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Operator: Hello, everyone. Thank you for joining us, and welcome to the Cboe Global Markets Third Quarter Earnings Call. [Operator Instructions] I will now hand the call over to Ken Hill, Head of Investor Relations. Please go ahead. Kenneth Hill: Good morning, and thank you for joining us for our third quarter earnings conference call. On the call today, Craig Donohue, our CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Jill Griebenow, our Chief Financial Officer, will then provide an overview of our financial results for the quarter as well as discuss our 2025 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer; Prashant Bhatia, our Head of Enterprise Strategy and Corporate Development; and Rob Hocking, our Global Head of Derivatives. I would like to point out this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of the website. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. Now I'd like to turn the call over to Craig. Craig Donohue: Good morning. Thank you for joining us today to discuss our third quarter results. Our performance this quarter underscores how Cboe is operating from a position of strength, a result of our world-class products, platforms and people. We're building on that momentum and sharpening our strategic focus designed to unlock even greater value and opportunities for growth. Following the conclusion of a rigorous review of our businesses, we will initiate a sales process for our Cboe Australia and Cboe Canada businesses. We will discontinue our U.S. and European Corporate Listings efforts, and we will reduce our costs related to our U.S. and European ETP Listings businesses, Cboe Europe Derivatives Exchange and several of our smaller Risk and Market Analytics businesses. This strategic realignment ensures Cboe is well positioned in a dynamic and evolving market and strengthens our long-term vision to be a global derivatives leader. These changes will be accretive to earnings, and Jill will discuss in her prepared remarks how these actions strengthen our financial position and unlock new growth opportunities. I'd like to express our deep appreciation to all our team members for their dedication and hard work in supporting each of these businesses. While our Australian and Canadian equities businesses are performing well, we've determined that they fall outside of our core focus and strategy. We are grateful to our regulators in Australia and Canada for the support and collaboration they have shown us, and we will work closely with them to ensure a smooth transition for all of our key stakeholders. With this renewed focus, we are directing greater attention to our core businesses, which are operating from a position of strength. We see tremendous opportunities across index and multi-list options, Futures, U.S. And European Equities and FX, inclusive of Data Vantage. Leveraging these core areas of strength for Cboe and the strong secular growth trends supporting them, we believe we are well positioned to fully capture their growth and earnings potential as we strengthen our competitive positioning. Turning now to the third quarter. Cboe grew net revenue 14% year-over-year to a record $605.5 million and adjusted diluted EPS increased a robust 20% to a record $2.67. These results were again driven by strong volumes in both our multi-list and proprietary index option products, solid new sales growth in our Cboe Data Vantage business, robust industry volumes in our Cash and Spot markets and continued strong expense discipline. Most importantly, our performance once again underscored the durability of our net revenue generation with strength evident across nearly every segment of our business. In fact, in the third quarter, all 3 of our revenue categories: Derivatives Markets, Cash and Spot Markets and Data Vantage posted double-digit net revenue growth. As we head into the final months of the year, we look forward to building on those broad-based trends. Taking a closer look at the third quarter trends by category, our Derivatives franchise delivered another record quarter with net revenue increasing 15% year-over-year. In our multi-list options business, net transaction and clearing fees revenue was up a solid 14% given higher industry volumes and positive market share trends. While the multi-list option space remains highly competitive, Cboe is well positioned to benefit from strong secular trends, having taken meaningful steps to deepen our talent pool in the options space, while actively pursuing thoughtful regulatory reforms that support both the industry and investors. On the index options side, net transaction and clearing fees revenue was up a strong 19% as our proprietary SPX options complex set new records, powered by robust growth in 0DTE options trading. SPX 0DTE average daily volume surged 62% year-over-year, while overall SPX ADV increased 26% to a record 3.9 million contracts. 0DTE options made up over 61% of SPX volumes, up from a 48% share a year ago. We saw a similar dynamic in Mini-SPX options, where 0DTE, ADV more than doubled over the past year and drove an impressive 66% increase in total ADV during the quarter. 0DTE options now make up roughly half of Mini-SPX volume, up from 35% a year ago. In our proprietary options business, it's noteworthy that 9 of the 10 highest average daily volume months occurred in 2025, with September ranking as the third highest month on record only behind March and October month-to-date activity. In fact, our largest SPX day on record occurred on October 10 with 6.4 million SPX contracts traded and a record 33.2 million total options contracts traded across our index and multi-list products. It's also worth noting that growth in our 0DTE options franchise reflects not only wider adoption and broader access, but it's also a result of Cboe's distinct advantages in product innovation, contract design and market structure. We look forward to leaning into these advantages with our new [ MAG 10 ] index options and futures launch subject to regulatory approval, giving investors a simpler way to gain exposure to the AI and tech theme and a more precise way to manage risk using cash-settled European-style options. While SPX volumes in the third quarter were robust, our VIX products faced a more stable macro backdrop and lower realized volatility. The continued growth in our index options despite the lower activity in our VIX complex highlights the strength and versatility of Cboe's comprehensive volatility toolkit. Looking ahead, we remain positive on the outlook for our core derivatives business. With trade tensions, a government shutdown and more uncertain economic outlook, we see investors continuing to utilize options to manage risk. Secular trends of increasing retail participation and international expansion should provide further tailwinds. We continue to onboard more international brokers as global customers seek exposure to U.S. financial markets. Moving to Cash and Spot Markets. Net revenue was up a strong 14% as our European cash equities business continued to drive robust performance for the category, led by another quarter of strength in our European transaction businesses, the Europe and Asia Pacific segment delivered the strongest year-over-year net revenue percentage growth of any Cboe segment for the fifth quarter in a row, achieving an impressive 24% increase. This was driven by a 35% year-over-year growth in net transaction and clearing fees resulting from strong industry volumes, solid market share gains and a higher net capture. Global FX also made another solid contribution, growing net revenue 13% year-over-year in Q3. Over a longer time horizon, FX has delivered quarterly year-over-year net revenue growth in 17 of the last 18 quarters, speaking to the durability of this segment's revenue generation. Turning to Data Vantage. Net revenue increased by 12% on a year-over-year basis, reflecting continued momentum across our platform. Notably, nearly 90% of the growth across our market data and access businesses was driven by new unit and new sales as opposed to pricing. This growth speaks to the sizable demand for Cboe's Data and Access products, including our newer offerings, Dedicated Cores and Timestamping. Now I'll turn the call over to Jill to walk through the details of our financials and guidance for the quarter. Jill Griebenow: Thanks, Craig. Cboe posted another strong quarter with adjusted diluted earnings per share up 20% on a year-over-year basis to $2.67. I will provide some high-level takeaways from this quarter's operating results before going through segment results. Net revenue increased 14% versus the third quarter of 2024 to finish at a record $605.5 million, with each of our categories producing healthy year-over-year growth. Specifically, Derivatives Markets net revenues grew 15%. Data Vantage net revenues grew 12% and Cash and Spot Markets net revenues grew 14%. Adjusted operating expenses of $210 million were up 3% on a year-over-year basis. Adjusted operating EBITDA of $409 million grew 21% and adjusted operating EBITDA margin expanded by 3.8 percentage points to 67.5% versus the third quarter of 2024, demonstrating both our strong business performance and disciplined expense management. Turning to the key drivers by segment. Our press release and the appendix of our slide deck include information detailing the key metrics for our business segments, so I'll provide some highlights for each. The Options segment delivered its fifth consecutive quarter of record net revenue with 19% year-over-year growth. Cboe total options ADV was up 26% with a 15% increase in index options volume and a 31% increase in multi-listed options volume. North American Equities net revenue increased 6% on a year-over-year basis. Access and capacity fees increased 10% as compared to the third quarter of 2024 and stronger industry volumes helped temper softer net capture and market share in our transaction net revenues. Europe and APAC produced 24% year-over-year net revenue growth, reflecting another quarter of strong growth in Europe. Net transaction and clearing fees for the segment were up 35%, while non-transaction revenues were up a combined 14%. Futures net revenue decreased 22% from the third quarter of 2024, primarily due to lower volumes. And finally, Global FX net revenue was up 13% on a year-over-year basis, driven by a 3% increase in average daily notional value and a 9% increase in net capture. Looking at our Cboe Data Vantage business, net revenues were up 12% on an organic basis in the third quarter. Building on the solid year-to-date trends, revenue growth was again driven by strong new subscription and unit sales. New sales represented nearly 90% of Market Data and Access Solutions revenue growth in the quarter, with the remainder coming from pricing changes. As Craig discussed, we are encouraged by the sales momentum occurring across our new product offerings. Turning to expenses. Total adjusted operating expenses were $210 million for the quarter and up 3% on a year-over-year basis. The increase was primarily driven by higher compensation and benefits expense as a result of our strong revenue trends, which have increased our bonus incentive accrual. Before moving to our 2025 guidance update, I would like to discuss the anticipated financial impact of the business decisions announced earlier this morning. While we are still working through these changes with our key stakeholders, we do not anticipate that these actions will have a material impact on our 2025 total organic net revenue growth or our 2025 adjusted operating expenses, and they are fully captured in our updated guidance. On a go-forward basis, we expect the annualized run rate impact of both today's announcements and the completed wind down of our Japanese Equities business to be accretive to our earnings, resulting in roughly a 3% reduction in net revenue and an 8% to 10% reduction in adjusted operating expenses using the 2025 guided ranges as a baseline. That being said, realizing the full impact of the actions will take time as we work through the various realignment actions and sales processes. We will look to provide a more fulsome progress update to help calibrate the timing of various impacts when we announce our 2026 guidance during fourth quarter earnings in February. Moving to our full year 2025 guidance. We are increasing our full year total organic net revenue growth guidance range to low double digit to mid-teens from high single digit given our strong year-to-date results and fourth quarter trends. We are increasing our Data Vantage organic net revenue growth range to high single digit to low double digit from mid- to high single digit following stronger-than-expected year-to-date growth. We are lowering our full year adjusted operating expense guidance range to $827 million to $842 million from $832 million to $847 million. This decrease reflects our year-to-date operating discipline as well as reduced expectations for depreciation and amortization expenses, partially offset by higher incentive compensation given our healthy revenue generation. We are lowering our full year guidance range for CapEx to $73 million to $83 million from $75 million to $85 million, and we are also lowering our expectation for depreciation and amortization to $50 million to $54 million from $53 million to $57 million. We continue to expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for the full year. And while we don't provide formal guidance on interest income or interest expense, we expect that interest expense net of interest income will be approximately $3 million in the fourth quarter. On the capital front, our adjusted cash position of $1.5 billion and leverage ratio of 1.0x demonstrate our healthy balance sheet. In addition, Moody's recently upgraded our credit rating by 1 notch to A2, reflecting the strength of our financial profile. In the third quarter, we returned $76 million to shareholders in the form of a $0.72 dividend, representing a 14% year-over-year increase in our quarterly dividend. Turning to our investment in the 7RIDGE Fund holding Trading Technologies. The transaction detailed in last quarter's earnings call is expected to close in the fourth quarter of 2025, subject to regulatory approval. As of September 30, 2025, the carrying value of the investment reflects assumptions, including the agreed sales price related to the estimated fair value of trading technologies. A gain of $45.6 million is included in our earnings on investments for the third quarter, but the impact has been adjusted out of our non-GAAP income statement. In the fourth quarter, we anticipate recognizing an incremental gain upon the final closure of the transaction. Similar to the third quarter, we will adjust the gain out of our non-GAAP income statement. As an organization, we are focused on optimizing capital deployment to strike the right balance between margin efficiency and investment in emerging growth trends following our review. And while the decision process to strategically realign our business portfolio is complete, our commitment to continuously assessing new opportunities and optimizing our businesses will be unwavering. We will maintain a disciplined approach to assessing all aspects of our business with a clear emphasis on driving revenue growth and enhancing profitability to maximize shareholder returns. Now I'd like to turn it back over to Craig for some closing comments before we open it up to Q&A. Craig Donohue: Thank you, Jill. As Jill highlighted, our business is operating from a position of exceptional strength, and we now have a clear path to unlock even greater value. The strategic realignment of our business portfolio and human capital allows us to focus on optimizing our core businesses for further growth and profitability and pursue opportunities in emerging growth areas. While we continue to undergo change, our continued success makes us a destination for talent. The realignment and focus on growth allows us to continue to build senior leadership talent across the organization. In the past 6 months, we have made key hires in strategy and corporate development, global derivatives, clearing and Data Vantage. And yesterday, we announced another key hire as we welcome JJ Kinahan as Head of Retail Expansion and Alternative Investment Products. JJ is a well-regarded industry veteran in the retail brokerage space with deep expertise in equity derivatives markets. He brings a wealth of experience to the Cboe management team, and I look forward to working closely with him and Rob as we pursue new growth opportunities in the retail-oriented digital crypto and event contract space. We have made meaningful progress over the last 6 months, and we have a great deal more to do. I am energized by the momentum of the organization and excited to channel what we've learned into driving transformative change. I'll now turn the call over to Ken for Q&A. Kenneth Hill: At this point, we'd be happy to take questions. [Operator Instructions] Operator: [Operator Instructions] Your first question comes from the line of Patrick Moley with Piper Sandler. Patrick Moley: I thought maybe we'd start off, Craig, if you wouldn't mind just maybe just talk about some of the decisions made today as a result of the comprehensive review process, why were Cboe Australia and Canada, why did you decide to initiate a sales process there? And then as we think about the proceeds that you'll receive from those transactions and some of the expenses that will be freed up, what specific areas of the business are you looking to kind of deploy that capital into? Craig Donohue: Thank you, Patrick. Yes, happy to address that. I mean, obviously, as you've heard us comment before, the review process is something that began under my predecessor, Fred Tomczyk, that process continued. But my goal since joining Cboe has been to try to accelerate that process and reach a conclusion. And essentially, what I've been focused on and the team has been focused on is trying to pivot people toward the largest growth opportunities that we have among all the available choices. Obviously, we feel like we've done a very good job in Australia and Canada. But at the same time, our best opportunities for growth are in our current large core businesses that are hugely successful, where we've got a critical mass of successful markets, products, liquidity and customers. Some of our core businesses are ones that are performing extraordinarily well and others are such that we know that we've got further growth opportunities within those core businesses, and we also have further opportunities to optimize for greater profitability in each of those businesses. And so from a human capital perspective, I want to make sure that we're all focused on really the largest growth opportunities that we have in our current core business. And that's what you'll hear us talking about in terms of optimizing the core. At the same time, there's a lot of emerging growth trends in the industry that I feel align really well with our core capabilities. And so we're really starting to shift as we've described during the call, and as Jill commented on toward those new emerging growth opportunities. And so I want to make sure that we're focused on event and prediction markets, digital and crypto markets, there's extraordinary growth there. I think they align well with our core capabilities in terms of what we've been able to achieve with the retail segment. Those are largely at this point, retail-oriented product opportunities. I'd like to think that we've been an innovator in shorter-dated contracts through 0DTE, and event and prediction is really just sort of coming at it from a different way, but that's something that we have demonstrable expertise and success in. And then as you'll recall, I mean, we were also an early participant in digital markets. We still have a lot of our core capabilities in that area. So those are things that I want to make sure that we are focused on. I'll let Jill comment on reinvestment of capital, but most of what we are focused on is going to be kind of low capital intensity in terms of further investment in the business. So what I'm primarily focused on is the reallocation and reinvestment of our human capital, but it does free up opportunities for us to make sure that where we do need to invest capital in those new growth opportunities that we have the agility and the ability to move quickly and do that. Jill Griebenow: Yes. So just a couple of words on the reinvestment or the proceeds, the investment. I will say from an organic growth perspective, we have the flexibility to make investments into some of the areas that Craig mentioned. As it stands now, we wouldn't expect those to be material. We will come back in February with our 2026 guidance. But really, what this affords us is just incremental flexibility, the ability to invest where it makes sense. And then to Craig's point on the strategic allocation of human capital as well to these higher growth areas. Operator: Your next question comes from the line of Eli Abboud with Bank of America. Elias Abboud: Can you help us understand the drivers behind the stronger outlook for your Data Vantage business? The past couple of years, it's been a high single-digit grower. What has changed that's going to allow you to get north of that? And then do you expect you can hit that target even in years when volumes and capacity fees are down? Christopher Isaacson: Eli, thanks for the question. This is Chris Isaacson. So we've seen above expectations uptake in some new products. We rolled out in the last 1.5 years with Dedicated Cores and Timestamping Service. Customers continue to demand that. They have -- each of them has their own adoption curves, and we've seen really strong growth throughout 2025 as well as data products outside the U.S. For instance, 85% of Cboe Global Cloud growth has come from outside the U.S. So that's what's contributed this year. And I can hand it to Jill about what we see looking forward. Jill Griebenow: Yes. So really, I mean, we've seen some outperformance in 2025, really pleased with the results there. As I commented in my prepared remarks, about 90% of that incremental revenue has come from new units, new sales and about 10% of that then from pricing. So we, again, pleased with the 2025 results that we've had to date, the outlook for Q4. But what I will say is different products have different adoption curves. This has been a good grower for us. What we will do is, again, take a look and reassess our guidance. We'll come back in February with our update on the '26 outlook. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell: Can you hear me okay? Craig Donohue: Yes. Brian Bedell: Maybe just to focus in on the retail strategy and JJ's game plan for -- maybe just sort of expand more on how you might be doing this differently, the connection with other brokers, online brokers, the potential white space that you have there, because I know you're already connected with a lot of retail participants. And then if you can talk a little bit more about the prediction markets how that weaves into the retail strategy? What's the timing of when you think you might start to launch event contracts? And I don't know if there's any view on pricing of those yet. Prashant Bhatia: Yes. Brian, Prashant here. Just real quick on prediction markets. We see broad-based interest in prediction markets. We think it aligns well with the cross-section of secular trends, increased retail participation, the appetite for short-dated options. And again, smaller contract sizes, dollar-sized contracts are really the ultimate mini contracts. So we want to leverage our strengths and provide industry participants there with a neutral infrastructure platform, and we're thinking both on the exchange side and on the clearing side. So we think there's an opportunity there. You can expect our focus will be on financial and economic-related contracts when it comes to those products, and we're crafting a go-to-market plan, and we'll provide you with updates there as we make progress. So, yes, event and prediction market is clearly an area of interest for us. And I think we've got an offering that could benefit the marketplace. Robert Hocking: Yes. And I would add, I'd just jump in, maybe giving a little more background on why we think we have the right to win in that space. Options have always been centered around forecasting future market volatility, but the direction, timing of events. So you could actually say we've been in the prediction business since we started in 1973. Further, a lot of this was the basis for creating products like the VIX Index. The VIX is a real-time measure of the market's expectation of a trading range of the S&P 500 over the next 30 days. And its predictive nature is really what's driven it to become one of the most watched equity market benchmarks in the world. And so with options, every strike expiration embeds the market consensus on where that underlying could be at any specific point in time. That's why we're so excited about the space and believe with the decades of experience we have, investments in infrastructure, along with really most importantly, the community of market participants already active in doing business on Cboe that this is a tremendous opportunity. Now specifically, when I think of the liquidity providing community and really the tangential nature of the event and prediction market, we're excited to work with those core partners and tap into the vast amount of liquidity that they provide each and every day. And to put that in perspective, an average of about $18 billion in premium trades each day in SPX options. And that event and prediction market year-to-date in similar products is less than $50 million in premium. So if we do this correctly, we're really bringing these liquidity pools to that event and prediction space, which give us a really unique opportunity to enter it and to grow. And so on the retail side, you mentioned that we've led that charge. You've heard it already about the ultra-short-dated options, the growth of that retail participation. In many ways, we view the event and prediction market as kind of an introductory product to help those investors in that journey to understanding more complex and more complex products. So you start with stocks. You move to kind of binary, yes, no products and then ultimately, you bring them into options and kind of the continuous spectrum of probabilities that they can work with. And so this is a process and really a formula we pioneered. And by offering the right products, education, that's another real important one. You may have heard we just launched our OI learning management portal, which allows individual retail investors to expand and better understand these products. And then through all of these efforts, obviously, hiring JJ was a big one with regards to 4-plus decades of retail experience and how to reach that market and understand that market and what that user and investor wants to see on our platform is crucial, and we really think we can build that long-term user base for Cboe. Operator: Your next question comes from the line of Chris Allen with Citi. Christopher Allen: Just would love to hear your thoughts on the strategic realignment, particularly the sales of overseas -- the international businesses and how that fits with the international strategy for the data business, where clearly you're seeing good progress. Just love to hear -- if I remember correctly, some of the deals that were done, they were done to expand global footprint to drive data sales. So now you're pulling back. Just help us think about that strategy moving forward. Prashant Bhatia: Yes. Thanks, Chris. So when we went through the process to evaluate our portfolio of businesses, we looked at each of these businesses from a strategic lens, from a financial lens and from a growth potential. lens. And when it came down to our Australia and Canadian businesses, they both performed quite well, but we simply determined that we have better opportunities to drive meaningful growth for Cboe in other areas. And that's why we decided to pursue a sale there. And when you talk about some of the linkages to data, these are core local market platforms in the Canadian market and the Australian market. In terms of our data, a lot of our data sales aren't really driven by having a local exchange presence. So we see an enormous amount of demand for our data throughout APAC. We've added salespeople. We've added marketing resources in those regions, and it really drives a lot of access from clients overseas. When you look at the connectivity we have with APAC brokers and how we continue to grow that, there's an enormous demand around the secular trend of flows with the U.S. being a destination. So we don't think it's going to have an impact from that perspective at all. These were more local market exchanges that are performing well. So we made the decision really driven by where we find the biggest growth opportunities going forward, so we can drive focus there. Operator: [Operator Instructions] Your next question comes from the line of Anthony Corbin with Goldman Sachs. Anthony Corbin: This is Anthony on for Alex. Maybe just on prediction markets, how are you thinking about M&A versus a less capital-intensive partnership? And do you see any risk of cannibalization to your existing short-dated product suite? Craig Donohue: I'll start with that. I mean I think we're looking at this as an organic opportunity, leveraging a lot of the key strengths that both Rob and Prashant have commented on. I mean, obviously, we'll always look at inorganic opportunities if they make sense. But the primary focus that we have right now is a launch plan that's focused on organic efforts. Operator: Your next question comes from the line of Ashish Sabadra with RBC. [Operator Instructions] Ashish Sabadra: Just wanted to follow up on the earlier question. And as you think completed your strategic review, how are you thinking about organic investments going forward, but also like inorganic investment broadly outside -- across all the spaces, including the Data Vantage space? Craig Donohue: Yes, I'll start. Jill and others may want to comment, too. But I mean, we do see opportunities for continued investment in our core businesses. I mean, obviously, with the focus on adding scale in derivatives generally, event and prediction markets, retail-oriented digital and crypto products. There are opportunities for us to invest further in our clearing capabilities, both in Europe and also in the U.S. There are also investment opportunities for us in terms of developing on-chain capabilities as well as migrating increasingly toward atomized settlement capabilities that will further extend our products and reach beyond our traditional trading hours. So those are some of the kinds of things that we would be looking at. I mean, obviously, we also have a very successful and growing business in both index options and in multi-list. And so there are also investment opportunities there, especially in multi-list in terms of how we can better facilitate more liquidity and more trading volume. So there's a range of things that we will be focused on in terms of investment. And that's a big part, as I said, of this whole strategic pivot is really making sure that we're extracting as much growth and profitability as we can, not only from our current core businesses, but from these other areas that we'd like to pivot and shift to. Operator: We have a follow-up question from Eli Abboud of Bank of America. Elias Abboud: You highlighted how Data Vantage revenue growth is being disproportionately driven by international unit sales. In past calls, I think you've said about 50% of the incremental growth comes from international. I was hoping you could break that down a little bit further. How are international users consuming your data? Is the growth concentrated in one particular channel? And then how do we square your outsized international data growth with the fact that global trading hours are still a relatively small part of your total volumes? Prashant Bhatia: Yes. So I'd say a couple of things on Data Vantage. In terms of the growth we're seeing overseas, it's absolutely driven by a lot of our -- an appetite for data or U.S. proprietary market data, and we're seeing high demand for that. In terms of global trading hours, it's not as correlated to data sales there as to GTH volumes. So we're not seeing a high correlation there. The demand is coming, and they are trading within the 24-hour, 5-day windows that we have. So we're seeing a good demand and appetite there. And when you look across the Data Vantage platform, we're not only seeing growth on the data side, we're seeing growth on the index side. We're seeing growth in our risk and market analytics platforms as well. So it's pretty broad-based growth. Again, with any kind of sales-oriented business, you end up with some variability quarter-to-quarter depending on when sales hit. This was just a particularly strong quarter for us. We continue to think we're well positioned going forward. So good story there, and all that growth is really organically driven. Robert Hocking: And to put a finer point on the GTH hours point and how that doesn't tell the whole story, given the larger liquidity pools in our regular trading hours session, a lot of international participants that are still buying the data and need the data for trading are trading during those regular trading hour sessions as well. And so I think we're using that from the stance of you continue to build the liquidity pools. We have them in the regular hours. We continue to build them in the global trading hour session, and you start to see some of that flow migrate to more, I would say, call it, on-hours trading for the international clients. But I just want to be clear, like a lot of those trading in the international space are doing it during the regular trading hours. Christopher Isaacson: And Eli, I might just finish here with our goal here is to get our data as close to customers in whatever format or mechanism that works best for them. So we've added Cboe Global Cloud in partnerships where we need to. But as Prashant mentioned, the real demand is coming for U.S. data from around the world, wherever we interact with customers, they want access to the U.S. markets and our bellwether products. So our goal is to get them that data in whatever format works for them. That's where we're seeing the growth. Operator: Your next question comes from the line of Ben Budish with Barclays. [Operator Instructions] Benjamin Budish: I wanted to ask a higher-level question about AI. It's something we've heard a lot about from some of your exchange peers this earnings cycle. Just I'm wondering if you could share any high-level thoughts, how might that help you in terms of new data and analytics products? How do you think about potential to increase efficiency in your operations? I think your margins are already quite high, but how are you thinking about opportunities either on the product side or internally to employ or deploy more AI capabilities? Christopher Isaacson: Glad to take that one Sorry. Thanks for the question. Yes, obviously, AI is all over the news outside of our industry, but also in our industry. AI has been a journey for us, and we've made significant investments in AI. It's primarily been a productivity multiplier across all of our functions from sales, legal, HR, finance, infrastructure to software engineering, security, business intelligence is basically touching every part of our business internally. And it's embedded in our data platform, so we can surface insights for both for us and our customers. And it's really underpinned by our data strategy, where you've heard about us talk about we've been public about having our data platform running on Snowflake on AWS, and that underpins our AI strategy. So we're finding use in it for the product development life cycle, especially with the unique data sets that we have to new products. We stood up a center of excellence in mid-2024. And that's not just a hub for software engineering, but it's for company-wide resources to make sure we're getting adoption across the enterprise. And now we have 900 active associates working on that. So we're also -- we're in the age of agentic AI. We deployed multiple agents across our enterprise, including in areas such as infrastructure and information security and really focused on building infrastructure with an AI platform internally, but also in educating all of our associates. So it's been primarily internally focused, but now we're turning to what products can we commercialize based on the insights that AI gives us. So we also have had a fun program internally called the AI Olympics and AI Champions and the winners of the Olympics, and we then we go implement those projects because they are delivering great value for us. So we are, frankly, all in on AI because we think it has tremendous power to unlock greater productivity. You've heard a lot on this call about human capital, and we have great people here. We want to make sure that we fully leverage those great people. Operator: [Operator Instructions] We will now move to Kyle Voigt of KBW. [Operator Instructions] Kyle Voigt: You noted opportunities in the multi-list options market multiple times today on the call. I don't want to say that multi-list hasn't been a priority for Cboe, but maybe it seems like it's going to be more of a focus of investment for Cboe moving forward. As you noted, it's a very competitive space. So just wondering what you think you could do differently in that market versus the way Cboe has looked at and addressed that market over the past several years? Robert Hocking: Yes. Thanks, Kyle. I appreciate the question. We're really excited about the multi-list space and the revenue opportunities we see going forward. As you mentioned, multi-list is core to Cboe, and it's an area we're going to be heavily focused on competing in. Industry volumes are up 20% year-over-year. Retail is driving much of that growth. Options adoption amongst retail is still in the early innings. So we really see plenty of runway ahead. As far as the multi-list landscape, yes, you touched on it. It's highly competitive. In early 2026, I think we'll be up to 20 exchanges in the space. That said, Cboe still commands over 24% of the multi-list market share and is #1 in overall industry market share with just under 31%. So we feel we're playing from a position of strength. Earlier this year, we made several additions to our U.S. team. Meaghan Dugan joined us from NYSE in February. We also added Gary Hunt, long-time industry veteran from Bank of America. And between both of them, they have over 50 years of industry experience in multi-list options. I know, I look forward to working with them, and we're going to be focused on increasing our competitiveness. On the functionality side, we're really working on a host of, I would say, market structure and pricing improvements across our different exchange medallions, things like liquidity adding incentives for market makers, competitive rebate program for customers bringing flow to Cboe. But ultimately, we feel we're well positioned to continue to be an industry leader, and we will remain focused on really striking that right balance between maximizing market share and revenue capture. Christopher Isaacson: Kyle, I just might mention you've heard a lot in previous calls when we were deep in the heart of integrations, and we had a lot of, frankly, tech resources focused on integrations. This year, we've really been able to fully focus on our core businesses as outlined in this call. And it's really encouraging to see we have a bigger and fuller derivatives road map. A lot of that is around multi-list options that I've seen in years. So we're, again, using that human capital, focusing the highest growth opportunities. Operator: Your next question comes from the line of Michael Cyprys with Morgan Stanley. [Operator Instructions] Michael Cyprys: Hopefully, you can hear me okay. I wanted to ask about AI to your earlier point. I was hoping you could elaborate a little bit on what products might make sense as you look out over the next 12 to 24 months? And then also more longer term, how you might see AI helping contribute to revenues at Cboe over time? Christopher Isaacson: Yes, it's a good question. I'm going to have a full clean answer here with the exact products that will come from AI. As I said, our data strategy underpins our AI strategy. I'd say the insights and the products are still yet to come. But we do have unique data sets because of the unique products we have, especially our proprietary products, and we think new products can come from that. I think one product I'll point out that's not really AI related, but Open-Close products, for instance, regarding SPX has had great uptake AI product, but it's something that's surprisingly simple, but very, very high demand. So we think we can surface more product ideas from AI or outside of AI and just use it as one... Robert Hocking: Yes. And I would add, as Chris said, we're in the early days. But from a product development standpoint, I think where we've seen the most progress is in research analysis and being able to go through these data sets faster, quicker, be able to pinpoint things where we see opportunities and need to explore them further. We can then get those opportunities, and we're quicker to then go get in front of clients and float them and see if they're beneficial to their portfolios. That process is starting to speed up for us. And I think we're in early days, but it will continue to build momentum as we go. Operator: Your next question is a follow-up from Brian Bedell from Deutsche Bank. Brian Bedell: Maybe just zooming back out on the global strategic pivot. So as we think of what you plan to divest of, should we be thinking of the future global footprint for Cboe as largely being U.S. and European centric? Maybe just comment on your commitment to continuing to have a leading market share in European Equities trading. And then -- and I would presume the global strategy is then more coming from the U.S. as you kind of talked about in this call. And then just to confirm, Jill, I think you mentioned that the early view of the impact of this financially would be a 3% reduction in revenue, 8% to 10% reduction in OpEx. So that would indicate that the businesses you're divesting from were breakeven or losing money. I just want to confirm that. Craig Donohue: Brian, I'll start and just say that I think what you said is right. I mean, obviously, we have very large and successful businesses that we're operating in certainly both the U.S. and Europe. You mentioned European cash equities. I mean, we've been really pleased with the growth and the results that we're seeing there. We see between European Equities and European clearing, a lot of future growth potential and some new ideas that we're working on there. I think the takeaway is that we don't feel that our presence in Australia, Japan or Canada are really vital to the continued globalization strategy that we have for the firm. It's really more along the lines of the things that you've heard us been commenting on during the call, which is investor education, sales and marketing in those regions, working with retail brokers throughout Asia Pacific to give them access to our markets. There's obviously, given the significance of the U.S. market relative to the global market, tremendous demand from institutional as well as retail customers. So our globalization path is going to be along those lines where we see continued growth, continued opportunity. And I'll let Jill take the rest of it. And Chris, you might want to add something before Jill. Christopher Isaacson: Yes. I just want to mention our FX business as well, which has been a nice steady grower again, this quarter, 13%, I think. It's just -- and that's -- if there's any global business, so that would be it. It's been an incredible business for us over the years and fairly global in the way we touch customers. Craig mentioned our super strong position in European Equities. I think its fifth straight quarter we're the highest grower for us. That's a great, market volumes great, market share great capture, just great competitive positioning there by our European team. So we remain very, very global. And I also say we're deploying infrastructure where necessary globally to touch those customers so they can come back to the U.S. or other markets. So, yes, it is a strategic pivot, but we will remain very global. I hand it to Jill. Jill Griebenow: Yes. So as it relates to the financial piece, I just want to clarify that the percentage amounts that we included in today's call, they relate to the aggregate portfolio or collection of actions. Those figures are not specific to just Canada and Australia together. And then also further clarification is that those ranges also include the previously disclosed action that we're taking to wind down the Cboe Japan business. So when you look at the collection of actions, as mentioned, we expect the impact on overall net revenue from all of these actions taken together to be, let's say, roughly 3% of what our guided 2025 ranges would be. But then from an operating expense savings, we expect to save somewhere in the amount of 8% to 10%. So as we did refer to in our prepared remarks, we do expect the collective action of these items to result in accretion to overall earnings. Again, it will take time. We're in the very early stages of the sales processes of these also looking, obviously, some of the enhancements we're looking to make. But again, overall, we do expect this to be accretive to earnings. Operator: Your next question is a follow-up from Anthony Corbin with Goldman Sachs. Anthony Corbin: I wanted to know how you're thinking about the net impact to expense growth over time from the cost savings from today's announcement and Japan: wind down versus the incremental spend needed to support retail expansion and the build-out of prediction markets? Jill Griebenow: Yes. So obviously, I'm not ready to share 2026 guidance just yet. But I think if you look at the results that we've communicated here in 2025 year-to-date, where we're looking to land from an updated guidance perspective, -- what I will say is disciplined expense management is it continues to be top of mind, but we're also very committed to investing in long-term growth. So again, just on a go-forward basis, we'll share our guidance for 2026 in early February. But we will be committed to striking the right balance between the disciplined expense management and the generation of future revenue. Obviously, that takes dollars to invest organically to stem that, but we will be very, very disciplined and again, just maintaining disciplined expense growth rates going forward. Operator: Your next question is a follow-up from Ben Budish of Barclays. Benjamin Budish: I was wondering if you could talk a little bit about your expectations for expanding trading hours. I think there was a press release from maybe a week or 2 ago about looking to add a morning session, I think, starting at 7:30 and expanding the afternoon to 4:15. Just curious, I think the release said you expect this would be a meaningful step on the way towards 24x5, but those hours, in particular, would capture a lot of other sort of economic data releases. So just curious, like with that in mind, based on what you see historically, how do you think about capturing that time might impact your SPX volumes in particular? Robert Hocking: Yes. Thanks, Ben. I'll start out and maybe Chris can add something if you'd like. Yes, as you referenced on October 20, Bloomberg reported on our filing with the SEC to add additional hours for U.S. equity options outside the normal 9:30 to 4:00 Eastern Time regular trading session. If approved, we would be adding a morning session from 7:30 to 9:25 Eastern Time and a post-close session from 4:00 to 4:15. Additionally, our plan is to start with, call it, roughly 25 names that represent the highest market cap, the most liquid names across the underlying options and equities. As you mentioned, this is in response to the surge that we've seen in equity option volumes and just the generalized industry push towards 24x5 trading. We feel it's a good first step, and it really begins to acclimate investors to that off-hours trading session. It also accounts for where we see the majority of volume in our current GTH session. Without stressing the liquidity providers, having the staff and provide liquidity and kind of the less active overnight hours, we see the majority of our volume trading, call it, about 2 hours before the regular market opens. Lastly, this is just an evolution. It's a good next step in single-name option trading. As the industry continues to assess the risks associated with introducing even daily expiries in single names and so forth, we think it's generally just a good practice to introduce new functionality in stages, and this just seemed like a really good first stage. Christopher Isaacson: And just a follow-up there, but it's just one of many products that will be trading with more expanded trading hours. As Rob has mentioned, we already trade SPX and VIX 23x5, almost 24x5. VIX futures, our FX products. We trade U.S. equities from 4 a.m. to 8 p.m. And the theme of 24x5 and eventually 24x7 is going to be a multiyear theme. We we'll have products, again, the industry is ready in the case of single stock options in the U.S. As soon as the industry is ready, we want to be there and leading as an innovator as we have all along list options. Operator: Your next question comes from the line of Michael Cyprys from Morgan Stanley with a follow-up. [Operator Instructions] Michael Cyprys: Just wanted to ask about prediction markets and crypto. I was hoping you could elaborate on your aspirations there. What steps might you be taking over the next 12 to 24 months? And how do you see this contributing to Cboe over the next couple of years? And to what extent might inorganic steps might help accelerate the time frame to scale? How are you thinking about that? Prashant Bhatia: Yes. I think in terms of prediction markets, we're going to start with what we would call financial and economic contracts. Digital is definitely something we'll explore, there's a lot of demand and activity there as well. So we will look at that. As Craig said earlier, our view is we've got the capability. We've got the exchange platforms. We've got the clearing platforms. A lot of this build-out initially will be organic. So we're not focused as much on acquiring things like that. Obviously, there will be partnerships involved. Think about the retail client base and the demand we're seeing there. We'll look to establish partnerships with retail platforms that want an industry utility type platform. And when we think broadly around things like M&A, not relatively related to the prediction markets, but we're always interested in looking for businesses that have compelling strategic and financial rationale. There's nothing we need to do there today, but we're always open to that. You've heard Jill talk about how strong our balance sheet is. So we'll just keep our options open. Robert Hocking: Yes. And even more specific, the crypto derivatives and perpetual Futures front, obviously, the market is growing rapidly. We've seen nice growth in our new Bitcoin index options since we've launched them in December of last year. ETF issuers, in particular, have gravitated towards using these products to introduce many of their options-based strategies. And so we already have, I think it's, at this point, 20 ETFs that are using CBTX and MBTX in their strategies, and we really expect more to come. And then we're also preparing to launch Bitcoin and Ether Continuous Futures. Now these are long-dated futures, cash settled designed to provide access to that perpetual style future in a U.S. regulated environment. The launch obviously has been slowed down a little bit by the government shutdown, but we're hopeful to get them out into the market soon. But we really see this even crypto events in the U.S. as a greenfield space to leverage our decades of derivatives experience. As I mentioned, a lot of this isn't happening on U.S. soil. And so that's where we see we can really step in and have an advantage. And I'll just reiterate, like I said yesterday, not yesterday, but like we announced yesterday, we're really excited to have JJ coming in. I don't think you can underpin the 4 decades of experience serving this client base. And so as he stands up this new vertical, I think we are excited about what's more to come. Operator: There are no further questions at this time. I will now hand it back to the management team for closing remarks. Craig Donohue: Well, thank you very much for joining us. I just want to say on behalf of all of us that this is a really exciting time for us. We are happy to be completing the business reviews, making the strategic realignment of the business. I want to thank all the people that have worked so hard to make us successful in these different areas that we've tried to work on, and we look forward to talking with you again next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone. Welcome to the Dominion Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. David McFarland, Vice President, Investor Relations and Treasurer. Please go ahead, sir. David McFarland: Good morning, and thank you for joining Dominion Energy's Third Quarter 2025 Earnings Call. Earnings materials, including today's prepared remarks contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q for a discussion of factors that may cause results to differ from management's estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chair President and Chief Executive Officer; Steven Ridge, Executive Vice President and Chief Financial Officer; and other members of senior management. I will now turn the call over to Steven. Steven Ridge: Thank you, David, and good morning, everyone. Since the conclusion of the business review last year, we've focused on 3 principal priorities first, consistent achievement of our financial commitments; second, continued on-time achievement of major construction milestones for the Coastal Virginia Offshore Wind project, and third, constructive achievement of regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to deliver results that benefit both customers and shareholders. As we successfully execute against these priorities, we empower our employees to provide the reliable, affordable and increasingly clean energy that powers our customers every day, and we position ourselves to deliver on the commitments we made to our investors at the conclusion of the business review. We believe that continued execution against these commitments will deliver compelling value for our shareholders. I'll address our financial results, and then Bob will address CVOW and regulatory progress. As shown on Slide 3, third quarter operating earnings were $1.06 per share, which includes $0.03 of RNG 45Z credits and $0.06 of worse than normal weather. Relative to third quarter 2024, positive factors for the quarter included $0.06 from regulated investment growth, $0.08 from increased sales, $0.05 from our DESC rate case settlement in 2024 and $0.03 from higher margins at Contracted Energy. Third quarter results also included worse weather, higher DD&A and higher financing costs. A summary of all drivers for earnings relative to the prior year period is included in Schedule 4 of the Earnings Release Kit. Third quarter GAAP results were $1.16 per share, A summary of all adjustments between operating and GAAP results is included in Schedule 2 of the Earnings Release Kit. Turning now to guidance. With 9 months of 2025 financial results reported, we're narrowing our full year guidance range to $3.33 to $3.48 per share, inclusive of RNG 45Z earnings while preserving the original guidance midpoint of $3.40. On last quarter's call, I highlighted sales and weather as noteworthy tailwinds through 6 months of the year. Over the last 4 months, we've seen weather reverse. And through 10 months of the year, now represents a small headwind of approximately $0.02. Continued strength from commercial and residential sales combined with other initiatives, gives us confidence in our ability to deliver full year results at or above the midpoint of our guidance, assuming normal weather for the last 2 months of the year. We've provided year-over-year drivers for the fourth quarter in the appendix of today's materials for your reference. Finally, we are reaffirming all other existing financial guidance. Turning to Slide 4. We've completed our 2025 financing plan. And as mentioned on prior calls, taking steps to further derisk future ATM equity. We remain focused on balance sheet conservatism, and there is no change to our previously communicated credit-related targets. Finally, we'll provide a comprehensive capital investment forecast update through 2030 on our fourth quarter earnings call, which will take place in early 2026. We expect incremental opportunities to deploy regulated capital on behalf of our customers, with a timing bias towards the back end of the plan. As always, we will look at incremental capital through the lenses of customer affordability, system reliability, balance sheet conservatism and our low-risk profile. In conclusion, I am highly confident in our ability to deliver on our financial plan. We've built our plan to be appropriately but also not unreasonably conservative to weather unforeseen challenges that may occur. And with that, I'll turn the call over to Bob. Robert Blue: Thank you, Steve, and good morning, everyone. I'll begin with safety on Slide 5. Through September, our OSHA recordable rate was 0.28%, continuing the positive trend from the last 3 years. Continuing to reduce workplace injuries is one way we can honor the memory of our colleague, Ryan Barwick, who we lost in an accident earlier this year. We must continue to focus relentlessly on improving our safety performance. Now I'll turn to updates around the execution of our growth plan. I'll start with the Coastal Virginia Offshore Wind project. Slide 6 highlights what makes CVOW such an important and unique generation resource. The project is now 2/3 complete, and just a few months away from delivering much-needed electricity to our customers. Slide 7 shows our major equipment progress. We successfully completed 100% of monopile installation 1 month prior to the conclusion of the piling season. very pleased with this tremendous milestone for the project. We've installed 63 transition pieces to date with all 176 transition pieces now fabricated. Turbine fabrication remains on schedule. Earlier this week, we installed the second offshore substation jacket and will place the accompanying topside shortly. The third and final offshore substation is nearly complete and will be installed in the first quarter of next year. Turning to timing on Slide 10. We now expect first turbine installation to occur late next month and continue to expect first power to be delivered to our customers in late first quarter of next year, approximately 5 months from now. As a reminder, we'll be energizing strings of turbines throughout 2026. No change to our current expectation of project completion by the end of '26. But given delays with Charybdis, we have significantly reduced the schedules weather and vessel maintenance contingency, which could push a few of the final turbines into early 2027. We'll continue to refine and update this assumption as we observe actual turbine installation cadence similar to what occurred with monopiles, which went more quickly than expected. Project costs now stands at $11.2 billion, which includes unused contingency of $206 million, down about $15 million from last quarter. Excluding tariff impacts, costs for project components have remained in line with the prior update. The updated cost this quarter reflect the accelerated recognition of steel tariffs through the end of 2026, whereas we were previously recognizing all tariff costs on a quarter-by-quarter basis. Through September, the project has invested approximately $8.2 billion. The remaining project costs attributable to Dominion are expected to be approximately $1.5 billion. On Slide 11, we've continued to provide an update to our potential tariff exposure across discrete tariff categories and illustrative duration. We're showing the impact of country-specific tariffs through project construction at the end of 2026. Please note that changes to tariff policy could impact these estimates. Unfixed costs include project management costs, fuel for vessels and changes to tariffs and network upgrades, if any. Estimated network upgrade costs assigned by PJM to CVOW in the most recent decision point came down modestly. We expect this inaugural process to conclude by year-end and do not expect a material change to network upgrade costs. We'll then execute and submit our generator interconnection agreement at PJM and FERC under the very standard finalization protocol, as is in place for all new generating sources. We expect the process to conclude in March, which will be the final step to First Power. As a result of this project cost increase, we recorded a modest charge this quarter, about $50 million after tax included on Schedule 2 for costs not expected to be recovered from customers in accordance with the cost sharing settlement with Virginia regulators, and our 50% cost sharing partnership agreement with Stonepeak. These cost and risk-sharing arrangements continue to work as intended to protect customers and shareholders. Further on costs, we'll file with our quarterly status report and our 2026 CVOW rider filing with the State Corporation Commission today. As shown on Slide 12, the project's LCOE has been updated to $84 up from last quarter, driven primarily by lower forecasted rec prices. Keep in mind that REC sales are credited against the levelized cost of energy as value delivered to customers and the value of REC will change year-to-year based on market dynamics at the time. However, importantly, the LCOE compares favorably to other generation resources and is well below the statutory amount. It's also in line with the LCOE range provided at the time of the original filing in November 2021. The project is now forecasted to represent an average residential customer monthly bill credit of $0.63 over the life of the project. Under the rider proposal filed today, we're forecasting a revenue requirement for the 2026 rate year, which begins in September '26 of $665 million. This customer beneficial real-time cash recovery provides important financial support for this regulated investment during construction. If approved, the rider proposal filed today would result in residential customers seeing a decline in their monthly bill in September, as the project begins to generate electricity in early 2026. Progress on CVOW continues to go very well, and there's every reason for our customers and policymakers to be excited by the timely delivery of much-needed low-cost electricity from this critical generating resource. Let me pivot to discuss Charybdis, our American Made Jones Act-compliant wind turbine installation vessel which has been a challenge. I'm extremely disappointed that Charybdis has again not met expectations. I recognize the importance of executing consistently against any commitment, and we failed to deliver regarding Charybdis. We built Charybdis to derisk our installation process. We continue to believe that it will represent a strategic advantage, providing enhanced schedule certainty, which ultimately translates into cost certainty. The vessel successfully completed sea trials received sign-offs and arrived in Portsmouth, Virginia in September. Upon arrival, Siemens Gamesa successfully completed all necessary modifications for turbine handling and installation. Simultaneously punch list items were identified that require remediation prior to the vessel being cleared to begin turbine load-out and installation. While all major systems are operating well, there are a variety of quality assurance level items that require addressing and those tasks are currently underway to ensure that the vessel can commence work as quickly as it is safely able to do so. It's become clear that while the ship's design and construction methods are consistent with global best practices, we didn't properly account in our timing estimate for the risk inherent in being the first Jones Act-compliant wind turbine installation vessel to be built and regulated in the United States. The vessel is expected to be cleared to load and install turbines in November. As a reminder, unlike monopile installations, there are no time of year or time of day restrictions on installing turbines. Finally, any modest delay beyond November won't impact first power timing in late first quarter of 2026. One final note on Charybdis. Project costs continue to be approximately $715 million. Moving now to data centers on Slide 14. We continue to see robust demand from data centers. We now have approximately 47 gigawatts in various stages of contracting as of September 2025, which compares to around 40 gigawatts as of December 2024, an increase of 7 gigawatts or 17%. As a reminder, these contracts are broken into substation engineering letters of authorization, construction letters of authorization and electrical service agreements. As customers move from the first to the last, the cost commitment and obligation by the customer increase. We're currently studying over 28 gigawatts of data center demand within the substation engineering letters of authorization stage, which means the customer has requested the company to begin the necessary engineering review for new infrastructure required for service. This compares to approximately 26 gigawatts as of December 2024 and represents a roughly 7% increase. There are also now about 9 gigawatts of data center demand that have executed construction letters of authorization which are contracts that enable construction of the required distribution and substation electric infrastructure to begin. This compares to just over 5 gigawatts in December 2024 and represents an approximately 73% increase. Should a customer in this stage, elect to discontinue a project, they're obligated to reimburse the company for its investment to date. Finally, we now have nearly 10 gigawatts in electric service agreements or ESA, representing contracts for electric service between Dominion Energy and a customer. This has increased by nearly a gigawatt or 12% since December 2024 as well. By signing an ESA, the customer is committing to consume a certain level of electricity annually often with ramp schedules where the contracted usage grows over time. We welcome these customers to our system and recognize the vital contribution data centers make to national state and community success. We're developing resources across distribution, transmission and generation to ensure we meet this critical need on a timely basis, while also taking active steps to safeguard all of our customers from the risk of paying more than their fair share for reliable and affordable electric service. Data center demand should and can be a win-win for our state, our customers and our company. Turning to Slide 15, let me share a few additional business updates. First, on the biannual review proceeding and the proposed large load tariff, post-hearing briefs were filed last week. We anticipate a final order by the end of November. Next, on the transmission side. We submitted project proposals in the latest PJM open window process that closed in August. This year's reliability open window represents the largest proposed investment by Dominion Energy since PJM began its open window process. While final project selections by PJM won't be made until Q1 2026, there is a robust need for new transmission across the region, and we expect this open window to reflect that. Recall that in last year's open window, Dominion was awarded around 100 projects totaling nearly $3 billion. On the generation front, we've announced a number of updates in recent weeks. SCC hearings for the Chesterfield Energy Reliability Center, an approximately 1 gigawatt natural gas-fired electric generating facility concluded in September, and post-hearing briefs were filed this week in line with previous testimony. We expect an order in December. On October 15, we filed our next set of utility scale solar and storage projects with the SEC, representing about $2.9 billion of new investment. The filing included approximately 845 megawatts of utility scale solar and 155 megawatts of storage projects, which will further derisk our growth program. Also on October 15, we filed our 2025 Virginia Integrated Resource Plan, which presented several possible generation build portfolios with additional resource capacity across both renewable and dispatchable generation technologies in response to continued robust load growth in our service territory. The IRP update demonstrates a continuation of our focus on an all-of-the-above approach to ensuring reliability, affordability and increasingly clean generation. On customer affordability, as shown on Slide 16, our current residential electric rates at DEV and DESC are 9% and 11% below the U.S. average, respectively. And based on the build plans proposed in both states latest IRPs, both will maintain customer bill growth rates through the forecast periods below current electricity inflation levels. In conclusion, we've summarized key highlights from today's call on Slide 17. We realize how important it is to meet the commitments we provided at the conclusion of the business review. We are 100% execution focused. We will deliver for our customers, our employees and our shareholders. With that, we're ready to take your questions. Operator: Thank you, Mr. Blue. Ladies and gentlemen, the floor is now open for your questions. [Operator Instructions] We'll go first this morning, Shar Pourreza of Wells Fargo. Shahriar Pourreza: Hey guys, good morning. Thank you. Appreciate it. It's good to be back. So Bob, just on the elections, I mean, there seems -- any source you're looking at. There's obviously a strong possibility the gubernatorial process may flip parties. Governor Youngkin has obviously been really supportive of CVOW, the biannual process. I guess, how do we price in any risk on the construct should we see this flip? I mean are we going to wake up one day and the Trump administration now blocks this project, just given the lack of connection with the Republican governor. Have you spoken to Spanberger? Just any thoughts around the political backdrop would be great. Robert Blue: Yes, Shar, thanks a lot for that question. Let's start with the fact that every statewide candidate running regardless of party supports CVOW and that's consistent with the bipartisan support that this project has gotten at every level, federal, state, local government, including congressional leadership. And if you think about it, there are really good reasons for that. It's the fastest way to get 2.6 gigawatts on the grid that's going to serve AI and technology companies, defense security installations. It's critical to important infrastructure upgrades at the Oceana Naval Air Station. And if you stop it now, it causes energy inflation. So it's not surprising that we're seeing bipartisan support at all levels of government and we expect that to continue after the election. Shahriar Pourreza: Got it. Okay. Perfect. And then just lastly on Charybdis.Can you just give us a little bit of a sense, if you can, on just the nature of the punchlist for the project? And when do you kind of expect the quality assurance items that you obviously highlighted to be completed, which are underway? Robert Blue: Yes. Let me -- that's a great question. Let me give you a little context walk you through where we are. As you know, this is the first Jones Act-compliant wind turbine installation vessel to be built in the U.S. and subject to U.S. regulatory oversight. It's a big ship. It's 472 feet long. It's 184 feet wide, weighs 27,000 tons. It's got some complex systems on it. It's got a 2,200-ton capacity crane. It's got a jacking system that's capable of creating a 40-meter air gap under the hall when the ship is jacked up. And those systems, the crane, the jacking system, the dynamic positioning system, they are all operating very well. So earlier this month, local regulators when it arrived in Portsmith conducted a standard new to zone inspection. And that identified 2 primary areas of concern. The first was the material condition of certain components, primarily within the ships electrical systems. And then second, the need for documentation that confirmed that the systems we built has built met U.S.-approved codes and standards. So that created this punch list of about 200 items that have to be addressed before we can begin loading turbines. So let me talk a little bit about what we're doing. Ships divided into 63 zones, our crews, including qualified marine electricians are doing detailed surveys, and they're either documenting or immediately mitigating discrepancy. So to date, we've done over 4,000 inspections across 69 electrical systems including 1,400 cable inspections. We've got 200 people working around the clock of that original 200 punch list items, we've closed out about 120. So it's important to know not all those items are created equal. Some punchless items are a little more complex and will take longer to resolve. But the progress has been really good. And so based on the pace of work the commitment of the team we've got there, highly confident that we'll work our way through all the punch list items and be ready to start operating in November. Operator: We'll go next now to Nick Campanella at Barclays. Nicholas Campanella: One follow-up on the ship, just after you get this punch list done, I just wanted to confirm, there's no other approvals needed across offshore wind supply chain, the boat or with federal government that would allow you to install turbines that's just really getting past this punch list? Robert Blue: Yes, once we get through the punch list, we're ready to go. Nicholas Campanella: Great. Can I just ask about the capital plan comments then? I know you're going to be updating things in the fourth quarter. I think you talked a little bit about the bias of that capital plan update being more back-end weighted, if I heard you correctly. But on the funding, you did derisk equity for '26 and '27 here. What's the balance sheet capacity to kind of absorb higher CapEx at this point? And should we still expect equity in '26 and '27 on the next pro forma plan? Steven Ridge: Nick, it's Steve. I'll take that. Yes, we talked a little bit about the update we'll provide on the fourth quarter call in probably February of '26. And I fully expect at that time, we're going to see upward revisions to our capital plan across distribution, transmission and generation that effectively reflect what we filed in the IRP, which is some significant increases in the amount of generation. One example is the South Carolina CCGT that we're now authorized and seeking approval to build with our partners, Santee Cooper. None of that capital, for instance, was included in the most recent capital update. And we've identified opportunity for additional generation in Virginia, and much of that's not been included. So we've talked about transmission and the opportunity with the PJM open window. So there's -- we're in a fortunate position to have a lot of really high-quality opportunities to deploy regulated capital to the benefit of our customers. which will provide sort of a full update next -- early next year. With regard to our balance sheet, I'm really pleased with where our balance sheet is. When we came out of the business review, we talked about being at 15% FFO to debt starting in 2025, that's still where we're tracking. That's about 100 basis point cushion relative to our downgrade threshold at Moody's 200 basis points at S&P. We mentioned the time Moody's is going to be slightly lower than that 15% just given the methodology they deploy relative to sort of our more simplified metric for FFO to debt. But we're in a very good position, and we've taken steps, as you noted, to do a lot of derisking for our planned ATM. When we update the capital plan come early next year, we'll, at the same time, give you an updated perspective on our financing needs. We've been very effective at deploying ATM and hybrid equity, very cost competitive. And we'll look at all the tools available to us. As we've always said, we'll look at all the available tools available to us to source capital from the most attractive source. And so I don't want to get out in front of that, but you can assume we're going to finance the growth of our business in a way that maintains that balance sheet conservatism. But in so doing, it should also provide for value to our shareholders. Operator: We'll go next now to Steve Fleishman of Wolfe Research. Steven Fleishman: Yes. Just one other question on the Charybdis. Just want to confirm there's nothing related to the government shutdown or any political stuff that's affecting the timing, it's just this punch list? Robert Blue: That's it, Steve. There is nothing related to the government shutdown or anything else. Steven Fleishman: And then once we start seeing turbines come in. Can you give us a sense of like cadence there? My recollection is maybe the first set a little slower, but then it gets into a cadence. So can you maybe talk a little bit about what we should be looking for on turbine cadence? Robert Blue: I think exactly what you just described. We're going to -- if you think about monopiles, for example, we, at the beginning, we're a little bit slower and then got into a rhythm. So we'll update the installation cadence as we go along. But you should expect that the first few are going to be slower, and then we'll pick up the pace as we move through. But we'll be able to give regular updates on how we're doing on turbine installation cadence. Steven Fleishman: And then off topic, when we get these PJM open window wins or not, like how should we think about how much of that might already be in your plan or additive? Is it all additive? How should we think about that? Steven Ridge: Steve, I'd say we've made a reasonably conservative assumptions in our forward capital plan with regard to wins across PJM open window as well as opportunities to deploy capital that don't go through that PJM wind with sort of organic maintenance capital and growth capital within our -- and what we've seen historically and more recently is upside to what we've assumed I can't tell you sort of specifically what that will look like. But I'd say there's about -- we run rate in our forward projection $2.5 or so billion a year for electric transmission, that's up pretty significantly from what it was just 4 or 5 years ago. To the extent we continue to see opportunities, there could be continued upside to that. Steven Fleishman: Yes. And then last quick one. Just the IRP was interesting on the nuclear, where it looked like at least for now, you actually delayed the SMR new nuclear by 5 years. Could you just like talk to what is driving that? Robert Blue: Yes, Steve. I mean, it's a variety of circumstances. We're taking a look at financing and technology. We're also taking a look at how it fits within everything else that we're projecting to construct. So I mean, we're talking about pretty far out in the first place and now a little farther out with the update. I wouldn't read too much into that. Operator: We'll go next now to Paul Zimbardo with Jefferies. Paul Zimbardo: To follow up on CVOW a little bit. To the extent that some of those final turbines do slip into the following year, are there any supply chain, labor or other kind of constraints to be mindful of? And is there any way to think about what a financial impact of that could be? Robert Blue: There are no supply chain or other issues. And as to financial impact, we're talking about a small number of turbines. So it's not a meaningful financial impact. Steven Ridge: I would just add, as you might suspect, years ago, when we put this plan together, which had us completing all the turbines at the end of 2026, which is actually where we still intend to do. We obviously gave ourselves a little bit of latitude as it relates to what the ultimate timing would be. And in fact, I think we're very pleased that. Here we are some years after that original time line was produced and we're effectively on target for these dates. And so we've made accommodations in advance that gave us some cushion to the extent that anything caused us to go anywhere beyond that end of '26 time frame. So I think we're very well buttoned up on that, quite frankly, with regard to suppliers and vendors and so forth. And as Bob mentioned, I think in the prepared remarks, I think one thing that's really important for our stakeholders to recognize is, we'll be energizing these turbines throughout 2026 and deploying that rate base effectively and beginning to collect depreciation and in our revenue requirement throughout the time period that we're installing through 2026. So the actual impact of a couple of turbines slipping into 2027 is pretty de minimis all things considered, which makes it a little bit different, I think, from something that's a bit more chunky by doing it on a stream, we've effectively dechunkified that revenue stream. And so I think that acts as a fairly significant de-risker or mitigant to the type of risk you might see from standard power plant where you can't collect anything until everything is ready to go. This is 176 individual power plants that we'll be able to collect on in real time through 2026 as we deploy strings of turbines. Paul Zimbardo: I like that phrase, dechunkified. One other I had just you called out that you've had some weather and other headwinds year-to-date, but you still expect to be midpoint or better. Could you just go through what some of the -- those are kind of the positive offsets looks like sales are coming in stronger. If you go through that, it would be helpful. Steven Ridge: Sure, Paul. Yes, I'm really pleased with 2025 financial performance year-to-date. We've had -- we are now in a weather deficit, a $0.02 weather deficit. And really, the biggest driver of that has been sales across 2 primary sources. One is faster and more ramping on our data center customers. That's been pretty consistent through the year. And then over the summer, we saw increased usage per customer on our residential class, which was something we're trying to understand better, but it was a departure from what we've seen in the past. So the 2 of those combined have been a tailwind, as I've mentioned in the past, that's been the most positive driver that gives us that confidence. And we've seen some true-ups on our riders, which allow us as we deploy capital to the extent we deploy it faster. We get some true-ups there. That's been a little bit of a help as well. But primarily, it's been sales. Operator: We'll go next now to Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on the data center update, just any color that you're able to share on the sort of timing to in-service for the 9.8 gigawatts of load that's now under ESA and just how to think about that cadence looking forward? Robert Blue: Yes. Carly, it's our data center load just continues to grow and the demand continues to grow, which is something considering that we've connected 450 data centers already and we've got more than 25% of our sales going to data centers in Virginia. So we're not seeing any decrease. We're actually seeing the opposite and that's the whole PJM DOM zone is seeing quite a bit of new capacity requests. And they continue to choose us because we've got really good fundamentals. We've got great connectivity to global fiber networks. We've got a very business-friendly environment in Virginia. We've got the largest data center workforce in the U.S. and then we've got reliable and affordable electricity, thanks to us. So we've gotten 370 delivery point requests since 2020, which is over 58 gigawatts of capacity, 17 gigawatts of that just in 2025. That's across our service territory and also the co-ops that we serve from a transmission point of view. So we've now communicated a firm dates for over 100 delivery point requests, which represents over 25 gigawatts of capacity in the DOM zone. And those energization dates stretch through 2031. So sort of match up with everything that we've been saying already. So typically, from the time of a delivery point request until we've got a customer hooked with the meters about 4 to 7 years and then they ramp in over time from the date. So we've got sales growth off that 10 gigawatts of ESAs as they ramp in the current 4 gigs of meter demand just continues to increase steadily just off those ESAs over the coming years. Carly Davenport: Great. That's really helpful. And then maybe just a clarification question on Slide 11. To the extent that costs through the end of '26 on CVOW do trend above that $11.3 billion level and recognize what you're outlining here is not materially at that level. Are you still assuming that Stonepeak will continue to contribute incremental capital there? And if so, just what is your sort of confidence level there? Steven Ridge: Yes. So under the agreement we have with Stonepeak capital between $11.3 billion and $11.8 billion is shared about 2/3 at Dominion and 1/3 with Stonepeak that agreement without getting into too many details, provides incentives for them effectively to do that, to fund that. So that's what we've assumed. And as you mentioned, it's only a very small amount. I think in rounding terms, it's even less than the $400 million that we're over through 12/31/26 on Slide 11. Operator: We'll go next now to Jeremy Tonet at JPMorgan. Jeremy Tonet: Happy Halloween. Robert Blue: Thank you, Jeremy. Jeremy Tonet: Just one last one, if I could, on CVOW here and recognize a lot of progress and a lot of fronts here. But just wanted to turn to the inter-array cable fabrication not as much progress on that side quarter-over-quarter. I'm just wondering if you could touch on that a little bit the drivers. Robert Blue: It's not necessarily a linear production, Jeremy, but we are totally on track on inter-array cable manufacturing and installation. So I would read nothing into if you're sort of doing the math on how much per month or quarter, anything like that, we are right on track. Jeremy Tonet: Got it. And I just want to come back to the question on nuclear, if I could. And granted, as you said it pretty far off at this point. But we have seen the federal government kind of step up with new efforts to support development here. And just wondering if there's anything out there that you would be looking for that you think could materially, I guess, change views on the potential for nuclear's role going forward? Robert Blue: Well, I mean, our view is we're in the most in Virginia, at least the most nuclear-friendly state in the country. And the policies port here is very strong, the public and policymaker support, whether it's the nuclear Navy or the big parts of the supply chain or the reactors that we've been operating safely here in Virginia since the '70s. But I think as we've described before, as we think about new nuclear cost overrun risk being borne by our customers and our shareholders is a concern. First-of-a-kind costs being borne by our customers as a concern, and the balance sheet that we've worked very hard to get in shape and our business risk profile can't change. So there are ways to work through that, that's the MOU that we entered into with Amazon. They've expressed some interest in helping finance an SMR at North Anna 3. We continue to work our way through that. But fundamentally, as we think about new nuclear, which could be very beneficial for the state, we need to think about first-of-a-kind cost, cost overrun risk and our business risk profile. Jeremy Tonet: Got it. So it sounds like backstops on catastrophic risk and just cost overrun risk would be the key thing to pull forward, I guess, the time line at this point? Robert Blue: They would be incredibly valuable, yes. Jeremy Tonet: Got it. That's very helpful. Last one, if I could. And then as we think about data center development here and clearly, there's been a focus for you, you guys well ahead of others here. But equipment availability that stands right now, transformers, transmission, equipment, everything for CCGT. Just wondering how long the queues at this point? And how do you think about, I guess, winding that up with more data centers, just given how time on are on both sides at this point for demand? Robert Blue: Well, if you think about the sort of time line on components for generation, our IRP that we just filed with the dates that we've got for new gen line up with what we expect time lines for the supply chain. And then more broadly, I think everyone is experiencing. There's more demand for transformers and other equipment. I think we're advantaged because of our size, because of the long relationships that we have with suppliers. We've been doing a lot of transmission work at this company for quite a while. And so I think that puts us in a good place as we try to connect the data center load that we've got. It's a big lift, but we're very much up to the task. Jeremy Tonet: Got it. And just one last one, if I could. Speaking about time line, if anything for CVOW, if anything flips into '27 here, do you think that there would -- that would impact, I guess, the '26 guide at this point? Or is that kind of just small at this point and wouldn't really think of it as much of a headwind when it comes to the '26 guide? Steven Ridge: Jeremy, I feel very, very good about our financial plan. We've constructed it to be appropriately though not unreasonably conservative. So when things -- if something like that were to occur, I feel very good about our ability to maintain our ability to hit the commitments we made to our investors at the conclusion of the business review. Operator: We'll go next now to Anthony Crowdell at Mizuho. Anthony Crowdell: I want to ask -- this is my last one 3 times. Just quickly, is there a cadence of generation needs that you guys look at in 2 to 3 years, whether it's like a gig a year? Like how much generation will you be bringing on to the grid as we look out towards the back end of your plan? Robert Blue: Well, I mean, the best way to look at it, Jeremy, is we outlined it in the IRP. So I'm not going to walk through sort of what comes on each year. But I will say we've got 2.6 gigawatts coming on in offshore wind by end of next year. Chesterfield Energy Reliability Center, which is in front of the commission right now. That's a gig of natural gas peaking that would come on '29 and then we've got a cadence roughly of a gig of solar a year. I mean between us and PPAs coming online plus we've got another, I guess, 0.5 gig-ish 500 megawatts of uprates on our existing gas fleet in Virginia. So it's all in the IRP sort of by year, which is probably the best way to look at it. Anthony Crowdell: Great. No, that's perfect. And then just one follow-up. When Charybdis finally clears to, I guess, begin installation does the company issue a press release or an 8-K just how best can we track that? Robert Blue: Well, we've noticed a lot of people track where Charybdis is on the web on one of these vessel finder sites. So you'll see it. It won't be at the dock anymore. It will be out at a turbine I would not anticipate us issuing an 8-K or a press release when it's done because it's another step in the project, a project that is going extremely well. We didn't issue a press release when we started installing other components. We just moved through this efficiently and effectively as we've been doing throughout our offshore wind project. Operator: And ladies and gentlemen, this will conclude our question-and-answer session for today. Mr. Blue, I'd like to turn the conference back to you, sir, for any closing comments. Robert Blue: Thanks, everybody, for taking the time to join the call today. I hope you enjoy the rest of the day and your Halloween. Operator: Thank you very much, Mr. Blue. Ladies and gentlemen, that will conclude today's Dominion Energy Third Quarter Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Good afternoon, ladies and gentlemen, and welcome to SCOR Q3 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir. Thomas Fossard: Good afternoon, and welcome to the SCOR Q3 2025 Results Conference Call. I'm joined today by Thierry Leger, Group CEO; and Francois de Varenne, Deputy CEO and Group CFO; as well by other Comex members. Can I please ask you to consider the disclaimer on Page 2 of the presentation. And now I would like to hand over to Thierry Leger. Thierry, over to you. Thierry Leger: Thank you, Thomas, and welcome, everyone, also from my side. I'm satisfied with where SCOR stands today. We had another strong quarter, especially in P&C, where our strategy of diversifying growth pays off. The investment side continues to contribute in a stable and positive way to our results. And last but not least, on the Life & Health side, we deliver 1 quarter more in line with the updated forward 2026 plan. Also, we are ready for the renewals to come and very focused on the delivery of our plan. Our teams are close to our clients, leveraging our Tier 1 franchise. We offer tailored solutions that create value for our clients and shareholders. In the P&C context that has become gradually more competitive since 2024, a I would like to take a few minutes to reflect on the broader insurance landscape and the opportunities for SCOR as we approach the 2026 renewals. Looking back, 2025 has been a good year for the P&C industry so far. And overall, 2026 is expected to remain a good vintage year by historical standards. Nevertheless, as profits are up and the supply of capacity now exceeds demand, even if demand continues to grow, it results in increased pressure on prices and underwriting discipline is being tested. I have seen this before. This is the time when wrong strategic decisions can have a detrimental impact on the company's results. Usually, it is driven by the desire to grow in a particular line, some lines of business at the wrong time. Let me state this here very clearly such situations can be avoided. And at SCOR, we are determined to keep underwriting discipline high throughout the cycle. Our business is one of diversification and volatility absorption. We are here for the long term and support our clients when they need us. We have to demonstrate strength and resilience when times are difficult. For SCOR, this means that we will stay focused on fundamentals and deploy capital where risk-adjusted returns are adequate. We are maintaining our underwriting discipline, focusing on diversifying risk exposures and leveraging our analytical capabilities to support our teams to make the right decisions. In addition, our Tier 1 franchise provides us with the opportunity to choose where we allocate our capital in a determined way. I'm pleased to see that our teams are unaffected and fully focused on our clients and the business. They have no growth targets, but I have expressly asked them to leave no stone unturned to find profitable opportunities for SCOR and to discuss tailored solutions with our clients proactively. The aim is to balance long-term client relationships with bottom line, the latter being the priority ultimately. For our investors, this means a continued focus on capital efficiency, risk-adjusted returns and long-term value creation through the cycles. We will keep expanding in diversifying lines, such as inherent defect insurance, engineering, credit maturity, structured solutions, international casualty, facultative business and longevity. We have a very selective approach to marine, aviation, cyber and U.S. casualty monitoring the dynamics closely. In Nat Cat, where the cycle is most prevalent, we will monitor relative and absolute price levels, structures and conditions to determine where we deploy our capital. We will further consider our market share and exposure to climate change when we allocate our capacities. We continue to be underweight in Nat Cat. As long as rate adequacy is sufficient, this gives us room to grow by respecting the risk limits we set for ourselves for Forward '26. To conclude, climate change, geopolitical tension, cyber threats and AI create a more volatile and more uncertain environment, increasing risk awareness and demand for risk transfer. The need for a robust reinsurance industry is palpable, and growth opportunities are structural. Within this context, at SCOR, we remain confident in our strategy and optimistic about the opportunities ahead, even in a more competitive market. Francois, over to you. François de Varenne: Thank you, Thierry. Hello, everyone. I will now walk you through our third quarter results. Starting with a few key messages. Thierry and I, we continue to be very satisfied with these results. The performance of our 3 business activities is strong, delivering EUR 211 million of net income, 21.5% return on equity and an economic value growth of 12.7% at constant economics. On a 9-month basis, the net income stands at EUR 631 million, translating into return on equity of 19.5%. As mentioned by Thierry, P&C performance is excellent. The combined ratio for Q3 is at 80.9%, well ahead of our forward 2026 assumption of below 87%. These results reflect the very low Cat claims during the quarter and a slightly higher attritional loss ratio. In this context, we have continued implementing our opportunistic buffer building strategy, albeit with an addition in Q3 of lower magnitude than in Q1 and Q2. The amount of prudence built over the first 9 months of 2025 is equal to the entire presence of 2024. In Life and Health, with an insurance service result of EUR 98 million in Q3 and the year-to-date expand variance in line with our expectations, we are on track to reach our full year forward 2026 assumption of around EUR 400 million. Investment had another good quarter. We achieved a 3.5% regular income yield, thanks to our high-quality fixed income portfolio that continues to benefit from elevated reinvestment rates. Our economic value increases by 12.7%, a translation of the good business performance, both in P&C and Life and Health. It is now very likely that our full year EV growth will stand above our Forward 2026 guidance of 9%. Our group solvency ratio stands at 210%, stable to Q2, in the upper part of our optimal range. Q3 is a relatively low net operating capital generation quarter, given the absence of major P&C treaty renewals. Overall, thanks to the quality of our results over the first 9 months, we remain confident about achieving our full-year objective. Now I will go on with more details regarding our Q3 results. Let's look at P&C first. In Q3, the P&C new business CSM is mostly stable year-on-year, excluding the FX effect. This is a strong achievement in an increasingly competitive environment. On a 9-month basis, our P&C new business CSM, grows by 4%, benefiting from our strategic growth in preferred line as well as our dynamic retrocession buying, which offsets the inward business margin erosion. The P&C insurance revenue is down minus 1.6% for the quarter and up plus 3.1% at constant FX. In Q3, this is supported by growth in both reinsurance and as well at SCOR Business Solutions. In