCO group and how you do all these assignment of pricing and margins would enter the bottom line. So that's why we're not getting into that. But the qualitative is lower cost to sales, same margins, obviously very attractive business. Operator: The next question is from Sofie Peterzens at Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So basically, a follow-up on the volumes. I mean the volume outlook is good, but are there any restrictions or a limitation for CaixaBank to do grow volumes and -- what I mean is, basically, are there any kind of funding restrictions, you have too much market share in some products that you can't grow any further? Or if you have any capital constraints anything that we should be kind of mindful of around the volume growth and anything that could limit that? And then my second question would be around kind of the competition from fintech players we're seeing, press articles that some of the fintechs want to grow very significantly in Spain. I know you commented just on imagin, but how do you see competition from fintechs? Gonzalo Gortázar Rotaeche: Right. On volumes, I would say, no limitation. On second part, you mentioned about index plans or -- fintech, sorry. Sorry, the sound here is not to some reasons it wasn't great. Fintech, obviously, this is great to have them. They are obviously forcing traditional banks to rethink the way they do things, and it's for the benefit of the client. So as a society, I think we should be very happy. As a bank we love it in the sense that our business is much more interesting because we need to keep constantly reinvent and rethink what we offer to clients and the way we offer our products to clients. So I'd say it's a welcome development. Obviously, it's welcome as long as you think you have the tools and the ability to compete and we certainly think we are. When you look at the penetration of neo banks, you'd see some of the statistics on particularly Revolut and Trade Republic growing strongly this year, it used to be in '26, now it's not growing, it will depend. But the other one that is growing very nicely is imagin. We have 9% share of payrolls and imagin and when you look at the others, I'm not going to get into the detail because obviously, we don't like to mention names and figures of competitors but the others are -- none of them is any close to 1% on the latest figures of primary banking relationships. So they will obviously try and gradually, and I'm sure, to some extent, they are already doing it, try and gain clients to become their primary bank rather than start with 1 or 2 or 3 products, and that's the name of the game. And the name of the game for us is to make sure that we offer the same experience, the same kind of relationship, and there's no reason why we shouldn't be doing it. And I don't usually refer to awards. But again, at this Qorus Banking Innovation Awards globally, again, imagin won the gold, so the first position in customer experience accounting, for instance, which and the beating and this was a category for neo banks. So we have -- obviously, we have things that others do better. We're not better in every single product services, et cetera, where we're not, we are very realistic. We follow the market. We try to obviously make the necessary adjustments to what we do to get there. And this is constant. We have a huge advantage. When I was referring previously to imagin and the fact that we now have relationship managers that you can rely on. And you have real people you can talk to if you have a customer service complaint or problem, you can even walk into a branch. If this works well, as long as you want to stay digital, 100% digital, you stay and you have a great digital experience. But if you need something else or somebody else do something else that works, sort of, in the right way. I think we have a huge advantage. And imagin is -- but precisely now starting to position itself and say, it's a digital bank, but those people, there's heart behind us and you have a problem, you need to talk to someone or you would need to upscale on certain products, you don't understand and you don't want to talk just to the robot AI. We're going to have all of this. It's not the word saying this is not important. This is critically important. We're going to have all of this. But we can have all of these and more. And hence, we think we're in the long run going to be winners, but it's a nice and intense sort of competitive battle which we're doing. With imagin and obviously, when I talk to imagin, I talk about imagin, CaixaBank is doing the same things with a different, sort of look and feel, but the reality, is positioning is very strong and actually imagin has now the highest relevance in as a brand in Spain and, huge loyalty and hence, we have, I think, a pretty relevant competitive advantage now vis-a-vis other incumbent traditional banks, thanks to having the ability to play in 2 ways. Operator: The next question is from Andrea Filtri, Mediobanca. Andrea Filtri: Yesterday, the ECB de facto approved the launch of the digital euro. How do you envisage this new entrant to impact you? And how would you factor it in your next business plan? Do you think you can actually make money out of it as well? And could you also give us your reasons for not having pursued by Novo Banco? Finally, just a very quick follow-up. How long do you think you can maintain overlay provisions for? Gonzalo Gortázar Rotaeche: Okay. Well, let me start with digital euro. We've been following this closely as many of you know, we actually were the sole bank that cooperated with the ECB in the first sort of work around the prototype for the digital euro in a P2P solution, and we'll continue to have an open line because we have a conviction that this digital euro is very likely to go ahead. And obviously, it has the potential to transform a number of areas. It has the potential, we don't have perfect visibility. We don't know exactly how much it will impact, if there is still some time, as you know, the plan is now for some time in 2029, probably the summer. This has been delayed as we, I think, discussed our view was it will happen, but it will take place later. So that's why -- we didn't discuss that much in this business plan or 3-year plan that will finish in 2027. Obviously, in the next one, it will have some implications. What is eventually going to be the role of the digital euro, we'll see, obviously, the limits that finally deciding on it are important, are important because obviously, there will be more or less sort of liquidity moving on to the digital euro, depending on the limit. How successful it is going to be, it depends to a large extent on the private sector as well. If the private sector develops real cross-border payment initiatives like Pan-European Bizum, where, obviously, now there's a lot of cooperation we are now in -- already with Italy and Portugal together and there's sort of discussions with Nordics and with Vero. And I think we should have an equivalent sort of instant payment mechanism that works well across the union -- and this could -- and probably should leave together with, at the same time, digital euro public, which has other benefits. What would the role of the stable coins be by then, programmable money. I would guess that certainly, they would be using more business applications as the digital euro as of today is focused on the retail front. And fortunately, because we've been speaking about the strong case uses for a wholesale digital currency, the Central Bank digital currency, the wholesale euro. Now we have the Pontes and Appia project, both mid and long term to develop those initiatives. And again, we are actively cooperating with representatives of us in one of these initiatives. So overall, over this, how exactly it will play out. We'll have to see, Andrea, I think it has the potential to be very relevant. It may not be that much if the private sector has developed other alternatives. We cannot run the luxury of getting it wrong and thinking this is not going to be relevant and then finding it is. So, it's so critical and core to our strategy that we will are going to be there. And there is certainly -- our hope is that we're going to be making money, obviously. There's no question we're going to be able to do things differently and obviously offer also a different client experience. There will be if, in the case of the digital euro, some costs associated to it. So be it. I think at this stage, even if it's not final, it looks like we're moving in the right direction in terms of using the current infrastructures and positioning the digital euro as a payment initiative mostly, which is where I think it makes more sense. But again, there are even broader and I think larger users in the wholesale side, those will be also a significant component. So we'll see. And obviously, for the next 3-year plan, certainly, we'll have further discussions about what's happening in the payment space and the digital euro. With respect to a question on acquisitions, we do not comment on acquisitions names. We didn't do it. We're not going to do it past the situation. It is our duty to assess opportunities when they appear in our core markets. But we always say the bar is very high for us. We have a great business. We have a great business in Spain and in Portugal, and looking at our results this quarter is a good proof of that. So when we do any analysis the bar needs to be very high. And obviously, that means what is the opportunity attractive. Does it have synergies, can we execute? And then what's the price where this is a real return because we have plenty of things to do in Spain and Portugal organically. And obviously, any M&A is always a distraction. So you need to make sure that it's a very clear case for that to happen. If there's no very clear case, then obviously, you're not going to be seen as there. Javier Pano Riera: And then there was a final question on overlays. Well, eventually, it will be used. Honestly, we don't have an exact time line for that. But over time, that's the base case. But we don't have a specific calendar honestly. Operator: The next question is from Pablo de la Torre Cuevas, RBC Capital Markets. Pablo de la Torre Cuevas: The first one is a follow-up on loan growth in Spain. And I know it's a smaller portfolio for you, but public sector loans are growing above 14% year-on-year and one of your peers have actually recently noted how it expected growth in this segment to accelerate from here. So I was wondering if you could help us understand your expectations in this segment and how we should think about the loan growth there in the context of your Investor Day loan growth targets of around 4% as well. The second one is on fees. And overall, the trends there seem pretty positive and in line or better with your targets, but it seems like growth in banking fees, specifically continues to lag other areas. So could you please just elaborate on when you expect the loan growth -- the fee growth there to converge towards your target growth rate? And what, in your view, needs to happen for you to achieve this? Gonzalo Gortázar Rotaeche: Thank you, Pablo, on maybe briefly, and Javier, you take it from there, but loan growth of the public sector, margins are very low, usually -- and this gets usually moved by fairly large transactions. Very often as a result of auctions and sort of public solicitation, et cetera. We do not think of us like coming a specific target there, we're going to be there if the numbers work out. And there's very often the alternative of public debt, which is traded and hence, liquid and you obviously want a pickup for that lack of liquidity than usually maybe there's a difference in rating. And if you move to the sort of regions or to the local council. So I don't think it's going to make a lot of difference or numbers. And we're not going to be particularly pushing, but we're not going to be away from it either. We need to take decisions on a more opportunistic basis for the large transactions. And for the more sort of relationship based, I think those are going to be more stable. Javier Pano Riera: Yes. Thank you, [indiscernible] just to add that on that front is to some extent, like an alternative to ALCO in some cases because it's public sector, so it's alternative to fixed income. And well, at least in our case, we have like a strong, let's say, common view with CIB that usually takes care of the new origination, also from the ALCO in order to assess whether it's a good opportunity and actually may go in the same direction as our ALCO decisions. On fees, on banking fees, I think that we have been commenting already from -- for quite a long time that there is like an underlying pressure on that path. On recurring banking fees, basically, pressure on maintenance fees on current accounts, on debit cards, some areas, some areas in payments also to some extent, subject to some pressure. Now we have instant payments. So the key here is to be able to more than compensate that with our usual strengths that you know very well, which is wealth management, protection insurance and well, and lately, I would say that we have been commenting that also this year with an increase, let's say, regularity of the CIB business. So I think that's the key because at the end of the day, this is kind of underlying pressure on those, let's say, fees related to products with low added value. And our view is set to continue. Obviously, we try to defend ourselves as best as possible but I would not say that this is going to bring us a big turn around anytime soon. But the key I insist is to be able to compensate -- more than compensate clearly because we are targeting -- this is why we put together all that, what we call revenues from services now that includes wealth, insurance plus, let's say, traditional banking fees because you need to get the broad picture of the 3 big buckets. And you know that we are targeting mid-single-digit growth for the combined but probably the part that is going to be lagging is going to be recurring banking fees. Operator: So the last question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: My one was on capital. At your Capital Markets Day, you mentioned that your CET1 target will increase to 12.5% from the current 12.25%. The difference between your target and your MDA level of SREP or SREP is above the European average. Could you consider maintaining the CET1 target at 12.25% next year, taking into account your current view on capital requirements, growth needs, et cetera? Gonzalo Gortázar Rotaeche: Thank you. Javier, do you want to take it? Javier Pano Riera: Well, the short answer is no. So we are moving our target to 12.5%. What is behind that is the is basically the countercyclical buffer that is kicking off next year in Spain, Portugal. So we had a clear view on that. We want to be conservative on our capital targets. And in any case, we think it's quite a good buffer, as you mentioned, but comfortable one. So I think that also investors appreciate that. So no, there are no plans to keep that at 12.25%. Marta Noguer: Thank you, Cecilia, and thank you all for joining us. That's all we have time for today. Have a nice weekend and Happy Halloween. Gonzalo Gortázar Rotaeche: Thank you very much. Javier Pano Riera: Thank you.
Unknown Attendee: Hi. Good afternoon, and good morning to everyone, depending where you are located. We are very proud here to be today to present our strategic plan to 2031. I'm joined today by our Chairman, Mr. Paolo Ciocca; Mr. Paolo Gallo, our CEO; Pier Lorenzo Dell’Orco, CEO of Italgas Reti and Gianfranco Amoroso that you all know, our CFO. I leave now the floor to the Chairman. Paolo Ciocca: So good morning and good afternoon, ladies and gentlemen, and thank you for attending today's presentation of Italgas 2025-2031 strategic plan. There are moments in our company's history when progress isn't just represented by financial or industrial results, but rather by recognition of its deepest identity. And by the way, Italgas' history is not at all a short one. This said by, as you well know, a young newcomer to the company. Italgas identity is the cornerstone around which the group has developed in recent years, the cornerstone of an exciting journey that has seen the group establish itself as a global benchmark for innovation, model transformation, anticipation of the future. Today, 1 year after the previous strategic plan, we can say that our future mapping worked out well and ahead of schedule. The group is further strengthened by its international leadership and has established itself also in terms of size as the leader in gas distribution in Europe. But it is not just a question of numbers. It is a question of vision and responsibility and the ability to drive energy transformation as enablers of decarbonization. Our commitment is clear. We want industrial innovation with energy transition. We create networks that don't just distribute energy, but also enable molecules to change their nature from fossil fuel to renewables, from natural gas to biomethane, hydrogen and synthetic methane. We believe in technological neutrality as a guiding principle. This means evaluating all available solutions, building a resilient, competitive energy system that is ready to meet the needs of family, businesses and institutions. In these recent years, we have demonstrated that the energy transition can be substantive, a substantive project. We have done so by extending and digitizing our networks, developing a market around the various areas, let's say, uses of hydrogen in the network and focusing on research and development. Our aim is to make things happen. The plan we are about to present to you today is at the heart of this new phase and outlines how we intend to remain true to our nature, continuously evolving, faithful that our vision of the future of energy and our values because Italgas is changing, growing and expanding, at the same time, it keeps its 188 years old distinction in Italy, a force that builds a real progress and generates value at the service of communities and territories. Now let's go to the [indiscernible] and let me welcome Paolo and its leadership team. Thank you. [Presentation] Paolo Gallo: Good afternoon, everyone, and good morning for the person that are connected from abroad. It is for me a great pleasure to be here to present this strategic plan that represent the first strategic plan after the acquisition of 2i Rete Gas. In this plan, we are setting a commitment that has never taken in the whole history of Italgas, a clear sign of confidence that we have for the future and the vision that we have for the future about our infrastructure. And we feel that today, we are going to share the vision with you, the investment, the technology and the people that will make this plan happen, shaping the energy of the future. But let me start with the where we stand today. One year ago, we announced the acquisition of 2i Rete Gas, the largest -- the second largest gas DSO in Italy. And we have created with such acquisition, the largest European DSO. As you can see, those are the numbers. We serve nearly 13 million customers in the gas distribution. We serve directly and indirectly 6.3 million customers in Italy and Greece. We manage nearly 160,000 kilometers of network. But moreover than that, we do all this activity, thanks to an incredible 6,400 employees that is the result of the combining of the 2 company. 7 months ago, we closed the deal, and now we wanted to show you the progress that we have made in such a short period of time. At the same time, we want to show you and share with you our vision for the next 7 years. Let's take -- show you about our strategic vision. We want to maintain our leadership in innovation, in technology, in digital transformation, maximizing the value for all our stakeholders. The vision is built around, as I said, innovation, AI transformation, energy transition and with a focus, a never-ending focus on operational efficiency. Three business area, you know very well that they are gas distribution in Italy and Greece, which remain in our core business. Water service, a sector where our digital capability that we can apply from our experience in gas distribution can make a difference. Energy efficiency that we feel it has been a little bit forgotten, but it's a key element for the energy transition, and we strongly believe on that. And on top of that, we think we can take a great advantage from unlocking all the possibilities and opportunities coming from the massive application of [ AI ] to our processes, our assets and our way in which we manage the company. But before going on, let me take for a few moments, a look at the past. I think the past 9 years at Italgas has been extremely exciting and successful. And I think it is worth spending a few words about what we have achieved, where we stand today and which is our ambition. We have invested up to the end of 2024, nearly EUR 7.5 billion growing the RAB up to EUR 10 billion before the acquisition of 2i Rete Gas. We delivered an impressive OpEx reduction, minus 40% since 2018. We distributed more than EUR 2 billion dividends to our shareholders. At the same time, we were able to maintain a solid financial structure. And we have done all of that reducing our carbon footprint, reducing our energy consumption. Then 2025 make the difference. We acquired the second largest DSO in Italy, and we become the first DSO in Europe. We were already the first DSO in terms of innovation and technology, not in terms of size. Now we cover also the size parts. And we achieved in Italy a market share of 55% -- now we are planning that is the ambition to invest in the next 7 years, EUR 16.5 billion, including the acquisition. That includes, of course, the acquisition of 2i Rete Gas. And we expect that our EBITDA and our EPS will grow at double-digit numbers, starting from 2024 based. And the financial structure, as Gianfranco will show you later, is very strong, very robust, and we start deleveraging already in 2028. But let me move more on the -- what we see the scenario of the gas for the future. I remember that in the industry, I was probably one of the first person to talk about the energy trilemma. And I remember that I was talking about that in London a few years ago during an interview that I had with Bloomberg. At the time, nobody were talking about the energy trilemma. Since then, as you can see from the trilemma today, something has changed, has shifted. After the Ukraine invasion, the focus was to guarantee the energy supply, security of supply was at the top. And since then, since 2022, I think the situation in Europe has significantly changed. Most of the country have been able to get rid of the Russian gas and be able to build a different supplier, different supply flow. Today, the focus has shifted to the cost of energy. And the cost of energy has become get the major attention of all the European countries, not only for industry because industry means competition, being able to compete at the world level, but also for the end customers, for the residential. And I think one of the solution is the use of the gas infrastructure. DSO is part, is the heart of the solution. And there is a growing recognition that the trilemma cannot be solved just using ideological position, but a more pragmatic, a more neutral approach from a technological point of view will bring the solution. It's not going to be easy. It's not going to be linear, but that's the only way in which we can solve a complex problem like the energy. And I think -- and we feel that the gas network bringing in the future, today in the future, renewable gases will help to solve the trilemma from a cost point of view and security point of view. Let me show you some numbers, very interesting one. The evolution of the energy price and the gas price in Italy before the Ukraine invasion and today. As you can see, the cost of energy, the gas in terms of euro per megawatt hour has gone back more or less, not yet, but it's not very far from the price that we had before the Ukrainian invasion. We cannot say the same for the electricity. Electricity price is 3x the gas price. And that makes even more difficult to think about electrification in certain sector. And if you couple that with the fact that we are going to see in the coming months and years, an increased demand of electricity, think about AI data-driven consumption, then will pose even more problem. The gap may even become bigger, not only, but if you think about what happened in Spain just before summer, more renewable you put in the system and you need to recover the rigidity that the renewable put in the energy system because renewable, it's production is not capacity. And in this context, gas will continue to be in different form, crucial to maintain an energy system stable, efficient, secure with a cost that is affordable by everybody. And we -- I brought you an example of the day-by-day life of the life of ourselves when we need to face certain decision to change, for example, a very traditional gas boiler for the heating system. And we made this comparison based on the number that you saw with no subsidies. That means that we are comparing apple with apple. 3 options: one that I consider probably the best effective one, very simple, high-efficiency boiler gas. The second one is heat pumps with limited modification of the heating system. The third one is probably the one that the ideological people will say that is the best solution. Heat pumps change all your heating system, put what is the underfloor coils, you will be happy. For 25 years, you will be happy because it will take 25 years to pay back the investments. What does it mean that by -- in 25 years, you will probably change everything. So you will never get there. And that is when you compare apple with apple with no subsidies. But there is the solution. And the solution part of the solution is let's go back to what the European Commission made it years ago after Ukraine's invasion that probably has been forgotten for a long time. That is the REPowerEU. They clearly identify 3 path in order to reduce the dependence on Russia and at the same time, to reduce also the cost. That is the development of biomethane, the development of hydrogen production and importation and the last one, increase the energy efficiency in our real estate activities in everything in our industry, everywhere. Why it has been forgotten? Because it's too difficult, again, -- that's the problem. But that is the solution because biomethane is something that is today available is competitive. Hydrogen, we will talk in a moment. And energy efficiency is the other area where there is a lack of interest, but it's -- again, it's one of the most effective tools that we have in order to reduce energy consumption and reduce our cost. If I look -- if I take a look at the same situation in Italy, what we can say is that biomethane is a very high potential area. Many studies and our evidence about connection request to show that we will have an increase of biomethane production as an average by 50% every single year through 2030. That will let us reaching the goal of 5 billion cubic meters of production that represent about 7% to 8% of the total demand of gas in Italy. And there are positive signal. One is the latest auction that was made about awarding the grants from our resilience recovery plant to upgrade the existing biogas into biomethane. Hydrogen. Hydrogen is let me say, a longer-term opportunity because of the cost. But I think we should continue to invest in research and development to research in the use of hydrogen. Our plant in Sardinia, Pier Lorenzo will talk to you about that. I around, it's a clear demonstration that we can build an ecosystem that is based on hydrogen. Is it competitive? Not yet, but still, there are very nice signal about that competition. Think about that the energy conversion into hydrogen is 55% in a small plant. So if you scale up the plant, you can even reach higher efficiency. And finally, the e-Methane that is for us and for Europe is probably the new frontier. For Japan, it's not. Japan is testing significantly e-Methane. See, e-Methane as the solution for gas supply in Japan. It's the combination of CO2 capture with hydrogen. So what I'm telling you with this example is that with a pragmatic approach, you find many solutions that can bring you security of supply, energy transition and cost of the energy altogether as a solution. And the fact that the gas will continue to be there today, fossil, tomorrow, renewable is also shown by this graph. After the shock in 2022, we have already seen some recovery in '24. And if I look at the first semester of '25 in respect of '24, we saw an increase in 6% -- and we have just closed the numbers at the end of September, and we look at what we injected in our network in respect of the previous year and the growth is still close to 6% also at the end of September '25. And as I said before, more electrification expands, more renewable in the picture and the more we need the molecule to compensate the rigidity of the electrification. But let me now move and give a quick outlook about the progress that we made on the 2i Rete Gas integration. You remember, I don't want to go through all the story about the different steps, but I wanted just to stay on the fact that 1st of July, we merged Italgas Reti with 2i Rete Gas. And I think that has been an incredible achievement, 90 days to complete that process. And then to complete the all 2i Rete Gas acquisition, we need to satisfy also the mandatory request by the antitrust. As you know, that has been recently closed, let me say, the agreement with the 4 buyers, the 600,000 redelivery point that were requested to be put on sale, we received 12 acceptable from a price floor point of view offers for a total of less than 250 redelivery point, which were considered also acceptable from the antitrust point of view in terms of requirement that the buyers should have. The process will involve the disposal of the delivery point together with the personnel, the systems and all the assets that are needed to operate this redelivery point, this network. The RAB value associated is EUR 218 million. The overall price that is paid will be paid is set at EUR 253 million, significant premium paid over the RAB. We expect the closing to be happened before the end of the first quarter of 2026. But of course, it will depend about also the buyer. Regarding what has not been sold, so the remaining 350,000 redelivery point, we don't have to do any second round of disposal on this redelivery point in this network will be applied the so-called soft remedies that will be applied when the tender process of the award of this asset will take place. So -- but let me say, I wanted to share with you another point that is we always said and I have already said at the beginning that we are -- that we are the best in our industry. But I wanted to bring you data facts to show you that our statement is true. So we made a comparison with our international peers. And we have looked at the different topics that for us makes the difference. So smart meters, we are close to 100%. If you look around Europe and worldwide, there is no one that is passing 50% of the installation. And the majority are below that number significantly. Network digitization, this is where the gap is huge. there is no one, no one that has made such an upgrade of the network. And when I say network digitized means that I can control remotely everything that I can manage the network remotely everything. Pier Lorenzo will tell you more in detail what does it mean that. And on top of that, we are going to implement the AI transformation in which we see some other example. But to me, to be extremely effective and to be able to adopt on a massive -- at a massive level AI, you need to have a network fully digitized and you need to have a collection of billions of data in order to be able to really leverage the application of AI. On the biomethane, that buys from country to country. We know that there are other countries that are better positioned than us. But I think Italy will recover this gap very soon. On the network ready for hydrogen. If I look at our plant in Sardinia, we can say that our network is 100% ready to accept 2% or 20% of hydrogen. In fact, we have a protocol with the Ministry of Industry and Energy to scale up the 2% that is the minimum up to 20%. If I look at the average of the network in Italy, then we can say that 80% is ready for 20% blending. But I also can say that by the end of the plan, we will have 100% of our network ready for a blending of hydrogen up to 20%. Let me go through some more significant progress we have made in the months since the acquisition of 2i Rete Gas very quickly, but I think extremely representative of our ability to make things happen. On the operational point of view, we have fully reorganized our territorial footprint, redesigning our territorial model, reducing the area of overlapping. At the same time, we have closed 19 office. We have reduced our fleet car by 13%, thanks to the to the synergy that we are starting to extract. The core of the activity has been the IT. We moved 1 petabyte of data, 1 petabyte of data. I don't know how many 0 they have it. So forgive me for that, in 90 days with no problem at all. And I think that makes -- that show our -- let me say, the strength of our IT infrastructure in dealing with such a large number. We have started in-sourcing activity, and I start mentioning Picarro. We have the largest fleet in the world of Picarro machines. We know how to manage, we know how to drive them, we know how to use them. We immediately stopped the third-party contract that 2i Rete Gas had, and we immediately start in sourcing that as well as we started to in-source activity like the integrated supervision center and other ones with a termination of a number of contracts with third party. And finally, we started to implement the digitization plan that we have for 2i Rete Gas. But let me start now to look at the numbers because I think you are here also not only to listen my and our vision, but also to see the numbers. And I'm starting from the ones that you like most, synergies in cost and revenues. So I'm starting from the synergies from revenues. From April, when we closed the acquisition, we had several working groups working together between Italgas and 2i Rete Gas, Ex-Ri-Rete Gas people in order to find out the area of synergies and to find out the area where we have to invest in order to upgrade the network to the level that we have in Italgas. And we find out that there are more investment that we expected that we presented to you last year, EUR 800 million. And we find out that there are more up to EUR 900 million. At the same time, the revenue contribution from this additional investment moved from EUR 80 million to EUR 100 million at the end of the plan. Just to mention some of the initiatives that are included in this EUR 900 million investment replacement, we find out that there are still some traditional meters in 2i Rete Gas network that are not be replaced. So that is the first thing that we started. We will finish by early 2026. But then we find out all the area where we need to upgrade, not only upgrade the single equipment, but also changing, for example, the authorization system to our standard. And based on that, we have a clear and detailed digitization plan that has already started and will deliver the EUR 900 million additional investment and the EUR 100 million additional revenue. But probably the most interesting one for you are the cost of synergy that you have already seen in our plan. And I want to remind you that last year, some of you, I don't know if many of you or a few of you were very skeptical about our ability to reach the EUR 200 million. We raised the bar. Now we are at EUR 250 million. And I think our history and our track record makes this number credible. And how we find out this EUR 250 million over time, because, as I said, the working groups have been working for months, identifying which are the areas that we can improve, where we can extract value, when we can have synergies and we have a detailed plan for each of the activities. So we know also in terms of time frame when this synergy will happen. And you can see in this graph, the previous plan in terms of time, in terms of value and the new plan in terms of time, in terms of value. So the upgrade was driven by a shift from an outside in to an inside in perspective. And it clearly reflects an optimized. There are a lot of activity that will be in-sourced -- with our ambition to avoid any redundancy, there will be no redundancy in our plan. There is no redundancy in our plan, but we will maximize in-sourcing, bringing inside the company what we feel are the core activity of the company and with the ambition to retain our top talent. We -- if you remember, last year, we were talking about 3 pillars of synergies, traditional digital and AI. Well, during the activity of the working group, we realized that the first 2 pillars sometimes are crossing one to each other. So now you will see only 2 pillars, traditional and digital and AI. And I promise to you that I will show you the time frame of the 2 categories, and I will show you and give you an example of what we are doing and what we will do. So the first one represent traditional and digital. If you remember, the sum of the 2 last year were in the range of EUR 120 million, EUR 140 million. We gave you the range. Now we are EUR 180 million. So the delta in the EUR 50 million that we are talking about are concentrated in this area. The cost saving benefits related to such initiative will be fully visible already in 2025, some of them, a few of them, still they will be visible. And you have already noticed in the 9 months result that there are some cost savings that are coming from the synergies from the acquisition of 2i Rete Gas. In '26 and '29, we will continue in-sourcing core activity. That is the main driver, including some example, authorization measurement, metrology inspection, emergency response service, those are core activity that we cannot leave to a third party. And we will use digitization and AI to work on an approach that is applying the predictive maintenance. Supplier will be part of this effort. Supplier base will be rationalized. We want our supplier to grow because we are a different company in terms of size with respect to the past, and we want to improve from a quality and economic point of view, the procurement condition. This initiative combined together will let us achieving the majority of the EUR 180 million by 2028. And then in the last 3 years, we will see a massive rollout of our Nimbus smart meter, and we will complete the digitization of 2i Rete Gas network. Regarding the AI, AI is a little bit more difficult in a sense that is from one side, the most exciting journey. From the other side is less predictable because we don't have any example, especially in our industry. The numbers today is set at EUR 70 million and does not include any additional initiatives that may arise in the future, but have not been yet identified. We have tried to list for you some of the initiatives, some of the use case that we have already been working, we have been identified use case that we have identified for which we have started working on that. These initiatives are expected to deliver most of the anticipated benefit over the next few years. Some examples, you can read it, AI-driven automatic scheduling algorithm, which allows to improve planning optimization, increase intervention sussection rate, taking into account external factor. We have already developed, I have already mentioned to you a couple of times, a predictive algorithm for faulty smart meters that is capable to anticipate by a few days. The occurrence of faults, optimizing our intervention and reducing the penalty risk. We have also identified AI opportunities also in the same IT. For example, we are implementing the first level end user support agentic automation for the IT system and application, very difficult to explain. So don't ask me what is exactly meaning. But what I can tell you that these initiatives application has been recently awarded by Databricks that is a leading platform for data engineering. We will use agentic AI also in the commercial activities in order to manage requests and claims reducing external cost and increasing our productivity. To do all that, we have set up AI rooms. So you know that we have a digital factory. Well, now the digital factory is split into 50% is always devoted to develop digital application. The remaining 50% is devoted to develop AI application, AI algorithms. So we are going to have not only digital rooms, but also AI rooms. That is what we have already planned and that is covering the portion of the synergy that is evidenced that are underlying in this chart. For the remaining, so we are talking on a medium, long term, there are a number of use cases that we have already identified that will be approach later in the plan that regard virtual coach for productivity enhancement, basic drafting, so we'll touch the engineering activities, autonomous network management, smart meter activation, remote smart meter activation. And finally, to use the autonomous driving for leak detection. In that case, we need to have a policy approval, but I can tell you that we have already started working with the Politecnico the University, Politecnico di Milano and di Torino in order to have the first prototype of autonomous driving for gas leakage research next year. It is important to highlight that this transformation will be also an opportunity for our personnel to change their skills to reskill and upskill and move from low added value activity to, let me call it, AI governance that is much more interesting than not doing the low value-added activity. Now I will move in the numbers. I have already anticipated the total investment for the plan period, including the acquisition already done of 2i Rete Gas is EUR 16.5 billion, plus 5.7%. If we take out -- if we exclude the acquisition of 2i Rete Gas and the tenders, the increase is 10%, more than 10%. In order to facilitate the comparison, we have reclassified -- last year plan, you remember that to avoid to share publicly what was our expectation about antitrust disposal, we merged the 2 numbers together, tenders and disposal. So now we took out the disposal. So now the tenders that you see are the gross tender or gross tender are the tenders in order to facilitate the comparison. And you can see that the 2 numbers of 2i are different, are higher in this plan, not because we pay more, but in fact, the reality is that we pay less than expected, but we retain more assets than not the one requested by the antitrust. So the EUR 4.8 billion, EUR 4.9 billion that is the explanation. Regarding the other area, the driver and Pier Lorenzo will tell you in a moment, is the gas distribution in Italy, an increase of EUR 1 billion. Greece remains stable in terms of EUR 1 billion investment as well as the other 2 activities, water and energy efficiency. Finally, the tenders, 1 year has passed and 1 year has been, let me say, another year of delay. That's normal. I mean that is common to the last 10 plans that we presented to you. So nothing new. And that is the reason why we reduced the number from EUR 1.7 billion to EUR 1.5 billion. That number accounts for less than 10% of the overall investment. If we look at different perspective, that is also interesting, I would like to ask your attention on the right part of the slide, it's interesting to look about the different areas. Largest amount of investment is allocated roughly for 40% of the total on network development and upgrade of the network in Italy and Greece, nearly 20%, 19% of digitization and AI. I would like to ask you if you know any other gas DSO that is investing such significant amount of money in digital and AI. And finally, Water and ESCo accounts for 5%, while tenders account for 9%. Trying again to give you a full picture of our investment plan. Our effort is focused on 3 main pillars. As we said before, network development upgrade and maintenance. We are leveraging our scale. We are leveraging our skill in order to move to a predictive maintenance that is driving and will drive our CapEx plan to improve reliability and performance of the network. The second pillar is asset digitization. We need to bring the 2i Rete Gas at the same level of our network as well as AI transformation. That is where we have the bigger difference from our competitors. There is where we have the big expertise in terms of network automation, in terms of digital transformation and in the coming years in terms of the AI application. The third pillar referred to the other initiative, water and energy efficiency. Here, we think that extending all the innovation that we have brought to the gas distribution into water and energy efficiency will make the difference. We'll make the difference because on the water sector, we will see significant reduction of leaks as well as gas, but gas is already very low. And then we will enhance infrastructure resilience in gas and water. We will improve operational efficiency. You have already seen some results, reducing energy consumption and dispatching green gases. These are the things that are taking together all these activities. But now I will go into more details, and I will leave the floor to Pier Lorenzo, who will talk to you about gas distribution in Italy and Greece, please. Pier Lorenzo: Thank you, Paolo. I'm really excited to be today on this stage to present the investment plan on gas distribution in Italy and Greece of Italgas, which is the largest in our long history. And let's start with the biggest chunk of the plan, which is dedicated to our core network investments in Italy and in Greece. It accounts for EUR 7.7 billion, and we will develop the plan along 3 lines. starting from repurposing of the grids, basically by replacement of older assets driven by predictive maintenance and active leak search through our cutting-edge technology, Picarro, which you already know. But on top of that, we will invest on grid development and extension basically to execute the commitments that we have undertaken as a result of the already awarded tenders and in Greece for the extension of the existing grid, driven by the requests for new connections. Furthermore, we plan to invest more on top of that as a result of the awarding of new tenders. And last but not least, we will invest on the infrastructure enhancement with several initiatives ranging from the installation of small-scale LNG plants in Sardinia and again in Greece, development with -- of reverse flow plants, innovative reverse flow plants, which will help us debottlenecking the existing grid to promote biomethane connections and power-to-gas pilot project plant, which has been already put in operation just a few weeks ago. Let's deep dive into the investments that we are planning in Italy, the organic investments dedicated to network. So these investments accounts for EUR 5.4 billion, and they include network development and centralized investment. They do not include new tenders. Amongst others, we will invest to execute the commitments that we have undertaken as a result of the 8 items that we have already been awarded all across Italy, plus 2 additional items tenders that we expect to be awarded in a very short period of time. This piece of plan accounts for about EUR 1 billion, and it underpins about 2,000 kilometers of networks in terms of both extensions, new networks and repurposing of existing networks. Along with that, we will invest -- continue to invest in Sardinia, where we have completed 100% of the network, more than 1,000 kilometers. We will invest basically to convert the large cities of the region, namely Oristano, Sassari, Cagliari and Nuoro by 2026. We will do that by deploying against small-scale LNG plants where the cities cannot be connected directly to a methane pipeline. Moving to the tenders. As of today, in Italy, all in all, we can record 11 officially awarded tenders -- and there is still a long road to do to the end of this process. We have still 166 tenders to go. So this year, as always, we have reviewed the schedule of the tender based on the actual progress status of the process. We believe strongly that the tenders represent a great opportunity for Italgas to further consolidate the markets. We can leverage on our current features to be best positioned to win the tenders. We have a strong track record. We have recorded 8 wins out of 11 tenders, but I should say out of 9 tenders because we took part to 9 tenders out of the 11. So the track record is really very successful. And all in all, with this plan, we are devoting EUR 1.5 billion to the new tenders, which will result in an increase in delivery points that we project to step up to EUR 2 million by the end of the plan horizon. Moving to Greece. As Paolo anticipated, we're basically confirming EUR 1 billion of investments. In this area, the investment will be dedicated primarily to the extension of the network driven by the request for new connections. This will result in the realization of 2,500 kilometers of new networks with an increase in terms of RAB up to EUR 1.3 billion by the end of the plan horizon. And in parallel, a sharp increase in terms of number of users, stepping up from more than 600,000 to nearly 1 million redelivery points by the end of the plan with a CAGR of plus 6.5%. Let's talk about green gases. We confirm our full commitment in promoting green gases and in particularly biomethane and hydrogen. Concerning biomethane, we can record as of today, 11 connections of biomethane plants to our networks. We had only just 3 years ago. So this is a sharp increase. But what's more, we have more than 38 new projects of connections under development. What's more, we have installed 3 reverse flow plants. This is a very innovative type of plants, which is vital to debottleneck the local distribution grids in order to promote the full injection of biomethane into the grids. So all in all, we are projecting by the end of 2030 to increase the production capacity of biomethane injected into Italgas grids up to 1.2 billion cubic meters per year. Talking about hydrogen. We have inaugurated just a few weeks ago, the hydrogen hyround project. This is a very innovative project, basically a power-to-gas hydrogen plant. It is in Sardinia, near Calgary, and it stands out as of today due to its very high efficiency, 55%. But what's more, it is really a showcase of the entire supply chain of hydrogen, starting from the production of real green hydrogen from a photovoltaic plant nearby, which produces the electricity needed to generate the hydrogen. Then we have storage. And then we have the demonstration of various end users of the hydrogen. We have a refueling station for vehicles over there. We have a pipeline for direct connection to a nearby industrial site. And the most distinctive feature, we are blending the hydrogen together with natural gas to feed the local gas distribution network of the city of H2. And we plan in the next 12 months to increase the percentage of blending starting from the current 2% of hydrogen up to 20% of hydrogen. This will make hyround project a unique site all over Europe. Let's move to digitization. We have dedicated in this plan EUR 3.1 billion of investment in Italy and in Greece. We will develop the investment addressing basically 3 clusters of initiatives. First of all, we are going to digitize all the assets that we have acquired from 2i Rete Gas, so that these assets will be completely controlled and monitored remotely by DANA from our control rooms in Turin and Florence. Second cluster, we are going to deploy our brand-new smart meter, Nimbus in Italy. We have validated the project. We have patented that meter. It is patented in Italy, in Eurasia, and we have