high insurance, the growth was driven by alternative solutions and our diversifying specialty lines. In SCOR Business Solutions, the trend has improved compared to the previous quarter as the timing effect on the renewal of some contracts has now caught up. In addition, here as well, the growth was supported by alternative solutions and by our syndicate activities, partially offset by property. On a year-to-date basis and adjusted for the large impact of the termination of one large contract and adjusted as well for FX, the P&C insurance revenue growth stands at plus 1%. Moving to the underlying performance of the P&C book. Our P&C combined ratio stands at 80.9% in Q3, benefiting from low Nat Cat losses in the quarter. Nat Cat ratio stands at 2.7% in Q3 and 6.4% year-to-date, which means well below the annual budget of 10%. Let's now focus a little bit on the attritional loss ratio, which is slightly more elevated this quarter than the previous quarter of the year. In Q3, specifically, we incurred an accumulation of small and midsized man-made claims. After investigating and checking the nature of those claims, I can tell you today that we do not expect at this stage of the annual P&C reserve review, any overall attritional deterioration of the P&C book by the end of the year. This outlook is supported by the fact that we tend to take the bad news upfront, especially this quarter, not financed by IBNR, and we released the good news later. On a year-to-date basis, the attritional loss and commission ratio stands at a robust 77.1%, which includes the presence build throughout the year. We are very satisfied with the shape of our P&C portfolio, delivering excellent performance quarter after quarter. Now let's have a look at Life Finance. The Life Finance business generated a new business CSM of EUR 82 million in Q3 this is mainly driven by the protection business and by financial solutions. This is lower than in the previous quarter of the year, but related to quarterly normal volatility. On a 9-month basis, with a new business CSM of EUR 284 million, we are well on track towards achieving the EUR 0.4 billion new business CSM annual assumption. On the insurance service results, Life Finance delivered EUR 98 million this quarter with the CSM amortization of 7.5% in the quarter. Adjusted for small one-off from Q2 and FX effect, the year-to-date CSM amortization stands at 7%, not far from our Forward 2026 guidance of 6.5%. Overall, we delivered over the first 9 months an ISR of EUR 334 million, in line with our annual guidance of EUR 400 million. On experience variance, this is fully in line with our expectations year-to-date. In Q3, the impact of onerous contract were a little bit higher, partially driven by an increase in the risk adjustment and other reserve movements. This remain contained in relation to the size of our portfolio. Moving to investments. We continue to benefit from a strong performance with a return on invested assets of 3.3% this quarter, generating an income of EUR 190 million. This comes from a regular income mill of 3.5% as well as from a real estate impairment this quarter and slightly higher ECL expected credit losses in the quarter. This creates no specific concern. The quality of our credit invested portfolio is very high. The economic value stands at EUR 40 per share, flat compared to the start of the year. Year-to-date market variance had a negative impact as expected on our reported economic value. At constant FX, our EV growth stands at 12.7%, supported by both the positive evolution of our IFRS 17 shareholder equity and the growth of CSM. With this, I will hand over to Thomas to start the Q&A session. Thomas Fossard: Thank you very much, Francois. On Page 17, you will find the forthcoming scheduled events. With this, we can now move to the Q&A session. Can you remind -- can I remind you to limit yourself to two questions each? With this, operator, can we move to the first question? Operator: The first question comes from Hadley Cohen, Morgan Stanley. Hadley Cohen: I appreciate you're very satisfied with the results, and I can -- I think I can understand why but I'm not sure that the share price necessarily agrees today. In that context, can you help us unpack what's going on in the solvency ratio, please? So you've got EUR 200 million a bit higher than that earnings, less EUR 80 million for dividend accrual. And you say that there's seasonally lower, no new business value and market neutral. But even so, I'm still not sure why the solvency ratio is lower. And in that vein, I sort of wonder, how much of that is impacted by the fact that you are building buffers in the reserves? I know you haven't quantified the buffer build year-to-date, but is it possible to give us a sense of how much higher solvency might have been if you hadn't done that? And then linked to this, given the buffers are now twice as big as you initially intended, how are you thinking about further buffers from here, given people clearly want to see growth in the solvency ratio? I mean there's a few questions in there. So maybe I'll just leave it at that for the moment. François de Varenne: Thank you Hadley for your two questions. I agree with you, given the share price reaction, that's probably the two hot topics of the day. Let me come back a little bit on what we said in Forward 2026. You remember when we published Forward 2026 in September 2023, we mentioned that it was a plan where our expectation was a capital generation in terms of solvency ratio of 1, 2 points per year. So that's the guidance, and we reiterate the guidance. Now let's look a little bit at the seasonality of the evolution of the solvency ratio during the year. The 1/1 renewal on the P&C side are booked in VNB the in Q4 and in Q1. The April renewal are booked in Q2 -- in Q1, the June, July renewal are booked in Q3, so -- in Q2. So we don't have in Q3 renewal on the P&C side. So it's a low quarter. It's a seasonality effect. It's a low quarter on the P&C, VNB in the solvency ratio. Let's look at what is happening on the capital deployment side. On the capital deployment side, we deploy each quarter the same amount, Q1, Q2, Q3, Q4. So there is no seasonality in the deployment of the capital in the solvency ratio quarter-after-quarter. And we adjust at the end of the year with the full year on the full capital deployment over the year. So that's basically the dynamic of the solvency ratio for a given year. Now let's look at what is happening in Q3 and over the first 9 months. We started 2025 with the solvency ratio 31st of December 2024 at 210. We were at 212 at Q1. So you could expect, given what I said, that the solvency ratio should have increased in Q2. And in Q2, we were at 210, if you remember the call end of July, and if you look as well at the work of the economic value in Q2, we mentioned during the call that Q2 was affected by a significant weakening of the dollar against the euro, which is our consolidation currency. And on top of it, which was historical, it was also a strengthening of the euro versus all the currency we model in the internal model. So I mentioned it. It's a couple of points of impact in Q2 due to market variance. That's the point we are missing today, but they were already there. So the solvency ratio slightly decreased in Q2, where the expectation is still an increase in Q2. The fact that versus Q2 -- Q2 versus Q3, we don't create a lot of capital is expected. So now what is happening in Q3, let's look in detail. On the P&C side, so we have a low VNB due to a very low amount of renewal. We have, of course, the good Cat ratio, but we have the higher attritional ratio this quarter linked to those mid -- small and mid and midsize events I mentioned during my speech, We still accrue the dividend of last year on a quarterly basis. So that's 2 points. The good news is that the market variance impact in Q3 is under control. We made a lot of progress on ALM during the summer, especially by additional hedge on the dollar. We have the early refinancing of the debt, which brings 3 points of solvency. And we have a one-off impact of minus 1 point, which is linked to restructuring of internal retrocession between one subsidiary and the motor company. So you have the work. But again, look at the first 9 months, the guidance of Forward 2026, what is missing today is not linked to Q3 is the market impact of Q2 that we disclosed end of July. You had a second question, I think, on the buffer... Hadley Cohen: The extent to which the -- I mean, is the -- and thank you for the first response. But I'm just wondering, does the quantum of the buffer build impact the OCG, i.e., if you hadn't built the buffers to the extent that you have done this year, would OCG have been higher? And I guess, more fundamentally, why is OCG on a normalized basis as low as it is 1 to 2 points? François de Varenne: Let me reexplain what we said in the past. So we have prudence in the bill, so under IFRS and under Solvency II. So that's the prudence in the -- on top of this prudence on top of this prudence, we decided with Thierry since July 2023 to add P&C buffers. That's on top of the prudence we have already in the bill. So we added those buffer between July and today. You know that we mentioned that at the end of 2024, we were significantly above the target of EUR 300 million. We mentioned today, and that's in the quote in the press release that the amount accumulated in Q1, Q2 and Q3 is of the same magnitude of what we did for the entire year 2024. We always mention that those buffers are in the risk adjustment. They are in the risk adjustment. So we confirm that they are in the risk adjustment and those buffer have no impact on the capital generation. Thomas Fossard: Operator, can we take the next question, please? Operator: Next question is from Michael Huttner, Berenberg. Michael Huttner: I had two. So the first one is on the attritional. Can you give us a little bit more color because the variance -- I know you say lots of little ones, but the variance is huge, right? So you go from 76% Q3 last year to 79% Q3 this year. And presumably, there's less buffer building, whatever. So the -- maybe if you adjust for that, it's probably a 5-point change or something. So it seems a lot. So any insight as what happened and where it is because then we can kind of think where it might not happen, whatever, anyway, it would be very helpful. And then the other one is a more general question. The word Tier 1 was mentioned, I don't know, 6 or 7 times. So clearly, it is very important. It's core to the story. I don't quite understand what it means. My guess is it means that you think you're underrepresented in your clients' wallet in terms of market share and things. But I don't know how you can increase that in a period when prices are falling. It doesn't -- it seems quite hard. But I'd be really interested in how quickly you could close the gap and how big you see it. Jean-Paul Conoscente: Okay. Thank you for your question. I'll start -- this is Jean-Paul. I'll start with the attritional loss question. So this quarter, in Q1, Q2 this year, we've had really exceptional attritional losses with very limited man-made losses and very good attritional losses. which allowed for a very strong buffer building. In Q3, we saw the loss activity reverting back to what I would call a normal activity. As Francois said, it was an accumulation of small to medium-sized losses across both property and casualty. And what we've decided is to basically take these losses to the P&L, absorb as little as possible in the IBNR and then revert to the Q4 reserve review to review a level of adequacy on the overall reserving. As Francois has already mentioned, the preliminary results from the Q4 review show that there is no strengthening needed on our overall attritional losses. So we're very comfortable with our reserving level where it stands today. Michael Huttner: And is there anything unusual about them? Is it like, I don't know, political risk or something just to give us a little bit of color? Or is it just normal? Jean-Paul Conoscente: No, I'd say it's normal. What was not normal was the loss activity in Q1, Q2. Here, again, it's a mixture of different lines of business, not really political risk. As I said, it's more property and casualty. And I'd say it's back to what I would call a normal level of loss activity. It's just the -- what you would expect in terms of the fluctuations quarter-to-quarter. François de Varenne: Just adding a point, Michael, if you normalize the combined ratio over the first 9 months, you normalize for the Cat effect and for the discount effect. You will find a combined ratio of 87.4%. So it's exactly in line with the guidance of Forward 2026. Remember, we said in Q1, we accelerated the buffer strategy. We said the same thing in Q2. Here, it's a lower amount, but still -- we still have buffer in Q3. Again, the magnitude is the same over the first 9 months. So inside this 87%, you have a couple of points of prudence. So -- and excellent underlying performance. And again, take my statement also on what I see again as overseeing the reserve of the group. there is no concern on the reserve at the end of the year as of today. Thierry Leger: And Michael, on your T1 question, it's true that I'm mentioning it quite a lot. And so it does help in both in a hard and soft market. So it's independent. And I'll try to explain it in the easiest and quickest way. But if you just generally have clients that view you as a Tier 1 means they have a genuine and general desire to see us with a higher share on their programs than we have today. That's a good position, a good starting position for us. That means that it should give us a tick better position when it is about choosing where we play on which programs we play and where we increase the shares and on which ones we might not wish to increase the share. So it should give us a tick better opportunity for growth and a tick better opportunity on the combined ratio side. That's what you are saying. And it's like a joker card that we have, and we intend to play. And I'm sure this is going to last for multiple years. Operator: Next question is from Andrew Baker, Goldman Sachs. Andrew Baker: The first on the tax rate. So clearly, it was good -- very good in the quarter, and you highlight in the release the ongoing improved profitability of the reinsurance activities under the French tax perimeter. Can you just remind me how we should be thinking about that for Q4 and then, I guess, more medium term, '26 and '27? And then secondly, on the Life and Health onerous contracts, I appreciate, again, this is driven by the increase in the risk adjustment. But what led to this? Is this prudence? Or is there something going on in a specific line? So just how should we think about that risk adjustment increase? François de Varenne: Thank you, Andrew. So on the first one, on the tax rate. So we start to see in Q3 an improvement in the effective tax rate of the group. I've been quite vocal on the topic. We initiated a strategy in 2023 we need to repatriate more taxable profit to France to be in a situation to reactivate losses carryforward we've got off balance sheet and to use also the DTA we have activated on the balance sheet. So you saw it in the past already last year. So we are well on track in all the restructuring of the group to repatriate more profit. It's mostly through restructuring of internal retrocession to bring more through quota share assets and profit in Paris. We are going to move probably at the beginning of the year, redomiciliate one entity from Ireland to France. So the effect you see today is just a combination of -- we have now a larger base of profit located in France -- and then you have a second effect, just the excellent performance of the 3 business activities, which bring more profit. So you have those 2 effects. So if you look at the tax rate over the first 9 months, we are close to 27%. Is it a good indication of the future? What I can tell you is that compared to the 30%, it will improve. Given -- I'm a French, given discussion at the French parliament currently on the budget for France in 2026, I prefer to wait a little bit to see what type of budget we will have in France. Let's see maybe during the call of Q4, if I change the guidance. I confirm it will improve. We are on track. Again, it's not yet linked to the consumption or the reactivation of the DTA. It's just the fact that we are more profit in France and they are just at the level which is exceptional. On your second question on onerous contract on Life & Health. Let me tell you a little bit the way we see the performance of this portfolio, and that's what I said in the introduction, the way we -- and the way we guided the market during the IR Day of last September. So we have a year-to-date insurance service result of EUR 334 million. We gave a guidance last December of EUR 400 million per annum, so which means we are in line and we are even slightly above the quarterly guidance accumulated over the first 9 months. I always mention, if you remember what I said during the IR Day and in the call after this year, I always mentioned that the EUR 400 million guidance includes a cautious buffer for contained volatility. And this volatility, which is normal given the size of our in-force could come from the experience variance or could come from loss component, again, given the size and the geographies of the in-force portfolio. That's what we see. So if you look at the experience variance since the beginning of the year, so Q1, Q2, Q3, it's close to 0. So it's close to 0. If you look at the loss component, we have a little bit of noise each quarter, which is on our side within the budget we had in mind when we gave the guidance of EUR 400 million. The guidance of EUR 400 million in our mind, and I was transparent on this fact, include a cautious buffer for volatility on experience variance and/or loss component. So again, it's normal, I would say. Keep in mind as well that there is -- we commented this a few quarters ago, there is an asymmetry in the treatment on the expense variance on the CSM and the expense variance on contracts which are already on. On onerous, as soon as the contract is onerous, any movement, positive or negative flow into the P&L. More specifically, what is now happening on loss component this quarter is just a slight adjustment on group of contracts, which are already onerous and it's slight adjustment on the risk adjustment and also on one client, it's an adjustment on reserve movement. So again, on our side, with Thierry, we are really, really satisfied with the overall performance of Life. coming from, again, the CSM amortization, the risk adjustment release and the expense variance and all the volatility on loss component. Last word, the stock of loss component of onerous contract, which we disclosed last year is unchanged as of today. Operator: Next question is from Kamran Hossain, JPMorgan. Kamran Hossain: Two questions from me, both on the P&C side. The first one is just it was at the beginning of the call, a very kind of strong message from Thierry on discipline opportunities and how to avoid kind of pitfalls going forward. Just interested with, I guess, the cycle moving slightly south from where it is now into next year. does the 4% to 6% revenue target become less important now for SCOR? So just trying to work out with that market coming down a little bit more discipline, is 4% to 6% still a priority or not really? And then the second question is, historically, you've been really big users of retrocession. And more recently, you've used a lot more other kind of capital relief measures, particularly last year. In terms of the market for those, where do you think those will head into '26? Will they come down at the same rate as reinsurance? Will they come down more? What do you think the dynamics will be in that market? Jean-Paul Conoscente: Thank you, Kamran. So I'll take these questions. On the outlook and the revenue target, definitely, the revenue target is no longer, I'd say, a target for us. It will really depend on market terms and conditions. As Thierry mentioned, we expect a competitive market. especially in the Cat XL area. You have to remember, Cat XL represents only 10% to 12% of our overall premium income. And the market itself is coming from a very high price adequacy level. So the -- I'd say, the decline of that market doesn't affect the overall pricing level of SCOR as much as it does some other peers. We see competition across all the lines of business, but to a much smaller extent. And a large proportion of our portfolio, over 70% is on a proportional basis, where it's more the driver of the insurance prices that drives the price evolutions. On your second question regarding retro, we do expect that the retro market to also be competitive. The question as to whether it would be more or less competitive than the reinsurance is a little bit early to tell. We do see on the retro side, even though there's a smaller number of players, we do see all those players having appetite to grow more in terms of limit deployed as well as in terms of different lines of business they want to write. So we do expect to have opportunities to optimize our retro program again this year. Operator: Next question is from Shanti Kang Bank of America. Shanti Kang: I just had two. One is on P&C. So I was just looking at the discount rate for 3Q, that's increased to 8.4%, but we had lower cats in the quarter. So I'm a bit confused why that's increased. It's also higher year-on-year. And last year, we had a hurricane in Q3. So maybe it's on the man-made losses, I'm not sure, but just information on that would be helpful. And then on Life & Health, on that new business CSM target, what's the execution risk to that EUR 400 million? Can you tell us a bit more about the pipeline and your new business CSM numbers just to get us a bit more comfortable about meeting the guidance given the softness today? François de Varenne: Thank you Shanti. I will take the first question, and Philipp Ruede will take the second one. So on the P&C discount, so we have a discount rate at 8.2% in Q3 compared to the guidance of 6% to 7%. If you remember, it was 6.3% in Q2. Here, it's just the impact of those small midsized man-made losses that we see in the quarter, which affect mechanically the discount. So it's just a mechanical effect of the man-made losses of Q3. Philipp Rüede: Yes. So on your second question, I would say this type of fluctuation is normal. The longevity and financial solution deals are lumpy by nature. And so we remain confident that with our guidance as previously given, which was EUR 400 million, but actually for next year, and if I refer to previous communication, we expected a more significant drop in protection as we redress the portfolio and the delivery of the protection this year is actually ahead of our expectations. In terms of Financial Solutions, the pipeline is growing, but I would say it's fair to say that the execution takes longer, and you could say maybe it is a bit delayed. Whereas on the longevity side, our pipeline is robust, both in the short and the medium term. and that pipeline is global in nature, so not restricted to the United Kingdom. So hopefully, that answers your question. Shanti Kang: And just -- sorry, just on that, you implemented some profitability thresholds, I think, in December in 2024. How is that emerging in the Life and Health side? Are you seeing any pushback? Could that have really attributed to some of the softness that we've seen today or? Philipp Rüede: No, no. I mean it's rather the opposite, right? We expected to lose a lot more business with these rates increase, and we were able to retain more of the business at these increased rates. And that's why I said in terms of protection that we are ahead of our expectations. Operator: Next question is from Chris Hartwell, Autonomous Research. Chris Hartwell: Just a couple of quick questions from me. Firstly, just on the subject of the buffer. I mean you're now -- you must be getting towards sort of 3/4 of the P&C reservice result, which obviously a lot higher than what you were originally anticipating. And I guess sort of I suppose part A of the question is, how much more scope do you think there is to move this higher? And secondly, I think given the sort of initial comments around the market environment as things stand currently, I mean do you think that the industry profitability is enough to support further buffer build? And then second question, I just wanted to actually come back to the previous one on discounting. I agree I'm also a little bit confused by this. And I would have thought that this would be more to do with longer tail or longer duration claims rather than the sort of small and midsized sort of mandates that you were talking about, unless I'm sort of mixing those 2 up. So just wondering if you could sort of help to clear that up for me as well, please. François de Varenne: Chris, so on your first question, so on what we can do in the future, we were clear since 1st of January 2025 with Thierry, we build opportunistically buffer. Jean-Paul mentioned that the level of the attritional loss and commission ratio was exceptionally good in Q1 and Q2. So we mentioned that we accelerated the buffer strategy -- we still have room of maneuver in Q3 to put a smaller amount of buffer. Is it the end? No. Should you see this systematically each quarter? No. And you can expect over the next few quarters and year with the softening of the P&C market, of course, probably we will reduce the pace of implementation or we will find less and less opportunities to build buffer. But that's not for tomorrow. That's not for tomorrow. We have probably still a few quarters in front of us with still excellent margin on the P&C side. On the second question on the discount rate. So again, I mentioned it's small and midsized man-made losses. You're right. If there is an impact on the discount, it means that long-dated claims, so it's related to casualty. Chris Hartwell: Okay. And just on that casualty point, can you give a little bit more color as to if there's any particular lines of business within casualty that those claims have materialized? Jean-Paul Conoscente: Chris, this is Jean-Paul. So it's a little bit, I'd say, random. It's GL on the treaty side, on the SBS side. It's some financial lines again on the treaty and SBS side. There's no particular trend. But it's -- as Francois said, it's more underwriting years that date back 3, 4 years and therefore, have an impact on the discount rate. François de Varenne: And again, you mentioned it. I mean, we could have the choice to absorb those man-made losses in Q3 through IBNR. We did not. So we don't do it. So the bad news is in the attrition, and we wait for the outcome of the P&C reserve review in Q4. You can imagine that we are well advanced in this review. So my statement on the fact that we should not expect impact on the P&C reserve at the end of the year include, of course, the review of the casualty book. So I confirm what Jean-Paul is saying. There is no trend identified as of today. Operator: Next question is from Iain Pearce, BNP Paribas Exane. Iain Pearce: It's just coming back to the capital generation point. So I understand that you're saying that the capital generation that you've achieved has sort of been in line with the guidance that you gave at the start of the year. But I guess in Q3, we've had positive experience, particularly in the P&C business. So if we just look at cat relative to expectations, you take out the buffer, which shouldn't impact the Solvency II numbers, you would think that, that would positively contribute to the solvency. So the solvency in Q3 should be developing better than what you guided to at the start of the year. Now I guess the only thing that could offset that is the man-made claims that you're referring to, but I wouldn't guess they're at the same quantum of the level of cat benefit you've had. So I'm just understanding why that positive experience hasn't come through in the capital generation. I don't really understand that. So if you could try and elaborate on that, that would be really useful. François de Varenne: Thank you, Iain. Capital generation in Q3. So if we look at the P&C contribution, we have, as I mentioned it, the good news of the Cat, but that's compensated by the higher attritional ratio. It's almost not one for one, but I would say it's almost an impact, which has the same size. So which means the good news is offset by the attritional losses this quarter, and it's almost a one-for-one impact. You don't have the impact of the buffer, of course, in the solvency ratio. Iain Pearce: Well, I guess if the man-made is offsetting the nat cat by 1: 1, and that's implying EUR 100 million of man-made increase versus expectation in the quarter. I mean that's a pretty high number. François de Varenne: Yes, if you want more precision when I say -- I said that the capital generation on the P&C side was low. So it could be still a little bit positive. So -- but again, the order of magnitude of the man-made losses this quarter offset in a good portion, the good news on the Cat side. Operator: Next question is from Darius Satkasukas, KBW. Darius Satkauskas: Two, please. So you suggested that the pace of the buffer building in P&C will slow down as the market softens. Is the intention here to limit the soft market pressure to your combined ratio and you see this buffer as a tool to achieve this? And that's why you're making such a comment. So we shouldn't essentially expect the sort of the opportunistic thing to continue and the benefit to come through the reserve releases, you will actually manage down how much you're adding if market softens. So that's the first question. And the second question, just on the Life & Health. I'm slightly confused why have you been making allowance for volatility in your ISR target? If you have been conservative in your assumptions in the recent review, wouldn't we expect to see positive experience more often than not? So these negatives in both P&L and CSM and the allowance rates are a bit surprising. François de Varenne: Thank you, Darius. So the first question, if I catch your point is basically when we are going to use those buffer. So the way we see it is really to manage in the future the volatility. So it's not to manage specifically a cycle. Maybe we will be really at the bottom of the soft cycle, but it's really to manage the volatility of the book. So that's all. Thierry Leger: Maybe there was another part of your question, Darius, is the buffer building, will the pace come down, right, given the market environment. So we very much feel in 2024 in terms of IFRS reporting, we were very much in a very attractive environment. We think we will remain in a very attractive environment next year. So we do not foresee necessarily -- again, it's opportunistic, so we can never give -- make a prediction. But we continue to believe that also next year, we should be able to build significant buffers if the results come in as expected. François de Varenne: And your second question on Life & Health and the way we set the ISR target. So that's true. I mean we did this significant assumption review in 2024. Then again, that's what I said, given the size of the in-force, given the geographies of the portfolio everywhere in the globe, given the underlying nature of all the existing treaties, we will have some volatility. So this volatility, I agree with you, this volatility could be negative or could be negative and could be on the experience variance side or it could be through a loss component onerous contract. We want to be cautious. We want to be cautious. And I agree with you, on an average, over a long period of time, this volatility should be around 0, again, with plus and minuses quarter after quarter, but it should be around 0. to be on the safe side, and we mentioned it to be on the safe side, the EUR 400 million guidance include a buffer to take into account any residual volatility that could be negative or positive, but we prefer to give a guidance and to underpromise and over deliver on the guidance. Darius Satkauskas: So if I understood Thierry correctly, the -- what you've done in terms of reserve buildup, that's for the volatility. But in terms of how much you will do going forward, you can very much manage the combined ratio in a soft market. François de Varenne: Yes. Operator: Next question is from Ivan Bokhmat, Barclays. Ivan Bokhmat: I've got 2 questions left. We've been talking about the Q4 reserve review for the P&C business. I was just wondering if you can update us on how periodically would you review the Life book? Is there a review coming in Q4? Maybe any early findings there? And the second question is related to the investment results. I think in Q3, you have flagged some higher real estate amortization during the quarter. Could you give a little bit more color on that of which portfolios or geographies that might relate to? Do you anticipate any additional charges such as this later? François de Varenne: So on the first question on the Q4 reserve review, -- so we did -- we took an external opinion in 2023 -- in 2024 with the same actuarial firm. So we list our [ Watson ]. I remind you that our Watson confirmed last year that we have increased the level of credence compared to 2023. We have been sharing this, and we -- I like to listen to the feedback of our investors on the topic. I'm not sure that bringing such a review each year will be useful. So we are listening with Thierry to recommendation or question or suggestion from investors or from you as analysts. So let's see the periodicity, but probably every 2, 3 years should be the good cycle. On your second question on the investment portfolio, so that's true that we have mentioned it, an impairment on the real estate asset. So it's a property asset that we own in France. We decided to significantly to invest and to do some CapEx to restructure this building. But first, when you invest, you have first to impair the building, then we are going to deploy the CapEx. And one day, we're going to lease it and sell it with a gain. So we are in the cycle of real estate and the DNA of the team is really what we call value-add -- so we like to restructure assets, and that's one we have and we impair it. So it's EUR 12 million. So it's not a trend. It's not something that just because we invest to value this asset, and we have to impair it a little bit before we start the renovation and the restructuring works. Ivan Bokhmat: And maybe just to follow up on this and broaden the question a little bit. François de Varenne: So which means if you look at -- because in the line real estate amortization and impairment, you have the impairment, it's almost EUR 12 million this quarter. And I would say normal amortization, that's the amortization compared to the book -- the historical value. So the amortized costs flow into the P&L and roughly, it's a budget of EUR 5 million, EUR 6 million per quarter. Ivan Bokhmat: Okay. And maybe if I could follow up on this question. And more broadly, if you can talk about the private assets that you hold, is there anything that make you concerned in the current environment? François de Varenne: No. I mean I've got -- I mean, you know that we have a positioning of the investment portfolio, which is highly defensive. The fixed income portfolio has a very high quality. The average rating is A-. Our exposure to private debt, private assets is fairly limited. We disclose it every quarter. If I take the collapse of first brands and Tricolor a few weeks ago, it was an indirect exposure on the investment side of EUR 0.2 million. So it's nothing, and it's a single low-digit number on the credit and surety side. So we don't change anything. We don't change -- I mean, we don't have any concerns, so we don't change anything on the asset allocation. And just remind you, since I mentioned all the discussion we have at the French parliament on the budget for 2026, I remind to everyone that we have 0 exposure at all to French. Operator: Next question is from Will Hardcastle, UBS. William Hardcastle: Just two. The first one is clarification really. I'm trying to understand the manmade. There's been a couple of confusing messages. You said clearly, it was above budget, I think, in Q3. Where is it year-to-date? I'm trying to understand just how much better than a budgeted type level H1 was? And the second question is just on P&C revenue. I think I just heard you say that, that 4% to 6% revenue CAGR and P&C target no longer stands. Is that right? Have you officially walked away from that? François de Varenne: Thanks, Will. I will take the first question and Jean-Paul, the second one. So I mentioned it, normalized for Cat and discount, the normalized combined ratio would stand at 87.4%. I mentioned that inside, you have a significant amount of buffer. It's a couple of points. And do not forget that the combined ratio published or normalized include a significant amount of buffer. So it's included in the attritional ratio over the first 9 months of 79.2%. Jean-Paul Conoscente: Hopefully, that reassures you that, again, the level of man-made we've seen year-to-date has been very low. Q1, Q2 was very low. Q3 is normal. So when you average it across the 9 months, it's low. In terms of P&C revenue, what I meant is we don't change the guidance. But for us, the 4% to 6% is more an outcome than an objective. We're not asking the teams to position the portfolio in such a way that we can absolutely meet this target. If the terms and conditions, we find them satisfactory and there's different price adequacy, we're ready to deploy capital and grow the book. If price deteriorate to a level that we think they're no longer price adequate, we're going to position the portfolio more defensively regardless of the guidance we've given on revenue growth. Thomas Fossard: And with this, we're going to take the last question of the call. Thank you. Operator: The last question is from Vinit Malhotra, Mediobanca. Vinit Malhotra: So almost all my questions have been answered. It's just -- and thanks for the clarification on the revenue growth. But just on the fact that you did grow U.S. Cat in July. And I'm just wondering whether what you know now, are you still happy with that decision to have grown? And the reason I'm asking is, obviously, you talked about Cat XL being an area where there's most concern, which is only 10% of the book. but still your more cautious message on pricing, was it was still considering this cat action you took? And also one more question, if I can follow up on. I think somewhere in the call, you talked about U.S. casualty with core business Solutions having some larger claims. Is that the same thing that you're talking about this attritional manmade being normalized or was something else, sorry? Jean-Paul Conoscente: Thank you, Vinit. So on the U.S. Cat, we definitely don't regret our decision to increase our risk appetite in U.S. Cat. you're right that we expect the prices to come down at 1/1 and the market to be competitive. You have to remember the price adequacy of U.S. cat currently is very high. You can see despite the wildfires at the beginning of the year, the tornado activity throughout the year, the -- let's say, the profitability of that portfolio remains extremely good. And our position is very much underweight in that market compared, for example, to Europe or to Asia. So we think there's opportunities for us to grow. In the renewal discussions, right now, the discussions seem to focus primarily on price. terms and conditions are remaining stable. Attachment points are remaining stable. So again, it's just a question of price. And given the level of price adequacy where we stand, I think we still view that market as attractive and producing very good returns. On your question on U.S. casualty and SBS, again, I'd say it's normal activity. We don't see any concerns there. It's more prior underwriting years where losses have developed to a level that we took them to the P&L. our book today on SBS is very small. We continue to take a cautious look at the U.S. casualty market overall, both on the treaty side and on the SBS side. We're following the market. The price increases on the insurance side is keeping up with loss trend, for example, in GL. The question is, is the price adequacy adequate. In our view, you have -- you probably need further years of similar price increases and no acceleration of the loss trend for it to be a price adequacy that meets our return on equity targets. So we're remaining very cautious today. Vinit Malhotra: And the claims was not in treaty or P&C, but only in SPS? Jean-Paul Conoscente: No, no, the claims were -- there was a few claims on the treaty side, a few claims on the SPS side. Operator: Gentlemen, we have no more questions registered at this time. Thomas Fossard: Okay. So thank you all for attending this conference call today. Our team remain available if you've got any follow-up questions. So give us a call. And with this, I wish you a good weekend. The Q4 2025 results call will be reported beginning of March on the 4 with a call as usual at 2:00 p.m. So wishing you a good weekend all. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.
Operator: Greetings. Welcome to the Federated Hermes Q3 2025 Analyst Call and Webcast. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin. Raymond Hanley: Good morning, and welcome. Leading today's call will be Chris Donahue, CEO and President, Federated Hermes; and Tom Donahue, Chief Financial Officer; and participating in the Q&A are Saker Nusseibeh, the CEO of Federated Hermes Limited and Debbie Cunningham, our Chief Investment Officer for Money Markets. During today's call, we may make forward-looking statements, and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris? John Donahue: Thank you, Ray. Good morning. I will review Federated Hermes business performance. Tom will comment on the financial results. We ended the third quarter with record assets under management of $871 billion, led by gains from our money market and equity strategies. Equity assets increased by $5.7 billion or 6% from the prior quarter due mainly to market gains. Q3 equity net sales were slightly negative $130 million, as solid net fund sales of $1.4 billion were offset by about $1.5 billion of separate account net redemptions driven by one client and all their CIT strategies moving to passive ETFs. And another client where pension funds were merged and the surviving plan happens to use private strategies -- passive strategies. Interestingly, we are also seeing other clients interested in moving from passives into our MDT strategies, which have had several RFPs come in from investors considering this switch. The MDT fundamental quant strategies produced solid results again in the third quarter. MDT equity strategies had Q3 net sales of $2 billion. Looking at MDT fund performance rankings as of September 30, 7 of the 8 MDT equity mutual fund strategies are in the top performance quartile of their Morningstar categories for the trailing 1 and 3 years. And all eight are top quartile for the trailing 5 and 10 years. And four of these strategies are in the top decile for the trailing 3 years. We had net sales in 20 equity fund strategies during the third quarter including, obviously, a variety of the MDT offerings and the Asia ex-Japan fund leading the pack. We are actively developing MDT distribution opportunities outside of the U.S. and are finding considerable interest from institutions, intermediaries and others. For example, the MDT U.S. equity UCITS fund, that means it's registered for us in Dublin, launched in June, is off to a great start. We are seeing strong demand from clients outside of the U.S. and have already had $340 million in net sales from inception through last week. Now looking at our equity fund performance at the end of Q3 and using Morningstar data for trailing 3 years, 53% of our equity funds were beating peers and 33% were in the top quartile of their category. For the fourth quarter through October '24, combined equity funds and SMAs had net sales of $580 million. Now turning to fixed income. Assets increased by $3.1 billion from the prior quarter to reach a record high of $101.8 billion at the end of Q3. Fixed income total net sales improved by $4.1 billion, as we had $1.7 billion of net sales in the third quarter compared to net redemptions of $2.4 billion in the second quarter. Q3 net sales included about $1.4 billion from two large public entities that have regular sizable inflows and outflows. We had 24 fixed income funds with net sales in the third quarter, led by the three ultrashort funds with $579 billion combined, and the sustainable global investment-grade usage fund about $240 million. Regarding performance at the end of the third quarter, using Morningstar data for the trailing three years, 44% of our equity fixed income funds were beating peers and 15% were in the top quartile of their category. For Q4, through October 24, combined fixed income funds and SMAs had net redemptions of about $250 million. This was occasioned by positives in Ultrashorts and Total Return Bond Fund that were overcome by negatives in high-yield bonds. In the alternative private markets category, assets decreased by about $1.7 billion from the prior quarter, mainly due to a $1.1 billion in real estate fund transactions from -- that we have previously discussed, the restructuring of the U.K. Property Trust in the third quarter. This fund was successfully managed by us for many years. It was specifically designed for defined benefit clients. There are very few of these left. The liquidity was an important factor. The decision was made to move it to one of the last remaining managers of this type of DB fund for which we received financial consideration that Tom will address. Real estate also had net redemptions of $446 million from separate accounts in Q3 due mainly to property sales that were driven by a client's change to their asset composition. The MDT market-neutral alternative strategy had net sales of $173 million in Q3 and now stands with assets of about $1.7 billion. We are currently in the market with European Direct Lending III, the third vintage of our European direct lending fund. To date, we've closed on about $680 million. For your information, EDL raised $300 and EDL II raised about $640 million. We are also in the market with our global private equity co-investment fund which is the sixth vintage of the PEC series. To date, we've closed on approximately $318 million and PECs I through V raised approximately $400 million to $600 million in each fund. We're also in the market with the European real estate debt fund, which is a new pooled debt equity fund -- a debt fund and the marketing will continue here into 2026. We're also actively working on Energy Solutions product development plans following the Q2 acquisition of a majority interest in Rivington. Last week, we announced the agreement to purchase a controlling interest in FCP, a U.S.-based real estate investment manager with $3.8 billion of assets under management as of June 30. The acquisition will facilitate Federated Hermes' entrance into the U.S. real estate market at a time when the U.S. multifamily sector where FCP concentrates its efforts, enjoys strong fundamentals and significant growth opportunities. FCP has a strong experienced management team who have led the firm's growth through changing market conditions for over 25 years. We believe that FCP will be an excellent complement to our U.K.-based real estate business. There, with more than 40 years of experience, our U.K.-based team has more than 55 professionals managing $5.5 billion as of the end of Q3. Now back on FCP, we're planning to close the purchase around the end of the first quarter of 2026. Across our long-term investment platform, we began Q4 with about $2.1 billion in net institutional mandates yet to fund, in both funds and separate accounts. Let's delve into that. Approximately $1.6 billion is expected to come into private market strategies, which include direct lending over $800 million, private equity, a little over $650 million and trade finance at $100 million. Equities are expected additions of $1.2 billion, with about $875 million into MDT and about $365 million into international and global equity strategies. Fixed income is expected to have net redemptions of about $650 million, with wins of about $380 million in high yield and short duration offset by a single $1 billion high-yield redemption. Moving on to money markets. We reached another record high at the end of Q3 for total money market assets, which increased by $18 billion to reach $653 billion. Money market fund assets increased by $24.7 billion or 5% in Q3 to reach a record high of $492.7 billion. Money market separate accounts decreased by $6.3 billion in Q3, reflecting seasonal patterns. Market conditions remain favorable for cash as an asset class. In addition to the appeal of the relative safety and periods of volatility. Money market strategies present opportunities to earn attractive yields compared to alternatives like bank deposits, direct investments in T-bills and commercial paper. We're also developing money market funds and share classes available in tokenized form and working with parties on digital asset infrastructure. These efforts include a planned GENIUS Act compliant money market fund designed to serve as collateral for stable coins. Last week, we announced that we have made two of our UCITS money market funds, our Sterling Prime and U.S. dollar Prime available in tokenized form through Archax. Archax is a well-known digital assets operator in the U.K., having launched in 2018 and become the first FCA-regulated digital Securities Exchange broker-dealer and custodian. This represents a Federated Hermes initial non-U.S. digital asset initiatives. The Archax relationship complements our digital efforts, where we are the sub-adviser for the superstate short-duration U.S. government securities fund, a private tokenized fund with about $735 million in assets. We will also participate in the launch of a collaborative initiative between BNY and Goldman that will use blockchain technology to maintain a record of their customers' ownership of select money market funds. A significant step towards enhancing the utility and transferability of existing money market fund shares. We are exploring numerous other additional digital asset opportunities. We are committed to the digital space where we expect ongoing innovation and growth. Our estimate of money market mutual fund market share, including sub-advised funds remained at about 7.11% at the end of the third quarter. Now looking at recent asset totals as of a few days ago. Managed assets were approximately $865 billion, including $645 billion in money markets, $96 billion in equities, $102 billion in fixed income, $19 billion in alternatives, private markets, $3 billion in multi-asset. Money market mutual fund assets stood at $486 billion. Tom? Thomas Donahue: Thanks, Chris. For Q3 compared to the prior quarter, total revenue increased $44.6 million or 10%. Revenue from higher money market assets provided $17.6 million of this increase, while higher equity assets added $14.8 million. An extra day in the quarter added $4.9 million, higher performance fees added $2.4 million and the Rivington acquisition added $1.2 million. Q3 revenue also included a termination fee of $4.6 million from the restructure of the U.K. property trust, and this is about -- was about 1 year of revenue from that mandate. Total Q3 carried interest and performance fees were $3.6 million compared to $1.4 million last quarter, approximately $733,000 of the Q3 fees were offset by nearly the same amount of compensation expense. Q3 operating expenses increased by $32.2 million or 10% from the prior quarter due mainly to higher distribution expense from higher fund assets of $14.2 million. We had about $2 million in transaction costs from the FCP acquisition in Q3 in the professional service fees line. In other expense line items, FX and related expense increased by $9.4 million in Q3 compared to the prior quarter. These expenses were $3.7 million in Q3 compared to a credit of $5.7 million for Q2 as the pound weakened against the dollar in Q3. The other expense line item for Q3 also included $2.8 million related to a U.S. withholding tax matter on certain non-U.S. funds. The effective tax rate was 24.4%. The tax rate was impacted by $1.6 million related to R&D tax credits. At the end of Q3, cash and investments were $647 million. Cash investments excluding the portion attributable to noncontrolling interests were $610 million. We expect to use about $216 million in cash and about $23 million in FHI Class B stock for the upfront purchase price of FCP controlling interest acquisition. During Q3, the company paused its open market share repurchase, as we entered exclusive negotiations with FCP. We expect to be active again in Q4 and repurchase shares in the open market. Holly, we'd like to open the call up for questions now. Operator: [Operator Instructions] Your first question for today is from Ken Worthington with JPMorgan. Y. Cho: This is Michael Cho, on for Ken. So my first question, I just wanted to touch on MDT franchise. I mean there's clearly some growing momentum there. You called out some new RFPs, a pretty sizable pipeline as well as some initiatives to expand distribution more notably outside the U.S. I mean, how do we think we should kind of frame the potential sizing and maybe the pace of AUM or flows growth of the overall MDT franchise as you continue to scale and as the non-U.S. distribution starts to grow. I'm just trying to get a sense of how we should frame that opportunity set. John Donahue: I think you should frame it with enthusiasm and optimism. If you look at the sales to date through this time frame, they're still running net sales of -- up through October 24 of about $660 million so the pipeline continues. But for us, the exciting thing is the fact that we were able to sell these mandates across the globe. And if you look at where they're coming from, they're coming from different countries, in different ways and in different of the mandates exactly on MDT. I can't get into exactly who the clients are. But in those pipeline numbers is a great variety of client types and geographies. Y. Cho: Understood. And then if I could just ask a quick follow-up on expenses. Just broader over the year ahead. You have a number of initiatives. You called out a bunch today. Clearly, alternatives and the FCP acquisition is ahead, but you also have a number of things happening within money market and blockchain, digital assets and clearly, kind of extension of some of your key franchises. So I just think about the expense base and over the next 12 months or so, how should we kind of think about the trajectory there as you can continue to invest organically and inorganically across the business? Thomas Donahue: Okay. Mike, well, the first thing, FCP, we closed that near the end of the first quarter, then of course, those expenses will come in. But we've kind of factored that in -- on last week's discussion about our view of after transaction costs, it would be an accretive thing, and also in 2017, much more accretive based on our estimates of what we think is going to happen there. So of course, revenue go up and the expenses will go up. And in terms of -- you're calling out a few things. Obviously, the digital things and money market stuff and other expansions. I don't see outsized expenses coming in here. And if they do, we would fully expect them to come with revenue shortly thereafter. And if you want me to go through the -- not for the year, but for the next quarter, a few comments on the line items. I'd expect comp and related to go up, as sales are increasing and therefore, incentive comp is going up, and investment management performance is causing us to increase the incentives there. And on the corporate side, we're also increasing the incentive. These are all positive success items. On the distribution line item, we expect that to go up as you look at average assets, distribution line item and other success item goes up. On the professional service fees are looking at it today, we already said we'd expect some more FCP closing costs in Q4, but we had a couple of million, as I mentioned, in Q3, so maybe we have $3 million more as a change. And then the other line has effects in it, and that has that tax payment that we talked about and what's going to happen in FX we will see. But those are all comments on a quarterly, not a yearly basis. Operator: Your next question for today is from Bill Katz with TD Cowen. Robin Holby: This is Robin Holby on for Bill Katz. Heading into 2026, what are you hearing from your institutional investors on allocations, where are you seeing opportunities? And how are you thinking about the pace of deployment for the institutional pipeline? John Donahue: The institutional pipeline, I tried to hint at this a few minutes ago, is very, very strong. As we told you, we've got over $2 billion in it. And if you look into that, the pipeline is to see performance and different countries. So I was a little more general the last time, but we have a Belgium All Cap Core, MDT big mandate that we've won. In Canada, it's an international leaders mandate that we've won; in the U.K., a global equity mandate; in South Korea, a blended MDT; another U.K. client came into the All Cap Core, MDT. We have an MDT win in the Mid East as well. So it's across the board of performance-oriented activity. And then if you look at the style box security of the various MDT offerings, you get a sense that people are looking at it that way. And then I did hint that we are seeing some clients -- this is not an avalanche, don't go writing big hairy articles that people are looking at what they really own inside a passive or indexed situation and are thinking that maybe they need to look at some of the MDT mandates as alternatives. Raymond Hanley: And Robin, on the -- in terms of the pace of the funding of the pipeline, about 2/3 of it, we expect to fund here in the fourth quarter with the equity and fixed income equity inflows, fixed income outflows happening this quarter and about half of the alt funding happening this quarter. The alts usually have a longer tail, so they will continue to fund through the first half of next year, Q1 and Q2 pretty evenly. Thomas Donahue: Okay. Holly, we must go to the next question. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Ray for closing remarks. Raymond Hanley: Okay. Well, thank you for joining us. That concludes our call. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone, and welcome to Marcus Corporation's Third Quarter Earnings Conference Call. My name is Lydia, and I will be your operator today. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of Marcus Corporation. At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir. Chad Paris: Good morning, and welcome to our fiscal 2025 third quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, which may be identified by our use of words such as believe, anticipate, expect or other similar words. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected or projected in our forward-looking statements. These statements are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading forward-looking Statements in the press release we issued this morning announcing our third quarter results, and in the Risk Factors section of our fiscal 2024 annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure in evaluating our performance and its limitations, a copy of which is available on the Investor Relations page of our website at investors.markuscorp.com. All right. With that behind us, let's begin. I'll start this morning by spending a few minutes sharing the results from our third quarter and then discuss our balance sheet, liquidity and capital allocation. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions. This morning, we reported a quarter with solid results overall despite somewhat mixed results in our divisions relative to our expectations. In hotels, we exceeded our expectations and were able to overcome a very challenging prior year comparison to deliver revenue growth and outperform our competitive sets. In theaters, we saw a less concentrated film slate with several films that performed well relative to our own expectations, but the slate lacked a major breakthrough of tent pole that we've seen in the third quarter the last couple of years. During our seasonally busiest quarter, our teams in both businesses remain focused on serving our guests with excellence to deliver memorable experiences. I'll start with a few highlights from our consolidated results for the third quarter of 2025. Consolidated revenues of $210 million were down 9.7% compared to the prior year quarter. Operating income for the quarter was $22.7 million a decrease of $10.1 million compared to the prior year quarter. Consolidated adjusted EBITDA for the third quarter was $40.4 million, a decrease of $11.9 million compared to the third quarter of fiscal 2024. Net earnings for the quarter were $16.2 million or $0.52 per share and were favorably impacted by a nonrecurring gain on a property insurance settlement of $3 million or $0.10 per share net of tax. Excluding the impact of the gain net earnings for the third quarter were $13.2 million or $0.42 per share compared to prior year third quarter net earnings of $24.8 million or $0.78 per share excluding the impacts of our convertible debt repurchases last year. The change in our fiscal year-end quarters had an immaterial impact on our third quarter results with 1 additional operating day during the quarter in fiscal 2025 compared to last year. Turning to our segment results. I'll begin this morning with our theater division. Third quarter fiscal 2025 total revenue of $119.9 million decreased approximately 16% compared to the prior year third quarter, primarily due to weaker performances from the top films in the quarter compared to the top films in the quarter last year and less carryover of films that released in the second quarter compared to last year's carryover. Comparable theater admission revenue for the third quarter decreased 15.8% and comparable theater attendance decreased 18.7% compared with our fiscal third quarter 2024. While our market share in the third quarter of 2025 was in line with our historical third quarter share, including our third quarter share in 2023, this year's film mix did not help us. Notably, the film slate did not include a family animated film in the top 5 movies of the quarter, a genre that our circuit typically outperforms in. When using our comparable fiscal days, U.S. box office receipts decreased 12% during our fiscal 2025 third quarter compared to U.S. box office receipts during our fiscal third quarter last year, indicating our admissions revenue performance trailed the industry by 3.8 percentage points. We believe that our lower box office performance relative to the nation during the third quarter, was primarily attributable to our strong performance in the third quarter last year when our circuit outperformed the national box office growth by nearly 6 percentage points. As you may recall, a year ago, our third quarter 2024 box office results benefited from a favorable film mix in which we achieved above our historical average market share for each of our top 6 movies in the quarter, including several films such as Inside Out 2, Despicable Me 4 and Twisters where we significantly outperformed our typical share. Our admissions revenues did benefit from several pricing changes that we discussed with you last quarter, with average admission price increasing 3.6% during the third quarter of fiscal 2025 compared to last year. Our admission per caps were favorably impacted by strategic pricing changes, including adjustments to our Everyday Matinee program and pricing surcharges on select high-demand summer blockbuster films. In addition, admission per caps were also favorably impacted by a higher percentage of our attendance on PLF screens compared to last year's quarter. We also grew our average concession food and beverage revenues per person at our comparable theaters, which increased by 2.1% during the third quarter of fiscal 2025 compared to last year's third quarter, and was driven by an increase in merchandise sales and pricing. Our top 10 films in the quarter represented approximately 72% of the box office in the third quarter of fiscal 2025, compared to 83% for the top 10 films in the third quarter last year. The less concentrated film slate featuring fewer blockbuster films compared to the more concentrated slate in the third quarter last year, resulted in an approximately 3 percentage point decrease in overall film cost as a percentage of admission revenues. Finally, Theater Division adjusted EBITDA during the third quarter of fiscal 2025 was $22.1 million, a 33% decrease over the prior year quarter, primarily due to the lower attendance volumes. Turning to our Hotels and Resorts division. Total revenues before cost reimbursements were $80.3 million for the third quarter of fiscal 2025, a 1.7% increase compared to the prior year. RevPAR for our comparable owned hotels decreased 1.5% during the third quarter compared to the prior year, which resulted from an overall occupancy rate increase of 1.7 percentage points offset by a 3.6% decrease in our average daily rate, or ADR. Our average occupancy rate for our owned hotels was 78.4% during the third quarter of 2025. As you may recall, our third quarter 2024 results benefited from the Republican National Convention and its significant impact on the results at our 3 Milwaukee hotels, resulting in approximately $3.3 million of incremental revenue. The RNC primarily had the effect of increasing average daily rates. And when we adjust out that onetime impact, we achieved some very impressive rate and RevPAR growth. When excluding the impact of the RNC on our 3 Milwaukee hotels from last year's results, our average daily rate during the third quarter of 2025 grew approximately 5% compared to the prior year quarter, and RevPAR grew approximately 7.5%. According to data received from Smith Travel Research, Comparable competitive hotels in our markets experienced a decrease in RevPAR of 6.7% for the third quarter of 2025 compared to the third quarter of fiscal '24, indicating that our hotels outperformed the competitive set by 5.2 percentage points. We believe our outperformance resulted primarily from strong sales results with our group customer segment as well as a strong summer season at Grand Geneva Resort & Spa and higher results from the recently renovated properties in our portfolio. When comparing our RevPAR results to comparable upper upscale hotels throughout the U.S. the upper upscale segment experienced a decrease in RevPAR of 1.3% during our third quarter compared to the third quarter of fiscal '24, indicating that our hotels performed generally in line with the industry despite the growth headwind from the prior year RNC impact, and they outperformed the industry by nearly 9 percentage points when adjusting for the estimated impact of the RNC on our RevPAR growth. With the strong growth in group business and events, our banquet and catering operations continued to grow with food and beverage revenues up 8.3% in the third quarter of fiscal '25 compared to the prior year, which includes the impact of the headwind from prior year RNC related banquet and catering events. Finally, hotels adjusted EBITDA was essentially flat in the third quarter of fiscal 2025 compared to the prior year quarter, which we believe was a significant achievement given the changes in our revenue mix, with a decrease in high rate, high-margin rooms revenue in the prior year due to the RNC and the increase in comparatively lower margin food and beverage revenue. Shifting to cash flow and the balance sheet. Our cash flow from operations was $39.1 million in the third quarter of fiscal 2025 compared to cash flow from operations of $30.5 million in the prior year quarter, with the increase in cash flow primarily due to differences in the timing of various working capital payments. Total capital expenditures during the third quarter of fiscal 2025 were $20.9 million compared to $18.5 million in the third quarter of fiscal 2024. A large portion of our capital expenditures during the third quarter were invested in the Hilton Milwaukee renovation, with the balance going to maintenance projects in both businesses. Our capital investments and renovations projects have progressed as planned, and we now expect capital expenditures for fiscal 2025 of $75 million to $85 million. The timing of several projects will impact our final capital expenditure number for the year. Looking ahead, as we get past the heavy part of the reinvestment cycle that we are in this year with our current hotel portfolio, we see a meaningful step down in capital expenditures in 2026. Our preliminary expectation is for approximately $50 million to $55 million of capital expenditures in 2026 with this range subject to adjustment for the final timing of payments for our 2025 projects. We ended the third quarter with approximately $7 million in cash and over $214 million in total liquidity with a debt-to-capitalization ratio of 26% and net leverage of 1.7x. Finally, in today's earnings release, we announced that during the third quarter, we repurchased approximately 600,000 shares of our common stock for $9.1 million in cash. This brings our share repurchases this year to just over 1 million shares or approximately 3.2% of our outstanding shares at the beginning of the year. Our cumulative buyback since resuming share repurchases in the third quarter of 2024 are now over 1.7 million shares or approximately 5.3% of our outstanding share count when we begin returning nearly $26 million in capital to shareholders. Our strong balance sheet and confidence in our businesses gives us the ability to continue pursuing growth investments while returning capital to shareholders through our quarterly dividend and opportunistic share repurchases. We will continue to allocate capital with a balanced approach that supports our strategic priorities while pursuing investments that provide the most attractive returns to shareholders. Greg will further discuss our capital allocation approach and today's announcement of an increase in our share repurchase authorization. And with that, I will now turn the call over to Greg. Gregory S. Marcus: Thanks, Chad. Good morning, everyone. When we were together last quarter, we shared that our summer was off to a solid start in both of our businesses. In theaters, a more diverse film slate was bringing out audiences for a series of solid performances. In hotels, we were gaining momentum as we entered the third quarter, and we're well positioned with several newly remodeled properties in our portfolio. As the rest of the third quarter played out, we saw some divergence between the results of our 2 divisions. In theaters, we saw a late summer movie season that included several films that performed well and met our own expectations, but it lacked a runaway hit blockbuster film that we've had the last couple of years, and the film mix was challenging for our markets. In hotels, our team executed exceptionally well, capitalizing on both group and leisure demand and delivered a quarter that outperformed our competitors in the nation, overcoming a very difficult comparison to our record third quarter results last year. As I will discuss today, while the overall result was a mixed quarter compared to our own expectations, there were many positives that we think will benefit us in the long term. I'll start with our theater division. In a quarter where there has been much industry discussion about a national box office that was down nearly 12%. I'd like to step back for a moment with some perspective and start with a few things that we thought were positive. First of all, we have good product supply with 32 wide releases in the third quarter this year compared to 29 last year. The film slate was less concentrated, and many of the smaller and midsized pictures actually performed better on average than they performed last year. When you get past the top 6 movies in the quarter, the average box office gross per film for the next 14 films in the top 20 was up over 11%. We believe this illustrates that there is an important role for small and midsized films in theatrical. And contrary to some of the narrative in the trade press, audiences want to come out to see these movies in theaters. Second, there were several films that outperformed expectations. James Gunn's Superman opened to $125 million domestically achieving over $350 million in box office during its domestic run and grossing over $600 million globally. More importantly, the success of this DC franchise film sets up a promising outlook for future sequels with more DC adventures on the horizon. Zach Cregger's horror hit Weapons crossed $100 million in domestic box office in just 2 weeks and its way to over $150 million for the run. The Conjuring: Last Rites smashed box office records with both the highest domestic and global opening for a horror film going on to become the highest grossing film in The Conjuring series. Demon Slayer: Infinity Castle broke the anime record with a $70 million domestic opening and has continued to play strong to become the highest grossing international movie ever in the U.S. with a domestic run now of over $132 million. These were all great results for these films, and they illustrate the audience appeal for a wide range of content across genres. So where did the summer box office come up short compared to last year? We think it ultimately comes down to a couple of simple factors. First, we didn't have a breakout smash hit this year that was the musty film of the summer, as we've seen in the last 2 years, the #1 film in the third quarter last year, was Deadpool & Wolverine. And in 2023, it was Barbie with both films grossing approximately $630 million domestically in the quarter. As I discussed earlier, the #1 film in the quarter this year, Superman was a great success for many reasons, but at $350 million, its gross was approximately $280 million lower. We've been in this industry for a long time, and this dynamic with varying levels of box office hits from year-to-year isn't new. It's just the nature of our business. Second and the third quarter, the summer box office was lighter on family films, a genre or we typically outperform. Last year, our top 5 films in the third quarter included Despicable Me 4 at #2, and Inside Out 2 is the #5 film, which was the second quarter release that carried over and held strong into the third quarter. This contributed $183 million to the third quarter domestic box office. This year's third quarter did not have a family animated film on the top 5 and didn't benefit from carryover of family films released in Q2. Again, this isn't really a new phenomenon, but it did create a tough comparison to last year, particularly for our circuit, which historically has outperformed on family films. Chad discussed the factors we believe are impacting our box office growth relative to the nation and while we underperformed the nation by just under 4 percentage points. This was primarily due to our strong outperformance last -- in last year's third quarter, coupled with a film mix this year that didn't include many family films. I'm pleased to share that we continue to make progress on optimizing prices to capture premium during peak periods and maintain the right balance of value-oriented options for more price-sensitive customers during lower demand periods. As expected, our admission per caps improved during the third quarter as we implemented blockbuster pricing on high-demand films and continue to adjust pricing for our Everyday Matinee program. We expect continued growth in our admission per caps for the next several quarters. We're looking forward to an exciting fall and holiday film slate with Wicked: For Good, Zootopia 2, Five Nights at Freddy's 2, The SpongeBob Movie: Search for SquarePants and Avatar Fire and Ash, just to name a few. Advanced ticket sales of Wicked: For Good have been strong and are currently trending over 3x ahead of presales for last year's Wicked. As we look ahead to next year, the 2026 film slate features major franchises, including Spider-Man: Brand New Day, The Super Mario Galaxy Movie, Moana Jumanji 3, Moana, Jumanji 3, 2 different movies, Toy Story 5, Megameno, Mega Minions, The Mandalorian and Grogu, Dune, Messiah; and Avengers: Doomsday just to name a few. There are many more great films coming noted in today's earnings release, the 2026 film slate continues to fill in and the early indication is that while there are a similar number of franchise films in 2026 compared to this year, the grossing potential of 2026 franchise is greater based on the historical predecessor box office performances. The 2026 slate currently includes 4 films where the predecessor earned over $500 million at the domestic box office compared to only 1 such film in 2025. Moving to our Hotels and Resorts division. You've seen the segment numbers, and Chad shared some additional detail on the performance metrics, including our outperformance to the competitive sets. We expected this quarter to be a challenging comparison to last year for the hotel division, given the significant impact the RNC had in our Milwaukee hotels in the third quarter last year. And I'm thrilled to share that our teams met the challenge and delivered absolute growth to overcome a tough comp. The RNC was an extraordinary period -- extraordinary event for our largest market, and we back out the RNC impact from our prior year results, our core business performed very well. In particular, 2 of our newly renovated properties, Grand Geneva Resort & Spa and Pfister hotel benefited from our investments in renovations and great execution by our teams to deliver outstanding results this quarter. There were several notable items in the quarter that I'd like to highlight. Average daily rates during the quarter were generally strong, with rate growth at 4 of our 7 hotels when adjusted for the prior year RNC impact. We have been successful in achieving higher rates at our hotels with newly renovated room product, including the Pfister, Grand Geneva Resort & Spa and Hilton Milwaukee. Occupancy remains strong with occupancy growth at 6 of our 7 hotels the combination of strong ADR and occupancy growth resulted in our properties once again outperforming their competitive sets with impressive RevPAR growth of 7.5% when adjusted for the prior year impact of the RNC. Group business during the quarter was stable. And as we approach the end of the year, our group room revenue bookings for full year fiscal 2025 or group pace in the year for the year are running slightly behind where we were at this time last year, which includes the RNC Group business last year, even more encouraging. Group room pace for 2026 is running approximately 14% ahead of where we were at this time last year, for the next year out with banquet and catering revenues similarly running ahead of last year's pace. The current state of our hotel business remains stable and consistent with our view last quarter. While some markets have seen some more significant leisure softening, our owned portfolio has generally performed well. Leisure transient demand remains soft in some markets around the country. But our hotel portfolio has not seen significant signs of softening or significant cancellations of group business. We believe our upper upscale positioning, drive to market locations and a broad segmentation lessening our exposure to any one type of customer. We'll see less volatility if further economic soften occurs. There remains an increased level of economic uncertainty compared to where we were a year ago. And if we begin to see softness, we are prepared to react and adjust quickly. Our operations team is continuously focused on labor efficiency, and we've developed a strong track record of successfully managing through a changing demand environment. Finally, I'd like to close with our views on capital allocation and returning capital to shareholders. For the last couple of years, we've made significant reinvestments in our assets. And as Chad discussed, we expect to move past this heavy CapEx cycle next year as we shift back to a more typical maintenance and ROI CapEx mix. We're seeing great results from our renovated properties, and we believe these investments will continue to have attractive long-term returns. On the growth front, we continue to look for opportunities to deploy capital to grow both of our businesses with value-accretive investments. We have confidence in our businesses and a strong balance sheet that allows us to move quickly when we see good opportunities. And we have a history of executing when they arise. To the extent that we don't see attractive investments that are actionable, we expect to return excess capital to shareholders through share repurchases or dividends. As Chad described in greater detail, we repurchased over 5% of our outstanding shares through opportunistic share repurchases since we began repurchasing shares in the third quarter of 2024. Between cash dividends and share repurchases, we have returned over $25 million or approximately $0.80 per share to shareholders in the last 4 quarters. This morning, we announced that our Board of Directors has approved a 4 million share increase in our current repurchase authorization, bringing our current share repurchase authorization to 4.7 million shares in the absence of growth investments with attractive returns, we will continue to use this authorization to opportunistically repurchase shares and return capital to shareholders. And this new authorization will give us the flexibility to move quickly as opportunities arise. Throughout our company's history, we've taken a balanced approach of investing in long-term growth opportunities while returning capital to shareholders, and you should expect us to continue to do both going forward. It won't be all of one or the other. We continue to pursue growth opportunities in both of our businesses, and we're generally opportunistic investing where we see value and attractive returns, whether it be in new deals or in buying back our stock as we've done recently. Finally, tomorrow marks an important milestone in our history. On November 1, 1935, my grandfather, Ben Marcus, founded, but became the Marcus Corporation with the purchase of a single screen movie theater in Ripon, Wisconsin. During the month of November, we will celebrate the company's 90th anniversary, and our theme for the year has been the spirit of entrepreneurship. One of the guiding principles that my grandfather and Dad instilled in all of us in our company's future will be built on that same entrepreneurial legacy. We are called on to push, change and evolve because as we know, from our 90 years of history, the only constant has changed. I'm excited to celebrate our 90th anniversary with our associates who, by the way, my grandfather taught us, our most important asset. As we both recognize our achievements and look ahead to a future that will continue the legacy of these great businesses for many years to come. Before we open up the call for questions, I want to conclude my remarks by saying thank you to all the hard-working associates of the Marcus Corporation. I don't want to ever take for granted what each and every one of them does to contribute to the success of both of our businesses. Thank you. With that, at this time, Chad and I would be happy to open the call up for any questions you may have. Operator: [Operator Instructions] Our first question today comes from Eric Wold with Texas Capital. Eric Wold: A couple of questions. You mentioned -- on the hotel side, you mentioned that you had rate growth in 4 of the 7 hotels in the quarter. I guess for the other 3, is that something that was more of a short-term issue? Is that something that's kind of been more than 1 quarter where you haven't had rate growth at those 3 hotels something that's we think more of a competitive issue in those markets. I don't want to lean on that too much, but I just want to get a bit more of a -- something that's been short term or something that's been more than a quarter. And is that something you think that's more of a competitive issue or something that may require an investment as you look in the next couple of years. Chad Paris: Thanks, Eric. Yes, I mean, at the 3 hotels where we didn't see ADR growth, I would say there are more market dynamics. Two of them have been persistent market dynamics that are more generated by supply in the market. And in the third, it really was just a little bit of softening very recently in demand. But I don't know, 2 of the 3, I don't see significant CapEx investments. We have 1 of those 3 that we're going to be doing some small refreshes too, but nothing anywhere near what we've done at the 3 major properties over the last few years. I would describe it as a more normal course refresh that is embedded in our $50 million to $55 million of CapEx that we expect for next year. Eric Wold: Got it. And on that $50 million to $55 million, is that considered including refreshes, is that considered, I guess, more of a maintenance CapEx number kind of going forward? Anything that would be kind of unusual in that number? Chad Paris: It's not 100% maintenance. There is some ROI that we're doing in that, and we've done some of that this year in the theater business, and there'll be some of that again as we look forward in both of the businesses. There's always some of those types of activities, but it is primarily maintenance and ROI capital. Eric Wold: Got it. And then just last question. I know you touched on this a little bit with the capital return comments. With the increased share repurchases this year and the new buyback authorization, should M&A -- I know obviously, you had some increased free cash flow with the reduced CapEx next year and presumably going forward, but should M&A opportunities come up on either the hotel or the exhibition side. Can you talk a little bit about your comfort taking on leverage to the balance sheet? And kind of what's kind of your comfort level on leverage ratio, and then also, should the equity get back to a more, whatever, in your mind, be a more appropriate valuation, would you use equity for M&A in the future? Or is that, in your view, the more appropriate way to go about that? Chad Paris: Yes. On the first part of your question on M&A, I think if we have something that's actionable, we will move on it. We have been allocating a lot of capital to share repurchases lately. And at the current leverage at 1.7x we're very comfortable, and we actually have a target leverage that's a bit above that, closer to 2.25% to 2.5%. So we have some capacity to do that. And if we found the right type of M&A opportunity, we have some flexibility and can flex up a bit and then bring ourselves back down to somewhere in that target level, but very comfortable with where we're operating right now, and there's actually some room to do a bit more and continue to invest. Gregory S. Marcus: As for whether we -- taking on more leverage and doing things, we have that balance sheet capacity, as Chad pointed out. Would we use equity? Yes, I mean, look, we have a history, if you look and you know this, Eric, if you go back, when we think there's -- when we think that we -- the opportunity to return capital to shareholders through stock repurchases make sense, we do that. When we have -- when we believe the stock is at a price where we think it's appropriate to use it as capital, we do that as well. And so it will just depend on market conditions. We are not a company that just says, well, we programmatically buy stock, no matter what the price is or we're going to sell stock to grow just to raise equity. We will do it based on where we think the price is and whether it makes sense. Chad Paris: And just to be clear, at the current levels, obviously, we're in the market and we were repurchasing shares during the quarter. And so that's kind of the level that we're at right now, you wouldn't see us issue equity at the current share price to go do M&A. Operator: Our next question comes from Patrick Sholl with Barrington Research. Patrick Sholl: Just curious on concessions. Just with the current macro environment, have you seen any change in how consumers are like -- just consumer uptake or I guess, hesitancy with regard to price increases and the ability to offset the inflationary pressures there? Chad Paris: Pat. No, we haven't really seen a lot to speak of over the summer in changes in consumer buying patterns. The hit rate and the basket sizes have been pretty consistent. We've moved through inflationary-type price increases. Nothing overly aggressive as we've seen in our per caps. And there's actually been more propensity for our customers to buy merchandise associated with concession purchases. That's been a nice part of the uplift. But nothing that we've seen that would tell you there's a change going on in the willingness to buy concessions. Patrick Sholl: Okay. And then maybe just a question on the M&A market. Just kind of with the, I guess, softening macro environment in hotels and maybe some stability in the film slate. I'm just kind of curious how you're seeing like the various macro factors kind of affecting the M&A market in those 2 segments? Gregory S. Marcus: It feels like there's some more trends. I mean, look, if you look at it from a macro level and you back up, the market is still very, very sluggish in terms of transaction volume. But it's -- if I -- how to feel right this minute, it's starting to feel like there's some more stuff happening. I don't think we're seeing so much selling pressure from anyone feeling the pressure to sell from performance standpoint yet. I think you get people who just own things too long, and that's their issue. The thing I think we bumped into and by the way, if interest rates -- as they come down, that will help because, again, I think one of the bigger challenges that we bump into is if you wrote a pro forma to buy an asset and you had an exit cap that's significantly below where cap rates are now, you're going to -- and you don't have to sell, you're going to hold on as long as you can. And so since the economy has held up, we're not seeing forced -- people feeling pressure and forced sales. You're seeing people where now they're starting to say, well, okay, I'm going to make the reinvestment in the next cycle, because we've got -- because PIPs are coming up on people, am I going to -- am I going to want to reload that, and that's probably where we're seeing some opportunity. It's more along that. We're not feeling that as you might be alluding to some economic pressure as the economy slows down. Operator: Our next question comes from Andrew Crum with B. Riley Securities. Andrew Crum: So I think you talked about expectations for admission per cap growth over the next few quarters. Does that incorporate or contemplate any further changes to your pricing strategy? And if so, what are those? And any early learnings from the pricing increases you took at the beginning of 3Q? Chad Paris: Andrew, yes, the -- it does not contemplate a lot of significant changes prospectively beyond what we did in the third quarter, it's more the annualization benefit and tailwind that we'll get from, frankly, flipping from a headwind on some of the discount programs that we've been comping for the last year to now moving to some strategic pricing moves that have increased pricing and that becomes a tailwind. During the third quarter, we had blockbuster pricing on a number of films that our pricing approach and that evolved a bit throughout the quarter in terms of the length of period that we had blockbuster pricing on and Everyday Matinee evolved a bit during the quarter. But I think we've hit a level that makes sense. Pricing, as we talked about last quarter, continues to be an area where the industry has done various experimenting. And so we'll continue to watch what others are doing. But in what we did in the third quarter, it is having the effect that we expected it would. Andrew Crum: Got it. Okay. And then you guys discussed the composition of the fleet in 3Q having a negative impact on your theater admissions. As you look at 4Q, how are you viewing mix? Is it a positive for your circuit negative or too tough to tell? Chad Paris: Yes, I'll start first and let Greg add on his thoughts. I mean I think it's a little bit tough to tell. It's easy to forget that we had a Moana film in the fourth quarter last year, and we don't have something quite like that. We do have a couple of family films here coming up in the quarter. And we have an Avatar, which we didn't have last year. So there are several puts and takes. It's frankly tough to tell on mix. Gregory S. Marcus: It's so hard. It is really hard to tell. We've never know. I'm glad we got Zootopia, glad we got Wicked, that will play, that should play good in our markets. SpongeBob, I'm a fan. So -- but we'll have to see how it goes. Operator: [Operator Instructions] We'll move to our next question from Mike Hickey with Benchmark. Michael Hickey: I guess first, Greg, obviously, I heard your prepared comments on '26 for both your segments, sounded pretty bullish actually encouraging. Just would love to get sort of your off-script thoughts Greg on the growth opportunity you see from theaters and hotels and any catalysts or major drivers. Obviously, you list a lot of films that sounds encouraging. Maybe something that's very relevant to your demo. And on the hotel side, I don't know if the mark, it seems like a really interesting project that you guys are doing, if that could be a catalyst or any other initiatives that you think can move the needle for you guys across your 2 segments in 26. I've got a couple of follow-ups. Gregory S. Marcus: Sure. Look, on the theater side, you know me, Mike, I'm not -- I tend to hate to try to predict how things are going to go. It's -- I always go down to let's just count the number of films, and that will give us a range. And then I don't know what -- and then in some years, it's going to be better or some years in some periods, it will be not as good. I mean I keep reminding myself, oh, yes, Memorial Day this year was the biggest Memorial Day on the history of the movie business and then summer slowed down. So you just don't know. But I thought it was a really interesting data point. Look and say, well, look at the number of franchise films next year pretty much like this year, I think maybe one less. But if you look back at the historical grossing of what the franchise zones that are coming around this time certainly more robust than we had in '25. So I'm not going to ignore that stat. Now go to bed, feeling good about that, but again, always hard to predict. On the hotel side, look, we've made a lot of investments that should continue to bear fruit for us, which is great. There's that old saying that old smells and new sales. And so that's very good for us, and we should see that. I don't want to overplay the Mark thing. The Mark was done opportunistically, frankly. We have -- we've been very disciplined about the amount of investment we want to put into the here into the Milwaukee Hilton. And in -- we were -- we had made the decision that we weren't going to renovate the entire property. We were going to actually close 176 keys. And we looked at it -- but we weren't going to close immediately, and we had demand for the rooms. And so while there's demand for the rooms, we're not going to actually make much of an investment in it. We're just going to separated out from the Hilton system basically that will run as an independent. And it's a wait -- if it's there, what's -- well, let's get some cash flow off of it while it's there, while we figure out where it's going. And if the city and the community decides they want to go in a certain direction because it will involve all of them that any further investment in hotel, frankly, is going to require a subsidy. And if that's going to happen, then we're [indiscernible]. If not, that will become a different use. But while it's waiting let's warehouse it and get some cash flow from it. Chad Paris: Mike, I just want to add 1 comment on the '26 slate in terms of film mix. The one thing that does stand out is when you look at family content next year and you look at the franchises, we have Mario Brothers, we have a Toy Story, we have Minions movie, we have Moana, we have a Jumanji. I think the family mix comparatively to '25 is very helpful for our circuit. Michael Hickey: Then I guess given that you guys seem optimistic on growth, how should we think about the bottom line here, EBITDA growth potential operating leverage and free cash flow conversion? I know that's come up a lot, when you think about, I guess, catalyst to your valuation. I think free cash flow in '26 would probably stand out as the largest. Chad Paris: Yes. No doubt. I mean just by virtue of the CapEx coming down, our free cash flow is going to grow significantly next year. And then I think as the -- the highest leverage is in the theater business. And so if you assume the hotel business continue steady as you go as it has with a stable economy, if you believe the '26 slate will grow, our operating leverage in theaters has historically contributed around 50% to the bottom line in top line growth. So we continue to focus on managing our cost structure and getting better at managing these buildings when you're in the troughs of the content supply, that's really critical to holding that type of contribution margin because the peaks and valleys have been pronounced the last couple of years. But yes, the EBITDA should flow through with what the top -- if the top line grows, as you would expect for the slate. Michael Hickey: Last question. Obviously, recent news that Mark is retiring, sad to hear that 55 years, you never hear that sort of tenure with the company, so congrats to him. Just curious on the transition plan, and if this could also be a potential catalyst for maybe a change in strategy and how you manage your theater asset? Gregory S. Marcus: Well, we are looking -- we're in the middle of a search for the new leader. We're looking at internal and an external candidates. We have both. And the -- with the new leader, look, the idea is that we hopefully will see new ideas and new approaches. And yes, look, we're celebrating our 90th anniversary. I don't think that we're going to see like -- we're going to wake up with a wholesale change as to how we approach the business. But I like the idea of new ideas and bringing out new approaches. And we will -- and we're always trying to do new things to figure out what will work. And most of it doesn't. But every one in a while, you find one and we'll run with it. I can't say It's like the surprise movie. I never know what it's going to hit, but there always is one. Chad Paris: Thanks, Mike. Operator: At this time, it appears there are no other questions. So I'd like to turn the call back to Mr. Paris for any additional or closing comments. Chad Paris: We'd like to thank everybody for joining us today, and we look forward to talking to you once again in late February when we release our fourth quarter results until then, thank you, and have a good day. Operator: This concludes today's call. You may disconnect your line at any time.
Operator: Good day, and welcome to the Federal Realty Investment Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jill Sawyer, Senior Vice President of Investor Relations. Please go ahead. Jill Sawyer: Thank you, Megan. Good morning. Thank you for joining us today for Federal Realty's Third Quarter 2025 Earnings Conference Call. Before we get started, a reminder that certain matters discussed on this call may be deemed to be forward-looking statements. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results, including guidance. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued this morning, our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and operational results. Before we begin our prepared remarks, I want to note that Don Wood, our Chief Executive Officer, is temporarily away due to a recent loss of an immediate family member. Our thoughts are with Don and his family during this very difficult time. In his absence, our Chief Investment Officer, Jan Sweetnam, will be reading Don's prepared remarks. In addition to Jan, joining me on the call today are Dan Guglielmone, Chief Financial Officer; Wendy Seher, Eastern Region President and Chief Operating Officer; as well as other members of our executive and senior leadership team, including Dawn Becker, Jeff Kreshek, Stu Biel and Melissa Solis that are available to take your questions at the conclusion of our prepared remarks. And with that, I will turn the call over to Jan Sweetnam. Jan, please begin. Jan Sweetnam: Thanks, Jill, and good morning, everybody. Following are Don's prepared remarks: Best leasing quarter we've ever had, ever. And that's saying something given the leasing strength over the past few years. 727,000 feet of comparable space written at $35.71, 28% more annual cash rent than the previous tenant. 2/3 of that space was for renewals with de minimis capital required. Of the remaining 1/3 related to new tenants, over half related to space that is currently occupied but for which a more productive tenant executed a lease a year or 2 or even 3 early in order to lock it up. There's no better evidence of the attractiveness of a shopping center to retailers than that, and it's one of the best ways in our business to assure an increasing stream of cash flows well into the future. Wendy will talk about core leasing a bit more in a few minutes. Strong comparable operating income growth of 4.4% in the quarter was equally encouraging and led to FFO per share of $1.77, despite the absence of capitalized interest and operating costs at Santana West that negatively impacted FFO per share by $0.04. That drag will begin to dissipate in this fourth quarter and in 2026 and 2027 as tenants in the 90% leased, soon to be 95% leased building continue to occupy and work through free rent periods. Operationally, this was a really strong quarter. And based on what we see thus far in October, should allow us to close out 2025 strong. In terms of development and redevelopment, residential construction in Hoboken, New Jersey and Bala Cynwyd, Pennsylvania are moving along nicely on or under budget and on time with leasing to begin in early 2026 at Bala Cynwyd. During the third quarter, we broke ground on 258 new residential units on the last surface parking lot at Santana Row, committing capital of roughly $145 million. Those three projects, Hoboken, Bala and Santana, will require roughly $280 million of capital, all in fully amenitized and proven environments and should yield 6.5% to 7% unlevered. There's more to come in this component of our business in 2026. Current conditions suggest market value should be 150 to 200 basis points inside those returns. We're committed to realizing that value over time as we've demonstrated with the sale of Levare at Santana Row earlier this year, Pallas at Pike & Rose, which is currently under contract for sale and should close right around year-end and the current marketing of Misora at Santana Row. On the acquisition front, I really want to thank those of you that made the trip to Kansas City to join us for our investor tour of Town Center Crossing and Plaza in Leawood earlier this month, we're off to a great start there from a cash flow and value-enhancing perspective. And I just want to reemphasize the two points that I think became apparent to investors and analysts on that trip. First, that we are not sacrificing quality by expanding our geographical footprint. The growth prospects for these investments exceed both the retail and residential assets we're selling, and it is highly likely that the exit cap rates for the shopping centers we're pursuing will tighten considerably based upon our re-tenanting and redevelopment. And second, that this is not a change in strategy for Federal. Our deep and experienced team is doing what it has always done, lease it better, both from a merchandising and strength of lease contract standpoint, create a more inviting physical space that lengthens stay times and increases spend and intensify the land with more retail or residential GLA, where and whenever economically feasible. Same business plan and strategy, just on different land with the same characteristics. The affluent consumer is underserved, the centers are big and dominant and existing relevant tenants have proven that it's the place in the submarket to be. You might have also seen that we closed on the acquisition of Annapolis Town Center in the A+ location off State Route 50, which heads into D.C. and Interstate 97, which takes you to Baltimore and Annapolis, Maryland. We bought the property for $187 million at a 7% unlevered return with an anchor and shadow anchor foundation grounded by very successful retailers, Whole Foods, Lifetime Fitness and Target, we expect to be able to enhance the surrounding merchandising with better and more productive tenancy, enabling higher rents. We're very excited about this addition in our core market. Next up is another large and dominant center in a growing Midwestern submarket that we expect to close in this fourth quarter. More to come on that one soon. So that's about it from my prepared remarks. Enhanced internal and external growth using all the tools at our disposal is the name of the game. Quarters like this third of 2025 increase my confidence of doing so. Let me now turn it over to Wendy to expand on the leasing environment. Wendy Seher: Thank you, Jan, and good morning, everybody. Exceptional performance for the quarter, highlighted by record leasing volumes that build significant forward momentum as we conclude the year and look ahead to 2026. As reflected in Don's comments, we successfully recorded a record 123 comparable deals at impressive rent spreads of 28% over in-place prior rents. Our operational metrics are in top form, evidenced by strong occupancy, healthy margins and reduced controllable expenses, all underscoring a solid financial performance. Outstanding results overall for the quarter. Occupancy in the comparable pool continues to show momentum as our occupied rate climbed 40 basis points last quarter and 20 basis points year-over-year to 94%. On an overall occupancy basis, including all of our shopping centers, we stand at 93.8% today. Keep in mind, our two recent acquisitions, Leawood and Annapolis were roughly 91% and 85% occupied at closing, therefore, impacting total overall occupancy as we head into the fourth quarter. We encourage investors to focus on our comparable occupancy metrics, which more accurately reflects the continued strength and momentum across the core portfolio. Turning to our leased rate. Our comparable leased rate stands at a very healthy 95.7%. We expect the figure to grow and show positive momentum into year-end, driven by a strong pipeline, including over 175,000 square feet of new leases currently in process for vacant space. This represents roughly 70 basis points of incremental lease rate opportunity. While the third quarter saw record leasing volume, a significant portion of this activity was for space which currently was occupied. This is a testament to the durability of the centers and reinforces future stability in our occupancy metrics, providing embedded growth even if it doesn't immediately lift the recorded rate. By pre-leasing space, we effectively reduce downtime, we smooth out quarter-to-quarter revenue and strengthen occupancy over time. This proactive approach is a major focus across our operating teams. We continue to see broad-based demand for our quality real estate with a variety of best-in-class names and categories such as [ Chopt, Alo, ] Burlington, Arhaus and Ross to name a few, and we continue to upgrade our retail lineup, including within our more recent acquisitions, Virginia Gateway, Pembroke and Leawood to be specific, which with names such as COACH and LEGO, Warby Parker and Bluemercury. We were able to drive rents and earn a return on our capital there. Merchandising and retail sales performance is our focus. LoveShackFancy just had their grand opening this past weekend at the Grove in Shrewsbury. Attracted by the addition of our small-format Bloomies concept, LoveShackFancy opened to a line out the door and had their best opening ever of their 25 locations. Merchandising matters in non-commodity centers. Our acquisition of Annapolis Town Center this quarter is a prime example of our disciplined acquisition strategy. 479,000 square foot mixed-use retail property confirms our focus on acquiring high-quality dominant centers in affluent markets. With an 85% current occupancy rate, we expect the addition of Annapolis to provide meaningful growth with strong existing anchors like Whole Foods, Target and Life Time and featuring popular retail brands such as Sephora, RH, Pottery Barn and Anthropologie, a perfect addition to our Maryland portfolio. Expect us to provide a number of tenant announcements for Annapolis on our next call. And with that, I'll turn it over to Dan. Daniel Guglielmone: Thank you, Wendy, and hello, everyone. Our reported FFO per share for the third quarter of $1.77, above consensus and at the top end of our guidance range of $1.72 to $1.77. Comparable POI growth for the quarter was 4.4% on a GAAP basis and 3.7% on a cash basis. Both metrics outperformed our expectations, primarily due to higher-than-forecasted revenues in retail, residential and parking. As a result, we will increase guidance for both 2025 FFO per share and comparable POI growth. More to come on that later in my prepared remarks. But first, an update on the balance sheet. We continue to have significant liquidity of approximately $1.3 billion at quarter end, comprised of availability on our $1.25 billion unsecured credit facility and over $100 million of cash at quarter end. Amid an active capital allocation program, our balance sheet remains strong. Third quarter annualized net debt-to-EBITDA is solid and stands at 5.6x, reflecting the purchase of the Leawood assets and our fixed charge coverage stood at 3.9x. We continue to look to execute on our capital recycling program with $400 million of assets at various stages in the asset sale process, with roughly $200 million expected to close by year-end or shortly thereafter, and another $200-plus million forecasted to close in the first half of 2026. Behind that, we have a pool of over $1 billion of noncore assets under consideration to be brought to market in 2026 and beyond. Of that total, roughly $1.5 billion pool, about 1/3 is peripherally located residential with the other 2/3 being noncore retail. With estimated blended yields targeted in the mid- to upper 5% cap rate range and blended unlevered IRRs inside of [ 7%, ] very attractively priced capital. While leverage may fluctuate modestly from quarter-to-quarter, given the inherent timing differences between acquisition and sale transactions, we expect to maintain a long-term net debt-to-EBITDA ratio in the low to mid-5x range. From a flexibility perspective, with leverage metrics where they are and over $1.5 billion of asset sales in process and under consideration, we are very well positioned to continue to be on offense with respect to capital deployment. Now on to guidance. As mentioned earlier, with a third consecutive beat and raise, we are raising our forecasted range for FFO per share, excluding the new market tax credit, more akin to a recurring FFO to $7.05 to $7.11. This represents about 4.6% growth on this recurring basis at the midpoint over 2024 and roughly 4% to 5% at the low and high end of range, respectively. Including the onetime new market tax credits in these figures, our NAREIT-defined FFO range increases to $7.20 to $7.26, which represents 6.8% growth at the midpoint over 2024. This increase is driven by $0.01 of net operating outperformance during the quarter and roughly $0.01 accretion from the Annapolis acquisition for the quarter, which translates to $0.03 to $0.04 on an annualized basis. Given another strong result for 3Q, we are increasing our forecast for 2025 comparable POI growth to 3.5% to 4% or 3.75% at the midpoint. And that's 4% when excluding prior period rent and term fees. We expect comparable occupied levels to be in the low 94s by year-end, given the deals signed to date and the continued robust pipeline of leasing activity, which continues to have momentum even after a record third quarter volumes. Retail tenant demand for our portfolio is showing no signs of abating to date. We do have one other acquisition that we have under contract that should close before year-end of roughly $150 million. Although given the expected closing late in the quarter, we do not expect it to materially add to 2025 FFO. One thing to keep in mind, the acquisitions we have completed so far this year, including the one currently under contract, will total over $750 million at a blended initial cash yield of roughly 7%, a GAAP yield north of 7% and initial blended occupied rate of just 88%. These are high-quality assets with clear leasing upside, which will enhance growth in 2026, '27 and beyond. The implied FFO guidance for fourth quarter 2025 is $1.82 to $1.88 and represents 7% growth year-over-year at the mid-point. While we won't be providing formal 2026 guidance until our fourth quarter call in February, we do expect a strong year operationally. We're executing from a position of strength, we're investing strategically maintaining balance sheet discipline and setting ourselves up for another year of meaningful growth ahead. Now before I hand the call back to the operator [Operator Instructions]. And please, no multipart questions. If you have additional questions, please re-queue. And given the really tough news that Jill shared earlier, we completely understand that many of you may want to send a message of support to Don and his family. However, we respectfully ask that you refrain from expressing condolences on this call, so we can focus on the discussion on Federal Realty and its third quarter results and keep the Q&A segment of the call as efficient as possible. Thank you. And with that, operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Great. For the team, I guess. Dan, you talked about the dispositions and processing kind of a blended cap rate. But just curious if you can give any color on how the two main buckets, retail versus resi, compare given kind of early feedback on what may be kind of out there in the marketplace to test pricing. Daniel Guglielmone: Sure, sure. Look, we've got, as we mentioned, $400 million in the market now that's probably a little bit more skewed towards residential. Overall, the $1.5 billion, the 1/3 of the peripheral residential, 2/3 noncore retail. Pricing is going to be kind of in and around 5%, sub-5% for what we're selling on the residential, and it will be in and around 6 -- yes, low 6s, 6%, sometimes high 5s on a blended basis on the retail. And so blended, we should be in the mid to upper 5s overall. So I think a nice positive spread to where we're deploying the capital in and around the high 6s, low 7s on a cash basis and GAAP yields above that. Operator: The next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Dan, you mentioned you're not going to issue formal 2026 guidance, but you did talk about some of the factors, right, like Annapolis and the benefit that you'll see next year as well as the capitalized interest in Santana [indiscernible]. So can you outline kind of any sort of onetime or other topics that you've already talked about for 2026, just so we can get a sense of where the puck is going. What's the trajectory of the company and what the earnings growth next year could look like based on what you've already said? Daniel Guglielmone: Yes, good question. Thank you, Michael. With respect to onetimers, obviously, the big one timer really is what's occurred in 2025 with the new market tax credit. We would encourage folks if you want to understand kind of the true operational growth underlying the business is to exclude that onetimer in 2025 and focus on the $7.08 of kind of more of a recurring number. And in terms of looking forward, we don't have anything or expect to have any onetimers. Onetimers, we consider recurring numbers, as term fees. We think that's recurring. It's a part of the business. It's unforecastable, but we do not expect any kind of material differences from our current guidance, which we increased a little bit this quarter in the $5 million, $5 million to $6 million range. So it should be consistent with that. With regards to capitalized interest, you brought up -- we had about $13.5 million or expecting in the $13 million to $14 million range this year. We're not done. We don't have a precise number, but I think as a placeholder using kind of a $10 million to $11 million kind of level for capitalized interest is something you can use for now, but we'll provide more precision on that in February. With regards to growth, we don't have a precise number, but right now, at current guidance in 2025 the recurring number is in the mid-4s, 4.6%. I would expect that, that feels like it should be somewhat consistent with where we'd expect things to be next year as well on a recurring basis. Keep in mind, that's with about 150 to 200 basis points of headwind from the refinancing of our bonds in February that we're expecting. And so that's, call it, 5.5% to 7% underlying growth in the core business, which I think is -- we feel really, really good about. And so that's kind of, I think, the big numbers I would point you to. We do expect -- we only have $3 million to $5 million of incremental development POI contribution this year, that will be up higher next year into the double digits. We'll have a more precise number for you in terms of the 2026 incremental contribution on the following February. Operator: Our next question comes from Samir Khanal with Bank of America. Samir Khanal: I guess, Jan or Wendy, the spreads in the quarter were impressive, right, 28% cash spreads. I guess if you take a step back, how much of that is sort of true market rent growth that you're seeing in your portfolio versus maybe just sort of mix or tenant upgrades. Trying to understand if these spreads are sustainable. And if there's sort of this inflection of market rents that are taking place for your type of assets. Wendy Seher: Sure. There's no question that the 28% is a strong number from us. As you kind of -- the way I kind of look at it is more over a 12-month period, which is more we're seeing kind of in the mid-teens. So -- and continue to be aggressive, and it makes sense, right, because our leased and occupied rate continue to increase, so we're able to drive rents at that rate. I think that it can be lumpy. So not every quarter will be 28%, but I think that we are definitely seeing some ability to drive rents. And like I said, that trailing 12 months should provide us in that mid-teens as the results will play out in the fourth quarter and into the first quarter. Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Dan, on -- out at Santana West, you had that office tenant that, whenever, didn't take the space this year, whatever the take space, making it ready that got delayed, is that tenant looking to be on track for '26, meaning like should we expect sort of early in '26 that, that revenue would start flowing? Or is that -- could that be further delayed from a revenue recognition standpoint? Daniel Guglielmone: Yes. Our expectation is in line with our revised guidance earlier in the year that this fourth quarter, we will begin recognizing straight-line rent. And so they'll be -- we'll be recognizing on PwC, which is roughly the 40% anchor tenant in the building will be recognizing straight-line rent. And that's why -- that's one of the drivers of kind of the incremental POI that we'll see from our development pipeline, our development portfolio in 2026. So in line with our expectations and will be a driver of growth next year. Operator: Our next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Maybe one for Jan, just as it relates to sort of the investment pipeline and outlook. I know in Kansas City, you talked about the upside opportunity in some of these larger open-air centers similar to town center versus maybe the premium the market is putting on more grocery anchor. So can you just talk about your thoughts on maybe the disconnect between those two types of properties? I mean, is it expectations for higher foot traffic at grocery-anchored center that's maybe driving down that cap rate? Or is there just a a broader disconnect versus the types of assets like a town center or an Annapolis that you all are targeting? Jan Sweetnam: Yes. Thanks, Michael. Good question. Interesting time in the market. There has historically been for at least the last 10 years, strong demand for grocery-anchored centers and cap rates have gotten bid down to relatively low levels. It sort of feels like they've flattened out a little bit. And there just has not been as much capital on the market. In fact, really recently, there's been very little capital in the market for larger transactions. And so the few transactions that came to the market, there was good bidding for it, but the yields were higher because just there wasn't that much competition for it. And so this last -- in the second half of this year, I think what we've seen is there's a lot of large centers that have come to the market. There's a lot of -- there's more capital in the market chasing those. It still feels like there's a good supply-demand equilibrium there. But it's just that -- we still see that spread happening here simply because the larger centers are -- that they can be more complicated to execute. There's a lot more leasing that needs to be done there. And I just think we are -- one of the reasons we're really interested in it is we think we get a great risk-adjusted yield in buying these assets that are a little bit more complicated. They're larger, they're harder to operate because we've just got a great leasing team. We've got such great relationships with the merchants, and we get so much intel on these things before we actually start bidding on them, no, let's put them under contract. And so we still think that spread is going to be there, it has not disappeared. Operator: Our next question comes from [ Simi Rome ] with Barclays. Unknown Analyst: I was wondering if you could elaborate a bit on the debt maturity schedule and particularly the $200 million Bethesda Row mortgage maturing in December, I saw there's two 1-year extension options there. So I was just wondering what the plan is. Daniel Guglielmone: Yes. With regard specifically to Bethesda Row and I'll talk a little bit more broadly about our maturity schedule going forward, but Bethesda Row, we will be extending that for another year, exercising the first of those two options, which will take us to the end of 2026. We have the flexibility to push it out to the end of 2027. It's a low leverage. It surely is imminently financeable at the end as well. So really no concerns there. We did refinance our Azalea loan, which has a maturity of tomorrow. And so that's been refinanced at very attractive rates in the kind of on a swap-to-fixed basis, it will end up in kind of the below 4s. And then with regards to the maturity we have in February of our $400 million of bonds with the 1.25%, we've got options, and it's good to have options. Whether it be in the bond market, whether it be in the bank term loan market, whether it be in the convertible market to have those options is really kind of what -- being Federal and having our high investment-grade rating kind of allows us to do to be able to be opportunistic and nimble with regard to how we plan to refinance that, and we'll look to optimize it. And so more to come on that. Obviously, in February, there will be more color on exactly how we execute it. Operator: Our next question comes from Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: A question on your physical occupancy. I note you're still about 160 basis points, I believe, below peak levels. And maybe, Wendy, if you can give some sort of update on how quickly you see that trending? And is there a chance that we could surpass that level over the next 18 months or so? Wendy Seher: Thanks, Floris. I think what we're seeing is in terms of our ability to drive that occupancy rate up, I'm feeling good about the anchor side of it, I think, is where we have more room to push that number. And I think you're going to see that, as I mentioned in my comments, was that 175,000 square feet of space that we have, really finalizing and signing leases in the next quarter for spaces that are currently vacant. So you're going to see that push up towards the end of the quarter. And I think on the small shop side, we're over 93% leased right now. So I think we're going to use that as an opportunity to continue to drive rents. It could go up a little bit, but we're going to -- we like a little bit of that frictional vacancy, as I call it, that we can drive rents. But I think you're going to see it more increase on the anchor side, which will overall increase our occupancy. Operator: Next question comes from Cooper Clark with Wells Fargo. Cooper Clark: Great. Curious how Annapolis is funded and how that ties into the $0.01 accretion for 4Q and $0.03 to $0.04 for the full year? Wondering if that $0.01 accretion is combined with the $200 million of sales to fund or just trying to figure out how that $0.01 is inclusive of sales to close by year-end or not? Daniel Guglielmone: Yes. Look, it's somewhat fungible. And look, we have a big balance sheet that allows us the flexibility to fund. Ultimately, we've got capacity on our credit facilities and our term loans. Temporarily, we fund it on that basis, cash on hand. Ultimately, on a long-term basis, it will be on a permanent basis, be funded with the asset sales. So the $0.01 accretion is really the spread between kind of the long term, basically yield or the initial yield day 1 and the next 12 months relative to -- we're selling stuff in the initial yields in the mid- to high 5s. And we're in the -- on a GAAP basis in the 7s, that's how you get to the $0.01 accretion on a quarterly basis for the fourth quarter and $0.03 to $0.04 on an annualized basis for the full year. Hopefully, that answers your question. It's a good one, Cooper. But hopefully, that answers it. Operator: Our next question comes from Greg McGinniss with Scotiabank. Viktor Fediv: This is Viktor Fediv on with Greg McGinniss. As you are now in an active external growth mode, could you share some details on current competition for the assets you target and how it is impacting cap rates overall? Just trying to understand whether the pool of assets that check all the boxes for Federal are shrinking or not. Daniel Guglielmone: Jan, do you want to take that one? Jan Sweetnam: Yes, I'm not sure I totally heard the full question. Is the question in terms of what does the pool of future potential acquisitions look like? Was that the question? Viktor Fediv: Yes, yes, as a result of current dynamic and competition for the assets, yes, just trying to understand the size of the pool, yes. Jan Sweetnam: Yes, yes. Got it. All right. So the -- it sort of feels like we're in continued equilibrium. And what I mean by that is, go back 12 months or 9 months ago, there weren't a lot of large transactions that we were interested in that were on the market. And there weren't a lot of people chasing those type of assets. And so it felt like it sort of was an equilibrium. And today, there was a lot of large transactions that came on the market in April, May, June that were also matched by more capital coming in looking at those acquisitions and those possibilities. And so it feels like we're sort of -- while there's more competition out there, I think it's more work for the sellers trying to understand who's real in the bid sheet and of the ones that are real, who are the ones that really stand out as being able to work through issues and be at the closing at the end. And as we think through, we think we compete very well on that basis. So just from a competitive standpoint, it feels like we're sort of in the same position from an equilibrium standpoint. We'll have to see what happens in '26 and beyond that. But we would expect to continue to see more large transactions coming to the market later this year, beginning of next year, and we think we're in a pretty good competitive position to make a play for. Daniel Guglielmone: Yes. And look, I think that another thing that is not kind of, I think, fully appreciated, I guess, is the skill set that we have with Federal Realty, whether it be in our leasing capability, our relationships with tenants, our ability to add placemaking and other things that enhance the operations and productivity of the assets that we buy. A lot of these assets are under-managed. And they're not -- it's not easy. It's not low-hanging fruit, and you need a really, really good operator to drive those kind of results. And I think that's a competitive advantage we have over much of the capital that we're competing with. And we can do things that others can't in terms of driving POI upside and NOI upside at these potential acquisitions. Operator: Our next question comes from Craig Mailman with Citi. Daniel Guglielmone: Craig, we don't hear you. You're on mute? Okay. We'll go to the next question. Operator? Operator: The next question is from Ravi Vaidya with Mizuho. Ravi Vaidya: Can we discuss the SNO pipeline? How much do we have in total rent that's embedded in that pipeline? And what's the projected time line for this to come online? Do you think it will compress from here on out? And -- or is there room for this to expand further as occupancy grows? Daniel Guglielmone: Great question, Ravi. And Craig, re-queue, we'll get to your question, for whatever the technical difficulty. We didn't hear you, but please re-queue so we can -- we want to hear from you. Ravi, great question. SNO is going to be about $20 million in the comparable portfolio and another $18 million in kind of the to-be-delivered portfolio. So $38 million in total. In terms of about 1/4 of that will come online or on an annualized basis, begin and commence in the fourth quarter, about, call it, 60% should be in 2026, and the remaining 15% should occur, call it, in 2027 for the most part. The -- probably of the 60% next year, roughly probably 3/4 of it is going to be -- call it, 70% to 75% should be in the first half of the year. Obviously, SNO has become a -- it's helpful for you guys from a modeling perspective. It only tells half the story. I mean when you look at SNO, you have to look at the other side of that's filling the top of the bucket, SNO. What is the leaks in the bottom of the bucket, what is your credit reserve? What's the credit profile of your tenancy? I think that, that needs to be looked at in tandem. So I would encourage you guys to the extent that SNO is important to you, that you look at both sides of that. With regards to our SNO, given what Wendy had indicated, we expect our lease rate to grow into the fourth quarter and into the beginning of 2026. That should grow our spread between our leased rate and occupied rate, both of them should trend upwards, which is what you want. I think that's more important, the direction of your occupancy metrics than necessarily what the spread is between the two. We will look to -- it may increase up towards 200 basis points, but our objective is to tighten that as much as we can and get into kind of historical levels in the low hundreds, 100 to 150 basis points, that's obviously kind of where we'd like to be because that shows efficiency in getting tenants open. And it is also an indication about credit quality of your tenancy, if you kind of can maintain a very, very tight SNO as everyone likes to say. Operator: Our next question comes from Craig Mailman with Citi. Unknown Analyst: This is [ Sydney ] on for Craig. I think he was having some technical difficulties. So Wendy, you mentioned that tenants are buying for currently occupied space 2 to 3 quarters and years ahead of expirations now. Is this a significant trend that you're seeing? Or is this more anecdotal? And how much of this activity actually drive the cash spreads on new leases during the quarter? Wendy Seher: Yes. Thank you for the question, [ Sydney. ] When I look at what we've been doing over the last several quarters, you can see that our rate of new deals that are being basically signed up for space that's already occupied has continued to tick up. So maybe it's more in the -- if you look kind of coming out of COVID, we were leasing -- we had more vacancy. We were leasing space that was occupied in the 30%, 40% range. Now we're up to 50%, 60% and this quarter was 70% of what we're leasing is already for occupied space. So I think that will continue as our occupancy and lease rates go up, and I think it's showing a healthy ability to reduce downtime and to level out our revenues quarter-to-quarter, and that's really what we're focused on. Operator: Our next question comes from Hongliang Zhang with JPMorgan. Hong Zhang: I guess a quick question for clarification. I think you talked about FFO growth being kind of in the mid-4s on a recurring basis going forward. Is that just for the current portfolio? Or does that also layer on potential future acquisition and disposition activity, too? Daniel Guglielmone: Yes. No, that's just kind of with what's in place for the most part. It reflects kind of expectations with Annapolis, but it does not assume any incremental acquisitions in -- or speculative acquisitions in 2026. That would be additive given our objective of doing acquisitions that are accretive from day 1, obviously, that is -- the mid-4s is kind of the baseline, and acquisitions will enhance that figure kind of going forward. And so there's no embedded assumptions on speculative acquisitions or dispositions in that number. Operator: Our next question comes from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Could you talk a little bit about the $150 million acquisition that's still meant to happen by year-end? If you could just kind of give us a general sense of kind of what it is, where it is? Daniel Guglielmone: Yes. Jan, you can add on. I'm just going to -- look, we'll announce that when we close on it. We are expecting -- we're under contract. It's roughly $150 million. As Don alluded to, it's kind of in a -- it's a -- it will be a similar market to a Leawood, Kansas type of location. We'll announce that when it closes as is our policy and kind of what we do on a normal basis. Jan, I don't know -- with regards to returns, it's going to be consistent with the returns that we've been achieving on the assets to date. Jan, I don't know if there's any other color, but I think that's what we're probably prepared to give you today, Tayo. Jan Sweetnam: Yes. No, I think you nailed it, Dan. I think the only thing I would just add or reemphasize is, it will -- it's going to be -- it's a great city, it's a great MSA. It fits unbelievably well in the affluent submarket and the affluent customer there is underserved, and there's pent-up demand in the marketplace. And I think that we'll be able to demonstrate that and talk about it once we close it. So that's what I would add. Daniel Guglielmone: Yes. And I'd add another thing that this is an off-market transaction, something that was sourced off market. And it fits perfectly within kind of the new Federal playbook in terms of top metros with a dynamic employment, dominant assets with a meaningful size and significant trade area, affluence, unmet retail demand and proven hits and checks all of those boxes. So we're excited about it and stay tuned. Operator: Our next question comes from Linda Tsai with Jefferies. Linda Yu Tsai: It sounds like including what you have under contract to sell, $200 million closing by year-end and another $200 million closing in 2026, you can be selling up to the $1.5 billion you've identified. Is it feasible to replenish with another $1.5 billion and recycle that as well? Just wondering about the length of runway for unlocking of value creation? Daniel Guglielmone: Yes. Look, it's a great question, Linda, and thanks. I think that the -- that gives us runway probably into '27 and the existing $1 billion gives us a runway. These are identified. We think that they'll attract interest from the market and so forth. Do we have more behind that? Is there -- yes. I mean we can kind of delve in. I think this is the near term, the next 18, 24, 36-month pool that we're considering. And is there more behind it? Yes. We need to be thoughtful. A lot of what we own in our portfolio has significant gains because we've created significant amounts of value in these assets. And so we need kind of to be thoughtful with regards to managing that. Ideally, we'd like to do that through 1031 exchanges. So that also is kind of a governor. But to the extent we need to accelerate because we see more opportunities in the market to deploy capital on the acquisition front or in redevelopments and so forth, we have that ability to accelerate and move up some of the pool to the forefront of activity in our asset sale process. Operator: Our next question comes from Kenneth Billingsley with Compass Point. Kenneth Billingsley: I just want to follow up. I think you made some comments on the leasing side. But looking at renewal rates of up 29%, GLA was the highest in the last 12 months. Can you maybe just discuss -- there weren't a lot of TIs in there. Could you just maybe discuss what formulated such a high increase on a renewal basis? Daniel Guglielmone: Look, we were able to push rents on the renewal. Look, timing of renewals, it ebbs and flows. We happen to have a significant kind of opportunity this quarter and those deals got done. There were some really strong renewal rates that we were able to achieve. And in terms of the volume of renewals, that happens, that will ebb and flow over time. I think there were a number of deals that we're able to get renewals at rates that were kind of above average. I would not expect us to maintain, continue to be driving renewal rates. I would look also on a trailing 12-month basis, maybe a little bit lower just because renewals tend to be a little bit lower. But I would look at kind of a more normalized number is looking at the trailing 12, which is in our supplement on the leasing page there. Operator: Our next question comes from Paulina Rojas-Schmidt with Green Street. Paulina Rojas Schmidt: This is a more big picture question. You have highlighted that the recently acquired centers have a very clear significant operational upside. Do you think these acquisitions, along with the broader market focus are a turning point for the company in terms of expected growth? Or you are more maintaining a growth trajectory, essentially replacing more mature centers for others that will drive the next phase of growth? And yes, I hope my question is clear. Daniel Guglielmone: Yes, I think I understand. And it's a good question, Paulina. Look, we are seeing kind of the opportunity to buy assets that are more raw material to kind of put into our -- kind of the Federal business model, where we can really drive merchandising, leasing, rents, invest capital on a disciplined basis to really drive and enhance returns for those assets. I think that, that is something that is additive. It's no different. Look, we are able to do that on our existing portfolio as well. But I think we see the opportunity to sell some of the assets that maybe we have done a really, really good job of harvesting the opportunity in the near term and see that as an attractive source of capital to redeploy into assets that can enhance our growth rate. But I don't see it as a turning point. I think it's more a continuation of what we do well. I think we're seeing an opportunity to harvest gains in our portfolio and redeploy them into -- and really to enhance our growth rate, but it's really just a continuation and an expansion of what Federal has always done. Operator: [Operator Instructions] We have a follow up question from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: As you guys look at some of the expansion markets, that you're -- obviously, Leawood and then whatever the next city is, do you see that perhaps retailers or rents haven't been pushed as much as they have in those markets? I'm just trying to understand like, obviously, everyone knows like the infill markets like Philly area or New York Metro or D.C. Metro and retailers know that, hey, you have to pay big rents, there's big incomes. But just wondering, as you go to some of these next -- some of the Midwest markets and just different legacy of ownership, do you find that the rents have been pushed in the same way? Or is there -- is that part of the opportunity? I'm just trying to understand if it's more just, hey, new area for growth, versus actually the way the markets have worked, they maybe haven't been as efficient because just different types of ownership that may have existed there versus in the coastal markets. Daniel Guglielmone: Yes. I'm going to let Stu Biel answer that one. You guys all met Stu on our Leawood trip. Stu, you're probably at the forefront of that. Stuart Biel: Yes. Alex, thanks for the question. I think the short answer is there is a lot of runway on the rents here. They have not been pushed as hard. The properties haven't been invested in the right way to push them as hard. At the end of the day, this is all a fraction of -- the function of the volume the tenants believe they can do here. I think we showed you guys, when we were at Leawood, the volumes that were coming out of that property before they had been kind of running the way that we would run them. And so I do think that's a big part of this push is there is a lot of runway to continue to upgrade the merchandising, push the sales, invest in the properties and push those rents to get closer to what they're used to paying in other places in the country. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jill Sawyer for any closing remarks. Jill Sawyer: Thank you for joining us today. Have a nice weekend, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to the AbbVie Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's call is also being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Liz Shea, Senior Vice President of Investor Relations. Thank you. You may begin. Elizabeth Shea: Good morning, and thanks for joining us. Also on the call with me today are Rob Michael, Chairman and Chief Executive Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Roopal Thakkar, Executive Vice President, Research and Development, Chief Scientific Officer; and Scott Reents, Executive Vice President, Chief Financial Officer. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements, except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll turn the call over to Rob. Robert Michael: Thank you, Liz. Good morning, everyone, and thank you for joining us. AbbVie's business continues to perform above our expectations. We delivered another excellent quarter, including strong financial results, pipeline advancement across all stages of development and strategic investments to drive sustainable long-term growth. Given our positive momentum, we are raising our 2025 outlook for the third time this year. Starting with our third quarter performance, we delivered adjusted earnings per share of $1.86, which is $0.10 above our guidance midpoint. Total net revenues were nearly $15.8 billion, reflecting high single-digit sales growth and beating our expectations by approximately $300 million. I'm especially pleased with the execution of our growth platform, including combined sales growth of more than 40% from Skyrizi and Rinvoq, our leading immunology medicines as well as double-digit revenue growth from neuroscience, our second largest and fastest-growing therapeutic area. With no significant LOE events in the near term, our growth platform provides a clear line of sight to growth into the next decade. This puts AbbVie in a strong position to fully invest for the 2030s and beyond. Since our inception in 2013, we have invested more than $84 billion to research, discover and develop new medicines and solutions for patients. We anticipate $9 billion of adjusted R&D expense in 2025, a substantial increase from the prior year. This supports numerous pipeline opportunities across our core areas: immunology, oncology, neuroscience and aesthetics as well as new sources of growth like obesity. More broadly, I'm very pleased with the breadth and depth of our robust pipeline with approximately 90 programs across all stages of development. We are making excellent progress and expect several important milestones over the next 2 years, including new product approvals for tavapadon and PVEK, expanded indications for Rinvoq, Epkinly, Qulipta and Ubrelvy and pivotal data for lutikizumab, Temab-A and etentamig. These pipeline programs have the potential to drive growth for AbbVie later this decade. We also continue to invest in external innovation, adding novel mechanisms and platform technologies to further augment our pipeline to drive growth in the 2030s and beyond. Our recent deal activity includes announcing the acquisition of Gilgamesh's bretisilocin, expanding our psychiatry pipeline with a next-generation psychedelic currently in Phase II development for MDD. And closing the acquisition of CapstanTherapeutics, further strengthening our immunology pipeline with an in vivo CAR-T platform. Our consistently strong performance as well as the progress we are making to build and advance a robust pipeline fully supports our capital allocation priorities. This includes investing at least $10 billion of capital in the U.S. over the next 10 years. Construction is already underway for a new API manufacturing site in North Chicago as well as expansion of biologics manufacturing and R&D capacity at our existing site in Worcester. We are also committed to delivering a healthy, sustainable dividend that grows every year. Today, we announced a 5.5% increase in our quarterly cash dividend, beginning with the dividend payable in February 2026. Since inception, we have grown our quarterly dividend by more than 330%. In summary, this is an exciting time for AbbVie. We are demonstrating outstanding execution across our portfolio, and our long-term outlook remains very strong. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff? Jeffrey Stewart: Thank you, Rob. I'll start with the quarterly results for immunology, which delivered total revenues of approximately $7.9 billion, up 11.2% on an operational basis. Skyrizi and Rinvoq continue to exceed our expectations, once again demonstrating robust growth across a broad set of indications. Skyrizi global sales were $4.7 billion, reflecting operational growth of 46%. Rinvoq global revenues were nearly $2.2 billion, up 34.1% on an operational basis. I'm especially pleased with our portfolio performance in gastroenterology, where these 2 medicines are on pace to nearly double their combined sales in IBD this year. Our uptake in Crohn's disease remains impressive with Skyrizi and Rinvoq together achieving in-play share leadership in a dozen countries. This includes capturing roughly 50% of newer switching Crohn's patients across all lines of therapy in the U.S. We see similar momentum in ulcerative colitis as well with Skyrizi and Rinvoq collectively holding in-play share leadership in more than 10 key markets and capturing nearly 1 out of every 3 newer switching UC patients across all mechanisms in the U.S. IBD continues to be an area of high unmet need with substantial headroom for biologic penetration as well as expanding lines of therapy. Given the compelling efficacy, safety and dosing profiles for both assets, Skyrizi with less frequent dosing favored by patients and clinicians, especially for the maintenance treatment relative to the most effective dose for other IL-23s. And Rinvoq, often preferred for difficult-to-treat IBD cases, having demonstrated the strongest response rates in UC studies as well as very strong efficacy in CD as well. Along with Rinvoq's recently expanded label in IBD, which is a great outcome for patients who will now have access to Rinvoq earlier in the treatment paradigm when anti-TNF treatment is clinically and advisable. So we remain very competitively positioned for continued strong growth across gastroenterology. Moving to the rest of our core immunology indications. Skyrizi continues to perform exceptionally well in psoriasis, gaining share across our key markets. This includes an impressive 50% in-play patient share for biologics in the U.S. Rinvoq is also delivering strong prescription growth in rheumatology. In RA, Rinvoq continues to achieve the leading in-play patient share across lines of therapy. We now have 3 head-to-head studies demonstrating Rinvoq's superiority to other biologics in RA, including recent positive data from our SELECT-SWITCH trial, which clearly supports the clinical benefits of switching to Rinvoq after a first TNF failure. Lastly, we are seeing a very nice ramp in GCA, where Rinvoq now has full formulary coverage. I'm very pleased with the progress and look forward to the commercialization of additional sizable indications like alopecia areata and vitiligo. Turning now to Humira, which delivered global sales of $993 million, down 55.7% on an operational basis, reflecting biosimilar competition. We continue to anticipate Humira access in the U.S. will decrease throughout the remainder of this year and into 2026 as more plans select exclusionary contracts for existing patients. This step-up in volume erosion is expected to be partially offset by a price benefit also associated with these contract changes, which is included in our fourth quarter outlook. Moving to oncology, which delivered total revenues of nearly $1.7 billion, relatively flat versus prior year. Momentum from Venclexta as well as newer products, Elahere, Epkinly and EMRELIS helped to offset the expected sales decline from Imbruvica, which continues to be impacted by competitive dynamics in CLL. Overall, I'm very pleased with the progress we are making to expand our commercial capabilities in both heme and solid tumors with our existing portfolio. These efforts will ultimately support our emerging oncology pipeline, which includes several promising programs to improve patient outcomes in many difficult-to-treat cancers. Turning now to aesthetics, which delivered global sales of approximately $1.2 billion, down 4.2% on an operational basis. Botox Cosmetic global revenues were $637 million and Juvederm global sales were $253 million, with growth rates for both products down on an operational basis. While our portfolio is performing well from a competitive perspective, we continue to face challenging market conditions in several key markets, which are impacting our results. With overall consumer sentiment remaining quite low, especially in the U.S. as concerns about the economy and inflation weigh on discretionary spending, we now see category growth tracking below our previous assumptions globally. However, this near-term macro pressure does not dampen our excitement for the long-term potential of our leading aesthetics portfolio. We are investing to support patient activation with robust promotion and product innovation. We recently launched new consumer campaigns for BOTOX as well as fillers to further stimulate category growth, which remains highly underpenetrated and where we stand to disproportionately benefit upon market recovery giving our leading product shares. Innovation from our pipeline, including novel toxins like TrenibotE, a fast-acting short-duration toxin as well as several next-generation fillers will also provide growth in the coming years. Moving now to neuroscience, which is demonstrating exceptional performance. Total revenues were more than $2.8 billion, up 19.6% on an operational basis. I'm very pleased with our leading migraine portfolio with Ubrelvy, Qulipta and Botox Therapeutic all delivering robust double-digit growth. Qulipta is now the #1 CGRP treatment for migraine prevention with a total prescription share of approximately 7.5%. Vraylar is also performing well in both bipolar and [ AMDD ] with total sales of $934 million, up 6.7%. Physicians continue to report positive feedback on Vraylar's strong benefit risk profile, including dosing flexibility, low sedation and the ability to address anhedonia and anxiety symptoms often associated with depression. Lastly, in Parkinson's disease, VYALEV's launch trajectory has been very impressive. Total sales were $138 million, up 40% on a sequential basis. The uptake across international markets continues to exceed our expectations with physicians and patient communities highlighting meaningful improvements in on time and off time from the 24-hour delivery and the control of symptoms throughout the morning, day and night. VYALEV is the only Parkinson's treatment that often replaces the need for add-on oral therapies to manage motor fluctuations, reducing the daily pill, pill burden for these patients. We anticipate expanded coverage of VYALEV in the U.S. soon, which we expect will provide further revenue inflection next year. I'm also excited about tavapadon, where we are pursuing approval for use as a monotherapy for early Parkinson's disease as well as an adjunct to optimize oral therapy for more advanced patients. This will be a very complementary offering for both VYALEV and DUOPA. Given the significant commercial opportunity with our emerging Parkinson's portfolio, we are now actively expanding our field sales team to support higher anticipated demand next year. Overall, again, we are demonstrating strong revenue growth and our commercial execution has been outstanding. And with that, I'll turn the call to Roopal for comments on our R&D highlights. Roopal? Roopal Thakkar: Thank you, Jeff. Starting with immunology, we announced positive top line results from the second Phase III Rinvoq alopecia areata trial, reinforcing the potential for Rinvoq to significantly improve hair regrowth for patients suffering from severe forms of this condition. Data were consistent with the results from the first trial with Rinvoq demonstrating meaningful improvement in hair regrowth across both doses compared to placebo. We remain on track to begin submitting regulatory applications later this year. We also recently announced positive top line results from 2 Phase III Rinvoq vitiligo trials. In both studies, Rinvoq met the co-primary and key secondary endpoints at week 48, demonstrating improvements in both total body and facial vitiligo scoring compared to placebo. We are very pleased with these results, which illustrate Rinvoq's potential to provide significant skin repigmentation to patients suffering from nonsegmental vitiligo. The daily challenges of living with this condition can often lead to depression and anxiety. With no approved systemic treatments, there is very high unmet need for these patients. Once approved, Rinvoq could potentially be the first systemic therapy available for vitiligo. Regulatory submissions are planned for early next year. Positive top line results were also announced from the SELECT-SWITCH trial, which compared Rinvoq to Humira in RA patients who had an inadequate response or intolerance to their first TNF inhibitor. This is the first head-to-head study comparing anti-TNF cycling versus switching to Rinvoq. In the study, Rinvoq demonstrated superiority to Humira for efficacy measures with nearly twice as many patients achieving low disease activity and remission. For RA patients who did not respond well to their first TNF inhibitor, these results clearly show the benefit of switching to Rinvoq rather than cycling to another anti-TNF. In IBD, Rinvoq recently received a label update in Crohn's disease and ulcerative colitis, allowing its use prior to anti-TNFs in patients who have received at least one approved systemic therapy when TNF inhibitors are clinically inadvisable. The treatment paradigm has evolved in IBD with increasing utilization of newer, higher efficacy agents like Skyrizi. There are certain clinical scenarios when an anti-TNF may not be the most appropriate next treatment option for a patient. This label update provides physicians with the flexibility to use Rinvoq prior to anti-TNFs for certain patients after they have tried another approved systemic therapy. Moving to oncology. The regulatory application was submitted to the FDA for PVEK in blastic plasmacytoid dendritic cell neoplasm. This rare aggressive blood cancer primarily affects an older population who is at high risk for complications with traditional chemotherapy or precluded from stem cell transplantation. As a new treatment providing durable responses with a manageable safety profile, our novel ADC has the potential to become an important new therapeutic option for these patients. At the recent ESMO meeting, we presented 3 orals for Temab-A, highlighting this novel ADC's potential, both as a monotherapy and in combination across advanced difficult-to-treat solid tumors. In CRC patients who received 2 or more prior lines of therapy and regardless of c-MET expression levels, Temab-A in combination with bevacizumab demonstrated manageable safety and better responses and disease control compared to current standard of care. Treatment with Temab-A at 2.4 milligrams per kilogram plus bevacizumab achieved an objective response rate of 30% and a confirmed disease control rate of 97% compared to rates of 0% and 70%, respectively, for Lonsurf plus bevacizumab. Based on these results, we plan to begin a Phase III study for this combination in late-line all-comers CRC. In a proof-of-concept study in pancreatic cancer, monotherapy Temab-A demonstrated an objective response rate of 24% in the overall population and 40% in patients who received first-line gemcitabine plus, Abraxane. A Phase II study in pancreatic cancer is expected to begin next year. And in an exploratory study in MET amplified solid tumors after progression following standard of care, monotherapy with Temab-A resulted in an objective response rate of 47% and median duration of response of 12.5 months for the 2.4 milligram per kilogram dose. Higher responses were observed in patients with non-small cell lung cancer with a rate of 69% and gastroesophageal cancer with a rate of 71%. A Phase II study in MET amplified solid tumors is expected to begin later this year. We are making significant progress with Temab-A across a broad range of tumors, and there is an increasing body of evidence demonstrating durable efficacy and a manageable safety profile in these difficult-to-treat cancers. We look forward to providing additional updates on Temab-A programs as data mature. In neuroscience, the regulatory application for tavapadon in Parkinson's disease was recently submitted to the FDA. For many patients with Parkinson's, existing oral therapies aren't sufficient to manage symptoms. Our selective D1/D5 receptor partial agonist demonstrated robust efficacy as a monotherapy in early Parkinson's disease and as an adjunct to levodopa-carbidopa oral therapy in patients still experiencing motor fluctuations. Once approved, we believe tavapadon will be an important new treatment option. Results from a Phase II study evaluating BOTOX in upper limb essential tremor were recently presented at the MDS Congress. In the study, BOTOX met the primary and all secondary endpoints, demonstrating significant improvements in all assessment measures compared to placebo. With a global patient population of about 25 million, essential tremor is the most common movement disorder. This progressive neurological condition can substantially hinder patients' physical activities and diminish their quality of life. Current treatment options are limited in terms of both efficacy and tolerability, leaving considerable need for new therapies. Based on these results, we plan to advance a new toxin for upper limb essential tremor. TrenibotE is a novel toxin that has demonstrated different pharmacologic properties preclinically compared to BOTOX, such as less diffusion to neighboring muscles. Phase II studies for TrenibotE in essential tremor and ventral hernia repair will begin next year. To further expand our neuropsychiatry pipeline, we acquired bretisilocin from Gilgamesh. Bretisilocin is a novel (5-HT)2A receptor agonist and 5-HT releaser with a short duration of hallucination that has demonstrated robust efficacy in a Phase II proof-of-concept study in major depressive disorder. Rapid efficacy was achieved after the initial dose with response and remission maintained through day 74 without additional intervention. This novel psychedelic has the potential to provide significant benefit to patients by offering rapid, robust and durable antidepressant effects following a short in-clinic treatment session. Additional Phase II studies in depression are expected to begin next year. To summarize, we continue to make good progress across all stages and therapeutic areas of our pipeline and look forward to many important pipeline milestones in the remainder of this year and into 2026. With that, I'll turn the call over to Scott. Scott Reents: Thank you, Roopal. Starting with our third quarter results, we reported adjusted earnings per share of $1.86, which is $0.10 above our guidance midpoint. These results include a $1.50 unfavorable impact from acquired IPR&D expense, primarily reflecting upfront charges for the acquisition of Capstan Therapeutics and our license agreement with IGI. Total net revenues were nearly $15.8 billion, reflecting growth of 8.4% on an operational basis, excluding a modestly favorable impact from foreign exchange. Importantly, our ex-Humira growth platform delivered reported sales growth of more than 20%, once again exceeding our expectations. Adjusted gross margin was 83.9% of sales, adjusted R&D expense was 14.3% of sales and adjusted SG&A expense was 21.6% of sales. The adjusted operating margin ratio was 30.9% of sales, which includes a 17% unfavorable impact from acquired IPR&D expense. Net interest expense was $667 million. The adjusted tax rate was 24.5%, reflecting the lower deductibility of acquired IPR&D expense this quarter. Turning to our financial outlook. We are raising our full year adjusted earnings per share guidance to between $10.61 and $10.65. Please note that this guidance does not include an estimate for acquired IPR&D expense that may be incurred beyond the third quarter. We now expect total net revenues of approximately [ $16.9 billion, ] an increase of $400 million. This updated forecast primarily reflects Skyrizi global sales of $17.3 billion, an increase of $200 million with continued share gains in psoriasis and IBD. Neuroscience global revenues of $10.7 billion, an increase of $200 million, reflecting continued strength across Vraylar, Botox Therapeutic, VYALEV and the total oral CGRP portfolio. Aesthetics total sales of $4.9 billion, a decrease of $200 million, reflecting greater-than-expected market softness globally, with the remaining $200 million increase reflecting the collective momentum from Rinvoq and several other products across our diverse portfolio. And we also continue to assume a relatively neutral impact from foreign exchange on full year sales growth. Moving to the P&L for full year 2025. We continue to expect adjusted gross margin of 84% of sales, adjusted R&D expense of $9 billion and adjusted SG&A expense of $13.5 billion. We now anticipate an adjusted operating margin ratio of approximately 41% of sales, in line with our previous expectations after including the roughly 6% unfavorable impact of acquired IPR&D expense incurred through the third quarter. And we now forecast our non-GAAP tax rate to be approximately 17.3%, also reflecting the impact of acquired IPR&D. Turning to the fourth quarter. We anticipate net revenues of more than $16.3 billion. This reflects an estimated 1% favorable impact from foreign exchange on sales growth. We expect adjusted earnings per share between $3.32 and $3.36. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. Finally, AbbVie's robust business performance continues to support our capital allocation priorities. Our cash balance at the end of September was more than $5.6 billion, and we generated approximately $13 billion of free cash flow in the first 9 months of the year, which includes nearly $2.2 billion of Skyrizi royalty payments. This free cash flow fully supports strong and growing quarterly dividend, which we are increasing 5.5% to $1.73 per share, beginning with the dividend payable in February 2026. As well as capacity for continued business development, we have executed approximately 30 deals since the beginning of 2024, and we continue to assess external innovation across all of our key growth areas. We also remain on track to achieve a net leverage ratio of 2x by the end of 2026. In closing, AbbVie once again delivered outstanding results and our financial outlook remains very strong. With that, I'll turn the call back over to Liz. Elizabeth Shea: Thanks, Scott. We will now open the call for questions. [Operator Instructions] Cedric, we'll take the first question, please. Operator: Yes. And our first question comes from Terence Flynn with Morgan Stanley. Terence Flynn: Congrats on the quarter. Two for me. I guess the first is just, Rob, would love your perspective on the potential implications for your business of the new PBM model that Cigna discussed on their earnings call yesterday, I believe. And then IRA price negotiations recently concluded. And just wondering if you're able to comment at all on how those went for Vraylar and Linzess? Robert Michael: Thanks, Terence. So this is Rob. I'll start with your first question. I'm going to have actually Jeff supplement as well. But I think one thing that's important to think about as it relates to whether it's PBM reform, questions we've got on DTC, ultimately, what drives AbbVie's performance is our differentiated medicines, along with our execution track record and strong culture. And that's why we deliver similar strong performance in markets outside the U.S. where PBMs and DTC do not play a role. So now given our ability to execute, we are very good at utilizing the tools that are available to us. If there are changes to the PBM model, we will certainly be able to adapt effectively. I mean I think for us, as we think about it, the key is to continue developing differentiated medicines as that is what delivers real value and can drive growth in any environment. And I'll let Jeff speak more specifically to how we see the PBM model playing out. Jeffrey Stewart: Yes. Thanks, Rob. And just to sort of reiterate this approach. I mean, if you think about some of these announcements over the years, whether it's rebate pass-through or there's existing models like this that work today. And we think there's a lot of merit to that, like the ability for patients to share and lowering their out-of-pocket cost at the counter is a good approach. There's been a lot of structural barriers to that, of course, over the years. Sometimes it's the clients don't really have the incentive to go in based on how they're using those rebates, maybe to lower premiums. We all know those stories. I think the key point is Rob's point that across my global footprint, we're used to dealing with any type of approach, whether it's a net price market, it's a rebate-driven market or a hybrid market that's net price and rebate like Germany or HTA markets. So we're very, very adaptable to sort of any sort of structure because we rely on the distinctiveness of our brands. And when we position those in the right way, which we always do, we perform exceptionally well from a market share and a competitive perspective. So we'll continue. We don't know a lot of the details, but we talk to Cigna all the time. Our account teams talk. We talk at the executive level. So we'll continue to study it, but we're very confident in terms of if there were to be changes in the PBM model, we would adapt very well. Robert Michael: And Terence, this is Rob again. On your question regarding IRA, the prices are obviously not yet public. But I would say that the administration's focus on achieving greater reductions in this year's round was very clear. That said, the outcomes for Vraylar and Linzess will not impact our long-term guidance. Operator: Yes. Our next question comes from Chris Schott with JPMorgan. Christopher Schott: Just would love a little bit more of a discussion on the IL-23 market. Obviously, Skyrizi doing really well here. But just with the TREMFYA subcu induction dosing kind of rolling out, what are you seeing in terms of competitive dynamics and positioning? And how do you see kind of the dynamics between those you and that -- and your nearest competitor kind of evolving over time? And then my second question is just any initial look on 2026 as you think about the various pushes and pulls in the business? And anything in particular you think the Street isn't properly accounting for as we think about the outlook for next year? Jeffrey Stewart: Yes. Chris, it's Jeff. I'll take your first question. So yes, we are very pleased with Skyrizi's growth overall and in the quarter. I mean, 46% year-over-year is quite strong. So -- and we see that momentum with share gains, it's market growth, and we retain a very, very strong in-play share position in IBD. It's really a leadership position -- what we do see is we know that TREMFYA is going to gain some market share and in-place share. But what's actually happening is the category or the class of IL-23 is expanding incredibly rapidly. And we view this as a positive. We said before, this is not a zero-sum game. We're very confident in our competitive position. I'll give you a little bit of some numbers, more -- some more recent numbers to see how dramatic this is. So just over a year ago, when the IL-23 were entering, the NBRx share for UC, this is ulcerative colitis, which is the smaller of the 2 was around 5%. That was the penetration rate. Now it's approaching in this latest quarter, close to 40%. So this is a dramatic change in the adoption of the IL-23s. Skyrizi continues to grow. TREMFYA will grow. There's -- yes, there are subtle differences, but we're super confident in where this product will go. So Skyrizi is performing very, very well and we'll continue to do so. And don't forget, it's just not a Skyrizi story. AbbVie has uniquely sort of a one-two punch in this market. We've got Skyrizi and Rinvoq. And as I mentioned in my prepared remarks, our position with Rinvoq just got significantly stronger for gastroenterologists and patients with that enhanced indication. So what that allows to do is that physicians, if they choose, if someone is not eligible or it's inadvisable clinically for a TNF, you can go right to Rinvoq. So it's a really, really powerful position and setup for AbbVie right now and over time. So that's basically what we're observing in the marketplace. Roopal Thakkar: And Chris, it's Roopal. For subcutaneous for Skyrizi, we'll see data next year for our own induction. And then that plus IV still leads to every 8-week dosing, which continues to be a major advantage. Robert Michael: And Chris, this is Rob. Regarding your question on 2026. Look, our business continues to perform exceptionally well. We've raised our revenue forecast this year by nearly $2 billion since our initial guidance in February, and that's not just coming from Skyrizi and Rinvoq. We're seeing overperformance across the entire neuroscience portfolio and oncology is ahead of our original guidance as well. That momentum should allow us to deliver strong growth next year despite headwinds from continued Humira erosion and Imbruvica IRA pricing. Recall that Imbruvica was negotiated and that pricing will kick in next year. And Humira erosion will continue, albeit not at the same absolute level as we saw in 2025. When I think about just the growth platform, in particular, obviously, a lot of attention is placed on Skyrizi and Rinvoq appropriately. But in neuroscience, when you think about the performance of Vraylar, our migraine franchise, inclusive of Botox Therapeutic, which a little bit over 40% of that business is for chronic migraine. And then VYALEV, we're just seeing tremendous ramps. And we're also starting to now see, as Jeff mentioned, we expect in the inflection, particularly with the U.S. We've seen some nice progress there. But I would say that will be a very nice growth driver for us in 2026. And so we're very pleased with the performance. Obviously, clearly, the momentum is there. We've now beaten and raised it every quarter of '25. And of course, we'll provide specific guidance for '26 on the fourth quarter call. Operator: Our next question comes from Vamil Divan with Guggenheim Securities. Vamil Divan: So I have 2, if I could. So one just around -- thanks for the comment, 2025 and now 2026. My question is actually around the 2027 guidance you've given for Skyrizi and Rinvoq before you be clearly on track to exceed that. I'm curious your thoughts around updating the Street on sort of your longer-term outlook for Skyrizi and Rinvoq. And then the other question is on the aesthetic side. Can you just comment on the latest market share since you have for both BOTOX and Juvederm in the U.S? Robert Michael: So Vamil, this is Rob. I'll take your first question. So as you recall, we updated the 2027 guidance for Skyrizi and Rinvoq during the Q4 call earlier this year. And since then, we have raised the combined guidance for 2025 by over $1.7 billion. So it's reasonable to assume that we will exceed that long-term guidance. And I think that will be very clear when we provide 2026 guidance on the upcoming Q4 call. Now we have provided long-term guidance in the past really to help investors understand what the company will look like on the other side of the Humira LOE event. We said we would rapidly return to robust growth and deliver high single-digit compound revenue growth from '24 to '29. And we gave product specifics to support that high single-digit growth outlook. I mean sitting here today, we have clearly demonstrated the rapid return to growth. Our 2025 sales outlook exceeds our previous peak by almost $3 billion, and that's within 2 years of the LOE event. And the Street now reflects our high single-digit growth outlook for this decade. I'd say there appears to be good recognition of our momentum with Skyrizi and Rinvoq, though they do continue to perform above our own expectations. And there's recognition that our diversified growth platform can drive top-tier performance. That said, there are a few things that remain underappreciated. I think one is our strategy to continue innovating in immunology and drive growth beyond Skyrizi and Rinvoq, both in terms of combination approaches with Skyrizi or Rinvoq as a backbone and through new platforms such as oral peptides and B cell depletion approaches. We also have lutikizumab in our pipeline. We have a TL1A. We have a TREM1 antibody. So I think there's quite a bit of depth here in the immunology pipeline that can set us up to grow beyond Skyrizi and Rinvoq. And I don't think that's always appreciated. We also do not see enough investor focus on our neuroscience franchise. It's increased but it's still not at the level that I think it should be given it's our second largest therapeutic area and the fastest growing in our portfolio. We have very strong positions in psych and migraine and an emerging leadership position in Parkinson's with VYALEV and tavapadon. We also have an opportunity to transform care for essential tremor. The Aliada platform also gives us the potential to advance Alzheimer's treatment. And our Gilgamesh and Gedeon Richter deals give us more depth in mood disorders. So at the same time, we are starting to see more attention on our oncology pipeline, including Temab-A in several solid tumors, etentamig in multiple myeloma, 706 in small cell lung cancer as well as the recent BD transactions for trispecific antibodies from Simcere and IGI. And given our clear runway to growth into the next decade, we are in a very strong position to continue increasing our R&D investment and acquiring more external innovation that can help drive long-term growth. So to me, it's more important that investors appreciate the depth of our pipeline that can drive growth in the next decade versus updating financial guidance again for this decade. Jeffrey Stewart: And Vamil, it's Jeff. I'll just give you some of the sense you asked about the dynamics in the U.S. with aesthetics. So really, just to start with the market. If you look at the U.S. toxin market, it's really in a flattish position in the U.S. The filler market has been problematic. It's been down double digits. When you look at our share, what we can see is that year-over-year, we are lower than we were last year because of the [indiscernible] reimagined. But sequentially, we're growing. So we sit in the low 60s in terms of BOTOX share, and that's a clear leadership position by a large margin in the U.S. When you look at the HA filler, generally, that's in the mid-40s, call it, 45%, and that's largely been very stable. So that gives you some sense of the dynamics. The big thing is as the leader, we have to invest and we are investing in the market, as I mentioned in my remarks. We have a significant BOTOX consumer campaign that's in the market. We're starting to see some nice pickup there. So we're encouraged. We have an HA filler sentiment campaign to make sure that we're working with all of our clinics to make sure we can revitalize and get that market stabilized and more robust because you really do need HA fillers to really get the aesthetics outcome. So we believe we can rehabilitate that segment. And we also have opened 3 very significant training and sort of practice growth centers around the country to continue to lead that marketplace. So that gives you a sense of the metrics that you were asking for. Operator: Our next question comes from Matt Phipps with William Blair. Matthew Phipps: Congrats on another great quarter. Now the Gilgamesh acquisition closed, I wonder if you could give us any details on how you might design future studies, especially around the use of a low-dose active control. Maybe how do you see this fitting into the overall MDD treatment paradigm given the in-clinic administration? Roopal Thakkar: Yes. Thanks, Matt. It's Roopal. We're very excited about this approach. With other psychedelics, they tend to have a very long tail, especially around hallucination. And this one has a very short duration. So when it's in clinic, it will be a short duration. And a lot of clinicians are prepared to do this already. So we're not worried about having that being a barrier for uptake. There is so much depression and unmet need, we think that patients and caregivers would really like more options like this one. The other benefit that we saw is a longer duration after just 1 or 2 doses. And that maybe speaks to this potential concept of rewiring. So we're very excited about that. So the key for us is in depression, looking at different doses and looking at different duration paradigms, and we're going to do that in Phase II and ultimately move into Phase III. There is this regulatory need for a low-dose comparator, and that's because of the potential unblinding. And the Phase II study that we've -- that Gilgamesh has already posted was against a low-dose comparator, and you saw those very large deltas. So that's what we're excited about, and we think there's opportunities in different lines of depression and potentially other mood disorders that we're going to investigate to go beyond just major depression. Operator: Our next question comes from David Amsellem with Piper Sandler. David Amsellem: So I wanted to drill down on your Parkinson's franchise. Can you talk to uptake of the [ VYALEV ] and specifically what you're seeing regarding competitive dynamics given the availability of an [indiscernible]? So that's number one. And then on tavapadon, which you've talked about increasingly, you've got adjunctive therapy and also monotherapy here, so pretty versatile. But also bearing in mind that with oral therapies, it's highly genericized. So how are you thinking about sales potential there and ultimately, where you see a role in practice for tavapadon? Jeffrey Stewart: Yes. Thanks for the question. I'll start off and then turn it over to Roopal. So as Rob and I mentioned, we're very, very pleased with VYALEV around the world with sales ramping very, very nicely. And it is levodopa-carbidopa. So it's the gold standard. It's just the ability to get that in the subcu version. Cause is incredible disease stability and recovery. So we do see a lot of distinction versus, let's say, the competitors, and we've dealt with the competitors around the world. It's relatively new in the U.S. So in terms of what we see on the market perspective, the in-play capture right now is roughly 80%, 85% in favor of VYALEV. And that's because of the 24-hour coverage, you have far less supplemental orals. The levels of control are great, particularly when you wake up and you're through the night. The other metric that we look at is, in some cases, we've launched VYALEV after subcu apomorphine has been available in the international countries. And essentially, the shares invert very, very rapidly. So we're quite confident in the both short- and long-term position for a product like VYALEV. It really is an exceptional medication. So I'll turn it over to Roopal to talk about the tavapadon development and then ultimately, he and I can talk about where the positioning might be. Roopal Thakkar: Yes. Thanks, Jeff. It's Roopal. Let me start on the VYALEV side briefly, dovetailing on what Jeff just went through. So on the R&D side, we've received very favorable feedback thus far from caregivers and patients. And I would say the word transformative is the common theme. And the benefit of VYALEV is a full 24-hour opportunity for state of control. And that facilitates the ability to sleep and the ability to wake up on ready to go and face the day. The competitor that you mentioned is a 16-hour profile, so may not afford that same 24-hour control. Also, as Jeff had mentioned, VYALEV delivers a meaningful dose of levodopa-carbidopa. So what that means is patients -- many patients no longer require their oral therapy. So that means a monotherapy simplified approach is possible. The competitor is provided as an adjunct. So you won't be able to get off of your oral therapies. Also with VYALEV, when you look at the maintenance phase, dyskinesia rates are very low. And with the competitor you mentioned, they're roughly 15% up to 30%. The other benefit of VYALEV from a competitive standpoint is we see less than a 5% rate of sedation. And with apomorphine, it's around 20%. And also VYALEV, we have limited headaches, and this is in the teens with apomorphine. Also, another benefit of VYALEV is no warnings for orthostatic hypertension or falls that can't be said about the competitor. And also, we have very low rates in no need for treatment for nausea. And with apomorphine initiation, you need an antiemetic and often that need to be taken 3 times a day. So as Jeff stated, I think we're very well positioned from a competitive standpoint with VYALEV for all the reasons I just mentioned. And then I think it's very important that we mentioned tavapadon. I spoke about just it's being submitted. And this will be a very nice complement to VYALEV as a monotherapy and as an adjunct. It's a once-a-day profile that has a long half-life, and it's going to allow patients to optimize their regimen before the need to moving to advanced therapies. And where our clinicians are excited about differentiation from existing oral generics is the efficacy, which approaches levodopa-carbidopa and the safety profile, that could be a key differentiator, and that's what our experts are telling us about. Specifically impulse control disorders, just around 1%. We've seen others reach as high as 30% or 40%. Immediate -- people fall asleep with this one, sedation is less than 5%, dyskinesia around 2% and peripheral edema, which can be quite a nuisance with the generic molecules and very difficult to treat even if you use potent diuretics, we don't see that as a problem, 1% or less with tavapadon. So we think for efficacy, safety, tolerability reasons, it has a chance to differentiate and again, a very nice complement to VYALEV. Operator: Our next question comes from Dave Risinger with Leerink Partners. David Risinger: Yes. So I have 2 questions. The first is, could you please discuss the outlook for accelerating growth as Humira's absolute dollar declines diminish in coming years? And then second, could you, Roopal, just comment on the top few pipeline candidate readouts that we should focus on over the next 6 months? I'm assuming Amylin is one of them, but what are the biggest cards that are turning over in the next 6 months or so? Scott Reents: David, this is Scott. I mean I'll -- some thoughts on your question about accelerating growth. So you're right, Humira continues to erode and step down this year with our guidance, it's going to step down just over -- in the U.S., just over $4 billion. Certainly, that step down in absolute dollars will diminish and will diminish next year as well, of course, given the math. We will see, certainly, though, significant percentage erosion from this year to next year as well. That will continue to erode as the tail starts to form in '26. So when you look at the business, I mean, the business has a number of strong drivers. You've seen the growth of the business today. I think that one thing that we've spoken about several times is our long-term guidance for high single-digit growth through the decade. That will be from the growth that we have this year, we've talked about that accelerating as we hit that. And we still remain extremely confident in our ability to achieve that high single-digit growth through the decade on the top line. The bottom line will continue to expand. This year, our EPS is roughly in line, a little bit ahead of the earnings growth, but we're going to have operating margin expansion driven by leverage and efficiencies in the SG&A line. So you will see earnings growth expand a little bit faster than the revenue growth through the decade with that long-term guidance. Roopal Thakkar: And Dave, it's Roopal. I'll talk about some of the readouts we're excited about moving into 2026. In immunology, our IBD platform will start reading out data next year. This is in combination with Skyrizi, looking at those combos versus monotherapy Skyrizi. Lutikizumab is one of those and the other is our own alpha4beta7-382. So we'll start seeing that data next year. Also in combination with lutikizumab plus [ Arava ] in rheumatoid arthritis, that will be something else to look for. And then maybe turning to oncology for a moment. For Temab-A, we've -- I went through a variety of different positive readouts. Also next year, expect to readout in head and neck cancer and even ovarian cancer, which many of these patients have high c-MET expression, along with etentamig in a variety of different combinations in multiple myeloma. And then our next-gen coming after Elahere, our biparatopic FR alpha antibody 151, we'll start seeing readouts there in platinum-resistant ovarian cancer. And then also next year, we're excited about our -- using our bispecific technology that we spoke about in immunology, along with our linker and warhead technology from oncology putting those together, we have a bispecific ADC that binds to PSMA and STEAP for prostate cancer. And that's another one, I would say, to look for next year. And then in neuroscience, we have our follow-on to VRAYLAR-932. We'll start seeing data in bipolar depression, probably moving into '27, looking for generalized anxiety disorder. And then we'll also be able to give an update on emraclidine we're currently conducting a multi-ascending dose trial to see if we can move the dose above 30 milligrams, and that has already initiated, and we'll be able to give an update on where the dose lands. And once it does, we can start moving into Phase II programs there in schizophrenia as an adjunct and potentially as a monotherapy along with psychosis associated with neurodegeneration. And then on the obesity front, the Phase I study will get data in the first half of next year from healthy volunteers looking at different starting doses and different titration schemes. However, these patients will have normal BMI, and we've already seen reasonable weight loss there at 6 weeks. So we'll also have 12-week data. The other thing, Dave, I'll mention is we're starting a Phase Ib program late this year, maybe into January when we get everything started. But that will also look at our 295 Amylin asset, but the difference will be -- different titrations and in patients that have obesity. And that data will also likely read out probably in Q4 of next year. So I would say a very robust number of events that we should keep our eyes on. Operator: The next question comes from Steve Scala with TD Cowen. Steve Scala: Two questions. Rob, it sounds like IRA discounts are deeper this year than last year. You said it will not impact the long-term outlook, but will it impact the outlook in 2026, which you have yet to share externally, but will it impact the numbers that you otherwise would have shared externally? Secondly, why was Rinvoq's Phase III in HS updated to complete in 2028 from 2026 previously? Was it an issue with endpoint, enrollment or something else? Robert Michael: So Steve, this is Rob. I'll take your first question, then Roopal will take your second question. So as it relates to the Vraylar and Linzess negotiations, keep in mind, those prices will not take effect until 2027. Again, as I mentioned before, we have visibility to where it's landing. It's obviously not public yet, but we're not concerned about it impacting our long-term guidance, but there's no impact in '26 because those prices do not take effect in '26. Roopal Thakkar: And Steve, it's Roopal. We still anticipate our double-blinded week 16 data at the end of next year in HS. We'll get other double-blinded cuts and then there's open-label extension. So sometimes that changes on duration, how long we follow patients could result in some updates to [ ct.gov. ] Operator: Your first question comes from Simon Baker with Rothschild & Co Redburn. Simon Baker: Two, if I may, please. Firstly, on Rinvoq in nonsegmental vitiligo. In some markets, that's up to 2% of the population. So I just wonder if you could give us an idea on your thoughts of the size of that opportunity. And then secondly, on Elahere, I note in the press release that you are launching it in the U.K. at a list price equal to the U.S. Now on the basis that people in the U.S. don't generally pay the list price, should one assume the same situation in the U.K. And going forward in the U.K. and Europe, do you envisage moving more to a U.S. style gross to net type market from the more net market that we see at the moment? Jeffrey Stewart: Yes. So it's Jeff. I mentioned that as we look at the -- what we call the next wave of innovation around Rinvoq, and we've seen some of those readouts, which are really, really encouraging. GCA, which is the smallest of the next set of indications is performing really well and overall helping great momentum in rheumatology. So then when we look at basically the, let's say, the next big 4, okay? So you have alopecia areata, vitiligo, as you highlighted, HS, as Steve highlighted, and then lupus, we've looked and sized those that, that revenue potential is at least $2 billion at peak. So we continue to work through, given as we look at the data, we watch the market develop like how they will sort of adapt and change over time. I can say that the alopecia data was quite striking. I mean it's quite striking relative to the standard of care, Ig, other JAKs that are out there. So we're going through the sizing issue. We certainly see that there are different segments of vitiligo like the high body surface area is more amenable to, let's say, a JAK inhibitor like Rinvoq, which will be the first systemic. Is it active? Or is it stable? So net-net, I mean, you could say that all of these together would be greater than $2 billion, and we're going to continue to hone those forecasts as we go towards launches over the next year or so. Elizabeth Shea: Thanks, Simon. Sorry, one more. Jeffrey Stewart: Just one more question on Elahere. You're right, the price in the U.K., the list price is similar to the U.S. One of the aspects that we are looking at is how basically because of the most favored nation and other global pricing dynamics, how that may or may not change our approaches around the world. Certainly, we would like to see reforms in many of the European countries, whether they are clawback systems or even the way that the HTAs work because we do think that these medicines should be more highly valued. So exactly how that will ultimately play out, certainly, some of the early discussions with the administration are around basically more stable and equitable pricing around G7 inclusive of Switzerland and Denmark. So all of that strategies are basically in place. Ultimately, how that will play out, we're going to continue to see. Certainly, in the U.K., as you know, you can have list prices, but ultimately, it's an HTA market, and we'll have to go through the NICE evaluation to see where that net price ultimately would land. Operator: Our next question comes from Luisa Hector with Berenberg. Luisa Hector: I'd like to ask in immunology, just if you could outline your next steps with your CAR-T and your oral peptide platforms. And then just a sort of longer-term question, but what level of market penetration do you think is ultimately achievable for the advanced therapies in the more mature indications, where could we actually get to? And would that require success from the combinations to raise efficacy ceiling or some of these new platform technologies? Roopal Thakkar: Luisa, it's Roopal. I'll start with the insight to CAR-T from Capstan. What -- maybe some benefits and then we can talk about our plans. We have an opportunity to optimize that dose. It's also an off-the-shelf therapy. We also see rapid expression and also transient expression. So over time, that could have some safety advantages, especially if you can deplete the pathogenic B cells and then the naive B cell population repopulates and you don't have the CAR on board any longer, and that's the advantage of the mRNA therapy. In the early Phase I, we have observed B cell depletion. And the other benefit is no need for lymphodepletion. So taken together, this could be a very exciting opportunity for patients. So next steps is to continue dosing in the first-in-human studies. And then I would say, next year, once we have a handle on dosing, we'll start looking at patients starting on the rheumatology side of things like RA and lupus. And if it works similar to ex vivo CAR-T, we think patients can have very deep and durable remissions, which could be very, very important and certainly raises the bar and breaks through existing efficacy ceilings. So that's, I would say, on Capstan. On the oral side, the Nimble acquisition, these are macrocyclic molecules, the ones that we're focusing on, the attempt there is to make them as potent as possible and to extend the half-life. I think the current issue we see with certain oral platforms is that the half-life is very limited. We think a benefit would be to extend that half-life. So those are the 2 things that are going on. The lead candidates right now are an oral IL-23 and a TL1A. And when it comes to our IBD platform, with the combination, the higher the efficacy, the better, obviously. But many of these patients that we'll see will be second line and potentially even third line because lines of treatment are continuing to expand. You have many patients that have already received anti-TNFs in IBD, and you see medicines like Skyrizi also starting to penetrate into that front line. And if that's not working, then you have JAK inhibitors like Rinvoq. So we'd be studying a relatively refractory population. So if you can get 10-plus points better on the higher, the better, I think that would be a huge benefit because breaking through where current efficacy stands today has really been the challenge. And I would say some of the best assets we have are currently Rinvoq and Skyrizi. Jeffrey Stewart: And then the idea of the market structure that you highlighted in your second question, to Roopal's point, I mean, these immunology markets are quite amazing because you essentially have a bio penetration, which varies by major indication. And then you also have line of therapy expansion. So they are very, very buoyant because there's significant headroom and unmet need. To give you the bookend, when you look at biopenetration, I'm going to give you the U.S. biopenetration rates roughly and the European and Asia are lower generally based on the way those markets are developing. The highest biopenetration rates are in Crohn's disease, which is above 50%. So you still have quite a few patients in a very severe disease that have not been exposed to a biologic. And these are in the moderate to severe segmentation. On the very low end, you have a super dynamic market, which is atopic dermatitis, incredible high unmet need that just basically with the availability of drugs like Dupixent and Rinvoq, that may be in the high single-digit biopenetration for moderate to severe. So new technologies are going to help. Communications are going to help, a line of therapy is going to help. And that's why to Roopal's point, we're very excited about certainly the baseline adoption of these technologies, but transformative future technologies as well. Operator: Yes. Our next question comes from Mohit Bansal with Wells Fargo. Mohit Bansal: I have a couple of them. So one is on oral IL-23, the competitors one. So Roopal, you mentioned some limitations there. Can you talk a little bit about how you think about this competition over time versus Skyrizi or Rinvoq? And then a portfolio question. So you do have Amylin in this space now with Gubra. How much do you think a portfolio of these assets, GLP or other assets is important to fight and win in this particular segment given that the competitors or incumbents have a portfolio of multiple assets out there? Roopal Thakkar: Thanks, Mohit. It's Roopal. So I'll start. I think when we look at Skyrizi, first of all, the psoriasis data are very strong. Just to think about some of the numbers that we have, by week 16, if you're looking at clear or almost clear, you're approaching 90%. If you're looking at week 52, PASI 90, that's at 80%. And if you're at PASI 100, that's at 60%. So these are very, very high efficacy. And you also see over time, if you're an early PASI responder, the majority of these folks are going to maintain over the course of the year and beyond. And even if there is treatment withdrawal, and that's one thing I was getting at with why we like Nimble of potential half-life extension is that if you take oral, some people may miss some doses. And if you have a very short half-life, your treatment withdrawal data will sync very quickly. And if you miss many doses, you will lose effect. And with Skyrizi, and actually, this is even in our label, if you stop dosing for 1 year, you still have 60% of patients that are clear or almost clear. Now if you keep dosing, obviously, you'll get to that 80% to 90% range. So I think it's important just to set up where is Skyrizi today, and you have this opportunity to have quarterly dosing. So the patients have a chance to forget that they have psoriasis, and they don't have to worry about when they eat their meals or how long they need to be fasting. The other benefit is Skyrizi has what I would like to say is head-to-toe benefits, and these are all statistically significant readouts. What do I mean by that? That means palmoplantar, that means scalp and genital across the board. The other insight about psoriasis is about 30% or so will have psoriatic arthritis. So they'll have joint disease. And now with Skyrizi, we have 5 years of data where 88 -- approaching 90% of patients do not have x-ray progression. And I would say taking in totality, that gives you -- gives us a benefit to continue to be very competitive, whether you're talking about another injectable or even an oral. And the oral, as Jeff has stated, will have uptake like many of these assets because psoriasis, unlike IBD, is still quite underpenetrated, and it's a growing market. And maybe, Jeff, if you want to make a comment as well. Jeffrey Stewart: No, I think it's very clear, Roopal. We're very confident in our competitive position. And we've seen other orals enter the market. We have multiple head-to-head trials in terms of where those orals will compete and what the differences are. And so I think Roopal phrased it very, very nicely with his summary. Robert Michael: And then on the Amylin, yes, we think it would be of a benefit, and we do continue to look with partnered programs and external opportunities where you could potentially combine with the Amylin. And the focus there is tolerability and durability. We continue to see only about 30% of patients with obesity continuing their incretins after 1 year. So these beneficial gains are not going to result in long-term favorable outcomes if patients can't stay on these. So our focus is on the Amylin, but we continue to look for combination agents and also other orthogonal approaches if you have the opportunity to maintain bone and muscle and then we are also exploring the potentials [Audio Gap]. Operator: And our next question comes from Geoff Meacham with Citibank. Geoffrey Meacham: Okay. Rob, on the policy sides, I know we have some public agreements with the administration from your peers on Medicaid and onshoring and manufacturing. Just was curious if you expect to also have a formal agreement, if that's a priority. And then the second thing on aesthetics, it still seems that we're seeing more macro headwinds. And I know you've made some commercial and DTC investments as well as new launches. But what would you say are the leading indicators of a rebound? I'm just trying to assess what green shoots perhaps you may be seeing. Elizabeth Shea: Geoff was asking a question. Obviously, we can't hear any. Sir, go ahead with your question. Geoffrey Meacham: Can you guys hear me at all? Elizabeth Shea: Now, we can hear you. Hi, Geoff, sorry. We were unfortunately, disconnected. Geoffrey Meacham: Yes. No worries. Okay. So I just had 2 quick ones. Rob, on the policy side, I know we have some public agreements with the administration from your peers on Medicaid and onshore and manufacturing. I was curious if you expect to also have a formal agreement, if that's a priority for you guys. The second thing on aesthetics, it still seems that we're seeing more macro headwinds. And I know you've made some commercial and DTC investments and also have some new launches. But what would you say are the leading indicators of a rebound in aesthetics, I'm just trying to assess what green shoots perhaps you may be seeing. Robert Michael: Geoff, it's Rob. Thanks for the questions. So obviously, we continue to actively engage with the administration on ways to improve patient access and affordability and preserve U.S. leadership in medical innovation. We were having discussions before the July 31 letter and have had more discussions since. I'd say we are aligned on the need to address global freeloading and have been working closely with the USTR on ways to address that, which ultimately, I think a Section 301 investigation in unfair practices will be important as we partner with the administration to make progress in terms of pricing outside the U.S. We're open to expanding direct-to-patient models where it makes sense beyond what we already have in place with our Synthroid direct program. You've also seen us take actions to invest further in the U.S. by building a new API plant North Chicago and expanding biologics capacity in Worcester as part of our $10 billion capital commitment. So you see the company's commitment to innovation, driving future growth, and that's certainly something we're in discussions with the administration about. We also, as we mentioned previously, announced that Elahere has been priced in the U.K. at the same list price as the U.S. I'd say all these actions are directionally aligned with the administration's stated goals. And we'll continue to work with the administration on solutions that improve access and affordability while also supporting future innovation. And we'll certainly share more information as we have it. Jeffrey Stewart: And Geoff, some of the dynamics that we're looking at that we monitor, to your point, I mean, these market conditions have been more protracted than we anticipated. So it's challenging to predict. But here are a few of the things we look at. Obviously, we're looking at sort of overall consumer confidence. It's quite low. So that can be a leading indicator. We know that our middle-income consumers, particularly for BOTOX and toxins are also on the sidelines. So we monitor sort of their posture relative to sort of seeking particularly new treatment with the toxin, which is the leading indicator for the facial injectable business. And we also, as I highlighted in my remarks, we're monitoring every month sort of the HA filler sentiment. So we've seen that stabilize to some degree, which is good. It's not continuing to go down. But those are some metrics that we look at for early indicators to sort of anticipate sort of a market rebound. And again, we're going to invest through that. We think that, that's a good idea. Certainly, we also believe that TrenibotE, the ability to activate new consumers, which will come next year for the U.S. market is a significant catalyst to try to sort of lead this market back to health. Operator: Our next question comes from Courtney Breen with Bernstein. Courtney Breen: Perhaps one more on the policy side and then just a follow-up on Rinvoq. If you were to simply look at AbbVie's ratio of the business right now, about a 75% U.S. exposure versus 25% ex U.S., how different do you expect that to be in 5 years' time? How much of that might be down to the product mix? And how much of that might be down to kind of equalizing price or some of these new U.S. policies? And then the follow-up on Rinvoq was just about the expansion opportunity associated with the changes to the Rinvoq label. Can you just help us quantify that a little bit more clearly? Robert Michael: So this is Rob. I'll take your first question. So you're right, when you look at the business today, it's in the 75% U.S., 25% international. I think historically, before Humira, you saw it more like 2/3 to 1/3. We haven't publicly disclosed what that U.S. OUS mix will look like over the long term. Obviously, it's portfolio dependent. I'd say that is the larger driver of fluctuations that you see there versus assumptions around price. And so as we drive this business, given the innovative platform, there's opportunities to grow in the U.S., there's great opportunities to grow internationally. But the way to think about it is, if you think about historical levels where it was before Humira, that's not a bad way to think about where it could go over time. But we haven't publicly disclosed what that mix looks like in our long-term outlook. Jeffrey Stewart: And then in terms of the enhanced IBD label, we -- we haven't fully quantified it, but I would say it's clearly a net incremental positive. We weren't sure, frankly, that we would get this type of language as we worked with the U.S. KOLs and the FDA, but we did. So we're very happy with that. Clearly, what we see is that this benefit will build over time based on the dynamics that I mentioned and Roopal mentioned, which is you're seeing a very significant transformation over the structure of the IBD space, whereas a few years ago, it was a heavy TNF focus. And now you see this ascension of the IL-23s, you certainly still have ENTYVIO in there. And so this is a net positive, and we're going to continue to monitor how effective this is with that 1, 2 punch with that in-play share that we're continue to be very pleased with. Elizabeth Shea: Thank Courtney. Operator, we have time for one final question. Operator: Our last question comes from Asad Haider with Goldman Sachs. Asad Haider: Just maybe, Rob, for you on M&A. Just any updated thoughts following the recent acquisitions, Capstan and Gilgamesh. Just curious as to what your latest thinking is on business development. You've always referenced BD priorities that are geared towards the 2030s. Is that still the case? And amongst your core therapeutic areas, where would you prioritize adding? And then just also curious if you have any appetite for larger deals? Robert Michael: Thanks, Asad. This is Rob. I'll take that question. You're right, our BD focus continues to be on assets that can drive growth in the next decade and beyond. I mean we certainly have the financial wherewithal to pursue late-stage opportunities as well. But that's not really a need given that our current portfolio provides a clear line of sight to growth into the next decade. And that's why we have focused our efforts on novel mechanisms and platform technologies that can drive longer-term growth. And that includes B cell depletion approaches, which Roopal mentioned, and oral peptides capabilities in immunology, trispecifics and an in vivo CAR-T platform in oncology. You look at neuroscience, there's novel mechanisms for mood disorders and Alzheimer's that we've licensed in. And we have a very compelling siRNA platform that can generate opportunities across all 3 of those therapeutic areas. And we've also utilized BD to enter another growth area, obesity, which as Roopal mentioned, we will build upon. Again, given the strong outlook of the portfolio, we'll continue to focus on BD efforts that really drive long-term pipeline opportunities. And the areas of focus are our core areas: immunology, neuroscience, oncology, aesthetics, and we've now added obesity. And so you think about those are the areas. And if you think about the 30 deals we've executed, more than 30 deals we've executed over the last 18-plus months, there's been a nice mix between immunology, oncology, neuroscience, a few deals in aesthetics. So I think you should expect us to continue to add, I'd say, very robust depth to our pipeline to drive that long-term growth well into the next decade. Elizabeth Shea: Thanks, Asad. And that concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at investors.abbvie.com. Thanks again for joining us. Operator: Thank you. That concludes today's conference. You may all disconnect at this time.
Operator: Good morning. Today is Friday, October 31, 2025. Welcome to the Toromont Industries Limited Third Quarter 2025 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle. John Doolittle: Okay. Thank you, Joelle. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the third quarter of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. In the start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions. So let's get started and move to Slide 3. And I'll pass it over to Mike. Michael Stanley McMillan: Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. Our team delivered solid results in the third quarter, executing effectively despite persistent macroeconomic and trade challenges. We remain focused on long-term success, continuing to invest in our people and capabilities to support our customers and drive sustainable growth. Net income rose aided by a property sale, while underlying earnings reflected gross related investments, lower net interest income and short-term noncash costs from the AVL acquisition. The Equipment Group executed well with solid activity in rentals, product support and used equipment deliveries in construction and mining. However, activity levels still reflect the economic environment, which continues to impact end-customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. Revenue declined as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new equipment sales, which was as expected in the Mining segment. Rental revenue rose driven by a larger fleet. Product support revenue increased due to higher parts and service volumes. Operating income in the third quarter included a pretax gain of $13.7 million on the sale of our property. Excluding this gain, operating income was 1% lower for the quarter, given a strong comparator which reflected market dynamics in play at that time, along with the higher expenses. CIMCO posted higher revenue and earnings driven by good demand and disciplined execution in both Canada and the U.S. Growth in the package -- in package revenue was supported by a strong order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased on higher revenue and solid execution, partially offset by lower gross margins and an unfavorable sales mix, which is lower product support revenue to total revenue and higher expenses to support activity and growth in the segment. We continue to work closely with our new partners in AVL, focusing on this promising market. Production in Hamilton has ramped up since the acquisition supporting our healthy order backlog and demand. Hiring and development of production capacity continues. As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand capacity and to better serve the Eastern U.S. market. This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. While the business is performing well, the bottom line contribution on a year-to-date basis reduced EPS by approximately $0.02 per share related to various noncash related purchase price accounting items. Of course, more detail is available on our financial statements and disclosures. Let's turn to Slide 4, our key financial highlights. Investment in noncash working capital decreased 13% year-over-year largely on lower inventory levels, partially offset by higher accounts receivable and accounts payable balances due to equipment delivery timing. Accounts receivable increased mainly reflecting the addition of receivables from the recently acquired AVL operation. DSO increased by 1 day to 48 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined partly due to executed deliveries against the order backlog, inventory management initiatives as well as lower work in process at CIMCO, reflecting project and service timing. We ended the quarter with ample liquidity, including $1 billion in cash, an additional $453 million available under existing credit facilities. During the quarter, we also completed the redemption of our 2025 debentures at par as previously announced. Our net debt to total capitalization ratio was negative 9%. Overall, our balance sheet remains well positioned to support operations and navigate the evolving economic and business conditions. We will continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities. Toromont targets a return on equity of 18% over the business cycle. Return on equity was slightly below this at 17.5%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.3%, also lower year-over-year, reflecting our increased capital investment. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.52 per share payable on January 5, 2026, to shareholders of record at the close of business on December 5, 2025. John, back over to you for a more detailed commentary on the results. John Doolittle: Okay. Thank you, Mike. Let's turn to Slide 5 for a few initial comments on the consolidated numbers. As Mike noted, profitability improved in the third quarter of 2025 compared to last year and compared to the first half of the year, benefiting from a $13.7 million pretax gain on the disposition of a property. Excluding this, operating income was $0.9 million or 1% from the similar quarter last year. Equipment Group revenues were lower as expected, with declines in Mining, which is coming off a comparatively strong period of capital investment, partially offset by revenues at the newly acquired business AVL. While uncertain market conditions persist, and customer purchasing decisions and activity are somewhat mixed, rental and product support revenues increased, CIMCO revenue increased on a continuing good demand for its products and services. On a consolidated basis, gross profit margins improved compared to prior year on good execution and better sales mix. Expense levels reflect continued support for key operational focus areas. Net interest expense was higher than the prior period, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned on cash on hand due to lower interest rates. Bookings for the third quarter increased 47% compared to Q3 2024 and increased 13% on a year-to-date basis. We saw good order intake in construction and power systems, which includes a significant contribution from the acquired business, partially offset by lower mining orders. Backlog remains healthy at $1.3 billion, up 17% year-over-year with an increase in both the Equipment Group up 15%, and at CIMCO, up 24%. Backlog remains healthy and reflects deliveries in progress on construction schedules, good new booking activity and backlog related to the acquired business. On a consolidated basis, revenue decreased 2% in the third quarter with a decrease in the Equipment Group of 4%, largely driven by lower mining deliveries against a strong comparable and an increase of 22% at CIMCO on higher package and product support revenue. For the first 9 months of the year, revenue increased 2% as the Equipment Group revenue was comparable to last year, while CIMCO was up 15%. Excluding the property disposition gain in the acquired business, SG&A expenses increased 9% in the quarter, 3% year-to-date. Higher DSU mark-to-market adjustments increased expenses in both periods, accounting for approximately 30% of this increase. Compensation costs were higher year-over-year, reflective of regular salary increases, partially offset by lower profit sharing accruals on lower income. Salary headcount is largely unchanged year-over-year. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. Expenses increased slightly to 12.6% of revenue compared to 12.1% last year on a year-to-date basis. Operating income increased 8% in the quarter and excluding the property gain, increased 1% compared to Q3 2024 as higher gross margins were partially offset by lower revenue and higher expenses. On a year-to-date basis, operating income was relatively unchanged. However, excluding the gain on property disposition, operating income decreased 3%, reflecting higher expenses, partially offset by the gross margin improvements. As a percentage of revenue, operating income was 12.1% on a year-to-date basis compared to 12.4% last year. Net interest expense increased $4 million in the quarter and $18 million on a year-to-date basis, reflecting interest expense from higher borrowings with the new senior debentures issued in March 2025 as well as the lower interest income earned on cash due to lower interest rates. Net earnings increased 7% or $9.7 million in the quarter compared to last year and decreased 3% or $10.8 million for the first 9 months of the year. Basic earnings per share $1.73 in the quarter and $4.18 year-to-date, reflecting the change in net earnings. Turning to the Equipment Group on Slide 8. Revenue declined 4% in the quarter as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new product sales as expected in the Mining segment. For the first 9 months of the year, revenue was relatively unchanged. Equipment sales, including both new and used equipment were down in both the quarter and on a year-to-date basis by 12% and 2%, respectively. New equipment sales decreased 15% in the quarter, 2% year-to-date with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue in the acquired business. Used equipment sales increased 7% in the quarter, largely driven by improved activity in mining and construction markets and decreased 6% year-to-date. In most markets decreased predominantly led by the lower construction market, slightly offset by improved mining market activity. Looking at the market segments. Total equipment revenue decreased 4% in Construction and 60% in Mining, while Power Systems increased to 102% and Material Handling increased 6%. Rental revenue was up 5% in the quarter and was up 10% year-to-date. While market conditions remain relatively soft, revenues increased compared to the prior year, reflecting a larger fleet and improved utilization in certain areas. Revenue improved in most areas for the quarter as follows: heavy equipment rentals were up 24%, material handling up 26%, partially offset by a decrease in the light equipment rentals, down 2%, and power rentals down 20%. The RPO fleet was $104 million versus $81 million a year ago, and the rental revenue was up 73% per quarter and 60% year-to-date compared to similar periods last year. Product support revenue increased 4% in the quarter and 2% year-to-date with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Looking at specific markets for the quarter, change in revenue was as follows: Construction was up 11%; Mining down 3%; Power Systems up 1%; and Material Handling up 6%. Gross margins -- gross profit margins increased 250 basis points in the quarter compared to Q3 2024 and increased 20 basis points on a year-to-date basis. Equipment margins were up 110 basis points in the quarter, up 40 basis points year-to-date, reflecting market dynamics in play in both periods. Rental margins were relatively unchanged in the quarter, down 30 basis points year-to-date on the higher cost of fleet additions. Product support margins increased 30 basis points in the quarter, down 10 basis points year-to-date, reflecting the nature of the work and sales mix. Sales mix was favorable for both the quarter and on a year-to-date basis, reflecting a higher proportion of product support revenue to total revenue in each period, increasing margins 110 basis points and 20 basis points, respectively. Excluding the gain on the property disposition and the acquired business in 2025, selling and administrative expenses increased $11 million or 8% in the quarter and $10 million or 3% for the first 9 months of 2025. Higher DSU mark-to-market adjustments increase expenses in both periods, again, accounting for approximately 30% of the increase. Compensation costs were higher in both periods, reflecting regular salary increases, partially offset by lower profit sharing accruals on lower income. Other expenses such as training, travel and occupancy costs had increased in the light of sales levels, planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.3% in the first 9 months of the year compared to 11.7% in the similar period last year. Operating income increased 7% for the quarter and decreased 2% for the first 9 months of the year. Excluding the property gain, operating income decreased $2 million or 1% in the quarter and decreased 5% year-to-date, reflecting lower activity levels and higher expenses. The acquired business continues to increase production; however, it did not contribute meaningful to operating income given the expenses arising from purchase price accounting, including such items as amortization of intangibles in the setup of our new U.S. facility. Bookings increased 49% in the quarter. Construction markets were marginally higher with bookings up 2%, reflecting more normalized supply dynamics. Our systems, which includes the acquired business saw strong order activity of 388% with good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and were down 43% as expected from the third quarter last year which was a strong comparable. Backlog of $923 million at the end of September remains at healthy levels. Backlog includes approximately $278 million at AVL, which has a delivery schedule over the next 2 years. Excluding this, backlog was 20% lower compared to the same time last year, reflecting good deliveries against customer orders over the last 12 months, along with good new order intake over the same period. Approximately 80% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to the timing differences depending upon vendor supply, customer activity and delivery schedules. When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog. We expect this backlog to be substantially shipped by the first quarter of 2026. However, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 related to 2025 performance. Also, keep in mind the production ramp-up in Charlotte that Mike noted in his remarks. Let's turn to CIMCO on Slide 7. Revenue was up 22% in the quarter and 15% for the first 9 months of the year. Package revenue increased 28% in the quarter and 23% year-to-date with good execution on equipment delivery and progress on customer schedules. Recreational activity increased 67% with higher revenue in both Canada and the U.S. Industrial market revenue decreased 18% with lower activity in Canada against a strong comparable and higher activity in the U. S. Product support revenue increased 14% in the quarter and 7% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was relatively unchanged in the quarter but were up year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base. Gross profit margins decreased 70 basis points in the quarter and increased 20 basis points on a year-to-date basis versus the respective comparable periods. Package margins reflect good execution and the nature of projects in process for both periods, driving a 60 basis point increase year-to-date. Product support margins decreased 50 basis points in the quarter and 10 basis points year-to-date. Improving execution and efficiency continues to be a focus. An unfavorable sales mix with a lower proportion of product support revenue to total revenue dampened margins in both periods, resulting in a 20 basis points and 30 basis point reduction in gross margin, respectively. Selling and administrative expenses increased $3 million or 18% in the quarter and $5 million or 10% for the first 9 months of the year. Compensation costs increase reflects staffing levels, annual salary increases and higher profit sharing accruals and higher earnings. Other expenditures such as travel and training expenses increased the support activity and staffing level. As a percentage of revenue, selling and administrative expenses improved to 14.8% in the first 9 months of the year versus 15.6% in the comparative period last year. Operating income was up $3 million or 19% for the quarter and $9 million or 25% for the first 9 months of the year, largely reflecting higher revenue, partially offset by the unfavorable sales mix, lower gross margins to higher expenses. Operating income as a percentage of revenue increased 100 basis points to 11.4% on a year-to-date basis compared to the similar period last year. Bookings increased 35% or $20 million in the quarter and were 13% higher, up $25 million on a year-to-date basis. Industrial orders were up 24%, while recreational orders were down 8%. Generally, activity is continuing with a good strategic capital investments. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $341 million was 24% higher versus last year, with higher backlog in both recreational and industrial markets. Backlog in the U.S. was solid, up 46% from this time last year, and backlog in Canada was up 13%. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules. And with that, we can move to Slide 8, turn again to Mike to highlight some of the key takeaways as we look forward to rounding out the year. Back to you, Mike. Michael Stanley McMillan: Great. Thanks again, John. So as John mentioned, as we round out the year, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined and financial and operational rigor to support our long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between the U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts. Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps protect our bottom line, broader economic effects may still present challenges. Macroeconomic conditions, including inflation and interest rates are being closely tracked. As John mentioned, our backlog of $1.3 billion and the equipment supply chain is well positioned to support customer requirements. The AVL acquisition continues to track to our production plan though near-term earnings contributions remain modest due to noncash purchase accounting adjustments, as noted earlier. We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings. From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which equipped us well to navigate near-term uncertainty while pursuing strategic growth opportunities. Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We'd now be pleased to take your questions. Joelle, over to you, please, to set up the first call. Operator: [Operator Instructions] Your first question comes from Yuri Lynk with Canaccord Genuity. Yuri Lynk: A couple of questions on AVL, if you'll allow me. Really good sequential growth in revenue. Wondering after a couple of quarters of ownership here if you're willing and able to kind of put a revenue number on what the Hamilton facility is able to do on an annual basis with the capacity expansion in place? Michael Stanley McMillan: Yes. Thanks for the call, Yuri. Maybe I'll start with that. But what I would suggest you is it does fall in under our Equipment Group, of course, within the Power segment. And probably the best indication that we had directed to is the disclosure we provide in terms of backlog, and that will be a good indication at this stage. As John mentioned, we are providing some clarity around the earnings performance and some of the noncash adjustments as we work our way through that. But I think at this point, that's what we've included in our disclosure. Yuri Lynk: Okay. And that's, I guess, what you're saying there, the backlog is -- you're viewing that as a 12-month -- kind of be executed over 12 months? John Doolittle: Yes. I think in my remarks, I think we said the backlog -- existing backlog will flow at over 2 years, Yuri. Michael Stanley McMillan: Yes. I mean, keep in mind as well, a little bit of that is going to be dictated by construction schedules for the underlying data centers and delivery. But I think the 2-year mark would be the furthest extent. Yuri Lynk: Okay. And can you share how the ramp-up of the Charlotte facility is going, particularly your ability to staff that facility? Michael Stanley McMillan: Yes. No, a great question. So we're quite happy with progress there. Again, we acquired that facility in Q2, and we do have some limited production starting on 1 line, there's 3 lines. And as I mentioned in my comments, we expect that to ramp up throughout the course of 2026. Hiring to date has been pretty -- has been tracking at least to plan. And so we've had good responsiveness. And we do have a great team down there. By the way, we have set up a team managing the facility and also local recruiting and HR management. And so it's been progressing nicely. Operator: Your next question comes from Krista Friesen with CIBC. Krista Friesen: I was just wondering if you could provide a little bit more color on what you're hearing from some of your customers in the Construction segment in particular, especially given the number of announcements this year and the budget announcement coming up next week? Michael Stanley McMillan: Yes, that's a great question, Krista. I think we're all anxious to hear the announcements that are due next week prior to the great cup apparently. And so looking forward to that and also the sequence and timing. So from a customer perspective, I mean, I think longer term, I think we all feel that there's reasonable tailwinds and lots of interest in investment in infrastructure and so forth. I think part of what we're waiting for, though, is beyond the provincial indications is something more concrete coming out of the federal side of the government, and I think just the funding and how they're going to match that progress. So stay tuned for that. I mean I think cautious optimism is there, but I think the timing and sequence of when shovels will be in the ground and so forth, that's the question for most. Krista Friesen: And maybe just further to market sentiment. I appreciate it's still a relatively uncertain environment. But let's say, relative to the spring, are you finding that there's a bit more confidence or certainty in some of your customers or still kind of up in the air? Michael Stanley McMillan: Yes. I think if you think about it -- and maybe I'll start and John can speak a bit on -- we tend to think of it by segment a little bit. Like if you look at say, the Mining segment, for example, right now, we do see continued interest in investment. Of course, the activity is dictated by mine development schedules and so forth that we do see with gold prices and things that there still seems to be a fair bit of activity, longer cycle, of course, but some good sentiment there. I think construction, when you separate it between, say, typical construction activity versus residential, that's probably where we see -- we still tend to see softness on the residential side and the infrastructure supporting that residential development. And so that would probably be the area where we see the most uncertainty. However, we are seeing some small projects in road construction, a few things like that you typically would see. John Doolittle: Yes. I agree, Mike. It really varies by segment, some regional impact as well, Krista. Operator: Your next question comes from Cherilyn Radbourne with TD Cowen. Patrick Sullivan: This is actually Patrick on for Cherilyn. I was just wondering, we saw, I guess, mid-single-digit product support growth year-over-year. But to what extent do you have visibility on an upcoming inflection in that product support based on the fact that you had some very, very strong deliveries over the last 2 years. Michael Stanley McMillan: Yes, great question, Patrick. Thanks for that. I think as you mentioned, I mean, we're starting to see a little bit better activity levels. We're up about 4%, I think, say, in the Equipment Group. And although we saw very strong product support on the CIMCO side, I think it was overcast a little bit by package growth, which outpaced it. So both the areas we're seeing some positive year-over-year performance. I think you sort of touch on an important point. We've seen some -- the team has done a really nice job delivering new equipment with availability improvement over the last, say, 18 to 24 months, getting the hours and the activity levels because we have seen a little softer activity environment, getting those hours on those machines and then seeing parts consumption product support requirements beyond preventative maintenance is certainly what we're watching for. And I think that will all come. As we see improved activity over the next, say, 12 to 24 months, we should start to see a little bit stronger product support on the equipment side. However, it does take time, right, for the equipment to get the hour zone that we expect. The other piece of that, of course, is on the mining side, where we've had some nice deliveries, and it does take -- like we've said, John and I, it could take 2 to 3 years before some of that new equipment gets to a point where product support requirements are beyond preventative maintenance. Patrick Sullivan: Okay. Great. And then I guess on data center stuff. So much of a discussion of potential future data center activity has been focused on Western Canada so far. But given the time lines to build these things, and then I think we're starting to hear that timelines on power system gensets maybe starting to extend as well again. Can you discuss if there's just any early discussion you're hearing in Eastern Canada given timelines, it could be 2, 3, 4 years out? Michael Stanley McMillan: Yes. I think it's difficult to speculate, Patrick. One of the constraints, obviously, on the data center side is availability of energy to support these facilities because they do consume a lot of energy. And so I would say that there are some discussions. I think your time frame is probably pretty accurate in terms of what it takes to construct and we would certainly participate as best we can from the backup power generation. There may be the opportunity for some prime power. But yet to be determined, right, in Eastern Canada. John Doolittle: Yes. I mean the other thing I would add, Pat, is a lot of discussion over the last several weeks about data privacy and containing some data in Canada. And so I think that it maybe will spark an interest as well across the country in terms of data center build-outs over time. Operator: Your next question comes from Devin Dodge with BMO Capital Markets. Devin Dodge: Maybe just picking up on the last question. With the size of data centers continuing to increase, we've seen lead times for gensets kind of extend out. Have you seen interest from developers to transition away from reciprocating engines for backup power to higher power units such as turbines? Michael Stanley McMillan: Yes. Thanks, Devin, for the question. Good question. I mean, I guess, that is sort of the constraint that we mentioned earlier is I would say it's early days, especially in our markets before we can really comment on that. I think, ideally, it's great connection and clean power coming out of hydroelectric sources would be the ideal situation in our marketplace, right? I do think there are business cases that are being contemplated for interim solutions to bridge, right, while that development takes place over time. But I'd say it's a bit speculative right now to say it's going to go too far in that direction. But one that we certainly are monitoring carefully. Devin Dodge: Okay. Makes sense. Maybe just a question on AVL. Look, big sequential improvement in revenue. I think you touched on some things already here. But just wondering if this -- the Q3 revenue, does that reflect the full contributions from the recent expansion in Hamilton? Or is there more to go? And is it fair to assume that the initial contributions from the facility in Charlotte were pretty minimal in Q3? John Doolittle: Yes. We're running at close to capacity in Hamilton. Maybe some additional on closures, but not many. So we're running pretty close to capacity there. In Charlotte, we're really just getting up and running. As Mike said, we've been successful in hiring. There are some costs to get the facility up and running. So the contribution from Charlotte in the quarter was minimal, if any. Michael Stanley McMillan: Or ramp-up costs. Operator: [Operator Instructions] Your next question comes from Steve Hansen with Raymond James. Steven Hansen: Just out of curiosity, are you taking orders or bookings at this point for the new facility? Like or any of that you suggest over 2 years, the current backlog stretches. But have you started to take on those new orders for the Southern facility? Michael Stanley McMillan: Yes. Thanks for the question, Steve. Yes, I would say as we continue to ramp up production there, again, part of that is dictated by the schedule and the hiring that we mentioned earlier and so forth. But we are seeing some interest in demand. And as we mentioned in our comments, it's really that facility is intended to help support demand in the Eastern seaboard of the U.S., and we are starting to pick up some orders, and you'll see that reflected somewhat in our backlog. We don't break it out, obviously, but between the two facilities, and we can supply that market by both facilities out of Hamilton and Charlotte. However, we're starting to see some good interest there given the proximity. Steven Hansen: Okay. Helpful. And just maybe a point of clarification or just you provided some good disclosure in the footnotes that in the MD&A. But frankly, it's still a little bit difficult to understand what your pretax margins are on AVL. Can you just comment on where those stand roughly? And we can still see the noncash expense that you outlined and the revenue you outlined, just a little bit murky between the net income piece and the operating line. I mean it looks like these margins are quite healthy. And then maybe once you comment on that, just sort of how you think about the durability of that? I think last quarter, you referenced a lot of the tightness in issues, allowing you to overrun a little bit. How should we think about the trajectory of those margins over time? John Doolittle: Steve, thanks for the comment on the disclosure. If you go to Page 3 on the business combination section, we laid it out, I think, pretty clearly, we give you the revenues for the quarter, we give you the amortization cost for the quarter and we give you the net income for the quarter. And so I think you can back into the margins, and I think your conclusion is correct in terms of the margins are good. And we'll continue to monitor that as we expand the Charlotte facility, and we'll see how that goes over the course of the time, I'm not going to call out where margins are going. But you're right in your assumption right now. Steven Hansen: Okay. Helpful. I would just suggest maybe a table every quarter would be helpful just for everyone, so it's perfectly laid out if possible. Secondarily, just on a separate topic, could you just maybe comment on the backlog side a little bit. Again, the influence of AVL is obviously showing really strongly given how great that business has been performing. Just curious on the mining backlog if you're surprised at all. I know it's been -- I know it's a lumpy business, but I'm also surprised that there hasn't been some uptick in mining a little bit. Is there any visibility on the mining business improving here from early discussions and a lot of the conversations around Northern development and things. Have you seen any sort of early stage or advanced talks on that front? Michael Stanley McMillan: Yes. Thanks, Steve. I think -- so just on the mining side, I think, again, as we mentioned -- and you touched on it here in your comment in your question, it is very cyclical and lumpy given the mine development schedules. And so on one hand, I would say, especially in precious metals like gold, we're seeing continued investments, some expansion, some opportunities and some other commodities. However, given the development cycle, the investment cycle and so forth, they are lumpy. And so we're not surprised by the backlog. We anticipated that. We had, over the last 18 to 24 months some really strong equipment deliveries over time. And I guess all I would say is, look, our team is fully engaged in looking to earn their way into opportunities as they develop over the next several years. We are hearing certainly in the Ontario market, say, for example, some interest in developing some of the rare earth areas and things like that in Northern Ontario. And again, that's up to our team to participate in those opportunities and to earn our way into them. And so it'd be difficult to forecast what we're seeing there, but nice to see that there is some investment interest and I think the silver lining based on the trade discussions that we're hearing about every day. Operator: Your next question comes from Jonathan Goldman with Scotiabank. Carol Adu-Bobie: This is actually Carol on for Jonathan Goldman. So on AVL, particularly the new facility, how should we think about the level of OpEx required to support growth? John Doolittle: Yes. I mean we're -- as we talked about from a capacity point of view, we're really just building the employee base right now. We said that it's going to ramp over the course of time. So as you're ramping up the business, you would expect that OpEx would be heavy compared to revenue at the beginning, and then it will work its way out. So that's the way I would kind of model that is a little heavier on OpEx at the beginning. And then as we ramp up sales, it will come back to normal levels. Michael Stanley McMillan: Yes. And I think the only other thing I think worthy of mentioning there is, it's an owned facility. And I think we mentioned we've put about 60 into it. And so as we continue to ramp that up, that's the way you should be thinking about that facility from a fixed investment perspective. Carol Adu-Bobie: Okay. And another phenomenal quarter for CIMCO with double-digit growth. Can you talk about what's supporting growth, whether it's demand outside of your core end markets? And how should we think about the sustainability of current growth rates? Michael Stanley McMillan: Yes. It's a great question. Thanks for the question. I mean if you look at our numbers on the quarter, again, the team has done a nice job over the last 12 to 18 months and continue to show sequential growth. I think as we always mentioned, the package side is a bit lumpy just due to the nature of that part of the business, right? So the industrial side of things, construction schedules. And even on the recreational side as we do conversions to CO2 or ammonia, that side of the business can have ebbs and flows based on construction and the seasonality in our marketplace. If you look at our backlog, again, we saw some good bookings in the quarter and on a year-to-date basis, CIMCO is sitting at about $341 million, which again is a very strong number for the business, especially when you compare to historical trending and so forth. And so all that to say, what we are seeing is we certainly see ebbs and flows between Canada and the U.S. We also see it between commercial, industrial side and recreational. And I think, generally speaking, what we saw in the quarter and in the performance year-to-date is some good activity across each of the segments that we serve. Operator: Your next question comes from Maxim Sytchev with National Bank Capital Markets. Maxim Sytchev: I was wondering if it's possible to get a bit of a comment in relation to the Equipment Group's overall pricing trends. I think Caterpillar was a bit more -- provided bit more important commentary on their call. Just wondering what you're seeing in the marketplace right now? Michael Stanley McMillan: Yes. Maybe just to start on that, and John can probably give you a little color on the margin side. But I would say, again, first of all, I would say we wouldn't comment on Caterpillar in their results in the sense that they're much more diversified geographically and by a number of end markets. When we look at our particular marketplace, on the equipment side, we talked a little bit in our commentary about a bit of a movement between equipment sales, excluding mining, we're down a little bit on new but up unused. We're seeing a bit of a shift. We're quite pleased with the performance of the team in the sense that when we monitor market share and activity levels in our markets, they are down, especially in the heavier construction side, but our market share and things have done well. And so the team has done a really nice job executing there. Availability, as you know, Max, is really strong in the marketplace, whether you're looking at GCI product or the mid-tier BCP or CCE, it's very strong. So I think at the end of the day, we're adapting to our market conditions and trying to make sure that when we work with our customers, whether it's a rental, a newer or used equipment, whatever the requirement is we're there to support them, and we're very competitively positioned to help support the move in the longer term. So I can't really give you much more color than that, but... John Doolittle: Yes. Just on margins, I mean, we've talked about margins on new and used kind of coming back to more normal levels over the last little while stabilizing. We have a good mix this quarter in terms of the equipment that we shipped in terms of construction and power, a little lots on the mining side as we talked about. Rental utilizations were up a little bit, which was good news. And then product support as a percentage of the total was up. And so those all contributed to the mix issue. And as Mike talked about, our hope and plan is that product support continues to grow as the equipment that we have shipped over the last couple of years needs parts and service. Maxim Sytchev: Sure. And I guess do you maybe just touch a little bit on to the RPO, I mean that seems to be moving in the right direction as well? John Doolittle: Yes. The RPO, I'd say it's probably back to where it was in prior years before we had supply issues, Max. I think we got $101 million right now. It really is used as a cash management tool by our customers where they don't have capital, particularly in time, so it's a financing cash management issue, and we expect most, if not all, of that to convert as it usually does to sales over the course of normally 12 months. Maxim Sytchev: Okay. That's great. And one last clarification. Like free cash flow was very strong in Q3. Should we assume kind of the typical seasonality for Q4? Was there anything unusual when it pertains to this particular quarter? Or how should we think on a prospective basis? John Doolittle: Yes, cash flow -- operating cash flow was very good in the quarter, some $250 million or close to $250 million. And the inventory levels were up over the last couple of quarters, and the team did a really good job managing inventory levels this quarter. So that was a big contributor to it as well. So really pleased with the balance sheet management in the quarter and the cash flow. Maxim Sytchev: Right. But I guess for Q4, should we assume kind of like a typical seasonality that we see? Or is there anything unusual we should be mindful? Michael Stanley McMillan: Yes. I wouldn't think there's anything unusual there, Max. Like you say, I think we're sort of seeing more moderation, more normalization there. The question we always see is depending on how Q4 goes, year-end buys, we do have, obviously, equipment. We have a snow season ahead of us. But we don't -- we wouldn't predict anything unusual. Operator: Your next question comes from Steve Hansen with Raymond James. Steven Hansen: Just a clarification. Is there a reason the dividend hasn't been started to pay to the minority shareholders on AVL? Just, John, you referenced the starting point in first quarter, I was just curious. John Doolittle: Sorry, is the question on the dividend on AVL, Steve. Yes. So we're in the first year of the acquisition. And we'll have to see, of course, how the first year earnings turn out, what cash flow looks like, which cash balance looks like and then the Board will meet. We have an obligation to meet as a Board and determine how much of a dividend we should pay out based on the full year performance of AVL. So that's why it's a 2026 related issue. Steven Hansen: And it will be a quarterly regular -- or will it be lumpy year, how should we think about it? John Doolittle: Yes, I have to come back to you on that one as well. Again, the Board will meet and determine how we're going to pay out that dividend, whether it's a onetime or over the quarter. So I'll come back to keep you posted for sure. Steven Hansen: Okay. Helpful. And then just one last one, if I may, is just around the margin profile for the Equipment Group. We actually saw a nice uptick in the period. I assume part of that's mix. There's some of the disclosures suggest equipment side also had some benefit. I mean are you starting to see some stabilization in the competitive environment out there? We saw such a large swing in supply side opportunity over the last couple of years that's created some pressure, of course. But I mean, how are you thinking about the margin profile for new equipment packages going out today versus even a year ago? Michael Stanley McMillan: Yes. Maybe just to start on that, Steve. I would say it's -- again, it's -- there's availability in the marketplace is certainly much stronger and has been persistent throughout the year. And so I think part of it is, as John mentioned earlier, when you look at the mix of sales, especially if you're just looking at the quarter, but on a year-to-date basis, you'll see the product support has started to come into play. Rental has improved a little bit. And then the equipment, we're seeing movements, especially on the mining side. Keep that in mind because as we see deliveries in mining, again, they're generally slightly lower margin but larger dollars and so forth. And so there's even mix within the new segment. And as we talk about the backlog and fulfilling that backlog, I think you're going to see some ebbs and flows there. But I would say it's certainly a well-supported market in terms of availability broadly. Operator: There are no further questions at this time. I will now turn the call over to John Doolittle for closing remarks. John Doolittle: Okay. Thank you very much, Joelle, for helping us out today. Thanks for joining us, everyone, and for some great questions as usual. And that concludes our call. Please be safe. Go Blue Jays. Have a great day. Operator: 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 day ladies and gentlemen, welcome to the third quarter results 2025 analyst conference call of FUCHS SE. This conference will be recorded. [Operator Instructions] May I now hand over to Andreas Schaller, Head of Investor Relations at FUCHS SE, who will start the meeting today. Please go ahead. Andreas Schaller: Yes. Thank you, Sharon. Good afternoon, ladies and gentlemen. This is Andreas Schaller speaking. On behalf of FUCHS SE, I wish you a very warm welcome to today's conference call on the 9 months earnings. Before we start, maybe let me quickly introduce myself. I'm the successor of Lutz Ackermann as new Head of Investor Relations at FUCHS SE. I have almost 25 years of experience, having worked in various sectors like semiconductors, building materials and also machine building. And now I'm at the company that supplies all these sectors with very innovative lubricants. So I'm very happy to be here and look forward to discuss the FUCHS equity story with you and support you together with my team whenever you have questions. With me on the call today are our CEO, Stefan Fuchs; and our CFO, Esma Saglik. As always, Esma and Stefan will lead you through the presentation, followed by a Q&A session. We also have the Investor Relations team here with us. So Theresa Landau; and Niclas Neff. And actually, it's Niclas's birthday today. So happy birthday, Niclas. Yes, all the documents to this call, you can find on our web pages, and you've seen that you have them in front of you. Please be also aware of our disclaimer on the last page of the presentation. And now it's my pleasure to hand over to Esma. Please go ahead. Esma Saglik: Thank you, Andreas. And first of all, happy birthday to you, Niclas. And secondly, Andreas, great to have you here and welcome you on board actually. We are really looking forward to work with you. So -- but let's go and talk about our financial highlights for the third quarter. After a tough second quarter, we saw a strong recovery in Q3. But still, the environment is challenging, especially in Europe, where the demand remains weak. Mainly uncertainty in the market overall continues. Despite all the volatility, we managed to grow our business, both organically and through acquisitions. Sales rose by 1% to EUR 2.7 billion. Currency effects had a negative impact of EUR 51 million, mainly due to the stronger euro versus the U.S. and Australian dollar and the Chinese renminbi. EBIT also developed positively in Q3, even exceeding last year's Q3 results. After 9 months, we reached a profitability of EUR 326 million, which is EUR 8 million or 2% below the prior year. So what were the key drivers? It was a strong business mix, especially in North America, continued growth in Asia, here to mention China and the first effects from our cost measure initiatives we have initiated a quarter ago. Our free cash flow came in at EUR 181 million, which is a solid result. So all in all, we are on track, and that's why we confirm our 2025 outlook as communicated in July. On the next slide, you can see the sales development by quarter. Compared to the previous quarter, sales increased by around 2% to EUR 869 million (sic) [ EUR 896 million ]. The growth came from all regions. However, if we compare it to Q3 last year, sales are down by EUR 6 million. This decline is mainly due to negative currency effects impacting the quarter by EUR 32 million. As we all know, the euro continued to get stronger in Q3, which led to a higher FX impact than in the first half of the year. Looking ahead, we expect Q4 revenues to remain broadly in line with our prior year. Let's move to the next slide and take a look at EBIT on a quarterly basis. The picture has changed compared to the last quarter, which is actually a good signal. We can see an improvement of 16% in EBIT sequentially, and we are even slightly above our strong third quarter of last year. For the last quarter, we expect EBIT to develop in line with our expectations, which would bring profitability to almost the same level as last year. Having a look to our group sales development, we are actually happy to see sales growing year-over-year and this both organically and through acquisitions, despite the tough market conditions we are facing right now. As of September, sales reached EUR 2.7 billion. That's a year-over-year increase, as mentioned, of 1% or EUR 34 million in absolute terms. Both organic growth and acquisitions were contributing equally to this positive development. The organic growth came mainly from Asia Pacific and the Americas, which is underlining the strength of our local-to-local strategy and the strategic investments we have made over the past years. The growth of these 2 regions was even being able to offset the moderate organic decline we have seen in EMEA. On the external growth side, our acquisitions, especially LUBCON and STRUB, now FUCHS SWISS LUBRICANTS made a strong contribution. Further additions came from BOSS and IRMCO, both being a part of FUCHS since beginning of this year. As you possibly read in the news, early October, we expanded our presence in Switzerland by acquiring our long-standing distribution partner, ASEOL SUISSE AG. This company will be merged into FUCHS SWISS LUBRICANTS by the end of the year. Despite all the good development at the top-line, unfortunately, a part of the growth got offset by negative currency effects. Taking a closer look at some of our KPIs about sales and EBIT, we have talked already. Looking to our gross margin, we see a steady improvement. Year-to-date, our gross margin stands at 34.9%, which is above last year. On the other hand, our functional costs increased also, mainly due to recent acquisitions we made, inflationary cost increases and onetime investments we did for new customer projects. Some of these costs are one-off costs or pre-investments, which will be -- which will normalize throughout the year. However, the rising cost base due to inflation still needs to be taken or needs to get closer attention. To manage this development, we have introduced cost control measures as we have announced also in our last call, of which we could see positive effects in Q3. So far, EBIT is down 2% year-over-year. But towards the year-end, we expect to reach prior year levels. Our key balance sheet indicators are on track. As of September, free cash flow reached EUR 181 million and both CapEx and the change in net working capital are almost in line with last year. So looking into the regions, in EMEA, the main growth driver are our acquisitions, which successfully offset the organic decline. The decline in organic sales is mainly due to the challenging economic situation in Europe, here, especially the weak automotive manufacturing sector. On the positive side, the acquisitions supported not only on the sales growth, but also contributed positively to earnings. I think it's also worth to mention that by the end of Q3, total profitability in EMEA was slightly above the prior year's level. I think that's a good sign despite all the difficult market environment we are facing in Europe. Moving over to Asia. The main growth driver in the region was clearly China, which showed an excellent result. Our decision to invest in local production is really paying off. India also gained momentum and grew faster, while Australia continued its positive trend, especially supported by solid growth in the automotive aftermarket segment. All of this together led to a profitability increase of 17% year-over-year. So in summary, the development in Asia Pacific is very positive and clearly confirms the strength and the potential of our regional strategy. Now coming to North and South America. As we all know, the region has been a bit volatile in recent months, mainly due to ramp-up activities and the unfavorable product. After a challenging Q2, we saw positive momentum in Q3. Sales increased compared to the previous quarter and EBIT improved, reaching its strongest level so far in 2025. The main drivers are a better product mix and the improved cost base we are seeing in the U.S. The one-off costs related to the Mercedes business are largely behind us and volumes are ramping up, which is a positive sign. So in summary, year-to-date, sales are up 2% and profitability is recovering. Now turning to the development to our net liquidity. Earnings after tax were close to last year's level. CapEx was in line with our expectations and the contribution from net operating working capital was also roughly on prior year level. As a result, free cash flow before acquisitions reached EUR 181 million by the end of September. However, despite the solid operating cash flow, dividend payments and acquisitions led to a cash outflow, which reduced net liquidity to EUR 30 million. On the next slide, we take a closer look at the quarterly development of our working capital. Overall, we see the usual seasonal pattern, an increase over the course of the year, followed by a reduction towards the year-end. The increase in Q3 is actually cutoff related. Inventory increased to prepare for a stronger sales month like October and November. Positive to note is that we managed to improve net working capital compared to last year, both in absolute terms and also as a percentage of sales. For the fourth quarter, we expect a typical seasonal decline in working capital as we move towards the year-end. Now a quick look at raw materials. For base oil, we saw only minor price movements in the past quarter. Euro-dollar currency effects are positively contributing. Looking ahead, base oil prices are expected to soften slightly. When it comes to the additive packages, prices remained broadly stable during Q3. But here as well, we expect a slight softening in the near future. However, developments around tariffs and current exchange rates remain uncertain and should be monitored closely as they could still have an impact on the material prices. As you know, in July, we have adjusted our outlook, which we confirm now again. We expect sales to remain at the same level as last year, slightly higher in volume, but balanced out by currency headwinds. For EBIT and our FVA, we expect 2025 to close at a strong level as 2024. When it comes to the free cash flow before acquisitions, we assume a normalization after last year's exceptional results and expect to land at around EUR 260 million. So in summary, 2025 is expected to end at a similar level as last year, which is a solid result, especially considering the high uncertainty in today's market. We are confident about our future because we have a strong business foundation, resilient structures and above all, very committed and motivated teams. But at the same time, the market environment remains uncertain. So therefore, we have to watch closely the market developments and be prepared to any potential headwinds. With that being said, I come to the end of my financial presentation, and I would like to hand over to Stefan. Stefan Fuchs: Thank you very much, Esma. Before we enter your questions, and we will answer a few slides about news from the FUCHS world since we met the last time. And I think the first part, Esma already mentioned, with 70 subsidiaries across the world, we were blank in Switzerland. So we had no subsidiary. We had a distributor there and Switzerland is a high-tech country. And it was very nice that when we took over LUBCON, they had a subsidiary in Switzerland, and then we acquired STRUB at the end of the year. And we have now a facility in Reiden in between Rudesheim and Basel. It's a modern facility. The building you see here on the picture is like an old, abandoned part of the property, which we will demolish moving forward. But now we have merged the 2 companies, LUBCON and STRUB and have renamed them in SWISS LUBRICANTS, and we have now also acquired the ASEOL distributorship. And all in all, we have now about 50 people on the ground, and we have revenues of CHF 20 million, which are nowadays EUR 22 million. And I think that's a good basis to grow in the future. So that was for us a really nice development. And then in the next slide, as you all know, sustainability is very important to us. It's at the bottom of our heart. And the economic part, Esma went through, I think the third quarter was on the good old track record you know. So on the economic side, I think we do well in the current circumstances. But I want to go into the other 2 parts. And if you go on the ecological part, the one part is lubricants themselves have a positive impact on the CO2 balance of our customers because they hinder wear and tear, but they also prohibit corrosion and many other things. They cool the electric -- they help the electric productivity. But our customers also want to know in the sheer chemistry, how much CO2 footprint is in each kilogram of the products we deliver. And we have an automated system now built in our recipes in SAP. But obviously, we need to make a couple of assumptions. And to be clear, we have them certified by the TUV Rheinland. I think we are front runner in the lubricants business that we can now tell our customers with a click on the mouse pad what the CO2 balance per kilogram is. I think that was very important for many of our customers. And then on the social side, we have a lot of social projects around the world. So our people are there not only for making money and succession planning in the countries, but also to be a good citizen. So we have a lot of social projects in the south side of Chicago, outside of Johannesburg, in Mumbai, wherever our plants are or in Sao Paulo, and we have scholarships and things like this. And in Germany, our flagship part is our FUCHS [indiscernible], how we call it. We do that since 26 years. And we started humble and now we have increased the amount to EUR 75,000 last year because it was the 25th Jubilee of that sponsorship award. But now, as Esma said, with the cost the volumes, we turn around each euro on marketing, on traveling, on consulting. But that part, we wanted to keep because it's very important for us and the region. And it's not only spending EUR 75,000, but it's also to provide a platform to all the people who do that and sacrifice private hours in doing social work. And as it functions, we have 50 applicants for projects, and they go through the city of Mannheim through their social welfare department. And then we actually celebrate 16 projects. There are 100 people here, the mayor of Mannheim is here, and we spend 2 hours with them, and they give us feedback what they do with the money. So it's a very emotional part, and I just wanted to share that with you. It was 2 days ago, and it's always a very nice ceremony. Now I hand back to Esma for a last slide for an announcement, and then we are happy to enter the discussion. Esma Saglik: Yes. And we are happy to announce our next Capital Markets Day which will take place on Thursday, April 16 next year at our headquarters here in Mannheim. This event will be a special one for us as we will officially launch our new strategic program, FUCHS 100. You all may heard already, this strategy is led by our Deputy CEO, Timo Reister, which will guide us from 2026 to 2031, the year where FUCHS will celebrate the 100 years of anniversary. So we are very much looking forward to welcoming you here in Mannheim and sharing our vision for the future with you in person. A formal invitation will follow in the coming weeks. And I think with that being said, looking forward to see you here in Mannheim next year latest. Andreas Schaller: Okay. Now we can start with the Q&A session, please. Operator: [Operator Instructions] And the first question today comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: My first one is on the associates income line at FUCHS. So this seems to be one of the reasons why the margins have held up reasonably well year-to-date. And notably, there was quite an improvement year-on-year in Q3 results. Could you talk a little about what has improved in the equity income associates and if this could be expected to continue into Q4 and 2026? My second question is on the organic volume growth in the Asian market. If you were to just come up with one cause that is driving this versus, let's say, 2, 3 years ago, is it that FUCHS has signed good deals with Chinese automotive manufacturers or other reasons at play? Stefan Fuchs: Okay, Sebastian, thanks a lot for the question. I will start with the Chinese question, which is very important. As you know, a good part of FUCHS in Asia is China, followed by Australia, India and some other important countries. We are in China since 40 years, and we have spent the last 10 years to really make deep localization in China. So we have built our formulas based on our IP around the world. In China, WE have increased our capabilities with testing products, with developing products and our Chinese colleagues are very fast. You know the terminology of China speed, and that is also true for our colleagues, and they have developed really cool products. And then what we now do, we go with our Chinese OEM customers. And if I talk about OEM customers, they are not only in cars and trucks and construction equipment, but they are also in the machine industry, in the windmill manufacturers in all mining equipment part, we go with them internationally. And I think that's the difference of us to many other German Middle Eastern companies because we very early on said the know-how cannot only sit in Mannheim. And we wanted to really push as one part of our FUCHS 2025 strategy, U.S. and China and the Chinese colleagues have been much faster than the U.S. colleagues. They have also done a good job, but that's the main reason. Esma Saglik: Okay. And in regards, Sebastian, to your question of our development of the at equity it's actually coming to good business partnering, let's say from Middle East, especially. And yes, we expect here also going forward an improve. Operator: Your next question comes from the line of Constantin Hesse from Jefferies. Constantin Hesse: First of all, Niclas, happy birthday. And turning over to the questions. Look, number one would be visibility in '25, right? I think that it goes without saying that you did surprise us with the guidance cut back in July because of a very weak June despite previously having been talked about that momentum remained relatively okay. So I'm just wondering, as we move into the end of the year, how comfortable are you that with the visibility that you have from today that we could potentially not see a worsening situation again and could potentially have to see an adjustment to the guidance or anything like that. So just in terms of visibility, how does it look like until the end of '25 as of today? That's the first question. Stefan Fuchs: Thank you, Constantin. I'm very happy, especially for Jefferies because we were glad when you took over the coverage and then just you took over and made a recommendation, we had to lower our earnings outlook. So I was a little bit concerned about your mood. But honestly, we don't have yet a good visibility in 2025 moving forward. We were caught by surprise in the second quarter. My reading on that is really that we have just lost a few quarters in North America with regard to local consumption being down on the uncertainty of the tariff for the consumers of white lines, cars, barbecues, whatever we supply there. And that was the one part. Each month is a little bit different. So we had a wonderful July. We had a terrible August. We had a very good September and trading has not changed yet, but you read the newspaper with chip shortages and other things. You never know whatever comes up in the next morning. But we are confident with our outlook. We know that we have to do a little bit better in the fourth quarter compared to last year, which we see it doable. But for us, mainly it was to hit the third quarter. That was very important. And the third quarter last year was extraordinarily high. And I think we made it this year again. And honestly, we didn't have to take the silverware out of the cupboard to show you that number. Constantin Hesse: Sounds good. So October remains a good momentum so far. Stefan Fuchs: So far, but honestly, only early January, I can tell you how we close on December. But I mean, from our -- just from a normal bookkeeping, we don't expect surprises. Constantin Hesse: Sounds good. Sounds great. Look, I just want to have a bit of a conversation. And as we go, a couple of questions on -- one on Capital Markets Day, one on '26. I mean you haven't grown in '24, haven't grown in '25. If I look at '26 overall macro, right, I look at the IMF estimates, there's been some slight tiny upgrades for 2026 numbers. I think the VDMA expects a very small recovery in industrial activity going into next year. So just thinking about the building blocks into next year, without guiding, just speaking qualitative really, is there anything that from an underlying perspective, but also potentially from acquisitions that you've done this year where you could potentially see an accelerated growth profile in '26 compared to '25? Stefan Fuchs: I think it's an excellent question. And if the one correction I want to make when we say we were not growing. Actually, in '25, we see a volume growth, which we have not seen for a number of years, and that's not 1% or 2%. So we are happy with it. We have -- when we saw the huge raw material increase in '21 and '22, we saw a little bit of softening in late '24, early '25 that is reflected in the selling prices. So when Esma showed you the organic growth, you have the volume growth, you have the selling price in existing business and you have the mix part of it and gaining the Mercedes contract then it's rather on the lower side. So volume growth was there this year. The guidance for '26 was quite a battle internally. And honestly, we have very much push for rather a modest budget. For us, it was important because when we relooked in 2019, we saw the U.S.-China conflict. And then in '20 and '21, we had COVID '21, '22, we had a raw material increase of almost 70%, then we had the Russia war. So each year had something new, then Donald Trump election, then tariffs. And we have not made our internal volume budget for a number of years. we confronted our people in the middle of this year, and we told them we have to learn to make our budget again. So we made sure that we don't have wild dreams on the volume. So each one of them was very modest on the volume internally. Esma provided us with in a positive manner, a very mean allowance for fixed cost increase, and they have all budgeted accordingly. And for me, that's a much better budget because to allow for more spending is an easy exercise. So I think for us internally, it was important really not to allow for dreaming on the top-line, but to make sure we are realistic. I think for FUCHS 2025, we have a number of initiatives going on where we have the business model, but you never know what is happening on the other side. So the volatility is out in the market, but that's a little bit on the basis. I have seen a first time for last night at [indiscernible], but I can't share anything more than that. Constantin Hesse: Fair enough. That makes sense. Then maybe just on the Capital Markets Day, talking about the target format, right? I mean historically, you've typically given an EBIT target. I'm just wondering going into this one, is there going to be a roughly -- is this the idea to be basically a similar target? Or are you expecting to provide the market with something different? Stefan Fuchs: I think we will have a target, but the one thing is we will condition the target, what we have not done the last time. And then we will review the target most likely each year and discuss it with you and then correct it down or up, however we are going. But it will be very much conditioned because the last time we just put a number out. And yes, I think what we have delivered last year and hopefully delivered this year is on the current circumstances, not a bad result. It doesn't fulfill our own aspirations, and it didn't fulfill what we were looking forward with FUCHS 2025. But let us discuss it internally, put it to paper. We discussed it also with our Supervisory Board and with our government [indiscernible] we have a whole time line behind and then in the middle of April, we will share and discuss. Operator: Your next question comes from the line of Michael Schaefer from ODDO BHF. Michael Schaefer: My 3 questions. And so the first one, I want to come back to APAC growth, which you have shown in Q3 and give a bit more -- maybe a bit more color basically what you really understand on specialties being the key growth components. And maybe looking into '26, so is there -- so what's the kind of growth pattern we should expect, which you have maybe already in the books in terms of OEM model wins and things like that? Any color on the kind of sustainability of the growth trends, which we have strongly seen in '25, which I think is rather triple the growth which you have shown in '24 so far. Any color would be helpful on that one. And the second one is you elaborated on the U.S. market showing a nice catch-up in Q3 compared to a rather challenging Q2. So where are we there now? Is this kind of normal run rate which you have now achieved? Or how should we think about this one going into the fourth quarter? And lastly, third question, on the raw materials outlook, Esma, you flagged basically your expectations for also a decline in the lube additives space and then also on top of the base oil slight decline. So where does this come from this view on lower additive costs? Is this something which you have already signed and in your books? Or just a bit of knowledge on that one. Stefan Fuchs: I can maybe comment a little bit on the raw material thing. We don't see a material decline coming up on base oils or additives. I would be a little bit careful. And as I've explained to you before, we do half of our stuff more or less related to the dollar, most likely, but half is foreign currencies. And if your currency weakens in South Africa, Australia or China, your raw material costs increase in those numbers. And that more than offtakes if you have a dollar nominated decrease in base oils in Europe. And all in all, if I have to make it a [indiscernible] little softer than a little higher, but we don't see such a material change. So -- and if you look at our gross margin, I mean, we have increased that again now a little bit in the third quarter, but in our comfort zone, knowing the mix of business. But on APAC and then North America [indiscernible]. Esma Saglik: Let me start first with North America because that was actually in Q2 a bit of pain point. If you recall it right, in July, I was saying, first of all, we have the inflated results in North America for the first half. We had a ramp-up of the Mercedes business. We had one-off topics. And now we are seeing actually that they are phasing out. And if you say, is it -- is that now the run rate? No. On the other hand, what we are seeing right now that our specialty business sequentially is picking up. It's not on the level where we have been last year, but the market is slowly picking up on that end as well. So for Q4, our expectation would be at least Americas being on the run rate of Q3, maybe even slightly higher. And that would be actually the average run rate what we would expect for Americas going forward. If it comes to APAC and the growth components, I mean, we mentioned specialty segments, as we all know one of our main growth drivers we are having in China is the wind business. And as of a fact, that one is growing locally, but with the OEMs on site and also in the automotive, we are expecting actually to grow with the OEMs and the producers outsource outside of China. And that's the growth path we are seeing in China going forward. Operator: [Operator Instructions] And your next question today comes from the line of Martin Roediger from Kepler Cheuvreux. Martin Roediger: My 2 questions. The first is a clarification question to Esma Saglik. You said in your speech about the outlook that you expect profitability to be almost at last year's level. And then you said EBIT in 2025 will be on a similar level as of 2025. Do you want to convey that EBIT might be slightly below last year's level of EUR 434 million -- that's my first one. The second question is to Stefan Fuchs. You have significant exposure to the automotive industry, and you mentioned already the supply shortage of chips from Nexperia. And we hear some car producers implementing short-time work because of these supply issues. Do you think this could become a concern for you? Esma Saglik: Let me maybe first start, Stefan, in regards of the similar and maybe and might be. Frankly speaking, Martin, it can be also slightly above instead of being below. And so it's difficult to say -- we say -- let me say it this way. We say we will be on the level of last year. And it was a wording which I was using because I can never say if the dot and comma will actually -- we will achieve. And that was the reason why I phrased this accordingly. Stefan Fuchs: On the car exposure, as you know, 25% of our business is with trade and automotive aftermarket, which has nothing to do with any car manufacturing. All the chips which are of those cars needing an oil change are already in those cars. When it comes to a major shutdown of the German car industry, obviously, we will also have a dampening impact. But we don't see that at the moment because we supply a lot of grease in those cars, we supply a lot of [indiscernible] in those cars. But I don't see a shutdown coming up like we have seen during COVID. But obviously, there are many other risks you can name, which could still derail our outlook, which are not known yet, but so far, no impact. Operator: We will now take the next question, and the question comes from the line of Anil Shenoy from Barclays. Anil Shenoy: I've got 2, please. The first one is on cost-cutting measures, which you spoke of. So you said that you've seen the initial impact of the cost-cutting measures in Q3. So does that mean that we will see the full impact in Q4, which in turn would imply that there will probably be a higher contribution of cost -- from these cost-cutting measures in Q4? And also, if you could give some color on the nature of this cost... Operator: Apologies, Anil, your line is very quiet. Anil Shenoy: Sorry, can you hear me now? Operator: You're still a little bit quiet. Anil Shenoy: Sorry, any chance you can hear me now? Stefan Fuchs: Okay. Yes, yes. Anil Shenoy: Right. Sorry. So I had 2 questions. One on -- the first one was on cost-cutting measures. You spoke of seeing the initial impact of these cost-cutting measures in Q3. So does that mean we'll see the full impact in Q4, which in turn would imply that there will be a higher contribution from cost cuts in Q4 compared to that of Q3? And also, if you could give us some color on the nature of these cost-cutting measures, please. I'm just trying to understand if these costs are expected to come back in 2026? Or is there any chance that there are more scopes for more cost cutting if macro conditions do not improve in 2026? So that's my first question. And secondly, and I'm sorry if I missed this, have you lowered the bonus provisions for 2025, given that you had to cut your guidance in Q2? And if you have, then have that by any chance benefited the Q3 results? And could that benefit Q4 results as well? So that's all I have for now. Esma Saglik: Anil, maybe let me start with your first question. So the last time when we got the question, we said actually the nature of our cost measure program is around lower double digit. We do not -- we started this package or actually, we started about talking cost measures and reducing it already in May, June. So we are seeing a quite significant impact already in Q3. And I would expect, and that's actually how we face it, more or less balancing or having the same amount also in Q4. Coming to your second question, initially, I think it was last quarter, I also stated that we are not doing results by reversing bonuses, et cetera. So far, our KPIs are on the level as last year, and that's actually how our bonus is driven. And we have, as we are normally usually doing our bonuses for 9 months in. So year-over-year, you should not expect actually any pluses or minuses a big impact coming from any bonuses. And the same relates to Q4 as we are targeting or heading up achieving the 2024. Operator: We will now take our final question for today. And the final question comes from the line of Lars Vom-Cleff from Deutsche Bank. Lars Vom Cleff: Well, first of all, I'm glad that you specified your Q4 EBIT outlook because when I first saw the Bloomberg headline saying that you expect profitability to be on the previous year's level for Q4 I was scratching my head how that could then work with reaching our guidance, but that is clearly understood now. Looking at Q3 and EMEA, profitability was nicely up. Revenue were flat. I guess some of these positive effects were also already coming from the cost avoidance measures, especially in EMEA, correct? Esma Saglik: Yes, that's correct. Stefan Fuchs: But you also noted in EMEA, all the equity results where you get EMEA [indiscernible] yes, correct. Lars Vom Cleff: Okay. Perfect. And then looking at the split of the EBIT by division, I saw that holding and consolidation EBIT for the first 9 months was EUR 3 million, and I know it was a EUR 3 million positive contribution in H1. So holding and consolidation must have been minus EUR 6 million in Q3. Is this cost for the implementation of these measures? Or am I missing anything? Esma Saglik: Lars, you gave the answer already. It is actually related to our transform to grow project and which is sitting there right now. Lars Vom Cleff: And that was it? Or is there anything additional to come in Q4 or maybe early '26? Esma Saglik: You mean from the cost base there? Lars Vom Cleff: From the cost side, yes, yes, not... Esma Saglik: We are running this project, but it's on budget. And yes, it will be actually a project for the next years, which -- and the cost will evolve accordingly. Lars Vom Cleff: The cost for the implementation or the reduction of your production costs? Esma Saglik: No, the cost of the implementation. Lars Vom Cleff: Okay. Okay. Understood. And yes, I mean, you call it targeted cost avoidance measures, but I guess you already gave the answer. To a certain extent, I was afraid or I was worried that this could also be partly a postponement of costs into the next years, but you're more or less not only avoiding the costs, but also taking them out as I take it or cancel these costs. Esma Saglik: Yes. Lars, I mean, what are we doing is of course, being a bit more cautious if everything what we are spending right now is really needed to be spent. And if you look at travel, if you look to consulting fees, et cetera, that will not bounce back again. It's just not the spend we are doing right now. Lars Vom Cleff: Understood. And then last one, net working -- or net operating working capital to annualized sales revenues, you guided for a range or had a target range of 21% to 22% in the past. Is that still valid? Because you haven't achieved that for the last 2 years now? Esma Saglik: That's a fair question. And I'll see it the same way as you from a CFO perspective, and that will be also our guidance going forward. Of course, we have to see our setups, et cetera. But nevertheless, that should be actually what we should target for. Operator: That was our final question for today. I will now hand the call back to Andreas for closing remarks. Andreas Schaller: Yes. Thank you very much, Sharon, and thank you very much to all of you for your interest in our company and the earnings and for your questions. We look forward very much to seeing hopefully all of you then at our Capital Markets Day next year. And the next earnings publication will be on March 20 when we publish the full year results. So thank you once again for your interest. If you have further questions, don't hesitate to contact the Investor Relations team, and you may now disconnect. Thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may all now disconnect.