a patent pending in Europe. The meters has confirmed to have superior performances compared to all the smart meters presently available on the market. So we have decided to massively roll out the meters in Italy and in Greece. And the third cluster will concern AI transformation and IT infrastructure upgrade in order to develop AI-driven new algorithms. Talking about digitization in Italy. This has become basically a trademark for Italgas. We are dedicating this plan EUR 2.9 billion in order to complete the digitization of all the assets that we have acquired from 2i Rete Gas. It's quite a large portfolio of assets. I recall that 2i Rete Gas has brought to us more than 1,200 City Gates, 12,000 district governors, more than 70,000 kilometers of networks, and we have to digitize all the bunch of pieces of equipment in a very short period of time. So we have envisaged a step-by-step approach. The first step will come to completion by the end of 2027. We will fully digitize the 1,200 City Gates so that the entire network will be remotely controlled by DANA from our control rooms in Turin and Florence in Italy. In parallel, we will digitize the 12,000 district governors, which are basically smaller plants. so that by the end of the plan horizon 2013, we will have completely digitized the entire asset portfolio of former 2i Rete Gas. AI. Let me first recall what we have done so far. We started in 2017 with a visionary approach to digitize our operation and our assets. We set up a digital factory at our headquarters in Milano. And I think that we have been very successful. Over the period of time, 2017, 2024, we have deployed more than 50 innovative digital solutions. We have reviewed more than 300 processes. But what's more, we have involved a huge amount of our employees -- and this makes the digital factory and the digital approach a change management project, more than 750 people involved in the last 18 months only. So now we have to face the second stage, the second phase starting from this year to the end of this plan, which will be focused on AI transformation. And Paolo has mentioned some of the first projects that we are already executing. So for sure, we will address data quality. We will develop algorithms in order to achieve operational excellence, and we will improve in general, our operational skills. We will evolve the digital factory from digital rooms to AI rooms in order to design all the AI stuff that is needed for this transformation. DANA will evolve, will change, will transform from a basic software for remote control and command of the network to a real platform for AI-enabled automation. And as I've mentioned before, we have already 100% of our network legacy 2i Gas Rete fully controlled by DANA. By the end of 2027, we will extend this control capability to the new grids, the new assets acquired from the former 2i Rete Gas. And meantime, we will deploy DANA by the end of 2026 also in Greece, so that DANA will cover the entire portfolio of assets of the group. The other important cluster of investment concerns metering. As I said, in this plan, we are planning a massive deployment of our Nimbus meter in Italy, primarily in order to address the replacement of the first generation of smart meters, which are based on GPRS technology or 2.5G. This technology will soon come to obsolescence. So we have decided to massive replace these meters with the Nimbus. In parallel, we will do the same thing in Greece, where the installation is driven by the need of replacing traditional meters, not even smart meters. And on top of that, the new connection, the new users, which will be driven by the extension of the grid that I already mentioned. Let me conclude my presentation by confirming here our full commitment to reach the challenging targets in terms of reduction in net energy consumption and green gas emissions -- greenhouse gas emissions, sorry. We have reviewed these targets on the basis of the successful performances that we have recorded so far. We are ahead of our original schedule, together with the extension of perimeter resulting from the recent acquisition of 2i Rete Gas. So in this plan, we're setting these new targets. In terms of reduction of net energy consumption, we aim at reaching a target of minus 35% by the end of 2030 compared to the baseline of 2020 and minus 11% compared to the baseline of 2024. We will do that progressing with the project initiatives that we have already undertaken on our legacy networks and will extend to the former 2i Rete Gas networks. So energy efficiency projects for industrial consumption and for civil consumptions, optimized fleet -- car fleet management and also a reduction of the uses of cars driven by AI. Concerning emissions, we are setting new targets on Scope 1 and 2. The new targets are a reduction of minus 55% by the end of 2030 compared to the baseline of 2020 and minus 26% compared to the baseline of 2024. We will do that with our innovative technology of Picarro for gas leak detection with smart maintenance and also with the energy efficiency initiatives that reduces energy consumption, but as a byproduct reduces also emissions to the atmosphere. These targets are in full alignment with the 1.5-degree Celsius scenario of the Paris Agreement, and we will target net zero by 2050. Scope 3 emission, again, -- we are confirming our commitment towards achieving the target in terms of reduction of minus 24% by 2030 compared to the baseline of 2024. This, of course, we will achieve by tight collaboration with our partners, vendors and suppliers. So thank you very much, and I give the floor back to Paolo for Water and ESCo. Paolo Gallo: Before getting into the numbers before giving the floor to Gianfranco, I would like just to spend a few words regarding the other 2 activities that we have in the group that are water distribution and energy efficiency. As I said before, our approach is whatever we have developed in the gas distribution, we are going to apply, especially in the water side, but also we are using in a mutual support, the energy efficiency as energy efficiency company is testing the solution to us. We are providing them ideas about innovation and then the tested solution will be put on the market. So that is the -- what is behind the link between gas distribution, water distribution and energy efficiency. On top of that, on the water, Pier Lorenzo described DANA. We will have very soon a DANA for water exactly the same as long as we will have digitized the network, we will be able to manage the network, the water distribution network remotely similar to what we are doing on the gas distribution. On the water, we will carry out large-scale replacement of all pipelines in order to reduce together with the digitization, also the water leakages. In the energy efficiency, there has been a change in respect to the previous plan. We have less M&A. We find that was not the best way to grow the business. We are moving to let me say, traditional between brackets because it's not really traditional EPC business development. So it's going to be organic development. We will have -- we will see in the numbers, less revenues, higher profitability. We are going to apply in that case, I'm saying it traditional, but it's not really traditional. We are going to apply advanced technical solution, innovative solution in order to manage and to keep the customer loyal to us. And always remember that energy efficiency is also helping us in order to reduce and to achieve the targets that Lorenzo has described before. Give you a few examples about the water, what we are doing. Since the acquisition, we have managed the company independently of the consolidation perimeter. So we manage the company being the industrial partner. And we are committed over the plan period to invest EUR 450 million. [indiscernible] EUR 450 million is what we consolidate in our numbers. If you look at the overall numbers, independently of the consolidation, the number looks bigger, it's EUR 800 million. That includes network replacement, extension, completing the development of infrastructure to increase water availability. We show you in the picture the desalinization plant that we have already built in Sicily to improve the availability of water. And on the other side, Ventotene Water Treatment Plant that has been also done. You probably know the Ventotene Island was a way to increase the quality of the water. Of course, we use a lot of funds, local and the national resilience recovery fund in order to accelerate what we feel it is essential to transform the water distribution in a better service for the customers. The plan is very -- the plan is written in this presentation. You see that our goal is to digitize the water distribution. There are a difference between the first 2 company and the second one because the first 2 are distributing up to the final customer. The other 2 are just transportation. But apart from that, the approach is exactly the same. We want to fully control the network remotely, and we want in that way to reduce significantly the water losses. The numbers of the sector, investing EUR 450 million will bring the RAB at the end of the plan over EUR 300 million. Revenue will be EUR 220 million higher than the previous plan as well as the EBITDA that will pass the EUR 100 million. That is the numbers. But to me, more -- even more important are the other objective that is the leak reduction. We want to bring down significantly the leakages of water to a number that is well below the average -- the Italian average, either in distribution and transportation. We can do that only if we digitize the network, only if we replace the older pipelines. And this objective can be reached only if we are going to invest the numbers that I mentioned before. In the meantime, energy efficiency, our company, ESCo, will work to support this company to reduce the energy consumption. 33% is our goal by 2030, even though we have experienced in 2024, a significant increase in the energy consumption due to the drought that we had not only in Sicily, but also in other parts of Italy. As well, we want to reduce by 33% Scope 1 and 2 with always the same target to get to 2050 with a net zero carbon footprint. Finally, on energy efficiency. as I told you at the beginning, was one of the 3 pillars designed by the European Commission in the REPowerEU to reduce the energy consumption, to get rid of the Russian supply energy to diversify the energy supply. That was a pillar that has been forgotten very soon. Why? As I told you, it's difficult, but it's fundamental to reach the energy transition goal. And our strategy is to offer to the 3 segments that you see, residential, industrial and public administration, innovative solution, digitized solution because that's the only way in which we can reach the targets set by the REPowerEU or in any case, set by the energy transition. We are going to invest nearly EUR 400 million, EUR 340 million throughout the plan period, mainly on the EPC contract development with limited amount of M&A contribution to growth. That means slower revenue growth, but higher profitability. As I said, our focus is on residential and industrial segment as well as public administration. With that effort, we will reach a total revenue by the end of the plan and EUR 260 million with a margin that will be 20% of EBITDA with an EBITDA margin of 20% -- if you have look at the numbers in the first 9 months, we are already there, I mean, very close, 19%. And we will continue to be there. We don't want to have -- we don't want to offer low-value solution. Our solution will be high value, innovative from a technology point of view and digitized. Now I leave the floor to Gianfranco for the conclusion of the presentation with the numbers. Gianfranco Amoroso: Good afternoon, everybody. I will -- thank you, Paolo. I will give you a quick overview over the 9-month results of this year. And immediately after, we will have another deep dive into the financial performance of the strategic plan. So let's start with this picture. I like it very much because it's very clear. is a clear demonstration of growth. Basically all the KPI of the profit and loss accounts are in the same direction. The direction is a clear growth. Italian gas distribution is the main contributor to these results made of different elements. There is the recovery of previous gap, of course, as you know very well since the first half. So the recovery of the deflator, the recovery of the OpEx recognizing the tariff by the new provision issued by the regulator. And all this, of course, together with the contribution of 2i Rete Gas consolidated starting from the 1st of April, more than offset the impact -- the negative impact of the WACC, the 60 bps this year compared to last year. In the meanwhile, in parallel Water, Greece and ESCo are continuing their trajectory positively contributing to the performance. And most importantly, as we will comment a few later after, there is a gaining momentum on the efficiencies. So benefiting of the first contribution of the initial synergies that we are implementing in this first 6 months. So basically, the EBIT marks a growth of more than 50%, 53.8%, notwithstanding the negative impact of the PPA, we made the preliminary allocation of the PPA starting from 1st of April, and this accounts for around EUR 10 million in this 6-month period. Cash flow generation is massive. We exceeded EUR 1 billion, of course, a record high for this period of time in the year and will cover -- is able to cover all the technical CapEx and part of the dividend, of course. CapEx, we will comment briefly after accounted for EUR 773 million, growing 40%, 40.7% compared to last year. And net debt, of course, increased reaching EUR 10.9 billion, of course, impacted by the acquisition. So the price paid, the debt assumed through the consolidation of the company, net of the proceed of the capital increase successfully executed in June. So all these elements will support an improving of the guidance for 2025 that I will comment later on talking about the strategic plan. I will -- sorry, I will go directly to the performance. So revenues and operating costs. So the most important thing that I want to remark here is the new element that you see on the right side of the slide, that is the minus 3.5% on a like-for-like basis in the efficiencies. This is the result of the first activities, the starting of the activities that we started last April. And this made of all the action that Paolo and Lorenzo explained before. The number attached to this potential is EUR 14.6 million that is already, let's say, an indicator of the progression of the total number that we had commented before. Going back for a while to the total revenues. I mean, the -- as you can see, the main contributor is 2i Rete Gas, of course, due to the consolidation. There is also the positive contribution in terms of RAB growth made by both the Italian gas distribution and the Greek distribution and also the impact of the resolution of ARERA that I commented before. The negative is, of course, the negative impact of the WACC accounting for about EUR 38.7 million, while on the -- over the EUR 42.7 million water and ESCo, ESCo contributed approximately EUR 426 million. So if you go to the following slide, we can see the performance in terms of adjusted EBITDA, a robust profitability, benefiting from the updated perimeters of the consolidation and also the action for the reduction of the cost. EBITDA growth compared to the last year of about 35.6%. Distribution was usually the main contributor to this performance with a positive of EUR 347 million, while Water and ESCo contributed also with EUR 12.6 million. In terms of EBIT, very short comment apart from the, let's say, contribution of the EBITDA, there is, of course, the change in the D&A that is negative. This, of course, is the impact of the consolidation of 2i Rete Gas, the CapEx executed in the last quarter and let's say, that more than offset the positive contribution due to the, let's say, termination of the Rome concession last year. In terms of net profit in the following page, of course, the growth, as we have seen is double digit in terms of net profit adjusted, up to 36.8% versus last year. Of course, there is the impact of 2i Rete Gas acquisition in terms of positive contribution of EUR 274 million, while on the negative expected impact of the financial charges due to the increase in the debt linked to the acquisition, the bridge financing, the bond that we issued in February, the interest on the debt consolidated through the acquisition of 2i Rete Gas. And the total impact of all of that is around EUR 77 million, as you can see. On the taxable income and tax rate, you see that there is a negative of EUR 58 million. This is due to the increase in the EBIT -- total that has driven the tax rate to 28.1%, a slight increase from the 27.6% of last year. So if we move to the technical investments briefly, as I commented, the total amount of CapEx in the period has been of EUR 773 million, up to 40.7% compared to last year. I would underline a couple of things. The first is more than 600 kilometers of new network pipes execute deployed during the period, of which 360 in Greece. And the starting of the activity, the preparation works for the upgrade and the digitization plan of the perimeter of 2i Rete Gas. Now on the cash flow. As I said, the remarkable number is the EUR 1 billion of operational cash flow. There is -- these results very positive as, let's say, more than offset the slightly negative impact of the net working capital, about EUR 22 million that is, let's say, typical for this period of the year due to the billing seasonality. And then, of course, this more than EUR 1 billion of operating cash flow has fully covered the CapEx executed in the period of EUR 827 million and has also covered part of the dividend paid in May of EUR 350 million. So all of that results, of course, in a variation of net debt that is impacted by the acquisition for, let's say, the debt and the price paid for the acquisition of 2i Rete Gas. So I think now we can move forward to the plan, back to the plan in order to comment the financial of the strategic plan. First, let me comment on that, let's say, broad picture. Our plan has the target to deliver a 10% EPS growth that has been, let's say, made possible by a disciplined capital allocation between the different components of our CapEx plan, an improvement in the level of efficiencies. And all this, of course, make the shareholders benefiting through the dividend policy that we will comment later on. So the 3 pillars are investment plan, of course, upgraded and increased by more than 5%, 5.7% compared to previous year, out of which the technical component reached EUR 10 billion compared to the EUR 9.1 billion of the previous plan. Second, very important, already commented and discussed the operational efficiency and extra revenues coming from the investments. that have been improved by more or less 25% compared to last year. Finally, but very important, the strength of our balance sheet. This is, let's say, supported by an increase in the level of operational cash flow aggregated for the whole life of the plan of more than 7%. Of course, this has made possible the full coverage of the technical investment done during the period, the payment of all the dividend. And of course, as usual, there is headroom for tenders and potential M&A activities. So this is not to be commented because we discussed at length, but help me to explain this one, so the development of the RAB. The development of RAB as usual, let's say, clarified with tender and without tender. If you look at the figure overall, including the tender, we are moving from EUR 10.2 billion reported '24 to a level of EUR 20.3 billion, of which 90% is gas -- Italgas distribution in Italy. If we exclude from the tenders from the numbers, the overall RAB is expected to reach EUR 18.9 billion with an average CAGR of 9.2%. Of course, tenders will contribute to EUR 1.4 billion additional RAB to the figures that I just commented of EUR 18.9 billion. The increase of RAB compared to last year plan is upgraded. If you look at the RAB, if you remember the level of the RAB in 2030 or last year plan, there is a difference with the lending number of 2031 of around EUR 1 billion. This is, of course, due to the increased level of CapEx of this plan and also there is also the impact of the deflator that we have already explained. Talking on the right side of the redelivery point, also in this situation, we can consider the number including the tenders, and we have a CAGR on the plan of 10.1%. If you exclude the tender, the number is 7.8%. Talking about profitability, we have seen increased level of investment, capital allocation, increase of RAB revenues drive to an increase of EBITDA. The rate of a CAGR of EBITDA is more than 12% higher than the RAB CAGR, meaning that we have also the possibility to have an extra growth due to the extra activities and investments that we are planning into the plan and also the efficiencies. We have done, let's say, a segmentation in order to give you the starting point of EUR 1.35 billion, the intermidpoint that will be the guidance for '25 of EUR 1.87 billion. And then the landing point at the end of EUR 3 billion of the EBITDA. Of course, most of this -- the large part of this increase is linked to the inclusion of 2i Rete Gas as expected. Another important portion is linked to synergies, efficiencies and AI. And then we have the contribution of the tender, of course. Let me say that out of the EUR 3 billion at the end of the plan, the gas distribution of the -- Italian gas distribution will have 80% of, let's say, contribution to that number, 6% will be the contribution of Greece, while ESCo, Water and other will account for 6%, same number, 8% the tenders. On the right side, you have the evolution and the trajectory of the OpEx cost basis in, let's say, as a starting point, we have here the 2024 on the '23 that we have commented before. Of course, you see the increase due to the consolidation of 2i Rete Gas, cost linked to the tenders and the synergy and efficiencies that, let's say, contributed to the reduction arriving to the level of 2031. All that allow us to make a projection of the EPS jointly with the financial charges that we will comment soon. So the EBITDA expansion, financial discipline, driving a double-digit growth of 10% throughout the plan. We start from a level of EPS adjusted for IAS 33 of EUR 0.59 in 2024. And approaching the end of the plan, there is also a very important year, the 2029 year in which the net income will exceed EUR 1 billion. So it is considered a very important achievement, of course. All that is, say, possible also due to the financial strength of the balance sheet, the third pillar. And this is the clear evidence of that. If you look on the left side, you have the maturity profile of our debt, very well spread all over the years of the business plan. Our financial strategy is focused on, of course, maintaining a solid liquidity buffer, have a mix of fixed and floating rate around 70% and 30% and increase the duration through the issuance of the new bonds in the plan. The strong, let's say, the improved cash generation profile allowed us to achieve in the plan the level set and agreed with the rating agencies 1 year earlier than projected last year in the plan. So we are now able to meet the 65% threshold not in '28 in '27. This is a clear situation of deleverage that allow us to have financial flexibility in our plan. You see on the right, the evolution of the credit ratios, net debt over RAB will end at the end of 2031 more or less at 60%, but clear deleverage starting from now. And also the funds from operation over net debt has a very positive and incremental trajectory. The result of this strategy is a cost of debt that, of course, will evolve during the year due to the refinancing of the maturities of older bonds, but we remain well below 3% throughout the plan. So finally, let me recap and give you the guidance. For the current year '25, supported by the result of the third quarter, we are improving our guidance with adjusted revenues of EUR 2.5 billion versus previous EUR 2.45 billion, adjusted EBITDA of EUR 1.87 billion versus a range that we gave of EUR 1.85 billion, adjusted EBIT of EUR 1.19 billion versus previous range of EUR 1.12 billion, EUR 1.16, while we are confirming our expectation in terms of technical CapEx around EUR 1.2 billion and net debt, excluding IFRS 16, around EUR 10.8 billion. Jumping to the final year of the plan 2031, including tenders, we are projecting revenues of approximately EUR 3.8 billion above the previous plan of EUR 3.6 at the year before 2030. EBITDA of EUR 3 billion above the previous 2030 level of EUR 2.8 billion, EBIT of EUR 2 billion above the last year plan of EUR 1.8 billion in 2030. The intermediate year 2029 will have revenues for EUR 3.4 billion, EBITDA of EUR 2.7 billion and EBIT of EUR 1.8 billion. RAB will surpass EUR 20 billion, EUR 20.3 billion versus EUR 19.2 billion of the previous plan ending in 2030. The leverage, as discussed, is improving and will end, as I said, at 60% at the end of 2031. Now I give back the floor to Paolo for the dividend policy. Paolo Gallo: Thank you. I'm going to the end. The last but not least, the dividend policy. And I'm closing that. I will leave just final remarks on slide, and then I will open the floor for questions. Let me say that has been approved yesterday by our Board of Directors, and we decided based on the results of the 9 months based on the plan that we have approved to extend the dividend policy up to 2028, maintaining the same payout ratio, 65% on adjusted EPS. And we have just changed the floor -- so instead of starting from 2023, we started from -- we use 2024 DPS as a reference point and with an increase of 5% per annum. It's not insignificant. Anna Maria will tell me that the number is not 5%, but I disagree with her, but that I will mention also Anna Maria point of view. I think it's not insignificant because not only we extend the dividend policy by 2 years, but we significantly increased the reference point. But I also would like to remind you that in the past year, we have never, never used the floor. So our result has been always above the floor and the increase provided by the floor. According to Anna Maria and probably IAS33 for which don't ask me what it is, adjustment, the increase is not -- the increase expected -- the minimum increase expected in 2025 is not 5%, but is 11.7%. You know that you know better than me IAS 33, but still, I'm very basic person. So I'm saying I want to guarantee an increase of 5% over the last dividend that we paid this year over 2024 result. That's the end of the presentation. Thank you for your patience. It has been quite long, but we are here for -- to answer to any question you may have. Maybe not all of them, but some of them, yes. Thank you. Unknown Attendee: So thank you to everyone. [Operator Instructions] James for a long time. So we start from the back there, James Brand. James, if you can stand up and... James Brand: It's James Brown from Deutsche Bank. I wanted to just, obviously, a very impressive plan and a lot of synergies and cost efficiencies that you're delivering. I just wanted to ask what you're assuming in terms of any potential regulatory clawback at some point? Because as I understand it, there's a cost review that will be coming in 2027 for 2028. And there's also this whole debate about do we switch to like a TOTEX system, but nobody seems to know exactly what that will mean at the moment. So I was just wondering, I guess, what you've assumed in your plan? And perhaps it's impossible to know, but maybe you could just talk us through a little bit how you think about the risk of getting some of the cost efficiencies claw back from you and how you think about TOTEX. And that was kind of going to be one question, but I think it's probably about 3 already. So I'll leave it at that, and I'd be very grateful to you. Paolo Gallo: Let me say that we are more than happy to give our efficiency for a time horizon back to the system. It's the way to repay institution to repay our customers, to repay the market. Just to give you a number, and then I will go back to your answer. Just to give you a number. In between '18 and '24, we gave back EUR 300 million to the system. So I think that is the game. I think we have demonstrated in the last 9 years that no matter we give the money back to the system, we are able to achieve better performance. And we have never changed that approach. So let me say, the focus on cost efficiency is one and then the regulatory is another one. But I -- the whole management is focused on cost efficiency, forgetting that the regulatory period will somehow later asking something back. To your point, what we have assumed in the plan, we have assumed an X-factor consistent with what we have experienced up to now. So we have already embedded in the plan less revenues as a way to give this money back, this efficiency back to the system. And regarding '28, '28 is difficult to shape because, as you know, there will be a new system, the TOTEX, we call ROS, but it's the same. I think that will change the rules of the game. For us, we see an opportunity because we can become even more -- we can even more implement an industrial approach because you mix altogether OpEx and CapEx and you make -- and you decide based on which is the best solution for you as an industry to allocate, let me say, money on the OpEx or on the CapEx. But because we don't have -- because there is no consultation yet on the market, we don't know how the regulatory body will shape the ROS. We know the general terms of the ROS. So what we have thought about is it's another opportunity for us to be even more efficient. But in the plan is embedded and X-factor similar to what we have experienced up to now. Unknown Attendee: We have Julius there. Julius Nickelsen: Julius Nickelsen from Bank of America. Two questions on the synergies and then just one clarification. The first one, I mean, I understand that the last time you put out the EUR 200 million, this was before you actually run the assets and now you upgraded it. Is that number now here to stay? Or are there any surprises left where you think some areas in the business that could still bring some more synergies? I don't want to be greedy. And then in terms of what have you already achieved in 2025 and what is left in 2026? I see you saw the EUR 14.6 million of cost synergies in this quarter, but could you maybe give a little bit more precise split? And then lastly, just to have ask, I assume these numbers assume that the allowed return will stay at 5.9% for the plan. Paolo Gallo: Okay. Starting from the last question, we have assumed that 5.9% will remain. So we assume flat WACC. Regarding the first question, we have already presented -- we just presented a new plan. Now you are asking me, there is something more. We need to wait 1 year and maybe we will find something more, not now. I think -- but apart the joke, I think that what we have done, thanks to -- mainly to Pier Lorenzo because he has run all the -- and the other team has run all the detailed analysis. We were able to build on a bottom-up basis really the -- all the activities that are needed to be put in place in order to achieve the synergies. So while 1 year ago, we were -- we made more an approach top-down saying, okay, what we can achieve, what with a similarity of the results that we have achieved in the past in Italgas Today, we are here and we say EUR 250 million that again, it's a round number, but it's EUR 252 million. So if you want, you can get another EUR 2 million on top of that. It's a true number based on all the detailed activities and results that we expect to achieve. What has been already achieved in '25 is the number that you have seen. It's a combination of synergies and ongoing focus on cost cutting. We cannot -- from now on, we will not be able to separate what it was if we were alone and what it is now because now 2i Rete Gas is not an entity anymore since July 1. So you should look at the numbers as the total -- so our ability to continue to reduce the cost, our ability to produce synergies, I would say, mainly in the traditional and digital part. AI will come later. It will not come. We'll probably see some numbers in '26. But as you have seen in the curve of the graph, it will come later. But I cannot tell you, if you are asking me in '26, what are the synergies, what you have -- it's impossible because now the company is one company, the organization is one organization. So I will be focused on what we will be able to achieve as a cost cutting and synergies in comparison to what was the baseline in 2023. Unknown Attendee: We have Francesco, Francesco Sala: Francesco Sala, Banca Akros. Congratulations for your results and the presentation. The first one is on the -- your inflation assumption, especially for the RAB until 2031. The second is what makes you think there's going to be a pickup in tender activity in the next few years? And if there is any evidence you have to back this assumption or if something has changed in the last few months? And thirdly, you wish that there were more opportunities in the water segment, but there have been very few in the last few years. I wonder whether you think something is going to change in this regard in the next future? Paolo Gallo: The first one, I mean, we have assumed on the long run an inflation rate of 2%, very simple. So we were not so creative. So we just flat the inflation to 2%. On the tender side, we have seen a 2025 that probably has been the best year ever since the launch of the tender in terms of number of the tenders that has been awarded and tendered, '26 look similar. My point is, and probably you have read on the newspaper, my point is that as the Ministry [indiscernible] said, tenders process need to be reviewed. And I think the point is need to be reviewed in terms of size of the tender, so increase the size of each single item, reducing the number of items. And on the other side, having let me say, an institution on an authority that authority is not the right term. A body that is running the tender that is more effective, can be local, can be regional, can be central, but should run the tender. The problem is as of today is that there are so many that have not taken this as a clear commitment to run the tender and to complete the tender. What you said on the water distribution is true. You said few, I would said 0 opportunity. I will make it few to 0, not only, but each opportunity, we need to look very carefully because we don't want to have an opportunity that is not an opportunity that is a problem. So we will look only if there are serious opportunity in the market. As of today, there is none. But on the other side, the plan will continue to deliver better quality of the service, less leaks, operational efficiency in the perimeter that we have acquired from Veolia. Unknown Attendee: So we have... Paolo Gallo: We will answer to all your questions. So don't worry. Unknown Attendee: Okay. So Aleksandra there and then we go in the line. Aleksandra Arsova: Aleksandra Arsova from Equita. So 3 questions on my end. The first one, so again, not to be too greedy, but maybe on dividend since you provided an improved growth profile, faster deleverage. So I'm thinking maybe is there any room maybe next year to further improve either the payout or the growth in EPS? This is the first one. The second one is maybe more a curiosity. You are mentioning the potential changes to the concession regulatory framework. But if this -- the timing of these changes, I mean, are quite uncertain. And so I was thinking maybe on the other hand, is there any possibility or is it viable from an antitrust point of view to do further M&A in Italy, maybe many bolt-on M&As? And the third one is a follow-up, a clarification on the unitary OpEx tariff. So you said previously, if I understood it correctly, that you assumed the X factor, which is similar to the one you have at the moment. But if I remember correctly, the consultation paper under review currently assumes a lower X factor at least for '26, '27. So you are more conservative at the moment vis-a-vis the proposal by ARERA? Paolo Gallo: On the first question, you know the answer, so I don't answer to you exactly. I said that I don't know how many times. I think -- and I'm -- on that point, you can be flexible. But the point is that with that dividend policy that we applied over 9 years, we were able to acquire 2i Rete Gas. So the answer is there. On the second one, there are many discussions around tender and concession. I don't think it is viable to extend the validity of the concession because the concession has been expired in '12. So it's strange to because somebody is proposing to extend the concession. But the problem is different. The problem is tenders have been set 13 years ago. The process didn't work. I think we need to face this situation and try to solve it. Further M&A, while the tenders are going on, you will be scrutiny again by the antitrust. And as of today, there is nothing again on the market. for the OpEx. We have used the -- for '26 and '27, we have used the numbers in the consultation, but then from '28, we use a flat number higher than the ones for '26 and '27. Unknown Attendee: And then Fernando. Okay. Unknown Analyst: First question is regarding the slide in Page 19. This is related to the time line of cost savings. I mean I was doing a visual calculation there. It looks like you are getting around 50% of the cost savings already in 2026. My question here is this is something that you expect in 2026 or maybe more end of the year. I'm saying this is because this could have significant implications of next year earnings. So that is my first question. Then second question, I think that you say that you assume a flat WACC for the period until 2031. So there, I would like to know what is your expectation in terms of the activation of the trigger mechanism for next year. I assume that you don't expect it, but you can clarify. And a follow-up question on that is France lost the AA rating in October. I would like to know your opinion on what has to be done in this scenario? And what could be the implications for the sector? Paolo Gallo: Always remember, you referred to Page 19 that this number is as a reference of 2023 cost. So part of that has been already achieved in '24. Part of that will be achieved in '25. So the '26 is already a cumulative number that takes into consideration what was already achieved. It will be, as you see, mainly traditional in '26, some digital, and they represent about, let's say, 40% of the total. On the second one, we have -- on the WACC, we have assumed, as you said, flat period, so trigger will not apply according to us also because France should be out of the reference country because they lost the AA rating. They are now in A+. So according to the regulatory framework that set the characteristic of the countries to be compared with, they said they should be AA countries. France is not anymore AA countries. So I think that is my -- I mean, reading the paper of the regulatory and applying just in a very simple way. Last year, France was probably still considered because if you remember last year, France was AA-. So they still have the AA somehow. Today, 1A is lost completely. So they have A+ only. Next... Unknown Attendee: We have Sarah there. Yes, Alberto, [indiscernible] to you. Sarah Lester: Sarah Lester from Morgan Stanley. And I really do apologize one more on synergies, and then I think we'll stop on the synergies. '27, '28. So tying a bow on, I think it's Slide 15, 19 and 20, it feels like you're in the ballpark of EUR 180 million in '27, 2028. Just doing a sense, check if they're kind of sensible numbers. And then I also have a high-level question on future mapping. You're obviously incredibly strong at extracting value from acquisitions. Would you consider expanding outside of Europe? Paolo Gallo: If you go back to page -- page, I'm coming to Page 20, you will see that by 2028, the majority of the synergies that are EUR 180 million are reached, not all, but a significant portion of that. So you're right. The second question is relevant to potential acquisition. I'm not saying nothing about that because it's -- we don't have anything in our end. I always say which are the principles that drive us. First of all, Europe is our area of interest, of course. But the second point for which we look at the outside Italy are, first of all, macroeconomic scenario of the country and then even more important, the regulatory framework. That is what we did in Greece. At the time, macroeconomic scenario was not looking very good, but we saw at the time, significant signal of improvement. So we strongly believe at the time that Greece, and we were right, would come out of the situation that they were and now they are in a very good macroeconomic condition. And the second element, even more important, regulatory framework was very stable, was clear, was similar to our. So those are the 2 elements that we normally look before considering anything outside Italy. Europe, of course, is the best area where we would like eventually to invest if the 2 conditions that I mentioned to you are met. And there is somebody that is willing to sell, of course. There is no one that there is no interest. Unknown Attendee: Yes, so Christabel. There? Christabel Kelly: Chris from UBS here. Just one question on the financing strategy. I noticed that this time, you're aiming for a fixed floating ratio of 70% to 30% and an increased duration. Can I assume that that's reflective of your view on where interest rates are going, cost of financing for Italy and for Italgas going forward? Paolo Gallo: Yes. I think if I well understood your point, the strategy is based on the expected structure of the rates in the future, of course. In this plan, we are assuming a level of the fixed rate more or less stabilized on the current levels, while we are expecting a decrease -- a sharp decrease in the short-term rates. For this reason, the ratio changed a bit from the previous 20% to 80% to 30% to 70%, meaning that we will go more for, let's say, short-term or variable rates that could be also a long-term fixed rate swap into a variable in order to take benefit of this situation of the rates. And the combination of the 2 situation, coupled with also the increased duration will result in the level of cost of debt that I have commented in the slide. Next. Alberto de Antonio Gardeta: Alberto de Antonio from BNP Paribas. My first question will be on Greece. You have given the targets for 2021 in terms of revenues, EBITDA and RAB. Maybe could you disclose what your assumptions behind in terms of WACC inflation, X-factor or any additional potential revenues? And my second question will be regarding the biomethane opportunity. And let me understand if -- are you investing directly in any plans or how this business works and how this is going to impact your company in terms of maybe CapEx, potential additional revenues or just decarbonation of the molecules? Paolo Gallo: Okay. Regarding Greece assumption, if I well understood, we have assumed similar to the overall plan, flat rate, flat interest rate, flat allowed return similar to what we have today. There may be some correction over time, but we don't think this is going to be significant. That was the assumption that we used. and inflation as well. So we use the same numbers that we are using for Italy, we use also for Greece because, as I said before, the 2 countries are very similar today as well as the other. Regarding biomethane, what we have assumed in the biomethane, maybe Pier Lorenzo can elaborate a little bit more is not that we are investing in biomethane production plant, but we are making the connection easier for them to accelerate the development of biomethane new plant and the connection. Maybe Pier Lorenzo can say a little bit more about our approach in how we can help biomethane production plant to be connected. Pier Lorenzo: Yes. As Paolo anticipated, we see biomethane not really as an opportunity to invest in directly, but as a gigantic opportunity for our country to address the decarbonization of the end user and consumptions together with the security and supply because biomethane, we have to remember here in U.K., you have a lot of production as well, is made locally. So looking at Europe as a whole continent, which is strongly dependent on importation of gas, biomethane production can mitigate this issue concerning security of supply. So all in all, our approach here is to promote the development of the industry in Italy, facilitating, making easier to connect these plants to the local grids. And we do that, we have done in the past, and we will do more and more by streamlining the design of the connections so that they cost less and less and by investing in reverse flow projects. The main issue that can arise in a project of connection of biomethane to a local grid is the fact that the local grid at the exact site where the developer of the plant wants to install the biomethane plant is not fully capable of receiving the entire amount of production of gases in every hour of the year, especially when the demand is very low. So thanks to reverse plants, we can debottleneck the local network so that virtually we can -- or really not virtually, we can connect any kind of biomethane plants wherever the developer wants to develop the plant. And connecting a biomethane plant to a local distribution network is definitely less expensive than connecting the same biomethane plant to a transportation network, which is run operated at definitely higher pressure, so they need compression and blah, blah, blah. So we have to promote and we want to do that, the connection of biomethane plants to local low-pressure distribution network. That is our aim. Of course, we reflect all these in our CapEx investment plan in terms of CapEx strictly related to the connection of the plants. So pipes and pieces of equipment that we need to connect. Unknown Attendee: Ella from Citi. Ella Walker-Hunt: I have 3 questions, if that's okay. First question is to do with the WACC trigger. The WACC trigger. -- if it is triggered, can you just give us a sensitivity of us know how the earnings would be impacted if there was a downside trigger. My second question relates to AI synergies. So I remember in the last plan when you were discussing your EUR 200 million synergies, you said that EUR 80 million were going to come from AI synergies. And then in this plan, it's more like EUR 70 million. So can you just talk about the difference there in terms of the EUR 80 million and EUR 70 million? And then my last question refers to the tenders. So you -- in terms of the 247,000 connection points that you're selling, you sold them at a great price, 16% premium to RAB. But if you do -- if we do a quick back of the envelope calculation in terms of your plan, then you have EUR 1.5 billion CapEx for the tenders to bring on EUR 1.4 billion RAB. So it's like 7% premium to RAB. So I was just wondering about the difference there. So why do you think -- I guess, yes, just the acquisition price at a much lower premium versus what you sold at? Paolo Gallo: The last question we need to interact because it was not very clear to me. Let's start from the first one. The impact of a potential trigger for which we don't believe is going to happen is EUR 45 million. EUR 15 billion of RAB multiplied by 30 bps, that's the impact in terms of less revenues. AI synergy, which -- what is the difference? Let me say what we said is, of course, pretax revenue, the EUR 45 million is pretax. In terms of AI synergies, let me say that last year, we have estimated between -- I remember, I said EUR 70 million to EUR 80 million, but it's true. We mentioned EUR 80 million because we thought the number came out from the fact that the impact that was generated the digital transformation in the 7 years previous plan that generated a certain number would have been similar or better. The synergy impact would have been similar to what was generated by the digital transformation previous plan, and that the number came out from. So it was not a bottom-up. It was a clear top-down numbers. Now we were more -- much more detailed in building see -- AI cases and say what is going to happen with the application of the AI. There will be more productivity, less personnel involved, less use of cars and other stuff like that. So we were able to detail and the number came up to be EUR 70 million. So I strongly believe the EUR 70 million is more reliable than 80 million of last year. EUR 80 million was, and I always said was taking as a similarity. But I have also to say that between now and the next couple of years, other AI uses will come up. So I would take this as a floor, the EUR 70 million, and I will not take it as a final number. Based on the knowledge that we have today, that is the best reliable number we can give it to you with the time frame that we have envisaged. But it's going to be changed. Yes, because AI is something that is evolving. I don't think anyone -- anyone in our industry, but in general, anyone in industry like ours has been able to predict with such detailed way the AI impact on the cost of the company. The last one I have -- let me just recap, okay? We bought what we bought at a limited premium. And then we sold RAB EUR 218 million with a certain premium higher than what we bought, okay? That's the end of the deal. Tender is another matter. You know the tender we buy at RAB by definition because there is no competition on the value of their assets. So that is the fact that has been reduced the amount of the tender is only due by the delay. Remember that the number is made of acquisition of existing network plus CapEx that is requested to upgrade this new network acquired through a tender. So the delay in the tender means that there may be some items that are not in the plan period anymore. But if you delay the tender also the CapEx, technical CapEx connected to the tender may be delayed, too. But there is nothing to do with premium. I don't know if I'm clear. Okay. Unknown Attendee: If there are no more questions from the room, we can take the question from the conference call. Operator: The first question is from Javier Suarez of Mediobanca. Javier Suarez Hernandez: I'm really sorry to jump with questions after a long presentation. So the first question is on the EBITDA margin that is embedded into your plan. That means -- that means an expansion versus 79%... Paolo Gallo: Can you start again because now your voice is back. Javier Suarez Hernandez: Okay. Can you hear me now? So the first question is related to the expansion on the EBITDA margin to 79%, which is the number that is embedded into your guidance for 2029 and '31. So the question for you is that if you can help us to understand that expansion in the EBITDA margin that is going to be by the end of the plan, significantly different between the old Italgas 2i Rete Gas, Depa and the water business. So further detail on EBITDA marginality between your different activities would be very helpful. The second question is on the tendering process and what may be done to incentivize and to stimulate the process. So you can share with us any proposal to the new -- to the administration in Italy to make the system more virtuous and probably quick. And if you think that what it is happening or is the discussion for the electricity distribution concession is something that could be replicated to the gas distribution concessions as well? And the very final question is on Slide 60, when you are showing the credit metrics. So there is a vertical a significant decrease on net debt to RAB and a significant increase in the FFO versus net debt. So the question is, philosophically, where do you think that a company like Italgas should be seated if it is a correct