Operator: Greetings, and welcome to Proto Labs 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, Ryan Johnsrud, Investor Relations Manager. Thank you. Please go ahead. Ryan Johnsrud: Thank you, operator. Good morning, everyone, and welcome to Proto Labs' Third Quarter 2025 Earnings Conference Call. I'm joined today by Suresh Krishna, President and Chief Executive Officer; and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the third quarter ended September 30, 2025. The press release is available on the company's website. In addition, the prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non-GAAP results. Now I will turn the call over to Suresh Krishna. Suresh? Suresh Krishna: Thanks, Ryan. Good morning, everyone, and thank you for joining our third quarter earnings call. I'm pleased to be with you today to discuss our strong results. We delivered record quarterly revenues and exceeded earnings expectations, highlighting the strength of our model and the power of focused execution. Before discussing our results in detail, I want to take a moment to share a few reflections from my first 5 months with Proto Labs. Spending time in our facilities and with our customers and our partners has left me energized and confident in the opportunities ahead. We are focused on removing friction, expanding our offerings and deepening customer relationships. While it's still early, my short time here has strengthened my confidence that our current strategy, delivering high-quality custom parts throughout the product life cycle from prototyping to production is the right one. We are in the midst of a comprehensive strategic planning process to identify specific initiatives and projects to accelerate growth and improve our operations. We are refining the details on how to achieve full realization of our strategy, and I look forward to sharing more in 2026. Meanwhile, we are committed to delivering value with speed, clarity and discipline, unlocking long-term growth. Together with our teams, I am focused on reaccelerating revenue growth and ultimately positioning Proto Labs for long-term shareholder value creation. Now on to our third quarter results. Revenue grew 7.8% year-over-year to a quarterly record of $135.4 million, and we had strong quarter of earnings that exceeded expectations. Our teams continue to execute with speed and focus, driving strong financial results. I'd like to especially commend our U.S. go-to-market teams whose continued commitment to customers and execution fueled another quarter of double-digit revenue growth in the U.S. Our record revenue was led by increased demand in our U.S. CNC machining and sheet metal offerings, supported by strength across several key end markets. First, in aerospace and defense, we experienced continued strong demand for mission-critical precision parts in innovative areas like drones, satellites and space exploration. As you know by now, Proto Labs works with the most prominent, innovative and fastest-growing companies, Amazon being one of them. Our speed, precision, quality and reliability allow us to be a trusted partner to Amazon in several of its critical business units, notably drones and robotics. We have also supported Blue Origin with parts for their single-launch lunar cargo lander, among other projects. Blue Origin told us they continue to use Proto Labs' services due to our impeccable customer service and levels of detail and accountability. The second area of note for us is industrial and commercial machinery. This segment also performed well with notable activity in robotics and semiconductors. In addition, overall Proto Labs CNC machining revenue was driven by very strong network fulfilled growth. I want to acknowledge our Proto Labs Network teams for their excellent execution through periods of significant tariff uncertainty and implementation challenges. Our teams managed through uncertainty and increased demand while reducing customer friction and driving higher sequential network gross margins. These results demonstrate our ability to execute well and deliver strong performance across our target industries. Now shifting to our two key performance indicators where we made significant improvements. Third quarter revenue per customer increased almost 15% year-over-year as we continue to drive increased share of wallet with our large and strategic customers. I am very encouraged by the traction we are seeing in deepening customer relationships, and I can tell you anecdotally that our large enterprise customers want to do even more with Proto Labs. Adoption of our combined offer continued to expand in this quarter with customers utilizing both factory and network fulfillment in the last 12 months, up 35% versus the prior quarter. As we continue to serve more customers and remove customer friction, this is showing up in accelerated demand. In fact, due to strong demand, we are expanding CNC machining capacity in our factories, a significant signal of momentum and confidence. We expect this investment to generate meaningful return. I know we can do more for our customers. Over the past several months, we have worked to significantly expand our factory CNC machining service. You might have seen a press release announcing the launch of advanced CNC machining capabilities a few weeks ago. If you haven't, I'd encourage you to check it out. We listened to our customers and heard loud and clear that they require advanced manufacturing capabilities from Proto Labs. These capabilities include tighter tolerances for added precision, diverse finishes to strengthen and cosmetically improve parts and fast, comprehensive quality documentation. Further, these services are all now available via our protolabs.com e-commerce ordering platform. This is an example of our commitment to removing friction, and we will continue to invest in improvements like this to drive demand. Moving to a broader commentary about our business. As I noted in our last earnings call, I believe we have great talent and a great culture. I want to build on that culture by continuing to bring in and retain top talent. We are proud to be named one of America's Best-in-State Employers in the 2025 by Forbes, recognizing our strong workplace culture and commitment to our employees. In addition, in early October, we announced the appointment of Marc Kermisch as our Chief Technology and AI Officer. This move helps strengthen our leadership team. Marc will lead our technology teams through Proto Labs' next chapter. He brings a strong track record in digital transformation and AI strategy, and his addition underscores our commitment to these areas. We've been using AI and machine language at Proto Labs for a long time now as part of digital manufacturing. Marc will lead our tech teams as we further embed AI and automation across our operations, driving both efficiency and better customer outcomes, both of which are central to our strategy. We will continue to strengthen organizational capabilities to support our growth initiatives. Before passing the call over to Dan, I'd like to make some closing remarks. As I mentioned earlier, we will provide more details on strategic initiatives in 2026, but sharpening our execution and improving the customer and employee experiences are essential. Our focus is clear: accelerate profitable growth. I am very encouraged by the progress we've made over the last 2 quarters. We have accelerated revenue growth and exceeded expectations on earnings. We have significant momentum into year-end. I can feel it in our manufacturing facilities and in conversations with our sales teams across all of our offices. I could not be more confident in Proto Labs' ability to execute with speed, discipline and innovation as we deliver long-term value to our customers and shareholders. With that, I'll turn it over to Dan to walk through the financials. Dan? Dan Schumacher: Thanks, Suresh, and good morning. I'll start with a brief overview of our third quarter results, followed by our outlook for the fourth quarter. Third quarter revenue was a company record $135.4 million, up 7.8% year-over-year or 6.8% in constant currencies. Revenue fulfilled through Proto Labs Network was $30.1 million, up 16.2% in constant currencies. Third quarter CNC machining revenue grew 18.2% year-over-year or 17% in constant currencies. As Suresh stated, we are seeing very strong demand for our CNC machining services across several key end markets, most notably drones, satellites and space exploration. In the U.S., CNC machining revenue grew 24% year-over-year. Injection molding grew 2% year-over-year or 1.2% in constant currencies as we saw strong demand for network fulfilled injection molding services, offset by weak prototyping demand. 3D printing revenue declined 6.3% year-over-year or 7.1% in constant currencies, driven by weak demand in Europe. Sheet metal grew 13.9% year-over-year or 13.3% in constant currencies, fueled by solid growth in most end markets. Revenue in the U.S. grew 10% year-over-year, while Europe revenue declined 5% in constant currencies. Like many manufacturers, we are seeing the effects of continued contraction in European manufacturing activity. Shifting to margins. Third quarter consolidated non-GAAP gross margin was 45.9%, up 110 basis points sequentially. We delivered sequential gross margin improvements in both the factory and the network. Non-GAAP operating expenses were $48.6 million or 35.9% of revenue, down 30 basis points, from 36.2% of revenue in the second quarter as we generated sequential efficiencies on our SG&A costs. On a year-over-year basis, SG&A was up $4.2 million. The majority of that year-over-year increase was in variable expenses tied to revenue growth, including incentive compensation and commissions. Third quarter adjusted EBITDA was $21.1 million or 15.6% of revenue. Non-GAAP earnings per share were $0.47, up $0.06 sequentially. The sequential improvement was primarily driven by gross margin expansion. Compared to the third quarter of 2024, EPS was flat as increased volume was offset by higher incentive compensation and commissions expenses. We generated $29.1 million of cash from operations during the third quarter. Proto Labs continues to lead the digital manufacturing industry in cash generation, reflecting the strength of our business model. We returned $12.8 million to shareholders in the form of repurchases. On September 30, 2025, we had $138.4 million of cash and investments on our balance sheet and $0 debt. Our outlook for the fourth quarter of 2025 is outlined on Slide 12. We expect revenue between $125 million and $133 million. At the midpoint, this implies 6% revenue growth year-over-year. We expect foreign currency to have a $1.5 million favorable impact on revenue compared to the fourth quarter of 2024. Moving to earnings guidance. We anticipate non-GAAP add-backs in the fourth quarter to include stock-based compensation expense of approximately $3.9 million and amortization expense of $900,000. We currently estimate a non-GAAP effective tax rate between 23% and 24% in the fourth quarter. In summary, we expect fourth quarter non-GAAP earnings per share between $0.30 and $0.38. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] Today's first question is coming from Greg Palm of Craig-Hallum. Greg Palm: Suresh, a lot of your prepared remarks revolved around this idea of accelerated growth. But I don't think a lot of investors think of Proto Labs as a growth company, just given the history over the last 7 to 8 years. So just help us understand what's the opportunity? What's the potential growth rate for the company longer term? Suresh Krishna: Yes. Thanks again for that question. We are very focused on driving growth. Our last two quarters would indicate that. We've been above 7% two quarters in a row. We are working on our new strategic plan. And we -- as I said in my prepared remarks, we'll come out and share that with all of you in 2026. In the meantime, we are focused on listening to our customers, understanding our friction points, removing those friction points and providing them what they need. And we are very focused on delivering products across the entire product life cycle. All of these are resonating with our customers. And as we focus on executing those, we will continue to evolve our strategy with our strategic plan that we will announce in 2026. The confidence we have in future growth is things we are doing right now are resonating very strongly with our customers. Greg Palm: And is it fair to assume -- I mean, are you seeing any of that right now? Or are you more or less riding the wave of growth of some of your end markets like A&D? I'm just trying to get a sense of like what company-specific initiatives can happen that can translate into a step-up in the growth rate? Suresh Krishna: Yes. We gave -- we shared one example of advanced machining capabilities, that came directly from listening to our customers. And we have a few others that we are working on that we will share more details when we come back to you in 2026. But to be clear, we are seeing growth across several industries. It's not just aerospace and defense. We are seeing -- we serve 50,000 customers a year. We are the supplier of choice for anything that has to do with innovation. And there's a lot of innovation happening across a wide variety of industries today. So while we are seeing good growth in aerospace and defense, we are seeing very good growth in different industries as well. And innovators, whether they're in their garage or they are big Fortune 500 companies, we are their destination because they want to go with speed and innovation, and we are the best partner for that. So we are very diverse in our customer base. Greg Palm: Okay. I understand. And then just last one on the CNC expansion. What is the CapEx requirement associated with that? Is that just more machines? Is that a facility? And sort of where are we in terms of that build-out right now? Dan Schumacher: Yes, Greg, thanks for the question. This is Dan. We're fine from a facility perspective. This is just continuing to add mills. I mean with our digital manufacturing model, we can expand very quickly just by adding mills to the facility. I know you've been out to our Brooklyn Park facility. We can simply add mills and be able to continue industry-leading fast lead times by doing that. So it's an equipment purchase. Operator: The next question is coming from Troy Jensen of Cantor Fitzgerald. Troy Jensen: Congrats on the nice results. So Suresh, for you, I know you called out record revenue per unique developer. But the unique developer number, it was down on a year-over-year basis. It's been -- it looks like it's at least a 3-year low. So can you just talk about like new developers and not just growing the services you're offering, but it just seems like this same market, you guys should be growing unique developers and not shrinking them. So any thoughts on that, please? Suresh Krishna: We are absolutely focused on growing our customer base. We are definitely seeing the efforts that we are putting right now is growing share of wallet, and that's what we are focused on, but we are definitely looking to increase our customer base overall. And when you serve 50,000 customers and our focus is right now on growing share of wallet, that's where we are seeing results, but we're absolutely focused on increasing our customer base as well. Troy Jensen: All right. Understood. And then can you just talk about just cross-selling? I think Rob used to provide us data points on percentage of customers that are using both factory and network. Dan Schumacher: So I think we mentioned in the script, that's up 35% year-over-year. Of those customers, that are in the trailing 12 months, have ordered from both the network and the factory. The key here is what type of conversation are we having with the customer? The customer is going to upload their CAD file, and we can have a holistic discussion with them about what's important to them. Is it -- do they need fine details in terms of what their part is? Do they need it right away? Can they wait longer? What price point are they looking for? And that's really what that metric is all about, is our ability to have that broader conversation with the customer and win more business with Proto Labs. Operator: The next question is coming from Brian Drab of William Blair. Brian Drab: I can hear the cold in my voice as I'm starting to talk this morning. With the advanced CNC machining capability, how automated is that going to be? Or how automated is it? I see that you're talking about the ability to evaluate 2D drawings. Is that type of evaluation automated? And just what were some of the challenges in bringing that additional level of service online? Suresh Krishna: Yes. This is -- as I indicated in my prepared remarks, it's tighter tolerances. It's different kind of finishes that our customers want and then improvements in quality documentation. And we've automated all that by putting everything on our website, so people can just order it on protolabs.com, as an e-commerce transaction. So we've made the entire thing a digital thread. In the past, it would have been more manual, and we made it a digital thread, removing the friction for our customers. Brian Drab: So I guess, specifically, if I give you a 2D drawing when it has 400 tolerances on it, is -- the system is taking into account all 400 of those tolerances automatically? Or do you have some level of manual evaluation of that by an engineer? Suresh Krishna: The website will walk you through with drop-down menus on all the things that you want to specify. So as a design engineer, you can go in and interact with the website, to be able to decide what is needed, what you need, all the way into quality documentation. So that way, it's all digital, and we don't need any manual intervention. Now we always have our application engineers available for a conversation and many other -- many of the customers do use that. And that way, if they have any clarifications, those are all sorted out. But that is available for everything, whether it's for advanced or for regular. That service is available for all our customers. Brian Drab: And then how is that -- how are you thinking about pricing of that level of service relative to, what I assume, the customers could have gotten historically anyways through the Proto Labs Network, maybe just having to wait a little bit longer? But I think you have partners probably available on that Network. Dan Schumacher: So Brian, a couple of things on it. It's very automated on the front end. But if there's -- if it's tripping into something that is very specific on the customer needs, we do have people that are responding to the customer and making sure that we have their parts and the parts that they need. It's a very competitive offer in the 5- to 10-day lead time space. So we can do complex CNC parts very competitively from a pricing perspective in that 5- to 10-day space. Brian Drab: Okay. Got it. And then just -- maybe just one more for now. Suresh, after you've been there for 5 months, and you see how the CNC business is just booming, but the injection molding business, which was the legacy -- obviously, the legacy, growth driver for many years. That business is still relatively flat lately. What do you think about the medium-term prospects for that business to get the growth going there again? Suresh Krishna: Yes. We -- there is reduced prototyping activity in that space, which is driving some of the softness and it has been for the past few years. But -- we are definitely focused on the three service lines and the sheet metal, which is only U.S.-based, in all -- in both our geographies. So as we come out and talk to you in 2026, we'll talk about more specific initiatives on what we are doing. It is, as you said, a legacy business for us, but it's a very, very good business, and we've been known for that, and we'll redouble our efforts for growth in all our service lines. Operator: The next question is coming from Jim Ricchiuti of Needham & Company. James Ricchiuti: First, congrats on the results and the margin improvement. Just wondering what were some of the puts and takes in the gross margin performance in the quarter? Volume, I'm sure played a role. But I'm just -- did you see much improvement in the network gross margins? And I don't think I heard you talk at all about tariffs. So I don't -- I'm guessing that was not an issue. But just in general, did you break out the network gross margin? Dan Schumacher: We did not. But network gross margins were around 33% in the quarter. So Jim, you might recall from last quarter, we talked about the change in tariffs and how that negatively impacted our U.S. network margin. we give the customer a price when they order it, and we hold to that price. So we could have a 30-day worth of backlog that the cost goes up on it due to pricing and you would have a negative margin impact. We were successfully able to implement changes both to our pricing and our sourcing algorithms so that in the third quarter, even though tariff costs were still up, we were able to improve our margins quarter-over-quarter in the network. So there's about 80 basis points quarter-over-quarter that was just due to the improvement in the network margins. Outside of that, we saw improvements in our factory margin as well. One main driver of that is revenue in Europe was up quarter-over-quarter. And with that increase in our Europe factory revenue quarter-over-quarter, we were able to operate those plants more efficiently in the third quarter. So those two things combined, so both factory margins being up and network margins being up contributed to our 110 basis point improvement second quarter to third quarter in gross margins. James Ricchiuti: Got it. That's helpful. When you look at the progress that you're making in the revenue per customer, that growth that you're seeing, I wonder if you could help us understand where the biggest benefits are coming from? Are they coming from -- you highlighted a couple of key verticals. Obviously, there's a lot of activity in the drone space, in the robotics space. Are these -- are you seeing growth in this area? Just -- and the revenue per customer, is it coming from the well-established Proto Labs' customer that you've been working with for a long time? Or is this coming perhaps from more recent customers that have just been more receptive to your production capabilities? Just trying to understand what's driving that because it is noteworthy, I think. Suresh Krishna: Yes. That's a great question. We are seeing improvements from new and existing customers. And we are seeing this, what I would say, share of wallet increase across different industries. As I said even earlier, we are a very diverse customer base. And while we are seeing good strength in the sectors you mentioned within aerospace and defense, which is around drones, satellites, space, we're also seeing in industrial areas like robotics, semiconductors, consumer electronics. So we are seeing the benefits of focusing on customer voice and turning around and responding to that. And that's what is helping us improve our share of wallet. Dan, do you want to add anything? Dan Schumacher: Yes. I also would like to say we reorganized from a go-to-market perspective. At the start of the year, we talked to you guys about that. The Americas sales team is performing extremely well. They're having in-depth conversations with customers about what their needs are and how we can better fulfill those needs. And that interaction as well is helping us to serve those customers more holistically, and that is showing in that metric where -- how much a customer is purchasing for us -- from us is increasing. Operator: Thank you. Ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We would like to thank you all for your participation. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning. Welcome to Indra's 9 Months 2025 Results Presentation. I now hand the conference over to Mr. Ezequiel Nieto, Head of Investor Relations. Ezequiel Nieto Baquera: [Interpreted] Good morning, and welcome to Indra's earnings call for the first 9 months of 2025. My name is Ezequiel Nieto, Head of Investor Relations. Let me first call your attention to the current slide, which contains the legal framework under which this presentation should be considered. Let me now introduce today's speakers, Jose Vicente Los Mozos, Indra's Chief Executive Officer; and Miguel Forteza, Chief Financial Officer. Jose Vicente, you have the floor. Jose vicente Los mozos: [Interpreted] Thank you very much, Ezequiel. Good morning, everybody, and welcome to Indra's 9 Months 2025 Results Presentation. Indra has continued to grow and make solid progress in executing our strategic plan leading the future delivering financial results in line with our guidance and achieving significant business milestones while we keep on transforming the culture of our company. Starting with the financial results. So what I must say is that we are going to overcome and to have better results than the ones we had set for 2025. So the first question you might ask is why are you not following the guidance? Well, our objective now is to get ready for the new programs, which require operational expenses and investments. And our priority today is to get ready for the future. Our backlog and intake have grown at double digit compared to the first 9 months of 2024. And specifically, the backlog has grown by 35%, partly due to the consolidation of TESS. And intake by 20%. These figures are prior to the PEMs, the Special Modernization Programs. Revenues grew by 6% and EBITDA and EBIT by 10%. Operating profit has grown by 11% in absolute terms and the net profit reached EUR 291 million, 85% compared to the first 9 months of 2024, in part due to the consolidation of TESS. Furthermore, with the forthcoming contracts under the special modernization programs, our defense backlog will exceed EUR 10 billion during 2026. In terms of business milestones, I would like to highlight the main achievements in the implementation of the first phase of Leading the Future. We are implementing with a great commitment on the part of our teams. The first pillar of the strategic plan is Indra's focus on aerospace and defense. In defense, between September and October, we were awarded a prefinancing of 30 special modernization programs. Indra received over EUR 4.2 billion as coordinating company and a further EUR 3.6 billion through joint ventures in which we participate. Total, we will receive EUR 7.8 billion. And we also aspire to participate as subcontractors in 12 additional programs. So out of the 31 programs, we are going to be involved in 29. And this award strengthens Indra's Group position as a national benchmark in defense and as a driving force in Spain's industrial ecosystem. And that's something we saw yesterday, over 600 companies participated in the second meeting and it's been the biggest amount of companies in the area of defense. And this is going to be the starting point to become also reference -- European reference in defense. And these results are the outcome of months of work. We have a streamlined supply management, and we have concentrated spending among key partners. And we must highlight that 77% of defense procurement was sourced from domestic suppliers, and we are tripling our industrial and technological footprint in Spain, enhancing our production and delivery capacity and increasing our regional presence nationwide. Another strategic pillar of the plan is portfolio rotation. And in July, we completed the acquisition of Aertec DAS, specialized in unmanned aerial systems such as the TARSIS family. And we will also be closing the acquisition of Hispasat/Hisdesat in the fourth quarter, strengthening our position in space and secure communications. And in parallel, we are continuing to roll out IndraMind, consolidating its commercial positioning and its role within the group's technological growth. And at the same time, we are expanding our industrial footprint to reinforce our production and delivery to prepare to -- for the growing demand. As well, an example I'd like to share with you is the launch of our first automated radar production line in Córdoba with an annual capacity above 100 Nemus radar. And as you know, this radar is a benchmark that will become the future anti-aircraft system, both in Spain and in Europe or the launch of a new LTR 25 radar line with a capacity of five radar per shift. And specifically, we will be investing more than EUR 150 million over the next 2 years in Spain. And in the United States, EUR 100 million in our factors of Gijón, Vigo and Córdoba, EUR 50 million for a new plant in Kansas for mobility and ATM. Another key element is our investments in R&D&I, where in 2025, we will be investing between 8% and 10% of our annual revenue. Let's now look at these items. If we focus on the defense area, we have advanced in our position as a European reference group. As you know, the sector is going through a decisive moment driven by a significant increase in investment in Spain and Europe. And there is a clear bet to strengthen technology and industrial capabilities. And in this context, if we take a look at Spain, the government through the industrial and technological plan for the security and the defense has awarded 31 programs to modernize the capabilities and the equipment of our armed forces. Out of them, 16, which is 66% will be led by Indra or joint ventures in which we participate. In addition, we will take part as subcontractors in another 12 programs, reinforcing our presence across the entire value chain. This achievement consolidates Indra group as one of the main drivers of Spain's defense industrial ecosystem like Airbus or Navantia in their respective domains, and it encourages us to continue to strengthen our industrial and technology capabilities contributing to Spain sovereignty and security. Within this context, I would like to highlight five especially relevant programs. First, the joint tactical radio system that will provide our armed forces with secure and efficient communications, ensuring real-time information between units in the field. And second -- sorry, this program will allow all our armed forces to be able to start using this type of radio in the future. And second, the multidisciplinary connectivity in our security systems program and the Anti-Air Artillery Operation Center System, which will modernize the 18 systems of the Army and will create a single integrated one, enabling a more efficient and coordinated a combat control. Third, the next-generation integrated air system, which will allow us to continue with the studies and technology packages of new generation weapon systems within the Future Combat Air System, FCAS. This is a key project for Spain's technological and strategic autonomy. And fourth, the truck support vehicle awarded to TESS for the manufacturing of a multipurpose armed vehicle that we replace the armies armored transport, showing the state's firm commitment to this program. And finally, the advanced manufacturing program in sustainable land mobility 1, which foresees new self-propelled howitzers on wheels and the replacement of current ML109A5 units. And this program has been awarded to a joint venture formed by Indra and Escribano Mechanical and Engineering. And these programs represent a qualitative leap in the technological capabilities of our armed forces and position Indra Group as a benchmark within the defense industrial ecosystem. As I have mentioned, we have made 180 degree of our assessment and this is one of our capabilities. And we have developed what we are doing in the automotive industry. A clear example is our supply chain. In under a year, we have made a significant progress in the management by concentrating more than 90% of the defense expenditure in fewer than 550 Tier 1 suppliers, that's Plan 500. This optimization relies on a tiered structure that mobilizes a substantial portion of the national industrial ecosystem, ensuring a solid, efficient, collaborative and competitive chain. And within this plan, we haven't left any company behind. This modernization has been used to make sure that we can all work in a more organized way. And our focus has been on strengthening our domestic supplier network. In 2025, 64% of Indra's total procurement volume has come from Spanish suppliers. We have increased by 14 percentage points the previous year. And in defense, this proportion is even higher. 77% of procurement are sourced from national companies, and our target is to surpass 80%. Through these advances, we reinforce Indra's group's role as a driving force in Spain's industrial ecosystem by fostering collaboration with SMEs, start-ups, universities and research centers as we showed yesterday in the event we held with the Spanish entrepreneurial ecosystem. So now is the moment to escalate our manufacturing capabilities to make sure Indra becomes or turns what used to be an industrial company and now -- well, now we're going to add this industrial DNA that we truly need. And we are strengthening our Indra's industrial and technology capabilities through our ambitious plans to triple our industrial footprint by boosting our production and delivery capacity. As we -- and it was noted by the European Commission, the European Union has around 52% of the defense capabilities it requires, which highlights the urgency of reinforcing our industrial base. Specifically in Spain, we have decided to open several production and technology centers distributed across our territory. In Gijon, we are creating a production hub for the design and manufacturing of land platforms and vehicles throughout their life cycle. And I can mention today that before year-end, we will start with the first operations of 8x8 vehicles in our plant, which shows how agile we are transforming our industrial centers. In Vigo, we are reinforcing our technology center to specialize in electronic warfare counter UAS systems, hardware design, microelectronics and command and control systems. And we are also participating in the development of gallium nitride. And in Lugo, we are expanding our aerodrome for ground and flying testing in collaboration with Inter. It's been designed to be able to test all of Indra's portfolio. In Barcelona, we are strengthening a specialized center -- sorry, a center specialized in communications space and cyber defense. In Seville and Malaga, we are creating a center dedicated to advanced software focused on space applications and unmanned aerial systems, also supported by Aertec DAS in Córdoba. We are opening a new production site to increase our capacity to manufacture radars, command centers and mechanical structures. And within radar manufacturing, our objective is to have an excellence center for European radar manufacturing. And last in Aranjuez, we continue enhancing our capabilities in aftermarket activities and Eurofighter support with the new SMD card production line. To be able to support this expansion, we expect to hire more than 3,000 new professionals in the next 3 years in Spain in all our geographies. And internationally, I would like to announce an investment of around EUR 50 million for a new plant in Kansas in the United States to be able to support the air traffic management division in the manufacturing of radars for the American market and Radio and Mobility division with free flow tolling systems. We are already present in over five states in the United States in tolling. And this plan will generate over 200 new jobs in the United States. Let's now take a look at a new product, IndraMind. This new product that we are very proud of, it's a dual-use line, both civil and military. As we were -- as presented in the first half 2025 results from Indra Group, we continue to drive our advanced artificial intelligence platform, IndraMind. Our ambition is to offer advanced software solutions that are AI-powered that will enhance decision-making and ensure the reliability of mission-critical operations. In the recent months, we have consolidated its commercial positioning aligned with three key market trends in production solutions, cognitive superiority, intelligence and decision, autonomous operations and cyber resilience. IndraMind maintains a dual-use focus, addressing both civil and defense needs. But I would like you to know our value proposition a bit better. And that's why in the afternoon, I'd like to invite you to follow our IndraMind presentation event. As you can see, you have the link, the connection link on this page, and that will take place at 1800 hours Spanish time. As a preview of what we will be showing in the afternoon, I'd like to share with you a military use case of IndraMind. It has been applied to intelligent combat systems designed for mission planning, autonomous guidance and decision support. IndraMind will enable us to simulate complex scenarios through the massive capture of data from multiple sources, satellites, radars, cameras and ground space networks, allowing a more precise and efficient planning. Moreover, it will facilitate the orchestration of fully autonomous operations through collaborative platforms that operate with distributed decision-making. In summary, this use case allows us to first model and simulate scenarios to anticipate situations and support the decision-making process. Second, to build and orchestrate autonomous and collaborative platforms through edge computing and deployable communication nodes. And third, they will be able to ensure protected communications through secure applications and end-to-end encryption. In the afternoon, we will go into greater detail on these and other civil applications during our IndraMind event. And let me now briefly recap the progress achieved in the first phase of Leading the Future that we presented on March 6, 2024, with the first phase lasting until March 2026. Thanks to these advances, we continue to make solid progress on the pillars of Leading the Future, reinforcing Indra's focus on aerospace and defense. We have also created a new space division with end-to-end capabilities following the acquisitions of Deimos, Hispasat, and Hisdesat. The closing of the Hispasat and -- Hispasat transaction is expected to take place in the final quarter of 2025. At Minsait, we remain focused on high-value offerings, expanding on our digital solutions and advancing the potential divestment of nonstrategic businesses. And in parallel, we have reorganized our digital capabilities to be able to cater for the needs of all the business units and capture efficiencies through the new cross-cutting function, tech operations, which has already been deployed under the leadership of Sebastian Valmonde. We are strengthening our international presence. We have introduced the new role of International Director, and we have simplified our model. We have gone from 27 to 19 units to increase in agility and focus. If we continue with our portfolio rotation throughout strategic acquisitions such as TESS and Aertec DAS in Defense or Deimos and Hispasat and Hisdesat in space. We have also launched a joint venture in the Middle East with Edge Group for the design and manufacturing and selling radars to non-NATO countries besides other operations that we complement and reinforce our value proposition. We have also increased our investment in R&D with milestones such as the creation of IndraMind and the deployment of the Indra Technology Hub with around EUR 829 million already invested in R&D, aligned with our goal of reaching EUR 1.2 billion by 2026. And we are also strongly focused on attracting critical talent, throughout our country, and we have already onboarded 3 out of the 5,000 new hires planned for 2026. If these three new hires, if we add to those 3,000, the other 3,000 we are going to be adding, as you will see, we would have been able to have hired over 5,000 people in our country. And to finish, I'd like to share an important piece of information, the acceleration of the market marked by a historic increase in defense investment combined with a sustained and rapid progress across the pillars of our Leading the Future strategic plan, both in operational and financial terms, places us in an exceptional position. And in fact, we expect that by the end of 2025 on a pro forma basis, we will have nearly achieved the financial targets initially set for 2026. And moreover, Indra Group's perimeter has evolved significantly. We have executed key acquisitions in defense and aerospace, and we have launched new business lines, Indra land vehicles, Indra weapons and ammunition and Indra mine that expand our industrial technological and digital capabilities. And last, these achievements have translated into a substantial value creation for our shareholders. Indra's share price has appreciated by more than 190% since March 6, 2024, compared to 81% in the Defense index, 58% in the IBEX and 16% decline in the IT sector. This has meant that we have tripled Indra's market capitalization in the strategic plan period, reaching around EUR 9 billion this week. And that's why I would like to thank our shareholders for their trust. Within the plans framework, and the EBITDA contribution from defense and ATM has grown and it has now reached 51% of Indra's group of Indra Group. And we expect this share to increase further to the group's EBITDA in the medium term. And all of this means that the internal budgeting work for the Indra Group in 2026 gives -- provide us with financial projections well above the targets originally defined for our 2026 strategic plan. So we could say that we have completed the first phase of the plan 1 year ahead of schedule. And we have already started working for the future. This would not have been possible without the full support of our Executive Chairman, Ángel Escribano, whose industrial and technological vision I fully share for our company. And together, we have instilled a new renewed ambition across the company that reflects the extraordinary commitment and dedication of all the people who made the Indra Group. I would also like to thank the Board of Directors for the ongoing support. As a result, Indra Group is ready to take the next step in its strategic plan, moving from the focus phase to the scale-up phase 1 year earlier than planned from 2026 to 2027 to 2026, a new stage that will allow us to multiply our reach, accelerate growth and consolidate our leadership in the strategic sectors where we operate. And therefore, I am pleased to announce that we will hold a Capital Markets Day in the second quarter of 2026, a key milestone in the company's transformation journey. During that event, we will present the second phase of our strategic plan, Leading the Future scale up. We will also share at that point, the road map that will help us achieve the EUR 10 billion in revenue before 2030 as well as our strategic priorities to improve operating profitability and cash generation. Likewise, we will like to show you how this new stage of the strategic plan will continue to generate value for our shareholders. Let us now review the financial results for the first 9 months of the year for the Indra Group. The figures reflect a solid performance, allowing us to reiterate all the financial targets set for 2025. Our backlog grew by 35%, including the impact of the consolidation of TESS, which provides us with greater stability and visibility for future growth. These results were mainly driven by the strong momentum in Defense and Air Traffic management businesses. Order intake increased by 20%, double-digit growth in ATM, Defense and Mobility. Revenues rose by 6% with growth across all business areas and stable performance in mobility. We have also improved our operational profitability. The EBITDA margin reached around 11.2% and EBIT margin 8.8%, both up 10% in absolute terms. And this EBIT could have been higher. But as I mentioned, our priority right now is to get ready for the plans in operational expenses, training and CapEx. And this shows that besides tailwinds, we are working. All those of us involved in the Indra Group are working to improve our efficiency and create a more balanced business. Net profit reached EUR 290 million, an increase of 58% compared to 2024, thanks to our improved operations and also the incorporation of TESS. In terms of cash flow, we generated EUR 57 million, slightly less than 2024 due, as I have mentioned throughout the presentation, due to the work that we are doing in preparation for the increasing investment in defense. And finally, that debt remained practically neutral, which is a remarkable milestone in the context of strong sector growth. If we take a look at our sales figures in detail, we have achieved a growth of 8% in local currency and 5% in organic growth. We can also see that this positive trend has been reflected in the third quarter of the year with sales increase by 8% in local currency. In terms of the distribution -- geographical distribution of our revenue. Spain remains our largest market with a growth of around 5% compared to the same period last year. In international business that already represents 50% of total sales, we can see a special strong growth in Europe, has grown 11%. By division, Defense and ATM account for more than half of the contribution to EBITDA, reinforcing their growing weight in line with the objectives of our strategic plan in terms of the evolution of our workforce. We have achieved an evolution of 2% in revenue per employee compared to September 2024 and 3% compared to the end of last year. And we keep on attracting the best talent in the market aligned with our strategic priority of becoming an employer of choice in Spain. And as a result, we have increased our headcount by 5% compared to the first 9 months of 2024, including a remarkable increase in the defense workforce, which has been 35%. And we will continue investing in talent acquisition. And as you might imagine, if we have increased 35% in defense, you are probably able to imagine the next few months and years, our sales are going to be going to grow similarly. And now let's continue seeing the results of our business by segment during the first 9 months of 2025. As you can see, our defense business delivered a robust growth in order intake, 47%, driven by Eurofighter programs, radar contracts in Germany and Oman and the inorganic contribution of Deimos. Revenue increased by 14%, supported by Eurofighter, space and weapons and ammunition. And in addition to this double-digit growth rates, the EBITDA margin stood close to 20% and EBIT margin reached 17%. Those are figures that are true benchmark in the European defense market. In terms of ATM, the ATM division, intake -- order intake rose sharply, 57%, mainly due to the new radar contracts in the U.K. and Spain as well as radar systems in the United States, which position us as a benchmark for the transformation of air traffic that will take place in the next few years in the United States. And that's why we have already decided to invest in the new plant in Kansas. The sales increased by 16%, driven by this double-digit growth, both in the Americas, thanks to the United States and Canada and Hi-Tech and in Europe, including the United Kingdom, Belgium and Germany. And the EBITDA margin has reached 15.3% and the EBIT margin 12.4%. And now take a look at the Mobility division. Order intake rose by 10%, boosted by urban transport management systems in the San Francisco Bay Area as well as projects in Chile, Colombia and Romania. And we are still waiting for new mobility programs within Europe. Sales remained stable with growth both in Europe and Spain that offset the declines in the Americas. And margins have narrowed slightly in EBITDA margin, 6% and in EBIT margin as well. This is a dimension that we are working on. And if we take a look at Minsait end results, we have a stable progress expanding our backlog, order intake and revenue with a growth of 14.7%, 6.7% and 3.1%, respectively. If we take a look at the other companies of the sector in our country, we can see that we are above any of our competitors. And likewise, the profitability of Minsait also improved slightly. EBITDA margin has gone from 7.8% to 8.3% and EBITDA -- sorry, an EBIT margin from 5.6% to 6%. We can see a clear potential of further improvement. And under Luis Fernandez' leadership, I am sure this transformation will take place in a short time. It's going to be efficient. And that's why our current priority is to achieve greater efficiencies, advance on the cost-cutting deployment of our digital capabilities and getting even closer to our clients. And this is Indra Group's situation. And now I would like to give the floor to Miguel, who will provide further detail on the financial information. Thank you. Miguel Forteza: [Interpreted] Thank you, Jose Vicente. Let us now continue with the main financial highlights for the first 9 months of this fiscal year. Starting with free cash flow. During the first 9 months, we generated around EUR 57 million, slightly below the figure recorded in the same period last year. However, as we mentioned in the previous quarterly earnings call, the evolution of the fiscal year follows a pattern consistent with our historical series, particularly considering the seasonality that typically affects this metric during the first 9 months of each year and which ends in a very strong fourth quarter. Therefore, we ratify our expectation of achieving free cash flow generation above EUR 300 million for the full year 2025. Regarding working capital, although the evolution of days of sales outstanding has not been as favorable as in the same period of 2024, this variation is mainly explained by the increase of inventories in defense and ATM or air traffic due to projects with longer life cycles as well as by the rise in trade receivables. As a result, we stand at plus 21 days compared to plus 6 days at the end of September 2024. As shown on the slide, the consolidation of TESS had a significant effect, adding 46 days of sales in inventories and 52 days of sales in the heading trade receivables. Let us now analyze the evolution of net financial debt during the first 9 months of the year. Over this period, net debt stood at approximately EUR 140 million compared with a net cash position of around EUR 86 million at the end of 2024. And this change is mainly due to the contribution from operating cash flows, which added EUR 348 million, the negative impact from working capital variation for EUR 172 million. And finally, nonrecurring financial effects associated with investments amounting to about EUR 257 million. As a result, the net debt-to-EBITDA ratio remains at very solid levels, standing at around 0.2x. This reflects an almost neutral financial position, very similar to the one posted in September 2024. Finally, regarding the structure of our debt, we continue to reduce the average cost of gross debt now at around 3.2%, down from 4.2% at the end of 2024. Consequently, the average debt maturity has extended to around 3.2 years compared with 1.5 years in the same quarter of the prior year. On the other hand, we closed the quarter with a cash position of approximately EUR 604 million. Finally, the company holds around EUR 790 million in available credit lines, including financing from the European Investment Bank of roughly EUR 385 million with a defined allocation of funds. We now conclude our presentation and move on to the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Beatriz Rodriguez from Bestinver. Beatriz Rodriguez Fernandez: I have a question about the PEM programs. You said that we already know the loans that will be -- or that were granted in 2025. Can you give us some color as to the percentage of total programs in connection with those loans? Have you received any details from the government concerning these PEMs? Are there any figures that you can share with us? And on the other hand, I would like to know the outlook for 2026. I understand that you are planning to invest 2% of GDP next year. I would like to know whether you have any outlook for 2026 and subsequent years? Jose vicente Los mozos: [Interpreted] On the contracts, well, we have seen by the government. We have a joint radio systems. It's a contract that compared to the funding of EUR 768 million, it accounts for 65%. And this is the first phase because we are going to renew 100% of all the networks of our army. So we expect more phase in the future. Our second program, the multidisciplinary connectivity. It's a joint venture with Telefonica with a contract of EUR 785 million with a funding of EUR 380 million that accounts for 40% -- 48%, right. And the crypto capability is EUR 159 million program through ApeCoin with a funding of EUR 67 million. As contracts are launched, we will inform them. Are we working for the PMs from the specialization programs. Of course, we are. I believe there's a commitment of the government of Spain and the President mentioned that they are going to invest 2% to keep on adding an increasing capability. So we are working with that hypothesis in mind, and we are working around two main axles. Space programs, we believe that we have an important element to play with here because within the European program, Phase 1 is to improve space capabilities in Europe and our country has something to say there as well. That's why we are working to make sure the SMPs include space programs, and that's why we've made the investment. We have paid EUR 725 million for Hispasat and controlling Hisdesat and the anti-air system. We have a first phase ready in Spain with 18 teams, but with one of our European competitors, we are the anti-air system that's better prepared. And not only are we thinking about selling in Spain, but we are planning to sell in Europe. And we believe that in the 2026 plans, the first 18 systems that are our part of the plan in 2025, we believe that those -- they are going to be expanded throughout all the Spanish air systems. Those are two examples on which we are working, and that's why we are investing. In the case of the anti-air system, we are investing in important and robust production lines to be able to respond to the demand that the Spanish and European markets are requesting. Operator: Next question from Juan Cánovas from Alantra Equities. Juan Cánovas: [Interpreted] Going back to the prior question, could you give us more detail as to the percentage that Indra would hold in these programs, PEM programs? And concerning contracts in Europe, could you please let us know which your target is in Europe? Or how can Indra achieve the same success in Europe as in Spain? Jose vicente Los mozos: [Interpreted] On the joint ventures. Well, as you know, once the contract is ready, we need to develop the industrial plan. So when the industrial plan is developed, we will be in a situation in which we'll be able to tell you which is our share we're going to get. Those that are led by us, those are programs we consolidate and we have to provide both the Ministry of Defense and Industry, our industrial plan. Because -- let's not forget that we need to deploy over 30%. With 30% have to be in the hands of Spanish suppliers. So as the contracts, we work on the contracts, we'll be able to share -- tell you which is the share -- the shares are throughout the value chain. On European programs, I'd like to share with you some examples. Spatial Vigilance Radars, and we've only gotten two in Spain, and we believe that within the European program, we have been the first company in Europe, and that's what I showed Commissioner Kubilius, and I showed it in Brussels a few weeks ago. We have created a portfolio with all our products, all the products that can be used within the set program. And where is Indra relevant? Well, we've already shown it in radars, that dual use, civil and military and the LTR-25 and the Lanza radars. Those are radars that are at the same level as any other radar manufacturer in the world, may them be American or European the NTO system, well, is advanced, thanks to the joint venture we have with Escribano, because otherwise, if we did not have that joint venture, we couldn't cater for whole programs within the aerospace. And that's why we are working on the possible operation with Escribano, because that's going to add to our product capabilities, and it will include an industrial DNA that the speed at which we are transforming will be extremely helpful to keep on catering for the needs of Indra's objectives. Operator: Next question from Carlos Treviño from Santander. Carlos Javier Treviño Peinador: [Interpreted] I would like to deep dive into defense possibilities, taking into account the backlog that you announced for 2026. I believe that those EUR 10 billion would account for pure business for Indra regardless of the participation of other companies in such projects. So do you expect to include all the PEM projects into the backlog that have been awarded in Phase 1? Or do you think that there are other projects that could be assigned in subsequent years and therefore, would not be included in the 2026 backlog? I would like to know about the average life of such backlog, taking into account that we are talking about multiyear projects. And considering additional cost in order to address future growth, can you quantify how that has affected your operating profit for the year and what could happen going forward? Jose vicente Los mozos: [Interpreted] Well, we have to make a difference between the washer and intake -- order intake. When we are saying that it's over EUR 10 billion, we are not only thinking about the plans. So we think about SAFE and other international programs that -- in which we're in. And that's why in the Capital Markets Day, we will be able to provide more detail. Once we know all the 2025 programs. So once we know SAFE orders, we will be able to provide a figure, but I believe that EUR 10 billion is quite conservative. If we take a look at everything that's going on in Europe, these are 3- to 6-year programs. And in many of the cases, this is just the first phase. So let's talk about specific programs, the radio program. That's the first phase. In the first phase, with the first phase, we won't be able to transform 100% of the radio systems. There are going to be more phase in the next few years. So the anti-aircraft system with 18 anti-aircraft systems, that's not enough for the Spanish system. So that's one first phase. And well, it is the Ministry of Defense, the one that will set its priorities, and they will explain which are the priorities for the armed forces. What we are doing within these programs, this benchmark programs is not just thinking about Spain, but actually thinking about Europe. And taking a look at some international markets because the volume effect will improve our competitiveness to reach markets that maybe are out of our reach today. Operator: Next question from David López Sánchez from JB Capital. David Sanchez: [Interpreted] I would like to follow up on the prior question about the backlog of EUR 10 billion for 2026. Would that include Indra's interest as main contractor would include its participation as a member to joint ventures? And what about the financing that has been recently approved for defense programs? Can you give us some color as to how that dovetails with your backlog and the amounts that you expect will be reported in the last quarter of 2025? Jose vicente Los mozos: [Interpreted] In the EUR 10 billion, we include everything, both joint ventures and the ones in which its just Indra. So that's the whole business figure. In terms of funding, Miguel, please? Miguel Forteza: [Interpreted] Okay. Let me explain the dynamics behind this prefinancing in order to get it right. Each contract will be associated with an account where the Ministry of Industry will be making deposits for the prefinancing that has already been granted. Such accounts will be independent accounts, restricted cash accounts, so to speak, that will only be available as stated explicitly in the agreements. We don't know the details yet, but all the milestones will be set out under agreement. Therefore, that restricted cash will be released according to such terms. When that happens based on certified milestones authorized by the Ministry of Defense, they will be recorded as cash flows for the company. Now while the financing is on the restricted cash accounts, we are going to have a neutral financial effect with other financial assets and liabilities that will have no effect whatsoever on our debt ratios. As you very well know, these ratios are not impacted by such advanced payments. And as for the amounts concerned, they have already been disclosed. There are some prefinanced amounts for each contract, and there are some allocations that will be made in 2025 all the way to 2031, that is a full breakdown of such amounts. Jose vicente Los mozos: [Interpreted] Something I forgot to mention to Carlos Treviño from Banco Santander. There is the impact of the preparation for the special modernization programs. I want you to know that operational expenses made in the third quarter. Well, I ask the team to recover to have the same EBIT as the one we had in 2024 without the preparation, so above 18%... Operator: Next question from Carlos Iranzo Peris from Bank of America. Carlos Peris: I have two, if I may. On the more than EUR 10 billion defense backlog in 2026, any color about how many billions or what is the percentage of this backlog that is coming from the PEM programs versus non-PEM? And then the second question, just coming back to the path to EUR 10 billion sales. I mean you already mentioned back in February this year that you could deliver EUR 10 billion sales in 2028. So I guess post PEMs allocation, clearly, the growth outlook has strengthened significantly. So should we then think that it could be possible to potentially achieve those EUR 10 billion earlier? Jose vicente Los mozos: [Interpreted] Let's try to understand this correctly, the EUR 10 billion, most of them are going to be PEMs and Special Monetization Programs but not just that. We have other elements in which we're working like SAFE our other European programs or international programs. But the base that we take as a benchmark and I still believe it's a conservative figure are the 2025 PEMs. On the EUR 10 billion, we never said 2026. What we said was that our ambition was 2030. Today, I can say, and our President mentioned already that his intention was to be able to get there by -- in 2028. And that's what we're working towards. And I believe that from today until the Capital Markets Day, we'll be able to tell you when we're going to reach those EUR 10 billion. Operator: Next question from Michael Briest from UBS. Michael Briest: Just on going back to the loan program. I think I heard you say that on the MC3 program, you've got loans of EUR 380 million and the contract value is EUR 785 million. Is that ratio of loan to order roughly the same across the entire EUR 7 billion loan book? And then just in terms of test focusing on the here and now, could you talk about the deliveries in Q3? I know there were 11 in Q2 and you were hoping to do 60 as a minimum this year, but it doesn't look like there was much contribution in Q3. And therefore, do you still think you'll hit 60 units for the year? Jose vicente Los mozos: [Interpreted] First of all, while Miguel will explain the financial part about non-vehicles, our commitment was to be able to provide one division or 57 vehicles and reach 70. That's what we are working for and that's -- that was our commitment, not just Indra's commitment, but the rest of the partners that are part of TESS. So [indiscernible] and Escribano, because this is a commitment that has to be a commitment by all of the 4 companies, although it is true that starting in July, Indra is leading TESS on the figures... Miguel Forteza: [Interpreted] Okay. Let me supplement the CEO's remarks. As you know, in Q3, there were no significant revenue coming from TESS, but we believe that, that will come from future deliveries. As the CEO mentioned, we expect that to take place in Q4. As for financing ratios and contracts, we provided an example concerning the EUR 380 million financing for a total contract of EUR 785 million or 48%. You are right. However, we should take into account that we need to wait for the agreements to be formalized. We need to know exactly the terms and conditions governing those agreements. Otherwise, it will not be possible to start setting out a clear ratio and therefore, think about an increase in our backlog. We have to weigh whether phases will be established, whether they will have a full or partial scope or outreach. Nonetheless, as soon as we formalize those agreements, we will keep you posted because all that information will be included as part of our backlog and order intake. For the time being, we cannot report a standard ratio because we believe that these figures might change significantly in some cases and from one contract to another, there might be variations. Next question, please. Operator: Next question from the line of Jessica Agarwal from Goldman Sachs. Unknown Analyst: I just have two on basically the other -- like the segments. First of all, the air traffic management. It was like a slight decline organically, but I understand it can be lumpy. So how are we tracking when it comes to that like expectation around a low double-digit growth in this segment? And how do you see that developing over the span of next 12 to 18 months? And the second one is basically like any update on Minsait as in like what exactly we completely understand there is a part like where you want to keep the core and there are some businesses which might be like available for sale. So any updates on that would be helpful. Miguel Forteza: [Interpreted] It is true that as for ATM, the past quarter was not as solid as we initially expected, but we should take into account that in the first half of the year, ATM revenue grew by 25%, 26% roughly. And therefore, that is what we need to take into account. However, as for the end of the year, we expect a double-digit growth in ATM. Maybe you might remember that at the beginning of the year, we said that we expected a high single digit concerning revenue coming from ATM. Now however, we estimate a double-digit growth by the end of 2025. As for our outlook with regards to the next 12 to 18 months, it's pretty clear as the CEO pointed out, we expect the same growth as the one we estimate for other regions such as the United States, where we said we are going to be making an investing effort in the Kansas plant through the contracts that have already been awarded to Indra, taking into account the American Aviation agencies, they are going to be investing up to EUR 10 billion in total. And we're also focusing on Asia Pacific as another region. Jose vicente Los mozos: [Interpreted] Just to reinforce what Miguel Forteza mentioned, when we're talking about ATM, we cannot focus on a quarter because we don't really control the contracts. We are talking about over 50%. So it's normal in one country to be ahead of time, some others a bit lag behind. It's important to see the difference year-to-year. And what I can say is that in ATM, today, we have the most advanced solution in the market. And I'm saying this not just for the sake of it, but I came back from the United States 2 weeks ago, and I can say that airport authorities are very happy with Indra solution. And we have NAF Canada as well and in London, we've got Eurocontrol, the Middle East. So it's not happening by chance that we are in most markets in the world. So I'm not concerned on nonstrategic assets at Minsait. Well, we -- both the President and myself, we know which are the assets that are not nonstrategic. There are several processes open. And if there's a proposal that satisfied the needs and the expectations of the company, we will carry it on. We are not in a situation which we can -- we want to lose value or just lose assets. If we understand that there's a proposal and that amount helps us invest on another asset that generates more value for our shareholders, we will do it. And we will inform you as it happens. So at a point in which the company is getting transformed. And we are talking about 20%, 50% of contracts, 100% in defense. We are getting our portfolio organized. We are 1 year ahead of schedule in our strategic plan. And at the same time, we haven't increased our leverage at all. So well, I believe that there's going to be a business case in the next few years to see how in 2 years, we turned around the company. Operator: Next question from Nicolas David from ODDO. Nicolas David: The first one is regarding IndraMind. Could you help us understand the magnitude of the opportunity in terms of order intake you see regarding the contracts which are part of PEMs linked to digital and cybersecurity? And what could be the time frame for those allocations? My second question is regarding CapEx. Now that you have a bit more visibility on the contract we signed, what kind of CapEx to sales do you expect in the coming years? Should it increase? Or is the level of 2025 something we should consider for the future? Jose vicente Los mozos: [Interpreted] IndraMind is a solution that Europe needs for its technology sovereignty with that dual use for civil and military. So with the President, we assessed Indra within Minsait, we have many use cases, both civil and military, but we have a platform. And I believe that for that European sovereignty, IndraMind can provide a solution, both in military and civil cases because we already have the use cases. So on the information, well, in the afternoon, there's an event at 6:00 p.m. Spain time, and I don't want to advance any of the things that we're going to be mentioning in the afternoon because our teams are working and fighting to explain the market what IndraMind is going to be, what we are going to do with it and what we expect. And I don't think it is right to reveal beforehand what we're going to be communicating in the afternoon. So those were the results for the first 9 months of the year. And as I mentioned, well, first of all, I want to thank our teams. Indra group has nothing to do with what I was here before I got here. The arrival of our President in January has accelerated it because we share a vision and we share a project. I believe that yesterday's event with the companies is a clear turning point of what Indra means in the Spanish sector. And we I'll finish with the idea of Minsait's going to be sold or not. We are working together. We have turned ATM into a leading company globally in its sector. We have transformed mobility with benchmark projects like the projects in the United States or some other projects we are about to launch in Europe that are going to be relevant from a global perspective in defense, we did our portfolio rotation. For example, we are experts in raiders at a world level, we are working on anti-aircraft systems. We have entered the space and securing communication. And the result of it all is that we have advanced in a year our strategic plan, and we are already working on a road map towards those EUR 10 billion. One year ago, none of you expected Indra to achieve EUR 10 billion before 2030. And we are going to get there. But not only are we're going to get there in terms of sales, but we are going to be leaders in terms of profitability and with a very low debt. And that's possible, thanks to the work of the whole team, and we will keep on working. Thank you very much, and see you in the annual results presentation and in the second Capital Markets Day. Thank you very much for your trust. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen. Welcome to Vale's Third Quarter 2025 Earnings Call. This conference is being recorded and the replay will be available on our website at vale.com. The presentation is also available for download in English and Portuguese from our website. [Operator Instructions] We would like to advise that forward-looking statements may be provided in this presentation, including Vale's expectations about future events or results encompassing those matters listed in the respective presentation. We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. To obtain information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission, the Brazilian Comissão de Valores Mobiliários and in particular, the factors discussed under forward-looking statements and Risk Factors in Vale's annual report on Form 20-F. With us today are Mr. Gustavo Pimenta, CEO; Mr. Marcelo Bacci, Executive Vice President of Finance and Investor Relations; Mr. Rogério Nogueira, Executive Vice President, Commercial and Development; Mr. Carlos Medeiros, Executive Vice President of Operations; and Shaun Usmar, CEO of Vale Base Metals. Now I will turn the conference over to Mr. Gustavo Pimenta. Sir, you may now begin. Gustavo Duarte Pimenta: Hello, everyone, and welcome to Vale's Third Quarter 2025 Conference Call. I would like to start by highlighting how excited I am about what we are building at Vale. Our vision to become a trusted partner with the most competitive and resilient portfolio in the industry remains solid, and we continue to make significant progress towards this future. This quarter, we once again delivered solid operational and cost performance across the board, and we are on track to deliver all of our guidances for the year. We continue to advance our safety agenda, most notably by removing the last dam from emergency Level 3, a significant milestone in our derisking journey. Our key initiatives and growth projects are also moving forward as planned, reinforcing our long-term strategic focus and disciplined capital allocation approach. These results give me great confidence in Vale's future and in the value we are creating, not only for our shareholders but also for society. Now let's move on to the quarter performance on the next slide. First, I would like to highlight the solid operational results we delivered across all 3 commodities, positioning us to reach the upper limit of our annual production guidances. This achievement reflects the outstanding performance of our operational teams, and I want to congratulate them for their hard work and consistency throughout the year. This quarter, iron ore production reached 94 million tons, an increase of 4% year-on-year and our highest quarterly output since 2018. This growth was primarily driven by a record third quarter performance at S11D, along with the ramp-up of Brucutu, Capanema and Vargem Grande projects, which added flexibility to our operations and product mix. Copper also delivered a strong performance with production growing 6% compared to last year, supported by Salobo's solid performance. This was the best third quarter result for our copper business since 2019. Nickel production remained flat year-on-year, but with an increase in our own production, thanks to the ramp-up of the Voisey's Bay underground project. This allowed us to significantly reduce our unit costs year-on-year as Marcelo will present later. Also in nickel, we started operations at the second furnace of Onça Puma in September. The project was completed on schedule and 13% below the planned CapEx, reinforcing our commitment to efficiency. The second furnace adds 15,000 tons of production capacity per year, and it is expected to further reduce unit cost by approximately 10%, enhancing the competitiveness of our nickel business. We also reached other important milestones this quarter through our new Carajás program, which aims to accelerate the development of key projects in one of the world's most attractive mineral deposits. As many of you know, in June, we received the preliminary license for the Bacaba copper project and have since begun preparations for construction, which is set to start in the coming months following the issuance of the construction license. In iron ore, we received the operating license for the Serra Sul plus 20 million tons per annum expansion. The project has reached 80% physical progress and should start up by the end of 2026. Additionally, we secured approval to expand Serra Leste's capacity from the current 6 million tons per year to 10 million tons per year, bringing extra volumes to the Northern System with a highly competitive capital intensity of just $20 per ton. Now looking at our portfolio. One of Vale's key competitive advantages is our ability to adapt to different market conditions, offering a product mix that meets the evolving needs of our customers. This is possible given the flexibility of our supply chain, supported by multiple blending, concentration and distribution facilities across the world. Throughout 2025, we actively adjusted our iron ore product portfolio, concentrating our high silica products and launching a new medium-grade product from Carajás. This flexibility results in significant value creation. In Q3, our iron ore fines premium increased by nearly $2 per ton quarter-on-quarter. From an EBITDA perspective, those initiatives represent over $500 million improvement on an annualized basis. Safety is at the center of every decision we make at Vale, and I'm very proud of the significant progress we have achieved this quarter in dam safety and management. Back in 2020, we made a public commitment by 2025, Vale would no longer have any dams classified at emergency Level 3, the highest risk category. Last August, we fulfilled that commitment. The Forquilha III dam, the last one at Level 3 had its emergency status officially lowered to Level 2 by Brazilian authorities. This is an important milestone in our commitment to society and neighboring communities and a key mark in our safety journey. Also in August, we announced that Vale successfully implemented the global industry standard on tailings management, the GISTM, meeting the requirements of this internationally recognized benchmark. Lastly, in September, we completed the decharacterization of the Grupo Dam in Minas Gerais, marking the 18th structure eliminated under our program. Advancing the dam safety agenda is essential to ensuring non-repetition and becoming a trusted partner to society. We remain committed to delivering results and being a reference for safety and operational excellency in our industry. Our efforts to transform Vale are beginning to be recognized by ESG rating agencies. We've demonstrated substantial improvements in governance, dam safety and management, health and safety and climate change. These advancements have led to upgrades in our ratings now surpassing levels seen prior to Brumadinho. I would also like to highlight that over the last 1.5 years, a relevant number of ESG-focused investors have removed Vale from their exclusion lists. We estimate roughly 1.5 trillion in AUM can now invest again in our shares and fixed income instruments. We remain dedicated to transparently showcasing the progress we've made across the company, and we remain firmly committed to the principles of the UN Global Compact, including respect for human rights, labor standards and environmental protection. I will now pass the floor to Marcelo Bacci to discuss our financial performance. I'll be back for closing remarks before the Q&A session. Marcelo, please go ahead. Marcelo Bacci: Thanks, Gustavo, and good morning, everyone. As Gustavo highlighted, we delivered another quarter of solid operational performance, which gives us even more confidence in the long-term value we are creating for our shareholders. This quarter, our pro forma EBITDA reached $4.4 billion, an increase of 17% compared to the same period last year and 28% higher than the last quarter. As you can see on the slide, this consistent result was driven by robust sales, lower all-in costs across all 3 commodities and more favorable pricing conditions. In Base Metals, EBITDA grew by more than $400 million year-on-year, reaching almost $700 million, thanks to better results in both copper and nickel. In iron ore, EBITDA was close to $4 billion, an increase of almost $250 million, supported by higher realized prices and quality premiums, reflecting the success of our portfolio strategy. This improvement was also supported by the higher sales of iron ore fines, as I'll detail on the next slide. Our iron ore sales increased by 5% year-on-year, reaching 86 million tons, the highest level for a third quarter since 2018. This growth was driven by stronger production performance and solid demand for iron ore fines with benchmark prices staying above $100 per ton for most of the quarter. This quarter, we built up around 4 million tons of inventory. It's important to highlight that this was mainly due to volumes in transit to our 20 distribution and concentrating facilities in Asia and Europe, supporting our portfolio strategy. We expect these inventories to be converted into sales over the coming quarters, helping us maximize the value generated by the business. Now looking more closely at our cost performance. I'm very pleased to see that we are on the right track to meet our 2025 iron ore cost guidance. Iron ore all-in costs declined 4% year-on-year, supported by our portfolio strategy, which led our average iron ore fines quality premiums to increase by almost $2 per ton quarter-on-quarter and $3 per ton year-on-year. Our long-term affreightment strategy is also delivering excellent results, reducing cost volatility and coming in $5 per ton below spot freight rates to China during the period. Our C1 cost, excluding third-party purchases, remained flat year-on-year, reflecting a positive impact from inventory turnover compared to last year, which offset the effects from the exchange rate and higher maintenance and materials costs. These effects led to an increase in our production cost, which reached $20.3 per ton this quarter. The production cost from this quarter, along with the less favorable exchange rate compared to last year are important factors to consider when estimating our C1 cost for Q4, which is expected to increase year-on-year. Despite this, we remain highly confident in achieving our full year guidance of $20.5 to $22 per ton. In Base Metals, our performance stood out once again, showing the great potential of this business as we continue to unlock value through ongoing initiatives. Copper all-in costs decreased by 65%, falling below $1,000 per ton. This was the fifth quarter in a row that we've seen cost reductions year-on-year. In nickel, all-in costs fell by 32% year-on-year to $12,300 per ton, reaching the lowest level since the second quarter of 2022, even after taking into account the impact of the PTVI deconsolidation. These improvements came from Vale Base Metals consistent focus on efficiency initiatives, combined with higher byproduct revenues in our polymetallic sites with gold being the main contributor. Because of the lower-than-expected costs so far this year and the favorable outlook for byproduct revenues, we are once again lowering our 2025 cost guidance. We now expect nickel all-in cost to be between $13,000 and $14,000 per tonne and copper all-in cost to be between $1,000 and $1,500 per ton. This continued cost improvement means an EBITDA increase of nearly $900 million compared to our expectations at the start of the year. Now let's move on to cash generation. Recurring free cash flow reached $1.6 billion in Q3, an increase of $1 billion year-on-year. This improvement was primarily driven by our solid EBITDA in the quarter and a reduced impact from negative working capital. Our total CapEx was $1.3 billion this quarter. We expect investment disbursements to increase in the fourth quarter, keeping us on track to meet our $5.4 billion to $5.7 billion full year guidance. On top of our recurring free cash flow generation, we also had a positive impact from the Aliança Energia transaction, which helped boost total free cash flow in the quarter to $2.6 billion. This strong free cash flow generation and strong cash position were primarily used to return value to our shareholders with the payment of $1.5 billion in interest on capital and a net borrowing of $600 million as part of liability management. Next slide, please. As a result, our expanded net debt decreased by $800 million quarter-on-quarter, reaching $16.6 billion, with iron ore prices remaining above $100 per ton, we expect the free cash flow generation in the fourth quarter to bring us down at least to the midpoint of our target range of $10 billion to $20 billion. In this context, we see increased room to consider additional shareholder remuneration even in the context of the participated debenture tender offer. Before handing over to Gustavo for his closing remarks, I want to emphasize the value we are consistently delivering to our shareholders. Through our growth strategy, cost efficiency and disciplined capital allocation, we are building a more resilient and high-performing company. These efforts strengthen our financial position and create conditions for sustainable and increasing returns to our shareholders over time. Gustavo, please. Gustavo Duarte Pimenta: Thanks, Marcelo. Before opening up for the Q&A session, I would like to highlight the key takeaways from today's call. Safety remains our core value, and this third quarter performance only reinforces that as we continue to advance on building an accident-free work environment and on delivering on our upstream dam decharacterization program. We once again delivered a solid operating performance with cost reductions across all businesses, reflecting our focus on operational excellence. Our flexible product portfolio allows us to maximize free cash flow and long-term value creation under different market conditions, and we are seeing those benefits in our financial performance. We are making solid progress on strategic projects in the Carajás region, leveraging one of the richest and lowest cost mining endowments globally. And finally, our disciplined capital allocation approach ensures we seize the best opportunities to generate long-term value for all of our stakeholders. Now let's move on to the Q&A session. Thank you. Operator: [Operator Instructions] Our first question comes from Rodolfo Angele with JPMorgan. Rodolfo De Angele: My two questions are the following one. So first, I would like to ask Rogério a question about the portfolio strategy. That was a thing that we discussed a lot in the recent investor tour, and it's amazing to see it already showing a large impact already in the third quarter. So I wanted to ask you to give us a little bit more color on how this should progress? What is the potential? Just an overview on what should we expect about portfolio strategy, which seems to be yielding pretty interesting results. And my second question, I think, is for Bacci or Gustavo or for Bacci. I think what we hear from investors is company is showing a very strong performance. The operations seem to be much more -- it seems like you have your hands on the wheel and things are really improving, and we're seeing limited surprises, which is always very good. And when we see a quarter like this one where the company generated over $2.6 billion in free cash flow, the question that I'm getting a lot from investors is how should we think about dividends as one part of the capital allocation strategy going forward? So those are my two questions. Rogério Nogueira: Thank you, Rodolfo, for the question. On the portfolio, I think up to now, our joint actions, and I mean joint because those are actions from the commercial operations and technical areas in optimizing our product portfolio, they have yielded very positive results. Just a few examples for BRBF and SSCJ. SSCJ is our mid-grade product from the northern part, which are both low aluminum mid-grade ores. They have commanded very high premiums versus the index 62%. As Gustavo mentioned, it was close to $3 per ton normalized to a 62% Fe content iron ore, which was a way higher than a year ago. If you look into the third quarter of 2015, fine premiums reached $0.7 per ton, which is actually $2.6 per ton higher than the third quarter of 2024 and $1.8 per ton higher than the 2Q 2025. And this is -- and I would like to say that this is actually despite a relatively lower quality product mix. So I mean, very positive results so far. Last but not least, IOCJ premiums also kept a very healthy level at about $15 per ton, obviously, driven by some good steel margins, but also by wiser product allocation, and we can talk more about it. But I think what I would like to reinforce is that we're very confident in our product portfolio. I think we see that IOCJ and BRBF will remain our core products with a strategic allocation to regions and clients who really require their unique properties. That means that we will sell it, but we're well allocated to clients and regions that actually value or have a higher VIU or pay a higher VIU for these products. SSCJ, as I said, which is the mid-grade product from Carajás that we just introduced, has already achieved sales of about $30 million per ton -- 30 million tons and is becoming a global product with potential to further increase its sales in 2026. So as we look into 2026, we believe that our volumes of SSCJ will increase gradually. Last but not least, our Chinese concentrate, which we started as a -- not such standard product is becoming a highly valued product in the Chinese market. So this is very good news. This product is also commanding very good premiums in the Chinese market. I think the only other one is the pellets market that we have been talking about. 2025 has been a challenging year for pellets. We see 2026, 2027 as years that will gradually recover our pellet premiums, especially with the start-up of new projects that will demand pellets, mostly projects that are going to look into direct reduction, looking for decarbonization. And also with the Chinese exports cooling down a little bit, and which will add more demand for regions that need pellets. Look, I think we will keep proactively optimizing our portfolio solutions, not only based on market demand, but also on our mine plan possibilities as we have been doing with the operations team. And we'll keep observing the market, observing the market needs and our competitors' positioning so that we can define our best allocation in our best portfolio. Gustavo Duarte Pimenta: Rodolfo, Gustavo here. Let me just add one thought here, and then I'll pass to Bacci to cover the capital allocation. But I think what you are seeing in the market is seeing is that one thing we've been sharing with investors is the enormous flexibility that Vale has in its portfolio, right? I think nobody in the industry has that flexibility. We've talked about 20 blending facilities across the globe, several concentration facilities. So that allows us to put into the market what our client needs at the right time. And I think this more dynamic product allocation and development that we've been able to show just reinforces the enormous competitive advantage that we have to play along the cycle. So I'm very happy with the outcome. And I think we'll be able to capture even greater value as we move forward. So to your second question, I will ask Bacci to cover. Marcelo Bacci: Thank you, Gustavo, and thank you, Rodolfo, for the question. As you mentioned, Rodolfo, the stability of the company and the stability of the market are creating better conditions for us to think about the extraordinary dividends for the coming months. As I said during the presentation, the price is above $100 on a consistent way plus the operational performance are creating a very nice cash flow position for us, which is better than we expected at the beginning of the year, plus the positive performance coming from the Base Metals business. So we cannot anticipate the decision right now because there's still a few things to happen, but it is likely that we have extraordinary dividends announced in the coming months. Operator: Our next question comes from Rafael Barcellos with Bradesco BBI. Rafael Barcellos: So as a first question, are there any plans to revise the offering structure of the participating debentures announced in early October? I mean any updates you could share on that front? And that said, maybe connecting with this Bacci speech on the dividends, I mean, what would be the implication or the implications for Vale's dividend payouts, particularly, of course, for extraordinary dividends? And as a second question, first, Gustavo, congratulations for the results that you have been delivering on the copper side. And that said, are there any plans or ways that you could -- that you believe that Vale could accelerate or speed up the growth initiatives in the copper business? Marcelo Bacci: Thank you, Rafael. This is Marcelo speaking. On the participative debentures, I guess, we have to -- first, the offer is to be concluded today. And this offer has been unique. It's the only one that we have ever done since the issuance of those debentures 28 years ago. And I would like to stress out that the executive committee does not expect to make another movement like this in the foreseeable future. We also believe that the price that we're offering is quite reasonable and above the fair value that we believe we have with a 15% premium compared to the price before announcement. So if we consider our production volume guidance, is the offer price of BRL 42 implies an iron ore price of $100 per ton -- around $100 per ton in the long term. So we think it's a very interesting offer to the holders. And of course, if you believe prices are to be above $100 per ton, probably positioning in the shares is a better deal. So I think we are not considering any change to the offer, especially because, at this point, it is about to be closed today. Gustavo Duarte Pimenta: Rafael, for your question. I will pass to Shaun. I think he'll be able to provide more color. What I can say is based on everything I've been hearing from the team, from Shaun and the ExCo of VBM is that the more we look into the growth opportunities in Carajás, the more excited we are. So this is something, hopefully, at Vale Day, we'll be able to talk more about it, give you concrete examples. But let me bring Shaun to the debate here. I think he'll be able to share more details with you. Shaun Usmar: Thanks, Gustavo, and thanks for the question, Rafael. I think the short answer is we will cover more of this as Gustavo say, in Vale Day. But really, we've fundamentally focused on 2 things right now to do exactly what you're saying. The first one is you've seen the industry, I think, on track this year to under-deliver against the original expectations with a series of issues by about 6%. An issue for us, just get the basics right in our existing operations. So you've seen our quarter, I did guide in Q2 that this was expected in both our segments to actually be our weakest quarter with planned maintenance, like at Sossego. And despite that, we've seen our operators do incredible work and we're on track, particularly at Salobo for record performance. And I think we're looking at Sossego a mature asset for the best operating performance, which is tough for an older asset in certainly 5 years, which is exactly what we need as a baseline. The other thing then goes down to capital allocation and the project growth pipeline, specifically on Pará. And here, we're not waiting for an annual time frame. We've taken -- we discussed this a bit during LME Week. Historically, 2024, for example, we do about 20,000 meters of drilling in the district. And this year alone, we've dynamically reallocated R&D spend, we've tripled our drilling this year. And we will share more on what we're finding, but it's incredibly exciting. So it creates this very dynamic question about drilling, drill results, the endowments and how do we actually optimize, not only to accelerate, but to see what we can do to increase volumes over and above what we thought was conceivable. We're very careful to make sure that we don't make the mistakes, I think you see in the sector more broadly, which is get over-enthusiastic. We have to ground this in delivery. But I think as Gustavo said in his opening remarks, first cab of the rank is Bacaba. We've worked with the government to be able to accelerate ahead of getting our work, so we hit the weather window here on early works on the bridge, which is critical path. They're about 40% ahead of plan currently. We hope to get that soon and we'll obviously communicate with the market soon. But we are set up there for lower capital intensity and to do that faster. And I won't spill the lead on some of what we're seeing with the life of business planning our projects, but all of that is around reducing capital intensity, execution risk and working more closely with governments on reducing permitting time frames. And I think we've got some really good news that we're working on in that area. The other thing is we're seeing with the ramp-up also on our polymetallics, we're ahead on both the Voisey's Bay, and we've seen our highest output in Sudbury in 5 or 6 years, we'll put over 5 million tons for Clarabelle this year. We are seeing a significant copper byproduct that is a material, it's over 20% of our total copper contribution. So that is a significant contribution to that business segment's all-in cost improvements as well. Marcelo Bacci: Rafael, this is Marcelo again. I forgot to mention about the question on the effect of the buyback of the debentures on a potential dividend payment. I would say that at this point, there is no effect or a minor effect. So this would not change our strategy in relation to dividends. Operator: Our next question comes from Leonardo Correa with BTG. Leonardo Correa: So a couple of things on my side. And sorry, it's going to be a bit similar to Rodolfo, so sorry, Rodolfo, for that and Vale management. But moving back to these 2 points, which I think are at this point critical, right, for the investment case. Rogério, starting with the commercial strategy, right? I mean great results so far I think you gave a very good qualitative assessment of everything that's happening. Things have been delivered very fast, right? So there's been a, let's say, a U-turn in the direction of things and you can already see an improvement in price realizations of -- depending on how you look at it, right, $1.8 to $2.5 per ton in better realized prices, right? It's natural, I think, for everyone to question, given the fast speed and improvement, where do you think we are in this, let's say, in this S-curve, right, of this entire journey on the commercial strategy? I know there's no guidance, and I know there's -- it's very difficult to quantify, but would you say we're at the early stages of this optimization and that these results, they could continue improving, maybe doubling from where we are? So anything quantitatively, I think would be very helpful, at least to me, so we can understand the, let's say, the economic impacts of what you're doing. The second point, to Marcelo. Marcelo, we spoke a lot about the potential extraordinary dividends. You talked about the [indiscernible] and how they impact that decision, which is close to 0 or very little. You're talking about iron ore prices have been ahead of expectations and how that helps and the cash flow projections going forward, I can imagine, have improved. What we haven't debated yet is the potential changes in regulation in the country, right? I mean Brazil is on the verge of increasing taxation on dividends to 10%. And every single company, every single management team and every single tax department is obviously running the numbers and trying to assess implications and what the next steps are, right? I mean looking into the numbers for Vale specifically, right, I mean, one can simply conclude that there's about 30% of the market cap in retained earnings, right, which is a relevant number. I know leverage is not high but maybe a bit higher than what -- the mid-range of your guidance, but still manageable. I want to see from you if that changes the calculus, right? This potential regime change in Brazil on taxation of dividends, does that change in the short term your calculus on the extraordinary dividend that you're about to announce? Rogério Nogueira: Okay. Well, no, thank you very much. This is a very fair question. Let me break it down in 2 steps. First, let me give you a view of what we're doing and then I'll give you an idea of the potential impact, okay? So what we have been doing is that we keep proactively optimizing our portfolio solutions. So always looking to the market demand, as I said, and looking at our mine plan possibilities. Just to give you a few examples of things we're doing. We're developing additional, more competitive concentration capacity on a global basis so that we have less costly, better logistics for the concentrate production that we produce. And those concentrate production or this concentrate production allows us to think about different optionals in terms of blending. We are establishing alternative blending facilities outside China on a global basis wherever possible. For example, we're putting blending facilities in Sohar, we're putting blending facilities in Europe, we're looking at some other options in Malaysia. So we want to increase our flexibility to distribute on a worldwide basis, and that actually helps us to better allocate the products and optimize not only the service to clients, but also our price realization. Where -- there's a third element, that we're also improving process flow sheets, so to increase metallic recovery in the concentration facilities. We created a small technical group to develop and deploy best practices. This is extremely important because the metallic recovery on those concentration plants do have an enormous value. And last but not least, we're improving logistics. So trying to figure out the places where we should be positioning blending facilities, concentration, so that we can optimize logistics costs. So those are the things that we are doing. But ultimately, to your question, so the potential impact depends a little bit on a few factors. First is the competitors' reaction and how they are developing their own portfolio and how we would fit, complement their own portfolio. Just to give an example, you might see some of our clients their view on product portfolio is decreasing quality to optimize resources and reduce C1 costs. This is where they're going. I mean it's very accretive for them. But as long as they're going this direction, that actually offers us a possibility to put more complementary material into the market. And our view is that this will increase the value in use of our products. So the second one just to think about is how the market will react in terms of this anti-evolution capacity closures. The less capacity you have available to produce the same amount of steel or the same amount of pig iron, the higher the premiums one would expect because the higher quality of iron ore would be demanded to maintain productivity of the remaining blast furnaces. So I'm just giving you a few examples that this game will need to played -- would need to be played as we go, but that we have developed an enormous flexibility and we're monitoring the market very closely so that we can maintain the current premiums and try to optimize it even further. Marcelo Bacci: Well, thank you for your question. Of course, we are monitoring very closely the potential and the changes that have happened and the potential additional changes in regulations, especially related to tax -- income tax on dividends and interest on capital. The situation we have at Vale is that we can pay -- if you look at the minimum dividend policy that we have, most of it, if not the totality of it, can be paid using interest on capital. So the immediate impact on the regulation -- of the regulation on dividends for us is limited. But we are monitoring. Still, there is some confusion in the market about the potential conflict between the corporate law and the new regulation that was created by -- for dividend payments related to profits that already have been recorded, in terms of the -- when those dividends can be paid after declared. So we are still working on that. But we are monitoring that very closely, as I said. And if there is any opportunity to optimize the situation of the company and our shareholders in relation to tax, we're going to look very closely into that. Operator: Our next question comes from Carlos De Alba with Morgan Stanley. Carlos de Alba: Congrats on the solid results. I wanted to focus a little bit on Base Metals. And maybe, Shaun, can you elaborate a little bit more on how do you see the timing of Vale pursuing more aggressively the copper growth opportunity that it has? Obviously, several projects in the portfolio. How do you see the sequence of those? When can we start to see the Board, maybe management presenting the projects for Board approval, and then hopefully start on the path of expanding that copper output? And then my second question, also on Base Metals, will be if you can share maybe some color as to how the cash cost without byproducts or before byproducts in Base Metals has performed. Obviously, kudos to the company and to you on the lower all-in cost guidance. But that definitely were influenced by strong byproducts, which they count, we'll take them. But just if you can shed some light on how the cost performance has been before byproduct benefits. Shaun Usmar: Thanks for that. So the copper growth, I'm going to punch, I think that mostly to give you the detail on Vale Day, as much as I'm jumping it a bit to share with you now. I can just say we've fundamentally redesigned our life of business planning this year and very much with an eye to exactly the dynamics you've mentioned. So we are prioritizing, as I said earlier, dynamically capital to copper in Pará, specifically on R&D spend. And the constraint that we have on copper growth is not throwing more money at that. I just want to be clear. Like our plans currently, we are fully self-funded through our planning horizon, mostly through, not just, as you said, byproduct credits, but really fundamentally through our entire business restructuring, our capital intensity, reducing our working capital and fundamentally reducing our overhead and our cost in this business, so things that we control. So we are seeing opportunity. I will disclose more within weeks of how we're seeing that opportunity to look at sequencing and growth opportunities. And I'd sort of direct you to say, as far as I can see from the market analysis that we see with analysts and others, we're not even getting credit for what we've guided to yet. So I recognize that the market is sort of waiting to see what we're capable of delivering. I hope that we -- I hope that it's evident, particularly against the backdrop of the copper sector that's struggling to deliver. Our assets are hitting records. We have to get that done fundamentally to earn, frankly, the right from Vale and Manara for further capital, and we're delivering that. And then in addition, I think we're finding significant opportunities on how we approach projects and work with our partners and our stakeholders to unlock their copper growth. So I know it's not the -- this is a little of the detail you're looking at, but we will provide that within a matter of weeks. And I am, I think, to just coin what and echo what Gustavo said, the more work we do, the more excited we get. And I expect that as we get more drill results, and we will continue to increase our drilling. The constraint is just getting enough drills, frankly, for us to continue to do more. What we will find is, I think each year, for the foreseeable future, we'll be able to continually dynamically improve. But we've seen a step-change in copper and I'm super excited about that. We see it in our internal valuations. The next, on just more broadly for Base Metals. If you remember in prior quarters, we started restructuring this business about a year ago. In fact, it was about 6 weeks into my tenure in the role. And the team, I was actually with our operating teams out, we do quarterly reviews with all the asset and functional leads, so just last week, I'd say each of our assets is exceeding their internal commitments and plans. It's quite remarkable. And that is looking not at, to your point, byproducts, and as you said, we'll take it, and we're obviously doing the things that we can to enhance recoveries. We've seen Salobo as an example, compared to just a few years ago, we're about 10% ahead on gold recovery. These guys are doing an incredible job, and we're seeing -- we're on track for record copper and gold production this year in Salobo as an example. But at the same time, the focus is on reliability and fixed overhead reductions, which we're seeing flow through, things we control, which we're seeing flow through into the enablement of the decentralized model that we've spoken about previously. And that is manifesting in things like Sossego. Within a matter of months, a controllable 40% reduction in unit mining costs with changes in practices and engaging that workforce. We're seeing fixed cost dilution in practically all our operations, specifically the work that has been done in Voisey's where they're now about 20% ahead. And that has enabled Long Harbour in the first time in its 11-year history within a period of months to actually be achieving its design capacity. It's never done that before. And they're doing that through enhanced availability, reliability of the equipment specifically, but significant cost control and being able to drive that through and enhance productivities. And we've still got a long way to go, I'd say, for the business as a whole. We've done well, but we've got more opportunity to achieve benchmark productivities. Sudbury, I mentioned earlier, is, with the 5 mines, has achieved significant improvements, and they've done it safely. We've had about a 40% improvement in TRIFR. We -- as you heard in the opening remarks, celebrated in September, bringing the Onça Puma furnace 2 on about 13-or-so percent under budget and on time. And importantly, that is -- we're already -- Kilma this year with her team has taken that asset now with the fixed cost dilution. And being ahead of her cost commitments, we'll bring that down into the second quartile, which is the ambition for the nickel business to be sustainable. And I know specifically on that segment, because I know it's been a challenging one historically, the focus that we've mentioned there is not just to be the beneficiary, which we are as we've ramped up, but more byproducts. And to remind you, at the moment, in the Canadian nickel assets, about half of our revenue is derived from nickel at these prices, and the remainder is copper, cobalt, PGMs and precious metals just generally. We are the beneficiaries and we're seeing enhanced volumes and higher prices that are helping us there. But importantly, the increased volumes that we're seeing flow through are significantly contributing to and the low overheads are contributing to the fixed cost dilution and those improvements. And even Thompson, we're seeing the best throughputs in that operation at this stage since, I think, it's 2021. So every asset that I'm seeing at the moment is coming to the party and contributing on what they control. And we have further to go. So I hope that gives you a sense. Operator: Our next question comes from Caio Ribeiro with Bank of America. Caio Ribeiro: So my first question is in regard to your expanded net debt. I just wanted to get a sense from you on if and when you could possibly consider a revision of your current range of $10 billion to $20 billion. What's the rationale behind a decision like that? And if you do make any changes, what implications that carries for buybacks and dividends to be announced going forward, particularly if you increase that expanded net debt range at some point? And then in second place, my question is on pellets and briquettes. This year, Vale took the decision to cut its pellet production as a reflection of less favorable market conditions. I just wanted to see if you can give us a sense of what signs you're looking for to bring that capacity back, and if there is a particular level of premiums for pellets that you're looking for to take that decision. And bringing briquettes into the discussion, I just wanted to see if you can give an update on how the development of this product is evolving and whether you're confident at this point of the large-scale applicability of applications of this product. Marcelo Bacci: Caio, on the expanded net debt we are not envisioning a change in that policy in the short term. I guess the company will gain more and more capital flexibility over time as the relative weight of the reparation commitments becomes smaller in the expanded net debt over time, especially in the next 1.5 years. So a few months from now, we're going to be in a position where the difference between the net -- the financial net debt and the expanded net debt will be lower and lower. And at some point, we're going to have to review the concept. But for the time being, we believe that both the concept and the range are adequate to our reality. Rogério Nogueira: Caio, thanks for the question. In terms of pellets, there has been a decrease in demand, at least up until the end of the year, so steel mills outside China, they are operating at lower capacity utilization, primarily due to competition from imported steel from China. And with that, there is a less need for blast furnace productivity, what impacts negatively blast furnace pellet demand. So that's the scenario that we are facing. Also we have had some additional increase in supply coming from Samarco and from LKAB. The way we see it is the medium term as of end of 2026, 2027, there's going to be a significant increase in demand, especially driven by electric arc furnaces, which are coupled with direct reduction furnaces. So only in Europe, you have many projects ongoing, like all the German companies, from ROGESA Roheisen, Salzgitter, you have Austria with Wüster, you name it. You have, in Mexico, you have Ternium, Psqueria So the amount of the demand for pellets over time is going to increase gradually, also some in the U.S. But the point is we don't have a target for pellet premiums to open up plants and continue to increase volumes. I mean we will react to the market on a continuous basis. So we'll bring volumes to the market as we see fit. But our expectation for the years to come is actually very positive. We need just to overcome the sort of this point in time where China is exporting significantly and hurting steel mills, blast furnaces around the globe. In terms of briquettes and briquettes development, we are extremely confident. I think we have 2 kinds of briquettes, one for blast furnace, which have been -- we have a few blast furnaces which are already operating at very high participation of briquettes in their burden mix, in some cases even 100% with very good performance in terms of productivity, in terms of fuel consumption. And our challenge now is actually to prove it for direct production. We are running some industrial trials by the end of this year, beginning of next year. And our expectation is extremely positive. We should be able to give a better view of the results of this test or these industrial trials in the next call. Operator: Our next question comes from Daniel Sasson with Itaú BBA. Daniel Sasson: Most of them have actually been answered, but maybe I'll try to do one that we don't talk that much or that frequently about, which is on Samarco, right? The company got out of its judicial reorganization in third quarter. For those that have been following the story for a long time, I think, and correct me if you think I'm wrong, but investors in general, have kind of zeroed the dividends received that could be received by Vale from Samarco. And then right after, the dam burst happened and then Vale started to disclose the potential contributions to the Renova Foundation and so on and so forth. . But if you could comment a little bit on how the ramp-up of the second concentrator is doing. And if it's too soon or not maybe to think about the reversal of some of the provisions that you've made for the contribution to the Renova Foundation, if you think that Samarco will be able to take care of those payments themselves and therefore, some that could alleviate the contributions that could be made or that would have to be made by Vale and BHP, that would be great. And my second question, since we're talking about this, the overhangs or most of the overhangs that Vale has solved over the past 1 year, 1.5 years, you've gone a long way, if you have any updates on the legal case ongoing in the United Kingdom, if we've had any developments there, that would be great. Those are my questions. Gustavo Duarte Pimenta: Thanks, Daniel. Gustavo here. I'll do the first one and Bacci will cover the second one. Look, we are very happy with the progress that the team in Samarco has been doing. They've ramped up the second concentrator, doing around 15 million tons. They are about to make a decision of going to the third concentration, so Samarco could be getting all the way up to 28 million tons in a few years out. So we are very happy with the operational performance. They now also incorporated the responsibility for the reparation and they've been doing an outstanding work there. So it is a very strategic asset for Vale I think it's early to talk about impact on provisions. There is still a lot of work to be done there. But from an asset perspective, it is a very strategic asset that we like very much, and we are very excited with the work that the team has been doing so far. Marcelo Bacci: On your second question, Sasson, the U.K. case is still going on. We expect potential decision of this phase of the case in the coming weeks, sometime in November. That could mean the end of the process if we win or actually not we, but technically BHP, but we share any consequences with BHP. But if BHP prevails, that would end the process. If not, that would leave the process to another phase that will take a few years in order to quantify the potential losses of the climates. Important to mention that some of the claimants that were initially part of the lawsuit in the U.K. have decided to join the Brazil agreement, which we believe is the main means to compensate the impacted people. So out of the more than 300,000 individuals that joined the Brazil agreement, half of those at least were part of the U.K. agreement. So they decided to give up on the U.K. in order to join the Brazil agreement, and they have been also already paid in Brazil. And a part of the municipalities also joined the Brazil agreement. And the part that have not joined have been provided for in the provisions that we constituted in Brazil. So we consider that the case in the U.K. still goes on. There may be an additional impact in our numbers coming from that, but part of that has been resolved already. Operator: Our next question comes from Caio Greiner with UBS. Caio Greiner: My first question, to Rogério on China Mineral Resources Group. So Rogério, we understand they have reached a significant portion overall Chinese iron ore purchases. And so I wanted to hear from you. How are the talks going with between Vale and them? There are obviously news of a competitor that has been having some issues on those discussions. So I just wanted to understand what has been Vale's strategy on negotiating with them, and if you can share with us what has been the focus point of those negotiations, if there are any talks of any sort of long-term supply agreement. Any color there would be helpful to us. And the second one, actually a follow-up to the previous expanded net debt question, but more focus on the methodology. I guess for Bacci. More questions have been emerging since you guys announced the perpetual debenture repurchase and whether or not this would raise the expanded net debt figure, if it would impact dividends, which you guys already talked about. But at the end of the day, I think the point is, there are other debt-like instruments on Vale's balance sheet, which are not really included in the expanded net debt methodology. So I wanted to understand, how does Vale internally look at its overall debt burden or obligations, whatever we can call it? And is the expanded net debt method actually the one that you most use inside of the company? And if not, if there are any plans to rethink this methodology, change the methodology going forward and eventually even raise the target range? Rogério Nogueira: Okay. Caio, Rogério, thanks for the question. Now first of all, I think we're following closely the negotiations CMRG has been having with other iron ore players. And we are also in talks with CMRG. But I'd like to just reinforce that China has been a very historical partner for us and we have an extensive history of cooperation with our Chinese partners. For example, we've developed the BRBF with Chinese clients. We have a comprehensive network of blending facilities, which we've developed with the Chinese ports. We've developed the VLOCs with Chinese shipyards and ship owners. So there's a long history of collaboration. So given this, as I say, long-standing relationship, and the value that we place in China, we have held comprehensive conversations with CMRG along the years, but we've always explored win-win alternatives, understanding that and this is important, that we have a product portfolio that is unique and it's very complementary to the all other offering that China has. So having that in mind, we are working with them just to find win-win solutions. I'll be there, I will be -- next weeks. We're talking to them. But we hope to find sort of win-win solutions for Vale and for China. Marcelo Bacci: Caio, on the expanded net debt, it is indeed the indicator that we use internally for the evaluation of our capital structure. We do have the participation of debentures as an additional instrument that is not included in the net debt concept, but that's because of the nature of that instrument. That is a perpetual instrument where we have the net present value of that recorded as a liability but as a nonfinancial liability in our balance sheet. So it is an obligation anyway that will have to be paid in terms of the interest or the semiannual interest that we pay. But the principal amount is recorded in another balance sheet line. We continue to think that the expanded net debt is the right way to look at this because we still have a significant amount of reparations to be paid. As I said, during '26 and '27, a very important part of those payments will have to be performed. So by the end of '27 or mid-'27, we're going to have a much lower difference between financial debt and expanded debt, which means that we may be in a position to review the concept. It is important to notice that the obligation related to reparations is different from a regular debt because it cannot be refinanced. We need to pay as they mature. So that's why it's important to keep that concept at this point. But as I said, in the coming years, we're going to be in a position to review that. Operator: Our next question comes from Marcio Farid with Goldman Sachs. Marcio Farid Filho: Rogério, another one for you. You're In very high demand today. How should we think about the change in the benchmark grades into next year? Obviously, Platts is moving from 62% to 61% FE, alumina and I think phosphorus benchmarks also increasing into next year as well. Seems to be part of a natural industry transition into lower-grade assets. But how should we think about that? And our understanding is that, especially for flat steel, which is -- I think is becoming more relevant than long steels now in China, flat steel is relatively more -- it's more important, especially when you think about phosphorous content, and I think they are more sensitive to that. So how does Vale places into that trend in terms of benchmark change and the change in terms of product mix in China going forward as well? And maybe the second one to Gustavo. Gustavo, obviously, good job on the operational front being done in the last year or so. I think you've been talking on the media and you've mentioned that Vale has regained the first part in terms of the largest iron ore producer potentially this year, but with higher confidence next year. So it's great. But obviously, when we look at company size in terms of market cap or whatever other metrics you want to look at, Vale has clearly lagged peers as well, right? So everybody is asking about how we can expedite copper growth. And we obviously have other iron ore projects to be delivered into next year as well, especially in the north. So there's more value to be created for sure. But is that an ex-side from the Board or from management to catch up to that to that lag. I mean when we look at Vale's ranking on a global scale, again, it's lost some position, right? So is that an ex-side to there? Or is it just it is what it is and you keep doing what you have in terms of internal endowment? That's obviously another way to ask about M&A or any other ways to grow the business in a faster mode. Rogério Nogueira: Marcio, to begin with the benchmark with the PRAs, this is a very good question. Indeed, there's a bit of uncertainty right now as most of our competitors are moving their product grades more towards 61%, such as the Pilbara Blend at 60.8%. The agencies are discussing about migrating from the index 62% to an index 61%. At this point in time, they are going to be publishing a very differential between the index 62% and the index 61%. But probably down the road, the prevailing index will be a 61%. We are -- our products are actually higher, even our BRBF is a 63% FE content. We're discussing with the index, for example, the possibility of launching and with the PRAs, that we're talking about metal bulletin platts, argus [indiscernible] okay? About the possibility of launching a low alumina 61. It's important to say that our products are always sold at the specification, which is higher FE. Let's say, BRBF is 63% but when we bring it to an index, it's normalized for FE, okay? So there shouldn't be much of a change. We will be discussing with the agencies what makes sense for us to sort of to compare our products with, what is the best reference, what's the most liquid reference. But this is still ongoing, okay? In terms of FOS content, you're absolutely right FOS is becoming more and more important, especially when you have such large volumes of products such as the Yandi from BHP and Rio Tinto coming out of the market. And FOS should be one of the specific elements that has to come into the specs, has to be valued and put into a value difference. We are working on this front, so we'll give you more update as we firm up a solution. Gustavo Duarte Pimenta: So Marcio, Gustavo here. On your second question, look, we agree with you. I think there is still enormous opportunity for Vale to unlock value. I think this management team is highly focused on that. And despite some of the rerate we had recently, we still believe there is a lot of opportunities for us to continue to advance and regain our position in the market from a market cap standpoint. That's what we are working on. And this is the legacy we want to leave, be very focused on value creation as we go along. And our view is that the value we will accrue and we'll regain it if we continue to operate our assets well, that we are outstanding in terms of operational performance. So the results you've seen, it is highly encouraging, and I think we can do even better, not only in iron ore, but also in Base Metals. So this is a key priority for us. And in this industry, this is one of the most important things that you have to master. But we also see Vale as a company with potential highly-accretive growth opportunities. If we look at the comps and the capital intensity for some of our competitors, just to stand still, is substantially larger than us. And I think sometimes this is underappreciated by the market. Vale has a unique potential to bring volumes and grow with a capital intensity that is substantially better and more competitive than our competitors. So if a few years out we are doing 360 million tons of iron ore, with the right mix of assets, lower cost, this is going to be, for sure, the most competitive iron ore platform in the world, I have no doubt about it. And I'm feeling more comfortable that we'll be able to get to that future. And if we can double the size of copper and tomorrow, do 700 kilotons, not 350, leverage the endowment, another unique advantage of Vale, the endowment that we have. We don't have to go to other places. M&A, yes, a lot of people are doing M&A. But we don't need to do. We do have the resources here. So it may take a little longer. But remember, we are very focused on value creation here. So I'd rather take a little more time, but develop the right projects with the right level of returns and grow consistently. Because I think that's what it's going to, a few years out, create sustainable value for our shareholders. That's what this team is very focused on. And I think it's in our hands to deliver. Operator: Thank you. This concludes today's question-and-answer session. I would now like to close the conference. We thank you for your participation, and wish you a nice day.
Leandra Clark: Good morning, and welcome to MAPFRE's activity update for the third quarter of 2025. This is Leandra Clark, Head of Investor Relations and Capital Markets. Thank you for joining us today. We are pleased to have here with us José Manuel Inchausti, Vice President of MAPFRE, who will provide some opening remarks and an overview of recent business trends. Following that, José Luis Jiménez, our Group CFO, will discuss the main financials; and Felipe Navarro, Deputy General Manager of the Finance area, will walk us through the balance sheet. As a reminder, we report IFRS financial information on a half year basis. The information in this activity update is prepared under the accounting policies applicable in each country, which generally do not apply IFRS 17 and 9. [Operator Instructions] and we will open up the Q&A session at the end of the presentation. I will now hand the floor over to José Manuel Inchausti. José Manuel Inchausti Perez: Thank you, Leandra. Hello, everyone, and thank you for your time today. Let me share some highlights of the quarter before José Luis and Felipe walk you through the details. Results have been excellent with higher profitability in all regions and in our main business units. We are outperforming almost all updated targets announced at the AGM. However, if we look at the macroeconomic context, the world economy has continued to slow down with fiscal tensions, trade wars and higher geopolitical risk. This is creating exchange rate volatility that is affecting our top line, especially the U.S. dollar and Latin American currencies. Premiums have grown 3.5%, reaching over EUR 22 billion, and at constant exchange rates, this would more than double, reaching nearly 8%. Non-life, which is more than 75% of our business, continues to benefit from improved technical management. Premiums in this segment are growing over 6% at constant exchange rates, almost 2% in euros, reaching over EUR 17 billion. The Life business is up around 10% in euros, nearly 40% at constant exchange rates, reaching over EUR 5 billion. The Non-life combined ratio is now 92.6%, down more than 2 points with a strong reduction in the claims ratio to 65%, and an excellent expense ratio at 27.5%. The net result is up nearly 27%, reaching EUR 829 million with a return on equity of 12.4%. These results includes extraordinary impacts of EUR 79 million from the partial goodwill write-down in Mexico and the derecognition of tax credits in Italy and Germany. This is the result of an ongoing review of our balance sheet with a prudent approach to valuation. The adjustments have had no impact on our cash flow positions nor our capacity to pay dividends. Without these one-offs, the result would stand at an excellent EUR 908 million and the return on equity over 13%. Our capital base remains strong despite market volatility with shareholders' equity up 5% during the year, reaching EUR 8.9 billion, and the solvency ratio close to 209% at the end of June, in line with our target range. These robust results have allowed us to increase the interim dividend to EUR 0.07 per share, up nearly 8% compared to last year. Core businesses are performing extremely well, supported by the progress in the implementation of our Strategic Plan. Overall, Iberia has an excellent contribution to results with almost EUR 350 million up over 22%, thanks to its diversified business mix with the Motor result up more than EUR 80 million, consolidating its recovery. There were also strong contributions from General Property & Casualty and Accident & Health. We continue to see the positive effects of our technical management with the Motor combined ratio improving by 6 points to 98.5% and Accident & Health improving 4.5 points to 95%. In Lat Am, performance has been outstanding with a combined ratio of 83% and almost all countries below 100%. The largest challenge we are facing in the region right now is currency volatility. We have been operating in this market for many years and are confident that our diversified business model will continue to prove resilient. While currencies are affecting the top line, results are strong across the region. Brazil has had an excellent quarter with a net result of almost EUR 200 million, up 6% with very strong margins. In addition, Mexico, Peru and Colombia together contribute over EUR 100 million to the results. But both the Non-Life and Life businesses remain highly profitable with improvements in the combined ratio across most lines, and financial income continues to be an important tailwind. The region reported a total result of EUR 340 million, up 11%. North America is delivering an excellent result of nearly EUR 100 million, up 40%. Technical measures continue to pay off with relevant improvements in Motor and General Property & Casualty. Finally, in MAPFRE RE, prudent underwriting, diversification and adequate retrocession are delivering solid results. We continued increasing prudence during the quarter with reserves still in the upper end of our confidence interval. Hurricane season has been very quiet. However, we prefer to maintain a conservative approach. Performance was standing with a net result of EUR 256 million and a combined ratio under 94%. In conclusion, we are extremely satisfied with this year's results. The Board of Directors approved an interim dividend of EUR 0.07, an almost 8% increase to be paid on November 28. It was the fourth consecutive increase, bringing total dividends paid in 2025 to EUR 0.165, EUR 508 million fully in cash. This is the highest dividend ever paid in a year. During the last 5 years, MAPFRE has paid out EUR 2.3 billion to shareholders. The average dividend yield for this year is over 5% and more than 7% for the last 5 years. I will now hand the floor over to José Luis to walk us through the details of the quarter. José Jiménez Guajardo-Fajardo: Good morning to everyone. I will now discuss the key trends by region, complementing the figures already provided by José Manuel. In Iberia, total premiums are growing over 9% with solid growth in most lines of business. Non-life is up nearly 5% and Life premiums are up 20%. The combined ratio has improved 2.5 points to 95.9%. Our investment portfolio continued to boost profit. The return on equity is now up almost 2 points to 13%. Profitability in Lat Am has been excellent. Brazil continues to see excellent results, posting return on equity of over 27%, with improved technical ratios and high investment returns. The Non-life combined ratio is around 72%. In local currency, business volumes were down slightly with linked segment still affected by high interest rates and the macro and geopolitical context. Premiums in euros are down 11.5% with a 9-point exchange rate impact. Other Lat Am continues to deliver strong profitability, contributing over EUR 140 million, up 19% with technical improvements across all lines, leading to a 3-point reduction in the combined ratio to 96%. Premiums have been very affected by exchange rates, with strong local currency growth in key markets like Mexico, Colombia and Peru. In North America, premiums are down 4% in euros with a 3-point drag from the U.S. dollar. The combined ratio is well under 96%, improving around 3 points. In EMEA, losses in Germany and Italy are going down significantly. The region is reporting a second consecutive quarter of positive numbers with a EUR 7 million profit, compared to almost EUR 19 million in losses last year, with a 6.5 point reduction in the combined ratio. Regarding MAPFRE RE, José Manuel has already commented on the reserving strategy and the bottom line. In terms of growth, premiums are growing around 1%. The U.S. dollar is relevant for this business and premiums will be up over 6% at constant exchange rates. Additionally, reserve reinforcements has been around EUR 165 million year-to-date with a 5-point impact on the combined ratio, which means the ratio will have been below 90% without this one-off. MAWDY continues to contribute positively with a net result of EUR 3 million. Lastly, I would like to address a few specific items. First, hyperinflation adjustment has improved from around EUR 47 million last year to EUR 24 million this year, mainly due to Argentina and Turkey. And second, the extraordinary impact of EUR 79 million were recorded in the holding expense line, of which EUR 38 million correspond to the partial goodwill write-down in Mexico, and the rest to derecognition of deferred taxes in Italy and Germany, with EUR 31 million and EUR 9 million, respectively. As a reminder, in September 2024, there was the partial goodwill write-down in Verti Germany for EUR 90 million as well as extraordinary income of EUR 35 million from various tax adjustments. General P&C lines continue benefiting from technical discipline, strong market positions and diversification. Premiums are slightly down, affected by currencies. The combined ratio remained excellent below 81%. In Iberia, premiums increased by 7% with improvements in key segments, especially Commercial lines. The combined ratio stands at an excellent 94%, thanks to diversification and a prudent underwriting approach as well as comprehensive reinsurance protection. In Brazil, premiums declined 10% in euros, while the drop in local currency was just 1%. Agro insurance is still affected by high interest rates as well as the geopolitical and macroeconomic situation, while other retail and industrial lines are experienced notable growth. The combined ratio has improved to 63%, supported by Agro, which remains in the low 50s with a lack of relevant events as well as a strong performance in other retail lines. North America, premiums are impacted by the dollar depreciation, while the combined ratio has improved 2 points to 83% during a traditionally quiet quarter weather-wise. Regarding Motor, the third quarter confirmed previous trends with significant advance in most market. The combined ratio is now below 100% with around a 5-point improvement year-on-year. The net result is almost EUR 96 million compared to EUR 70 million in losses last year. In Iberia, the combined ratio has improved over 6 points, reaching 98.5%, and we expect to see further improvements. Premiums are growing 3% and reflect average premium growth of over 7%, almost a point higher than the market. The result has grown by over EUR 80 million, reaching EUR 52 million compared to losses last year. In Brazil, premiums are down mainly due to the currency depreciation. The combined ratio remained stable, in line with higher interest rates. Performance has been a standing in North America with a EUR 52 million profit, almost double compared to last year, with the combined ratio down more than 3 points. Regarding the regions, in other Lat Am, almost all units are now reporting combined ratios below 100%. In EMEA, the combined ratio is also down 8 points from around 120% to 112%. In conclusion, technical management remains solid and the measures implemented continue paying off. Regarding the Life business, premiums are up almost 10% with strong trends in Iberia and other Lat Am, especially Mexico. Furthermore, the Life business is very profitable, adding EUR 180 million to the result. In Iberia, total premiums are growing 20% due to strong performance in savings products. Excluding special transactions, growth in Iberia will be around 17%. This very strong underlying performance is supported by our extraordinary distribution capacity, adapting to the individual needs of our clients. The protection business is growing in line with previous trends. The net result was EUR 92 million, down year-on-year. About half of the decrease is explained by lower financial gains. In Brazil, premiums are 14% lower, impacted by the currency as well the high interest rate environment, which affect lending and related Life Protection product demand. Profitability remains strong with a combined ratio of 82%, down 2 points year-on-year. Regarding the rest of the countries, volumes were up almost 16%, led by over Lat Am, in particular, Mexico. Performance in both Mexico and Malta has been noteworthy, growing more than 40% and 10%, respectively. Now I will hand over to Felipe to discuss the main balance sheet items. Felipe Navarro de Chicheri: Thank you, José Luis. Shareholders' equity stands strong at over EUR 8.9 billion, up 5% during the year on the back of the excellent results we are reporting. The improved valuation of the available-for-sale portfolio offsets the negative currency conversion differences, mainly from the U.S. dollar, which is down 12% year-to-date. Leverage is at 21%, reflecting our disciplined approach to capital and debt management. Regarding our capital structure, we don't expect any major changes in the near future. The upcoming maturity of our senior bond in May 2026 will most likely be refinanced by senior debt. We hope to go to market sometime early 2026. Total assets under management stand at more than EUR 63 billion. Third-party assets, which are now over EUR 15 billion are up more than 14% with outstanding performance in Brazil. We maintain our position as one of the leading non-bank players in the asset management business. Our own investment portfolio amounts to EUR 47.5 billion with asset allocation stable. We remain convinced that our portfolio's defensive nature, focus on quality and diversification and high liquidity is well prepared to face market volatility. On the top left, you can see our main fixed income portfolios. Regarding the euro area, duration is down year-to-date, but relatively stable on the quarter and portfolio yields overall are slightly higher. In other markets, portfolio yields in Brazil substantially increased nearly 240 basis points year-to-date, reaching 12.7%. In other Lat Am, yields are stable, while they are moving up in North America. On the bottom left, you can see Non-Life net financial income is up around 9%. Other Lat Am continues to be affected by Argentina, where investment returns are lower than prior years, which is offsetting the hyperinflation adjustments, which are also lower. On the right, you can see net financial gains at around EUR 29 million. Iberia remains the largest contributor, the majority coming from Non-Life. Now I will hand the floor over to José Manuel to make a few closing remarks. José Manuel Inchausti Perez: Before moving on to the Q&A, I would like to reiterate that we continue consolidating significant improvements across all regions and business lines, especially in the Motor business. This is thanks to one of our strongest assets, our high level of diversification, both by geography and by product, which not only mitigates risks but allow us to leverage opportunities. We continue executing our strategic initiatives with focus on profitable growth and continuous technical improvements as we move forward in our internal transformation. Financial income is still a relevant tailwind, and our balance sheet remains resilient. Despite the geopolitical and macroeconomic uncertainty, we have a very positive outlook. We are prepared to face the headwinds from currency depreciation, inflation and economic slowdown, and we are confident in the direction we are heading in. The increased interim dividend we announced this morning is proof of that. In conclusion, these solid results are proof of the strength of MAPFRE's business model, our ability to adapt in a constantly changing environment and our ongoing commitment to profitability, solvency and a client focus. These achievements allow us to be optimistic about the coming years, continue with the prudent approach that define us. I will now hand the floor over to Leandra to begin the Q&A. Leandra Clark: Thank you, José Manuel. Although most of you are already familiar with the process [Operator Instructions] And now let's start with the first question. We've received several questions surrounding the reinsurance business. Juan Pablo Lopez from Banco Santander would like to ask if there's been any impact from the recent hurricanes in the Caribbean. José Jiménez Guajardo-Fajardo: Okay. And thanks for your question, Juan Pablo. To be honest to you, I mean, the impact so far is negligible. And we have to say that MAPFRE has no exposure to Cuba and Jamaica. And in the case of Global, it's a minimum exposure that probably it wouldn't affect the result. Leandra Clark: We've also received several questions regarding the reserve strengthening at MAPFRE RE during the quarter. Maks Mishyn would like to know what was behind these reserves? And Alessia would like us to quantify the impact, both at 9 months and on the third quarter stand-alone and what businesses they affected, if they affected any particular line of business? José Jiménez Guajardo-Fajardo: Okay. I would say that probably following our prudent approach to reserving, I mean, we have reserve reinforcements has been around EUR 165 million year-to-date, which means more or less a 5-point impact on the combined ratio. Otherwise, it would have been below 90% without this one-off. In terms of the quarter, last quarter, we did a reserve around EUR 60 million. Leandra Clark: Thank you. Paz Ojeda also would like to know if we've finished with this reserve strengthening or will this continue in the coming quarters? José Jiménez Guajardo-Fajardo: Probably, I think it's too soon to say. I mean we are just in the middle of the hurricane season. Apart we have all the kind of NatCat events that could happen at any time around the world. So I would say that until the 1st of January is quite difficult to comment. But of course, I mean, we are prudent by nature. And if we think that there is secondary price increase or whatever it could happen, we are more on the prudent side. Leandra Clark: Thank you, José Luis. Maks also had a question regarding our outlook for the fourth quarter. As we've seen that the hurricane season remains mild. If that continues into the fourth quarter, what could we expect from an underlying combined ratio? José Jiménez Guajardo-Fajardo: Once again, I would say it's too difficult to say. Hopefully, the quarter could end as it has started. But during the last few weeks, we have Melissa and everything was a little bit concerned. Finally, it's not a big issue. But still, we have to deal with the end of October and November. Leandra Clark: Thank you. Moving on to another topic, still MAPFRE RE. Juan Pablo from Banco Santander asked about the loss ratio, which he said was very low in the quarter. Was there any release or extraordinary impact? And he also asked for the expense ratio, which has increased quarter-on-quarter. And is wondering if there's been any other extraordinary impacts in either of these lines. José Jiménez Guajardo-Fajardo: Well, as we have mentioned before, there is no release at all. It's the other way around. We have reserve reinforcements as we have pointed out. Maybe the good figures come from low NatCat events during the quarter. And regarding the expenses, it's just the profit sharing adjustment that we have in some policies that explains the difference. Leandra Clark: Thank you. We have one last question from Maks Mishyn regarding the reinsurance business. In particular, he's asking about the profitability of the Life business. I believe there may have been some volatility on the quarter, although this is a business that tends to have high volatility. Felipe Navarro de Chicheri: There is as well -- I mean, the reserves as well in the Life business has been reinforced during the year. And we can mention that the Life business, which is an area that we want to grow in the future, has been observed and developed in a very prudent way. So this is what we may expect on the year. I mean we are looking at this business very closely. And I think that year-on-year, it evolves quite swiftly. Leandra Clark: Great. Thank you. We're going to move on to the next block of questions. Moving on to Iberia. Juan Pablo from Banco Santander has some questions regarding the Motor gross written premiums that are growing 3% versus the sector, which is growing around 9% and that we've seen some loss of policyholders during the quarter. How do you see the competitive environment? Are you expecting an inflection point in terms of market share in the short term? José Manuel Inchausti Perez: Okay. The first thing is that MAPFRE Iberia has dropped 6 points, its combined ratio in Motor insurance, which was the main objective. And now it's in a good 98.5%. That was the first objective, and we were very focused on profitability. Once -- and in spite of that, the growth is 3%. It's true that it's less than the market. It is still a positive growth of 3%. In the next quarters, once we have improved, I would say, radically the combined ratio, we will be a little bit more focused on growth, not only in premiums, but in insured units. Regarding the market, what we could say is that the market has entered in a very soft market in the motor insurance in Spain, but we will be more dependent on our technical results than these movements in the market. Leandra Clark: We've also received some questions that affect more the General P&C line. The first one is from Paz Ojeda, Bank Sabadell. She mentions that it's been a quite benign year in general for weather -- from a weather event point of view. And that it seems -- or she'd like to know what part of the improvement in the combined ratio in General P&C is due to this very benign weather environment. Felipe Navarro de Chicheri: I mean there's definitely some kind of impact of this benign weather. I mean this is something that we are experiencing lately. It is true that General P&C has as well other exposures that are affecting the situation. And once again, we want to mention that there is a very prudent approach on the reserving of this line of business. So even though this prudent approach that we are taking, we are still posting excellent combined ratios, and we should continue if nothing happens otherwise. Leandra Clark: Thank you, Felipe. Moving on also into General P&C. Maks Mishyn from JB Capital would like to know what has been the impact of the wildfires in Spain on your claims during the quarter? José Jiménez Guajardo-Fajardo: I will say that despite the tragedy of these wildfires, we all have in mind those images about the countryside, small village and the fire and so on. We have to say that many of these properties were not insured and probably the impact will be negligible on the accounts. Leandra Clark: Great. Thank you. Moving back to Motor. We've received several questions, which I'm actually going to summarize, I think, from a few analysts. I think in general, the question is, number one, what can we expect for the combined ratio in Motor in the coming quarters? And number two, what -- how do we feel about this slowdown in premium growth? And do we think this can also improve in the coming quarters? José Manuel Inchausti Perez: What I would say is that the combined ratio in MAPFRE is -- Motor insurance is 99.6%, which is a good improvement over 5 points over the last year, and it will continue improving in the next quarters. Growth has been 2.3%, affected by exchange rates, and it should be better in the next quarter as well. Leandra Clark: And Maks Mishyn has a follow-up question on that, and he'd like to know what type of tariff increases are you implementing in Motor? And when do you expect to normalize churn and start growing the client portfolio? José Jiménez Guajardo-Fajardo: Well, in this case, I mean, we -- as we have said in different presentations, the premium, I mean, the increase in target is more related to inflation to cover the cost slightly above inflation. But it's true that during the last quarters, I mean, year-to-date, we prefer to come back to profit and to resolve the crisis on the Auto business. Right now, I think we are in a very good position to try to put the focus on growing in terms of customers, and that's where we are focused for the coming quarters. Leandra Clark: Thank you. We're moving on to the Iberia Life business. Barclays -- Alessia, Barclays commented that Life gross written premiums came down by 17% in the third quarter. Can you please give us some details of the drivers of why the business volumes in Life came down between the third and the second quarter? José Jiménez Guajardo-Fajardo: Linear growth in Life Savings, I mean, it's not regular. I mean we cannot share the same amount every quarter. So it is true that during the first and the second quarter, we have a real extraordinary growth. Probably the third quarter has been more flat. But as well, we have plans. You all know, we try to become a leader on financial planning in the Spanish market. We have more than 3,000 branches, more than 10,000 people specialized in Life Savings, and we are really focused in continue growing on the coming quarters. Leandra Clark: Thank you. We have two more questions or one more, I believe, for Iberia. Juan Pablo from Banco Santander. He asks why financial income was down and would like to know if we can expect a stabilization at the current levels. José Jiménez Guajardo-Fajardo: At the group level, I mean, financial income has grown around 9%, if I'm not wrong, with the figure. In the case of Iberia, it is true that we have to come back to last year because last year, we sold a real estate property, and we did an important capital gain. But we have to say that we expect a stabilization even maybe why not increasing a bit the financial income. I think that the book yield is something that probably can continue growing slightly. And it is true as well that this year, we have less capital gains compared to last year despite the incredible performance on the financial markets. But we are not -- we have no concern about that. And probably we believe it could be a tailwind in the coming quarters. Leandra Clark: Thank you. We have one additional question in Iberia, General P&C. The combined ratio performed very well, down again during this quarter. And Juan Pablo from Banco Santander would like to know, has there been anything extraordinary or a release of provisions? Felipe Navarro de Chicheri: As I said before, I mean, General P&C is performing extremely well. There was no release during the quarter. There was -- in fact, it was otherwise. I mean, we were preparing for having a very benign quarter to have some reinforcement of reserves in this line of business as well. So things are performing well, and this is nothing extraordinary that we should mention. Leandra Clark: Thank you. Well, we finished with Iberia. And in case -- unless there's any follow-up questions, we're moving on to Brazil. Our first question is from Juan Pablo at Banco Santander, and he's asking about growth. He comments that we're seeing a fall in gross written premiums. What is our outlook for this business? And what is the impact from the struggling Agro business in Brazil? José Jiménez Guajardo-Fajardo: Well, in the case of Brazil, we have to say, I would say, several things. The first one is that the business is performing extremely well and results are growing another quarter. It is true that we have an important headwind there, which is the high interest rates. The Selic right now is around 50%. And where you are selling insurance product linked to credit, it's quite difficult to grow in such market conditions. I would say, the good news is that probably next year, we have elections in Brazil. Inflation is coming down, very close to the target of the Central Bank. And we believe it could be reasonable to think that probably interest rates could come down in Brazil significantly. In the short term, we have the advantage, we have the pros of high interest rates for our investment portfolio. In fact, the book yield of the investment portfolio has increased almost 3 percentage points, which is not bad. But on the other hand, it's suffering a bit in terms of premium growth. Next year, we could see a reverse on this function. So probably we have lower interest rates. We expect to see more premiums coming for the business. So we are optimistic about the future of the business in Brazil. Leandra Clark: Thank you. Following up on the Agro business, well, I would say the combined ratio in general, Non-Life, which is very much supported by Agro. Juan Pablo from Santander asks, your combined ratio increased quarter-on-quarter after a very strong second quarter. In the past, you mentioned you expected a lower structural combined ratio in Brazil. Could you update us on the structural level around mid-70s combined ratio? José Jiménez Guajardo-Fajardo: I think 70s is a wonderful combined ratio, and we would like to see that ratio in many of the business. And it doesn't matter from one quarter to another, it moved slightly up. I mean, if I remember properly, second quarter was around 68%. Right now, it's 71%. I'll be more than happy to see 71% for the coming future. But this is an extraordinary business for us. I think we think we have a quite competitive advantage in the marketplace. And it doesn't matter if the combined ratio moves around the 70s up or down. So we are very happy with that. Leandra Clark: Thank you. Regarding the Life business in Brazil, is there any -- there's been a fall year-on-year in the premiums. Is there any reason different to ForEx? And how do you see the trend of the Life Protection business going forward? Felipe Navarro de Chicheri: I mean as José Luis has mentioned already, I mean, this is very much related with interest rates. Selic at 15% is a deterrent on the increasing of the credit in the market. We should expect that if -- as José Luis mentioned, we are going to have lower Selic during the next year. There will be an increase of lending in Brazil that will help us to increase the level of premiums on the market. I mean there is as well the FX that has been affecting us. But I mean, I think that all in all, I think that there is a solid position on the Life Protection business that will continue during the next year. Leandra Clark: Moving on to the rest of Latin America. On a similar note, Life business is actually doing quite well and growing year-on-year, but the P&C business seems to be a little weaker. Is there any other reason, again, different from foreign exchange? What are the trends you're seeing in Non-Life in the rest of Latin America outside of Brazil? José Jiménez Guajardo-Fajardo: As we have pointed out before, I mean, high interest rates is really a driver of this, in the sense, it's quite difficult to sell insurance linked to credit. And it is the same trend in Mexico, it could be in Colombia and Peru. As we have a more positive view regarding interest rates in the future, we have seen this week as the Fed has reduced by 25 basis points and probably this could continue in the coming months. So this could help as well that Latin American central banks could review as well rates. So this is a very good trend for the business. Apart from that, I mean, we have the FX effect. But once again, we tend to believe this has stabilized so far. And in the last, I would say, 2 months, we have seen how some Latin American currencies has strength rather than deteriorate compared to previous quarters. And so far, year-to-date, we see a slight appreciation on the real, a slight appreciation on the Mexican peso. So I don't know, I think probably this mean reversion probably could affect us positively from now till next year. Leandra Clark: Thank you. We're going to move on to North America. We've received so far, two -- one question. Juan Pablo from Santander would like to know why is the combined ratio so low in P&C? Were there any release provisions? Or was it weather-related? José Jiménez Guajardo-Fajardo: No. I mean not release provision at all. It's just probably this part of the year is probably the best in the U.S. in terms of weather-related events, but also all the hard work that our colleagues has done there in terms of efficiency, in terms of operational effectiveness and so on. But the weather has helped a bit, but we continue with the good trends of previous quarters. Leandra Clark: Thank you. We're going to move on to a few questions we received regarding the balance sheet strengthening that took place with some extraordinary impacts this quarter. We received a question from Antoine at AlphaValue. He would like us to give some background information regarding the goodwill write-down in Mexico. How is this business performing? And what would have been the combined ratio in Lat Am, excluding Mexico? Felipe Navarro de Chicheri: I don't have a figure about Lat Am, excluding Mexico. I mean we can send it the answer to you after. I mean it's going to be very detailed. Regarding the write-down in Mexico, I think that we need to be aware on what kind of transaction we were looking for in this area. We wanted to have -- to increase the network that we had in order to distribute better and reaching more the client in the Life business. In this case, I think that the acquisition of a network of more than 4,000 agents and related distributors of Life business is an extremely good acquisition. The thing is that the business that was on back of it, this was -- there was something that we need to revise, review and to challenge in order to provide with sound information on this business. This is the reason about this partial write-down that we did in the goodwill in Mexico. That is part of it that has been preserved, because we think -- that we continue thinking that the business should be profitable. There will be a lot of cross-selling that is not included in this goodwill that is going to be captured from Mexico. And once again, this is part of the very prudent approach that we have from the balance sheet, and this is going to be the same approach that we have on the reinforcement of reserves and looking at a very strong balance sheet for the future of MAPFRE. Leandra Clark: And just to follow up, we're looking at the combined ratios for the region and Mexico's combined ratio is very much in line with the total of other Lat Am. So there's no large difference in the profitability across the region versus Mexico. Thank you. We received another question coming from Paz Ojeda, Bank Sabadell. And she'd like to know what risks do we have remaining for additional write-downs in intangibles, including goodwill, deferred tax assets or value of business acquired across the different subsidiaries that the group has? Felipe Navarro de Chicheri: I think that we look always as a very conservative -- with a very conservative eye all those intangibles assets that we have. When we are looking at them, we have a very strong and very strict approach on how we analyze it. It is true that the goodwill that we have in the market are right now associated mainly to very strong operations. And I think that, that is something that has been seen in the past. I mean, they're related with very strong businesses. But we are going to continue looking at the opportunity of approaching this with the most prudent way in a manner that things are going to be on the reinforcement of the balance sheet. There is nothing in the short term that let us know -- let us think that we should continue with this -- with any kind of write-down. But I mean, in any case, we are going to continue looking at each of every -- and every line of the balance sheet in order to take the most prudent approach that has been taken in the last years. Leandra Clark: Thank you, Felipe. Moving on, we have a question surrounding the dividend. Juan Pablo from Santander asks, we've seen your solvency ratio improved to 209% compared to 206% last quarter. This is the figure we have at the end of June. This is quite comfortable above the midpoint of your target range of 200% with a 25-point leeway. Could we expect any increase of dividend payment -- payout -- excuse me, of dividend payout? José Manuel Inchausti Perez: What I have to say just -- and then I will let José Luis speak about the solvency ratio. Any decision about dividend payout is taken by the Board and they must be approved by the AGM. So that will be the procedure. José Jiménez Guajardo-Fajardo: Well, regarding the solvency ratio, I mean, we are really happy with the level that we have achieved, 209%, which is in line with the margin that has been set out by the AGM, by the Board of Directors. And nothing to comment. I mean, probably if the trends continue, we could keep within that range on the high end. And probably, we are looking forward to continue with such a strong balance sheet. Leandra Clark: Thank you, José Luis. We're going to move on. We have 2 more questions. The next one is regarding M&A coming again from -- sorry, from Banco Santander. He'd just like an update on what are our M&A plans and our strategy going forward. Felipe Navarro de Chicheri: Mean there's no change in the strategy. We already mentioned that we have capacity to display more capital, but I think that we are not in a hurry right now. We are looking at any opportunity. There is nothing on the desk that we should look for a very immediate closing or in the next months. The opportunities that we are looking at or that we are looking with a very close attention are related with, of course, with Spain that we want to increase our distribution power on the country, mainly for the -- trying to rebuild the bancassurance agreements that we had in the past and try to distribute better on the Life business. On the -- we should be keen on displaying more capital in the euro area, and we need to bear in mind that the only country mainly that we could do it would be Germany. Italy could be an opportunity, but I mean, it's mainly Germany on this side. If we look at Lat Am, I think that there are two economies that are the focus of our M&A strategy. First, Brazil. And we are looking for any opportunity that could help us to increase our importance there. It is important to mention that we don't need -- we don't want to jeopardize in any case our very good agreement with Banco do Brasil. So we will be very careful in this area And of course, Mexico, which is a country that is in the long term, very linked to the U.S. economy and is the second biggest economy in Lat Am. Looking at the U.S., I mean, we could think about some company that will present some business that will make a complement to the one that we are distributing already in Massachusetts, which is mainly Homeowners and Motor, and try to look for an opportunity in a single state company that could help us to try to put a foot on another state that could help us to start developing mainly this new line of business in the area that we are already present or the Motor and Health -- or Motor and Home that we are already doing very well in Massachusetts in this other state. I mean those are the main points that we want to increase. I mean, the areas where we want to deploy more capital will be, I mean, on top of, of course, Motor agreements, distribution agreements, Life business, which is one of our priorities. I mean, I think that there is nothing that changed from the past. So the same kind of strategy and nothing on the short term for the moment. Leandra Clark: Thank you, Felipe. And moving on to our final question. Juan Pablo from Banco Santander has commented that our latest guidance in terms of ROE and combined ratio looks a little out of date. And do we plan to update these targets anytime soon? José Manuel Inchausti Perez: As I said before, our current guidance was adopted in coherence with the Strategic Plan that ends in the next year. Fortunately, things seems to be better than expected. But we have to bear in mind that we are not in the end of the year, we are just in the third quarter on one side. And on the other side, any change in any guidance of the company must be adopted by the Board previously. Leandra Clark: So we have no further questions. We did receive some to the platform that we think would be better answered after the call due to a very technical nature. We'll reach out to you between now and Monday. And just as a reminder, all the documents are available at our website. And now I'm going to hand the floor back to José Manuel for some closing remarks and after José Luis Jiménez. José Manuel Inchausti Perez: Yes. If I make some closing remarks, I would say that we are very satisfied with the company figures that we have presented. They are excellent results, and the results are the consequence of 3, 4 very hard years of work, especially to decrease the combined ratio and to grow up the ROE. Combined ratio is improving 2.2% -- 2.2 points over the last year. That has been compatible with a very prudent approach, which has led us to make some strongest provisions in some units, especially in Reinsurance unit and to make the write-offs and the recognition of fiscal assets that we have presented to the market. So overall, every country -- almost every country, almost every business line is improving its technical results. So we feel the whole team feels very rewarded for the for the work that has been done in the last year. Growth is 80% in a constant exchange ratio and having this improvement on the balance and on the results, we will be focusing in profitable growth over the next quarter, not only in premiums. This is something that we already have, but in insured units and in terms of customers. Another thing is that MAPFRE is having a very good years, and we have good expectations for the end of the year if nothing extraordinary happens. Just to remind that the dividends will surpass for the first time in our history, EUR 500 million, which is a very remarkable figures. And just to put an end, talk just a second on the prudent deployment of AI and digitalization that is going on in the company. The company is improving a lot. And I must say with a prudent and humanistic approach to the AI, we are expanding it over the company. And the last part is to talk about system plans, very important system plans that are going on in Spain, Latin America and U.S.A. And so far, they are giving results and they are on track as well. So that is my final conclusion, and thank you very much for the attention and the questions. Leandra Clark: Thank you. José Jiménez Guajardo-Fajardo: I think José has said it all. We have had a wonderful quarter, and we are looking forward to a really good year for MAPFRE. Thank you so much for your analysis, for your questions. And if you have any further questions that we are able to give you a proper answer, we are at your disposal in the coming hours or days. Thank you so much. Leandra Clark: Thank you. José Jiménez Guajardo-Fajardo: Thank you. José Manuel Inchausti Perez: Thank you.