interpretation to say that beyond, say, 2028, the company is maintaining some financial flexibility to capture additional opportunities related to M&A or the tendering process, if that is a correct interpretation? Pier Lorenzo: Okay. Let me start -- maybe start Frank, on the first EBITDA... EBITDA trajectory in the plan. clear, you are right, meaning that it is true that there is a clear direction in terms of improving the EBITDA margin, both for Italian gas distribution. We are approaching at the end of the plan a level of 88% basically. And so starting from a level now that is around 80%. In terms of the same trajectory is also followed by -- in parallel by Enon, by Greece, but on the lower scale, of course, you remember that in the past, we considered Enon as, let's say, like [indiscernible] in Italy, so a smaller perimeter with headroom for improving efficiency. So also Enon will improve the EBITDA margin at the end of the plan, approaching 76%, 78% more or less. The driver behind that, of course, are the operational efficiency synergies, revenue synergies that we commented, mainly I would say. Paolo Gallo: Yes. I'm just adding 2 points. EBITDA is growing because the costs are going down. There is a clear difference between -- you remember that we put the ambition of Greece and the ambition Greece, we are on the trajectory of that ambition. But we have always said that because of the size of the Greece they will never be able to achieve the same EBITDA margin that we are able to achieve, thanks to the size that we are having in Italy. But also in Greece, we are using -- we have applied digital transformation. We will fully digitize the network. We are doing that. We are very close. By the end of this year, we will complete that. AI application will be moved to Greece too, but the scale will determine, of course, a different -- slightly different EBITDA with a margin that is probably lower than the one in Italy. On the tender side, my only comment probably Javier didn't hear what I said before. The proposal on the electricity distribution is to extend the concession, but concessions are in full force today. So the comparison between gas distribution and electricity distribution is not comparing apple with apple because gas distribution concessions have expired by law back in 2012. We have talked for many, many years about what we can do in order to accelerate the tenders. Our opinion, our position that is shared among the association is that we need to reduce the number of items. So we need to reduce the number of tenders. And we need to have a clear commitment by whoever take the responsibility to run this tender to run this tender because otherwise, you can even reduce the number of tenders increasing the size of the item, but that if no one is taking the responsibility to run the process in in a time manner, then we will be sticking the same situation. So 2 elements should be addressed. Number of items reduced and a clear and committed responsibility to run the tenders. I think regarding the last question, what we have presented always is deleveraging over time. And as in the past, we have always find a way to use and to invest properly eventually any additional fund we may have in order to increase the profitability of the company. So I would not -- we need to stay below 65%. That's no doubt about that. That is our target because we want to maintain the same rating that we have with the rating agency. Apart from that, everything else, if there is a room, we will try to use in the best way like we did in the past, available funds. Unknown Attendee: Next question from the call, please. Operator: The next question is from Davide Candela of Intesa Sanpaolo. Davide Candela: I have just 2. The first one is with regards to the nanometers rollout. It looks like to me that by 2030 and the year after, there could be a little bit of deceleration in the rollout in Italy. I wonder if you can share why is that if it is because you are reaching a certain point that no more should be installed or you're waiting for something and maybe some assumption behind the cost you are assuming in the plan for the rollout of those meter -- and second... Paolo Gallo: Excuse me, you are talking about rollout, but rollout of what? Davide Candela: Of the smart meter. Sorry for that. And second question, really high level with regards to the data centers. And we have recently seen a potential role of hydrogen with the fuel cell technology in the data centers. I was wondering if you could just share your view very high level and maybe if there is a role in future for gas distributor in there? Paolo Gallo: Regarding the first one, just to make it clear, the meters that we are going to replace are the first generation, I think Pier Lorenzo said very clearly. So the GPRS, not narrowband IoT, not the latest that we are going to install. That's the reason why we still have EUR 6 million, the combination of 2i Rete Gas and Italgas Reti of GPRS. You know the GPRS is a technology that the telco will probably soon discontinue. So we are planning to replace them. The structure should be very similar, let me say, the impact on our profit and loss and depreciation is exactly the same that we had when we replaced the traditional one with the smart one. So we expect that the regulator in order to face a situation where at a certain moment in time, this smart meter will not transmit anymore because GPRS will disappear. They will issue a regulation for which to encourage the operator to replace the GPRS with new ones. That's the reason why there is EUR 6 million on that. Regarding use of hydrogen for data center, if that is the request, honestly, I don't have an answer. So I don't know how to use hydrogen in the data center, if that is the question that I understood. Unknown Attendee: Next question please. Operator: The next question is from Bartek Kubicki of Bernstein. Bartlomiej Kubicki: Congratulations. I hope you can hear me well. A few things from my side. First of all, on the regulation as such. As we remember, there is quite some volatility with regards to gas distribution regulatory framework in the last couple of years, unexpected WACC cut, OpEx cut back in 2019. My question is, what are the key -- in your opinion, what are the key upsides and downsides from the regulatory point of view to your business plan not included in the business plan? And I'm not talking about the trigger mechanism, something which is out of the common discussion, including here the potential remuneration of the smart meters of the existing smart meters and the faster depreciation of those existing smart meters. Second thing, I would like to -- just a clarification on your leverage. Of course, you will degear very quickly from, I suppose, more than 70% net debt to RAB to 60% net debt to RAB into 2031. Just a quick question. What do you assume with regards to the famous Rome concession? Because I remember there was always some kind of EUR 0.5 billion potential payment to keep the Rome concession for longer. What do you assume here? I mean, is it still assumed in the business plan or not anymore? And the last point on your synergies and efficiencies, will it cost anything? Meaning I know that you said there will be no redundancies, but will you be incurring any additional restructuring costs to get to those synergies? Paolo Gallo: First question is, honestly, what I can say is that for me, '26 and '27 is very clear the regulation. So we don't expect no upside, no downside. Then from 2028, there will be the ROS taking place. In the ROS, we may see maybe some remuneration of the fully amortized asset, for example, similar to what currently Enon is enjoying if they keep in proper operation, fully amortized, fully depreciated assets. That's one element, but it's not so -- it comes to my mind. But generally speaking, the ROS application or the TOTEX application starting from 2028 for me, from the vision that we have, it could be an upside from an industrial point of view for Italgas in a sense that to be constrained OpEx and CapEx will be one single box in which you really leverage your capability in managing network and deciding which is better to spend in OpEx or to spend in CapEx, depending which is the best result from an industrial point of view. So if I look at the framework, I welcome the ROS, the TOTEX framework coming because it will give us more opportunity to use our industrial competence in order to increase our results. I'm just closing on the third point, and then I will leave the floor to Gianfranco for the Rome concession. I said no redundancy. We didn't any redundancy in the past. There's no cost associated. We don't have any redundancy. Our goal is today, and we have already started is to start reskilling our personnel in order to handle different kind of process and different kind of activity. We don't have to wait AI to be massively used. We need to do it now, and we will do it now in order to be ready when the AI will be used in a more extensive way to be able for our personnel, for our colleague to take other jobs consistent with the new organization from one side, the new process from the other side. So there is no cost associated. There will be no redundancy at all. Gianfranco Amoroso: On the Rome concession, the assumption in the plan is very straightforward because we have a receivable for around EUR 300 million in our balance sheet. Simply the business plan assumes that this receivable is paid during the plan. Consider that the other important assumption is that we are assuming in 2028 the taking of control after the tender of Rome of the concession. So this payment can happen before this date or I would say at the latest at this date. So you will have the cash in the cash position during the plan. Paolo Gallo: The impact of deleverage, EUR 300 million over EUR 11 billion of that is.. Gianfranco Amoroso: Not meaningful. Paolo Gallo: Exactly. But the assumption is that by -- in 2028, the concession, there will be a tender completed. Our assumption is that the Comune di Roma will continue to keep the ownership of the existing infrastructure by them and that is what is inside the plan. Bartlomiej Kubicki: May I just ask one more clarification on point number one, please? Paolo Gallo: Please. Bartlomiej Kubicki: Yes. Regarding the smart meters and the remuneration of the quicker depreciation of the currently existing smart meters. How confident are you that the regulator will be happy to allow you for another smart meters rollout while you have basically just a few years ago completed the smart meters rollout, which costed you probably EUR 1 billion plus. So there's additional kind of investments going into the network, additional, let's say, impact on the customers' bill. So how are you -- how confident you are that the regulator would be happy to approve a similar scheme to what we had back in 2019, '22? Paolo Gallo: It is not a matter to be happy or not happy. It's a matter that if GPRS will be discontinued. We will have 6 million smart meter not working anymore. So it's not a matter to be happy or not happy. It's a matter to understand the reality and say, okay, the previous smart meter that was developed and installed back 12 years ago, now has to be replaced with new ones because technology has changed. So the happiness should be -- there is a new technology that is much better than the old one. And of course, they have to consider the loss of depreciation. But consider, as I said, the first smart meter were installed back in '13, '14. There will be not a significant amount of depreciation to be paid. Unknown Attendee: Thank you, Bart. There are no more questions from the conference call. I reckon everyone here has been asking a question. IR team is available. So thank you, everyone. Paolo Gallo: Thank you. Thank you for coming.
Operator: Greetings, and welcome to the Gaming and Leisure Properties, Inc. Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Joe Jaffoni, Investor Relations. Please proceed. Joseph Jaffoni: Thank you, Latanya, and good morning, everyone, and thank you for joining Gaming and Leisure Properties Third Quarter 2025 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at www.glpropinc.com. In addition to the third quarter press release, GLPI also posted a supplemental earnings presentation which highlights the events of the quarter, of recent developments and future considerations that can also be accessed at www.glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to the risk factors and forward-looking statements contained in the company's filings with the SEC, including its 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer at Gaming and Leisure Properties. Also joining today's call are Brandon Moore, President and Chief Operating Officer; Desiree Burke, Chief Financial Officer and Treasurer; Steve Ladany, Senior Vice President and Chief Development Officer; and Carlo Santarelli, Senior Vice President, Corporate Strategy and Investor Relations. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead. Peter Carlino: Well, thank you, Joe, and good morning, everyone. We are particularly pleased to announce a really terrific quarter in which I think a lot of really good things have come together. As always, these have been thoroughly detailed in our earnings release. Nonetheless, there are 3 items that I think are worthy of spending just a little bit of time this morning that represent important elements of the GLPI story today. The first topic I'd like to highlight is our pipeline and our recent transactions. Very simply, in the last 60 days, we have announced 3 transactions. And while the market has given us a little credit for these deals, each of these has been -- is accretive and allowed us to deploy $875 million of capital at a blended cap rate of 9.3%. When completed, these transactions will add over 5% to our current annualized cash rent while also expanding partnerships with 2 existing tenants and furthering our initiatives in the area of tribal gaming. The second item is funding, which is something we get lots of questions about. We currently have over $3 billion of announced transaction activity in our pipeline. As you saw in our third quarter results announcement, we executed on $363 million of forward equity in this period at an average price of $48. Despite the size of our current funding commitments, given our current leverage profile, it is worth pointing out that we can fund the entirety of our future commitments solely with debt financing and still remain at approximately 5.1x leverage, the low end of our 5 to 5.5 range. So given the current valuation of our equity, the -- this path appears to be most appealing as it's unlikely we'll be tapping the equity market in this current pathetic range. Number three, the third item is Bally's. We get lots of questions about that. And I'd like to talk a little bit about our relationship with them. We have 2 very strong well-covered leases with Bally's, the development in Chicago, a ground lease on a soon-to-be-developed prime parcel of Las Vegas real estate and which you would know is the new home of the Las Vegas A's. Since we last spoke, a lot has transpired with Bally's, all of which has been very positive from our perspective. Bally's successfully completed its international iGaming transaction with Intralot, positioning the company very well from a liquidity perspective. Additionally, as we last spoke, Bally's has become 1 of 3 remaining bidders for 3 potential licenses, very lucrative licenses in New York, which whether we participate or not is a very good thing for them. And lastly, of core importance to us, significant progress has been made in Chicago in the development of that project. And we extended our first tranche of capital for the development earlier this month. So we step back and look at the Bally's relationship. We like the assets that we have. Coverage on our existing leases is very good. And the Chicago development has a very, very strong ROI framework. We see tremendous potential and opportunity in land in Las Vegas, and we see New York as a, as I said earlier, potentially material value-enhancing opportunity for us or for Bally's with or without us. So these have been very positive developments. I would like to point out that the progress in Chicago is significant, and the pace of construction has picked up dramatically. To that end, we publish photographs that give any interested among you an idea of just how things are looking. We've gone vertical, and we're going to keep that -- those photographs and the storyline updated, so you know at any moment where we are in Chicago. In Las Vegas, Bally's has published a site plan that encompasses what may be possible at the site. We are very pleased with what they have discovered or what they have laid out. And we may or may not participate as opportunities. It's unlikely that we will finance the entire project, but there are elements of that, profit-making elements, that I think we could participate in. So I'd stay tuned in Las Vegas as well. It's in a very good place at the moment. So with that, I'm going to turn it over to Desiree to give you things that really matter. Desiree Burke: Thanks, Peter. Good morning. For the third quarter of 2025, our total income from real estate exceeded the third quarter of 2024 by over $12 million. The growth was primarily driven by increases in our cash rent of $20 million. And those are related to our acquisition of Bally's Kansas City and Shreveport, which increased cash rent by $8 million. The Chicago land lease increased cash income by $3.9 million. Bally's Tropicana funding increased it by $600,000, and the Belle development increased cash rent by $1.6 million. The Ione loan increased cash income by $900,000. The Joliet funding increased our cash income by $1.7 million, and the recognition of our escalators and percentage rent adjustments increased cash income by about $4.2 million. The combination of our noncash revenue gross-ups, investment and lease adjustments and straight-line rent adjustments partially offset those increases driving a collective year-over-year decrease of $8.4 million. Our operating expenses decreased $53.5 million, mainly resulting from noncash adjustments in the provision for credit losses due to a less pessimistic forward-looking economic forecast as compared to the prior quarter, as well as the fact that 2024 the provision included a charge for the establishment of the Tropicana reserve. [ For the company, ] just a reminder that we capitalized interest and deferral rent during the development period for financial reporting purposes. However, we add that rend back and deduct the capital interest in deriving our AFFO. Included in today's release is an increase in GLPI's full year 2025 AFFO guidance ranging from $3.86 to $3.88 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. However, it does include our anticipated funding of $150 million for the M Resort tower expected to occur next month and approximately $280 million of funding for development projects expected to occur during the fourth quarter, of which $125 million was funded for Chicago in October. From a balance sheet perspective, and this is probably the most important part of my comments, during the quarter, we sold 7.6 million shares under a forward sale agreement to raise $363.3 million or $47.87 per share. Additionally, we issued $1.3 billion in new bonds and redeemed our sole 2026 maturity of $975 million, thereby raising in excess of $680 million of capital for our development and acquisition pipeline. Our leverage ratio is at 4.4x, well below our target and historical levels. Given our current balance sheet position, the several year runway to fund our development projects and our annual free cash flow over that time frame, we have optionality to fund our future accretive commitments. As a reminder, our significant development projects pay us cash rent upon funding. In October, we extended the company's option and call rate to acquire the real property assets of Bally's Twin River Lincoln by 2 years from 2028 -- to 2028 from 2026. Our rent coverage ratios on our master leases are ranging from 1.69 to 2.78 as of the end of the prior quarter end. With that, I will turn it back to Peter. Peter Carlino: Well, thanks, Desiree. And with that, operator, can we open the call to questions. Operator: [Operator Instructions] The first question comes from Haendel St. Juste with Mizuho. Haendel St. Juste: Desiree, I wanted to follow up on your comments on the balance sheet. Looks like you're well covered in terms of sources through your uses for now. But I guess would we -- how comfortable are you -- looks like leverage is going to tick up over the near term as you deploy capital. So I guess, how comfortable are you with your current liquidity profile? And how much would you be comfortable with letting leverage tick up here in the near term? Desiree Burke: Right. So look, if I funded everything I have out there in the pipeline with debt, which obviously, that's not exactly what we intend to do. But however, if our equity remains where it is, we may just do that. We only get to 5.1x levered, right, once everything is annualized in. So I'd be very comfortable at that range. I mean, you can see in our supplemental, historically, we've been over that, right, up to 5.5x is our maximum range of leverage. So I am very comfortable with our current liquidity position and the funding of the transactions that we've announced to date. Haendel St. Juste: Got it. Appreciate that. And then I guess, just more broadly, curious on the regional gaming trends during the quarter, foot traffic, revenue in light of the slowing macro? And I guess some broader commentary on how do you expect regional gaming to perform in this environment? Peter Carlino: Well, any number of us could take that question. I mean, look, generally, regional gaming has held up very well, and our coverages remain pretty protected and see no threat to the industry whatsoever. I mean, look, given time, who knows what will evolve. But right now, the regional business is very, very strong. So -- Carlo, do you want to add something to that? Carlo Santarelli: Sure. It's Carlo. I think when you look across our tenants who've reported to date and some who haven't, but when you look across those who have reported to date, you had a good regional report from obviously MGM, a good regional report from Caesars. I think when you look at the state level data, it all appears very solid and very steady. I know there were some concerns around promotional activity in those markets, but certainly not showing up in EBITDAR and has not showed up in coverage for those who've reported thus far. Haendel St. Juste: And foot traffic? Carlo Santarelli: Yes. I think foot traffic remains fairly steady as well in regionals. I think there's a broader malaise around the space that's created by numerous other things. But I think in regional markets, there hasn't been a dramatic change in demand as far as we can see. Operator: The next question comes from Rich Hightower with Barclays. Richard Hightower: So my first question just has to do with some of the puts and takes in expected fourth quarter development funding. I think there were some questions last night as to kind of what changed versus what the expectation was 90 days ago or even more recently. So just help us understand what changed, including obviously the impact of Chicago within that mix. Desiree Burke: Right. So really, the biggest take, I would say, is that we've reduced our Chicago development funding by about $25 million and pushed that into 2026. So it's really just a timing adjustment. So my $338 million is now $280 million. Obviously, we funded about $35 million for the quarter. And so that has declined $25 million, that's it. But it's really just timing of coming out of '25 and going into '26. Peter Carlino: Look, I think it's safe to add that some delay in the actual first payment or advance had to do with just papering the transaction. I'm looking at Brandon sitting across the table, who spent a lot of time working on the details to make sure it was all right and perfect given the scale of what's happening and so forth. But now that they're underway, the advances have begun, I think you can expect a regular flow of capital investment going forward. Richard Hightower: Okay. Great. And then obviously, we all noticed the extension of the purchase option at Lincoln. So just tell us your latest thoughts, if you don't mind on that asset and maybe some of the pressures that asset might be facing over the next couple of years and how it factors into the timing and even the purchase price itself, if you don't mind. Peter Carlino: Well, I'll take part of it, and we'll spread around the second half. Look, I think the -- you know perfectly well, as I think it's well publicized that getting approval from their lenders to get release on that property has been challenging. And look, though, we had a call right, we're not about to put our tenant -- our partner, if you will, under pressure and demand something that just simply is not in their best interest. We're perfectly happy to wait, and it's fine to assist in that manner. So it was nothing more than just simply taking pressure off that story and moving it down the road in some comfortable time frame. Brandon Moore: Yes, Rich, I mean, I think on the second half, the Lincoln asset has had some stress because of road closures, bridge closures and the competing First Light project, which is being expanded somewhat we understand. I think that this is mutually beneficial to the 2 companies. For us, we'll push Lincoln out. We'll get a better look at that market and what's going on. We've got plenty of growth in place for '26 and '27 and pushing this out doesn't hurt us at all. We have our hands full for the next year, 18 months. And so as Peter said, for the reasons it was beneficial for Bally's, it certainly isn't detrimental to GLPI. And so I think this was a win-win accommodation to push it out to '28. Peter Carlino: Yes, it's kind of an ace in the hole that we've got it, and we'll get it when its time is right. We feel good about that. Operator: The next question comes from Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: I guess just first off, there's been a number of announced deals lately from you in the past 2 months, as you mentioned. And I'm curious if there's been anything that's really been driving that for you? Or is it kind of just more coincidence that many transactions you've been working on just all got done around the same 2-month time? Peter Carlino: Why don't you take that, Brandon? Brandon Moore: Okay. Yes, I'm happy to address that. I think that's easy. I think it's the latter. A lot of hard work came together at about the same time. And so all those deals, while very different, were things we have been working on for a very long time and just came together in the quarter. So as you know, from our business, it can be a little lumpy from time to time, and this was a quarter where we just had a lot of things come in at the same time. Jay Kornreich: Okay. And then if I could just follow up on the funding for the Chicago Bally's development. Are you able to comment on how much funding you expect in 2026 and what portion may spill into 2027? Desiree Burke: Yes. No, I mean, I'm not prepared to comment on that. I would tell you that it will spill into 2027, the funding, and we have said that. And when we come out with fourth quarter -- when we come out with 2026 guidance in February of next year, we will give you as much information on the timing of the funding for that project as possible. Peter Carlino: Yes. Every day that goes by, it gives us a better focus on kind of where the project is. We stay very close to that construction process, have people -- our people in place, keeping an eye on how things are going. It's going well, but it's a large project. And every -- as I say, further we get down the road, the better we'll understand kind of what the final day will be. I know they're focused on getting the casino open as early as possible. Operator: The next question comes from Barry Jonas with Truist. Barry Jonas: You've now announced 2 tribal deals. How would you characterize the pipeline for tribal deals from here? Curious how the education process has been resonating. Peter Carlino: Do you want to take that, Steve? Steven Ladany: Sure. Look, I think from a tribal perspective, the education process is ongoing. I will say we're getting many more inbounds, and we're still placing outbounds. But I think that the cadence of those discussions is somewhat starting to turn. Part of that is just the ongoing reality that other folks and advisers in that marketplace are starting to see transactions occur and access to capital being afforded to their clients, so they're starting to call us more frequently. I think we'll continue to pursue transactions in that space. I think one thing we are focused on is availing the marketplace to the reality that our structure and our capital can be utilized in more than just greenfield sense in the tribal landscape. So I think that's something we are focused on trying to find uses that are either mature assets and people are looking to diversify into other areas of business, other lines of business or looking to refinance maybe debt that they have in place as opposed to just simply funding a greenfield project. So not saying we won't continue to look at greenfield projects, but we will -- we are continuing to try to find other uses for the capital that can be demonstrated to that marketplace to continue to further the education process. Barry Jonas: Great. And then just as a follow-up, we just talked a little bit about the regional markets, but curious to get your wider views on the Strip today, given the recent softness we've been seeing. You commented on Bally's project there, but would you be open to meaningfully increasing your Vegas exposure if the right opportunity came along? Peter Carlino: Well, yes, I mean, simple answer is yes. You said it right, the right opportunity, whatever that might be. We're not looking for anything there. We have a wonderful project in hand that offers us an opportunity to participate at some level should we choose. But look, we're always in the market for the next thing. Carlo Santarelli: And Barry, this is Carlo. Look, I mean, you've covered the space for a long time. You've seen Las Vegas Strip go through many cycles, and this feels like just another one of those cycles. So when you're thinking long term like we are, I don't think a couple of choppy quarters in a row coming off of a very strong period like we saw coming out of COVID really changes the thinking much around investment into that market. Operator: The next question comes from John Kilichowski with Wells Fargo. William John Kilichowski: My first question is just on the New York City casinos. How is your appetite to participate in those casinos change given the developments that we've seen in the quarter? There's been some news flow recently. And I don't know if there's been any more progressive conversations being had? Or are we in the same place that we were a quarter ago? Brandon Moore: Well, I think we're in a little bit different place than we were a quarter ago given that there are now 3 left standing and 3 licenses to provide. No telling whether New York will actually issue the 3 licenses or whether they'll be issued to the folks that are still standing or some other change in process might occur that we saw back when resorts eventually came out in Queens. But I think that the appetite for New York is strong in the sense that these are really strong projects that promise a lot of EBITDA coming out of that market. And if we can participate in a prudent way in those projects, we'll certainly seek to do that. As most of you probably know, we do have a ROFR associated with the Bally's project. So we'll see how that plays out. I think it's a little early in the game for us to tell you if and at what level we might commit capital to that market. But it obviously remains a very attractive expansion market to not only GLPI, I'm sure everybody that's looking at investing in gaming. Peter Carlino: And I probably should underline that there's no shortage of money chasing that opportunity. And I can't speak for Bally's, but I can well surmise that they're getting calls from all over the place, people wanting a piece of that opportunity. So it's a big deal. Good for them. We could take us -- a part if the right opportunity appears, but we're certainly not going to be the sole source of what they're going to require there. William John Kilichowski: Okay. Very helpful. And then my second one is back on the tribal deal. Could you just talk more about the return hurdles that you're looking for, for a tribal deal where there's less protections maybe involved versus the construction that you're working on or the fee simple acquisitions that you've been targeting? Brandon Moore: Yes. I think from an underwriting standpoint, each of them are going to be a little bit unique because each one will present a different credit profile, just as in commercial gaming, we face that. And I think at the end of the day, the difference between the risk on the tribal and the commercial may not be as wide as some folks believe. I think when you dig into it, you can see that there are some challenges to tribal gaming, but they may not be as steep as you think, and there are some very well-capitalized tribes. So clearly, we're looking at a wider spread to the cost of capital than what we do with commercial gaming, whether it's 50 basis points or 100 basis points or 150 basis points. It's going to depend on the credit quality of the tribe and the opportunity. And I think we're also looking for increased coverage on those assets because of the nature of that investment, we want to make sure that the coverage is even stronger than what we have in our commercial deals. And as I think most of you know, we've always focused on coverage. We've done that since day 1 here. We've known that creating a healthy tenant landlord relationship for the term of the lease is very important. And so while we look at 2:1 coverage generally on commercial assets, if not better, you can assume with tribal we're looking to be much higher. So that's kind of where we are in the underwriting process on tribal as we sit here today. And I think each deal will be a little bit different. With Dry Creek, we went into a project that had some cash flow with an existing facility. It has some history to it. It has a very strong partner in Caesars branding at their top brand, Caesars Republic and a strong market in California. And you see what kind of rates we got for that transaction and what kind of coverage we wanted for that transaction. And I think it's demonstrative of how we'll view tribal gaming as we continue to roll this out. Operator: The next question comes from Greg McGinniss with Scotiabank. Greg McGinniss: So I guess just quickly speaking on coverage. Is the expected rent coverage at Live! Virginia in that 2:1 range? And how did you go about underwriting that project to determine the expectations? Desiree Burke: So as we always do, we go through a rigorous process to due diligence on what we think the market can do and what the demographics of the market are, the drive times around the property. And we do expect in the line of 2:1 rent coverage on that property as it opens. Peter Carlino: Yes. Let me add. We're talking about the Cordish organization. These guys are highly capable, highly successful. The kind of folks you'd want to sign up for every deal imaginable given the opportunity. So it doesn't get any -- there's no better opportunity to partner with any entity in the planet than the Cordish organization. So we're delighted to be part of that project. No worries whatsoever. Brandon Moore: Yes. I think in that market, we also did a lot of work on the legislative side, on the regulatory side to understand what the potential for expansion is going to be in that market. And we're pretty comfortable that, that Richmond market is pretty well protected at the moment. As Peter said, the Cordishes have a demonstrated ability to deliver projects on time and on budget. And so that's a project that's easy for us to get behind in that market with that kind of partner. And I would just add at 2:1, I think it's more of a downside base case scenario. If you ask the Cordish folks, I think they tell you that they think coverage is going to be much higher at that facility. But we don't underwrite on the hope certificate. We underwrite on the conservative side. And so at 2:1, we think we're going to be very well protected in that market. Greg McGinniss: Yes, I guess, given where their other leases are, that makes sense. Brandon Moore: That's right. Greg McGinniss: And then just a follow-up on, I guess, a point of clarification on the Lincoln deal. If Bally's were to receive approval from the term loan lenders, the few remaining that they need it from, do you expect they'd elect to do that deal earlier? Or do they prefer not to have to pay off the $500 million of debt that would require? Brandon Moore: I think that asks us to crawl into the minds of Bally's, which we obviously can't do, but I will acknowledge that you're correct in the way that the option works. If they solve the lender consent issue, Lincoln can come in well before 2028. There's been no change in the terms of how the option works only the date. So if Bally's can solve that and they think it's prudent to bring that capital in, they'll likely come to us and ask for that. I can tell you that we've done a lot of work in the market. We have our own views on how the market is going to perform and what's happening in that market. And if we're called upon to exercise Lincoln earlier than 2028, we'll be prepared to make that decision and have that discussion. Operator: The next question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. Going back to the Chicago project, I think you guys are providing a lot more transparency. I believe some of the upcoming activities were -- you talked about going vertical construction on the hotel, vertical construction on the casino and then sort of the cranes being delivered, Cranes #2 and 3. Just any sort of update on that piece of it and those progress? Steven Ladany: Yes. There are 3 cranes now working on the projects, steel's getting erected. The hotel, I think, is -- there's 4 or 5 levels of concrete that have been poured. So it's approaching the first floor guestroom height. So there's definitely a lot of ongoing construction taking place on the property. And if you pull up the camera to take a peek or if you happen to be in Chicago, you can swing by. There are plenty of people, and there's plenty of action taking place every day there. Ronald Kamdem: Great. Helpful. And then my second one was just on just the cost of financing, if you can remind us where you think you can issue 10-year? And how is that impacting or is that even impacting your sort of underwriting return hurdles for new deals in the pipeline? Just how is that shifting? Desiree Burke: Yes. Sure. So obviously, as you know, the 10-year treasury is moving quite a bit lately. So the last I looked, it was around 4.1%, which means we would be issuing somewhere around 5.6% to 5.6% range. I think it bumped up over the last few minutes, hours, it keeps changing on me, but that's about where we would fund. And it is pretty consistent. We've been somewhere around the treasury of right around 4%, and our spreads to that haven't changed significantly. So our funding and our spreads that we're expecting to our cost of capital are really only changing on the equity side more so, not necessarily the debt side. Steven Ladany: We're very hopeful that the market will realize that 160 or 165 basis point spread between the equity dividend yield and the 10-year issuance costs will be recognized by investors and... Peter Carlino: Well said, Steve. Operator: The next question comes from Chad Beynon with Macquarie. Chad Beynon: Congrats on the recent activity. On the gaming calls this quarter and last quarter, there's been a lot of focus on the overall benefit from the One Big Beautiful Bill on the construction side and the CapEx side, obviously, accelerated depreciation. So I wanted to ask if -- how important is this, I guess, in your conversations with current or potential counterparties, just kind of the urgency and the benefit of spending money, I guess, in the next year or 2? And could that lead to more funding or lease deals in the near term? Desiree Burke: So -- yes, it doesn't really come up in our conversations. Obviously, there is a tax benefit to our tenants to do that under the One Big Beautiful Bill. But it's a tax benefit. It's not a free cash flow issue for them. So it's not part of our discussions as to them wanting to do it quickly. Brandon Moore: Yes. I don't think it's what's driving capital investment decisions at the gaming operators primarily. It may be something that if it's on the margin or on the edge, they might tip it over. But I think they're making those decisions based on the return of capital, not on tax depreciation. But as Desiree said, I don't think we've seen any of that. Steve? Steven Ladany: Most of our transactions, as you're aware, we're funding the hard cost and we're owning hard cost. So the tenants are not in position where they own that physical property to be able to take the accelerated depreciation. So I think what you're hearing is the tenants in our discussions have been more focused on cost of capital and the rate at which they can access capital from us versus a lender and therefore, making the decision based on the cost of capital afforded to them, not necessarily on a tax deduction they can get. Chad Beynon: Great. Appreciate that. And then on the strategic deal that was done, maybe just a broader one in terms of assets, country that maybe generate less than $50 million or less than $40 million of EBITDA and finding homes for these operators. Do you think there's going to be additional M&A or kind of changing of properties that could help some of these smaller regional gaming operators that you either work with or could work with in the near term? Steven Ladany: So -- this is Steve. Two things. One, if -- and you might not have been going there. But if you were, I did see one note overnight talking about the $40 million EBITDA ROFR with Strategic. That was an aggregate number, so they've exceeded that through this deal. So if that was part of where you were going, I just want to clarify it for you. Separately, with respect to smaller assets and smaller operators, I do think we will see an acceleration of opportunities for them. The opportunity will be in sellers' willingness to get rid of what used to be called 4, 5 years ago by everybody noncore divestitures. I think that will become in vogue again. So the larger regional folks will look to sell off some of the smaller ones. I think one of the things that will be complicated for the smaller possible buyer will be access to capital. So I do think, given the right partner and the right relationship, if we have a number of smaller operators that we're comfortable working with, I do think there will be opportunities for those businesses to grow. But as you see, looking across the space right now, capital is constrained from some parties, and I don't think they'll be able to take advantage of the noncore divestitures in those cases. Operator: The next question comes from Daniel Guglielmo with Capital One. Daniel Guglielmo: At REITworld last fall, there was a lot of discussion around the new administration and potential for gaming M&A. It didn't materialize in the first half, but it has picked up some in the second half. From your seat, what conditions do you think have led to that pick up? And do you expect them to carry through to next year? Steven Ladany: I think most of the transactions you're seeing have been worked on for a number of months. They are not things that just happened in the second half of this year. So I don't think there's a perfect read-through for you on that front. The other thing I would tell you is most of the transactions that have been announced either by us or others in the space are more bespoke and they're one-off transactions. I think what you will see maybe now going forward is maybe more broadly marketed competitive bidding type process transactions, which historically aren't the ones that we typically are passionately winning. But I do think you'll start to see maybe some more broadly marketed type transactions that will feed off of the REITworld assumptions, I guess. Daniel Guglielmo: Great. I appreciate that. And then the second one, you mentioned that lease coverages have held up well. But for leases where coverage ratios are coming down, when you dig into those properties and talk with the operator, can you just give us a sense of if it's revenues lagging, labor coming in hot, both? Anything you have there would be helpful. Desiree Burke: And so our rent coverage is really -- when we say tick down, I think they were like 1 to 2 basis points. It wasn't like -- we haven't seen any large changes. What we did see earlier this year was a decrease on the Pinnacle lease that we have with PENN. And that was more due to competition than really what was happening in any regional market. Peter Carlino: Yes. Look, our coverages are strong. It's a long way to the bottom. So there's nothing that we're -- that gives us any pause at all quite candidly. Operator: The next question comes from John DeCree with CBRE. John DeCree: I think we talked quite a bit about some deal terms, coverage, et cetera, underwriting, but maybe some of the less exciting ones like initial lease term and master lease or single assets. So the Cordish transaction in Virginia, can you talk a little bit about the negotiation or thoughts on keeping that as a single asset lease versus combining it with the other leases? And then the initial term, 39 years is what you've done with Cordish in the past, but it's quite a bit higher than some of the other leases we've seen in gaming. So curious to hear your thoughts there if that's a significant negotiating point or not. Brandon Moore: Yes. Thanks, John. I mean I think to your latter point, the longer lease term is mutually beneficial. I think it shows that Cordish is investing in these deals for the long term, and it's a generational investment rather than quick in and out. And so they're looking for long-term certainty in the lease, and we are as well. So I think that mutually beneficial lease term to have is the longer leases. Your initial question on negotiation with the Cordishes -- I'm sorry, John, what was the question there? John DeCree: The decision or negotiation point to keep it as a single asset lease versus combining it with Maryland and Pennsylvania. Brandon Moore: Yes. That's more just structural. The Cordishes have a different partnership in Virginia with the Bruce Smith Enterprise. And so there's not an overlap -- a perfect overlap of the partners in those deals, and therefore, Cordish can't combine those deals and have one risk to the other because there's not the same ownership structure. So that's just not a possibility for those trends. Peter Carlino: And that applied even in Maryland versus Pennsylvania and previously as well. Steven Ladany: [ It's a different ] partnership group. Brandon Moore: That's correct. So Pennsylvania master lease, the Maryland lease and the Virginia lease will all be separate single-tenant leases. Pennsylvania, obviously, has Westmoreland and Philadelphia and those cross-collateralize each other. But the ownership groups in Maryland and Virginia are different. So... Operator: The next question comes from Chris Darling with Green Street. Chris Darling: I'd love to get your thoughts on regional casino values and how they might have evolved over the course of the last year. As I think back through the past several commercial sale-leaseback deals you've done, they've all kind of been in roughly that 8.25% cap rate range. And I wonder if that really reflects just competitive market dynamics or it's more a reflection of GLPI being one of maybe the only bidder in some of these cases? Steven Ladany: I think it's going to be deal specific. But I think in -- in many cases, I think that the pricing pressure that you would get, whether you were the only bidder or a competitive bid is only probably slightly different from our perspective. We're going to be a disciplined buyer either way. The market is not unintelligent. Everyone is banked by someone who knows where all the comps have been and where everything else is traded. So whether someone brings us a deal and says, "Hey, you're our favorite guy, we'd love you to buy this, before we go shop it." They're still not going to then give us a 200 basis point spread because we're nice. So the market is going to dictate where pricing goes. We all recognize where that should be, and we're always going to look to get a spread to our cost of capital. So that's just kind of how things will evolve. Peter Carlino: Look, I think you've heard us say before, we don't like auctions. I like to think the winner loses often. And so it's never our goal to be the high bidder on anything. So there's a range of things that we would consider and that we would offer that make us desirable, but not -- but the absolute lowest or highest price, if you will, is never our goal. Chris Darling: All right. Fair enough. And then maybe just a quick point of clarification on something mentioned earlier. You discussed a view around your share price, your equity cost of capital today. Does that impact your willingness to pursue incremental new deals from this point going forward? Or does it really just influence how you would finance any future deals? Desiree Burke: I think it really just influences how we would finance future deals or what the spread we would be looking for to our cost of capital. Operator: The next question comes from David Katz with Jefferies. David Katz: Covered a lot already, but I wanted to go back to New York, if I may. The concession there is -- or the license is 15 years, I believe, instead of 30, right? And I'd love just your perspective on what that does to the parameters of your participation. And I think, Peter, you mentioned earlier there's any number of sources of capital that might be available to them, right? They have a partner in that bid, who I assume is a funding partner, too. How does that sort of change your opportunity set also, please? Peter Carlino: Go ahead. Brandon Moore: I'll comment on the first part, David, on the licensing. I haven't dug into that in tremendous detail, but I will point out that licenses in many jurisdictions renew every 3 years, every 5 years, every 10 years. So the fact that you have a 15-year initial license period, I guess I'm not reading too much into that. In other words, if you put $4 billion, $8 billion into the ground, the thought that you'd lose a license in 15 years and they'd relocate that or do something with that license seems outlandish even in a smaller market where you might invest $400 million. And it's inconsistent with how any other state regulator has approached a renewal of a gaming license. So we're going to take a closer look at that given that that's been highlighted as a rationale for why MGM might not want to do Yonkers or didn't want to do Yonkers. But on its faith, I think that we're less concerned with that than we are of getting the spend right, getting the facility right, understanding what the market is and the EBITDA that's coming out of it, what the competition is going to be. I think all those things may be more important than that 15-year term. That being said, we are going to dig into that and take a closer look to make sure it's not something more than what we think it is. Operator: The next question comes from Smedes Rose with Citi. Bennett Rose: Covered a lot of territory, but I just had a couple of just quick ones here. I noticed that the Bally's added a corporate guarantee for the Chicago casino. And I was just wondering, was there something in particular that triggered that? Or is that something you were pushing for? Or kind of what was -- I mean, I think it's positive for you, right? But just kind of curious what caused that. Brandon Moore: Contractually triggered, Smedes. That was a negotiated term that when Chicago came into the restricted group, which is what they did following the Intralot, Gamesys merger, we were to get a corporate guarantee on that. So that was already prenegotiated. Bennett Rose: And then I just wanted to go back, you talked about funding at the beginning of the call on how you could use all debt. But presumably, you want to have an equity mix in there. I guess, I'm just thinking how do you -- can you just remind us how you guys think about issuing equity. Some companies are kind of -- they have an internal estimate of NAV and they don't want to issue below that. Others are -- it might be below NAV, but it's still accretive. And just how do you think about equity issuance? Desiree Burke: Yes. So we do look at it very opportunistically, right? So we do look at the cap rate of where we're trading and what that spread would yield to whatever we are attempting to finance. I wouldn't say that we put a floor on it per se, but certainly, I can tell you at these levels, we have 0 interest in funding with equity. Peter Carlino: Smedes, I'll add to that. You saw, obviously, we executed on the forward closer to $48. Since that, subsequent to that, we've announced a couple of transactions that are AFFO accretive. So you could kind of think about that floor as potentially moving higher in the absence of an immediate need for equity, which we don't have, as Desiree outlined earlier. Operator: The next question comes from David Hargreaves with Barclays. David Hargreaves: I apologize if this is really a simple question, but you guys have given us a range of rent coverage. And I'm just wondering if that's calculated based on reported EBITDAR or some adjusted EBITDAR? Are you just using cash rent? Are you making adjustments to these numbers? How do you -- what's the [ comp? ] Desiree Burke: Right. So those -- they're -- contractually, they must be reported to us by our tenants, and they are based off of their actual EBITDAR as defined in each of the lease and the actual total rent that's being paid. There's a small adjustment in the Pinnacle lease because there's an asset that is not included in their coverage ratio, but it's very minor adjustment on that lease, but all the other leases are all of the properties, all of their EBITDAR and divided by the total rent that's being paid. David Hargreaves: But is this just the property-level EBITDAR? Or are you looking at it on a consolidated basis. Desiree Burke: Yes. It's the properties that are in that lease. So if it's a master lease, it's all of the properties that are in that lease. It is not at a corporate level. David Hargreaves: So for example, with Bally's, it wouldn't have been factoring in any contribution from Gamesys or anything like that? Desiree Burke: That's correct. Operator: The next question from Robin Farley with UBS. Robin Farley: I just wanted to circle back to the New York project. I know you mentioned you're sort of evaluating how to weigh a 15-year term. And I know other operators that pulled out of bidding cited the risk of New York legalizing iGaming. I guess just given some of those factors, would you -- how would you think about the rent coverage ratio that you would need in New York compared to maybe a typical 2x? Peter Carlino: We're looking around the table to see who wants to take that one. Steven Ladany: I can tell you, I don't envision us doing anything upfront in New York that would be based on anything close to 2x. I think our -- we all know that there are a lot of things that are at play here, there's construction schedules, there's construction budgets, the number of years it could take to build in New York. So I think if we were asked by anyone to do something in a very accretive way upfront, it would be massively more coverage than 2x. We would never consider doing something at that level. I think beyond that, once you get out, I think when we're all sitting here on the call 4 years from now, I think we'll have a much better vantage point into whether iGaming has transpired, has not transpired, what the profitability is of those businesses. and I would still venture to say, based on what we've seen in Las Vegas as far as the need to refresh these massive mega resort -- casino resort properties, I think we would look at New York to be a pretty similar experience with these massive mega casino resort properties. So I think we would continue to have a level of cushion that we would build into our rent coverage underwriting. Brandon Moore: Yes. I also think a lot of the projects that you've seen fall by the wayside in New York failed the Community Action Committee hurdle. So I think that ended up being a much bigger hurdle than maybe even New York could realize it would be. And therefore, a lot of those folks, I think, would still be interested despite iGaming and unknown tax rates and things like that, had they passed that hurdle. And that was the last and final for many of these applicants. Operator: Thank you. At this time, I would like to turn the call back to Mr. Peter Carlino for closing comments. Peter Carlino: Well, thank you all who have dialed in this morning. I think and hope you get the idea that we're quite happy with the way things have been going here at GLPI. And we were anxious to tell our story, and we'll see how it plays out. But stay tuned. I think there's good things ahead. With that, operator, and all, thank you very much. Have a great day. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Unknown Executive: Good morning, everyone. Welcome to CLCT's 3Q Update Briefing. I'm [indiscernible], IR for CLCT. And with me today, we have our CEO, Gerry; CFO, Joanne; CFO, [indiscernible]; Head of IPM, You Hong; and Nicole from the IR team. For this briefing, we will start with a brief presentation followed by a Q&A session.[Operator Instructions]. With that, Gerry, please go ahead. Kin Leong Chan: Good morning. Welcome, everybody, to CapitaLand's China Trust Business Update for Q3 2025. I'm quite sure everyone earlier been watching this U.S.-China President Trump and China's Xi coming together in South Korea. So that's actually a good way to get us started on this business update for CLCT. First, let me go to a snapshot of where we stand today in terms of our asset. Allocation by percentage of GRI, our retail allocation is now at 69.9%, about 70%. That dropped from first half where it was 70.8%, about 1% drop was because we divested this CapitaMall Yuhuating through the C-REIT securitization exercise. And as a result, of course, the other components that we went up 26.5% of GRI is in business parks, 3.6% in logistics parks. In terms of our distribution yield is now 6.2%. Our stock price have came up a bit, that caused a compression in yields. That is also reflecting some of the overall S-REIT yield compression across the board. In terms of third Q key highlights, very happy to again share that CLCT together with our sponsor, we have listed the C-REIT CLCR on Shanghai Stock Exchange on the 29th September 2025. That is China's first international sponsored retail C-REIT. It opened well. It was open trading at 19.6% above its IPO price of CNY 5.718 per unit. That is CLCR. For CLCT, of course, we seeded this C-REIT with our CapitaMall Yuhuating. And we also became a strategic investor through our 5% holding of units in CLCR. Overall, I would say that I think I mentioned before the demand for C-REIT has been, I would say, very, very encouraging. The IPO oversubscription is 254x for institutional, retail 535x. We can see that allocation-wise, we have 20% with the originating or the strategic sponsor group, of which CLCT is one of them. We hold 5%. In terms of the current -- at IPO, the DPU yield for CLCR is 4.4%. Currently, it's already traded. Currently, the IPO -- currently, the trading yield for CLCR is between 3.8% to 3.9%. During the Q, we also refinanced and issued SGD 150 million of perpetuals, right? That was also very well subscribed, at 3.4x subscription coverage. And interestingly, we also had quite a big fund manager and insurance companies allocation, about 1.5 more than of it was to institutional investors. So we successfully completed our perpetuals refinancing through this exercise. In third quarter, we also attained and maintained our 5-star rating for GRESB, while this is the third year where we have obtained our 5-star rating. So very well done to our sustainability team there. In terms of results for third Q, you can see in terms of overall portfolio, our gross revenue came down by 8%. Our NPI also came down by 8%. In terms of -- if you consider on a same-store basis, excluding our Yuhuating, that number would be basically the gross revenue drop of 3.4% and NPI, a same-store basis, drop of 4.4%. Now if you compare that to first half for our overall revenue, the drop would have -- excluding Yuhuating, the drop would have been minus 4.7% in first half. So we are talking for the -- sorry, let me take that back. Let me rephrase that. For our retail revenue -- for our retail revenue, it dropped for this third quarter, minus 1.8% without Yuhuating for retail revenue. If you compare to first half, on the same basis, it would have dropped 4.7% without Yuhuating. So you can see that actually our retail revenue, the drop have narrowed. For Business Parks, the revenue this quarter dropped by 9.1%, right, again, due to Shanghai to Singapore-Hangzhou Phase 2. The -- if you compare to first half, the drop was about minus 10%. Again, a slight narrowing of drop. In terms of logistics revenue, this quarter, we went up by about 13% compared to first half where it was increased by 2%. That was mainly due to the improved occupancy at Shanghai Fengxian. Let me add more color in terms of -- just now I talk about the retail revenue in terms and the overall revenue drop from [DPU] as well. If you look at our overall revenue this quarter, it dropped by about CNY 36 million, of which CNY 21 million came from the loss revenue from the divested Yuhuating. So that's about 58%. About CNY 10 million was from business parks due to the conditions that I have mentioned. So that's about 28% of that drop. And the rest came from what we have put here in terms of lower rents and occupancy at CapitaMall Xinnan and mini anchor tenant repositioning at Rock Square. For the Rock Square mini anchor repositioning, right, we have basically had a tenant open on 1st October. So we would -- that would go away in 4Q. It was -- that space will start contributing and that tenant is at the CapitaLand at Rock Square and the new tenant at the CapitaLand has saw good traffic and started contributing to Rock Square's numbers from October onwards. In terms of NPI, I mentioned minus 8.5% overall year-on-year. Again, very much due to the divested Yuhuating NPI loss, right? So on the same-store basis, we see minus 4.4%. And of course, there are some other factors due to the overall drop in gross revenue from other asset class, other assets like the Business Parks and some of the assets like CapitaMall Xinnan. On the other hand, it's partially offset by our cost reduction efforts of about 1.3% year-on-year on a same-store basis. The next slide, we take a look at some of the retail metrics. If you look at shopper traffic and tenant sales, third Q compared to first half or 9 months for the year, you would see that third Q actually, both on shopper traffic and tenant sales have done quite well comparatively speaking. Third Q year-on-year increase in shopper traffic is 4.5%. Tenant sales third Q increase is 3.2%, right? One of the factors is, I would say, is that some of the key sectors continue to do well. We also had the effect of better Golden Week holidays in 2025 than 2024. So for the key sectors, if you look at F&B, we are plus 5.1% year-on-year for a 9-month basis. Infotech, plus 12.8%. Toys and hobbies, again, very strong momentum, plus 56% and jewelry and watches, 16.6%. So these key sectors continue to do well, whereas maybe some of -- I mentioned before, some of the bigger ones -- bigger categories like fashion and beauty and health continue to have single digit drop in sales year-on-year. In terms of AEI, we have completed -- we have seen the contribution from CapitaMall Xuefu and some contribution from -- one thing, which I'll talk about later. But here in this slide, we just wanted to highlight one of the key growth driver for third Q, which is CapitaMall Xuefu AEI. That added 20.8% to our shopper traffic for that mall and a 24% increase for -- in terms of tenant sales in that quarter. Occupancy costs continue to maintain at about 17.7%. That's quite stable below pre-COVID levels. In terms of China's Golden Week, we saw, as I mentioned earlier, a better Golden Week than last year. So we had 4.6% year-on-year increase in traffic and about 4% increase in total sales versus the last comparative period for Golden Week last year. So if you look at retail occupancy, we have a slight bump in this quarter, right? Some of our strong malls, Xizhimen, Rock Square, Xuefu, Nuohemule basically are fully leased, and that has helped to bring up the retail portfolio occupancy. There is continually positioning for CapitaMall Xinnan, which you can see the occupancy dropped slightly. We are trying to work hard to pivot that mall to a new concept where we focus more on the IP and the anime and young to cater to the younger generation. So what we call [indiscernible], and we are seeing some progress there. But in the interim, there will be some bumps in occupancy. In terms of retail reversion, we see that we now have a retail reversion for 9 months of minus 1.5%. And these have narrowed from first half where we reported about minus 3%. And some of the reversions -- stronger reversions we see from, again, the strong categories that I spoke about, F&B, IT, toys and gifts, right? Again, the weaker reversions from fashion and beauty and health. So that's basically for retail. For Business Parks, our overall occupancy dropped by 86.9% to 85.2%. I'll explain shortly why that's happened. The Xinsu portfolio and our -- Xinsu portfolio has been relatively stable. There was a small drop due to one of the -- one tenant basically giving up the space, but we are looking to fill them. The AIT asset within Xi'an, that asset has started to basically fill the Ping An's -- fill the space that was vacated by one of our big tenants that left 1 year ago. And currently now, we have brought it from 74.6% to 75.4%. We are making quite good progress. And by the end of December, we are looking for occupancy of mid-80s, right? So we have some tenants already lined up. So we were coming progressively, and we hope that by end of December, we will be able to push it up to the mid-80s. I continue to be at the mid-80s level, 80s levels, there was some drop, but we'll try to fill in those tenants as well. For Hangzhou, Phase 1 had a small increase. And Phase 2, where we had previously shared that we have basically taken over some service office tenant space that was at about 25,000 square meters. In third quarter, we had another service office space, which, when we review our tenant portfolio for Phase 2, we found that we wanted to proactively take over that service office tenant -- to basically start to convert them into spaces that we can control directly. There was, of course, learning from the earlier exercise where we took over the space on the service office operator. We thought that it may be better that we take it over earlier, right, so that the transition if the service office operator dropped off would be easier. So that was what we did in third Q. You could see that, that caused a temporary reduction in the occupancy from 79.7% to 70.7% because the service office was about 29,000 square meters, and when we take it back, we directly signed leases with the subtenants of which about 60% of that space was leased. So that caused basically a change from a master lease of 100% to about 60% of the space being in our books being leased. We are working hard on this, and we hope to repeat the success that we have with the other service office operator that we took in. In all, we took back -- from the last round we took plus this round, we took back about, I would say, about more than 50,000 square meters of space. We now have already leased up about 67% of that space, right? So for -- in the 4Q, I think we should be able to push that Phase 2 occupancy closer to what we saw in June 2025 of the high 70s mark. For the Business Park reversion, for first half, it was minus 8%. So for 9 months, including the Q, it's minus 8.9%. So for Business Park, we continue to deploy rental incentive as a key tactic to maintain our occupancy as well as preserve our asset value in quite a challenging market in some of the business park assets. Overall, you can see that our Business Parks continue to -- in terms of occupancy, continue to outperform the submarket, Xinsu in Suzhou, of course, outperformed quite significantly about 30 bps -- 30%, but for the Xi'an portfolio, AIT and AIH, currently, it's slightly below submarket, but with the committed tenants that have signed on in October, our AIT and AIH as a cluster would have 83.9% occupancy that would have outperformed the submarket. As I was mentioning, in 4Q, we should see even more, and that should push up the whole Xi'an cluster above 83.9% in terms of occupancy. Hangzhou at 73%, it's also outperforming the Hangzhou submarket. And we should, as I mentioned, in 4Q, continue to see improvements in our Hangzhou overall business park occupancy. In terms of logistics, we're quite stable, same occupancy as June '25, 96.6%. The revisions that -- negative reversions that you see there basically is due to one of our renewal of a strategic anchor tenant at Wuhan, which was already previously reported. I will let Joanne take the capital management part before I close off. Okay. Siew Bee Tan: On our financial position for this quarter, as you can see, the total debt has actually reduced from SGD 1.8 billion to SGD 1.6 billion. This is also actually because of the temporary use of the proceeds from the perpetual that we issued in September. That also actually brings down our gearing to 28.8%, as you can see. But we have actually redeemed the perpetual out there I think, 2 days ago. If we actually include that additional perks that we have used our loans to redeem, that gearing would have been 41.3%. On the average cost of debt in this quarter, it has actually improved from 3.42% to 3.36%. I think this is actually the fruits -- the labor of the fruits that we have actually earlier on issued CNH bonds and also all the initiatives that we have actually rolled out that at a point in time, CNH interest was actually lower and we actually benefited and that can be seen from the cost of debt this quarter. Our ICR is at 2.9x and average debt to maturity is 3.4 years. In terms of the ICR sensitivity, as you can see on the right table, on 100 basis point interest rate movement, our ICR is still at 2.3 level, which is a healthy level. Same goes for the sensitivity on the EBITDA. 10% decrease on the EBITDA, my ICR is still at 2.6x. That is way above the requirement by MAS of the 1.8x where we need to actually explain and put up some explanation to that. We also have a sensitivity in terms of the gearing on a 1% movement of the Sing dollar to renminbi, our gearing will move about 0.27%. I think this is something that we actually put out on the debt maturity profile. As you can see for 2025, we are actually pretty done. There's nothing that is due for refinancing for 2025. In fact, I think the team has actually proactively look out to actually extend our loans, and we actually work on the 2026 tower. SGD 120 million, which was actually dollar debt has actually been -- will be refied to a renminbi debt. I think we are working towards what we have actually communicated to the investors that by end of this year, we are actually targeting our renminbi debt as a total percentage of our total debt to be at least 50%. As of 30th September, we are actually reporting 45%. I think by end of the year, we will definitely be more than 50% is what we have actually started to achieve. As a percentage of total fixed to floating, we are at 80% fixed this quarter. This level is at this level because, again, for the temporal perpetual and we use the proceeds to actually pay down floating debt. I think this percentage, we will -- you will see that this fixed percentage will come up a little bit to actually benefit from the lower [indiscernible] that we are seeing right now in the current interest rate environment. And I think, in terms of the debt maturity -- debt funding mix, we are pretty well mixed. We've introduced our renminbi bond. We also have done FTZ bond and also increased our onshore renminbi loan percentage. I think that's a little bit color of the debt maturity profile and capital management. I'll hand back to Gerry to actually... Kin Leong Chan: Okay. So thanks, Joanne. Yes. So looking forward to the fourth Q to the end of the year, some of the things that our stakeholders can look forward to. In terms of our AEIs, right, for CapitaMall Yuhuating where we transform a large supermarket area into a higher-yielding retail space overall, we have successfully leased 100% of the AEI area, right, achieving an ROI of 12.6%, very well done AEI and achieving a very good return of our investment and CapEx in this area. Currently now on 1st October, in fact, we are ahead of schedule. We were actually initially thinking that we will be only able to open the space in November, but now we have managed to basically open it in 1st October. About 14 of 27 tenants have opened, including 7 Fresh, which also when they opened, did very well, right? The remaining shops will open progressively throughout October and November, right? Our AEI area was opened right before the Golden Week period. So that has really helped to increase the shopper traffic and tenant sales at CapitaMall Yuhuating. In terms of the Golden Week performance, you can see there our shopper traffic went up by 13%. Tenant sales went up by 21%. The supermarket itself really outperformed in terms of per square foot sales versus the previous supermarket at 177x. So very efficient use of space, very good sales, right? So I would say that we are looking very good in terms of this AEI. In terms of CapitaMall Xuefu, I think last first half, we shared already about it. For our Animation, Comics and Game Street, now besides the supermarket that has opened, now the Game Street, ACG Street has now opened. This 2,105 square meter NLA where we transform it previously, again, it was part of the original supermarket. We took it back and then now transforming the Game Street. It's 100% occupied next to our B.U.T supermarket, which opened in June. This street now has 13 brands, 9 of which are introduced to the whole CapitaMalls for the first time. So these are some of the popular ACG brands where we are trying to basically build an area, which leverage and which would basically be able to attract more IP merchandising such tenants into the space, and which would attract also a different demographic, a younger consumer demographic, Gen Z demographic who are really into IP merchandising and the offerings that we are putting into this street. So if you look at the first month since the street has opened, the shopper traffic has increased by 18% year-on-year. Total rental increase that we achieved here for this share of AEI is 13.1%. In terms of how we are creating value through our strategy, we have already achieved entering the C-REIT market this year by becoming -- by listing CLCR and becoming a key stakeholder. That gives our unitholders access to the China domestic capital market. In fact, we are proud to say that we have only S-REIT or perhaps only REIT in Asia Pac that would be able to allow our unitholders access to the C-REIT market. In terms of unlocking value, we have recycled CapitaMall Yuhuating. We divested Yuhuating through C-REIT securitization at a premium. Basically, it was 8.8% premium to our announced floor price. And it was also a 4% premium above Yuhuating's 2024 valuation, right? So this, I would say, is a very good outcome. In terms of exit NPI -- exit NPI, it was a very competitive, very attractive 6.2% NPIU that we have exited at for basically Tier 2 city asset, right? This really shows how we can effectively take an asset like Yuhuating, even though it's a Tier 2 city asset, add value to it over time. We bought it maybe about 5 years ago and then be able to recycle that asset into a C-REIT exiting at a premium, right, at a good yield and then bringing back money and then being able to then find new ways to redeploy that capital. And this S-REIT connection, I think in the months ahead and the next year, we will try to continue to exploit our unique advantage and continue to see whether we have more opportunities to do such activities. In terms of extracting value, we continue to look at our AEI as an important way to drive some organic growth. So we have already announced Wangjing and Xuefu's successful completion. The next one up is Xizhimen, which we are looking forward to completion in 4Q. Currently, the AEI work is going well. The tenant is doing AEI work, which is basically 89% completed. We are now looking forward to them getting approvals to open. Hopefully, we -- by the time we get to 4Q, we'll be able to give you some good news and also some snapshot of how it's looking. In terms of capital management, we have been very proactive at that. We told our stakeholders and unitholders that we want to aim for 50% of debt being renminbi-denominated debt so that we basically have a better currency mix and asset liability matching in terms of our renminbi exposure. And we have -- basically have achieved that. We have achieved that. And by the end of December, I think you would have seen that we have made very big efforts and have successfully outperformed this 50% mark. With that, maybe I'll pass back over to [indiscernible] to take in questions. Yu Qing Chen: Okay. Thank you, Gerry, for the presentation. Now let's proceed to the Q&A segment. We have the first question from Derek. I'll pass the time to you. Please go ahead. Derek Tan: Can you hear me? Yu Qing Chen: Yes. Derek Tan: I just wanted to ask a few questions. So firstly, if I -- I'll start with retail, right? I mean your numbers, sales and traffic looks pretty okay, but your reversions are still negative. I was just wondering whether -- when should we see that turn coming in? And could you have a guidance for that? Maybe that's the first one. Kin Leong Chan: Yes. I think I previously shared in terms of reversion, quarter-to-quarter, we are seeing plus 3%, minus 3% sort of range. This quarter was a better quarter where we had some reversions from the good reversions from some of the stronger trade cats. So we sort of basically improve on the first half. But first half, I think we -- I mentioned before, we had a mini-anchor repositioning the CapitaLand at Rock Square that basically brought down reversion a bit. And also, we were transiting from some of the higher rental EV tenants in some of our malls, some of them have basically consolidated, right? So we have to replace them with different trade cat? So that affected the reversion in the first half. So going forward, now that we have basically worked that out, our reversions will probably look at in that tight range of, I think, flat to maybe slightly negative but what we are seeing currently. Derek Tan: Sorry, you're still looking at flat to negative. That's the guidance still at this point? Kin Leong Chan: Yes. I think at this moment, the balance is such that there are some trade cats that are doing well. So that's contributing positive reversions. But there are also other trade cats that are doing not as well, which I've mentioned before, fashion and beauty and health. And overall, the -- while sales are -- as you can see, sales and traffic are doing well, but we are still in an environment where in terms of expanding space are being cautious, right? So it's also quite difficult for some of the trade cats to ask them for rental increase. Hong You: Yes. Maybe just to add another perspective. I think our stronger malls are actually doing okay, do register generally flat to slight positive that we wanted. But there are also malls that have been going through repositioning, for example, [indiscernible] and I think we still continue to see a bit of adjustment there. So that's why you see as a whole, we remain cautious. The other perspective is that I think you probably are also aware that the -- for example, when people got to spend the per capita spending tend to bit more on the downside. So I think the tenants are also aware of that because they actually do give a lot of sales promotions and all that. So while sales is actually on a healthy trend, I think their profit margins are also still having a bit of pressure. So I think in negotiating with the landlord on the rental, we continue to be cautious in terms of how they actually expand. I mean we hope things will be better next year. But I think at this moment, we still would want to be guiding a bit cautious. Derek Tan: Sure. No problem. Maybe I just want to -- it's an observation. I'm not sure whether it's the right kind of comparison. But if you compare to your peers, right, for example, people like Mix is doing pretty okay. I'm just wondering whether it's a function of the tenants or the trade cat or just maybe the positioning in the retail sector. Just wondering your thoughts on that. Hong You: Maybe -- I mean, we can't speak as a whole, but when we actually visited some of the mixed-use properties and based on the conversation that we had, they had, I would say, some of the malls were opened in the more recent times, and their strategy would have been starting from a low base, get the mall filled up. And then as the business continues, then ramp up. I think there are certainly some effect from there. In fact, when we compare some of the malls that we are in our portfolio and similar locations, our rents are actually not lower. So from that point of view, there's a bit of a catch-up in the rent I feel from those newly opened malls. Derek Tan: Got it. So I mean last one for retail. Your op cost, do you have an exact sense for me? Kin Leong Chan: Yes. I think we have an op cost is still about high 17s to about 18%. Derek Tan: Okay. Got it. Got it. Sorry, last one for me from your business park and logistics, right? I noticed that we saw dip in reversions, but also occupancy is a bit soft selected assets. So I mean, I know, Gerry, you mentioned you took back some space and you managed to work on it yourself, right? So you look at, say, going forward, right, reversions, negative, which is the one that will move into a positive territory first. So occupancy first or reversions? Kin Leong Chan: Occupancy. Derek Tan: So you'll be focused on occupancy going to a certain level before you start to be a bit more stricter on rents? Kin Leong Chan: Yes. I think clearly, for the business park sector, I think everyone is almost in the same direction, us as well as other competitors. Everyone is focusing on occupancy. Just now I mentioned for our Xi'an cluster, AIT and AIH, right, we -- with some of the committed occupancy that we have already in October, as a group, we -- as Xi'an Group, it's now about 84%, right? We have brought it up in terms of committed occupancy, but we'll continue to bring it up, hopefully, to the high 80s by end of December. For Hong Kong, it's the same thing, right? Currently, maybe as a group is about low 70s. But by end of December, as we work through that those service office converted return space that we are working on directly, we should be able to bring it up -- hopefully, we'll be able to bring up to the high 70s. Yu Qing Chen: We have the next question from [indiscernible]. Unknown Analyst: A couple of questions from me, a bit more in terms of the divestment proceeds from CapitalMall Yuhuating. So I'm just wondering what are your thoughts on conducting a unit buyback at this juncture versus carrying down debt? Kin Leong Chan: Okay. So currently, whatever proceeds that we bring back, the likelihood that immediately, we'll probably use it to temporarily pay down debt first because that's the fastest way to use the proceeds. This, Tan can share a little bit more about timing and all that later. But in terms of the medium-term plan in terms of how to make use of -- obviously, after you pay down debt, we have a slightly better gearing headroom. I'm still looking at it together with the team. One of the options, of course, like you mentioned, is a unit buyback plan. Today, as you can see in earlier in our slide, the -- our trading is about 6-plus percent, right? Maybe give it -- it was in first Q or first Q to second Q, it was 8%, right? So if you ask me when it was first Q and second Q, 8%, there was a very strong, of course, rationale to do the unit buyback. Now it's about 6%. It's still, I would say, maybe an opportunity, but I think now we have to weigh against maybe other opportunities that may come up. And I've mentioned before the fact that I want to look at ways to continue to exploit this the C-REIT -- the Ex-rate and C-REIT connection that we have now. I believe that we are in a position where we can now actually go and look in the market, specifically at retail assets right? As you can tell, as we -- because we have sold the Yuhuating asset, we lost some income. If we can find a solid asset that basically has long-term value and at yields that are higher than our trading yield and also higher than the asset that we have divested, right, that becomes maybe another option for us to basically use our gearing, right? We could deploy into those to such a retail asset. And then, of course, continuing in the long term to have a pipeline of good retail assets, which when their value have peaked, we can then rotate them and securitize them. So that's what we are thinking through now, right, what we are looking at the market right now to see whether there are such opportunities, right? I give myself -- we give ourselves about maybe 6 to 9 months to go through the exercise, right? And we'll come back to unitholders when we have made that decision. But certainly, unit buyback is still on the table if we cannot find better use of the money. Unknown Analyst: Got it. That's very clear. I guess it's a tangential note, given that we have potentially some lower gearing and still that $107 million worth of offshore CNY debt that is coming due next year, where do you see your cost of debt trending in FY '26? Kin Leong Chan: Joanne, can you take that? Siew Bee Tan: Yes. Okay. For us, I think like I mentioned earlier on, we already actually have seen our cost of debt improving for this year vis-a-vis last year. I think it's also because of the effort that we actually have achieved more renminbi loans on our book. So going forward, I think if this continues, as we mentioned, where we are actually also embarking at least 50% of books on renminbi debt. We see that the average cost of debt will actually hovers around this level. So what I want to say is that actually, we have really benefited from the lower cost of debt beginning of this year already. Unknown Analyst: Okay. Got it. Just one last question for me, a bit more of a stupid question. But back in first half '25, we actually retained about [ CNY 1.8 million ] that was contributed by CapitaMall Yuhuating in terms of distributions. So I'm assuming that all of this will kind of be sort of returned to the REIT to form the second half DPU. And also given the cutover date of 29th September for CLCR, should we still expect any contributions from the asset for the second half sort of DPU? Siew Bee Tan: Yes. Yes, you're correct. In 1 half, we actually retained 2Q Yuhuating's contribution. At that point in time, we're actually not very clear in terms of the regulation on what is the cutoff date of the transaction. But following on the IPO of this asset in CLCR, the initial date or rather the cutoff date has actually been confirmed that it will be on 31st March. So having said that, it means that we will not be able to actually have Yuhuating's contribution starting from 1st April onwards. So in other words, for the 2Q retention of Yuhuating will not be released back to the unitholders. And at the same time, as what we have also shared in terms of operation numbers, 3Q Yuhuating is also not inside the NPI where we actually presented. Yu Qing Chen: We have the next question from Hong Wei. Wong Hong Wei: This is from Hong Wei from OCBC. I just have 3 questions. So my first question is on the tenant retention. So I see that for retail, for example, the renewed leases is actually less than half of those. So just wondering how sticky are the tenants? And are these tenants churning in and out quite rapidly. So that's my first question. And the second one is that there are certain big categories that really boom a lot in tenant sales. So I think that also contributed to some of these tenant sales figures being supportive. So is this something that's sustainable? Or do you think this will come off? And closely related to this tenant sales question is, I mean, just now talk about occupancy cost. So it's come down to a level where you mentioned it's healthy. But I think Derek also mentioned and asked about the negative rental reversion. So just wondering, is 17.7% something that is going to be where you will stabilize at? Or do you think it will go up or down from here? So that's my second question. And my third question is that Yuhuating has been divested. So I think now GRA, about 70% is coming from retail. A couple of years ago, there was a road map to reduce retail down to 30%. So I mean, obviously, a lot of things have changed since then. So is there a kind of a refreshed target or road map? So that's my third question. Kin Leong Chan: Okay. I think the first 2 questions, You Hong can take and I can take the third question in terms of strategy, I think. Hong You: Okay. On the trade cat sales, I think, of course, different trade behave slightly differently. In terms of F&B, we actually continue to see good traction. And I think there are interesting brands that's coming up. And so on the retention side, in fact, that's also from our experience, I think for retail malls, refreshing 50% to 60% of the area brands is quite common. And if not, I think we also would run a risk of at times our shoppers getting a bit tired of the same color. So I think that churn, we are not too worried about. Indeed, it is what kind of tenant that bring in, what kind of tenant that goes out is more of a question to us. So I mentioned about the F&B. In terms of toys and hobbies, this traditionally is not a big trade category, but benefited from the likes of Pop Mart and a few other names. It did actually give us a very good sales momentum. So far, we see that trend is still continuing. IT side, I think the first half indeed benefited quite a bit from the so-called government's incentive trading program. So I think there is that benefit. And Q3, we are seeing slightly tapering down a bit. What we believe on the ground is that the training program and then the incentives are still ongoing. But I think perhaps the quotas, the timing of the voucher that's given as well as the fact that the [indiscernible], some of people would have already done their big shoppings in the first half. Q3, the effect will not be as big, but still on a year-on-year basis, it's still increment. Jewelry and sales, we still see increase. Yes. So I think if you ask me whether the sales momentum will continue to grow, I think it's still a healthy recovery and some of the rotational trade cat shift will still continue. Yes. That's the trade cat sales retention question. On the cost, from what we see, I think this is generally -- I mean, our cost is a function of rent and sales. So from that point of view, our cost will probably stabilize at this stage and then may turn out a bit if our sales continue to grow. But I think that probably will set a good momentum when I think the tenants are actually really feeling the confidence coming back and for us to actually engage them in a positive rental cycle negotiation. But like I mentioned, that hopefully would happen sooner than later in next year. Kin Leong Chan: Okay. On the question of strategy and asset allocation, currently, we are about 70-plus percent retail. As you have noted, many things have changed versus a couple of years ago. The new economy sector, of course, have been quite in a turbulent time relatively speaking, compared to our retail, which are very defensive asset class. On top of that, we have successfully listed a new recycling vehicle, right, securitization vehicle through the C-REIT. So in our view, we want to revolve our strategy now towards this competitive and strategic advantage that we have in terms of the retail value chain, right? So I see ourselves focusing more on the retail side of the business rather than, say, growing the new economy side of the business in terms of asset allocation. Yu Qing Chen: We have the next question from [indiscernible]. Unknown Analyst: Just a very quick one. You mentioned you want to look at China maybe potentially for acquisitions again. Can you give us some color on what's happening on the ground? Are there distressed deals? And what's the kind of cap rates for retail in the market right now? Kin Leong Chan: Okay. I will maybe introduce this shortly, but I'll let You Hong take that question because he looks at it from an investment point of view. But indeed, I would say that we are just starting to scan the market more actively, right? I mean we haven't bought a retail mall for some time, right? But from our perspective, this asset has been a very defensive asset on our portfolio. And particularly retail malls that are more mid-market, have good traffic connections in dense residential catchment, those are the ones that in our portfolio have done well, and we want to add such assets into our portfolio if we can find them. I will let You Hong take maybe the current market conditions. Hong You: Yes. I think the market has been, I would say, still investment market relatively soft between institutions. right? The transaction volumes, I think, has not really cut that much, especially in the retail scheme since traditionally, it was not a very big market and then it requires a lot of operation capabilities. I mean the C-REIT market has been actually active and then giving very attractive, I would say, valuations in the assets that we have sort of traded, it's giving us that about 6% exit cap that we hope to achieve. And then for first year, I think it will be one notch lower, right, close to the 5%. Whereas in the capital market side, I think things are a bit different. I would say, when I say capital market, it's more the physical institute the unblock sales market. I think generally, people -- the offer spread are still large, right? I think any buyer are still asking higher than what I've spoken about in terms of at least 1 to 2 percentage or 100 to 200 basis points, right? I think this is where things are. And I mean, we are still at early days. So we hope to come back to you. Kin Leong Chan: So like what You Hong said, I think I'll summarize that liquidity is keen in the unblocked market, right? That's across asset class, not only retail, but retail because needs expertise tend to be blocky, chunky in terms of size, right? So that increased the level of market dislocation that we are seeing. And because now with our, I would say, superior conditions for investing in such asset, I mean, we are backed by our sponsor and our operator who have retail expertise for 30 years in China. We have proven track record of value adding to retail assets. And we now have the ability to recycle older assets into a C-REIT, helping us to achieve liquidity when we need them. We feel pretty good about trying to find opportunities under this environment of market dislocation and particularly want to focus on retail. Yu Qing Chen: We have another question from Derek. Derek Tan: Gerry, I just wanted to have a follow-up on the questions, right? So I mean, you have done the C-REIT, which was a great recycling avenue for the trust. But going forward, right, is that the only one that you think is most viable at this point in time? And thinking about SA you also looking at acquisitions, right? I mean my own thoughts are that your gearing at 38%, debt capacity is not, say, a lot or so. So I'm just wondering whether how should we think about your capital and the size of the deals that you potentially could look at, just these 2. Kin Leong Chan: I think you are referring to whether Yuhuating is the only one that could potentially be injected with C-REIT. Is that correct? Derek Tan: I think 1 year's time, they can buy, right, can buy more from you. But I'm just wondering whether at this point in time, is this the only avenue that you think is open for you for now? I'm just curious. Kin Leong Chan: In terms of -- I think this would be a key way that we want to utilize, though it's not the only way. I mean, You Hong can share there will be -- there are third-party avenues. But generally speaking, I think valuations for the right assets, probably you can achieve better valuations through the C-REIT securitization. And of course, not everyone can basically securitize through -- as you know, it's not easy to lease a C-REIT, and we are only basically foreign sponsor who have leased a retail C-REIT on the A share, right? So we have the advantage. So of course, we want to make use of that advantage, right? So that's one. Two, I think your question of the balance sheet, right? Of course, we divested Yuhuating. Clearly, that sort of bite size of about CNY 1 billion of asset is clearly something that would be interesting that would replace sort of the Yuhuating asset size. And if we require -- if we find really fine asset, for example, that is bigger, I don't know, say, CNY 2 billion, right? We may have other ways to raise money. As I said, we are continually looking at targets where we can recycle some capital. Of course, the C-REIT is one avenue. I did mention that I want to continue to utilize that channel to basically get capital when I need it, right? So there are, in fact, something that is actively looking at. You, do you want to add anything else? Hong You: Yes. In terms of divestment channels, I think we have, in the past, been able to divest assets to the various local institutions, right? So I would say that some look for income, right? Some look for alternative use. So in this market, like what Gerry alluded to, I think the liquidity is relatively thin. So on the alternative use, I think we are seeing buyers being generally more cautious where if they are looking for income, I think, again, in this market where the bid offer spread is still a bit wide, I still think probably C-REIT is the better option for us. Derek Tan: Okay. Got it. Got it. Sorry. Last one for me. If you think about, let's say, your capital sources, right, that you want to tap. So I would presume that you will look at divestments first, followed by the capacity per [indiscernible] equity. So is equity something that you think you want to tap at the right opportunity? Kin Leong Chan: I mean it's not something that we can speculate, right, by [indiscernible]. So I think end of the day, it's finding -- it's the quality of the asset that we are looking at, whether on a stabilized basis, that asset that we eventually find can justify the use of capital, right? I think that's the starting point, right? We don't find a good asset that meet all these criteria, then obviously, we won't force it. Yu Qing Chen: [indiscernible] if you have another question. Unknown Analyst: No, sorry. Yu Qing Chen: Okay. Are there other questions from the floor? Okay. Since there are no questions, this concludes our session for today. Thank you, everyone, for joining, and please feel free to reach out to me or my team if you have any further questions. Thank you all, and have a great day.