Operator: Good day ladies and gentlemen, welcome to the third quarter results 2025 analyst conference call of FUCHS SE. This conference will be recorded. [Operator Instructions] May I now hand over to Andreas Schaller, Head of Investor Relations at FUCHS SE, who will start the meeting today. Please go ahead. Andreas Schaller: Yes. Thank you, Sharon. Good afternoon, ladies and gentlemen. This is Andreas Schaller speaking. On behalf of FUCHS SE, I wish you a very warm welcome to today's conference call on the 9 months earnings. Before we start, maybe let me quickly introduce myself. I'm the successor of Lutz Ackermann as new Head of Investor Relations at FUCHS SE. I have almost 25 years of experience, having worked in various sectors like semiconductors, building materials and also machine building. And now I'm at the company that supplies all these sectors with very innovative lubricants. So I'm very happy to be here and look forward to discuss the FUCHS equity story with you and support you together with my team whenever you have questions. With me on the call today are our CEO, Stefan Fuchs; and our CFO, Esma Saglik. As always, Esma and Stefan will lead you through the presentation, followed by a Q&A session. We also have the Investor Relations team here with us. So Theresa Landau; and Niclas Neff. And actually, it's Niclas's birthday today. So happy birthday, Niclas. Yes, all the documents to this call, you can find on our web pages, and you've seen that you have them in front of you. Please be also aware of our disclaimer on the last page of the presentation. And now it's my pleasure to hand over to Esma. Please go ahead. Esma Saglik: Thank you, Andreas. And first of all, happy birthday to you, Niclas. And secondly, Andreas, great to have you here and welcome you on board actually. We are really looking forward to work with you. So -- but let's go and talk about our financial highlights for the third quarter. After a tough second quarter, we saw a strong recovery in Q3. But still, the environment is challenging, especially in Europe, where the demand remains weak. Mainly uncertainty in the market overall continues. Despite all the volatility, we managed to grow our business, both organically and through acquisitions. Sales rose by 1% to EUR 2.7 billion. Currency effects had a negative impact of EUR 51 million, mainly due to the stronger euro versus the U.S. and Australian dollar and the Chinese renminbi. EBIT also developed positively in Q3, even exceeding last year's Q3 results. After 9 months, we reached a profitability of EUR 326 million, which is EUR 8 million or 2% below the prior year. So what were the key drivers? It was a strong business mix, especially in North America, continued growth in Asia, here to mention China and the first effects from our cost measure initiatives we have initiated a quarter ago. Our free cash flow came in at EUR 181 million, which is a solid result. So all in all, we are on track, and that's why we confirm our 2025 outlook as communicated in July. On the next slide, you can see the sales development by quarter. Compared to the previous quarter, sales increased by around 2% to EUR 869 million (sic) [ EUR 896 million ]. The growth came from all regions. However, if we compare it to Q3 last year, sales are down by EUR 6 million. This decline is mainly due to negative currency effects impacting the quarter by EUR 32 million. As we all know, the euro continued to get stronger in Q3, which led to a higher FX impact than in the first half of the year. Looking ahead, we expect Q4 revenues to remain broadly in line with our prior year. Let's move to the next slide and take a look at EBIT on a quarterly basis. The picture has changed compared to the last quarter, which is actually a good signal. We can see an improvement of 16% in EBIT sequentially, and we are even slightly above our strong third quarter of last year. For the last quarter, we expect EBIT to develop in line with our expectations, which would bring profitability to almost the same level as last year. Having a look to our group sales development, we are actually happy to see sales growing year-over-year and this both organically and through acquisitions, despite the tough market conditions we are facing right now. As of September, sales reached EUR 2.7 billion. That's a year-over-year increase, as mentioned, of 1% or EUR 34 million in absolute terms. Both organic growth and acquisitions were contributing equally to this positive development. The organic growth came mainly from Asia Pacific and the Americas, which is underlining the strength of our local-to-local strategy and the strategic investments we have made over the past years. The growth of these 2 regions was even being able to offset the moderate organic decline we have seen in EMEA. On the external growth side, our acquisitions, especially LUBCON and STRUB, now FUCHS SWISS LUBRICANTS made a strong contribution. Further additions came from BOSS and IRMCO, both being a part of FUCHS since beginning of this year. As you possibly read in the news, early October, we expanded our presence in Switzerland by acquiring our long-standing distribution partner, ASEOL SUISSE AG. This company will be merged into FUCHS SWISS LUBRICANTS by the end of the year. Despite all the good development at the top-line, unfortunately, a part of the growth got offset by negative currency effects. Taking a closer look at some of our KPIs about sales and EBIT, we have talked already. Looking to our gross margin, we see a steady improvement. Year-to-date, our gross margin stands at 34.9%, which is above last year. On the other hand, our functional costs increased also, mainly due to recent acquisitions we made, inflationary cost increases and onetime investments we did for new customer projects. Some of these costs are one-off costs or pre-investments, which will be -- which will normalize throughout the year. However, the rising cost base due to inflation still needs to be taken or needs to get closer attention. To manage this development, we have introduced cost control measures as we have announced also in our last call, of which we could see positive effects in Q3. So far, EBIT is down 2% year-over-year. But towards the year-end, we expect to reach prior year levels. Our key balance sheet indicators are on track. As of September, free cash flow reached EUR 181 million and both CapEx and the change in net working capital are almost in line with last year. So looking into the regions, in EMEA, the main growth driver are our acquisitions, which successfully offset the organic decline. The decline in organic sales is mainly due to the challenging economic situation in Europe, here, especially the weak automotive manufacturing sector. On the positive side, the acquisitions supported not only on the sales growth, but also contributed positively to earnings. I think it's also worth to mention that by the end of Q3, total profitability in EMEA was slightly above the prior year's level. I think that's a good sign despite all the difficult market environment we are facing in Europe. Moving over to Asia. The main growth driver in the region was clearly China, which showed an excellent result. Our decision to invest in local production is really paying off. India also gained momentum and grew faster, while Australia continued its positive trend, especially supported by solid growth in the automotive aftermarket segment. All of this together led to a profitability increase of 17% year-over-year. So in summary, the development in Asia Pacific is very positive and clearly confirms the strength and the potential of our regional strategy. Now coming to North and South America. As we all know, the region has been a bit volatile in recent months, mainly due to ramp-up activities and the unfavorable product. After a challenging Q2, we saw positive momentum in Q3. Sales increased compared to the previous quarter and EBIT improved, reaching its strongest level so far in 2025. The main drivers are a better product mix and the improved cost base we are seeing in the U.S. The one-off costs related to the Mercedes business are largely behind us and volumes are ramping up, which is a positive sign. So in summary, year-to-date, sales are up 2% and profitability is recovering. Now turning to the development to our net liquidity. Earnings after tax were close to last year's level. CapEx was in line with our expectations and the contribution from net operating working capital was also roughly on prior year level. As a result, free cash flow before acquisitions reached EUR 181 million by the end of September. However, despite the solid operating cash flow, dividend payments and acquisitions led to a cash outflow, which reduced net liquidity to EUR 30 million. On the next slide, we take a closer look at the quarterly development of our working capital. Overall, we see the usual seasonal pattern, an increase over the course of the year, followed by a reduction towards the year-end. The increase in Q3 is actually cutoff related. Inventory increased to prepare for a stronger sales month like October and November. Positive to note is that we managed to improve net working capital compared to last year, both in absolute terms and also as a percentage of sales. For the fourth quarter, we expect a typical seasonal decline in working capital as we move towards the year-end. Now a quick look at raw materials. For base oil, we saw only minor price movements in the past quarter. Euro-dollar currency effects are positively contributing. Looking ahead, base oil prices are expected to soften slightly. When it comes to the additive packages, prices remained broadly stable during Q3. But here as well, we expect a slight softening in the near future. However, developments around tariffs and current exchange rates remain uncertain and should be monitored closely as they could still have an impact on the material prices. As you know, in July, we have adjusted our outlook, which we confirm now again. We expect sales to remain at the same level as last year, slightly higher in volume, but balanced out by currency headwinds. For EBIT and our FVA, we expect 2025 to close at a strong level as 2024. When it comes to the free cash flow before acquisitions, we assume a normalization after last year's exceptional results and expect to land at around EUR 260 million. So in summary, 2025 is expected to end at a similar level as last year, which is a solid result, especially considering the high uncertainty in today's market. We are confident about our future because we have a strong business foundation, resilient structures and above all, very committed and motivated teams. But at the same time, the market environment remains uncertain. So therefore, we have to watch closely the market developments and be prepared to any potential headwinds. With that being said, I come to the end of my financial presentation, and I would like to hand over to Stefan. Stefan Fuchs: Thank you very much, Esma. Before we enter your questions, and we will answer a few slides about news from the FUCHS world since we met the last time. And I think the first part, Esma already mentioned, with 70 subsidiaries across the world, we were blank in Switzerland. So we had no subsidiary. We had a distributor there and Switzerland is a high-tech country. And it was very nice that when we took over LUBCON, they had a subsidiary in Switzerland, and then we acquired STRUB at the end of the year. And we have now a facility in Reiden in between Rudesheim and Basel. It's a modern facility. The building you see here on the picture is like an old, abandoned part of the property, which we will demolish moving forward. But now we have merged the 2 companies, LUBCON and STRUB and have renamed them in SWISS LUBRICANTS, and we have now also acquired the ASEOL distributorship. And all in all, we have now about 50 people on the ground, and we have revenues of CHF 20 million, which are nowadays EUR 22 million. And I think that's a good basis to grow in the future. So that was for us a really nice development. And then in the next slide, as you all know, sustainability is very important to us. It's at the bottom of our heart. And the economic part, Esma went through, I think the third quarter was on the good old track record you know. So on the economic side, I think we do well in the current circumstances. But I want to go into the other 2 parts. And if you go on the ecological part, the one part is lubricants themselves have a positive impact on the CO2 balance of our customers because they hinder wear and tear, but they also prohibit corrosion and many other things. They cool the electric -- they help the electric productivity. But our customers also want to know in the sheer chemistry, how much CO2 footprint is in each kilogram of the products we deliver. And we have an automated system now built in our recipes in SAP. But obviously, we need to make a couple of assumptions. And to be clear, we have them certified by the TUV Rheinland. I think we are front runner in the lubricants business that we can now tell our customers with a click on the mouse pad what the CO2 balance per kilogram is. I think that was very important for many of our customers. And then on the social side, we have a lot of social projects around the world. So our people are there not only for making money and succession planning in the countries, but also to be a good citizen. So we have a lot of social projects in the south side of Chicago, outside of Johannesburg, in Mumbai, wherever our plants are or in Sao Paulo, and we have scholarships and things like this. And in Germany, our flagship part is our FUCHS [indiscernible], how we call it. We do that since 26 years. And we started humble and now we have increased the amount to EUR 75,000 last year because it was the 25th Jubilee of that sponsorship award. But now, as Esma said, with the cost the volumes, we turn around each euro on marketing, on traveling, on consulting. But that part, we wanted to keep because it's very important for us and the region. And it's not only spending EUR 75,000, but it's also to provide a platform to all the people who do that and sacrifice private hours in doing social work. And as it functions, we have 50 applicants for projects, and they go through the city of Mannheim through their social welfare department. And then we actually celebrate 16 projects. There are 100 people here, the mayor of Mannheim is here, and we spend 2 hours with them, and they give us feedback what they do with the money. So it's a very emotional part, and I just wanted to share that with you. It was 2 days ago, and it's always a very nice ceremony. Now I hand back to Esma for a last slide for an announcement, and then we are happy to enter the discussion. Esma Saglik: Yes. And we are happy to announce our next Capital Markets Day which will take place on Thursday, April 16 next year at our headquarters here in Mannheim. This event will be a special one for us as we will officially launch our new strategic program, FUCHS 100. You all may heard already, this strategy is led by our Deputy CEO, Timo Reister, which will guide us from 2026 to 2031, the year where FUCHS will celebrate the 100 years of anniversary. So we are very much looking forward to welcoming you here in Mannheim and sharing our vision for the future with you in person. A formal invitation will follow in the coming weeks. And I think with that being said, looking forward to see you here in Mannheim next year latest. Andreas Schaller: Okay. Now we can start with the Q&A session, please. Operator: [Operator Instructions] And the first question today comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: My first one is on the associates income line at FUCHS. So this seems to be one of the reasons why the margins have held up reasonably well year-to-date. And notably, there was quite an improvement year-on-year in Q3 results. Could you talk a little about what has improved in the equity income associates and if this could be expected to continue into Q4 and 2026? My second question is on the organic volume growth in the Asian market. If you were to just come up with one cause that is driving this versus, let's say, 2, 3 years ago, is it that FUCHS has signed good deals with Chinese automotive manufacturers or other reasons at play? Stefan Fuchs: Okay, Sebastian, thanks a lot for the question. I will start with the Chinese question, which is very important. As you know, a good part of FUCHS in Asia is China, followed by Australia, India and some other important countries. We are in China since 40 years, and we have spent the last 10 years to really make deep localization in China. So we have built our formulas based on our IP around the world. In China, WE have increased our capabilities with testing products, with developing products and our Chinese colleagues are very fast. You know the terminology of China speed, and that is also true for our colleagues, and they have developed really cool products. And then what we now do, we go with our Chinese OEM customers. And if I talk about OEM customers, they are not only in cars and trucks and construction equipment, but they are also in the machine industry, in the windmill manufacturers in all mining equipment part, we go with them internationally. And I think that's the difference of us to many other German Middle Eastern companies because we very early on said the know-how cannot only sit in Mannheim. And we wanted to really push as one part of our FUCHS 2025 strategy, U.S. and China and the Chinese colleagues have been much faster than the U.S. colleagues. They have also done a good job, but that's the main reason. Esma Saglik: Okay. And in regards, Sebastian, to your question of our development of the at equity it's actually coming to good business partnering, let's say from Middle East, especially. And yes, we expect here also going forward an improve. Operator: Your next question comes from the line of Constantin Hesse from Jefferies. Constantin Hesse: First of all, Niclas, happy birthday. And turning over to the questions. Look, number one would be visibility in '25, right? I think that it goes without saying that you did surprise us with the guidance cut back in July because of a very weak June despite previously having been talked about that momentum remained relatively okay. So I'm just wondering, as we move into the end of the year, how comfortable are you that with the visibility that you have from today that we could potentially not see a worsening situation again and could potentially have to see an adjustment to the guidance or anything like that. So just in terms of visibility, how does it look like until the end of '25 as of today? That's the first question. Stefan Fuchs: Thank you, Constantin. I'm very happy, especially for Jefferies because we were glad when you took over the coverage and then just you took over and made a recommendation, we had to lower our earnings outlook. So I was a little bit concerned about your mood. But honestly, we don't have yet a good visibility in 2025 moving forward. We were caught by surprise in the second quarter. My reading on that is really that we have just lost a few quarters in North America with regard to local consumption being down on the uncertainty of the tariff for the consumers of white lines, cars, barbecues, whatever we supply there. And that was the one part. Each month is a little bit different. So we had a wonderful July. We had a terrible August. We had a very good September and trading has not changed yet, but you read the newspaper with chip shortages and other things. You never know whatever comes up in the next morning. But we are confident with our outlook. We know that we have to do a little bit better in the fourth quarter compared to last year, which we see it doable. But for us, mainly it was to hit the third quarter. That was very important. And the third quarter last year was extraordinarily high. And I think we made it this year again. And honestly, we didn't have to take the silverware out of the cupboard to show you that number. Constantin Hesse: Sounds good. So October remains a good momentum so far. Stefan Fuchs: So far, but honestly, only early January, I can tell you how we close on December. But I mean, from our -- just from a normal bookkeeping, we don't expect surprises. Constantin Hesse: Sounds good. Sounds great. Look, I just want to have a bit of a conversation. And as we go, a couple of questions on -- one on Capital Markets Day, one on '26. I mean you haven't grown in '24, haven't grown in '25. If I look at '26 overall macro, right, I look at the IMF estimates, there's been some slight tiny upgrades for 2026 numbers. I think the VDMA expects a very small recovery in industrial activity going into next year. So just thinking about the building blocks into next year, without guiding, just speaking qualitative really, is there anything that from an underlying perspective, but also potentially from acquisitions that you've done this year where you could potentially see an accelerated growth profile in '26 compared to '25? Stefan Fuchs: I think it's an excellent question. And if the one correction I want to make when we say we were not growing. Actually, in '25, we see a volume growth, which we have not seen for a number of years, and that's not 1% or 2%. So we are happy with it. We have -- when we saw the huge raw material increase in '21 and '22, we saw a little bit of softening in late '24, early '25 that is reflected in the selling prices. So when Esma showed you the organic growth, you have the volume growth, you have the selling price in existing business and you have the mix part of it and gaining the Mercedes contract then it's rather on the lower side. So volume growth was there this year. The guidance for '26 was quite a battle internally. And honestly, we have very much push for rather a modest budget. For us, it was important because when we relooked in 2019, we saw the U.S.-China conflict. And then in '20 and '21, we had COVID '21, '22, we had a raw material increase of almost 70%, then we had the Russia war. So each year had something new, then Donald Trump election, then tariffs. And we have not made our internal volume budget for a number of years. we confronted our people in the middle of this year, and we told them we have to learn to make our budget again. So we made sure that we don't have wild dreams on the volume. So each one of them was very modest on the volume internally. Esma provided us with in a positive manner, a very mean allowance for fixed cost increase, and they have all budgeted accordingly. And for me, that's a much better budget because to allow for more spending is an easy exercise. So I think for us internally, it was important really not to allow for dreaming on the top-line, but to make sure we are realistic. I think for FUCHS 2025, we have a number of initiatives going on where we have the business model, but you never know what is happening on the other side. So the volatility is out in the market, but that's a little bit on the basis. I have seen a first time for last night at [indiscernible], but I can't share anything more than that. Constantin Hesse: Fair enough. That makes sense. Then maybe just on the Capital Markets Day, talking about the target format, right? I mean historically, you've typically given an EBIT target. I'm just wondering going into this one, is there going to be a roughly -- is this the idea to be basically a similar target? Or are you expecting to provide the market with something different? Stefan Fuchs: I think we will have a target, but the one thing is we will condition the target, what we have not done the last time. And then we will review the target most likely each year and discuss it with you and then correct it down or up, however we are going. But it will be very much conditioned because the last time we just put a number out. And yes, I think what we have delivered last year and hopefully delivered this year is on the current circumstances, not a bad result. It doesn't fulfill our own aspirations, and it didn't fulfill what we were looking forward with FUCHS 2025. But let us discuss it internally, put it to paper. We discussed it also with our Supervisory Board and with our government [indiscernible] we have a whole time line behind and then in the middle of April, we will share and discuss. Operator: Your next question comes from the line of Michael Schaefer from ODDO BHF. Michael Schaefer: My 3 questions. And so the first one, I want to come back to APAC growth, which you have shown in Q3 and give a bit more -- maybe a bit more color basically what you really understand on specialties being the key growth components. And maybe looking into '26, so is there -- so what's the kind of growth pattern we should expect, which you have maybe already in the books in terms of OEM model wins and things like that? Any color on the kind of sustainability of the growth trends, which we have strongly seen in '25, which I think is rather triple the growth which you have shown in '24 so far. Any color would be helpful on that one. And the second one is you elaborated on the U.S. market showing a nice catch-up in Q3 compared to a rather challenging Q2. So where are we there now? Is this kind of normal run rate which you have now achieved? Or how should we think about this one going into the fourth quarter? And lastly, third question, on the raw materials outlook, Esma, you flagged basically your expectations for also a decline in the lube additives space and then also on top of the base oil slight decline. So where does this come from this view on lower additive costs? Is this something which you have already signed and in your books? Or just a bit of knowledge on that one. Stefan Fuchs: I can maybe comment a little bit on the raw material thing. We don't see a material decline coming up on base oils or additives. I would be a little bit careful. And as I've explained to you before, we do half of our stuff more or less related to the dollar, most likely, but half is foreign currencies. And if your currency weakens in South Africa, Australia or China, your raw material costs increase in those numbers. And that more than offtakes if you have a dollar nominated decrease in base oils in Europe. And all in all, if I have to make it a [indiscernible] little softer than a little higher, but we don't see such a material change. So -- and if you look at our gross margin, I mean, we have increased that again now a little bit in the third quarter, but in our comfort zone, knowing the mix of business. But on APAC and then North America [indiscernible]. Esma Saglik: Let me start first with North America because that was actually in Q2 a bit of pain point. If you recall it right, in July, I was saying, first of all, we have the inflated results in North America for the first half. We had a ramp-up of the Mercedes business. We had one-off topics. And now we are seeing actually that they are phasing out. And if you say, is it -- is that now the run rate? No. On the other hand, what we are seeing right now that our specialty business sequentially is picking up. It's not on the level where we have been last year, but the market is slowly picking up on that end as well. So for Q4, our expectation would be at least Americas being on the run rate of Q3, maybe even slightly higher. And that would be actually the average run rate what we would expect for Americas going forward. If it comes to APAC and the growth components, I mean, we mentioned specialty segments, as we all know one of our main growth drivers we are having in China is the wind business. And as of a fact, that one is growing locally, but with the OEMs on site and also in the automotive, we are expecting actually to grow with the OEMs and the producers outsource outside of China. And that's the growth path we are seeing in China going forward. Operator: [Operator Instructions] And your next question today comes from the line of Martin Roediger from Kepler Cheuvreux. Martin Roediger: My 2 questions. The first is a clarification question to Esma Saglik. You said in your speech about the outlook that you expect profitability to be almost at last year's level. And then you said EBIT in 2025 will be on a similar level as of 2025. Do you want to convey that EBIT might be slightly below last year's level of EUR 434 million -- that's my first one. The second question is to Stefan Fuchs. You have significant exposure to the automotive industry, and you mentioned already the supply shortage of chips from Nexperia. And we hear some car producers implementing short-time work because of these supply issues. Do you think this could become a concern for you? Esma Saglik: Let me maybe first start, Stefan, in regards of the similar and maybe and might be. Frankly speaking, Martin, it can be also slightly above instead of being below. And so it's difficult to say -- we say -- let me say it this way. We say we will be on the level of last year. And it was a wording which I was using because I can never say if the dot and comma will actually -- we will achieve. And that was the reason why I phrased this accordingly. Stefan Fuchs: On the car exposure, as you know, 25% of our business is with trade and automotive aftermarket, which has nothing to do with any car manufacturing. All the chips which are of those cars needing an oil change are already in those cars. When it comes to a major shutdown of the German car industry, obviously, we will also have a dampening impact. But we don't see that at the moment because we supply a lot of grease in those cars, we supply a lot of [indiscernible] in those cars. But I don't see a shutdown coming up like we have seen during COVID. But obviously, there are many other risks you can name, which could still derail our outlook, which are not known yet, but so far, no impact. Operator: We will now take the next question, and the question comes from the line of Anil Shenoy from Barclays. Anil Shenoy: I've got 2, please. The first one is on cost-cutting measures, which you spoke of. So you said that you've seen the initial impact of the cost-cutting measures in Q3. So does that mean that we will see the full impact in Q4, which in turn would imply that there will probably be a higher contribution of cost -- from these cost-cutting measures in Q4? And also, if you could give some color on the nature of this cost... Operator: Apologies, Anil, your line is very quiet. Anil Shenoy: Sorry, can you hear me now? Operator: You're still a little bit quiet. Anil Shenoy: Sorry, any chance you can hear me now? Stefan Fuchs: Okay. Yes, yes. Anil Shenoy: Right. Sorry. So I had 2 questions. One on -- the first one was on cost-cutting measures. You spoke of seeing the initial impact of these cost-cutting measures in Q3. So does that mean we'll see the full impact in Q4, which in turn would imply that there will be a higher contribution from cost cuts in Q4 compared to that of Q3? And also, if you could give us some color on the nature of these cost-cutting measures, please. I'm just trying to understand if these costs are expected to come back in 2026? Or is there any chance that there are more scopes for more cost cutting if macro conditions do not improve in 2026? So that's my first question. And secondly, and I'm sorry if I missed this, have you lowered the bonus provisions for 2025, given that you had to cut your guidance in Q2? And if you have, then have that by any chance benefited the Q3 results? And could that benefit Q4 results as well? So that's all I have for now. Esma Saglik: Anil, maybe let me start with your first question. So the last time when we got the question, we said actually the nature of our cost measure program is around lower double digit. We do not -- we started this package or actually, we started about talking cost measures and reducing it already in May, June. So we are seeing a quite significant impact already in Q3. And I would expect, and that's actually how we face it, more or less balancing or having the same amount also in Q4. Coming to your second question, initially, I think it was last quarter, I also stated that we are not doing results by reversing bonuses, et cetera. So far, our KPIs are on the level as last year, and that's actually how our bonus is driven. And we have, as we are normally usually doing our bonuses for 9 months in. So year-over-year, you should not expect actually any pluses or minuses a big impact coming from any bonuses. And the same relates to Q4 as we are targeting or heading up achieving the 2024. Operator: We will now take our final question for today. And the final question comes from the line of Lars Vom-Cleff from Deutsche Bank. Lars Vom Cleff: Well, first of all, I'm glad that you specified your Q4 EBIT outlook because when I first saw the Bloomberg headline saying that you expect profitability to be on the previous year's level for Q4 I was scratching my head how that could then work with reaching our guidance, but that is clearly understood now. Looking at Q3 and EMEA, profitability was nicely up. Revenue were flat. I guess some of these positive effects were also already coming from the cost avoidance measures, especially in EMEA, correct? Esma Saglik: Yes, that's correct. Stefan Fuchs: But you also noted in EMEA, all the equity results where you get EMEA [indiscernible] yes, correct. Lars Vom Cleff: Okay. Perfect. And then looking at the split of the EBIT by division, I saw that holding and consolidation EBIT for the first 9 months was EUR 3 million, and I know it was a EUR 3 million positive contribution in H1. So holding and consolidation must have been minus EUR 6 million in Q3. Is this cost for the implementation of these measures? Or am I missing anything? Esma Saglik: Lars, you gave the answer already. It is actually related to our transform to grow project and which is sitting there right now. Lars Vom Cleff: And that was it? Or is there anything additional to come in Q4 or maybe early '26? Esma Saglik: You mean from the cost base there? Lars Vom Cleff: From the cost side, yes, yes, not... Esma Saglik: We are running this project, but it's on budget. And yes, it will be actually a project for the next years, which -- and the cost will evolve accordingly. Lars Vom Cleff: The cost for the implementation or the reduction of your production costs? Esma Saglik: No, the cost of the implementation. Lars Vom Cleff: Okay. Okay. Understood. And yes, I mean, you call it targeted cost avoidance measures, but I guess you already gave the answer. To a certain extent, I was afraid or I was worried that this could also be partly a postponement of costs into the next years, but you're more or less not only avoiding the costs, but also taking them out as I take it or cancel these costs. Esma Saglik: Yes. Lars, I mean, what are we doing is of course, being a bit more cautious if everything what we are spending right now is really needed to be spent. And if you look at travel, if you look to consulting fees, et cetera, that will not bounce back again. It's just not the spend we are doing right now. Lars Vom Cleff: Understood. And then last one, net working -- or net operating working capital to annualized sales revenues, you guided for a range or had a target range of 21% to 22% in the past. Is that still valid? Because you haven't achieved that for the last 2 years now? Esma Saglik: That's a fair question. And I'll see it the same way as you from a CFO perspective, and that will be also our guidance going forward. Of course, we have to see our setups, et cetera. But nevertheless, that should be actually what we should target for. Operator: That was our final question for today. I will now hand the call back to Andreas for closing remarks. Andreas Schaller: Yes. Thank you very much, Sharon, and thank you very much to all of you for your interest in our company and the earnings and for your questions. We look forward very much to seeing hopefully all of you then at our Capital Markets Day next year. And the next earnings publication will be on March 20 when we publish the full year results. So thank you once again for your interest. If you have further questions, don't hesitate to contact the Investor Relations team, and you may now disconnect. Thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may all now disconnect.
Operator: Greetings, and welcome to the Civeo Corporation Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead. Regan Nielsen: Thank you, and welcome to Civeo's Third Quarter 2025 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Collin Gerry, Civeo's Chief Financial Officer and Treasurer. . Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we're relying on the safe harbor protections afforded by federal law. These forward-looking remarks speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these forward-looking statements, except as required by law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q and other SEC filings. I'll now turn the call over to Bradley. Bradley Dodson: Thank you, Regan, and thank you all for joining us today on our third quarter 2025 earnings call. I'll start with some key takeaways for the quarter and then summarize our consolidated and regional performance. After that, Collin will provide further financial and segment level details. And I'll conclude with our prepared remarks -- I'll conclude our prepared remarks with our updated 2025 guidance and preliminary outlook -- qualitative outlook for 2026 by region. We'll then open the call up for questions. There are 3 key takeaways from the third quarter results: one, continued significant progress on the current share repurchase authorization. Two, our Australia business continues to grow both in our owned villages and in our integrated services business; and three, the Canadian cost-cutting measures bear fruit, and our focus now turns to putting our mobile camp assets to work. I'll start with the significant progress we've made toward completing our expanded share repurchase authorization. During the quarter, Civeo repurchased approximately 1 million common shares, bringing our year-to-date return of capital to shareholders to $52 million. With this progress, we've completed 69% of our new buyback authorization as of September 30, 2025. We remain confident that share repurchases are a compelling use of capital, especially during broad equity market volatility. Given the accelerated buybacks and our recently completed acquisition, our net leverage ratio as of September 30, 2025, was 2.1x, and we're comfortable with that. Our accelerated repurchase activity is consistent with our prior commitment to completing the current authorization as soon as practical. As previously stated, we intend to use no less than 100% of annual free cash flow to achieve this goal. We've obviously spent more than that, and we'll continue to spend more than that in our 2025 free cash flow buybacks this year. Turning now to the operational results for the quarter. Overall, the third quarter results were consistent with our expectations and reflected our outlook conveyed on our prior earnings call. In Australia, we remain focused on growing our integrated services business and capitalizing on our newly acquired villages in the Bowen Basin. Revenues in the region increased 7% year-over-year and adjusted EBITDA grew 19%. Notably, we completed the integration of our recently acquired villages in the Bowen Basin. So the third quarter of 2025 was the first full quarter financial impact from these 4 villages. Looking ahead, based on current customer discussions, we expect Australian occupancy in our owned villages to soften modestly in the fourth quarter due to typical fourth quarter seasonality with the holidays and softness in outlook for met coal pricing and demand exhibited by recently announced customer headcount reductions. Despite these near-term headwinds, we are confident in our Australian business. We have a strong contract position in our owned villages that will support good continued cash flow. In our integrated services business, we remain on track to reach our goal of AUD 500 million of revenue by 2027. And we continue to seek opportunities to expand into non-resource natural resource markets. While conditions -- in Canada, while conditions in the region remain challenged given oil prices and ongoing macroeconomic headwinds, our ability to drive year-over-year gross profit expansion in the face of continued pressures is a testament to the success of our cost reduction strategy implemented to date. We have taken decisive action to position our Canadian business to be more profitable in response to changes in oil sands customer sentiment and operational strategies, and we are pleased with the benefits they are seeing as a result. Initial actions have included an overall headcount reduction of approximately 25%, [indiscernible] certain underutilized lodges to reduce carrying costs and streamlining field-level operations to align with current demand levels. In the third quarter, this work allowed us to bring direct field level cost in Canada down 29% year-over-year, reduced indirect operating overhead costs by 23% and as a result, increased gross profit by 35%. From here for our Canadian business, our key focus is to capture the potential increase in demand for mobile camp assets in support of various Canadian infrastructure projects. Overall, we are executing on our strategic priorities in each region. Our Australian business continues to do well with year-over-year growth in both the owned villages and integrated services. And while our Canadian -- while the Canadian headwinds remain, we know this market well, and we're working with our strategic partners to understand how we can continue to support them as they capitalize on evolving opportunities in the country. We are taking decisive action to apply our resources where our customers need them in the region. And as a result, we're positioning Civeo for long-term resilience and cash generation. With that, I'll turn it over to Collin. E. Gerry: Thank you, Bradley, and thank you all for joining us this morning. Turning to the income statement. Today, we reported total revenues in the third quarter of $170.5 million with a net loss of $0.5 million or $0.04 per diluted share. During the third quarter, Civeo generated adjusted EBITDA of $28.8 million and operating cash flow of $13.8 million. The year-over-year increase in adjusted EBITDA was primarily driven by the benefits of cost cutting in Canada, contributions from the Australian acquisition completed in May of 2025 and higher occupancy in the legacy Australian-owned vs. Third quarter revenues from our Australian segment were $124.5 million, up 7% from $116.6 million in the third quarter of 2024. Adjusted EBITDA was $26.7 million, up 19% from the $22.5 million in the third quarter of 2025. The increase in revenues and adjusted EBITDA was primarily driven by the recently completed acquisition of 4 owned villages. The year-over-year increase was offset by the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $3 million and $0.6 million, respectively. Australian-owned village billed rooms in the quarter were 763,000 rooms, up 18% from the third quarter of 2024, primarily due to our recently completed acquisition. Our daily room rate for our Australian owned villages in U.S. dollars was $77 which decreased from $79 in the third quarter of 2024, primarily due to the weakening of the Australian dollar. Turning to Canada. We recorded revenues of $46 million compared to revenues of $57.7 million in the third quarter of 2024. Adjusted EBITDA for the segment was $8 million, an increase from $3.4 million in the third quarter of 2024. As noted, the year-over-year adjusted EBITDA increase was primarily driven by the implementation of cost reduction measures offsetting lower billed rooms and revenues. During the third quarter, billed rooms in our Canadian lodges totaled 383,000, which was down from 484,000 in the third quarter of 2024. Our daily room rate for the Canadian segment in U.S. dollars was $100, flat with the third quarter of 2024. Turning to our capital structure. Civeo's net debt as of September 30, 2025, was $176 million, a $22 million increase since the June quarter of 2025, attributable to the significant progress made on our share repurchase authorization in the quarter. Our net leverage ratio for the quarter was 2.1x as of September 30, 2025, with total liquidity of approximately $70 million. We have allocated $48.7 million to share repurchases year-to-date. We remain comfortable maintaining a net leverage ratio in the 2x range on a go-forward basis. As we look at capital allocation, on a consolidated basis, CapEx or capital expenditures for the third quarter of 2025 were $5.6 million, down from $7.5 million during the third quarter of 2024. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. As noted, during the third quarter of 2025, we repurchased approximately 1 million shares through our share repurchase program. We continue to believe that repurchasing Civeo shares presents a value-enhancing opportunity. We've made great progress on our current share repurchase authorization, and we will continue to opportunistically execute on our plan moving forward. With that, I'll turn it back over to Bradley. Bradley Dodson: Thank you, Collin. I would now like to turn to a discussion of our full year 2025 guidance on a consolidated basis, including the underlying macro and regional assumption. We are tightening our full year 2025 revenue and adjusted EBITDA guidance. Updated 2025 revenue guidance is $640 million to $655 million of revenues and adjusted EBITDA guidance of $86 million to $91 million. We are maintaining our full year 2025 capital expenditure guidance of $20 million to $25 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Australia, occupancy in our owned villages remains strong. 3 of our Bowen Basin villages continue to be effectively operating at full capacity, and we're seeing strong occupancy across the remainder of our owned village portfolio. Even when accounting for the expected impacts of weakening met coal prices and recent customer layoff announcements, we expect healthy, albeit modestly softer occupancy in our owned villages in the fourth quarter. As it relates to our Integrated Services business, we are encouraged by the strong margin performance we have delivered throughout the year, and we will continue to focus on cost-effective execution. We expect to continue building on our strong momentum for the remainder of 2025 and beyond as we work towards our goal of achieving AUD 500 million of integrated services revenue by 2027. In Canada, we continue to navigate the difficult operating environment in the oil sands region, which is exacerbated by lower oil prices and broader macroeconomic uncertainty. As a result, expected billed rooms in the fourth quarter of the year is expected to be relatively in line with third quarter. That said, we remain encouraged by the results of our Canadian cost-cutting initiatives to date and expect to continue to benefit from these going forward. I will now provide a preliminary outlook for 2026. In Australia, our outlook for 2026 is relatively similar to what we experienced in 2025 with potential for modest softness in our owned village occupancy due to commodity price volatility and customer layoff announcements. That said, we expect that any softness in our legacy owned villages will be largely offset by the full year impact of our May 2025 Village acquisition. In our integrated services business, we expect to continue advancing towards our $500 million revenue goal for 2027 through our strong sales pipeline. In Canada, we expect the aforementioned headwinds in the oil sands region to continue to negatively impact lodge occupancy. However, at this point, it feels like occupancy is stabilizing such that we expect next year's lodge occupancy to be flat to slightly up in 2026 when compared to the full year of 2025. In the near term, our focus is on mobile camp deployment. We are optimistic that we will see increased utilization of our mobile camps in North America towards the end of 2026. Our optimism is underpinned by strong bidding activity tied to continued public support at both the federal and provincial levels for infrastructure projects in Canada and increased demand in the U.S. for a wide range of infrastructure projects. Civeo's attractive asset base, demonstrated capabilities and strong relationships position us well to capture these growth opportunities as final investment decisions are made by our customers. While several of these projects we are bidding on have estimated project approvals scheduled for 2026, we would not expect to see a material financial impact from these projects until 2027. In the immediate term, our focus remains squarely on managing what we can control, executing on our cost reduction initiatives, enhancing operational efficiencies and aligning our resource base with demand. We are confident that we have the right plan in place to continue mitigating these headwinds while orienting the business to capitalize on growth opportunities to drive increased cash flow from our Canadian operations. Regarding capital allocation, we will continue to opportunistically repurchase shares and use no less than 100% of our annual free cash flow to complete our current share repurchase authorization. After this authorization is complete, we intend to use no less than 75% of annual free cash flow to buy back shares. We remain comfortable with our net leverage ratio in the 2x range moving forward. With that, we're happy to take questions. Operator: [Operator Instructions] And our first question will come from Stephen Gengaro with Stifel. Stephen Gengaro: So Bradley, you might get mad at me for asking this. But when you package the guidance you gave for '26 together, it feels like it all sort of equates to something that's kind of flattish year-over-year. I mean, is that in the ballpark of what you're seeing? Bradley Dodson: No. I think it will be up year-over-year. Still working through the budgeting process. Obviously, it remains dynamic in both markets. In Australia, there have been customer announcements of headcount reductions, and that has impacted our outlook for some of our -- for our occupancy in our owned villages. But we have a very strong contract position. And so while we do see some softness in occupancy in our own villages, as I've said to investors previously, Australian-owned villages occupancy is modestly softer to flat year-over-year with the benefit of the full benefit of the 4 villages we acquired in May. So another 4 months of contribution from that. We expect that integrated services will show top line growth [ 25 ] to [ 26 ] and continued strong margin performance. In Canada, as I mentioned, we expect lodge occupancy. It feels like it's stabilizing, but it's pretty dynamic right now. And so we'll certainly give an update in February when we do full year results on the fourth quarter call. But right now, as we sit here today on Halloween, I expect Canadian lodge occupancy to be flat to up [ 25 ] to [ 26 ]. And then the key will be if some of these infrastructure projects, and these are pipelines, LNG facilities, highline transmission projects and some infrastructure projects in the U.S. if these get -- if the projects get greenlighted by our customers and then we win the work, there's opportunity to put our mobile camps to work, which right now are really not contributing to the 2025 results. So overall, I expect '26 to be up and still trying to quantify what -- how much it will be up. Stephen Gengaro: Great. The other question I had, you touched on this a little bit. When you talk about the mobile camp assets and the ability to redeploy, are you talking about Canada and the U.S.? And are you looking at things in the U.S. that are connected to some of these newer energy opportunities around lithium mining and maybe data center related. Are any of those things in your opportunity set? Bradley Dodson: Yes. I would -- you highlighted it, Stephen, and thank you for doing that. I would say that this is the busiest that I can remember in recent history in terms of our bidding activity in North America. We have approximately 2,500 mobile camp rooms that are readily deployable and another roughly 1,000 that are currently attached to our oil sands lodges that we could redeploy anywhere in North America. In Canada, it's mostly LNG related, pipeline related, infrastructure related in Western Canada and looking to also deploy them in Eastern Canada. We can also deploy them into the U.S., and the team is actively pursuing things like you mentioned, like data centers. Stephen Gengaro: Great. And just one final one. When you think about capital allocation longer term, right, and you've done a great job returning a lot of capital. Is there a preference for incremental expansion/acquisitions versus buybacks? Or is it just going to be kind of on a project-by-project basis? Bradley Dodson: Well, we've committed to completing the current authorization to buy back 20% of the shares, which is about 2.6 million shares as soon as practicable and using no less than 100% of free cash flow -- annual free cash flow to do so. That being said, if there are opportunities that are economic that are supported by customer contracts and if there are attractive bolt-on acquisitions, we'll continue to look at that, obviously, continuing to weigh the fact that we want to stay around 2x levered or no more than that. And so right now, there are opportunities to deploy incremental capital for growth purposes, but nothing that will overextend the balance sheet. Operator: And our next question comes from Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate the detail on I wanted to ask about the growth opportunities in Australia because you noted the softening of met coal prices and some of the -- I think you highlighted chances to build out integrated services beyond the natural resources market. Can you talk a little bit about the opportunities and challenges in that market to hit that $500 million mark? It seems more difficult than it might have seemed a year ago. And does that need to include M&A? Or are there ways to do it outside of your more traditional met coal or iron ore markets? Bradley Dodson: Well, I didn't mean to leave you with the impression that it was more difficult. I feel as good about our ability to hit the $500 million target by 2027 today. In fact, I feel better about it today than I did a year ago. The team has done an amazing job of capturing new work with customers, capturing market share in some cases, expanding our customer base, expanding our geographic footprint within Australia and integrated services. Originally, when we bought the Action Catering business, they were in Western Australia. We've now expanded that into South Australia and most recently expanded into Queensland, where our -- the vast majority of our own villages exist. So the ability to leverage that infrastructure is nice and important and to better serve existing Queensland customers. So I believe that we can hit the $500 million target with the kind of funnel of sales opportunities that the team has -- we can hit that hit target by 2027 in the resources market. Right now, I think we can do it organically. Can could it be enhanced by acquisitions? Possibly. But in terms of -- it is going to get more difficult to win additional resources work because we're on the radar screen of bigger competitors now, plain and simple. So what we're trying to do is take what we believe to be our core competency, which is we think we take care of people well. We make sure that they're safe, that they're well fed and well rested and ready for the workday. So are there other verticals that we can do that in. And we're in the early stages of evaluating that. where we've got the team looking at it and hope that in, I'd say, the next year or 18 months, we'll have some progress there. Steve Ferazani: Excellent. On the mobile camp side, we can certainly see plenty of opportunities that appear to be out there, particularly in Canada, and I'm sure there's a lot we don't see that you're pursuing. The timing of it is always, I know, really challenging, particularly for the larger projects. Realistically, is this probably more of a 2027, 2028 and beyond story? Or are there real chances in 2026? Bradley Dodson: It will all depend on our customers getting to final -- positive final investment decisions sooner rather than later. Are some of them still striving to get to a positive FID by year-end 2025? Yes. Do you handicap and say that probably slip into the early '26 or the first half of '26, that's probably pretty reasonable. So it depends on when the projects get approved. Sooner is better, then why I'm confident in our competitive positioning, we still got to win the work then thereafter. I think that right now, there will be some contribution from increased mobile camp work in 2026. It's likely second half weighted. And even if you handicap some of the expected timing of project approvals, 2027 looks like a good year. And to your point, beyond, these are largely construction projects that are expected to take 2 to 4 years to complete, and that would be a good utilization opportunity for our mobile camps. Steve Ferazani: Yes. Great. This looks like it will be your second year in a row where CapEx comes down. That being said, now that you've closed some of the Canadian lodges and you've had some larger investments like adding WiFi accessibility. When we think about CapEx moving forward, should -- outside of winning some large project awards, should this be the high level moving forward that you're investing this year? Bradley Dodson: No. I think it's always reasonable to think that CapEx is around USD 25 million on a consolidated basis. And to your point, because there's always -- we did some WiFi upgrades in Australia this year. There's still some work to be done there in terms of upgrading our WiFi. There's always one-off projects. I think the team globally is very pragmatic about deploying capital and CapEx. We go through a process that's kind of here's what the have to have are, here's what are the good to have and here's the nice-to-have items, and we prioritize those, both looking first and foremost on maintaining safe operating locations and then enhancing guest experience. So I think [ 25 ] is a safe number to use year in, year out. It would include some discretionary items in that number usually. But from there, higher numbers than that would be dependent on customer commitments and growth projects. E. Gerry: And if I could just supplement on that, what Bradley mentioned the nice to haves. I just want to remind the audience the way that we think about that is today's nice-to-have's are tomorrow's have to have's, and they could be a little bit more expensive if you wait. And so that's the balance. Bradley Dodson: Great point. Yes. That's a very good point. Steve Ferazani: When we think about those mobile camp opportunities, particularly if they're 2 to 4 years, does that require significant CapEx? Bradley Dodson: Great question. To put some numbers around it. We've got, as I mentioned, 2,500 mobile camp rooms readily deployable, another 1,000 that we can pull off that are currently on our oil sands lodges. So of those 3 -- roughly 3,500 rooms, our bidding activity, we bid out those fourfold. Now we don't expect to win all of that work, but we're exceedingly busy. Now there are probably half a dozen to a dozen infrastructure projects that we're tracking that could kick off in the next 12 to 18 months. It all depends on how those get sequenced. If they all hit at the exact same time, yes, we'll need some more CapEx. Will it be warranted? Absolutely. It will be... Steve Ferazani: I think I would complain about that. Bradley Dodson: No, I don't think they will. So to put kind of -- if things are evenly spaced, it's probably let's call it, $5 million to $10 million of incremental CapEx. If everything hits at once, it's probably $25 million to $30 million. But I think I am confident that if everything hit at once, people will be more excited about that than worried about the CapEx. E. Gerry: Yes, Steve, if we win a project, there's going to be a de minimis amount of capital but it's marginal relative to the project. The real capital outlay would be required if we had to start going out and buying new rooms in excess of the 2,500 to 3,500 that Bradley quoted. Steve Ferazani: Which would be a great problem. Operator: [Operator Instructions] And we'll go next to Dave Storms with Stonegate. David Storms: Just thinking through your goal of [ 500 ] in integrated services in Australia. How do you feel about your current staffing levels there? Just trying to think through what might be the bottlenecks as you march towards that goal. Bradley Dodson: Good question. I would say that staffing in Australia continues to be a challenge. Is it better than it was a couple of years ago? Absolutely. I think that's a combination of a general recovery in the country from COVID and the efforts of our team, our people and culture team in terms of recruitment. We're the biggest issue in -- for us is around chefs, but it's around labor in general. And we've had a program for the better part of 5 years to recruit international chefs to come in to Australia. We're making some progress there. So I would say that it is -- continues to be a challenge, but one that is not getting necessarily worse, but it's still not back to pre-COVID levels. So we've made some adjustments to our rosters and our travel allowances that has helped with attracting and retaining people, but it remains a focus for our team. But I don't believe that it would be -- if we win work, we'll find the people. David Storms: Understood. That's great color. Thinking about the cost cutting in Canada, specifically the field level streamlining, how much of this could maybe be applicable to Australia? Could we see a similar margin expansion there if some of that was more plug and play? Or is that more specific to Canada, the cost cutting? Bradley Dodson: It's more specific to Canada. A lot of it is -- we made some big strides with cold closing a couple of locations, which helps the carrying cost there. There has been some streamlining of the operating level headcounts. So this is something, quite frankly, that we started executing on this time last year. As you know us well, Dave, I mean, we started to see occupancy in Canada in the second half of last year just start dropping as customers look to reduce maintenance work, overall cut headcounts and try and localize people as opposed to have them be fly in, fly out. That's -- as I mentioned in our prepared comments, that feels like it's stabilizing at this point. Again, as we sit here today, we think Canadian lodge occupancy will be flat to up 2025 to 2026. And I think Australia there, it's a different cost structure. Obviously, the climate is very different between Northern Canada and Australia, particularly Queensland, and that presents a different cost structure. So always looking for efficiencies in our operations, and that is just always ongoing. It's not a one-and-done type thing. And -- but I don't think it's analogous between what we've done in Canada and what we could do in Australia. David Storms: Understood. That makes perfect sense. And that does kind of just bring me to my last question here. With you mentioning in your prepared remarks that it feels like Canada is stabilizing, how much more cost-cutting initiatives should we expect there? And is there, I guess, a potential for any of that margin to be given back as you maybe start getting a little busier in Canada? Bradley Dodson: Well, being tied to commodities and having cyclical upturns and downturns, cost cutting is something that our team is very -- it's just part of our DNA. You have to be able to make cost-cutting decisions. I think we moved quickly in the last half of last year and early part of this year. You saw how that bore fruit in the third quarter results. There are -- we will continue to work on our cost structure, but the easier things to get accomplished have been done. Are there other things that take more work to implement? Yes, and we're working on those. I would hope we get them done by year-end or close to it, but this is an effort that there is a new reality in the Canadian oil sands in terms of activity levels, spending levels, occupancy levels. And we're adjusting to that. We're not expecting that this is going to be a temporary change. Customers are operating in a different fashion. They're getting rewarded by their investors for cutting costs and reducing CapEx. And ultimately, that means fewer people and fewer opportunities for occupancy in our lodges. E. Gerry: And if I could supplement, the focus for the last roughly year, maybe 9 months has absolutely been on the cost-cutting side. And what Bradley said, we're not done, but we are shifting focus. I mean the fundamental -- the best thing we can do for our Canadian business is grow revenue. On a go-forward basis. And so we do see opportunities, and we are pushing the team to focus on that bid pipeline that we have in place with -- while we round out our cost-cutting initiatives. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Bradley Dodson for closing comments. Bradley Dodson: Thank you, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo, and we look forward to speaking with you on our fourth quarter earnings call, which we expect to happen at the end of February. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Arcosa Third Quarter 2025 Earnings Conference Call. My name is Boe, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now I would like to turn the call over to your host, Ms. Erin Drabek, Vice President of Investor Relations for Arcosa. Please go ahead, Ms. Drabek. Erin Drabek: Good morning, and thank you for joining Arcosa's Third Quarter 2025 Earnings Call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of the press release issued yesterday and the slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would now like to turn the call over to Antonio. Antonio Carrillo: Thank you, Erin. Good morning, everyone, and thank you for joining us today for a discussion of our third quarter results and the outlook for the rest of the year. Let me start with a few key takeaways on Slide 4. Q3 was a record quarter for Arcosa. We delivered double-digit revenue and adjusted EBITDA growth with all 3 segments contributing to our strong results. Revenue increased 27% and adjusted EBITDA grew 51%, both excluding the impact of the divested steel components business. Likewise, our record adjusted EBITDA margin of 21.8% was a 340 basis points improvement over the same period last year. We believe our third quarter performance is a testament to the strength of the portfolio optimization strategy we have undertaken over the past few years, highlighted by the accretive contribution of the $1.2 billion Stavola acquisition, which we closed a year ago. The strength of our business model is underscored by the free cash flow generation and debt reduction we delivered during the third quarter. The team did a great job with particular focus on disciplined cash management. As a result, we ended the quarter with a leverage ratio of 2.4x, putting us 2 quarters ahead of our stated plan to return to our 2 to 2.5x leverage target within 18 months of the Stavola acquisition. We are extremely proud of this progress. Now that we are back within our target range, we will continue to take a balanced approach on capital allocation, investing in the business to drive growth while maintaining a healthy balance sheet. Moving next to an update on our business units. Within Construction Products, third quarter adjusted segment EBITDA was a record $150 million and margin expanded 300 basis points. Stavola led our significant third quarter growth and was highly accretive to segment margin. The acquisition performed well in this first year, delivering $105 million in adjusted EBITDA, a 35.2% margin for the 12 months ending in September 30. Overall, we saw higher ASPs and higher volume in the aggregates business, leading to double-digit unit profitability gains. Engineered Structures continues to deliver strong organic performance, benefiting from increased demand in our utility structures business and higher volumes in our wind tower business. In the third quarter, we increased adjusted EBITDA by 29%, expanding margins by 240 basis points. with significant tailwinds in the U.S. power market remains robust and our backlog in utility and related structures is at record levels. Additionally, we received new wind tower orders, improving our near-term production visibility while we wait for an anticipated uplift to demand in 2027 and beyond. The barge business executed well, generating double-digit revenue and adjusted EBITDA growth with margin increasing 190 basis points. Our barge backlog is up 16% year-to-date, and we have production visibility for both hopper and tank barges extending well into the second half of 2026. Our outlook for the remainder of the year remains very positive. Overall, demand trends are favorable, and we believe our U.S.-focused operations are well aligned with long-term infrastructure and secular power market drivers. We have increased the midpoint of our 2025 adjusted EBITDA guidance range and anticipated 32% year-over-year growth, reflecting strong accretion from Stavola as well as double-digit organic expansion. To wrap up, the third quarter performance reflects steady progress in executing our strategic priorities. And with a stronger balance sheet, we're once again in a position to look at potential M&A opportunities as well as organic investments as we seek to further enhance long-term shareholder value. I will now turn over the call to Gail to discuss our third quarter results in more detail. Gail? Gail Peck: Thank you, Antonio. Good morning, everyone. I'll start with Construction Products segment on Slide 10. Third quarter revenues increased 46% and adjusted segment EBITDA increased 62%, which reflects record quarterly performance for the segment. Margin expanded by 300 basis points to 29.7%. The growth was led by the accretive contribution from Stavola, which has now completed a full year with Arcosa. For our aggregates business, freight-adjusted revenues increased 28% and adjusted cash gross profit increased 38% during the quarter, expanding margin by 330 basis points. Total volumes increased 18%, largely due to the addition of Stavola. We were pleased to see organic volume growth for the first time in several quarters as weather was generally favorable throughout the quarter. Monthly volume was relatively stable throughout the quarter, indicating steady market demand. On a unit basis, freight-adjusted average sales price per ton increased 9% and adjusted cash gross profit per ton increased 17%. Organically, aggregates pricing was up mid-single digits. However, unit profitability declined compared to last year. The decrease was primarily due to production downtime at a few natural aggregates locations negatively impacting cost absorption during the quarter. The root causes largely related to unplanned equipment repairs have been addressed, positioning us for improved performance in the fourth quarter. Normalizing for the unabsorbed costs, organic adjusted EBITDA for aggregates would have been up mid-single digits for the quarter. Turning to specialty materials and asphalt. Revenues more than doubled, primarily reflecting Stavola's asphalt business, which performed well during the quarter. In specialty materials, revenues increased high single digits as strong growth in lightweight aggregates was partially offset by a slight revenue decline in specialty plaster, which was comping against a strong volume quarter in the prior year period. Adjusted EBITDA and margin expanded year-over-year, both in total and on an organic basis. Finally, revenues and adjusted EBITDA increased in our trench shoring business, while margin declined slightly due to mix. Moving to Engineered Structures on Slide 11. In the third quarter, segment revenues increased 11% with the contribution split between utility and related structures and wind towers. Within utility and related structures, which represented 69% of segment revenues, third quarter revenues increased 8% due to double-digit volume growth and mid-single-digit pricing expansion in utility structures, partially offset by lower steel price pass-through. Within wind towers, revenues increased 20% due to higher volumes from our New Mexico plant, which was ramping up production in the third quarter of last year. Adjusted segment EBITDA increased 29% and margin expanded 240 basis points to 18.3%. The earnings growth and margin expansion were primarily driven by higher revenues and operating improvements in our utility structures business. We ended the quarter with a record backlog for utility and related structures of $462 million, up 11% year-to-date as we continue to see strong order activity. Our production visibility for this business is supported by our reported backlog as well as customer reservations for future capacity. For wind towers, we received orders of $57 million during the quarter, which improves our production visibility in 2026. We ended the quarter with backlog of $526 million, which also reflects the revaluation impact of adjusting backlog into 2026 from 2028. Turning to Transportation Products on Slide 12. Inland barge revenues were up 22% and adjusted segment EBITDA increased 36%, excluding the divested steel components business from the prior year period. The growth was driven by higher tank barge volumes, while hopper barge volumes were roughly flat. Margin for the business improved by 190 basis points, primarily driven by improved mix and operating leverage in our tank barge operations. During the third quarter, barge orders totaled $148 million for both hopper and tank barges, reflecting a book-to-bill of 1.5. Our barge backlog at the end of the quarter totaled $326 million, an increase of 16% year-to-date, and our current production visibility extends well into the second half of 2026. I'll now provide some comments on our cash flow performance and leverage position on Slide 13. Third quarter operating cash flow was $161 million, an increase of 19% year-over-year and up more than 150% sequentially as we planned for higher cash flow in the back half of the year. Working capital was a $23 million source of cash in the quarter even as revenues increased 25%. CapEx for the third quarter was $40 million, bringing year-to-date CapEx to $101 million, down $35 million year-over-year. For the full year, we continue to expect CapEx of $145 million to $155 million, which implies a slightly higher rate in the fourth quarter as we are investing in our plant conversion and placing deposits for long lead time equipment items within utility structures. Free cash flow for the quarter was $134 million, an increase of 25% year-over-year. We allocated $100 million to reduce the outstanding balance on the Stavola acquisition term loan, which is prepayable with no penalty. As Antonio mentioned, we are pleased to achieve our stated leverage goal at an accelerated pace. We ended the quarter at 2.4x net debt to adjusted EBITDA. And looking ahead, we expect to remain within our target range. Our liquidity remains strong at $920 million, including full availability under our $700 million revolver, and we have no material near-term debt maturities. I will now turn the call over to Antonio for an update on our outlook. Antonio Carrillo: Thank you, Gail. I will now turn to Slide 15 to review our guidance. As evidenced by our third quarter and year-to-date results, the strategy we have executed for the last 7 years of allocating capital to our growth businesses, improving our cyclical businesses and simplifying the portfolio has created a resilient platform with significant long-term growth potential. Our portfolio is now strategically aligned around businesses with durable demand fundamentals and compelling end market positions. Our key growth businesses continue to demonstrate strong performance, while our cyclical businesses benefit from solid backlog visibility and a strong foundation for continued growth. Given our year-to-date performance and confidence in our outlook for the rest of the year, we have adjusted our full year 2025 guidance ranges, tightening forecasted revenues to a range of $2.86 billion to $2.91 billion and adjusted EBITDA to a range of $575 million to $585 million. At the increased midpoint, this implies 32% adjusted EBITDA growth in 2025, normalizing for the divestiture of steel components business. Turning to Slide 16 for a discussion on our outlook for the business segments. Beginning with Construction Products, we're optimistic about the future, supported by attractive long-term demand fundamentals. Stavola continues to perform in line with expectations and the seasonally stronger second and third quarters demonstrated its premium financial attributes. Infrastructure demand drivers underpin the stability of Stavola's results, and we remain confident in the pipeline of work for both aggregates and asphalt in the New York, New Jersey market, now our second largest market. In Texas, our largest aggregates market, public infrastructure demand remains fundamentally healthy. While highway lettings are trending off peak levels, the outlook for state spending growth over the next several years is very positive and remains at historically elevated levels. More broadly, we believe infrastructure is on solid footing, and we expect it to be a catalyst for 2026 volumes. In our shoring business, which serves early phase public and private infrastructure works, third quarter order activity was above last year's level and our customers remain confident. On the private side, we're encouraged by the secular nonresidential trends, including U.S. energy infrastructure build-out, onshoring activities and the data center investments. Additionally, warehouse activity continues to positively inflect. Our construction materials platform is well located in favorable geographies with attractive population dynamics and long-term growth drivers that will benefit from a recovery in single-family housing. At the start of the year, we were hopeful to see an uptick in residential volumes in the back half of the year, but this has not materialized. With the recent Fed action and the potential for additional rate cuts, we now see a prospect of a single-family housing recovery in 2026. For full year 2025, we remain on track for high single-digit pricing growth in aggregates. Turning to volumes. Year-to-date volumes were up 7%, benefiting from Stavola and offsetting mid-single-digit organic volume decline. Looking at the full year, we now expect high single-digit volume growth, a slight step down from our prior guidance. On the third quarter, we were encouraged by the reversal in declining organic volume trends and ended the quarter with strong volume growth in September. We expect modest fourth quarter volume growth, assuming normal weather and no adverse impacts from the government shutdown. Moving next to Engineered Structures. I'll begin with a few comments on the U.S. power industry, which is the driver of our utility structures and wind tower businesses. The expansion of data centers and the rise in electricity consumption across the U.S. are driving significant and sustained increase in power demand. Meeting this growing need will require leveraging all available sources of power generation and significant investments in the transmission and distribution infrastructure. As I've said before, this is an exciting time to be serving the U.S. power industry, and we believe our Engineered Structures platform is strategically positioned to benefit in this new era of power growth. Turning first to wind towers. Wind energy is now cost competitive with other major power sources, even in the absence of tax credits and can play a critical role in meeting future energy needs quickly and efficiently. We have received orders from 2 customers totaling approximately $117 million, of which $60 million were received after the quarter end. At the same time, we shifted a portion of our 2028 backlog into 2026. This improves our production visibility as we now have backlogs for all 3 facilities for '26 and '27. We're still early and continue to work with our customers on additional orders. What is important is that we have good visibility across our platform, and we have time to continue to work with our customers on production schedules that allows them to prepare for growth in 2027 and beyond. Moving to utility structures. We continue to see accelerating demand underscored by our record backlog as utility customers continue to increase their investments in transmission and distribution infrastructure. During the third quarter, we made good progress in the conversion of our wind tower facility in Illinois to produce large utility poles. Production in this facility is scheduled to begin in the second half of 2026. We expect our new galvanizing facility in Mexico to complete its first dip in the first quarter of 2026, which will improve our cost structure and enhance margin. We remain confident in the durability of demand supported by long-term power trends, increased utility CapEx and the strategic network of alliance customers. As the utility market grows, the flexible and strategically located network of facilities within our Engineered Structures platform provides us with the ability to adapt and increase capacity without significant capital investments. Turning to Transportation. The aging U.S. barge fleet creates a favorable replacement cycle, which is expected to extend over the next several years. Strong order activity in the third quarter has significantly improved our production visibility for 2026, extending beyond the typical outlook we have at this point of the year. This improved line of sight for both hopper and tank barges reinforces our confidence in sustained demand through the cycle. In closing, as we enter the fourth quarter and turn our attention to fiscal year '26, we remain confident in the strength and future potential of our core markets. With an optimized portfolio and favorable macro dynamics, we are positioned -- we have positioned Arcosa for sustained long-term growth and value creation while focusing on operational excellence and disciplined capital allocation. We are now ready to take your questions. Operator: [Operator Instructions] We'll go first this morning to Trey Grooms of Stephens. Trey Grooms: Congrats on the great quarter. I guess, first off, you gave us some pretty good color, but I didn't know if maybe you could dive in a little bit more around the puts and takes around the full year revenue and EBITDA guidance adjustments or kind of just tightening those ranges a bit. Any more color you could give us on those puts and takes, please? Gail Peck: Sure. Trey, this is Gail. I'll take that. As you saw in our release and in our comments this morning, we made some adjustments to the full year guide with just 1 quarter left. It reflects the strong year-to-date performance that we've had through the first 9 months, and we expect a good quarter in Q4. So we tightened the revenue guidance just a little bit. I think that reflects a very small slight step down. That would be coming from construction as volumes -- on the organic side for the year have not been as strong as we would have thought at the start of the year. All that being said, slight adjustment to revenue, we're looking at strong double-digit revenue growth year-over-year. On the EBITDA side, we did raise the midpoint about $10 million. We now see $580 million of EBITDA for the year. As Antonio said, that's 32% growth year-over-year. As we think about the fourth quarter, this will be our first quarter with 100% organic as Stavola has anniversaried in the third quarter. And we're seeing strong double-digit growth in the fourth quarter. It is a seasonal quarter for Construction. So you do see Q4 step down. We do have Stavola in the New York, New Jersey MSA, which is very weather-dependent in the fourth quarter. So you see some seasonality, a normal step down in Q4. And we're really excited to close the year strong. We have excellent production visibility with our backlog on the manufacturing side. You do have 2 holidays in the fourth quarter, and sometimes that has an impact. But we're really excited to end the year strong, pleased to raise the midpoint of our guidance and conclude a very strong record year for Arcosa. Trey Grooms: That's super helpful. Just kind of following up on that. On the Construction business, you mentioned some inefficiencies with some of your legacy aggregates businesses with some production downtime at a few locations. Is that going to continue into the fourth quarter? Is that playing a role at all? Or is that largely behind you? Antonio Carrillo: Trey, it's Antonio. I think that's largely behind us. As you increase the number of facilities, and we're still -- we've grown a lot, but we're not the size of some of our larger peers. So 1 or 2 facilities that have a problem still reflects in our -- creates a little volatility for us. And that's what you saw. I think we're largely over that. And every day, we get better as a company, and that's what we try to do, become better every day. Trey Grooms: If I could switch just to Engineered Structures, just real quick. The margins there, very impressive margin improvement. You mentioned pricing and some operating improvements in utility. So if you could maybe talk about some of those drivers and how you're thinking about the margin outlook and kind of sustainability of those margins as we look forward. Antonio Carrillo: I'll take that, Trey. So when you look at what happened in the third quarter and what's been happening this year, both businesses, the wind tower business and the utility structures are performing very, very well. On utility structures -- I'm sorry, on wind, we started the year. We've been ramping the Belen facility in New Mexico last year. So when you compare -- last year, we had excess cost compared to this year. But overall, the team has done a fantastic job ramping up facilities. And we are very good at building wind towers when we have a continued -- a very, very steady production cycle, which is what we have right now. And that's why we're excited about the visibility we get with the new orders for 2026 and '27. It gives us very good line of sight. On the utility structures, demand continues to be strong. We've been increasing our capacity. As Gail said, volume grew double digit, and we've been growing volume double digit for the last 7 years. So this is a very, very good run that we're getting in increasing capacity, and we've become good at it. Our plants run very well. As always, when you have a larger business, you have things that are always working well and sometimes they're not. We still have things that we need to improve in our business. We're not done. And so we have some plants that are doing better than others. But I'm very excited about where we are. Our team is doing a very good job. And Gail mentioned, we have placed orders for additional equipment because we need to continue to expand our capacity. We will see going forward, the Illinois facility as we start hiring people will start going through its ramp-up. But it's part of the growing pains, and we're just excited with where we are. Gail Peck: And I might add, Trey, on to that, just coming back to the start of your question. And when you really look at the year-over-year growth, as Antonio said, wind was ramping, we finished that ramp earlier in the year. So the year-over-year growth is really coming from the strength in utility and related structures. So very pleased to see that. At nearly 70% of segment revenue, that's an important driver of our performance. Operator: We go next now to Julio Romero at Sidoti & Company. Julio Romero: I wanted to start on Construction Products. Antonio, you mentioned for full year '25, you remain on track for high single-digit pricing growth in aggregates. Can you just talk about the pricing outlook within aggregates as we head into '26? And I'm not asking for guidance, but just kind of high-level thoughts there. Antonio Carrillo: Sure. I think, as you know, this business is a very local business. And every one of our locations has different dynamics. But I think overall, we're positive about where we're seeing demand, especially on the infrastructure side. So I think as long as we continue having this -- and we mentioned that we had -- Gail mentioned in her script that we had consistent volumes during the quarter, which was a very good sign and recovering volume growth is a very important price of the pricing dynamic -- very important part of the pricing dynamic. We've been able to raise price throughout several quarters with volume declining. Now that volume seems to be recovering, I think pricing should be something that we can continue to pass through to our customers. We are in really good locations, great geographies, and that also helps. And I think if we're able to get some recovery in '26, late '26, sometime on housing, that will help even more. So we're optimistic about where we are on pricing. We're optimistic about where we're seeing the volume based on what we saw in the third quarter. And I think we're in a really good position. And very important, I think Stavola really changed the dynamics of our business. Gail Peck: I might add, just, Julio, as you think about the cadence of pricing, we have full year pricing guide of high single digit for Arcosa in 2025. That's total pricing. We did indicate that organic pricing was up mid-single digit in the quarter. Stavola does anniversary. So fourth quarter will be all organic. So we do expect a slight step down to that year-over-year rate in the Q4 with somewhere near more of that organic rate that we achieved in Q3. So as we look to 2026, as Antonio said, we still see pricing trending on the high side of historical averages. Julio Romero: Okay. Very helpful there. And congratulations on reaching your target leverage 2 quarters ahead of schedule. You weren't kidding when you said you'd have cash flow accelerate in the second half here. Can you just talk about capital allocation going forward? How are you thinking about perhaps more debt reduction versus further growth initiatives? Antonio Carrillo: Sure. So first of all, I think what you said is exactly how we thought about it. When we went through Stavola, it was a large acquisition for us, but we had a really good visibility on our cyclical businesses backlog and on the growth businesses performance. And that's what gave us the confidence to go for a larger acquisition. And that's why when we talk about our backlogs, the visibility is so important. On capital allocation, we mentioned we want to keep our balance sheet. We want to continue to improve. Even though we are within our range, I personally would like to be lower in that range to have more flexibility as we move forward. So my goal would be to try to get lower in the range of 2 to 2.5x leverage. On the other hand, we are -- we've been working for the last several months on filling our pipeline of bolt-on acquisitions, and we are -- we have opportunities out there, and these things happen sometimes when you want them, sometimes when they just happen. So we now have the flexibility of taking advantage of those opportunities and continue to focus on bolt-on acquisitions, which have been very, very accretive to Arcosa numbers. So I want to continue doing that, both on the aggregates and the recycled aggregates. On the organic growth side, we have opportunities. We're investing in the facility in Illinois to convert it from wind to transmission. I mentioned we are finally finishing out our galvanizing facility in Mexico. And we have opportunities based on depending on the strength of the transmission tower business. We always have opportunities to continue to invest. We are ordering additional equipment to continue to grow the business as we see demand strength accelerating. So I think you will see a combination of both organic and inorganic capital allocation in terms of M&A and organic growth going forward and hopefully continue to reduce our debt to the lower end of our range. Operator: We'll go next now to Ian Zaffino of Oppenheimer. Ian Zaffino: Congrats on all the wind tower orders. I guess I just wanted to ask also, what is the outlook, I guess, for incremental orders there? And what was the decision to accelerate the backlog? Walk me through kind of those dynamics, was this all on because of you're trying to figure out your production schedules? Was this driven by the customers' decision? Maybe just some color around there as well. Antonio Carrillo: Sure. Thank you, Ian. So let me give you a big picture. As I mentioned in my remarks, the wind industry is competitive now with other sources of power to -- but it's been attached to tax credits for a long, long time. And it seems that after '27, the industry is going to go to a market-driven economy like it probably should be, and we're happy it goes there because we are now competitive. But we have 2 years to get there. And you've seen all the policy changes during this year that have created uncertainty. So the way to bridge these 2 years, which -- our base case scenario is that these 2 years will accelerate as we get closer to end of 2027. Historically, developers and the whole industry accelerates to try to capture as much tax credits as possible before they go away. We needed to bring that backlog to try to capture as much as possible for our customers that need these towers. And 2028 is going to be a different environment. 2028 is going to be an environment that I'm very optimistic about because the U.S. needs the power. Prices of power are going up and the industry is competitive. So we will have a very good industry in 2028 and beyond. But for the moment, we had the backlog. We agreed with our customers to move forward part of the backlog. And at the same time, we got new orders. So I think we're in a really good position. We're not full for '26 and '27. We're still working with customers to try to accommodate additional orders and to figure out the needs of many of our customers as they go through this period of tax incentives still being present. So I'm optimistic we're going to get additional orders, but we're still early. We're just at the end of October, early November, and we have time for this to materialize over the next several months. Ian Zaffino: Okay. And then as a follow-up, I guess your 2 nongrowth segments are doing very well. And we've kind of -- you've been very patient here waiting for them to ramp and really to hit either mid-cycle or above. And kudos to you guys, you've done a very good job in doing that. Given where they are at this point and given that you want to shift your business more into growth, is there anything kind of on the horizon that you're now thinking of as far as capital allocation and moving more aggressively into growth businesses and away from those nongrowth businesses that are kind of now actually performing very well? Antonio Carrillo: That's a good question, and that's a question that we are always debating. And I would tell you that Stavola changed the dynamics of Arcosa. We now have a business that's a lot larger than we were a year ago. And that has helped, let's say, put us on a better footing to be able to continue to move our portfolio. It's always -- we just have to decide when we want to continue to simplify the company. I will tell you one important step that we took this quarter was achieving our leverage ratio. Those cyclical businesses provide a lot of cash. So we needed those businesses to be able to help us delever as we bought Stavola. Now that we are continuing to move ahead and we are reducing our leverage ratio to our target, I think we'll be in a good position to continue to move forward with the simplification of the company, but those things take time, and there's never a perfect time to do it. We'll just have to continue to evaluate it. Operator: We go next now to Jean Van Diest (sic) [ Jean Veliz ] of D.A. Davidson. Jean Paul Ramirez: I want to start with the wind business. Are you anticipating additional wind orders beyond what you've discussed here today? And do you need to see additional orders for us to assume a sort of stable contribution from wind in 2026? Antonio Carrillo: So we have -- as I mentioned before, we're still early. We're working with our customers. I hope we can get additional orders. And I'm optimistic about where I see '26 and '27. We now have good visibility for our 3 facilities, as I mentioned in my remarks. So -- but we have time. I think we don't provide guidance at this time of the year, but we have time, and we're optimistic about where we are with our customers. So we'll know more over the next few weeks and months. Gail Peck: Yes. And I guess I would just add as it relates to '26 and your question. We feel very, very comfortable where we are at this point of the year, and we have good coverage of our '25 revenue run rate. We're not there at 100% yet, but we have very good coverage at this point of the year. Jean Paul Ramirez: Got it. And moving on to Engineered Structures. Can you provide an update on timing of capacity investments you're making in Engineered Structures? And when do you expect that to begin to ramp up and contribute to growth? Antonio Carrillo: I mentioned that during the second half of the year, we'll start ramping up that production. And that starts -- hopefully, by the end of the year, it should be done. And we -- I think it's going to start contributing positively probably in '27. Jean Paul Ramirez: And are you guys filling that capacity? Antonio Carrillo: Yes. Yes, we're working with our customers to fill it up. And the reason we're expanding is because we have the demand from our customers. We're really seeing accelerating demand in utility structures, and that's why we're doing this expansion and why we're evaluating additional expansion based on conversations with our customers. Operator: And we'll go next now to Garik Shmois of Loop Capital. Garik Shmois: Just to start, a couple of questions on barge. Just given the improvement in orders... Operator: Garik, I'm sorry to interrupt you. We're having a hard time hearing you. Garik Shmois: Sorry, is this better? Operator: Yes. Please go ahead. Garik Shmois: Okay. Sorry about that. So a couple of questions on barge to start. Just given the improvement in orders, are you seeing an inflection in hopper orders as well as tank? I'm wondering what you're hearing from your customers just regarding the ramp in the replacement cycle being sustainable moving forward? And if you can speak maybe to the type of margins you're seeing on the new orders coming into backlog. Antonio Carrillo: Yes. Absolutely. The big picture is barges need to be replaced, both tank and hopper. When you look at the replacement cycle, I'm convinced over the next several years, I think we're going to have a long cycle. I'm not sure if it starts today or tomorrow or a week from now, but we believe our capacity is very, very valuable because we will need all our capacity to be able to meet this replacement cycle. And we are pricing our barges like that. So we're not giving our capacity away if we wanted to fill the plants and I gave cheap prices to every one of our customers, we will have to fill them -- we could fill them up tomorrow for the next several years. But we're not doing that. We're selling our barges at the price we think they deserve and with good margins. And I'm a big believer in the barge business for the next several years being on strong footing. We have received orders for both hopper and tank barges. And I won't tell you it's -- people are lining up for hundreds of barges, but we see solid demand. We see solid demand for barges going forward, and we have really good visibility in our backlog. We said we're deep into the second part of the year next year. And for this time of the year, that's not common for us. No, we normally don't have that visibility that we have today for 2026. Garik Shmois: Okay. That's helpful. I wanted to ask on aggregates and organic volumes. I think you mentioned that you're starting to see modest growth here in the fourth quarter. Wondering if you can unpack where that is. Is that certain regions are starting to perform better? Or is it more of a function of end markets improving? I'd be thinking more nonresidential and infrastructure. But just any help on where you're seeing some of the inflections on organic aggregates demand? Antonio Carrillo: Yes. I will tell you. So starting by markets, I think in Texas, and over the last year, I think with residential being slow, we've strategically targeted more infrastructure business, and that takes us time to continue to move into that market from a more residential oriented, especially in Texas and in the West. So I think infrastructure continues to be solid, and that's where we're seeing good volume demand -- good volume growth. Residential, as I mentioned in my remarks, we expected the second half to see an uptick, and we didn't see that. So we continue to inflect into more infrastructure focus. We're really excited about some of this -- the reshoring, all the power built infrastructure, all the data centers, we are seeing good volume there. And we are still seeing relatively weakness in the Gulf market. But we see very, very good potential for '26 with LNG and some other projects that have been delayed. So I think as we move into 2026, and we've shifted more into infrastructure that will give us a solid footing and more consistent. I think on the nonresidential side, we're optimistic of what we're seeing. And then hopefully, sometime in the '26, we get some uptick in residential. So overall, very positive. Stavola specifically, a lot more focused on infrastructure. So assuming there's no impact from the federal funding, I think we should be in really good shape. Operator: Thank you. And ladies and gentlemen, that will conclude our question-and-answer session for this morning. So that will bring us to the conclusion of today's Arcosa Third Quarter 2025 Earnings Conference Call. Again, we'd like to thank you all so much for joining us this morning and wish you all a great day. Goodbye.