Carlos Lora-Tamayo: Good morning to you all, and welcome to Acerinox Third Quarter 2025 Results Presentation. As you well know, the geopolitical uncertainties, regional conflicts and tariff wars continue to affect world markets. Consequently, the third quarter has been another challenging quarter. However, as a group, we have demonstrated our resilience in the light of the difficult market situation. As we will explain in this presentation, we continue to focus on working capital reduction and solid cash generation. During this call, we will hear from our CEO, Bernardo Velazquez; our Chief Corporate Officer, Miguel Ferrandis; and also Esther Camos, our CFO, who will explain our third quarter results and provide outlook for Q4. Before we start the presentation, let me remind you that this conference call is being broadcast on our website acerinox.com. And now, I hand you over to our CEO. Bernardo, please go ahead. Bernardo Velázquez Herreros: Thank you, Carlos. Good morning, everyone, and thank you for attending this presentation. We have released the set of results in the lowest part of a long cycle that is basically defined by the geopolitical conflicts, tariffs, tariffs negotiations and uncertainty. If something can define this part of the cycle is uncertainty and confusion. As how can you prepare a budget for next year? How can you organize your commercial strategy? We don't know whether you will have tariffs with several countries or not, you will be able to export or not. And then everybody is just working in daily basis, is what we call from hand to mouth. From hand to mouth means that our customers are only buying when it's strictly necessary for them to replace materials. So in this situation, logically, the consumption is quiet and everything has been postponed. The recovery that we expected has been postponed. We have no doubt that this recovery finally will come and that the new trade measures will help the even a stronger recovery of Acerinox. We have new trade measures in EU or expected to have very soon new trade measures in the EU. We have the Section 232 and other tariffs in the United States, and we are also negotiating some tariffs in South Africa. But in the meanwhile, we need to concentrate our efforts in the short term, and that means that we need to concentrate in cost cutting and cash generation. With uncertainty with the current situation, everybody preparing the end of the year. Quarter 4 cannot be much better, will be more or less the same reason than Q3, but with a shorter period because the seasonality is very strong in United States and in Germany, and finally, December is half a month. So this is what we are releasing this outlook that we expect Q4 to be lower than Q3, and it's basically because of seasonality. Miguel? Miguel Ferrandis Torres: The market -- the main market highlights for 2025 clearly are driven by the uncertainty, as has been mentioned. We are a cyclical company working in a cyclical business. We are in the low of the cycle. And most of the specialists are considering that probably we have reached the bottom, but we still are in the bottom of a cycle. So we must accept that. The demand has not recovered and is in the third consecutive year in the Western world of not recovery after such a strong correction that was experienced in the year 2023, in which both America and North America and Europe corrected more than 20%. Still we have not recovered that level. So still we are waiting, and the uncertainty is creating these unique circumstances that never in life 3 years -- 3 consecutive years with not recovery in the market. And as a consequence of that, obviously, there is a clear effect in prices, mostly in Europe as well as in Asia. And consequently, this is having also its effect with a slowdown in some of the Asian countries for moving more production on to Europe, which clearly is not contributing. Our main advantage is clearly the diversification. Because of that -- we try to explain it in a simple way. In this slide just showing where there are green shoots. We are in advantage clearly to take the most of these green shoots when appearing. So we are sailing in trouble waters, this is clear, but we are taking advantage for the green shoots appearing, for example, in the -- our main relevant market, which is the North American Stainless Steel. You can appreciate in these traffic lights that where there are more green shoots is in America. The inventories are below historical levels. The imports have been going down. This is as a consequence of the probably commitment to the industry that is a driver of the American market. The administration -- the American administration always has been committed to the industry. The buy American also is a clear characteristic that differentiates the American customers. We are taking advantage of that. The imports have been going down. In addition, we have new measures. The new -- the increases of the Section 232 obviously has been having its effect. And as a consequence, the prices in the States are having a positive evolution. So this is clearly the market where we have appreciated a sooner improvement. In the high-performance alloys, this is a bitter sweet. It's bitter because at the end also we are experiencing in this sector the absence of investment that is characterized by the uncertainties. So all the relevant projects are being delayed. So especially the chemical process industry is actually facing that as well as the oil and gas, in which these more or less relevant projects have been delayed. So as a consequence of that, our European produced high-performance alloys are experiencing -- the order book now is getting slower. But the strategy of diversification and moving to other sectors, which made our decision to invest in the States, invest in Haynes, and especially moving also to the aerospace, creates that now we are in position of taking advantage of the better momentum that is coming from the aerospace industry. So as a consequence of this, the recovery is coming. We have appreciated already the recovery in the long product nickel base. We are more based in the flat products, and this is now coming and start coming because the supply chain is a bit different. But it looks that for the 2026, clearly, this is a sector which is going to drive the profitability mostly of Haynes. So this is the sweet part. And then other sectors like the industrial gas turbine also is taking a good momentum, especially now driven by all the investment in data center for –- in artificial intelligence as well as the more or less all the necessary uses for all the hydrogen transition. So this is the part that is positive and probably shall have a better momentum in the coming months and mostly in the '26. Where we are not seeing yet relevant green shoots is in the European stainless steel market, not in the conditions we have been experiencing up to now. Later on, Bernardo shall explain the new reality. But up to now -- it could be considered that the increase in the apparent demand of 10% is healthy, but clearly, it's not the case when it's coming as a consequence of an increase in imports of 36%. So the main effect of this, as I told before, still the Asian players are putting material in Europe, especially anticipating what could be the more commitment of the union to the industry. So this is driving this increase in imports. 36% in the current market condition is huge. And as a consequence of this, the inventories are growing. And the final effect is that still we have seen significant price pressures that has been characterizing the third quarter. So this is more or less the global scape of what has been the situation up to now. Let's analyze now what's coming. Bernardo Velázquez Herreros: Well, for those of you following Acerinox for many years, you will realize that it's not new to listen to me speaking about trade measures. But this time, finally, we can speak in a positive way. We are not claiming that we don't have measures. We can say -- and it's the first time that we have the opportunity to disclose this to you, to explain this to you that we are very close to have the protection that we were dreaming and asking for many years. In March, after the tariffs or the new Section 232 in the United States, the European Commission released what was called the Steel and Metals Action plan, in which we identified that most of our petitions were considered. And finally, in 7th of October, the European Commission released these new trade measures, still pending to be approved, but very, very positive. Just to -- I will read you some quotes just to see the importance of our industry. "A strong decarbonized steel sector is vital for the European Union's competitiveness, economic security and strategic autonomy." That was said by Ursula von der Leyen, President of the European Commission. "And a strong future for Europe is impossible without a vibrant and resilient steel industry." That was said by Sejourne, Executive Vice President for Prosperity and Industrial Strategy. So we have to be happy and we have to be positive, because at the end, the European Union is moving. You know that it is a slow movement, but finally, they have accepted all our petitions and we are moving in the right direction. These new measures will bring a more competitive and a healthier steel industry in Europe with a drastic reduction of quotas. In the case of stainless steel, can be at the level of 55% reduction in import market share, in steel, in general, is 47%. Materials above the quotas will have a 50% tariff, double than what we have today. Every anti-dumping, anti-subsidy or anti-circumvention case will be added on top of these tariffs and will apply country by country without exemptions, and the quotas will not be -- will not have a carryover to the next quarter. And what is also important is melted and poured will be considered. Melted and poured, that is the origin of the material will be the place where it has been melted and poured. This is very important because we are suffering circumvention, very rapid changes in country of transforming the slabs or black coil coming from Indonesia or China. And we are -- we have been invaded by materials rerolled in Taiwan, in Vietnam, in Turkey, in other countries. And this new situation will stop this unfair competition. What is important now is that at EU we have to implement these measures as soon as possible. Still we have to -- we need the approval of the European Parliament. But we think that we will succeed because there's a strong support to these measures. And after that, the European Council will have to approve it. But generally, it's very good news for the industry. It's very good news not for the next quarter, but it's very good news because that will give us a level playing field. We will compete with fair rules, with fair competition, and then we are sure that the situation in Europe will improve. In top of this, we have to add what can happen with the CBAM, Carbon Border Adjustment Mechanism, that will start being implemented in 1st of January, still with a lot of uncertainties, a lot of unclear rules, but will also prevent the lack of competitiveness of the European industry based on CO2 emissions, ambition reduction and some other measures. So in general, I think that we have a better future. We are willing to receive the good news of having these new measures implemented. The safeguard measure will expire in summer '26. We are pushing or trying to accelerate the process as much as we can. Maybe it can be 1st of April or as soon as possible because it's urgent for the European industry to have this kind of measure in place. So this is good news for our future. This is what we have been claiming for many, many years. You perfectly know that we have been always trying to ask and speaking with the European Commission to develop these kind of measures. And finally, they listened to us and we have succeeded, and we are happy to announce that, that will be very good for the European stainless steel industry. Miguel Ferrandis Torres: If we move to the results, both of the third quarter as well as accumulated. In these circumstances and in these days of uncertainty, we are proud to be well understood, we are proud to be reliable as well as predictable. When we presented the second quarter results, we made an outlook for the third quarter that should be in line with that of the second quarter. We have been in line with that of the second quarter, slightly below. But obviously, when you put it in the equation the depreciation of the dollar, which obviously is our most relevant currency, as well as the situation and the evolution of the prices in Europe, you understand that the results on this third quarter are clearly consistent. And especially, when you put them in the context of the results that other players in the industry are in these days presenting, it clearly demonstrates the success of the diversification and the strategy that we are facing in the last years. In addition, as a consequence of these weaknesses on the prices that we are announcing, we have made an inventory adjustment at the end of the Q3 for EUR 31 million, preparing ourselves clearly for the more or less realization of our stock mostly in the fourth quarter and especially in Europe. So on this basis, we are proud that at the end if we analyze this EUR 108 million EBITDA or the EUR 321 million EBITDA of the 9 months, at the end, we are in the bottom of the cycle. We are clearly obtaining the average profits and contribution that we're experiencing all during the whole last decade. So it clearly demonstrates that how we – we are now more resilient and we are able to keep this level of profitability. Also, in these days, it's extremely relevant to put on value the cash flow generation. We have obtained an operating cash flow in the quarter of EUR 152 million, which is almost EUR 300 million, EUR 299 million up to September. And this is also one of the drivers. It's clear that in the current circumstances, it's difficult to increase profitability, but we are able to generate cash and cover our CapExs and our dividends with the cash that we are generating. This is also one of the main values and principles of the company and we are clearly following that. And then in addition what we have is this level of net financial debt at the end of the quarter of EUR 1.2 billion. When we compare, as appears in the chart, with that of the third quarter in 2024, it was EUR 453 million. So this brings, again, more or less what always has been our strategy, and we feel proud that we are able to invest in any part of the cycle and keep our strategy plan or even develop a strategic plan in any part of the cycle. Our financial strength allows us to do that. So in these circumstances, in the current circumstances, we make such a relevant investment as the acquisition of Haynes. This is the main comparison with the net debt that we experienced 1 year ago, which fully takes sense. Clearly, our strategy goes there. And at the end, this financial strength allows us that not only we are facing that, we are not experiencing any troubles regarding our leverage. As you know, our -- all our debt is covenant free from every covenant related to profitability. So this is -- for us, it's obviously some KPI that follows our policy, but has no relevance in our debt. And in addition, we have a -- as always, we have had a high competitive debt that allows us that the finance charges are not killing in these days. The KPI of the debt-to-EBITDA this year obviously appears to be high, but this is something that clearly as a consequence of the possibility of being able to make relevant investments even in the low part of the cycle. So low EBITDA and a relevant acquisition has this effect, but it shall be diluted gradually and especially with a consistent and committed continuous cash flow generation. Esther Camós: Going to the Stainless division. I think there are several factors that are characterizing this quarter. Some of them has been presented along the presentation. First of all is seasonality in Europe, okay? According to the collective bargaining agreement that we signed last year, we have closed production in Europe for 15 days in August. Second factor, I would say, is the weak demand, okay? Weak demand has affected both Europe and United States, but more significantly Europe. The third factor, I would say, it's the import pressure, okay, which has caused the prices to reduce even more in Europe. We are selling in this quarter at the lowest prices in the year. And in the positive side, we have United States, which are much better situation of prices despite of the weak demand. Also positive is the cash generation of EUR 82 million in the quarter and EUR 165 million, which is a demonstration of our projects of working capital reduction that we have been mentioning along the year. Going to the figures, the figures reflect exactly the factors that I'm mentioning. On one side, we have a 10% reduction comparing quarter-over-quarter in production. We have also an 8% reduction quarter-over-quarter in sales, which is lower than production because of the higher prices in the United States. The EBITDA is lower by EUR 2 million, but EUR 2 million is exactly the effect that we have because of the depreciation of the U.S. dollar in this quarter. This is the effect that we have in the EBITDA. And a positive -- and in the positive side, we have the increase of the margins. We are increasing margins in this third quarter despite the lower sales, and margin is 8% instead of the 7% that we have in second quarter. Going to HPA. In the HPA, due to our diversification to different sectors, we are being able to compensate the negative impacts experienced in sectors like oil and gas or chemicals, which is -- which our factory -- which our group VDM is more exposed to. We are compensating this with a gradual recovery of the aerospace, that affects mostly Haynes. The EBITDA is lower by EUR 2 million. We are achieving an EBITDA of EUR 32 million and EUR 103 million in the 9 months, okay, which is true that 9 months is also -- has contributed with Haynes this year. And again, the cash generation, okay? We have an operating working cash flow of EUR 70 million in the quarter, which is much better than the second quarter. Most of it is coming by the reduction of inventories, and it's EUR 134 million going to the 9 months. And capital allocation. We continue generating cash through our working capital reduction plans, which are resulting to be very successful and we are proud of it. In the quarter, we are reducing our working capital by EUR 85 million. And we have been able to generate an operating cash flow of EUR 152 million. We have had stronger CapEx this quarter of EUR 88 million, as we already announced. We already announced that we were making down payments in this quarter of some of the investments for Haynes. The free cash flow is EUR 64 million. And we have paid -- we have made the payment of dividends to our shareholders of EUR 77 million, which, in the end, has made us to increase that only by EUR 21 million. So we are maintaining the debt despite of the stronger CapEx and also despite the payment of dividends. Going to the 9 months, which is also very significant the cash generation through working capital. It is true that in the 9 months it's partially impacted by the U.S. dollar depreciation, okay, which is -- which you can -- you see also reflected in the bridge. Then it allows us to -- the operating cash flow in these 9 months has been of EUR 299 million. We have had CapEx of EUR 212 million. And the figure that I like the most is the free cash flow. Free cash flow achieved in these 9 months has been EUR 155 million, which is exactly the amount of dividends that we are paying, which means that our debt would have remained flat in these circumstances if it wouldn't have been by the depreciation of the U.S. dollar and the effect that it has in our cash in U.S. dollar. In this case, we have increased our debt in EUR 123 million, which is exactly the effect that we had in the conversion to euros of our cash in U.S. dollars. Miguel Ferrandis Torres: In this regard, we are able to keep on focus on our clear strategy. As you know well, our clear strategy, if we start from the top to the bottom, we are clearly making relevant investments on growth, especially where we have a warranty return. This means, clearly, in the case of North American Stainless, as you know, we are increasing our capacity at 20%. The new equipment shall be on place from the next year. This is an investment that we are taking place for the last 3 years. In addition also, as we have a warranty return, we are increasing -- investing in increasing also production and efficiency in VDM by 15%. In those areas, we actually are more exposed to the current circumstances of the market, which is Acerinox Europa and Columbus. We are also making a huge effort not with so relevant investments, but at the end, we are making virtually out of necessity for transforming the business for being prepared for the current circumstances and especially for taking advantage of the market recovery when it comes, but with not relevant investment because still this return is not so warranted and it is not only depending from ourselves but also from market conditions. But in any case, we transformed the business model of Acerinox Europa. This is already prepared and working. As well as Columbus has demonstrated its ability to become the most diversified steel plant in the world, making not only stainless steel, as well as carbon steel, as well as now moving to the electrical steel, and, in addition, is obviously prepared for processing HPA. So this is more or less what we have been doing most in these 2 areas. In addition, going to the bottom, we are not only successfully integrating Haynes, our strategy of moving to this AAA investment. We always mention America Alloys Aerospace. The integration is successfully more or less being done and accomplished. And in addition, we have already precised the additional investments to take place in Haynes for the coming future. It has been mentioned. So this is already -- has also been fixed. And as a global consequence, but also keeping our driver of absolute control of the working capital as well as continuous cash generation. Bernardo Velázquez Herreros: Okay. So everything has been said. In the short term, we are living in this uncertain market, uncertain scenario, where the demand is still weak, has been weak for 3 consecutive years. And this is happening with stainless steel. It's also happening with projects in oil and gas and in the chemical processing industry because this lack of visibility moves to postpone investment, as have been mentioned. So in the short term, it will be still weak. We'll have a fourth quarter basically in the same rhythm like Q3, but with seasonality that we mentioned. I'm very optimistic in the future, very optimistic, because all the situation of the group with the diversification in different countries and the different materials, the position that we have and all the projects that we are now facing will put us in a very good position to take advantage of the level playing field that is being created in Europe, United States and maybe, why not, in South Africa as well. So very optimistic for the future. Thank you very much. Carlos Lora-Tamayo: Thank you for the presentation. Now we can start with the Q&A session. So please, operator, go ahead. Operator: [Operator Instructions] Our first question is from Tristan Gresser at BNP Paribas. Tristan Gresser: I have 2. The first one is on the U.S. market. If you can comment a little bit on the weakness you're seeing. We're seeing that cold-rolled production for the group is down 5% year-on-year. Does that reflect the demand decline you're witnessing in the U.S.? And any differences between flats and longs? And if I'm not mistaken, you should see in Q4 a greater positive pricing impact. Will that be enough to offset the lower volumes? Bernardo Velázquez Herreros: The situation in the United States is more or less the same than in Europe, of course, with a better price level, but the situation in the market is more or less the same. In '22, the demand went down by 5%, in '23 it was minus 20%, still is flat in '24 and will be flat in '25. So the situation is more or less the same in both long and flat. We expect a recovery once the situation is more clear. Normally, in consumer goods materials, in the case of flat products. But we are also waiting for the reactivation of oil and gas that can help the long products, bars for drilling, and also can help all the infrastructure programs in the United States with our stainless steel rebars for bridges. And the situation is more or less the same, flat demand, but with a better level of prices and waiting for the recovery. In Q4, prices have been what we –- was the consequence of what we announced in Q -- at the end of the second quarter results, we announced a price increase. We have been negotiating with our customers a price increase. And that has been -- we have been able to get this price increase in the customers in which we don't have a longer-term agreement. In some cases, we have 6 months contracts, so we have quarterly contracts. So we have been postponing these negotiations until the contract is finished. So Q3 has been the result of this price increase. Q4 will be more or less the same level. We expect a further recovery, a further increase in Q1 '26. Tristan Gresser: No, that's very clear. Then if -- you have that pretty severe seasonality into Q4. If I look at group EBITDA for Q4, does it mean it could be lower on a year-on-year basis? Miguel Ferrandis Torres: Well, the -- each time we are obviously more American driven. It's North American Stainless, it's Haynes. Also, in the HPA in Europe, normally, December is the slowdown. So as a consequence of that, we announced it's going to be lower. Basically, from the seasonality in America from Thanksgiving to Christmas, it's very low activity. So at the end -- the fourth quarter is not a quarter of 3 months normally in the States. It's substantially 3, 4 weeks shorter. And this is more or less what shall appear in our figures. This is -- obviously, it still is too soon. We need to see more or less the evolution of the market. We need to see how effective and successful is our working capital reduction as planned, which shall be the effects, obviously, on this, on the inventory adjustment. So we feel comfortable stating that the Q4 shall be lower, and we feel comfortable saying that mostly due to seasonal slowdown. Then I invite you to take your conclusions on your model. Tristan Gresser: Yes. No. Yes, it's a bit early. And maybe just one last question, if I may. On the -- obviously, you talked positively about the import situation, well, not now, but the measures have been implemented in Europe. But in Europe, we've also seen a surge in stainless semi-finished products, and those are not being covered by the quotas. So do you believe that semi should be included, could be included? And how big is it of a risk if you have CBAM, if you have the quotas on CRC, HRC, but then all these slabs -- all those slabs are coming through. So we would love to have your view there. Bernardo Velázquez Herreros: Yes. No, for sure that we are asking for semi-finished products to be -- sorry, it's not semi-finished products. Semifinished products will not come to Europe because it will be affected by all the trade measures. What we expect is the measures to be extended also to product where stainless steel has a lot of influence in the cost, means tubes, sinks or this kind of products. But semifinished will be included, will be covered by the quotas. And also CBAM will help to avoid circumvention. Operator: Our next question is from Adahna Ekoku from Morgan Stanley. Adahna Ekoku: I've got 2. So first, just to follow up on the U.S. prices. Could you give us a sense of how the contract negotiations are going for 2026, just given the kind of continued weak demand as well as the new volumes coming to market. And you mentioned you expect this to be higher kind of heading into Q1. Operator: Apologies. The line is very unclear, Adana, so we weren't able to get your question. If you could kindly try dialing back in and then we can move on to you again. In that case, we'll take the next question from Tom Zhang at Barclays. Tom Zhang: Yes. Can you guys hear my line? Is that okay? Bernardo Velázquez Herreros: No, no, no. If I could understand, it's something about in the previous call. It's speaking about U.S. contract negotiations for '26. And we are busy in these negotiations today. There's nothing that we can add. Normally, these negotiations happen earlier, normally start happening in July. And many years in October, we have already finished the negotiations. With the uncertainty and lack of visibility, everything is being postponed. And we are now negotiating. And we expect that in November, December, we will close all these contracts. It's difficult for our customers to predict volumes. So in most of the cases -- in this previous forecast, we are speaking about repeating volumes in '26. But no idea. That can change in months when the recovery start or once the rules will be more clear. Operator: And sorry for the interruption. So we'll now move on to Tom Zhang at Barclays. Tom Zhang: Great. First one for me, just -- you mentioned in the presentation sort of inventories growing now in Europe, and I guess maybe that's a little bit of prestocking ahead of measures. How much further do you think inventories can keep going in Europe? I guess I'm just trying to figure out how much more import prebuying we could see in the next couple of quarters before measures come in and the market normalizes a little bit? That's the first one. Bernardo Velázquez Herreros: But this is very difficult to predict. As Miguel mentioned, some of the importers can think that it's better to import now because next year will be more difficult, we have more protection or will be -- but it's going to be difficult to predict, which is going to be the effect of CBAM in 1st of January and if the new trade measures are going to be applied in April or in May or when the safeguard measures expire at the end of June. So it is difficult to predict what's going to happen. If I were an importer, if I were a distributor, of course, I would keep my stocks in reasonable levels, not high because everything can change. The volatility is very high. And we don't think -- I don't think personally that it's a good time to increase your stock. But this is a -- I cannot answer your question. Tom Zhang: Okay. Fair enough. And then could you just remind us about the kind of volumes that you send from South Africa? I think historically that was a very export-driven plant. I know you brought the export volumes down a lot in the last few years. I think the last we heard was it was about 50-50 between domestic and export shipments. I'm just wondering does that flow get affected at all by the European trade measures if you send any material from South Africa into Europe? Bernardo Velázquez Herreros: This is something that we predicted. And we have been working in South Africa in Columbus Stainless to change the situation, because we always thought that the future will be more regional and Columbus will not have the possibility to export big volumes to Europe or to any other region of the world. So that's why we are starting making mild steel in South Africa, and we are also prepared now to produce also electrical steel. So we are concentrating Columbus in the local market. In the past, it was -- at the beginning, it was 70% export, 30% local. Now we are targeting to have more or less 60% local, 40% export. And in that case, all the volumes exported to the European Union will be into the quota. So we will not have to pay any extra tariff there because the material that will come to Europe will be included in the quota. Tom Zhang: Okay. So sort of no change in terms of volumes going from South Africa into Europe. It's already well below the new quota level. And then maybe just a final one for me around NAS volumes, I guess, with the capacity expansion. I think you guys previously talked about first coil meant to come out by the end of the year. Do you have any visibility on that? And maybe any early targets on how long the ramp-up period will be, if any, for the sort of NAS expansion? Bernardo Velázquez Herreros: The NAS expansion is going very well. So we already installed the crane in the melting shop. But still, we don't have this capacity increase because we are repairing or revamping one of the other existing cranes. But everything is ready. Hot rolling mill is also ready. We will produce the first coil in the cold rolling mill at the end of January. The ramp-up will depend basically in the revamping of our AP #2, that is the annealing and pickling line that we are modifying to absorb the increase of capacity. But that will be ready also 1st of January or early January, and the ramp-up can take 3 or 4 months. So we will be ready for the recovery of the American market. Operator: Our next question is from Bastian Synagowitz at Deutsche Bank. Bastian Synagowitz: Hopefully, the line is okay here. Maybe firstly, on Americas. Can I briefly ask, is the softness in the U.S. which you're seeing here in the fourth quarter any more than the usual seasonality, i.e., is this really very much in line with what you're usually seeing? Or is there anything more in it? That's my first question. Bernardo Velázquez Herreros: No, no, it's more or less -- as I mentioned before, it's the same, more or less the same consumption rhythm that we have had in second quarter and quarter 3. It's more or less the same. There's not additional weakness in the market. No, no, it's just seasonality. Bastian Synagowitz: Okay. Then maybe moving over to the HPA business. And I guess third quarter was actually pretty stable, but you still obviously seem to see a lot of softness in energy and also chemicals, as you're saying, I guess, mostly in the former VDM business. So do you think that we have already seen the trough here in HPA? And the contribution, i.e., should we -- sort of would you be comfortable to say that we'll be -- that we'll stay pretty close to these levels and then rebound from here? Is there any color you could give us, any conviction? And then I guess, secondly, on your investment strategy here, where you have a reasonably big pipeline for investments. Are you confident that these investments still all make sense? Or have you taken at least any action to pace those down and maybe adjust for the current market also in the context of your net debt to EBITDA probably hitting around 3x. I guess you clearly have a lot of comfort on that and I think you express it, but are you still pacing on the CapEx side here? That's my question. Miguel Ferrandis Torres: In regarding of the HPA, I think it's differentiated obviously by the areas. As we told before, the weakness of the chemical products industry, obviously, the maturity and the lead times for this sector as well as on the oil and gas are also driving lower order book than normal in the current days. So we clearly assume that the best semester of next year for these sectors are not going to be relevant. So more or less what we also consider now. And this is – obviously, the consequence of our strategy is that the improvement in the aerospace could compensate. And obviously, when we talk about the aerospace, it shall be more reflected in the States through Haynes, should compensate this weakness that we are going to experience in the chemical process mostly and in the oil and gas. In the oil and gas, there are some volumes more related to maintenance, but not for new projects. This is obviously for Haynes as well as for NAS, for example, for all the drilling. This end use still is not there. In maintenance, there are some issues. But still clearly, we must take in mind that VDM is mostly covering 2/3 of its production, covering these both areas. The other areas, the automotive shows certain improvement, the electronics remains there. In the case of Haynes, we shall experience the growth and the clear recovery of the aerospace industry. And the gas generation also, as was expressed, is also doing well. So our understanding is on the global picture for next year, we think that probably shall be more or less compensated the correction or the effect in a global year of this weakness with the other strength. But probably in the first semester, especially for oil and gas and CPI, we do not see now any recovery. So if it comes, it should be more in the second semester. In regarding of the investments, we are long-term driven. This sector is huge in investments and it's not for thinking on a short-term basis. The investment plan in Haynes and especially the areas where it's focused as well as also what we are investing in North American Stainless for process, HPA takes full sense. It's a growing sector. And also the main driver of the synergies and the future synergies is coming from that. So it's not more or less any type of questioning of the timing of the investments. As also the same circumstances takes place in VDM. There are investments for increasing not only volume, but it's mostly for increasing efficiency as well as for avoiding dependence from 3 players and having the possibility of make the whole process as much as possible internally. And this is clearly -- the efficient also is coming through that. So it takes sense. So we -- as I said, we are obviously following our debt carefully and making the best in cash generation, but we should not reconsider these investments as they are because of the current level of debt. As I told before, we are clearly investing on growth where we have a warranted return. And in these cases, it's evident. Operator: Our next question is from Maxime Kogge at ODDO. Maxime Kogge: So first question is a follow-up on Tristan's one on semis. I think actually you are yourself sourcing some semis on the market, and that's quite recent, especially from Indonesia. So what has led you actually to adopt this strategy recently? And could you go further in that direction? And would there be a case for Europe actually to really focus on the hot rolling or even just cold rolling mill and source its slabs externally given that Europe's production is bound to remain quite uncompetitive compared to some other regions in the world at least in the hot side? Bernardo Velázquez Herreros: As we mentioned before, we are suffering of unfair competition, especially for materials that have been melted in Indonesia and roll in other countries and entering in Europe with other origins than Indonesian. So that's making -- not only in stainless steel, also in carbon steel, it's making our industry unsustainable. So we cannot live in these conditions. The European steel industry is in real danger, and that's why the Commission is now placing these set of measures that are going to be very important for us. But still we don't have these measures. We have to do something. So that's why many players started to bring slabs from Indonesia. So we have to do things. So we defend the European industry, or then we close our melting shops and we start bringing material from Indonesia. In this case -- in our case, we only have made one trial. It's not a significant volume. Maxime Kogge: Okay. That's clear. And second and last question is on South Africa, because there, historically, you had a big competitive advantage because you had access to quite cheap ferrochrome. But now the industry, the local industry is in disarray, and there could be a future when the whole industry will have disappeared. So how do you see the situation there? How does it impact Columbus? What's your view potentially on the export tax on chrome as well that is being envisaged? That would be helpful, yes. Bernardo Velázquez Herreros: You know that very recently the production of ferrochrome in South Africa was suspended because of the high electricity price, basically because of high electricity price. And the ferrochrome producers were asking for better conditions, because otherwise, they are exporting, instead of producing in the country, they are exporting the chrome ore to China. And China with South African chrome ore has become the biggest ferrochrome producer in the world. They have around 56% or 60% of the world production. And that is why, because South Africa in the last years has lost competitiveness. Now the situation is better in terms of availability of electricity. There are some negotiations between the ferrochrome producers -- we are included in these negotiations -- and the government asking for better electricity price for the electro-intensive industries as well as an export tax or export duty for the exports of chrome ore that are damaging the competitiveness of the country. Having said this, we still have access to cheap chrome compared with the rest of the world. We can use it, as we have mentioned many times, in liquid, liquid form. We can use liquid ferrochrome because we have ferrochrome smelter as an enabler company less than 1 kilometer away from our plant. And this is a significant advantage because we don't need electricity to melt this ferrochrome because it's already liquid. And we also save a lot of money in refractories and in electrodes. So still very competitive. And basically, most of the materials that we are exporting to Europe from South Africa are ferritic, because it's our specialty and because we are more competitive. Operator: Our next question is from Inigo Egusquiza from Kepler. Íñigo Egusquiza: So I have 4 questions, if I may. And the first one would be on the European Union safe measures. If Bernardo, you can share with us what are your expectation in terms of calendaring implementation? I think you have mentioned April, May, but maybe we have to wait until June. If you can share with us what could be potential calendar. I know it's tough. This is the first question. The second question would be on Haynes International integration. If you can also elaborate and share with us how is the integration going? How are the synergies, the number that you increased? How are things going on this front? The third one would be on stainless steel. If you can also elaborate a bit how is the profitability of the U.S. versus Europe? I guess Europe is again making losses, but I don't know if they are bigger or smaller than a year ago. And what could be the implications of the new European Union's safe measures for the European business profitability? Can we expect this facility to reach breakeven if the new safe measures are implemented to reach breakeven by 2026? And the final one, I'm sorry for being long, on the U.S. base prices that you have mentioned. If you can quantify a bit how large has been the base price increase that you implemented during the summer of 2025? Bernardo Velázquez Herreros: I cannot answer the first question because it's not in our hands. The existing safe measure will expire the 30th of June. So partly we are moving fast in this sense is because we need to finish the process. You know all the European process are long, safe, but long, and have to be ready for -- at the end of June. Of course, everybody is aware of the emergency that we have of these measures, and everybody, including the European Commission is making the best to accelerate the process. So this is -- nothing that I can add. And I have read that could be 1st of April. But we don't have any information on this. We cannot control this process. Miguel Ferrandis Torres: Regarding the Haynes integration, we are there, we are satisfied. There has been a huge effort. The integration at the end is more or less with participation of relevant people, not only at VDM, also at NAS, also at Acerinox headquarters. So it's a global team who is accelerating the process of the integration. We are really satisfied of how the things are moving on. Regarding the synergies, the estimation of the synergies, obviously, the -- we are in the year of the start of the process. The synergies fixed for this first year were EUR 11 million, and we are there. So we have accomplished what has been the analysis for the first stage, assuming that the synergies should gradually be increasing year after year. But those for the first year already we are there, and we are very comfortable with that. Esther Camós: Regarding stainless and the contribution of Europe, okay? We are following our strategy in Europe, which is resulting to be positive. All the KPIs that we are measuring, comparing, going higher value-added, going end customers versus distributors and so on, everything is making us to trust on that strategy that we are following. The problem in Europe is being, as said, is, first of all, demand, and second, import pressure in prices, okay? So this low level in prices, I think, is affecting all the industry. So we are positive in the future. We are positive with the measures because we think that those measures -- we cannot predict what is going to happen with the prices, but we expect that with these measures in place, the market will be able to increase prices, and that definitely will help in our strategy. The contribution compared to last year is being better, okay? So it's a reflection of that. All our measures are going on the good directions, but still suffering from these price levels and demand. Bernardo Velázquez Herreros: Inigo, when we are speaking about prices, normally, we are speaking about the prices that are published in several magazines because we cannot speak about prices. We are very sensitive to this. So as Esther mentioned, everybody is speaking that prices in Europe today are very low, around EUR 100 per ton below the average of this cycle and probably below -- EUR 300 per ton below the average of the previous cycle. But we are not speaking about our prices. And in the case of United States, it's exactly the same. So we are negotiating customer by customer, product by product. Everybody has a different price. And this is something that we cannot disclose. We have -- we announced that we are increasing prices, but this is not an official tariff. We are not publishing official tariffs and say this product will have this price for every customer or whatever. This is negotiations and will depend on everything, situation of the customer, situation of our plant, the need to have more or less orders in several products. So that depends very much. We cannot disclose our pricing situation very much. Operator: Our next question is from Tommaso Castello at Jefferies. Tommaso Castello: Is the line clear? Can you hear me? Miguel Ferrandis Torres: Yes, we hear you perfectly. Tommaso Castello: Okay. Yes. Sorry. Okay, fine. I was just checking. I have one last question. So you have highlighted cutting costs and cash generation through the management of working capital as key priorities for year-end. So given the ongoing market uncertainty, do you anticipate further opportunities to release working capital in Q4? And if you could remind us of your cost-cutting initiatives to date and if there is any target number and date there? Miguel Ferrandis Torres: Well, we are pushing hard in terms of making the best of the working capital in the Q4, and this is a clear guideline that every division of the business is actually focusing. So this has been recurrently restated from the headquarters, and all the group is committed. So in this regard, we understand that this is going to be a strong and relevant effect coming in the Q4. You also can see that one of the Q3, for example, was substantially higher than the Q2. So in this regard, we are clearly focused. Esther introduced it previously. With the cash generated up to now, we have covered the relevant CapExs up to now, but also the dividend for the whole year. There is no cash-out coming for dividend payment in the fourth quarter. But it's a strong tax cash-out that also is going to take part. So on that basis, we consider that we shall reduce probably the net debt. But a lot of the cash generated through the reduction of working capital also shall be for paying taxes. So on that basis, it's not going to be -- even though we make our best and we are successful in the discipline of reduced working capital, we are not going to make or experience a huge reduction in net debt because of that, because the tax has to be paid in the fourth quarter according to the circumstances on the areas where we are profitable are clearly there. In regarding of the other plan, we have now a clear public number of the cost reduction plan that we are involved, but also the plan remain on place. And we are healthy there. But obviously, as much as productivity is higher, as much as they are better appreciated. So sometimes even though we make a huge effort for reduced cost that can increase our profitability, in the current level of prices, not always it's so appreciated in the final P&L, because at the end, as has been previously stated, the magazines are reporting base prices now in these days of around EUR 450. I remember in the old days, we considered that it was not possible for the industry to be profitable below EUR 900 or EUR 950. Then we developed for being profitable levels of EUR 700. Now we see this level of prices. So still the cost savings that we can obtain that are significant in our business and for our controls and benchmarks, but has less visibility when the market is so poor. Bernardo Velázquez Herreros: But anyway, remember that -- sometimes we have mentioned that with the volatility of the cycles in the last decade, we have learned to run our plants like the cars. We have the eco mode and we have the export mode. When we are full of orders, we go to export and we try to focus on productivity. When we are in the low part of the cycle, we are not fully at full capacity and then we go to the eco way, I mean, trying to focus on cost. And this is what we are doing now, trying to be effective and very efficient in all the production, trying to save in everything, in electricity, trying to save in refractories, all the consumables. Trying not to make extra hours. Trying to take holidays when it is possible. And also focusing in our excellent program, our Beyond Excellence plan. That is seen. We published the numbers in quarter 2 for the first half of the year, and it's moving very well. So we are focused in all these projects that will help us to improve our profit and loss account. Miguel Ferrandis Torres: Tommaso, regarding this Beyond Excellence plan, as Bernardo mentioned, we published twice a year in H1 and full year results. And in H1 -- well, the target for the year is EUR 45 million. And in H1, we achieved EUR 23 million. So it's -- we are going on track and we expect to be close -- very close to this target by the year-end. Operator: Our next question is from Dominic O'Kane, JPMorgan. Dominic O'Kane: Just one quick question. I just wanted to double check with the Q4 guidance for lower EBITDA quarter-on-quarter. Does that also include any assumption for an inventory revaluation? Bernardo Velázquez Herreros: No, no, no, the guidance is only including what can be considered adjusted EBITDA. Operator: At this time, we currently have no further questions in the queue. Carlos Lora-Tamayo: We have 2 questions from the webcast. The first one is coming from Adahna from Morgan Stanley, and it's as follows. On HPA, conditions for VDM continue to be weak, which is getting partly offset by Haynes. Can you help us with a split of how these 2 businesses are doing? Or maybe how much lower VDM is tracking relative to its normalized EBITDA, which I think you previously said is around EUR 120 million? Miguel Ferrandis Torres: Well, I think we already have explained that. Obviously, still it is a bit early. It shall depend on circumstances, and it still is too early for considering what may take place in the '26. We already have indicated that the order book appeared to be weak for the first half, but let's see what comes later. And on the other side, the recovery in the aerospace industry is coming. So this -- we understand that this shall compensate, but still it's too early to make any commitment in what shall be the profit contribution for that division. So we shall have more visibility probably at the year or when we make the year-end results presentation in February. It still it is too soon. Carlos Lora-Tamayo: Thank you, Miguel. And the last question is coming from Marisa Hernandez from Times Square. What are your expectations for CBAM impact on stainless prices in Europe? Bernardo Velázquez Herreros: Very difficult question. We still don't know what are the rules of steel. And we know the rules, but we still miss some information that is going to be necessary for this because still we don't know what is going to be the benchmark for the industry. So then we cannot compare prices or different CO2 emissions between importers and this benchmark. And still there's some uncertainties in the formula. So there's nothing that I can add here. And I also cannot give you information from consultant companies or whatever because the range is so big that some people are speaking about EUR 100, some people are speaking about EUR 500. But this is not the price increase. It could be the effect for importers. So there's no visibility on this. I cannot help you. Carlos Lora-Tamayo: Okay. Thank you. That concludes today's conference call. So thank you very much for all your questions and for joining us today. Have a good day. Esther Camós: Thank you. Bernardo Velázquez Herreros: Thank you. Esther Camós: Thank you. Miguel Ferrandis Torres: Thank you.
Operator: Good morning, everyone, and welcome to the Butterfly Network Third Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to the Interim Chief Financial Officer, Megan Carlson, to begin. Please go ahead when you're ready. Megan Carlson: Good morning, and thank you for joining us. Earlier today, Butterfly released financial results for the third quarter ended September 30, 2025, and provided a business update. The release, which includes a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures is currently available on the Investors section of the company's website at ir.butterflynetworks.com. I, Megan Carlson, Interim Chief Financial Officer of Butterfly, alongside Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this morning's call. During today's call, we will be making certain forward-looking statements. These statements may include, among other things, expectations with respect to financial results, future performance, development and commercialization of products and services, potential regulatory approvals and the size and potential growth of current or future markets for our products and services and changes in the nature of our business. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligation to update such statements. As a reminder, this call is being webcast live and recorded. To access the webcast, please visit the Events section of our investor website. A replay of the event will also be available on this page following the call. I would now like to turn the call over to Joe. Joseph DeVivo: So thanks, Megan. Good morning, and thank you for joining us for our third quarter 2025 conference call. We're pleased to report the third quarter '25 results were at the higher end of revenue guidance. We continue to consume less and less cash while driving gross margins higher, excluding our noncash inventory adjustments that we recorded. Please keep in mind that our third quarter 2025 results compared to last year's third quarter where we delivered 30% revenue growth on the heels of a very successful iQ3 launch. We were able to keep growing on top of that very strong quarter a year ago. We knew coming into 2025, we would have to anniversary a big year and new product launch. In major medical institutions across the United States, there are hundreds of doctors who own a Butterfly. To drive enterprise sales, we developed a strategy that builds on the base of individual support and introduces Butterfly more holistically through the health system. During the second quarter of this year, we encountered some headwinds in the strategy as hospitals were focused on broader macro issues. Those headwinds remained during the third quarter. Nonetheless, our pipeline opportunities have increased. We believe we're starting to see the cloud lifting. I expect we'll return to the momentum we're used to in 2026 and may even see early signs in the current quarter. When we laid out our 5-year plan in March 2024, we introduced multiple growth pillars. One of those was our core business, going deeper into the POCUS category with higher quality imaging and software that meets the needs of hospital systems. We also said we'd expand into entirely new markets, and we continue innovating to maintain our differentiated edge. We're seeing that our strategy is working and that our many shots on goal position us for success. We're improving healthcare economics every day and are intent on bringing this innovation directly into the heart of medical care. While the third quarter is usually our quietest, we kept busy driving progress across the business and continuing to lay the necessary foundation as we mature and scale. An important part of that foundation is ensuring that we remain a trusted partner to our customers and information security plays a big role in that. We've always had a strong security posture, and we've now strengthened that further with ISO 27001 and other international certifications announced earlier this week. Each of these reinforces that Butterfly's cloud is safe, trusted and enterprise-ready as we expand globally. Our AI strategy is also proving to be a great accelerator for us, and it's really come to life in Q3. A major milestone came in September when the POCUS CARE trial from Rutgers Robert Wood Johnson Medical School published in JAMA, highlighted the real-world impact of Butterfly's AI lung tool, or auto beeline counter on patient care and hospital efficiency. In this evaluation of over 200 patients, integrating Butterfly's tool into workflows, improved clinical management in 35% of the cases, reduced hospital length of stay by 30% and generated more than $750,000 in direct cost savings. This is exactly the type of clinical and economic validation that fuels our enterprise strategy and shows the power of AI to drive real change in health care. And our next-gen enterprise software, Compass AI is on track to launch before year-end. So we expect to take this type of impact further by making large-scale hospital use even easier and more effective. We've also said time and time again that education is the biggest barrier to mass adoption of point-of-care ultrasound. Butterfly has invested throughout our journey in education from in-person training to advanced AI tools. Butterfly Garden is our ecosystem to deploy AI tools to caregivers, including those who were not classically trained in ultrasound. During the third quarter, HeartFocus from DESKi became the first FDA-cleared Butterfly partner app to launch in the Garden. HeartFocus uses AI to guide echo probe placement, capture quality images and support faster cardiac scans for any healthcare professional. So we're excited with this launch and now it's bringing action into the vision that we've had. Echocardiograms are done about 7 million times a year in the U.S. with a wide range of procedural costs from $250 a study and sometimes well over $1,000 out of pocket. That's over $1.7 billion to payers on the lower end. Most of that happens in a facility. And if the cost isn't a barrier, access is. Now anyone with a Butterfly can get a HeartFocus license, download the app from the Apple Store, plug in their probe and perform a limited echo, a scan that's often all you need to get key information fast right at the bedside. It's that easy, and this is why Butterfly Garden is an amplifier. It lets more users practice medicine in ways they couldn't before, improving patient access to timely care. We also have Butterfly ScanLab in our very own AI-powered app that members can use for ultrasound learning at no additional cost. Last October, Kansas City University College of Osteopathic Medicine became the first medical school to use ScanLab in an elective course. This week, they joined us for a webinar to share their results, which 95% of students committed to independent scanning, over 7,000 scans were reviewed and more than 230 faculty hours were saved. This was made possible because they leveraged AI through ScanLab. In fact, the impact and student enthusiasm was so strong, as of this fall, KCU expanded to a one-to-one model using our probes and ScanLab across all 4 years of their curriculum. Continuing on AI. For the last several years, Butterfly has been working with the Gates Foundation and the University of North Carolina on an AI-powered gestational age calculator. In many low- and middle-income countries, women often learn their pregnant late in their term and may not know the date of conception. Yet gestational age is critical in guiding the care and could be life-saving for those far from health facilities. This is where the AI steps in. So using a simple set of blind sweeps across the uterus during pregnancy, the tool automatically calculates the age of the baby. No image interpretation or specialized training required. It's a powerful example of technology meeting accessibility and affordability. Since 2022, more than 1,000 Butterfly devices have been deployed in over 1,000 healthcare providers across sub-Saharan Africa, resulting in about 2 million scans to date. What's exciting is as of Q3, caregivers now in Malawi and Uganda can now use the AI calculator directly in the Butterfly app. No additional hardware needed. And with the tool currently under FDA review, we're looking ahead at bringing it to even more settings. Each of Butterfly's AI initiatives have the opportunity to drive a paradigm shift in how care is delivered and represents exactly what Butterfly stands for, using AI and handheld ultrasound to remove barriers, empower more providers and help improve outcomes. We've built the framework and the platform, and now AI is unlocking massive leverage and bringing our growth strategy to life. So I'll pause here and turn it over to Megan to review the financial results for the quarter. Megan? Megan Carlson: Thank you, Joe. Revenue for the third quarter of 2025 was $21.5 million, reflecting 5% growth over the prior year period, which was primarily driven by higher average selling prices from a larger percentage of iQ3 sales internationally as well as increases in volume mainly in the U.S. Breaking things down between U.S. and international channels, total international revenue increased 4% over the prior year period to $5.4 million. The increase was driven by price given the international launch of iQ3 in the third quarter last year. During the third quarter, U.S. revenue was $16.1 million, which was up slightly from the third quarter of the prior year. The slight gain was due to e-com sales as well as improved performance in our veterinary distribution channel. Breaking our revenue down between product and software and other services, product revenue was $14.6 million, an increase of 8% versus Q3 2024. This increase was largely driven by higher average selling prices in our international markets as well as increased volume within both e-com and vet. Software and other services revenue was $6.9 million in the third quarter, which was flat to the prior year period. During the period, we saw increased licensing and services revenue from our partnerships, offset by lower renewals of individual subscriptions and lower revenue from extended warranties as the standard warranty of our iQ3 probe is longer than our prior models. Software and other services mix was 32% of revenue, which was slightly lower than the third quarter of 2024. The percentage of revenue from software and services has decreased in recent quarters as our product revenue growth outpaced software revenue with the launch of the iQ3 in early 2024 as well as our geographic expansion. Turning now to gross profit. Gross margin, including a noncash write-off of excess inventory of $17.4 million was negative 17.5% compared with 59.5% in the prior year. Adjusted gross margin, which excludes the impact of the inventory write-downs, increased to 63.9% from 60% in the prior year period. The increase in adjusted gross margin was driven by an increase in average selling prices as well as a reduction in software amortization costs. To expand on the inventory write-off, during Q3, we recorded a noncash charge for the write-off of excess quantities of our previous generation chip that are used in the manufacturing of our iQ+ probes. We originally expected iQ+ to continue to be a larger portion of our volume. However, the strong market adoption of iQ3 has outpaced expectations, prompting us to revise our assumptions to reflect a higher proportion of volume attributable to iQ3. In quarter 3, for example, iQ3 accounted for approximately 85% of our probe volume and iQ+ represented the remaining 15%. While iQ+ will continue to serve as the lower cost alternative and address targeted use cases, our earlier forecast assumed a greater share of demand from iQ+. We've since refined our forecast to reflect the actual product mix and market trajectory, resulting in the write-down. Moving to adjusted EBITDA and capital resources. For the third quarter of 2025, adjusted EBITDA loss was $8.1 million compared with a loss of $8.4 million for the same period in 2024. The improvement in adjusted EBITDA was driven by the previously mentioned improvement in adjusted gross profit. These reductions and improvements led to a normalized cash burn of $3.9 million. Cash and cash equivalents, including restricted cash at the end of the quarter were $148 million, and the trailing 12-month use of cash was $31.5 million. Before turning to guidance, I can update you on some macroeconomic factors. As of this morning, we are on the 31st day of the federal government shutdown. To date, we have not been directly or significantly impacted by this. However, we're keeping our eyes on customers that may be impacted as well as agencies such as the FDA. A shorter-term shutdown is not expected to affect our sales pipeline, but a prolonged closure could delay deal timing for the deals that rely on some degree of government funding. However, this is not currently a significant portion of our pipeline. We're also exposed to the indirect, more systemic impacts of a prolonged shutdown such as customer cash flow timing as a result of impact to payers. As of now, we don't see this as a significant risk to our business. Additionally, at this time, the FDA has paused fee-based submissions during the closure, though they'll continue to review in-flight submissions for the time being. Again, a short-term shutdown is not expected to impact our submission time line. However, should it extend significantly, regulatory processing delays could become a factor. We will keep you updated on this matter as it progresses. Next, we continue to see a trend of some of our customers delaying purchase decisions as they navigate macroeconomic factors. And while Q3 is typically our softest quarter of the year, contributing to this were purchase delays that impacted our U.S. hospital and enterprise channels. While timing remains uncertain, we have several large deals in our pipeline we expected to close earlier in the year that remain active. From an opportunity perspective, in addition to unlocking the Octiv pipeline, we are working on several deals within our Octiv business and continue to negotiate an agreement with a large insurance company to reduce readmissions. As soon as we have updates on these, we'll let you know. When we evaluate our headwinds and opportunities together, we are reaffirming our full year revenue guidance in a range of $91 million to $95 million, which implies $25 million to $29 million in revenue for Q4. In order to get to the higher end of the range, we need to close on some of the larger deals that are in our pipeline. Given the visibility we have into the remainder of the year, we are able to tighten our full year adjusted EBITDA loss guidance to a range of $32 million to $35 million or $9 million to $12 million for Q4. We have continued to maintain our disciplined approach to expense control while also investing appropriately beyond our growth areas to enhance our delivery capabilities as additional revenue opportunities crystallize. To summarize, we delivered on the top and bottom line in Q3. And while uncertainties continue to exist around the impact of the government shutdown or the outcome of policy decisions from the administration, we have strengthened the diversification of our business and are excited about the opportunities in front of us. Butterfly is extremely well positioned to meet the needs of our customers as our technology not only enables superior flexibility and strong image quality, but has allowed us to be a much more affordable solution at scale than the current cart-based ultrasound solutions. In addition, our semiconductor development path will continue to improve this price performance advantage with each subsequent generation. Simply put, we see Butterfly as a long-term winner in ultrasound in any macro environment. With that, I'll turn the call back to Joe. Joseph DeVivo: So thanks, Megan. As we discuss almost every quarter, we're working on a compelling growth plan that builds first on our market leadership in point-of-care ultrasound. As I mentioned before, it's coming to life through education, cloud compatibility, incredible technology and accelerated through our leadership in AI. We're also building on our POCUS business with strategic initiatives that we're getting closer to delivering in a meaningful way. We are working every day to transition our home care pilot to a commercial agreement. And the moment we have a significant update, we'll let you know. In parallel, we're engaging with additional national risk-bearing organizations that are receptive to the model we tested earlier in the year. What we've learned is clear that selling probes isn't enough for large at-risk providers. They need scalable models that educate, manage data and competency and enable growth through new use cases and AI. I believe a meaningful part of Butterfly's future revenue will come from solutions, not just devices. Selling hardware alone is in the past and pairing it with software, services and hands-on support is how we'll scale. I'm hopeful we'll bring the first of these opportunities across the finish line very soon, signaling the start of a potent next chapter for Butterfly. I'm also happy to share that we have officially completed the development of our P5.1 chip. As discussed during our 2024 Investor Day, Butterfly's next-gen chip was designed to integrate advanced MEMS capabilities that significantly increase the mechanical pressure associated with imaging, something critics of CMUT technology long claimed couldn't be done. They said our digital approach would never accomplish harmonics like piezo-based handhelds. Well, they were wrong. P5.1 is now entering fab production, and we expect that in the second half of next year, it will debut in its new form factor. If Butterfly iQ3 established performance parity with other handhelds across key presets, helping fuel our sales growth over the past 2 years, P5.1 will surpass them entirely with the potential to make piezo handhelds a thing of the past for nearly all use cases. Apple recently launched its 48-megapixel chip, a continued manifestation of Moore's Law, demonstrating they will never stop innovating. Well, neither will we. Our image quality will continue to make exponential leaps for Butterfly. The only question will be, why would anyone buy a piezo handheld anymore? These competitors are loading their devices with more LED crystals, trying to keep up with what Butterfly's all-in-one digital platform already delivers. But piezo is yesterday's technology. Soon, these devices will be in the drawer next to the film cameras. Big Piezo may be well funded, but they failed to invest and now they no longer deserve the market. I'm equally excited to share that with P5.1's release to fab production, we transition into the beginning of our sixth-generation Apollo AI chip development. Apollo AI is designed to deliver not only lightning fast ultrasound processing, but also a local AI capability at the edge. The upcoming Apollo AI chip introduces a scalable architecture that seamlessly fuses Butterfly's proprietary ultrasound front end with the advanced digital processing, achieving a much smaller chip size and greater power efficiency in order to deliver even better image quality and capability across a broad range of clinical applications. It's intended to support both on-device and edge AI acceleration, providing flexible compute expansion and integration with leading AI platforms. With its intelligent architecture and future-ready design, Apollo AI will serve as the foundation of Butterfly's next wave of innovation, advancing diagnostic imaging performance and enabling a new era of AI-driven medical insight. So finally, Octiv. There are several large ultrasound on-chip partnership discussions that we are continuing having. And while I'm still not at liberty to unpack them for you, I hope you can sense my enthusiasm. Progress is happening and the time line that allows us to share news with you is largely driven by our partners. What I can share is this, if these opportunities play out the way we see them shaping up, Butterfly may, over time, transition from a POCUS company with an ultrasound chip to an ultrasound chip company with a POCUS business. That's a step change in how our core technology will scale and how our total addressable market will multiply with POCUS becoming just one of many ways ultrasound on semiconductors can be deployed across some of the largest medical applications in the world. I am looking forward to providing more information as it becomes available and when our partners are ready. As I close, it's worth remembering just 1.5 years ago, we set out to transform this business. Today, I can see the vision now coming to life. Soon, we'll be swimming in a big, beautiful sea of Blue Ocean. So with that, operator, let's move to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Chase Knitbacker with Craig-Hallum. Chase Knickerbocker: Maybe just first, if there's any way you can help us kind of quantify the size of some of these deals that have pushed because of the macro and kind of what you're seeing from an activity perspective in October as far as it relates to those and the rest of your pipeline as we -- as when we look at kind of guidance, what it implies for Q4, it does imply a nice step-up. And so maybe just speak to kind of your confidence in that pipeline and the activity so far in October. Joseph DeVivo: Well, yes, we've been seeing through the year deals just simply push, and we just haven't been able to get them closed. So those can be in a size of 100 to 200 probes. We have some pretty large medical school deals also. So it's kind of across the board when it comes to anything over 100 probes. Chase Knickerbocker: And then just as far as October has... Joseph DeVivo: Yes, regarding my confidence, we really -- the beautiful thing is that we're not losing deals. This is not a competitive issue. This is not an issue where -- and I think people and especially as we griceite ourselves with hospital administrators very much for the first time, there's an inevitability to this. As I said earlier in my comments, doctors are purchasing Butterflies on their own. And when we tell administrators how many people in their institution own a Butterfly, they're shocked. So -- and not only that, but there's such a preponderance of ghost scans, scans that are not being reimbursed because it's not a part of the ecosystem. So we definitely feel there's inevitability, and we see a lot of activity and people going into the end of the year. I think when we get into a whole new 2026 budget cycle, I think people will feel more comfortable about spending on like brand-new projects. I've seen in other companies where people are saying, okay, well, CapEx is fine. That's because it's budgeted CapEx and they're getting reorders. To do a whole new project to carve out time from the IT department because everyone has some major EMR project. But the carve-out time in the IT department and carve-out time for a big project, that's been just the easiest thing from the delay. So we're definitely seeing that the opportunities are stacking up, which is good. And we're very hopeful -- we wouldn't guide to the quarter if we didn't feel confident with what we put out there. Chase Knickerbocker: Understood. And maybe just on the subs and software side of the business. It sounds like there's a little bit of some lower renewal rates. Can you just maybe discuss kind of drivers there and kind of how you think you can kind of improve some of those metrics, particularly with Compass on the horizon here? Megan Carlson: Yes, sure. Thank you for the question. So we continue to see churn in our individual subscription as we've seen over the past couple of quarters. And also year-to-date, we've seen an uptick in our enterprise subscription. In terms of timing of subscription as a percentage of revenue, a lot of it is just that timing because the software and the hardware have different revenue recognition patterns. But as you mentioned, we are very excited about the rollout of Compass AI later in Q4. Operator: And the next question comes from Josh Jennings with TD Cowen. Joshua Jennings: I wanted to just follow up on the sales funnel or pipeline and just ask about -- maybe remind us of the sales cycle and timing and just how the pipeline is shaping up for 2026 in terms of an outlook for growth. It sounds like with some of the delays -- with some of the concerns or just tightening of capital spending for new projects that the sales pipeline may be more full heading into '26 than what you're experiencing heading into 2025, but maybe just help us think through that as well. Joseph DeVivo: Yes, Josh. Well, clearly, the time to close has extended. So we have -- we definitely have a lot of deals that have aged beyond what we would normally have an age. So if anything, we're stacking up more and more deals, but we haven't been closed fast enough. So again, I think that's going to -- that will lift in '26. I think there was a bit of a shock to the system in '25 and then people have been mitigating and managing it. But whenever we get to the end of the year, there are always dollars that people have to spend, and we'll be fighting for those dollars. Joshua Jennings: Just on the -- just the Robert Wood Johnson and the cost savings and cost effectiveness, I think that cost effectiveness data is accruing nicely for Butterfly iQ platform. But I mean, how powerful can that be in terms of driving stronger interest and closing of deals as we get into 2026 as your team is able to market that Robert Wood Johnson study published in JAMA and others? Joseph DeVivo: It's really important for a bunch of different reasons. The first is that it establishes that pulmonary congestion is a very key endpoint for congestive heart failure. So from a pure clinical standpoint and which -- whether we go in home, we go in outpatient or we go in inpatient, using ultrasound and using it as a marker for congestive heart failure progression or lack of progression is really important. I'm dealing with a chest cold here. So also, when we have our enterprise conversations, the primary place that we start from an economic side is go scans. 35% of the scans in a hospital in point-of-care ultrasound, make it all the way through to reimbursement. When they put Compass in place, that goes to 70% to 80%. So we have that great economic benefit. But that's also something that they capture that benefit in the first year of putting the software in and then going forward, they can say they're anniversarying that benefit, but where is the next benefit. So the next big economic piece of evidence that we have identifies the fact that by using point of care in the intensive care unit, by every day a doctor just pulling out a probe very quickly, doing a pulmonary scan and using a pulmonary scan with our AI shows significant economic benefits in the ability of managing patients in the hospital. So it's not just about early diagnosis. It's about taking care of the patient's wellness at the moment that the doctor sees that, giving them the tools to see something instead of having to order a scan. So when we sit with administrators now, we have a second big indisputable set of evidence around the economic value of doing this. And when we sit with administrators, it's not necessarily people saying, should we do this? I think actually, with this next piece of economic evidence, people believe they need to do, it's when. When am I going to take on this project? When can I stack it in with IT? When should we move forward? And so it's just such a wonderful piece of evidence that helps our economic argument when we think about our enterprise sale. Joshua Jennings: Excellent. If I could sneak in one more. I mean it sounds -- I know there's no update on the home program today, but you did complete a pilot program with a major partner and payer. Just to check the box. It's not a matter of if, but when it sounds like, and you'll just provide an update when that partnership kind of finalizes and no diminished kind of optimism or enthusiasm about that channel and that opportunity is my understanding, but I just wanted to clarify that. Joseph DeVivo: Well, not certainly about the channel, but until you have ink on something, it's not real. So I would have liked to have had it done by now. It will be done when it's done. I just don't control it. Operator: [Operator Instructions] Our next question comes from Andrew Brackmann with William Blair. Andrew Brackmann: So you seems very confident on the P5.1 chip and new form factor launching next year. Can you maybe just sort of talk to us about what's needed to get to the point of launch sort of between now and then what you're going to be working on to sort of derisk that launch? And then when you get there, anything you can share on just sort of the product build ahead of that launch or anything on pricing that you might expect for P5.1? Joseph DeVivo: Well, thank you. So P5.1 will certainly be a highly specialized product. We haven't identified pricing yet. We'll get to that closer. As you saw with iQ3, we've been able to establish a new price watermark. We've been able to improve our overall corporate gross margins. We've been able to maintain not only a higher blended ASP, but at that higher ASP, iQ3 has outsold iQ+ to a pretty significant magnitude more than we expected. So we -- it's not implausible to think those trends would continue with the next version. Putting a chip in a probe, tuning the chip to our software and AI, getting that probe completely -- these -- every year, we launch a new technology or develop it, it's a great coalescing effort for our company because there's not a team in the business that's not touching that new product. So iQ3 was a very successful launch. It's a very successful effort on getting the technology to market. And I don't think there's any different. There's -- the beautiful part of when we're bringing in new processors is we're not having to reinvent every wheel. We bring a new processor in. We tune all the components and all the software to the edge capability of that processor and then we roll it out. So I think the risk to execution on launching the new product is pretty low. I think there's always risk. The call it research for that purpose. But I think right now, we look really good. Andrew Brackmann: That's perfect. And then just on the info security piece, you had the press release out earlier this week and then obviously touched on this call. Maybe just in practical terms, how does this help you win business? And as you sort of think about sort of what you've achieved here, do you think that this is sort of table stakes for the entire market? Or is it a sort of meaningful differentiator for Butterfly? Joseph DeVivo: It's an interesting dynamic because aside from one other independent competitor, and I could be wrong maybe by one. But in general, the industry is on-prem. The industry has software that they'll connect to a WiFi and they'll push an image into a DICOM, but they're not cloud connected. And so when you're not cloud connected and you're on-prem, you don't really have to worry about security because people don't -- can't get into your device. But our competitors have clearly communicated that they really want to follow in our footsteps and finally catch up to where we've been for a while. And so the industry is going to cloud connectivity on imaging devices. And so historically, our competitors would use it as a selling disadvantage for Butterfly. They would say, oh, you have to connect it to the cloud. So you have to now have all of this security concerns, which is kind of garbage because every single hospital has an AWS cloud interface. And so we have -- by being the first company that's mass commercial in the cloud, we've had to kind of set the bar on security and make sure that we deal with data compartmentalization, we deal with the HIPAA requirements proper. We deal with all the different multiple layers to ensure that the data is secure. Because remember, we have 25 million images in our cloud growing 30,000 a day, keeping that data secure, making it available to our customers, porting it into their systems for the EMR, for DICOM, for reimbursement is essential. And so we expect in 2026 that we'll have our HITRUST certification and FedRAMP, which is the highest certification of any security basically worldwide. It's the most complex. And so to have a cloud environment, have that level of security is insane. So it has always been our competitive advantage to have cloud. It's always been our competitive advantage to be there. All others will say bad things about us and say until they finally get there and then they'll say how great it is, which I think is absolutely hilarious. But we absolutely believe that cloud is the way to be able to manage large fleets to be able to manage data, push and pull large complex models, create overall connectivity. And we have literally the best cloud security posture in the industry. Operator: [Operator Instructions] And our next question comes from Ben Haynor with Lake Street Capital Markets. Benjamin Haynor: Joe, on the commentary on Apollo AI, I was just curious, have there been kind of upgrades to the original design as far as the kind of edge AI aspects to it beyond what was kind of discussed at the Investor Day last year? Joseph DeVivo: Yes. Benjamin Haynor: Any more color there? Joseph DeVivo: Yes. So we have pushed the boundary of Apollo to include the ability and to make sure that we are capable to do local AI on the chip. That is the next biggest trend in AI instead of having to calculate and process AI in the cloud and then push the devices to be able to do it actually on location is the next biggest processing feat and it creates a significant amount of local benefits in speed and capability. Instead of having to take something, push in the cloud process it and wait for it to come back by having that processing power to do it dynamically in your hand is a major step-up. So yes, Apollo has 20x the processing power of P5.1 and our legacy. And so we're making sure that, that processing power is put to the right use. Benjamin Haynor: And I guess, maybe dovetails a little bit with your last comment regarding the cloud in terms of kind of pushing and pulling models that you would be pushing and pulling the correct model or maybe not -- the relevant model to the device if you're doing XYZ scan. Joseph DeVivo: Well, yes. I mean, today, one of the benefits of our cloud architecture is we do -- like it does work like an ecosystem. You have the device, you have the app and then there's this dynamic communication with the cloud. And we kind of purpose data processing where the assets are available. But as AI models get more and more sophisticated, it's certainly possible that, that becomes more of a lag and you want to have greater local control. So for the individual device to have that kind of processing power creates a much faster way of delivering that feedback. And that is on -- literally on the edge of where AI and compute are going today. Benjamin Haynor: Yes. So specialized model to push the device eventually. Got it. Go ahead. Joseph DeVivo: Yes. So more and more AI capabilities be processed on the device. Benjamin Haynor: Got it. And then just curious on any updates to -- with regard to IQ Station or the RoHS situation with the European Commission? Joseph DeVivo: IQ Station is actively in development. And when we get closer to a date, we'll put it out there. a big part of our future strategy. And regarding RoHS standards, it's on August 1, they closed the book on any type of submissions from ourselves or our competitors. And it's in the midst of a third-party review. That third party is reviewing data and then asking questions as they see necessary. And then hopefully, sometime next summer, they'll render their decision or their opinion to the government to the governing body, and then we will -- they'll make a decision. But it's kind of their -- all the data now is sitting there. They're crunching the data, and we're in that quiet period unless they ask questions, and we're waiting for an answer. Operator: And that was our final question. So I will hand back over to Joe DeVivo for any final comments. Joseph DeVivo: So everyone, thank you very much for the support. Sorry about my seasonal cough I keep getting. We're thoroughly excited about the progress that we're making, and we're thoroughly excited about what's to come. We definitely think we had a slower start to the year, but everything that we're building is very, very strong. And I just can't wait to be able to unpack a lot of other things for you as they mature. And also, I'm just very appreciative for Megan Carlson, our Interim CFO, for doing just such an expert job in this interim. So thank you, Megan, and thank you, everyone, for your support. Operator: Thank you, everyone. This concludes today's call. You may now disconnect. Have a great rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2025 Third Quarter Results Conference Call [Operator Instructions] Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead. Marry Skafidas: Thank you. Hello, everyone, and thanks for being with us today. Our speakers for the call are Stephan Tanda, our President and CEO; and Vanessa Kanu our Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. I would now like to turn the call over to Stephan. Stephan, over to you. Stephan Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our third quarter results. Later in the call, Vanessa Kanu, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3. For the third quarter, we delivered adjusted earnings per share of $1.62. During the quarter, growth in our Pharma segment was driven by solid demand for proprietary drug delivery systems for central nervous system therapeutics, asthma, COPD and ophthalmic treatments. We saw moderating demand for emergency medicine dispensing systems. We also captured significant growth in injectables during the quarter from increased demand for elastomeric components for GLP-1 medications and solid growth in our Active Materials Science division. When you step back and look at our Pharma segment's performance for the first 9 months of the year, prescription has a 7% core sales increase, injectables at 6% and growing and active material science is up 8%. Consumer Healthcare continues to be affected by the destocking and is down 11%. Additionally, royalties continue to contribute positively to our top and bottom line results. And we're continuing to invest in the ongoing growth and innovation within pharma. To that end, we have signed an agreement to acquire Sommaplast, a Brazil-based provider of oral dosing pharma packaging solutions, including droppers, dispensers and dosing cups. Aptar has been manufacturing in Brazil for 25 years, and this acquisition, which is subject to regulatory approvals and anticipated to close later this year is expected to further reinforce our footprint in the region. It also helps position us to capitalize on growth in Brazil's oral dosing, over-the-counter and nutraceutical markets, which are projected to grow at mid- to high single digits through 2030. This growth is driven by an expanding population, rising middle class and aging demographic. In our Beauty segment, for the quarter, we saw revenue growth in a number of regions over the previous year quarter, such as Asia, Latin America and certain end markets in North America. At the same time, in Europe, our largest region, sales were flat as we continue to see softness in our higher-value products such as facial skin care and in certain prestige fragrance end markets. Our Prestige fragrance pumps did have modest volume growth in the quarter. Additionally, we saw lower sales for our full pack solutions that service the India market in the U.S. due to the challenges at one of our larger customers. In the first 9 months, Beauty reported sales rose 2%, while core sales held steady overall. Strong 11% growth in Personal Care helped balance softer demand in Prestige fragrance and facial skin care. Turning to the Closures segment for the quarter. While product volumes were up, lower tooling sales and pass-throughs of lower resin pricing impacted core sales growth. For the first 9 months, closures reported and core sales rose 1%, driven by a 5% increase in product sales, partially offset by lower tooling sales and the pass-through of lower resin pricing. Food and beverage markets saw solid growth and Personal Care declined. Turning to innovation. I'd like to highlight recent technology launches and key news as shown on Slide 4. Starting with the Pharma segment, our Unidose liquid system is used in the newly FDA-approved Enbumyst by Corstasis Therapeutics, the first intranasal loop diuretic for treating edema linked to heart failure, liver and kidney disease. This approval underscores the growing role of nasal drug delivery in systemic treatment and our commitment to patient-centric solutions. An Aptar proprietary nasal system is also used in a Phase I clinical trial for a powder nasal spray managing Parkinson's OFF periods. Managing Parkinson's OFF episodes means treating periods when medication wears off and symptoms like stiffness or tremors return, often by adjusting medication timing or using fast-acting rescue treatments for on-demand relief. During the quarter, we signed an exclusive partnership with French biotech company, Dianosic, to develop a bioresorbable intranasal insert for long-term local drug delivery in chronic allergic rhinitis and rhinosinusitis. This collaboration also explores nose-to-brain delivery for neuropsychiatric and neurodegenerative diseases. Next, our HeroTracker Sense technology has also received FDA 510(k) clearance as a Class II medical device. This Bluetooth-enabled sensor transforms traditional inhalers into smart, data-driven tools for patients and providers. Finally, we inaugurated our expanded pharma research and development center in France, which helps boost capabilities across our proprietary drug delivery business. It's one of Aptar's 11 global innovation centers. Over 10% of our pharma workforce is dedicated to research and development, supported by nearly 4,700 active and pending patents. The center integrates advanced technologies, digital simulation, rapid prototyping, predictive modeling, data utilization and artificial intelligence. It is aimed at accelerating and derisking development of next-generation drug delivery solutions. Turning to our Beauty segment. During our recent Investor Day, we showcased our award-winning technology for the Clarins reloadable total eye-lift serum featuring our patented ALS packaging with a highly recyclable reload and double tamper seal system. In fragrance, Christian Dior is using our prestige fragrance pump for its new launch Miss Dior Essence Parfum. Finally, our Precise dropper technology used for the controlled and targeted application of liquid formulas is a dispensing solution for the indie brand basic lab in Europe. Lastly, in Closures, Marzetti's Buffalo Wild Wings sauces in the U.S. feature our poor spout closure, a more lightweight sustainable solution that delivers convenience. In the beverage concentrate market, our flip top non-drip solution was chosen by PepsiCo for their SodaStream syrups. Moving to Slide 5. All of this would not be possible without tremendous teams around the world. We take great pride in the numerous recognitions we have earned, including being named among the top 100 of the world's best companies for women by Forbes. This honor highlights our ongoing efforts to build an inclusive culture that empowers individuals to grow, connect and reach their full potential through meaningful development opportunities and inclusive initiatives. Before I turn the call over to Vanessa to share further details on the quarter, I want to highlight that we continue to focus on returning capital to shareholders through share repurchases and by increasing our dividend. To date, 2025 has been a banner year for share repurchases, and we plan to lean in more. In addition, we recently announced an increase to our quarterly dividend by nearly 7% to $0.48 a share. This underscores the strength and resilience of our business model as well as our confidence in Aptar's long-term growth prospects. We are very proud of having paid an increasing annual dividend for the last 32 years. Now I would like to turn the call over to Vanessa. Vanessa Kanu: Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter on Slide 6 and 7. Our reported sales increased 6% and core sales, which adjust for currency effects and acquisitions, grew 1% compared to the prior year period. Before moving further, I want to call out that this quarter, we had a couple of atypical items impacting our reported net income. First, as a result of the BTY transaction that closed this quarter, we recorded a gain on the remeasurement of the previously held minority interest of approximately $27 million, which increased our net income. And as this gain is nontax impacting, it reduced our reported effective tax rate for the quarter to 17.1%. Our adjusted effective tax rate, which excludes the impact of this item, was 20.8%, in line with expectations. Second, as we mentioned on our prior quarter call and in our recent Investor Day, we are engaged in litigation to actively and vigorously defend our pharma IP portfolio and products. This resulted in atypical litigation costs of approximately $4 million that impacted our net income. As the gain on remeasurement of our equity investment and the litigation costs incurred in the quarter are both atypical and not indicative of operational earnings of our business, we have excluded both of these items from our adjusted EBITDA and adjusted earnings per share for the quarter. All references that I now make to adjusted EBITDA and adjusted earnings per share exclude these items. A full reconciliation is provided in our earnings press release and in our 10-Q. With those high-level comments, let's take a closer look at segment performance. Turning to Slide 8. Our Pharma segment's core sales increased 2%. Let me break that down by market, starting with our proprietary drug delivery systems. Prescription core sales increased 3%, driven by strong year-over-year demand for dosing and dispensing technologies for central nervous system applications, asthma and COPD therapeutics. We also saw growth for emergency medicine, albeit at a slower rate. And royalty payments continued to contribute positively to revenue in the quarter. Consumer Healthcare core sales decreased 11%, primarily due to lower sales of nasal decongestant and nasal saline. Sales for ophthalmic solutions continued to grow in the quarter, but could not offset the overall decline in cough and cold volumes. Injectables core sales increased 18% with strong demand for elastomeric components used for biologics, GLP-1 and regulatory-driven Annex 1 requirements. Services also contributed positively in the quarter. And for our active material science solutions, core sales increased 3%, driven by continued strong demand for active material science technologies for diabetes treatments. Pharma's adjusted EBITDA margin for the quarter, which excludes the impact of nonordinary course litigation costs referenced earlier, was 37.2%, a 120 basis point improvement from the prior year. The margin improvement was driven by increased sales of higher-value proprietary drug delivery systems, services and royalties. Moving to our Beauty segment on Slide 9. Core sales were flat in the quarter. While increased tooling revenues provided a lift, these gains were offset by a decline in product sales. Looking at the Beauty segment by market, fragrance, facial skin care and color cosmetics core sales decreased 5%, primarily due to lower sales of skin care dispensing products for indie brands in North America. Personal Care core sales increased 13%, driven by continued strong demand for body care and hair care applications. And core sales for Home Care, the smallest end market in our beauty portfolio, decreased 18% in the quarter due to the timing of some nonrecurring service fees in the previous year. This segment's adjusted EBITDA margin for the quarter was 12.1%, a decline of 120 basis points. The decline in Beauty margins primarily reflects less favorable sales mix and lower margin tooling sales. Moving to Slide 10. Our Closures segment core sales decreased by 1% compared with the prior year. While product sales were up 2%, this growth was more than offset by lower tooling sales and pass-throughs of lower resin pricing. When looking at the market fields for closures, food core sales decreased 4%, primarily due to lower tooling sales, while volumes increased across a number of categories. Beverage core sales increased 9%, primarily driven by increased sales for functional drinks and bottled water. Personal Care core sales decreased 8%, while in our other category, which includes beauty, home care and health care, core sales were flat. This segment's adjusted EBITDA margin was 16.1%, representing a 110 basis point decline over the prior year, primarily due to unscheduled equipment maintenance that impacted production. At the total company level, consolidated gross margins declined by 80 basis points year-over-year, while SG&A as a percentage of sales declined from 15.6% to 15.5%, a 10 basis point reduction. SG&A expense in absolute dollars increased largely due to the aforementioned nonordinary course litigation costs incurred in the quarter. Overall, consolidated adjusted EBITDA margins increased by 30 basis points to 23.2% compared to 22.9% in the prior year period. And adjusted earnings per share was $1.62, up 4% year-over-year on comparable foreign exchange rates. Slides 11 and 12 cover our year-to-date performance and show that reported sales increased 3% and core sales increased 1%. Our reported earnings per share increased 17% to $4.75 and adjusted earnings per share increased 7% to $4.48 compared to the prior year, including comparable exchange rates. The current year had a reported effective tax rate of 20.4% and an adjusted effective tax rate of 21.9% compared to the prior year reported and adjusted effective tax rate of 22.7% and 22.8%, respectively. Neutralizing both the effective tax and exchange rates for the year ago period, adjusted earnings per share would have been up 6%. Additionally, adjusted EBITDA increased 8% to $624 million, and the adjusted EBITDA margin increased by 100 basis points to 22.2%. In the first 9 months, free cash flow was $206 million, comprising cash from operations of $386 million, less capital expenditures net of government grants of $180 million. The year-over-year decline in free cash flow was largely due to higher working capital and higher pension contributions in 2025. These were partially offset by lower capital expenditures. Finally, we ended September with a strong balance sheet once again, reflecting cash and short-term investments of $265 million, net debt of $936 million and a leverage ratio of 1.22. Over the past 9 months, the company has returned $279 million to shareholders through share repurchases and dividends. So far this year, we have repurchased 1.3 million shares for $190 million, the highest repurchase amount in a decade. Of the $500 million authorized by our Board of Directors for repurchases, approximately $270 million remains available as of the end of September. Given the recent trends and the strength of our balance sheet, we expect to fully utilize this remaining authorization over the next couple of quarters. Before we move on to outlook, I'd like to provide a brief update on our emergency medicine portfolio, where we continue to see strong underlying demand, but we anticipate near-term headwinds in this end market that we expect will impact Q4 and at least the first half of FY '26. To help with your modeling, as we previously shared, in 2024, emergency use delivery systems represented approximately 5% of total company sales. For the first half of 2025, this end market accounted for 7% of Aptar's total sales. Revenue for the first half of 2025 grew roughly 50% year-over-year, while Q3 showed more modest growth. For Q4 2025, we expect a more pronounced deceleration mainly due to elevated inventory levels at a large customer and expect revenue contribution for the full year 2025 to be about 5% of total sales. While demand from other customers remains healthy, we expect this inventory normalization to extend into 2026. Based on what we currently know about end market demand, funding dynamics and customer inventory positions, we anticipate 2026 revenues from this end market to be approximately 35% lower than 2025. Given the high-value nature of this portfolio, this will have a compressing effect on overall margins prior to any mitigation actions. Now on to outlook for Q4, summarized on Slide 13. We expect continued strength across the majority of our Pharma businesses in Q4, particularly injectables, driven by rising demand for higher-value elastomeric components, fueled by growth in biologics, GLP-1 therapies and Annex 1 compliance requirements. Partially offsetting the growth in injectables is softer demand for emergency medicine that I just spoke about. For the consumer businesses, we anticipate Beauty will have positive core sales growth in Q4 and product sales volumes for closures will also continue to grow. In terms of earnings per share, we anticipate fourth quarter adjusted earnings per share to be in the range of $1.20 to $1.28 per share. Our effective tax rate range for the fourth quarter is 19.5% to 21.5%. Our guidance for the quarter is assuming a EUR 1.17 euro to USD exchange rate. Additionally, as you will model depreciation and amortization, due to the closing of the BTY transaction and other timing and FX impacts, we expect fourth quarter depreciation and amortization expense to be between $75 million and $80 million. With that, I will turn it over to Stephan to provide a few closing comments before we move to Q&A. Stephan Tanda: Thank you, Vanessa, for the review of our emergency use delivery systems business. Now let me step back and share the bigger picture. In the short term, we faced some headwinds due to tough comparables from the exceptionally steep onetime ramp-up of the unique naloxone distribution channels as well as uncertain and evolving landscape around government funding. Steady state, our customers expect this market to grow in the low to mid-single digits. Over the past 2 years, our prescription division serving this market has grown at brisk double-digit rates. After a period of destocking, we anticipate more stable sales of our dispensing systems. Looking ahead, we expect our pharma pipeline to continue to be strong and robust. As I shared during the Investor Day, it has been contributing 7% to 10% of revenue annually. What is important is that our revenue stream in pharma is largely based on the treatment of chronic diseases with the help of our proprietary solutions, resulting in a long-term stable to growing business with new launches layered on top of that base. We believe this is possible because together with the molecule, our dispensing system form a combination medicine, which is part of the regulatory filing and remains embedded in the drug master file. Vanessa touched on injectables, I want to highlight that we are seeing good and strong growth in the very areas where we have invested, GLP-1, Annex 1 and biologics. Our investments in added capacity and capabilities in high-value products are paying off. Closures is performing well. The reorganization we started 2 years ago has delivered solid growth and innovation traction. Beauty has lowered its cost base and breakeven point, which we believe is giving it a competitive footprint. We have reinforced operational efficiency and cost discipline as an important part of our culture, and these efforts sharpen our execution. We also keep a close eye on shareholder returns, strategic capital allocation and bolt-on acquisitions. Bolt-ons are a core strength. Take our Brazilian Pharma Packaging acquisition as just the most recent example. As we look to the future, we remain confident in our ability to deliver sustainable profitable growth. We believe our business model is resilient. Our pipeline is robust and our teams are focused. With the right mix of innovation, operational discipline and strategic investments, we think we are well positioned to continue creating value for our customers, our employees and our shareholders. With that, I would like to open up the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird [Operator Instructions]. Ghansham Panjabi: Can you hear me okay? Stephan Tanda: Yes, hi Ghansham. Vanessa Kanu: Hi, Ghansham. Ghansham Panjabi: Just so I can understand your comments specific to '26 for Pharma. So is it right to assume that you're assuming 7% to 10% growth just from the new product pipeline, et cetera? And then emergency medicine is roughly 11% of pharma, and that's going to be down 35%, and that's how we should calibrate as it relates to the growth expectation for next year? And then related to that, where are we on the cough and cold, specific to Europe in terms of the destock? Is it going to drag into 4Q? And yes, where are we on that? Stephan Tanda: Yes. Let me start and then Vanessa, please chime in. The 7% to 10% comment was just to reiterate what we covered at Investor Day that we have a stable growing business and on top of that is innovation, and that supports our long-term target. It was not meant to give you a guidance for '26. So when we look at out to '26, of course, we don't give guidance for '26. We made an exception for emergency medicines for the obvious reasons, and Vanessa went through that in quite some detail. Zooming out, we expect injectable to grow very nicely, high single-digit, low double-digit rates for the coming period. We expect Consumer Healthcare to return to growth. To your second question, we believe that has largely run its course with quarter 4 potentially returning to growth admittedly versus a lower base and also active material returning to growth. So the key impact will be emergency medicines and Vanessa can reiterate some of that, if you'd like. Vanessa Kanu: Yes. No, absolutely. But I think, Ghansham, you got the number. It is -- again, we expect for the full year 2025 to be roughly 5% of the total company. And so for the pharma business specifically, it will be in that 10%, 11% range of revenue. So that goes down about 35%. Ghansham Panjabi: And then European cold and cough or cough and cold. Stephan Tanda: Yes, that's what I was referring to, sorry. That has largely run its course. We expect quarter 4 to potentially be growing again and certainly growing into next year. Ghansham Panjabi: Okay. And then for my second question, so for the initial 3Q guidance, you did include the litigation cost of $0.06 to $0.07. And then you've changed that going forward? And just give us a reason as to why that is. Vanessa Kanu: Yes. We did, Ghansham. So we did give the estimates. We said it would be roughly $5 million to $6 million a quarter, roughly $0.06 to $0.07 of EPS impact. You will see in our disclosure that the actuals for Q3 came in at about $4.4 million. We did disclose that. But this is litigation. This is litigation. The timing of the litigation is always uncertain, and you discover things through as the litigation progresses. And as we looked at the business, I mean, these are elevated litigation costs, very atypical. You know Aptar, you have a very long history with the company. We don't typically do this. So these are very atypical costs. And when you look at the underlying performance, the underlying operating performance of the business from a management perspective, this is not indicative of the underlying performance of the business. And so we certainly provided all the transparency that we need to, but we wanted to make sure that we called out what the underlying operating performance was of the business. Stephan Tanda: You're quite right. It was when we gave the guidance. Operator: Your next question comes from the line of Paul Knight with KeyBanc. Paul Knight: Can you talk to the GLP-1 marketplace and Annex 1? What level of contribution to growth do you think those 2 markets represent? Is it 100, 200, 300 basis points of additional organic growth? Or can you quantify it is the first question? Stephan Tanda: Yes. Paul, we don't break it out in that detail. But clearly, GLP-1 is a solid driver probably in the quarter and let's say, in the couple of quarters to come, top one driver of growth. Annex 1 closely behind and then obviously, biologics continues to fill the pipeline. Now we are on all of the auto-injectors. And remember, there was always 2 SKUs on an auto-injector, plunger and needle shield and 2 companies can say they're on the same auto-injector and it may very well be true. And on the plunger side, I think there's even some double sourcing. So -- we had lower growth rates in the beginning of the year quite simply because we were still validating some of our capital investments and some of the equipment. Now as of, let's say, middle of the year, early quarter 3, everything has been fully validated and we can catch up with demand. So the growth rate you're seeing is reflective of the market demand, but also a certain catch-up. That's why we feel we're going to have a very strong finish of the year. The other question, of course, that people often ask what about our oral? Is that going to crimp demand? We don't see that at the moment. One, it's still quite a bit away. Two, from everything we hear, it's more intended to serve markets that don't have cold chain capability, but pricing will be such that it will not obsolete existing investments by our clients. That's our best read. Vanessa Kanu: And maybe the only other thing I'll add just because we did mention GLP-1 specifically, Paul, we continue to see really healthy year-over-year growth rates. For September year-to-date, we're up over 40% compared to the prior year. So to Stephan's point, we're seeing some very healthy growth there. Paul Knight: And then lastly, Annex 1 with your large French operations, are you seeing what is that #2 or 3 benefit you said in the quarter? Stephan Tanda: Correct. Correct. Now I don't want to make too light of it, but they basically say you need to provide sterile products. Well, this is not a change of the world. It's just some customers as a result, decide to go more towards higher value solutions. Operator: Your next question comes from the line of George Staphos with Bank of America. George Staphos: My 2 questions. First of all, certainly, you've had progress in your non-pharma business operationally over the years. You've been doing really quite well in closures better than we would have expected a couple of years ago, props to you on that. Beauty, we certainly recognize the challenges that you've been managing against yet the margin still seems to be slow to come around. What is the next 2 or 3 steps that are going to drive higher margin in Beauty -- when should we expect that inflection? And then a separate question, just as we think about the pharma business and the product side and recognizing you love all of your kids and you have a tremendous suite of products, and that's the reason why you've been able to grow 7% or better over the years. Should we expect that unit dose has been where you've seen most of the product activity recently? Just seems like that's the case from your slides even today and some of the commentary in the last couple of quarters. How should we think about that? Stephan Tanda: Sure. Thanks for recognizing the progress, George. I take any compliment I can get, especially for closures. I would say that #1, 2 and 3 for beauty is volume. But clearly, we're never done with the productivity story. We have significantly strengthened the competitiveness of the footprint. We see that now flowing into project activity, including leveraging our very agile China footprint for rapid prototyping, small volume launches and so on. So that makes us quite confident that the volume is going to come. Number two, it's a regional story. As we've discussed, Europe is already well in its target range. Of course, it's a global target, not a regional target, but nevertheless, China is also doing well. Where we are currently held back is North America. We talked about the -- what is in essence, our Fusion PKG business that serves indie brands with a significant customer having issues. And then overall, of course, innovation continues to be a key driver in that business. And again, with a more competitive infrastructure that gives us confidence that, that business will grow. Now on your second question regarding our kids, yes, high dose is important. So especially also for a lot of those things in the pipeline for additional indications. I mean, I mentioned the one to treat edema and I think tachycardia is not much far behind. But we also have other formats. Of course, SPRAVATO is a good example. It's a Bidose that supports Johnson, J&J's ramp-up. And we have large volume powder inhalers and many other formats. But clearly, emergency medicines, which is primarily Unidose played a big role in the last couple of years. George Staphos: Stephan, if I could just get a clarification point on volume in Beauty. Did you see signs of destocking in your customer base in the quarter or looking at the fourth quarter? You don't have to go into great detail. Just curious, yes or no. Stephan Tanda: Not really. I think there's more of -- keeping the powder dry for next year. Customers really manage their year-end inventories. We actually see encouraging signs for quarter 1 order entry as opposed to destocking. Operator: Your next question comes from the line of Matt Larew from William Blair. Matthew Larew: I want to ask about growth expectations for the Pharma segment. So over the last kind of 12 months, core sales growth has been about 3%. Obviously, you've been dealing with the cough and cold destock. But it sounds like you've had a benefit from higher NARCAN sales given that, that was 7% -- emergency medicine as a class was 7% in the first half of the year. So as you think about kind of the more medium-term period, understanding you're not giving guidance, what's the level of confidence that 7% to 11% absent the variety of moving parts is still the right range given that, again, it's been several quarters now since you've been at the low end of that range. Stephan Tanda: Yes. Well, first, let's acknowledge 7% to 11% is our long-term target range. It's not a quarterly and conceptually not even a yearly number. It's a long-term target range. We've been in that range for many, many years. There were some years where we've not been in that range. But I think everything we went through in September, what we have in the pipeline, the growth that we see coming out of the pipeline with launches, the injectable growth, active material growth, the lapping of consumer health care European cough and cold as Ghansham calls it. All of these things are contributed to growth. Of course, the emergency medicine situation, we've described as best as we could that kind of gets us the visibility perhaps into the middle of next year. So nothing has changed about the attractiveness of our pharma pipeline, about our pharma business, the pharma markets. And yes, we just reaffirmed the 7% to 11% growth rate in the Investor Day as the long-term target. So no reason to change that. Matthew Larew: Okay. Very good. And then obviously, from a capital allocation standpoint, the balance has been towards pharma in recent years. And Stephan, you alluded to the validation of some equipment to bring on new capacity. As you're starting to ramp your injectables capacity and now thinking about the next level of capital investment, what are the areas that you think are most interesting? And at what point do you think from an injectable standpoint, you will need to start to think about broad capacity again? Stephan Tanda: I think we have quite some time with injectables. You may remember, I disrespectfully called it the large boxes. We built 3 large boxes. There's a lot of equipment we can put in that box in injectables. And to creep capacity as needed, and those are much lower increments. So we don't foresee a next large increment for quite some time, certainly not on the books. Operator: Your next question comes from the line of Daniel Rizzo with Jefferies. Daniel Rizzo: I was muted. Just with the NARCAN with the emergency medicine, is that a significant margin difference between that product and others? Or is it kind of just along with the rest. I was just wondering how we should think about that effect on... Vanessa Kanu: Dan, thanks for calling that out. I did mention that in my remarks. There is a significant margin differential. I mean, as you can imagine, emergency medicine being a high-value life-saving product with high regulatory requirements, quality requirements, et cetera. These are very high-value products to us. So certainly amongst the highest of our margin products within our overall pharma portfolio. I can't give you specifics. As you can imagine, we've got competitive reasons not to share that publicly. But as you kind of think about our overall pharma portfolio, this is amongst the highest of the margins. Daniel Rizzo: I'm sorry, I must have missed that. I understand you talked about volume and mix. How does pricing work on an annual basis? Is it generally like a 100 to 200 basis points tailwind? Just -- I mean, across the board. I'm just wondering how that kind of plays into the things versus -- also versus -- I mean, some of your costs, which are generally not kind of called out, but I was just wondering how we should think about price versus cost. Stephan Tanda: Yes. Clearly, pharma is about value and use pricing. So price is not very much related to cost. The material content is in relation to the other value added, whether it's quality systems, whether it's data packages, additional services, completely different mix than in our consumer-facing business. So -- the one addition I would want to add to Mary -- sorry, is that it's really our Unidose system that is quite attractive. It's not just limited to NARCAN. It's across the board in our Unidose system as our Bidose system. Clearly, anything that is life-saving and central nervous system targeting is more profitable than allergic rhinitis business, of course. Operator: Your next question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: Can you all hear me? Stephan Tanda: Yes. Hi, Matt. Matthew Roberts: On the emergency medicine, again, I'm just trying to square some of that commentary with a customer in emergency medicine. It seemed like NARCAN was down, but sequentially improving, and they noted some international potential and broader market growth. So are there other categories within emergency medicine that are still growing? And if so, how much specifically is naloxone expected to be down? And maybe into '26, what gives confidence in a second half recovery and any market share changes or shifts in that category at all? Stephan Tanda: Yes. Matt, we don't break down different indications or SKUs within the emergency medicine category, but things like neffy, things like hypoglycemia, BAQSIMI are also in that category. The -- I don't know which customer you referred to, but maybe there's one publicly traded customer is pretty important. You could look at their balance sheet and their inventory. I think that will be a big part of the reconciliation you're looking for. Vanessa Kanu: Yes. Yes, that's exactly right, Matt. They are -- they did express some optimism going forward, which I think actually validates that things will improve. But as we said in our commentary, there is inventory in the system. So they'll have to work through -- customers will have to work through that inventory situation. Matthew Roberts: All right. That makes sense. And maybe on Personal Care, that seem mix. It was up in Beauty, Closures was down. Home Care, I think, was down. So given some mixed signals there and another publicly traded peer recently called out sudden inventory corrections in those categories. Maybe just broadly, what are you seeing in those categories? Or what are customers saying in regard to inventory levels heading into 4Q, recognizing that they are smaller contributors overall in Beauty and Closures. Stephan Tanda: Sure. I mean we obviously separate what is accounted for in Beauty versus what is accounted for in Closures. Those are different formats. And sometimes customers switch between these 2 formats, and we try to catch as much of that as possible. Don't hear a lot of noise around inventory or destocking in Personal Care. It's more of a rotation in formats and sometimes the pump side wins and sometimes the closure side wins. It's different by customer. I'm not sure if we can call out a trend there. Operator: Your next question comes from the line of Gabe Hajde with Wells Fargo. Gabe Hajde: I just want to make sure I'm doing my math right. Are we sort of implying maybe a $40 million to $45 million revenue headwind associated with what you called out specific to the emergency response medicines in H1 2026? Vanessa Kanu: Well, we gave you a lot of data points. And I think if you sort of work through the math, again, if you think about 10%, 11% of pharma, 5% of the company, 10%, 11% of pharma declining 35% year-over-year. It's a slightly bigger number than you're coming up with, but I think you can get to the same ZIP code. 11% declines at 35%. Gabe Hajde: Got it. I guess I appreciate it's tough in an open mic like this. But -- as it relates to the, you called it out, Stephan, is that a product line that you're currently supplying to? Or does the litigation prevent any sort of outside sales of that product? Like is it sort of progressing as normal commercially until there's a resolution? Stephan Tanda: To the best of our knowledge, we are supplying all of that product. It's the only one that has the 99.999% proven reliability. And of course, we serve our customers with that and in this case, ARS, absolutely. Operator: We have a follow-up question from George Staphos with Bank of America. George Staphos: First of all, on D&A, Vanessa, you called out the $75 million to $80 million. Just from a modeling standpoint, should we be carrying that forward for the next number of quarters? Or is that just a onetime kind of step-up because of... Vanessa Kanu: No, no, carry it forward. Yes. So the run rate -- thanks for the question, George. And we would -- as we put out our future quarters, we'll provide more clarity around some of this. But you did see a bit of a step-up because we're now going to be amortizing or we are now amortizing the intangibles from BTY. So that was the reason for the step-up. So it's essentially a new run rate. So if you take sort of the midpoint of the guide and annualize that, I think you should get pretty close. George Staphos: Okay. Very good. The other question I had for you, just back to emergency medicines, and we appreciate all the detail that you've given us. No guarantees, no guarantees in life. But if it plays out as you expect, are we back to sort of the more normal growth rate into '27 after the step down in '26. And I think you said low single-digit growth on a going-forward basis. I just want to confirm that. Stephan Tanda: Yes. We don't guide for '26. We for sure don't guide for '27. But based on what we've said, I think that is a fair interpretation, George. George Staphos: Yes, Stephan, I wasn't asking you to guide. Stephan Tanda: I know, I know. George Staphos: I was saying I just wanted -- is the assumption that you're done with the destocking in '26, no guarantees and then it's more normal going forward. And you said -- and would you say the growth rate look normal? Stephan Tanda: Yes. I said low to mid-single digits. George Staphos: Understood. Stephan Tanda: In my opening remarks. The one additional uncertainty that I hate to throw on you is, of course, that's assuming normal government funding levels. Now we've just had reconfirmation in September that this is a supportive product by the government. And of course, the opioid overdose settlement money is readily available. So of course, if those funding sources are turned off, then it will be a more difficult environment. But I wouldn't expect that for a life-saving intervention that has been proven so successfully. And then your interpretation would be my interpretation of what we're seeing. Operator: There are no further questions at this time. I will now turn the call back to Mr. Tanda for closing remarks. Stephan Tanda: Thank you, operator. And let me just summarize and zoom out a bit. Our teams delivered another solid quarter with adjusted EBITDA growth of 7%, continuing our well-established track record of expanding the bottom line at a faster pace than the top line. While we do face the uncertainty we discussed at length on the sales trajectory of emergency medicine, we hopefully were able to give you progressive insights that we gained ourselves since Investor Day that confirm the temporary nature of this headwind. The fundamentals of our Pharma business remain highly favorable with an attractive and growing project pipeline, a steady stream of new launches, leveraging the nasal delivery route for exciting new indications. We talked about edema. And at the same time, of course, our injectable business is now taking full advantage of a booming market with our state-of-the-art capabilities. Our novel innovations and decades of experience drive a significant body of intellectual property, including patents, know-how and trade secrets, which we protect vigorously. Now as we look towards 2026, beyond the emergency medicine topic, we see solid growth in the other parts of our pharma business and are receiving some encouraging signals from our consumer goods customers, including in fragrance and beauty at large. Given the strength of our performance and our strong balance sheet, we have and we will further accelerate capital returns to shareholders, underscoring our confidence in the business while retaining the strategic optionality of our capital structure. With that, I look forward to speaking with many of you in the coming weeks. And should we not speak before then, let me wish you already now a restful Thanksgiving in the U.S. and the holiday season around the world. With that, operator, we can now close the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect. Have a wonderful day.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Magna International Third Quarter 2025 Results Webcast. [Operator Instructions] I would now like to turn the call over to Louis Tonelli, Vice President of Investor Relations. Please go ahead. Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our third quarter 2025 results. Joining me today are Swamy Kotagiri and Phil Fracassa, our CFO. Yesterday, our Board of Directors met and approved our financial results for the third quarter of 2025 and our updated outlook. We issued a press release this morning outlining our results. You'll find the press release, today's conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slides included in our presentation that relate to our commentary today. With that, I'll pass it over to Swamy. Seetarama Kotagiri: Thank you, Louis. Good morning, everyone. I appreciate you joining our call today. Let's get started. I'm pleased to share a few key highlights from our strong third quarter. Our financial performance reflects continued solid execution across the business and meaningful progress on our performance improvement initiatives. Quarterly results exceeded expectations and showed year-over-year improvements. Sales grew 2%. Adjusted EBIT increased 3%, adjusted EBIT margin expanded by 10 basis points despite a 35 basis point headwind from unrecovered tariffs. Adjusted diluted EPS rose 4% and driven by stronger earnings and a lower share count. Free cash flow improved by nearly $400 million. Looking ahead, we are raising our full year outlook, including higher sales supported by improved light vehicle production and continued launch execution. An increase in the low end and midpoint of our adjusted EBIT margin range reflecting strong pull-through on higher sales and benefits from cost savings initiatives. Higher adjusted net income, primarily driven by increased adjusted EBIT and a lower effective tax rate. We remain focused on generating robust free cash flow and maintaining a disciplined approach to capital allocation. You can see this in our reduced capital spending outlook, now approximately $1.5 billion or 3.6% of sales, below our prior range and well below our initial outlook of $1.8 billion. With higher earnings and lower capital spend, we have increased our full year free cash flow outlook by $200 million. This positions us to reduce our leverage ratio to below 1.7 by year-end. We also continue working with customers to mitigate tariff impacts. During the quarter, we reached agreements with additional OEMs for recovery of 2025 net tariff exposures. Negotiations with remaining customers are ongoing, and we expect to substantially complete this by year-end. Our outlook assumes less than a 10 basis point impact to 2025 adjusted EBIT margin from tariffs. Overall, these results reinforce our confidence in the strategy and our ability to deliver sustainable value for shareholders. I would like to take a moment to highlight some recent business awards and technology program launches. First, we were awarded complete vehicle assembly business with a Chinese-based OEM, XPENG. This is a significant milestone, it marks the first time a Chinese automaker has chosen Magna's complete vehicle operations in Austria to serve the European market. Serial production began this past quarter on 2 electric vehicle models for this customer. In addition, we launched production in the third quarter on a vehicle program for a second China-based OEM with another program for that customer scheduled to start next year. These wins reinforce Magna's strong position in vehicle manufacturing and demonstrate the value of our flexible state-of-the-art production process, which enable fast-to-market high-quality vehicles for the European market. As we have for decades, we continue to launch innovative technologies that support our customers. This past quarter, we began launching a dedicated hybrid drive with a leading China-based OEM. Our 800-volt solution delivers a winning combination of efficiency, versatility and comfort for consumers. Our driveline portfolio spans all powertrain configurations from ICE and mild hybrids to high-voltage hybrids and full battery electric vehicles. This success underscores the strength of our building block strategy in powertrain. And in advanced safety, our mirror integrated driver and occupant monitoring system is meeting growing global demand for DMS technologies. As you may recall, this product earned a 2024 Automotive News PACE Award for its innovation and safety impact. We are launching this system with multiple customers worldwide and volumes are expected to reach several million units annually. Next, let me cover our improved outlook. While the current environment makes forecasting more challenging than usual, we remain focused on what we can control and continue to adapt to evolving conditions. Compared to our previous outlook, we have increased our North American production forecast to 15 million units, up about 300,000 units. Roughly 2/3 of this increase reflects expected outperformance in the second half with the remainder tied to adjustments to first half estimates. We are holding Europe production relatively unchanged. For China, we have raised our estimate to 31.5 million units. About half of this increase reflects second half outperformance and the other half relates to adjustments to first half estimates. We have also updated our foreign exchange assumptions to reflect recent rates, now expecting a slightly stronger euro, Canadian dollar and Chinese RMB for 2025 compared to our prior outlook. We have increased our sales estimate range largely as a result of the expected higher light vehicle production, particularly in North America. We also raised the low end and midpoint of our adjusted EBIT margin range and now expect margins between 5.4% and 5.6%, reflecting our solid Q3 results supported by continued execution in the fourth quarter. Looking sequentially, we expect fourth quarter margins to improve from the third quarter, driven primarily by commercial and net tariff recoveries from customers. And as of today, we are on track to achieve those. We updated our interest outlook due to some expense booked in the third quarter related to a discrete prior year tax settlement. We lowered our assumptions for taxes to approximately 24% from 25%, mainly due to better utilization of tax attributes and a favorable change in equity income. Factoring all that in, we increased adjusted net income to a range of $1.45 billion to $1.55 billion, largely reflecting increases in adjusted EBIT and the lower effective tax rate. We are reducing our capital spending outlook to approximately $1.5 billion, reflecting our continued efforts to optimize investment without compromising growth. As a result of higher earnings and lower capital spending, we have raised our free cash flow range by about $200 million to $1.0 billion to $1.2 billion representing more than 70% of adjusted net income at the midpoint. To summarize, we remain confident in our fourth quarter outlook supported by strong year-to-date execution and ongoing operational discipline despite industry challenges. We are on track to deliver the full year outlook we shared in February. A testament to the resilience of our business and the capability of our global team. Before I turn the call over, I would like to welcome Phil Fracassa, who joined Magna as our new CFO in September. He brings extensive public company CFO, automotive and industrial sector experience as well as a proven track record of driving profitable growth and shareholder value creation through disciplined capital allocation. Phil succeeds Pat McCann, who stepped down from the CFO role and is serving in an advisory capacity until his retirement in February 2026. I would like to thank Pat for his many contributions to Magna over his distinguished 26-year career. With that, I'll pass the call over to Phil. Philip Fracassa: Thanks, Swamy, and good morning, everyone. I'm pleased to be with you today. Magna is a company that I've admired for a long time. For its history of innovation, unmatched capabilities and deep relationships with customers. In my initial time here, I've seen our guiding principles in action and I'm energized by the ownership mentality that our entire team brings to all that we do. We operate in a sector of the economy where the only constant these days has changed, but this creates opportunities and Magna is well positioned to capitalize on them. So I'm excited to partner with Swamy and the team as we work to drive durable shareholder value. Now on to our results. As Swamy indicated, we delivered a strong third quarter, up year-over-year and ahead of our expectations, almost across the board. Comparing our third quarter to the same period last year, Consolidated sales were $10.5 billion, up 2%. This compares to a 3% increase in global light vehicle production. Adjusted EBIT was up 3% to $613 million. Our margin was 5.9%, up 10 basis points from last year, and that's despite the continued headwind from tariffs. Adjusted EPS came in at $1.33, up 4% and free cash flow in the quarter was $572 million, up $398 million from last year and well ahead of our expectations. Now I'll take you through some of the details. Let's start with sales. Looking at the market, North American, European and Chinese light vehicle production were all higher in the quarter, and overall global production increased 3% compared to the third quarter of last year. On a sales-weighted basis for Magna, light vehicle production increased an estimated 5%. Our third quarter sales were up 2% from last year. Excluding currency, organic sales were up modestly, but lagged the market in the quarter as we had expected. The increase in our total sales largely reflects the launch of new programs, including VW, Skoda Elroq, the Ford Expedition, Lincoln Navigator and Cadillac Vistiq, the favorable impact of foreign currency translation and higher global light vehicle production. These were partially offset by lower production on certain programs, including end of production on the Chevy Malibu. The expected decline in complete vehicle assembly volumes including end of production on the Jaguar E and I-PACE in Austria and normal course customer price concessions. Moving next to EBIT. Third quarter adjusted EBIT was $613 million. which was up $19 million or 3% from last year. Adjusted EBIT margin was 5.9%, up 10 basis points. In the quarter, our EBIT margin was impacted positively by 65 basis points from net operational performance improvements. This reflects strong execution on our operational excellence and other cost savings initiatives, partially offset by higher labor and other input costs as well as new facility costs and 30 basis points related to higher equity income as several of our equity method JVs, including China JVs delivered strong performance in the quarter with higher sales and favorable mix, net favorable commercial items and other productivity and cost improvements. These were partially offset by negative 50 basis points from discrete items. This is comprised mainly of lower net favorable commercial items compared to last year and 35 basis points for tariff costs incurred but not yet recovered. This is mainly timing as we continue to pursue recovery from our customers, and we remain on track for tariffs to be only a modest headwind to margins for the full year, less than 10 basis points, as we said before. Note that volume and other items were essentially flat in the quarter as earnings on higher sales and foreign currency gains were substantially offset by the impact of higher compensation expense. Looking below the EBIT line, interest was $11 million higher than last year due mainly to some discrete interest expense in the quarter for the settlement of a prior year tax audit. Our third quarter adjusted tax rate was 26.5%, lower than last year, primarily due to the favorable year-over-year impact of currency adjustments recognized for U.S. GAAP. This was partially offset by an unfavorable change in our jurisdictional mix of earnings, increases in our reserves for uncertain tax positions and a slight decrease in tax benefits related to R&D. Net income was $375 million, $6 million or about 2% higher than last year. mainly reflecting the higher EBIT, partially offset by the higher interest expense. And third quarter adjusted earnings per share was $1.33, up 4% from last year, reflecting the higher net income as well as 2% fewer diluted shares outstanding resulting from share buybacks over the past 12 months. Let's take a brief look at our segment performance for the quarter, which you can see summarized on this slide. Three of our 4 operating segments posted increased sales year-over-year with a notable 10% increase in seating. Exception was complete vehicles, which was down 6%. This was largely expected and reflects the end of production of the Jaguar E and I-PACE at the end of 2024. But as Swamy mentioned earlier, we're excited about our recent new business wins with China-based OEMs, which is a new growth market for our complete vehicle business. In 3 of our 4 segments also posted improved adjusted EBIT margin year-over-year with notable margin expansion and strong incremental margins in body exteriors and structures. The exception was Power & Vision, where margins were down on a tough comp last year. In the quarter, P&V was impacted by lower sales on a local currency basis. Lower net favorable commercial items and higher tariff costs as P&V has relatively more exposure to tariffs than other Magna segments. These were partially offset by continued productivity and efficiency improvements, higher equity income and lower launch costs. Despite being down year-on-year, P&V margins were slightly ahead of our expectations for the quarter, and we have held the low end of our EBIT margin range and our updated outlook for P&V. Our Power & Vision segment has differentiated technologies and a strong market position, and we're confident in the long-term margin outlook for this segment. Turning to a review of our cash flow. In the third quarter, we generated $787 million in cash from operations, for changes in working capital, along with $125 million from favorable working capital movements. Investment activities in the quarter included $267 million for fixed assets and a $100 million increase in investments, other assets and intangibles. Overall, we generated free cash flow of $572 million in the third quarter, higher than we were forecasting and $398 million better than the same period a year ago. The increase was driven mainly by lower capital spending and favorable working capital performance, and we continue to return capital to shareholders, paying dividends of $136 million in the quarter. Our balance sheet and capital structure remained strong with low single A investment-grade ratings from the major credit rating agencies. At the end of September, we had $4.7 billion in total liquidity, including $1.3 billion of cash on hand, which provides ongoing financial flexibility. During the quarter, we repaid $650 million of near-term maturing senior notes. Our refinancing is now complete, and we have no senior note maturities until 2027. Currently, our adjusted debt-to-EBITDA ratio is at 1.88x, a little better than we anticipated coming into the quarter. We have been executing well on delevering throughout 2025. And as Swamy said earlier, we expect to end the year below 1.7x. And lastly, subject to the approval by the Toronto Stock Exchange. Our Board yesterday approved a new normal course issuer bid, or NCIB, authorizing the company to repurchase up to 10% of our public flow or around 25 million shares. We expect the NCIB to be effective in early November and remain in effect for a period of 1 year. Since the initiation of the NCIB approved last year, Magna has repurchased 5.8 million shares or roughly 2% of shares outstanding. This allowed us to return $253 million in cash to shareholders while still reducing leverage and navigating a challenging environment. Our new NCIB reinforces our commitment to share buybacks as a key component of our disciplined capital allocation strategy as we look ahead to 2026. So in summary, we delivered strong financial performance in the third quarter, which exceeded our expectations and showed both top and bottom line improvements versus last year despite the unfavorable impact of tariffs and commercial items in the quarter. We're benefiting from operational excellence initiatives across the company, and we expect these efforts to drive further margin upside over time. We've also increased our outlook to reflect our third quarter performance and expectations for a solid finish to the year. We're planning for higher sales, supported by an increased and expected light vehicle production, particularly in North America, and that's net of the expected fourth quarter impact of potential supply chain disruption. We've raised the low end and midpoint of our adjusted EBIT margin range, and we increased our outlook for adjusted net income, largely due to the higher expected EBIT. We'll continue to focus on free cash flow generation and capital discipline as evidenced by a further reduction in our capital spending outlook. As a result of this and expected higher earnings, we have raised our 2025 free cash flow outlook by about $200 million. And lastly, we continue to mitigate the impact of tariffs. We settled with additional OEMs in the third quarter and we're on track to complete substantially all remaining customer negotiations by year-end. Let me close where I started and reiterate how thrilled I am to be part of the talented and dedicated Magna team. This past quarter was a testament to the resilience of our business and the effectiveness of our strategy, and we're excited about the opportunities that lie ahead. With that, we'd be happy to take your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Etienne Ricard of BMO Capital Markets. Etienne Ricard: Thank you, and good morning. As we think about 2026, can you remind us what improvements to operating margins we should see from efficiency gains and across which segments do you still have lots of potential to expand margins? Seetarama Kotagiri: Good morning, Etienne. I think the best way to look at this is a little bit going back into the previous calls, where we talked about margin improvement from '23, '24 we said we were going to do about 115 basis points, which was done. We talked about an additional 75 basis points split between '25 and '26. I can say the '25 we are well on our way and on track. And we have good visibility for the 35 to 40 basis points going into '26. So if you look at the 5.5%, which is the midpoint of the range we are talking about finishing '25 and add the operational improvements of the 35 to 40 basis points it should give you a good foundation of how we are going into '26. On top of that, there are some programs which we have talked about, which are coming in like launching now into '26 with new economics, compared to what we had from the inflation impacted time frame of '23 to '25. So take all of that in, if you assume volumes to be flattish going from '25 to '26. We see the margins building on top of the exit of the 5.5% in '25. The second part of the question, I think it's a little bit difficult to talk segment by segment. But I can tell you the operational activities are across the company, and that's what is giving us traction, and we are very optimistic about it. Etienne Ricard: Okay. I appreciate the details. And I also want to cover the lower pace of capital expenditures. So this is good for free cash flow over the near term. But could you please remind us why this is not expected to materially affect growth prospects in future years? Seetarama Kotagiri: So Etienne, I think we have always said our long-term average ratio -- CapEx to sales ratio is, I would say, the low to mid 4s. And if you have looked at the CapEx spend in the past years going into '22, '23, '24, we had a higher CapEx spend cycle, and that depends very much on the cycle that the OEMs go through in giving out programs, right? Then we went through a big cycle of EV releases at that point in time. Now with that investment behind us, we have been constantly talking about looking at different -- as part of our continuous improvement in operational activities, looking at efficiencies, looking at consolidations and closing of facilities, looking at optimizing footprint. All of that has given us the opportunity to optimize. But I can very clearly tell you that the team is very focused on not curtailing CapEx at the expense of growth. we are very much focused on organic growth with right profitability. Operator: Your next question comes from the line of Dan Levy of Barclays. Dan Levy: First, maybe you could just talk through what you've embedded in your guidance and what you're seeing as it relates to some of these production disruptions out in the market between Ford, Novelis, JLR and Nexperia, just what's the impact to you? And what's embedded in the guidance and how you're planning around those. Seetarama Kotagiri: Dan, I think the Novelis and the Nexperia situation are still a little bit fluid, but we have taken into account based on the releases that we have and there is visibility. Obviously, there is more color as we have conversations with the customers. We have taken all of that in the Q4. But there is a little bit of indirect impact too, right, because this situation is impacting OEMs and other suppliers. So if that has an impact on the overall production, obviously, that could have an indirect impact. But we have taken to the best of our knowledge, the information that's been provided already in the outlook that we have given. Philip Fracassa: Yes. Dan, if I could maybe just add, this is Phil. So the 15 million unit assumption that we have in for the full year for North America would reflect our estimate of lost production. So if you compare that number to maybe some of the external forecasted it is a little bit lower, and that's where we would have embedded our assumption. Dan Levy: Okay. And Nexperia, and I know it's a wide range of potential outcomes, but we are a month in and you do have a large electronics business. What's the -- is there any sort of range of outcomes that you might be gauging within the results? Seetarama Kotagiri: Yes, I think it impacts largely the electronics group, but it's not only for the electronics group, Dan, you can imagine there is associated systems in powertrain and other parts of Magna. We have a task force activity that's obviously very active in looking at the supply chain analysis, the runout dates. We have identified and released alternative parts, obviously in conversation with the customers. We're tracking the EMS suppliers. Wherever possible, purchase through brokers. So there's a very constant communication with customers and suppliers. I don't know if we can get into every segment by segment, but I can say we have taken the impact to the extent we have seen, again, just not from the outside forecasters, but also program-by-program customer discussions. Dan Levy: Okay. Got it. And then maybe as a follow-up, if you could just walk through the large implied step-up into margins in the fourth quarter that are within your guide. I mean, pretty much all of the segments have a large step-up in margins. Perhaps you could just talk to the underlying strength in those? Seetarama Kotagiri: So a couple of points, Dan. I think as we look through, obviously, one is the traction of the operational activities that we've been talking about. The second part is we have mentioned the second half of the year being heavy in tariff and commercial recoveries. And obviously, it's heavy ended into the fourth quarter. But we have substantially negotiated with the customers. There is some ongoing discussions, but we feel pretty good with the frameworks that are in place, and we believe the roughly 10 basis points impact due to tariff for the year. I think we feel comfortable at this point in time. I would say those are the key points. And if you remember last time, we talked about, I don't know, 35 basis points of the full year EBIT coming in fourth quarter. That was very relevant, and we are trying to give cadence going from Q3 to Q4. It's been a little bit of a stronger Q3. Now if you look at the math of the midpoint of the sales and the midpoint of the EBIT. I would still say we are in the low 30s as a percent of EBIT for the full year. So all in all, it's on track and looking good. Operator: Your next question comes from the line of James Picariello of BNP Paribas. James Picariello: I wanted to first ask about the latest Ford recalls that happened over the last few months, regarding a rear facing -- the rear-facing camera, which I believe is Magna's. And correct me on the number, but it's well north of 1 million vehicles, I think. I'm just curious what -- how that maybe translates or not to future warranty spend for you guys? Yes. That's my first question. Seetarama Kotagiri: James, yes. We'll disclose the warranty expenses in our quarterly and annual reports, as you know. We are working constructively with our customers to reach resolution. For the more recent announcement, James, I would say the information is still coming through, need a little bit better understanding of the scope of the issue. As you can imagine, there is complexities in the system with various interfaces. We have to assess the overall. It's a little bit early from that standpoint. And as we gain more information, we will definitely be in a better position to come back and give you more granularity. James Picariello: Got it. Understood. And then my follow-up, just can you speak to the new nameplates that are at Magna Steyr and what that could translate to in terms of future volumes, run rate production? And then just latest thoughts on capital allocation with respect to share buybacks? Seetarama Kotagiri: Yes, James, again. I think one of the key things is the flexibility that we have in our Magna Steyr facility to be able to do multiple propulsion systems or multiple models to the same line. So I don't think you'll see a significant -- given the capability and the way it is set up and the business model that we have working with the customers there, we don't expect to see an uptick in capital because of those programs in Steyr. Now with respect to the programs, as I mentioned in my remarks, XPENG, we are doing SKD of 2 models. And there is another Chinese OEM we are working with, which is due to launch a third model in there. So all in all, we are excited about that. If you remember, we have capacity of roughly 150,000 units, I would say. But if you look averaged out over years, long period of time, I would say we do well with about 100,000 to 120,000 units. Typically, that's what has been average. So we are continuing to work launching these programs, but there is additional discussions ongoing to further optimize the facility there. Philip Fracassa: Yes. And maybe to the point on share buybacks. So obviously, share buybacks remain an essential part of our capital allocation strategy at the company. As you know, we've kind of paused this year just given all of the uncertainty that was -- that's been out there. We've shifted and focused instead on delevering, and that's gone very well. It's absolutely trending ahead of schedule. And we did announce, as you saw the new NCIB, which would allow the company to purchase up to 10% of our shares over the next 12 months. So I think that the leverage coming down quicker than we anticipated, the strong free cash flow, which we expect to continue, I think, sets us up really well to lean into buybacks as we're looking ahead to 2026. And I think that it will continue to factor in. Operator: Your next question comes from the line of Joe Spak of UBS. Joseph Spak: Just was wondering if you could help me a little bit here. Like if I track the impact all year long on tariffs and in your comment of less than 10 basis points impact for the year. It seems like you're counting on, I don't know, at least $40 million, maybe a little bit more recoveries in the fourth quarter. Is that math right? I know you said that was one of the drivers of the margin inflection in the fourth quarter. I just want to make sure we're properly calibrated there. And then I know you said you're making progress on negotiations, but is there any risk, do you think, to receiving them given some of the distractions at the customers? Seetarama Kotagiri: Joe, I think if you look at the overall in our last calls, we mentioned roughly an annualized impact of about $200 million. But, as you know, the tariff situation started, Louis, I would say April, March, April time frame. So you can take the $200 million annualized and get the number for the year. I think in the fourth quarter, there's more than $40 million, I would say. But there is frameworks in place, Joe, which gives me the comfort to say we are working through. The framework is there, discussions have been collaborative, which gives me comfort. Is there a risk? Obviously, there could be just as you know, in this industry. But looking at the past history, looking at the status of where we are today, I feel comfortable. And as we talk about 10 basis points, right, which is roughly in the $30 million range that we believe would be the tariff impact for 2025 that's unrecovered or unmitigated Joseph Spak: That's helpful. And then I know you're going to be pretty limited today in sort of talking about next year. But just again, so we think about this now, it does seem right, like maybe you have this positive in the fourth quarter, you're fairly neutral for the year. So if we think about maybe for '26 is -- are things -- are recoveries and headwind sort of better aligned. So the margin variation quarter-to-quarter related to this should be much reduced. So we don't have this like big 1 half, 2 half inflection like you did in '25. Is that a good baseline to think about for next year that it's a little bit more balanced? Seetarama Kotagiri: I think that will be the focus, Joe. But tariffs was a new thing this year, as you know, and we had to come up with the framework. I would say there is good groundwork and framework in place. This being the first year and as we are coming towards the end, that should help going into 2026, if you have to deal with it. I think there is still going to be some amount of cadence topics going from one quarter to the other, just based on continuous improvements, the programs finishing and the new programs coming and so on and so forth. But we are in the process of the business planning now. I think by the time we come to February, we'll get a much better picture to at least give you somewhat of a sense of is there more lumpiness or it's getting back to normalcy. Operator: Your next question comes from the line of Tom Narayan of RBC Capital Markets. Gautam Narayan: Best wishes to Pat. My first question is on the Seating margins just guided for Q4. and I know a lot of the segments are seeing this, but it's especially magnified in Seating, it seems. I know this segment was -- had some challenges in the past due to just some program-specific things. Just curious if you could help us understand how much of the sequential improvement is coming from the tariff and commercial recoveries? And then how much is just underlying kind of business improvement? I know you also called out engineering coming down. I'm not sure if that impacts Q4 as well. But just curious on your thoughts on Seating in Q4 and how we should think about that going forward. Philip Fracassa: Yes. Maybe I'll start Tom. So on Seating, obviously, a really strong third quarter with revenue up and good margin performance. But to your question, the margin improvement Q3 to Q4, the big contributors would be recoveries for tariffs because Seating does have pretty large tariff exposure. So there are the recoveries we've got to get. But there's also continued operational excellence initiatives there, too. But if we had to point to the primary drivers of the margin because we do expect the implied guidance would say volumes would be down a little bit year-on-year and even down a little bit sequentially. So we've got the volume headwind in there, too, but overcoming it with the recoveries, commercial tariffs, and also continued focus on operational excellence. Louis Tonelli: And there's a little bit of engineering that's coming down. It should be a bit of a tailwind for us. Seetarama Kotagiri: And that's for the fourth quarter in general. I think, Tom, just maybe stepping back, I want to say Seating is a good business. In our past couple of years, there was pressure on margins due to program-specific issues like end of production of Ford Edge, there was a cancellation of BV Explorer and Chevy Equinox moved from Ontario. And as you mentioned rightly, I've been talking about a European OEM program in North America which had issues, and that's going to be behind us. The newer version with the right, call it, financial metrics, launches in '26 into '27, and you'll see that additional impact going forward in '27. So I would say structurally, it's a really good business. It's got a strong position in China with China-based OEMs. So all in all, it's -- the team has done -- the Seating team has done a great job taking costs out as part of the operational excellence. So I think we'll continue to see the margin improve going forward. Gautam Narayan: Great. And my follow-up has to do with the Steyr and the Chinese OEM wins. Does this create like a flywheel to sell other Magna products from other segments? And then just curious if there were any kind of frictions from your European OEM customers, legacy ones, given the encroachment of Chinese OEMs into Europe is a very hot topic. And I know some of the OEMs are kind of concerned about it. Seetarama Kotagiri: I think, Tom, we would like to look at each of the business that needs to stand on itself, right? Obviously, if there are opportunities for other parts, other systems of Magna to be there, yes, but we are not going to make one dependent on the other, right? So it's standing on its own merit, that's how we're going to look at it. obviously, there could be opportunities, but we have to look at it. To be honest, no, we have not seen any discussions with other OEMs. This is part of a business for Magna, and we have worked with various OEMs in the past, right, as you know. Then we are following the same business model, same principles. So we have not heard anything. And we are very close to the customers as [indiscernible]. Operator: Your next question comes from the line of Emmanuel Rosner of Wolfe Research. Emmanuel Rosner: So I appreciate your early thoughts on some of the operational performance that could continue into 2026. Another angle I was hoping to get an update on is you've in the past pointed to a large amount of new business that would launch and ramp up into 2026, boosting revenue pretty materially and obviously coming with some operating leverage and helping margins further into next year. So can you maybe talk to us about how those launches are progressing, whether the magnitude of the revenue uptake into next year from those is still broadly similar to what you mentioned in the past? And any other consideration on that launches and revenue uptake, please? Seetarama Kotagiri: Emmanuel, I think for 2025 going into '26, when we talked about launches, we talked about it in the context of new economics, right? The terms of setting labor back, labor rates and labor discussions at the start of production, not when we won the program as an example, and so on. We have specifically always talked about winning programs based on returns. If you just look at all of those, that was the step up, I would say, or inflection in the profitability going with these new programs. As far as the launches and the cadence goes, looking at our team, they're doing very good. We look at it very periodically, right, at high amount of detail. I can say there is nothing that stands out today. All the launches are moving pretty good. Louis Tonelli: Yes. We got to look at what the volumes are going to be on all the programs. It's something we're going to go through as part of our business planning process, what are the revised volume expectations for all the key programs. What does that do to our sales growth, et cetera. So that's still part of our plan process that's coming. Seetarama Kotagiri: Yes. I think we can say we're doing a good job of controlling the controllables in our hand, but the externalities of volumes and so on, we still are going to go through and understand better in the business plan process. Philip Fracassa: Yes, so more to come in February on that. Emmanuel Rosner: Yes. Now, looking forward to that. Just a quick follow-up on this and then I wanted to ask you also about the fourth quarter drivers. But just a quick follow-up on this top line thing. Are we still talking about launches of decent magnitude? So I understand the volume themselves would fluctuate. But we're not -- are you experiencing cancellations or major pushouts or anything like this? Seetarama Kotagiri: I wouldn't say, Emmanuel, anything of significance. We already talked in the past about the big EV programs that everybody knows about. Other than that, we haven't seen anything substantial beyond. Emmanuel Rosner: Okay. And then I guess my second question was, so when -- you've spoken earlier in the year about this big step-up in margin between the first half and the second half, which you're reiterating today. I mean some of this was commercial recoveries. There were some engineering recoveries. There were some tariff recovery in there. All that stuff seems to be on track. I think there was also a piece of the uptick that was supposed to be tied to warranty costs. Is that still also on track and helping towards the fourth quarter? Seetarama Kotagiri: Yes. In terms of looking at my comments from the last time to where we are, you are right, we need to keep our focus on obviously executing operationally. Yes, you mentioned commercial and tariff that is still continuing, as I mentioned in my remarks. Nothing specific about warranty, I think if you're talking about there was one topic on Seating in the first quarter. I would say we are in a good place with respect to that. Nothing -- no surprise there. Philip Fracassa: Yes. I mean, yes, I would agree. I think when you think of the fourth quarter, you've got -- it's really continued execution on the operational excellence initiatives is in there, the recoveries, commercial tariffs. I would say there's nothing material related to warranty baked into the fourth quarter, if you will. It's really mainly volumes holding up, executing well and then continuing to focus on cost controls. Seetarama Kotagiri: And just maybe year-over-year, the warranty in '25 has been higher. So the outlook that we are talking about in performance is despite that increase in warranty. Operator: Your next question comes from the line of Colin Langan of Wells Fargo. Colin Langan: Early, you mentioned sort of you have the 5.5% base for 2025, you have about 35 to 40 basis points of continued sort of performance help that gets you to like 5.9%. And then I think you mentioned some of the launches are coming in at more profits and maybe you could go a bit higher. I believe the last update, I think from Q4 was 6.5 to 7.2 it seems still like a big jump for you kind of walking. Is that just kind of sale at this point? Or should we still think of that as a relevant target as we think about '26? Seetarama Kotagiri: Colin, I think let us finish the business plan process. I think, as you know, one of the big variables is going to be volumes in the market, right? When I talk to you about the 35 to 40 basis points, obviously, that's again controlling what we have in our hands in terms of operations and executing. We feel pretty good about that. Some of it will obviously depend on the volumes. Given all the activities that we have done in setting up the right cost structure and we -- it's a journey. We're not stopping there. We'll continue to look at it with the discipline we have had in capital. We see a good path going into '26. And as volumes come, you'll see, obviously, the flow through to the bottom line to be much better. Louis Tonelli: Yes. And to Swamy's point, if you look at where we said we thought North American volumes would be in February for '26, it was like 15.4%. If you look at where it sits today, it's 14.7%. So maybe by the time we get there, it's higher than that. But I mean, that delta has to be is going to have an [ impact ]. Colin Langan: Got it. And then any update on how the ADAS business is performing? Because if I look at Power & Vision sales seem actually fairly flat. I thought there was supposed to be some ADAS growth driving there. Is that still up? And if it is, what is offsetting some of that weakness in there? Seetarama Kotagiri: As we go through there, that segment has a lot of dynamic factors. As you can imagine, powertrain, EVs and hybrids and ICE mix and program changes. From an ADAS perspective, Colin, I would say there is some, again, industry dynamics there. The OEMs are continuing to still evaluate the architecture. Some decisions have been pushed out from a China strategy in terms of looking at chips and their own perception strategy. And the Western OEMs continue to take a path. So we've been a little bit cautious. I would say the growth that we would have assumed maybe 3 or 4 years ago to what we are looking is a little bit dampened. And the only reason is that we want to be cautious of how many platforms we want to work, right? We have to be focused on picking a platform so that we can engineer once and deploy multiple times. So there is a little bit of more work to do on the ADAS side, again, based on the industry and OEMs and architectures and trends. Operator: Your next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: I'd like to thank Pat for all his help and wish him the best going forward. And Phil, looking forward to working with you going forward. I had a question on the complete vehicles business. And Swamy, you mentioned earlier in the call that 100,000 to 120,000 is a more comfortable level to be operating. I do want to clarify with the award and momentum you've been seeing in that business with some of the Chinese-based OEM programs, do you already have line of sight into volumes, getting the complete vehicle business to that kind of level in Austria? Or do you need to win additional business to get there? And the second part of the question, if you get to those sort of volumes, what should we think about in terms of more normalized EBIT margin within the complete vehicle business? Because you think of time in the past, it was kind of 3%, 4% and I'm wondering if it can get back to at least those sort of levels, if not maybe even higher as you ramp some of this new business. Seetarama Kotagiri: Mark, I think a couple of points to mention. The 100,000 120,000 I mentioned was more a context of what the business has run typically in the past, right? We've been talking over the last 1.5 years where we restructured or the team has done a great job restructuring to the current volumes and the current visibility. So even with the lower volumes running there, they've been able to maintain the margin. So that's one thing to note. The second one, as you know, this business or this segment runs on a different business model. It's a little bit on capacity utilization. So the risk exposure is a little different or lower. And when you talk about margins, as you know, besides complete vehicle assembly, in that segment, we also have engineering revenue, right? Which has a little bit of ups and downs depending upon the seasonality. So that changes the EBIT percentage, depending on how much of what mix, right? We feel pretty comfortable that we have the right cost structure or we have optimized. We are not keeping the cost structure hoping new business will come. We'll continue to look for the right opportunities there. And the engineering continues, it's a good strength of ours, and we'll look at it. So I feel to expect somewhere in the mid-2s to 3% range would be normal. Mark Delaney: Okay. That's helpful on the margin. I guess just in terms of the volumes, maybe it's not quite at those sorts of volumes as it was historically, but the business has operated to be profitable at lower levels. Is that the right understanding? Seetarama Kotagiri: Exactly. Mark Delaney: Okay. And then the other point -- the other question I had was also on the complete vehicle business. And with some of the AV upfitting work that Magna is doing. I wanted to talk, is that reported within complete vehicles or another part of the business? I realize that the volume of AVs are still small, but I imagine that might be an opportunity for some engineering collaboration and just want to understand how impactful some of the AV announcements where Magna's doing AV upfitting? Just kind of how big that might be for your business today? Seetarama Kotagiri: Yes, Mark, you're right. The operating of the full autonomous vehicles is in this segment. It's an interesting one, but continue to look at it, look at the business model and work with them. We are very -- we are at the table is the best way to put it, and we have an advantage of being at the table. But we're also looking what's the value that we can bring and we do, I think from an engineering perspective and the expertise of integrating vehicles. So there is a possible opportunity there, but too early to quantify. Operator: The next question comes from the line of Jonathan Goldman of Scotiabank. Jonathan Goldman: Maybe we can circle back to 2026, and I respect you're still in the planning stages. But Swamy, you alluded to maybe flat next year in terms of volumes and rather than put a fine point on any number, what's your expectation in terms of production being aligned with sales? Seetarama Kotagiri: Good question, Jonathan. And I think you're asking me to look at the crystal ball a little bit. I think our assumption has been always to look at bottoms-up what we get from our customers, the releases and our own information that's available at Magna and then triangulate with the external forecasters, right. If the tariffs and the price continues the way it is versus being passed on to the consumers. There might be a pressure on the sales side of things, don't know. That is something we have to see. At this point of time, and this is just me personally looking at it, and we are looking -- it could be flattish. But like Louis mentioned a few minutes ago, in the next few months, we'll get a little bit more visibility on that. Louis Tonelli: And I mean, inventory levels in North America in particular, are pretty healthy levels. [indiscernible] reason to believe that they're going to bring those numbers -- that they're going to work off inventory. I don't think that's an issue, whether they decide to build more than they sell, that's -- yes, it's really up to the OEMs, we can't really determine that. Jonathan Goldman: Yes, that's a fair comment. And I guess my second question then is on CapEx, thinking about it maybe going forward. I think you've cut CapEx guidance 4 times in a row, just pretty impressive. I think this year, you're going to be at the mid-3s. Should that be the appropriate rate going forward if we're thinking about modeling CapEx in '26 and beyond? . Seetarama Kotagiri: No, Jonathan. Like I said, I would look at the 4 to 4.5 or low 4s to mid 4s being the long-term average. That's kind of how we look at business. Like I said, it's important for us, the organic growth, free cash flow, it's a good balance. Given we had 2 or 3 years of high CapEx, we have been super focused on looking at everything which programs and how there is enough uncertainty in the market, too. So that discipline will stay on. But I think the best way to look at it is over a longer period of time to be averaged the 4 to 4.5. But with that said, going into '26, I would look at the low 4s as a good way to start, which doesn't mean we are not going to stop further optimizing it, but I would say that's a good starting point. Operator: Your next question comes from the line of Michael Glen of Raymond James. Michael Glen: Swamy, can you provide an update in terms of how your customers are viewing the cross-border supply chains in North America right now? Is the approach to auto parts moving to the U.S. to become more U.S.-centric, something you're hearing more about and how Magna is positioned in the U.S. right now from a capacity perspective? Seetarama Kotagiri: Michael, I think the customers are, I would say, taking a very calm approach of figuring out, as you know, our industry is a long cycle. What we are producing today has been decided 3 or 4 years ago. I think the big topic has been how to mitigate what we have in our control, like increasing the USMCA content, looking at the supply base, looking at vertical integration and so on and so forth. That's where the focus is. I haven't seen any substantive changes that will impact right away. But are they looking at scenarios 2 or 3 years down the road as they contemplate new models and new vehicles? Yes. The good thing is, as Magna, we have a footprint in U.S. and we'll look at how we can optimize working with the customers. So -- but this is a long-term thinking process rather than a reaction to what's happening now and today. Michael Glen: Okay. And just a follow-up on that. Are you able to give some thoughts into the pluses and minus to Magna redomiciling into the U.S. Seetarama Kotagiri: That's not on the table and we have not considered it. Magna is a Canadian company, has been headquartered there. We are a global company. We have a great footprint and a great employee base. Like I said, our focus is right now on grinding through and being as flexible as possible. So thanks, everyone, for listening in today. We continue to execute, and we remain focused on the initiatives that are driving value for our customers and shareholders, including operational excellence is a big focus, new launches, capital discipline and free cash flow generation. We plan to both get back within our target leverage ratio and are committed to our capital allocation strategy, including share buybacks. And we remain highly confident in Magna's future. Thank you for listening, and have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Employers Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Lori Brown. Please go ahead. Lori Brown: Thank you, Lisa. Good morning, and welcome, everyone, to the Third Quarter 2025 Earnings Call for Employers. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls and webcast. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the Investors section on our website. And now I'll turn the call over to Kathy Antonello, our Chief Executive Officer. Katherine Antonello: Thank you, Lori, and good morning, everyone. And again, welcome to our third quarter 2025 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. During today's call, I'll begin by providing highlights of our third quarter 2025 results, and then I'll hand it over to Mike for more details on our financials. Prior to our Q&A, I'll come back to you with some additional thoughts. I want to begin by discussing the decisive actions we took during the quarter to strengthen our loss in LAE reserves. When we spoke last quarter, I mentioned we had identified significant loss in LAE reserve redundancies in older years, and utilized this favorable development from accident years 2021 and prior to strengthen reserves for accident years 2023 and 2024. We also provided our preliminary view of accident year 2025 and shared that the underlying driver of the need for an off-cycle third quarter reserve review was the increased frequency of California cumulative trauma claims in recent accident years. During the third quarter, we completed a thorough reserve analysis, which included a detailed review of our complete book of business, and we compared our internal selections to those of an external actuarial review performed midyear. Our comprehensive and rigorous analysis indicated the need to increase prior year reserves by $38.2 million or 2.8% of net unpaid loss in LAE. Accident years 2023 and 2024 were the primary contributors of the increase with AY 2024 increasing by $40.5 million, AY 2023 increasing by $16.1 million and accident years 2022 and prior decreasing by $18.4 million in total. In addition, we increased our AY 2025 loss and LAE ratio from 69% to 72%. We strongly believe these adjustments fully address the recent trends we and the industry have seen in California and want to emphasize that these adjustments are not a sign of broad deterioration in our book of business. With the increased frequency of California CT claims, our third -- without the increased frequency of California CT claims, our third quarter 2025 overall reserve position would have developed favorably. As we have discussed, the increased frequency in CT claims is a California-only issue. Frequency in other states continues to show a decreasing trend. I now want to speak to why California CT claims for accident years 2023 and 2024 are impacting our reserves this quarter. In California, older years continue to develop favorably, but more recent years have experienced a meaningful uptick in CT claim frequency. As there is typically a significant delay in CT claim reporting, the increased CT claim frequency trend did not fully emerge until well after the first 12 months of each accident year, making it more challenging to predict or detect the trend in real time through traditional reserving and pricing analysis. In addition, the continued declining frequency trend of non-CT claims in California initially masked the increasing trend in CT claims and further delayed visibility. Given the uncertainty in the California CT environment and more generally, our desire to utilize a more conservative approach across our complete book of business, this quarter, we implemented refinements to our analysis of prior years. These refinements, which strengthened our reserves across all states were designed to build additional resilience on our balance sheet and significantly reduce future uncertainty. A comparison of our third quarter 2025 reserve selections to reserve estimates prepared midyear by an independent external actuarial firm reinforced our conservative reserve position. Now let's focus on accident year 2025. The increase in our AY 2025 loss and LAE ratio is due solely to the increasing frequency of California CT claims as frequency in the rest of our book continues to decline. Comparing AY 2025 to AY 2024, at 3 months, AY 2025's incurred loss ratio was higher than 2024. But at both 6 and 9 months, AY 2025's loss ratio was lower than 2024s at the same ages of maturity. Other data points on both an accident year and a policy year basis point towards AY 2025 performing better than both 2024 and 2023. This suggests the underwriting and pricing actions we've implemented are having a positive impact. While we could have held the AY 2025 loss ratio steady at our second quarter selection, given the more conservative reserving approach mentioned earlier and recognizing the increased frequency in California CT claims, we decided to increase the accident year 2025 loss ratio. We have implemented a 4-pronged approach in California to help mitigate the impact that CT claims may have on our book of business going forward. This includes targeted pricing actions, more aggressive claims handling and litigation management, underwriting refinements and continued geographic diversification. We are also actively engaged in California's efforts to pursue meaningful legislative reforms to better align California's CT rules to those throughout the country. Having said that, our commitment to providing best-in-class care to all injured workers, whether their claim arose from cumulative trauma or not, is unwavering. We are confident that the actions we have made are timely, appropriate and prudent and will better position the more recent accident years for the future. We believe that our current reserves are more than adequate. I'll now turn to discuss other highlights from the quarter. Our third quarter gross written premium increased by 1.4% compared to 2024 due to increases in renewal business premiums. As I stated in previous quarters, in this sustained soft workers' compensation market, we are prioritizing underwriting margin over growth, and we've continued to undertake targeted pricing actions and implement enhanced risk selection to maintain underwriting margin. While competitive pressures have impacted our desire to grow at the same pace in certain classes, jurisdictions and policy sizes, we remain pleased with the continued growth in our Small Commercial business and our strong policy retention as evidenced by our 4% growth in policies in force this quarter. We view the small commercial growth as validation that our clients value the investments we've made in automation and ease of use. Over the last 10 years, we've considerably increased our diversification by expanding geographically into a national carrier and into new distribution channels, while also expanding our appetite into new industries and classes. These initiatives are ongoing. To further that diversification, we're excited to announce our first expansion into a new product. We have commenced the build-out of a new excess workers' compensation offering by hiring a talented experienced underwriting -- underwriter and developing the infrastructure to distribute and manage this new product. We plan to start accepting submissions in early 2026. Our entry into the excess workers' compensation market leverages our existing expertise and systems, capabilities and customer base and will strengthen our relationships and offerings with our distribution partners. We earned $26.1 million of net investment income during the quarter, which was slightly lower than the third quarter of 2024. Our net realized and unrealized gains on investments increased to $21.2 million for the quarter compared to $10.9 million for the prior quarter. We continue to be committed to delivering operational efficiencies and automation of the entire customer journey. In August, we made the difficult decision to undergo a reorganization, which was designed to better align our resources with our current and future business needs and objectives. As a result of this action and broader expense reduction efforts, we reduced our third quarter underwriting expense ratio significantly compared to the third quarter of 2024. Despite the tremendous progress we've already achieved, we now see further improvement potential as we implement our well-designed AI road map. As part of our relentless focus on value creation for our shareholders, yesterday, we announced a $125 million debt-funded recapitalization plan and an associated $125 million increase to our existing share repurchase authorization. This expands our existing share repurchase authority to $250 million. In addition to a meaningful return on investment, we believe the recapitalization plan will reduce our cost of capital, improve our return on equity and expand our earnings per share and adjusted book value per share. The recapitalization plan highlights our belief that our stock price is undervalued and our confidence in our balance sheet and future prospects. With that, Mike will now provide a deeper dive into our financial results, and then I will return to provide my closing remarks. Mike? Michael Pedraja: Thank you, Kathy. Gross premiums written were $183.9 million compared to $181.2 million for the prior year, an increase of 1.4% due primarily to renewal business premium growth. Net premiums earned were $192.1 million compared to $186.6 million for the prior year, an increase of 3% due primarily to larger levels of 2024 written premium earning in 2025. During the period, our losses and loss adjustment expenses were $186.6 million versus $117.7 million a year ago. As Kathy just summarized, we increased our current accident year loss and LAE estimates in response to the rapid rise in cumulative trauma claim frequency in California. The current quarter loss in LAE includes a cumulative catch-up adjustment of $11.4 million to the [ carried ] 2025 accident year loss and LAE reserves at June 30, 2025, to reflect the 72% current accident year loss and LAE ratio. As a result, the 2025 accident year loss ratio for the quarter was 78.1%. In addition, we strengthened our reserves related to prior accident years by $38.2 million due to the increased frequency of California CT claims and our desire to utilize an even more conservative approach across our complete book of business. Commission expense was $23 million for the quarter versus $25.8 million for the prior year. Our commission expense ratio for the corresponding quarters was 12% and 13.8%, respectively. The commission expense and ratio decreases were primarily related to the increased proportion of renewal business, which has a lower commission rate compared to new business and lower agency incentive accruals. Underwriting expenses were $39.6 million for the quarter versus $43.8 million for the prior year. Our underwriting expense ratios for the corresponding quarters were 20.6% and 23.5%, respectively. The underwriting expense decrease was primarily a result of lower compensation-related expenses, including reductions associated with the August reorganization Kathy mentioned, along with year-over-year declines in policyholder dividends and bad debt expense. Higher net premiums earned also contributed to the lower underwriting expense ratio. Net investment income of $26.1 million for the quarter was relatively flat compared to the prior year despite a lower yield environment. The current quarter net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of $17.8 million, and $6.3 million, respectively. The market value of our fixed maturity holdings has benefited from the lower interest rate environment, reducing our accumulated other comprehensive loss included in our shareholders' equity by $16.6 million. Our fixed maturities currently have a modified duration of 4.4 and an average credit quality of A+. Our weighted average book yield was 4.6% at quarter end compared to 4.4% for the prior year. During the quarter, our average new money investment yield was 5.5% versus 5.7% a year ago. Our adjusted net loss, which excludes net realized and unrealized investment gains and losses and the benefit of our LPT deferred gain amortization was $25.5 million compared to adjusted net income of $20.2 million a year ago. Our 9-month year-to-date adjusted net income was $34 million versus $90 million last year. Due to market opportunities, we increased our level of common stock repurchases to $45.2 million in the quarter. We achieved the repurchases at an average price of $43.09 per share, which represents a 17% and 13% discount for our June 30, 2025, adjusted book value per share and our book value per share plus the LPT gain, respectively. Since September 30, we have repurchased an additional 243,000 shares of our common stock at an average price of $41.77 per share for a total of $10.2 million. As Kathy highlighted, we announced the Board's approval of a recapitalization plan authorizing a $125 million increase to the existing 2025 share repurchase program. Initially, we will utilize a combination of 3-year debt funding sources, including our existing borrowing facility at the Federal Home Loan Bank. We ultimately plan to fund the recapitalization with long-term debt. With that, I'll turn the call back to Kathy. Katherine Antonello: Thank you, Mike. Yesterday, our Board of Directors declared a fourth quarter 2025 quarterly dividend of $0.32 per share. The dividend is payable on November 26 to stockholders of record on November 12. As evidenced by the recapitalization plan Mike just discussed, we remain confident in Employer's financial strength and prospects, and we'll continue to manage our capital strategically. After considering dividends declared, our book value per share, including the deferred gain, increased 6.1% to $49.70, and our adjusted book value per share increased by 5.5% to $51.31 over the last 12 months. We returned $52.7 million to our stockholders this quarter through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our book value per share. While our third quarter results were heavily impacted by the California CT claims trends, we believe our current loss and LAE reserves reflect the level of conservatism to which we are accustomed. We are relentlessly pursuing refinements in our underwriting and pricing approaches and seeking new opportunities like excess workers' compensation that will enable us to generate profitable growth in both new and renewal business. I am confident that the steps we've taken this quarter will position employers well into the future. And with that, Lisa, we will now take questions. Operator: [Operator Instructions] The first question today will be coming from the line of Mark Hughes of Truist. Mark Hughes: You mentioned one of your strategies would be to perhaps be more assertive on the litigation front. Is this something you can make yourself a harder target. And so the plaintiff's attorneys are not as enthusiastic about pursuing you as opposed to others? Or is that -- is it more of an administrative process that you can really control, so to speak? Katherine Antonello: Yes. It's a good question, Mark. When -- when I talk about our targeted litigation strategies, it's internal. We're using analytics to determine the best course of action -- and those analytics are based on individual claim back. So we have a multi-disciplined team that we've developed internally that's focused solely on managing the CT exposure. We've established some really aggressive targets to reduce the defense and cost containment portion of the claim to also reduce it possible the litigation because CT claims are more highly litigated than other claims. In fact, about 90% of them are litigated. And then also just to focus on the average cost per claim and bringing that down, if possible. We've identified and we've developed several defense tactics that are targeting specific firms that represent numerous hundreds and hundreds of CT claims, thousands across the industry that have no medical associated with them. And then as I've said in the past, we're taking a leadership role in pursuing some legislative reform, working with different industry groups and so forth to really present some meaningful language to legislative committees that would bring California's CT legislation in line with other states across the country. So we really are sort of trying to attack this from a lot of different angles when you talk about the claim perspective. But as I said in my prepared remarks, we also want the industry to know that we're committed to paying cumulative trauma claims. There are legitimate cumulative trauma claims out there, and it's something that's very important to us to provide the best service to injured workers. Mark Hughes: Yes. The trend in terms of those claims, I think you talked about how you're taking underwriting pricing actions and that has helped the improvement or help for the 2025 accident year. How do we think about, say, going into 2026 and loss picks -- do you feel like you have enough of a handle on the trend that the trend is predictable at this point? . I'm kind of mixing different ideas in this question. So I apologize for that, but I'm just trying to figure out whether -- is the trend stable enough? Have you taken enough actions, pricing, underwriting that you can get to a more predictable loss pick or what kind of loss pick can we expect -- is it going to be 72% from here? So like I said, I'm growing a little bit, but pick and choose among those topics and would be -- would appreciate your feedback. Katherine Antonello: Sure. So -- on the pricing side, we have -- we took action earlier than the California filing that went in was effective 9/1 -- so we were ahead of the curve on that, and then we've taken a couple of targeted actions after that. We feel like we're in a nice position on the pricing side and have taken more rate than what the WCIRB filed with the bureau. So that's what we saw on the pricing side. On the underwriting side, we have more underwriters looking at risks that are flowing through as submissions and putting eyes on these risks to determine whether they have a higher exposure to CT claims. So we've lowered -- we typically -- we have a straight through quote processing system where our underwriters really only touch the more complex risk, but we've lowered that threshold for California. So we have more eyes on it from an underwriter standpoint. From a trend perspective, I feel like -- the trend is settling. It is very difficult to know what will happen in the future. I don't expect our accident year pick to be much changed from what it is this year until we see these results flow through. So when I say these results, I mean, the pricing actions, the underwriting actions, any changes that are made within California and so forth. We're going to continue to be conservative and hopefully be ahead of that trend. Mark Hughes: On the -- Mike, on the buyback, what is the interest rate that you expect on the borrowings, I think, of the Federal Home Loan line that you've got. What is the rate on it. Michael Pedraja: Yes, Mark, so that's why it's very exciting. The current rate is 3.7%. Mark Hughes: Okay. And is that float or is it... Michael Pedraja: No, that number is fixed. Mark Hughes: Okay. And then the -- how much capital do you have at the holding company at this point? Michael Pedraja: So very several times, as you can imagine, we manage the capital effectively through the dividends from our insurance companies, but we have a sufficient level of capital at the holding company. We don't publish that number, but it's plenty to cover a decent portion of our expenses, including repurchases and dividends at the holding company. Mark Hughes: Okay. The -- how much is available under the share repurchases, $250 million in total? How much of that has been used of? Michael Pedraja: So to date, on the existing plan, we used $65 million. Mark Hughes: Was that $65 million. . Michael Pedraja: 6-5. Yes. Mark Hughes: 6-5. Okay. And then what would you anticipate in terms of the pacing on the $125 million was the $45 million this quarter? Is that a preview of things to come until you use the $125 million? Or how would you characterize it? Michael Pedraja: I think I mentioned on the previous calls, we really look at the repurchases on a return on investment basis. And so we're going to be very disciplined -- and when -- if the stock goes down below and creates further opportunity will increase that activity. And so we will -- we're very focused on affecting this $125 million recapitalization plan. So it's going to be market dependent, but we're disciplined and intend to affect it as soon as we can. Mark Hughes: Yes. And then one final question. The top line growth here kind of steady some puts and takes, obviously, some expansion in excess, but the tighter underwriting your rate increases. Is this kind of steady state for top line dynamics. I mean would we assume maybe flat to up slightly? Would that be consistent with where you were at in terms of taking these actions to help control the loss trajectory here? Katherine Antonello: Yes. I mean I think you categorized it well by saying puts and takes. There are areas in which we are wanting to grow. And then there are areas in which we're perfectly fine turning down business, and that varies by state. It varies by policy size. We are having a lot of success on the smaller policy side, and that's why size is, and that's why you're continuing to see the growth and policy count, but it's putting pressure on the top line because of the average policy size that we're writing is lower. So I would not expect tremendous growth over the next 12 months, because, as I said in my prepared remarks, underwriting margin is what we are focusing on right now. Operator: And the next question will be coming from the line of Karol Chmiel of Citizens. Karol Chmiel: I've got 2 questions. The first one is really just regarding the cumulative trauma claims, statute of limitations and date of injury that is kind of part of the legal issue here. Can you comment on that? Katherine Antonello: Yes. So the real issue underlying CT, and this is my opinion, in California is the fact that an injured worker can file a cumulative trauma claim post termination -- and the claim itself can stretch over multiple years and multiple carriers can be involved in that claim. So it's -- what we're seeing is a lot of these claims are being filed post termination now. They have much more indemnity on them than they used to. It used to be more of a medical phenomenon. That's the real issue in terms of what's going on with California CT. Karol Chmiel: And then just a follow-up question in regard to the buybacks. I'm just looking at the model. And I'm just curious, will your investment leverage technically go up and maintain the investment balance as you buy back the shares? Michael Pedraja: Well, because our investment balance should not be impacted, right? Because we're going to fund the repurchases through debt. So the investment leverage will stay. So investments compared to equity will increase. So if that's what you're asking, yes, the investment leverage will increase. Operator: [Operator Instructions] Our next question will be coming from the line of Bob Farman of Janney Montgomery Scott. Robert Farnam: So what happens with the -- are you going to have a traditional fourth quarter reserve review as well, like internal and external? Or is this third quarter review kind of taking your annual look fee? Katherine Antonello: Yes. And that's a good question, Bob. We are going to have a full fourth quarter review and get back on track. Third quarter was off cycle. We usually just look at actual versus expected then, but we wanted to, definitively come out with something and look at it with a fresh eye -- and -- but we'll get back on track in fourth quarter, we'll have an internal review. It will also -- because this is the year that we've hired an external actuarial firm -- to review our reserves, they will also do a fourth quarter review, but we do not expect an impact from that fourth quarter review. . Robert Farnam: Right. Is the external firm that's looking at the fourth quarter, are they the same one that looked at them at midyear? Katherine Antonello: Yes. Robert Farnam: Okay. And was there -- I know you've had to discuss this thing, these types of things with AmTrust. Like what kind of commentary have you gotten from rating agencies in regards to the the whole situation with the cumulative trauma in California? Michael Pedraja: Yes. Thanks, Bob. So we're very active and engaged with our rating agency partners and we've discussed and keep them posted as far as the process, what -- from an operating perspective as well as a capital perspective and they all continue to be quite supportive of where we're at, the actions we're taking, both from an operation perspective as well as from a capital perspective. Robert Farnam: Okay. All right. Good. Have you seen any change in medical cost trends? I know you probably asked every quarter about it, but what's going on with medical costs. I know we've been talking a lot about claim frequency, but how about the severity side. Katherine Antonello: Yes. The severity side, what we're seeing, our overall claims severity values have generally held steady in the most recent years. There -- they continue to be, generally speaking, below pre-pandemic levels, and that's both indemnity and medical severity in that number that are in that severity that I'm speaking to, but it's driven by lower medical severity. I've talked about in several calls that we monitor our own prescription drug costs. We've seen slight increases in drug costs versus those that were in place pre-pandemic, but nothing that is really alarming on the pharmaceuticals. So severity is not something that we are currently concerned about. We did have some large losses in 2024. Those are more than adequately reserved for. But we're not seeing anything that is concerning to us right now. Robert Farnam: Okay. So if in a recessionary environment, with the increase in unemployment or terminations and stuff, I understand they can file claims in California. But you see some similar issues in other states if unemployment starts to become -- it starts to go up? Katherine Antonello: It's something that has been researched in the past, and there have been studies that show that, that could and has happened. The most prominent one was the study research that was done after the great recession. Of course, that was a huge impact to the economy and unemployment and so forth. So I don't -- I wouldn't expect anything like that. Recessions are just very specific in terms of the industries and jobs that they tend to impact. So it's very difficult to answer your question other than generally. But the answer is it could, It just depends on the type of recession. Robert Farnam: Yes. I didn't expect an exact detailed answer for you on that one. It was just more of a broad question. So I -- I'm sorry to kind of monopolize the questions here. But I guess one last thing I want. Just can you talk a little bit more about the excess workers' comp product what size market is that? Who competes in that market and where you can add value? Katherine Antonello: Sure. So -- the -- our entry into excess workers' compensation is part of our diversification effort. And as I said earlier, it's our first new product expansion. We've been researching new products for about a year now in excess was the right place to start for us. Given our expertise in workers' compensation, it's just a natural extension of what we do now and leverages the talent and the systems capabilities and so forth that we already have in place. So we're spinning this up in a very efficient way by hiring a team of underwriters and then we're utilizing Agentic AI to build out the underwriting platform and the CRM platform. We don't -- we're going to go slow here. We don't expect -- we're not expecting something huge in 2026, because we're going to learn as we go -- but we do expect to get submissions in the door in early second quarter and binding by July 1, 2026. There aren't a lot of excess workers' compensation providers that are large and have an extensive book of business. So we feel like this is a good place for us to enter. It's a good time in the market for us to enter it, and we're really excited about it. Robert Farnam: And you're saying your producers are basically saying this would be a nice add-on just because placing that type of risk to others. Is that kind of... Katherine Antonello: Yes. We feel like there's just an opportunity for another entrant in the market and that we can provide some services that potentially don't exist right now. And we can absolutely leverage our extensive agency plant that we have in place. So there's not a lot of friction there for us to enter the market. Operator: [Operator Instructions] And at this time, I'm not seeing any more questions in the queue. I would like to go ahead and turn the call back over to Kathy Antonello, please go ahead. . Katherine Antonello: Okay. Thank you, Lisa. Thank you all for joining us this morning, and I look forward to meeting with you again in February. Have a good weekend. Operator: This concludes today's program. You may all disconnect.