Operator: Good morning, and welcome to the RE/MAX Holdings Third Quarter 2025 Earnings Conference Call and Webcast. My name is Colby, and I'll be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Joe Schwartz, Senior Vice President of Finance and Investor Relations. Mr. Schwartz? Joe Schwartz: Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings Third Quarter 2025 Earnings Conference Call. Please visit the Investor Relations section of www.remaxholdings.com for all earnings-related materials, including our standard earnings presentation and to access the live webcast and replay of the call today. Our prepared remarks and answers to your questions in today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales and open offices, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, credit facility, dividends, share repurchases, litigation settlements, strategic and operational plans and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligation to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our third quarter 2025 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures in today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is available on our website. Joining me on our call today are Erik Carlson, our Chief Executive Officer; and Karri Callahan, our Chief Financial Officer. With that, I'd like to turn the call over to them. Erik? W. Carlson: Thank you, Joe, and thanks to everyone for joining us this morning. We're pleased that the momentum we've built in the first half of the year continued into the third quarter. Our total RE/MAX agent count reached another all-time high, fueled by steady global growth and our best third quarter U.S. agent count performance in 3 years. Based on feedback from the membership, we believe our mix of new ideas and products, along with our reinvigorated recent network events are enhancing our value proposition and generating great energy. At the same time, our constant focus on operational excellence, again, drove profitability and margin performance that exceeded our expectations. And while existing home sales have yet to show sustained signs of recovery, our networks continue to perform resiliently. From a macro perspective, the trends we saw in our RE/MAX National Housing Report earlier in the year continued in September as inventory increased 20% over September 2024, marking the 21st consecutive month of year-over-year growth. Additionally, new listings, which has slowed some over the summer, rebounded in September, growing 4.5% over August. We believe these sustained increases are constructive for housing and will help support increased transaction activity. However, affordability remains a challenge, particularly at the lower price points. Further downward movement in mortgage rates would be welcome news. From an industry perspective, this year has seen consolidation activity on both the large and small scale. Given existing industry dynamics, we believe the current state of change creates exciting opportunities for our company and networks. We continue to have a robust franchise sales and conversion pipeline and are building on the momentum of recent additions, including RE/MAX Hawaii, which catapulted RE/MAX to a #2 market share position in the state. This momentum is bolstered by our innovations and ongoing enhancements to our value proposition, which has spurred a lot of excitement throughout our networks and the industry. I've never felt more positive about what lies ahead for our company, and we're going to continue to evaluate all opportunities to drive enhanced value for all of our stakeholders. As of September 30, our worldwide agent count of over 147,500 agents was another record high, and U.S. agent count had its best third quarter in 3 years. Although we're not where we want to be, the underlying agent fundamentals are encouraging. We said last quarter that May and June were the first 2 months of the year where our agent recruitment rate increased year-over-year. This positive momentum carried into Q3, where the recruitment rate for each month of the quarter was higher than last year. Producing agents continue to be drawn to RE/MAX and the quality of our network was reflected in the recently released 2025 REAL Trends Verified City rankings, where we had more agents represented than any other brand. Although Canadian agent count was down slightly year-over-year, we saw modest sequential growth despite a continued challenging housing backdrop. We appreciate that being a broker and an agent is difficult in this market. And historically, we know that the number of producing agents in the industry tends to correlate with the level of existing home sales. We're encouraged by the results in both the U.S. and Canada given the current state of the markets, and our international agent count continues to be a bright spot, surpassing 73,000 agents. Momentum in agent recruiting has been fueled by many of our ongoing initiatives. Our Aspire program continues to be a success with approximately 1,500 agents benefiting from the program. Although it's still early, Aspire is performing as intended with an uptick in the recruitment of newer agents and a higher retention rate. Building on the strong reception and feedback from the network on Aspire and leveraging our voice of customer capabilities, we've introduced the Ascend and appreciate programs in September. These optional economic models offer greater flexibility with respect to how and when a franchisee pays us, further supporting their ability to attract and retain quality agents. While these programs are new, the feedback from the network has been very positive. In addition to providing flexibility with respect to our economic models, we continue to lean heavily into innovation to deliver an elevated experience to all of our affiliates and the consumers they serve. Many of our new offerings like the recently launched RE/MAX Marketing as a Service platform, leverage the strength of our scale to create new competitive advantages. The platform is a data-driven, AI-powered system that simplifies marketing for all of our affiliates. The offerings include automated listing packages, complementary and paid campaign options, real-time analytics and property videos created seamlessly with AI. We'll continue to add innovative products to the platform, all of which are designed to help agents save time, win more listings and grow their business. This marketing approach is a strategic shift as we're consolidating fragmented efforts into one seamless experience. Although we're just getting started, the initial click-through rates and engagement results are very promising. We're seeing both the number of orders and users increase each week, and the current weekly order value is indicative of a low 7-figure annual run rate. Notably, we are planning to expand the platform into some international geographies outside of the U.S. and Canada, marking a tangible step to capitalize on the scale of our worldwide footprint, enhance the value proposition globally and diversify our revenue streams. In addition, we continue to innovate on the exciting initiatives we launched last year, leveraging our digital assets. Our Lead Concierge program has been outperforming expectations this year, and we continue to evaluate and add new lead sources. The RE/MAX Media Network is on track with our revised expectations, and we anticipate it will have a 7-digit revenue contribution by the end of 2025. We remain optimistic about the long-term potential of these initiatives. Our story is being told loudly and proudly through the voices of our franchisees and agents, both online and offline. Whether agents are leveraging our MAXEngage platform or other mediums, our momentum continues to build. Throughout our many events over the past several months, excitement and a feeling that something is different about RE/MAX has emerged as a constant theme. And that excitement is carrying forward in our ability to recruit top industry talent to our executive team. We're thrilled to have Vic Lombardo on board as our new President of Mortgage Services. In his role, Vic will oversee the growth of our mortgage business, including Motto Mortgage, wemlo and future evolutions designed to grow our mortgage offerings. In Vic's first 2 months, he's rolled at the sleeves, dug into the operations, surfacing a number of innovative ideas to drive growth and add additional revenue streams and increase the operational efficiency. We're already putting foundational pieces in place, and we look forward to sharing more details on our strategy in February. While the mortgage market remains challenging, we've seen a modest uptick in refi volumes in the last couple of months. Our franchisees and LOs continue to persevere, and we're optimistic about the growth potential for our mortgage business. In addition to Vic, Tom Flanagan, our new Chief Digital Information Officer, joined us at the end of September. Tom, a member of the 2025 Swanepoel Power 200 is a great cultural fit and his impressive track record includes 20 years as a real estate innovator and executive and leadership roles covering both technology and marketing. Tom is leading in to the potential of AI both to improve the customer experience and to make us more efficient in our day-to-day operations. Not only is he an industry-leading technologist but is experienced in ancillary businesses will also be a great asset as we continue to explore future growth strategies. As we look to the future, we continue to lead in our networks and build on our momentum. We're focused on the tremendous opportunities that lie ahead for us. And with a world-class leadership team now in place, we believe we're well positioned for growth in the current environment. We're focused on what matters, continuing to grow our RE/MAX agent count, especially in the U.S. and Canada, enhance and expand our value proposition, focused on improving our customer experience, grow our mortgage business and concurrently diversify our top line drivers as we execute with excellence across our brands. As we move into the last couple of months of the year and prepare for 2026, I want to emphasize that we're in a new era when defined by clarity, purpose and action. With that, I'll hand it over to Karri. Karri Callahan: Thank you, Erik. Good morning, everyone. As Erik mentioned, we are pleased with our third quarter operational results and overall financial performance. Our third quarter profit came in at the high end of our expectations and our top line results were solid despite a housing market that continues to be slower than anticipated, highlighting the resilience of our financial model. Some of our notable quarterly financial highlights included total revenue of $73.3 million, adjusted EBITDA of $25.8 million adjusted EBITDA margin of 35.2%, an increase of 40 basis points over the third quarter of 2024 and adjusted diluted EPS of $0.37. Looking closer at revenue, excluding the marketing funds, revenue was $55.1 million, a decrease of 5.6% compared to the same period last year, driven by a decline in organic revenue of 5.4% and adverse foreign currency movements of 0.2%. The decline in organic growth was principally due to lower U.S. agent count and to a lesser degree, certain incentives related to modifications to the company's standard fee models, including our Aspire program. This decrease was partially offset by contributions from our marketing services, including our Lead Concierge and RE/MAX Media Network initiatives. As mentioned, margin performance improved, thanks to our focus on ongoing operational efficiencies. Third quarter selling, operating and administrative expenses decreased $3.5 million or 9.7% to $32.5 million. This reduction was primarily due to certain lower personnel and events expenses, partially offset by higher investments in technology in our flagship website and increased bad debt and legal fees. Despite the challenging broader macro and housing environment, our ongoing evaluation of every aspect of our business is paying off. The cash-generative nature of our business converted approximately 60% of adjusted EBITDA to adjusted free cash flow this quarter, and our total leverage ratio decreased to 3.41x as of September 30. Importantly, our total leverage ratio is now below the 3.5x level, at which we are afforded greater flexibility from a capital allocation perspective. And we expect to remain below the 3.5x level at the end of the year. From a capital allocation perspective, our priorities remain unchanged. We are strategically reinvesting in the business, and we'll continue to build our cash reserves. We also believe that we can now evaluate returning capital to shareholders because at the current price, repurchasing our shares is an attractive use of capital. Now on to our guidance. We are pleased with our Q3 financial performance and are encouraged by the growing excitement from our network and early returns from our initiatives. However, we remain pragmatic about the realities of the current housing market and continued uncertainties in the broader macro environment. As a result, we are tightening the top end of our full year revenue and adjusted EBITDA ranges. Our fourth quarter and full year 2025 outlook assumes no further currency movements, acquisitions or divestitures. For the fourth quarter of 2025, we expect agent count to increase 0% to 1.5% over fourth quarter 2024, revenue in a range of $69.5 million to $73.5 million, including revenue from the marketing funds in a range of $17 million to $19 million and adjusted EBITDA in a range of $19 million to $23 million. And for the full year 2025, we now expect agent count increase 0% to 1.5% over full year 2024, revenue in a range of $290 million to $294 million, including revenue from the marketing funds in a range of $72 million to $74 million, a change from $290 million to $296 million, and adjusted EBITDA in a range of $90 million to $94 million, a change from $90 million to $95 million. With that, operator, let's open it up for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Anthony Paolone with JPMorgan. Anthony Paolone: Just, Erik, I think you mentioned there were 2 programs. You talked about 7-figure contributions potentially. I think it was marketing and maybe it was Aspire. But I was wondering if maybe you can give a little bit more color around can we expect to see that level of incremental revenue in 2026? And maybe what would the margin perhaps look like? Or just a bit more detail on what that trajectory might be. W. Carlson: Yes. Certainly, Tony. Thanks for being on today. A couple of things we're talking about is, as you know, over the past 4, 6 quarters, we really have been talking about bringing more value to the network and helping them win more business, do it in less time and bring some profitability back to brokerages and help agents make a little bit more money. Part of that is our marketing efforts that we rolled out, I don't know, 8 or 10 weeks ago. And we're seeing really good engagement on our Marketing as a Service platform. So that's one of the platforms that we talked about being a 7-digit revenue opportunity. That certainly is continuing to grow. We're seeing great response engagement, usage. And I think the most important thing, Tony, is it's actually working, right? So when you think about the marketing and listing or an open house or just marketing in general, it's good to see that engagement and their returns. So we're seeing customers come to our site. We're seeing higher engagement with properties. We're seeing more customers wanting to click through and grab an agent. All these things are good to help our folks kind of win listings. And really, it's a spend that's happening kind of in the market but in a disaggregated way. And so what we've done is created a platform through process technology and AI to help that spend, one, to lower the cost for agents, but also to be more effective in the marketplace. So we think that's a big opportunity, not only in the U.S. and Canada, where it's deployed today, but also internationally, and we're working on several markets in the fourth quarter to start that rollout to help monetize that international opportunity that you all have so politely pointed out to me many times in the past. In addition, we have the RE/MAX Media network. We've spoken about a bit in the past and part of, obviously, Marketing as a Service has helped driving traffic to the website. I will tell you that we're building the plumbing. We've got good infrastructure in place. I think closer to the end of the year, you'll see kind of a new approach for us on dot-com and [ dot-ca ] but advertisers are liking what they're seeing. We have work to do, but they're seeing good engagement with their products. We're seeing good engagement from consumers when they have an ad kind of on a site that helps our brand, helps their experience. So we're working through kind of the foundational aspects of the program, but that definitely is -- it's a 7-digit figure in 2025 and will continue to grow in 2026 and beyond. Karri Callahan: Yes. Tony, 1 thing that I would add in addition to everything that Erik said from a strategic perspective because we are really excited about the engagement that we're seeing from a Marketing as a Service perspective. The margin profile from just a financial standpoint, it does look a little bit different than our core business. So kind of looking in that kind of high single-digit, low double-digit margin contribution perspective. But with all of that said, we just think there's tremendous opportunity in terms of driving the top line from that perspective, just given the engagement we've seen from the network and the overall performance with consumers who have interacted with the product over the last couple of months. W. Carlson: Tony, on the [ RMN ] side, the margin profile will be different too. It will be higher than our normal margin profile. Anthony Paolone: Okay. And then just 1 other one. Just on M&A in the sector in general. Can you give us any thoughts on where you stand there? And also whether or not that has any implications on just -- you mentioned your recruitment rate and whether you're seeing people move around as a result of M&A in the space. W. Carlson: Yes, great question. Look at -- I think last time, we talked about us building momentum within our network and really being focused kind of our strategy and our value proposition. We're seeing great enthusiasm from the network right now. In my opening remarks, we talked about a little bit the -- some of the events, the last 5, 6 events since the last time we spoke, have been kind of categorized from the network as best as best [ event ] ever, which is really encouraging, meaning the way we're showing up the tools, the services, the engagement we're providing is resonating with the network. That, along with some of the programs, whether it's a Marketing as a Service or some of the new economic models, whether that's Aspire, Ascend or Appreciate, they're resonating. And so we're seeing good engagement levels there, and we're seeing good recruitment rates through the Aspire program. With all that being said, there will be continued consolidation in the market. Obviously, since the last time we spoke, there was a big announcement. We think that, that just brings additional opportunity for us and could help accelerate our strategy. But obviously, we're open for business. We are seeing a lot of inbound requests meaning, hey, something is happening over at RE/MAX. What is that? I want to talk more about that. Maybe I've got a contract up maybe on independent feeling pressure. But we are definitely seeing a lot more inbound activity here, which is very encouraged for our franchise sales and our network to capitalize on maybe some of the market conditions but also just the opportunity on what we've built to join kind of this momentum that we've got on the market right now. Operator: Your next question comes from the line of Nick McAndrew with Zelman. Nick McAndrew: Erik, maybe 1 for you to start. I think just with Aspire, Ascend and Appreciate now live, could you maybe just walk through what type of agent you're trying to attract with kind of each of those models? And maybe just how franchisees are thinking about those optional models in practice? I mean, are most rolling them out selectively for recruiting and for the existing agent base they already have? Or maybe if you could just add any color there, that would be helpful. W. Carlson: Yes. Sure thing, Nick. Thanks for the question. A couple of things. One is, as I just mentioned, I think that the models and just the idea that there's choice is resonating with the network. Obviously, brokerages and agents, independent operators, and they have to make the best decision for themselves. I think on the last call, we talked about a little on Aspire, about 2/3 of the folks have joined or participating. I think the important thing that we're seeing -- and by the way, it's still a little bit new. But there are some positive green shoots, meaning Aspire has not -- it has not taken away from any of the existing recruitment that we are doing organically for kind of highly professional, productive, more tenured agents. And so Aspire generally has been seen as kind of incremental. The other great thing that we're seeing is Aspire is definitely coming with higher retention rates than what we previously saw. So I think the idea that we've coupled education, kind of a formalized program and learning technology in order to become a productive professional agent and take some burden off the broker is really helping with that retention rate for agents. We're hoping here in the next 2 quarters that we'll see that productivity follow. We've got a tried and true partnership with the Buffini Group on 100 days to Greatness. And so if those averages play out, we certainly think that will have additional productive agents kind of in that network within that 12-month time frame. Appreciate is a little bit different. Appreciate is really about retirement. So obviously, we've got a real estate agents enjoy retirement through this profession. We want to make sure that there is a place where they can stay at an affordable rate and still capitalize on their book of business. But no, they may not be as productive as they once were kind of in their heyday. And so we're seeing some adoption of Appreciate. Obviously, that's a program that takes a little bit more time for the funnel to fill as folks have a desire to roll off. And then on Ascend, we're seeing decent adoption on Ascend for those folks that want to take advantage of a model, which provides a lower fixed fee and a higher variable rate. And I think part of Ascend for me is also kind of putting our money where our mouth is, meaning like we have to be in the business of helping folks win business. That can be leads generated from our website, that can be other sources, that can be on our dot-com. I mean, a whole different variety. And so what we're now showing to the network is we're in it with you, right? We'll take some risk on the financial side, but we're going to help you as an agent and a brokerage build your business. And I think that stance alone has really resonated with a lot of the network. And it's just really a philosophy of us leaning in to help support their business. Nick McAndrew: Got it. Yes, that makes a lot of sense. And I guess just a follow-up. I think just given all of the investment in digital tools and marketing capabilities this year, whether it's Lead Concierge or the new Marketing as a Service platform, do you have any sense for just whether you're seeing any tangible uptick in productivity of agents or offices that are more actively engaged with these platforms versus those that aren't? W. Carlson: Look, I think it's a long sales cycle. Some days, you wish you were kind of like a consumer goods company and just selling a bar soap, but that's not the case. So what I said before, Nick, and I think is helpful is like we're seeing additional engagement on listings, right? And so when you see that type of activity, that will lend itself to, I think, our team winning more business, and that will help improve productivity. So when you roll out programs like these, like increased marketing or Lead Concierge, with our sales cycle, it takes a while to actually see the results. But when you set out and you say, hey, these are a few things that I'd like to see initially to make sure that the program has kickedstarted in the right way. We're seeing all those green shoots, and we're seeing it actually exceed our expectations. So we're really optimistic on the work that we've done, which is very purposeful investments. One, not only to help our agents and our brokers but also to start to tell a different story about revenue diversification for our enterprise. And so we're really happy with the progress we've made, and we're excited about the reaction from the network and the usage of the tools. Operator: Your next question comes from the line of Matthew Erdner with Jones Trading. Matthew Erdner: I'd like to kind of shift gears and talk about Motto a little bit. You guys touched on some of the initiatives that you're doing there. But I'd kind of like to get your guys' sense a little more in depth of kind of the changes you're making there and get an idea of the profitability. And if it's not profitable, kind of that outlook towards profitability? W. Carlson: Yes, great question. I think I led you down a path with my opening remarks that we talk more about it in February, but let me give you a little bit of color right now. One is we've -- over the past 6 to 10 weeks since Vic arrived, we've really taken a new view of the mortgage opportunity. So that includes not only Motto, and our processing group, which we think that there's opportunities there to do a little bit about what we've done in real estate, quite honestly, and change the model to be a little bit less fixed and more variable. We've got to be in a position to help our network and our LOs really find business and capitalize on business, which not only helps the profitability of their business, but the value of owning a Motto franchise and our value proposition, quite frankly. So it's a little early, Matt, to actually kind of go through some of the specifics. But what I would tell you is we've got a new outlook, not only in the franchise business, but just capitalizing on the mortgage opportunity in general, based on the number of transactions, connections, with both consumers, agents, brokers and the footprint that we have, both kind of in the U.S., Canada, et cetera. So we're really excited about some of the the items that we're working on right now, but it's just a bit early to talk through the strategy with you all. Matthew Erdner: Got it. Yes. I appreciate that. And then kind of as a follow-up to that. How do you guys plan on leveraging that agent network that you guys do have, given that you guys are up there pretty much every year in terms of transaction size so the opportunity there is pretty large. W. Carlson: Yes. I mean, I think you're seeing us lean in, in a variety of different places. So whether that's providing services like the Marketing as a Service platform, which not only kind of improves agent execution on marketing at a lower price point, but also helps us to obviously improve the monetization event through either the agent or the consumer. The RE/MAX Media Network is a perfect example, Lead Concierge as an example. And obviously, some of the high-level hints that I provided to you on mortgage are also examples. So you're just seeing us lean into our business and really think about what else can happen through the agent or the consumer transaction. And I think that the other item we're really working on is what happens post close. I come from a place where we were dead set focused on the consumer experience. And we are focused here on the customer experience for brokers, agents and that end buyer seller to improve that, not only before the transaction and when they're shopping or researching a particular property or an agent or a brokerage, but also during the transaction to make it as easy as possible to do business with us and our network and then also to make sure that we're nurturing those folks post close in a value-added way. So not just an e-mail once a month, but making sure that it's meaningful to help them with their home buying and home ownership experience. Matthew Erdner: Got it. That's very helpful. Operator: Your next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: The first one is just around -- you guys called out the organic revenue impact as taking some impact from the modifications to the standard fee model. Are you guys able to put some magnitude around that number? And then should we think about that as sort of run rating or does it lap after a year? How should we think about that? Karri Callahan: So great question. I think, as Erik said, we're really excited about the Aspire program. It's really driving the benefits that we had hoped for in terms of increased recruitment rates for newer agents. And also, we're seeing churn decline in that cohort as well. And we knew kind of from the very beginning that there would be a little bit of an upfront investment as those agents came on board, got trained up and then started to produce transactions. And so we do think it is a little bit of a short-term investment cycle because as those agents continue to get ingrained in our tools and services, start leveraging Marketing as a Service, really lean into our education and become the trusted professional that is the hallmark of the RE/MAX brand, we think that, that will dissipate over time. It was just a little bit of a near-term headwind as they're onboarded. So Erik mentioned it's about 1,500 agents. And so that's kind of the quantification, but we think it is near term in nature, and we absolutely think it's -- it was a prudent choice because, as Erik said, we're really trying to partner with our franchisees, help them build their businesses and help us really kind of create that flywheel for agents to participate in the other tools and services that we're offering holistically from a brand perspective. Thomas Mcjoynt-Griffith: Okay. And then in the sort of capital allocation priorities, returning capital through buybacks has been on the list but for the lower end for a while now. I guess, is anything different now that would make you guys more interested in buying back shares now? Should we expect to see some buybacks by year-end? Any more commentary around that? Karri Callahan: Yes, it's a great question. I think the biggest thing from our perspective right now, that was great to see this quarter is -- we've done a very good job from a deleverage perspective. Our TLR is now below that 3.5x level. So we do have some more flexibility. So from a capital allocation perspective, we're continuing to allocate or evaluate all of those options where we think that we're going to allocate capital to the areas where we get the highest returns. So there's a lot of things going on right now from a strategic perspective, in terms of the additional value and services and initiatives that are ongoing. But obviously, now with that deleverage, we'd like to get down a little lower, but below that 3.5x and given where we're trading, we think that returning capital is a great use of capital and more to come. Operator: Thank you. So with no further questions in queue, I'd like to turn the conference back over to Joe Schwartz for any closing comments. Joe Schwartz: Thank you, operator. That concludes today's call. Thank you all for joining us today. Operator: This concludes today's conference call. You may now disconnect.
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: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ingersoll Rand Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. Please go ahead. Matthew Fort: Thank you, and welcome to the Ingersoll Rand 2025 Third Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will be referencing these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release. Both are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to parts. At this time, I will turn the call over to Vicente. Vicente Reynal: Thanks, Matthew, and good morning to all. Beginning on Slide 3, in a dynamic macro environment, we continue to deliver durable growth driven by disciplined execution and the strength of IRX. Year-to-date, organic orders are up 2% with a book-to-bill of 1.04x. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline is robust with a strategic focus on targeted bolt-on opportunities that enhance our existing portfolio. Finally, our teams are focused on controlling what we can control and leveraging IRX to navigate the dynamic market environment. On Slide 4, our value creation flywheel remains a central engine of our performance, generating strong free cash flow that fuels disciplined high-return capital deployment and strategic flexibility. It is our ownership mindset, employees acting and thinking like owners that propels IRX and drives our outperformance. This combination of culture and system delivers durable value creation. We remain committed to our capital allocation strategy, using our strong free cash flow and disciplined M&A approach to pursue targeted high-return bolt-on acquisitions that add market-leading products and technologies to our portfolio. Year-to-date, we have executed with both pace and precision, closing 14 transactions with 9 additional transactions under LOI. These high-return bolt-ons averaging a 9.5x pre-synergy multiple expand our technological capabilities. Our disciplined M&A engine continues to compound durable above-market growth. We remain on track towards achieving our annual target of adding 400 to 500 basis points of inorganic revenue acquired on an annual basis. Our acquisition of Dave Barry Plastics is the second addition that we have made to our Life Science platform this year. A designer and manufacturer of custom cleaning room solutions, Dave Barry Plastics enhances our capabilities within life science applications in biopharma production and their products are highly complementary to our existing biopharma business. I will now turn the presentation over to Vik to provide an update on our Q3 financial performance. Vikram Kini: Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the third quarter, up 8% year-over-year or up 2% organically with a book-to-bill of 0.99x. Sequentially, from Q2 to Q3, we saw low single-digit growth both in orders and backlog. It is important to note that since the end of 2024, backlog is up high teens from a percentage perspective. Order performance remains positive with both our ITS and PST segments delivering year-to-date organic order growth in the low single digits. The third quarter finished largely in line with expectations for revenue, adjusted EBITDA and adjusted earnings per share, showing strong execution despite the dynamic market environment. The company delivered third quarter adjusted EBITDA of $545 million with an adjusted EBITDA margin of 27.9%. We have delivered solid sequential growth in adjusted EBITDA margin over the course of the year. Additionally, we have recently implemented proactive measures to optimize our cost structure. While these actions will have limited impact in 2025, they position us well heading into 2026. The year-over-year margin decline was primarily driven by tariff-related dilution and targeted investments to support organic growth. Corporate costs were $30 million, largely reflecting incentive compensation adjustments, which are aligned with performance. Our Q3 adjusted tax rate was 23.9% and adjusted earnings per share was $0.86 for the quarter, up 2% year-over-year and up 11% on a 2-year stack. On the next slide, free cash flow for the third quarter was $326 million and is approximately flat year-over-year on a year-to-date basis. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage increased modestly to 1.8x, driven by proactive capital deployment, including $249 million in M&A, $193 million in share repurchases and $8 million in dividends within the quarter. The $193 million in share repurchases made during the third quarter represented approximately 2.5 million shares. Year-to-date, we have deployed $460 million to M&A at an average pre-synergy adjusted EBITDA purchase multiple of approximately 9.5x and returned approximately $700 million to shareholders through share repurchases. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility. In addition, with our strong balance sheet, we will continue to evaluate more share repurchases without affecting our M&A bolt-on approach. I will now turn the call back to Vicente to discuss our segment results. Vicente Reynal: Thanks, Vik. On Slide 7, third quarter orders for IPS finished up 7%. Book-to-bill for the quarter was 0.99x, and it is 1.04x year-to-date. The segment delivered organic order growth in the low single digits, making the third consecutive quarter of positive organic order growth. Revenue declined slightly year-over-year, driven mainly by tough comps in renewable natural gas projects in the U.S., but momentum across other end markets remain solid. Adjusted EBITDA margins finished at 29%. It is important to note that we view the current dynamic tariff environment as a temporary impact on our margin expansion. Additionally, we remain committed to delivering our long-term Investor Day targets of 30% adjusted EBITDA margins by 2027, and we see continued opportunities for further expand margins within ITS over the long term. Moving to the product line highlights. Compressor orders were up high single digits, demonstrating continued momentum. Industrial vacuum and blower orders were up low single digits and power tools and lifting orders were up also low single digits. On a regional view, we saw orders in Americas and Europe, Middle East, India, Africa up high single digits and Asia Pacific up mid-single digits. We're very excited to announce a game-changing leap in our innovation journey. This month, we introduced in Europe our META Contact Cool Compressor. Packaged in a remarkably compact design, this compressor offers unmatched best-in-class efficiency, thanks to very advanced newly engineered airs, motors and packaging for enhanced performance. The META 45 produces up to an 11% increase in flow while occupying 40% less space. Additionally, the META compressor delivers a 14% reduction in energy consumption, delivering productivity and reducing total cost of ownership for the customer. Originally introduced under the CompAir brand, this product reflects Ingersoll Rand's multichannel, multi-brand approach as this technology will also be launched in 2026 under other key brands across the world. Turning to Slide 8. Q3 orders in PST were up 11% year-over-year with a book-to-bill of 1.01x. Organic orders were up 7%. Year-to-date, PST has delivered organic order growth of 2% with a book-to-bill of 1.02x. Third quarter revenue finished up 5% year-over-year, driven by a relatively equal balance of organic growth, FX and M&A. PST delivered adjusted EBITDA of $128 million, which was up 8% year-over-year with a margin of 30.8%. Adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year-over-year, demonstrating continued strong execution. We continue to see nice sequential improvements and remain well positioned to meet our long-term Investor Day target of delivering adjusted EBITDA margins in the mid-30s. For our PST innovation in action, we're highlighting our Flexan product line within the Life Science business. Leveraging its expertise, Flexan successfully transferred the manufacturing of critical Class III implantable silicon-based devices without any disruption to downstream manufacturing or patient care supply chains. As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing our value proposition in Life Sciences. As we move to Slide 9, our full year guidance for total revenue and our expectations for organic volume growth remain unchanged. The midpoint of our adjusted EBITDA guidance has been modified to $2.075 billion, largely driven by 2 main factors. First, the effect of incremental Section 232 tariffs and other tariff increases announced in August. Pricing actions have been executed to offset these incremental tariffs. However, based on the timing of customers' notifications and the timing of those pricing actions to convert from orders to revenue, we expect this pricing to be realized in 2026. And second, our backlog has continued to grow, resulting in a delayed realization of pricing actions previously taken in the second half of the year. These 2 drivers have been partially offset by lower corporate costs, which largely reflect adjustments to incentive compensation. As a result, the midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40. Our revised view of 2025 incorporates a prudent view of Q4 based on both the timing of tariffs and price realization. We expect both segments' adjusted EBITDA margin percentage to be approximately flat on a sequential basis compared to the third quarter. It is important to note that our current guidance does not reflect any of the potential tariff reductions, which were announced yesterday. For the rest of the components of our full year guidance, we anticipate our adjusted tax rate to be roughly 23.5%, net interest expense to be about $220 million and CapEx to be around 2% of revenue. We have updated our share count assumptions to approximately 402 million shares, which reflects the impact of the share repurchases made year-to-date. We remain committed to leverage our robust balance sheet to strategically deploy capital and drive value for our shareholders. Finally, on Slide 10. As we conclude this portion of the call, I want to emphasize that we remain nimble and prepared to adapt to a continued dynamic global market environment. Our teams continue to demonstrate resilience and execute at a high level, delivering strong results despite ongoing macro volatility. We remain disciplined in our approach to capital allocation, leveraging our robust balance sheet to generate durable long-term value for our shareholders. And to our employees, thank you for your continued dedication and focus. Your ownership mindset and the use of IRX enable us to stay agile and control what we can control, delivering another solid quarter of performance. With that, I'll turn the call back to the operator and open it for Q&A. Operator: [Operator Instructions] Our first question will come from the line of Mike Halloran with Baird. Michael Halloran: Maybe just some more color on what you're seeing from an end market perspective and how you see momentum playing out into 2026. If you could do that for both segments as well as maybe geographies. Thought process here, Vicente is you've kind of been floating around from an end market perspective for a little while now with choppy end markets. And so the question here is, do you see anything on the horizon that can break you out of that more systemically? Any green shoots and kind of just walk through the regions and some of the categories. Vicente Reynal: Yes, Mike, I'll say that, first of all, I'll say we're pleased how the organic orders have continued to progress sequentially so far in 2025. Clearly, they're going to translate here into the revenue. But I think from an order perspective, we -- this is the third quarter of positive organic orders. Q3, to put in perspective, it was positive across all regions, except basically the vacuum and blower business in Europe, which, as you very well know, this tends to be a little bit more lumpy, but we still expect that to be positive on a second half view perspective. So I would say that the trend continues to improve. Clearly, you saw how PST has continued to accelerate the orders momentum. And I think in the ITS, indeed, we're seeing some better sequential improvements. You saw sequential orders kind of improve Q2 to Q3. Having said this, I think we need to see a bit more clarity on the tariff situation to remove completely the uncertainty in the industrial landscape, which is what I would consider maybe the main drag. We think yesterday was definitely a very good step in terms of what the administration said about what the new tariff regime or new tariff policy could turn out to be. So -- but in the meantime, I think, Mike, we continue to focus on controlling what we can control. I think we're moving into 2026 with a heavy backlog. We expect a full year of 2025 book-to-bill to finish at or slightly above 1. You saw how Q3 also was basically approximately 1, which here, usually Q3 and Q4 tends to be below 1 in the 0.9 kind of range, but we did better than that. And there is also the benefit we're seeing in terms of the good exposure that we have to some secular trends, whether markets around wastewater or even the life science investments that we have done, whether it could be biopharma, medical device and some of the tools business, just to name a few, that could potentially help us offset some of that slower recovery in the core industrial end markets. But again, if you think about marketing qualified leads, the long cycle funnel, all of that continues to move in the right direction, and we see no cancellations whatsoever, which again bodes well for when things will start getting unlocked that we see that incremental momentum. Michael Halloran: And then just focusing on the margin commentary you made in the prepared remarks about confidence in the 2027 EBITDA margins for the 2 segments. Maybe just put that in context from 2 perspectives. One, as we get to '26, are we going to see a little bit of an uptick here as things balance out more on the price cost side and get back to that normal equation? And then maybe help just bridge what needs to happen for those 2 segments to get to those targets from here? Vicente Reynal: Yes. Look, I think as we said, so from an ITS perspective, well, let me just kind of first step back. I mean, we expect margin expansion to -- as we go into 2026 to maybe remain a little bit muted during the first half of the year as we will continue to come to tariffs, which have been put in place throughout 2025. We will continue to offset these costs through pricing as well as leveraging IRX for some of the self-help initiatives like I2V and also the operational tariff mitigation and continued target actions that we just talked about. I would also remind that gross margins continue to be flat to maybe slightly up. So obviously, that reflects the fact that we continue to -- we have continued to invest in SG&A, particularly more on the sales and the commercial initiatives and that you've seen that kind of some of the offsets. ITS is at roughly 29% EBITDA margin. I mean, we're basically right there in terms of what we said we could get by 2027. Clearly, no concern based on all the activity that we're doing. And you're seeing how the PST now at roughly squiggly 31% margin that we achieved here in Q3 and that has seen some good sequential improvement throughout every quarter in 2025, we see the momentum still relying there and the changes that the team are doing to continue to accelerate that. So again, that's why we get that level of confidence that by 2027, we'll definitely be able to get into the targets that we set out to be by -- during Investor Day. Operator: Our next question will come from the line of Julian Mitchell with Barclays. Julian Mitchell: Maybe I just wanted to understand, so the -- I suppose the guide midpoint this year suggests that you're running at kind of incremental sort of EBITDA margins, total company is sort of in the mid-teens this year in terms of the kind of drop-through from 5% sales growth into EBITDA. That's clearly well below what you should be doing. So maybe just parse out for us the main headwinds within that, that there's maybe an M&A headwind, the price/cost aspect, maybe something in mix. And when we're looking at next year, should we assume that EBITDA margins remain muted in the first half, kind of flat or down year-on-year as you try to work through the tariff headwind? Vikram Kini: Yes. Let me start with the first part of that. In terms of kind of the margin profile you've seen and kind of, as you said, the incrementals and things of that nature, I think there's probably 2 kind of probably, what I'd say, large drivers of that or 3 drivers of that here in 2025. First, clearly, the biggest driver is just the impact of tariffs that you've seen in the course of the year. Clearly, that's been probably the single biggest, what I would say, drag on the margin profile and obviously subduing what are typical incrementals. But that being said, as Vicente just mentioned, gross margins have effectively been flat across the board, which I think does speak to the proactive measures that the teams have taken with regards to pricing actions as well as kind of the general productivity equation. The other piece, Julian, there is what I would say, I wouldn't necessarily describe it as mix, but I would say it's probably the deleverage you're seeing on the organic volume drop, which is being offset by what I would say, M&A and FX. But clearly, those come in at slightly different margin profiles, particularly on the M&A as we kind of bring it in, in first year. Clearly, that comes in at a lower margin profile than the overall segment or the overall company, but one that we bring to generally fleet average by year 3, if not sooner. So those are probably the biggest drivers as well as what Vicente just said on the ongoing commercial investment. This is something we've been hyper focused on across the businesses as well as areas like demand generation to continue to drive ongoing organic growth. And then the second part of your question, yes, I think I'll go back to what Vicente just said, more muted impact as we move through the first half of the year, digest the comps on tariffs and things like that and then a little bit better coming out of that to the back half of the year. Julian Mitchell: That's helpful. And then just my follow-up would be, you called out price and the sort of lag on that working through on Slide 9. Just wondered if you could maybe kind of quantify for us that split of price versus volume in the third quarter and how we should think about the pace of price ramping up in the next sort of couple of quarters? Vicente Reynal: Yes, Julian, in Q3, from an organic growth, price was roughly 3%, 2.7% to be exact for the total company. And as you think about the change in the fourth quarter guide, is largely driven by 2 factors. I mean, 2/3 is the change driven by the incremental effect of the recently enacted tariffs that we just talked about. And the remaining 1/3 is the change driven by what we saw in Q3, which is the delayed realization of the in-year pricing due to the backlog growth. Vikram Kini: And maybe, Julian, just to add another point to that. I think in Q4, you should expect to see pricing from a percentage perspective be relatively consistent to what you saw there in Q3, the number Vicente I just mentioned. Operator: Our next question is from the line of Jeff Sprague with Vertical Research. Jeffrey Sprague: Maybe just come back to tariffs. Just a simple question. Can you just tell us what the gross headwind is and what the incremental impact of the 232s in August were? Vikram Kini: Yes, Jeff, I'll take that one. So I think as you remember, in our last call, we said approximately $80 million in year. What we'll say here is that, that number is slightly in excess of $100 million at this point in time. And clearly, as Vicente mentioned in the prepared comments, we've taken the requisite price actions. It's just a matter of timing, and we expect that to kind of catch up as we move into 2026. Jeffrey Sprague: Yes. And then I understand the comment about kind of backlog and taking a little while to come through and maybe that impact on the first half. But also, you do have a lot of shorter cycle business where arguably the price should be coming through as soon as maybe even the fourth quarter, but certainly the first half. I mean, correct me if I'm wrong, are there some other kind of short-cycle versus long-cycle backlog conversion dynamic that we should be thinking about? Vikram Kini: No, Jeff, I think the way you're thinking about it is correct. I mean, remember, we've taken pricing actions. It's not just been one pricing action over the course of the year. It's been a multitude of pricing actions just in relation to the tariffs and kind of how we operate as a global business. To your point, the short-cycle business does exist. It's -- but still, there's typical cadence and lead time on those orders. So I think the way you framed it up is correct that with backlog having grown, we do expect that pricing to come through. It's just going to come through a little bit later than expected, and that's why we say this will catch up here as we move into 2026. Operator: Our next question will come from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Vik, can you give us a little more color regarding how your end market verticals are doing in ITS, just focusing on clean energy. As you know, clean energy was the largest vertical of ITS if we go back to '23. And today, you mentioned renewable natural gas weakness. So could you give us some more color on that vertical? How much of a drag it is right now? And would you say comps begin to get a lot easier in '26? Vicente Reynal: Yes. Andy, as I mentioned on the call, it was definitely a drag as you think about the ITS, particularly in the America or call it, North America. I'll say Q3 was, from a revenue perspective, the one that we now comped that out. When you look at the orders, in reality, the ITS Americas, North America particularly was up mid-single digits from an organic perspective, orders. So that actually, as you can see, shows very well from that perspective that despite that industrial market, the Americas team delivering positive organic orders. And in addition to that, as compressors being up on a high single-digit basis too as well from orders. So I'd say that some of the tough comps on clean energy are kind of gone. I think clean energy, as we said before, continues to be a good end market when you think about countries like Brazil or even some countries in Europe and even India that India is now pushing -- the government is pushing for some major investments in biogas. So it's all still a good end market. I think the large tougher comps that we saw due to the acceleration of IRA back last year that did not continue to happen this year is gone at this point in time. Andrew Kaplowitz: And then PST orders, as you said, were up 7%, which is a relatively significant inflection versus last quarter. Was that just ILC Dover becoming organic and having easier comps? Or did you see more material improvement across the portfolio? And could you comment on your legacy Gardner Denver Medical business and how that's doing? Vicente Reynal: Yes. I'll say it was a good combination of all the different businesses within the PST playing fairly well. I mean, obviously, some better than others. But clearly, the Life Science platform, which includes the legacy Gardner Denver Medical performed very well. But even also on some of the other kind of short-cycle industrial businesses, we saw some good momentum too as well. So I'd say very evenly good performance across the entire segment. Operator: Our next question will come from the line of Nigel Coe with Wolfe Research. Nigel Coe: I just -- I don't know if you want to touch this third rail or anything, but any initial thoughts on 2026 based on what you've seen in the backlog, customer conversations, MQL momentum. I think if I just unpick what you kind of talked about in response to an earlier question, gross margins, I think you said flattish in '26, that imply overall margins flat in '26, but any color would be helpful. Vicente Reynal: Yes. Nigel, I'll say, as we kind of look into 2026, again, first of all, we're positive, enthusiastic about continued momentum on the organic orders, and particularly here in the third quarter, where we saw organic orders really across all regions, all businesses, except with one, and we call it out as that to be basically a timing perspective. And so as we move into 2026, yes, I mean, we're very pleased with how backlog continues to progress and build. We were expecting that full year book-to-bill is going to finish slightly above 1, which again, that implies very good momentum here still in the second half, which typically book-to-bill is less than 1 in the second half, but we're seeing -- we expect that to be slightly different here in 2025. And so I think at this point in time, too early to call it out. We're going to provide you clearly more detailed commentary as we go into our next call. But so far, it seems to be more positive. Nigel Coe: Okay. That's great. And Vik, you called out $100 million of in-year tariff inflation. Again, how does that look for 2026 when we just annualize and all the inventory turn stuff? So the full kind of -- the full sort of impact in 2026. And is it just price and surcharge actions you're taking here? Or are you adjusting supply chains to mitigate some of these 232 tariffs? Vikram Kini: Yes, Nigel, so I will start with the kind of the second part of that question first. Clearly, it's a combination of both. I think as we talked about earlier in the year, we kind of took a dual approach surcharges and kind of more list price actions. I would say that's kind of more fading off to now more just everything kind of converting to normal course list prices, kind of which is what we've indicated kind of originally. Absolutely, we are working on what I will call operational tariff mitigation efforts, and it takes on kind of all the forms you would expect in terms of whether it be resourcing, things around small, I'd say, supply chain from an intercompany perspective, things like that. And so right now, we expect that to probably have a little bit more of a meaningful impact into 2026 just because it takes time for those to realize and for inventories to bleed down and for those changes to happen. And clearly, there's been a lot of change over the course of the year. As far as the 2026 impact, I'll just say, clearly, numbers are changing quite considerably. So we're not going to get into trying to size, quite frankly, the gross impact into 2026 at this point in time just because even frankly, as of yesterday, things have continued to change. But I think we feel quite comfortable that with the pricing and the operational mitigation actions we kind of have in place that we are -- we have those covered. I will also go back to kind of what Vicente mentioned during the prepared comments that the way we framed up Q4 and kind of the tariff numbers that have been embedded, we do view as, I'll call it, a bit of a worst-case kind of view at the point in time and one that we'll obviously continue to monitor, particularly as the macro environment continues to change quite considerably. Operator: Our next question will come from the line of Joe Ritchie with Goldman Sachs. Joseph Ritchie: I want to maybe pull on the thread that Jeff started earlier on how pricing kind of builds and how your backlog builds typically through the year. And so typically, the way I think about it is like you've got your backlog build in the first half, then you ship the backlog in the second half. And this like interplay between tariffs and pricing and being able to kind of offset the increased tariffs. I just -- is it because like in the first half, as you're building your backlog, you're not contemplating the type of cost environment that has played out now through the second half of the year. And so you're off sides to some degree. I just want to make sure that I understand that correctly. Vikram Kini: Yes, Joe. So I think a couple of things to think about. I think the way you're framing it out is the right way to think about it. As just kind of a reminder, the book-to-bill, you typically see above 1 in the first half, you typically say below 1 in the second half. That kind of gets to a rough average of 1 for the year. And I think as Vicente mentioned here, what is kind of the change at this point in time is we are definitely seeing book-to-bill kind of steady around that 1x number here in the back half of the year. So what's happening here is the typical backlog burn that you see in the back half of the year is not as big as it typically is. And so what's happening here is as we've done pricing increases over the course of the year, I'd say more of those orders with recent price increases are going into backlog, whereas we would typically have seen those flush through the second half. And then clearly, with the -- I'd say, the Section 232 tariffs and quite frankly, all the other tariff-related actions that happened at that same time with India and Brazil and some of the other kind of components that happened in late August. So as Vicente mentioned, as we've now taken the measures to counteract those with the normal notifications to customers and then the typical order to revenue conversion, that's just now pending now into 2026. The good news is, obviously, we feel like we've taken those actions. We see those actions coming through when we look at bookings and things of that nature. So we feel pretty confident moving into 2026 that, that equation will kind of get, I'd say, back more to normal. Joseph Ritchie: Got it. That's helpful, Vik. I guess maybe just then the corollary to this. So what happens in an environment where tariffs go away? Like do we see like will we see a meaningful expansion in your profitability and your margins? I know you're using both pricing and surcharges. But in an environment where you have materially lower tariffs going forward, does that impact your business? Vicente Reynal: Well, Joe, so pricing will be sticky. So pricing will not -- we have never done price reductions based on this. And as we said before, I mean, these -- all any surcharges have been translated into price. So the pricing will definitely stay. What we have always said is that all this kind of tariff pricing that we have been doing is being based on a 1:1 ratio to just primarily cover the cost. So maybe as tariffs will go away, there could be a benefit. Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: Could you maybe provide some color or just numbers on how organic ITS orders came in by region, just to get a sense for some of the industrial momentum we're seeing across the geographies? Vicente Reynal: Yes, sure. I'd say from an Americas perspective, organic orders in Q3 ITS, Americas was up mid-single digits. China or Asia Pacific was also positive with China actually up low single digits, the rest of Asia Pacific up mid-teens. Then EMEA, Europe, Middle East, India was basically down, say, high single digits. And as I called out on the -- or mentioned on the call, really driven by timing on our industrial vacuum and blower business, which is heavily project related. But if you look at India, India continues to be very positive, and it was just basically solely co-located to one business in Europe that it is a matter of timing. Christopher Snyder: I appreciate that. And then maybe just to follow up on some of the tariff price cost commentary from earlier. I guess it seems like if the tariff headwind this year is going from $80 million to something over $100 million, it seems like there is very significant wrap on that into next year if we isolate that $20 million, $25 million incremental into just Q4. So I guess, will -- is the tariff headwind bigger next year than it is this year? And then just kind of related to that, like this 232 does feel very incremental. I mean is there any reason why the company is deciding to not use surcharges or just kind of quicker price action this time around relative to what we saw in the spring? Vikram Kini: Yes, Chris. So I think to your first part of the question, do we see a wraparound impact into 2026 on the tariffs? Yes. And that's why we said we do expect margin expansion in the first half of the year to be relatively muted. But in the same -- at the same time here, we feel like we've taken the requisite pricing actions and those are coming through. Those are in backlog and will continue to come through into the first part of 2026. As far as the list price versus surcharge equation, listen, as we said before, we have done an equitable mix of those, I would say, over the course of this year. I think it's kind of the norm, particularly as things start to stabilize a little bit more. And I do think we're going to start to see a little bit more stabilization, at least at this point in time moving forward. It's kind of always been the intent to move those to more list price actions. And even surcharges, remember, they don't happen instantaneously, right? There's an appropriate notification and things like that. So in that respect, surcharges kind of mimic list price in the context of the timing and realization. But again, it's always been our intent to kind of migrate to that list price equation, and that's exactly what we're doing at this point in time. Operator: Our next question will come from the line of Stephen Volkmann with Jefferies. Stephen Volkmann: I hope you don't mind, I'm not going to ask anything about tariffs. Just quickly, Vik, I think you mentioned in your comments some additional cost actions. And I just wanted to make sure, is there something else going on with footprint or headcount or anything? Or is it kind of what you've already outlined? Vikram Kini: Yes, Steve. So I would say we -- if you see the financials, we obviously did record a specific charge with regards to restructuring actions. I think it speaks to -- in the prepared comments, we spoke about what I'll call some proactive cost measures that we're taking as a result kind of the environment and what you would expect. So I think the simple way to say it here is we are -- we have taken actions. I would call them somewhat normal course in the context of prudent cost measures in this environment. I would call them largely headcount oriented as opposed to footprint or anything else like that. And the impact of that is, I would say, more pronounced into 2026 just based on the timing of when we have taken set actions and I'd say the normal course in terms of how kind of some of those restructuring actions typically play themselves out. Stephen Volkmann: Great. Okay. And then maybe, Vicente, how should we think about -- we've seen some very big announcements relative to pharma and some of the life sciences sort of reshoring that may be happening here. I'm just curious, are you seeing sort of quoting activity? Have you had any kind of orders that you might ascribe to that trend? And maybe also just comment on kind of your fair share of that kind of end market. Vicente Reynal: Yes, Steve, it's definitely real. We're seeing it. We're actually in very close conversations with large companies. Obviously, it doesn't happen immediately, as you can imagine, it takes time. I think you saw maybe one of the larger life science companies say that they expect revenue from those to be more in like '27, '28. We'll see. But yes, it's real. I think the exciting piece here is that a lot of the investments are happening in what they call APIs, biopharma APIs. And a lot of it is kind of more what around maybe could be small molecule APIs, which this plays very well to the investments that we have done with ILC. And so we're leveraging the customer intimacy that, in this case, ILC has to find also ways on how can we expand the portfolio of offerings that we can do to some of those companies such as vacuum pumps or even oil-free compressors in this case. So I think very -- it's exciting to see, and it could be a good growth vector for us here as we move forward. Operator: Our next question will come from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: I wanted to start on PST. And it looks like over time, the sort of coincident correlation of kind of orders and revenue has gone up, meaning a little bit more book and ship within the quarter. And so if, in fact, that is happening within the business and anything about mix that would be driving that? And then tying that into the comment about some delayed realization of price because of backlog growth, if you could just expand on that, if that's sort of certain mix within the portfolio that's seeing that. Vikram Kini: Sure, Joe. So I think your comment around the kind of PST composition and things of that nature, I think it is a fair statement. This business, not too dissimilar to ITS has a distinct component that's kind of short to medium cycle. And then there is projects that are typically longer cycle in nature. So I think that's a fair statement. I think particularly in some of the PST or some of the life sciences businesses, that tends to be a touch more book and ship or shorter cycle comparatively speaking. So I think that's kind of a fair statement. Now as far as the kind of backlog dynamics and pricing that we've mentioned, I would say there's a multitude of factors driving this. But I think without question, it's probably a little bit more pronounced on the ITS side comparatively speaking to PST. I think that's clearly a fair statement in the context of where you're seeing that pricing delay in terms of the realization. So as far as PST though, I mean, I think the business, as we mentioned, has continued to perform quite well. I think Vicente had obviously made some remarks about the organic order momentum. But clearly, this is a business that's continued to see good, healthy both year-over-year and sequential margin expansion, 80 basis points year-over-year, 130 basis points sequentially. It's playing close to now about 31% EBITDA margins. We would expect Q4 to be in a similar zone. And obviously, the year-over-year will look quite healthy given where Q4 PST margins were last year. So we feel continued, I'd say, optimism on where PST is trending. And I'd say they're doing the requisite work on the tariffs and mitigation as well. Joseph O'Dea: That's great color. And I guess it means this isn't necessarily a persistent shift. It's just a matter of as projects come back then you could see a little bit more of a return to maybe a 1 quarter lag. It's just lower project activity right now would be a factor. Vikram Kini: Yes. Joseph O'Dea: Okay. And then just in terms of appetite on the inorganic side and as we see kind of the broader deal environment heating up, how you're approaching the bolt-on versus larger deal opportunity kind of set? And how you think about something like appetite for size at the ILC or larger level in the next 12 to 18 months versus kind of laser-focused on bolt-on? Vicente Reynal: Yes. I think right now, we continue to be very laser-focused on the bolt-ons. You saw how many we have done so far this year. We continue to have 9 under LOI, and we're finding the investments to be excellent. I mean, pre-synergy multiple of average 9.5x that we know can deliver mid-teens ROIC by year 3 on all these bolt-ons. So I think that for right now, as we always said, every 3 to 5 years, we might do a larger and then we do more bolt-ons. That's exactly what we're doing here with -- we did one like ILC last year, and now we're doing bolt-on now, where we have done 3 bolt-ons into that platform. Operator: Our next question will come from the line of Nathan Jones with Stifel. Nathan Jones: I guess first question, you guys had talked over this year and probably late last year as well about elongating quote-to-order times. Can you talk about any changes that you've seen there in aggregate for the business or any pieces of the business where you may have seen that either getting worse or getting better as a leading indicator for more customer confidence as we head into next year? Vicente Reynal: Yes, Nathan, it is definitely not getting worse. And I think maybe I would call it out to be more like stable, a little bit of a few pockets of getting better. But right now, no incremental change that we are seeing. Good news again what we have in the funnel is not getting... Nathan Jones: You said what you have in the funnel is not getting canceled? Vicente Reynal: Yes, that's correct. Nathan Jones: And I think the other -- one of the other things that you talked about as a headwind when demand was maybe a little bit healthier was a lack of engineering resource, a lack of front-end kind of ability for customers to get these projects designed, get them moving as a bottleneck. With a little bit lower demand that we've seen here, has that alleviated at all? Or do you still see that as a headwind to maybe some reacceleration when customer confidence improves? Vicente Reynal: I would say [indiscernible] has alleviated. But keep in mind that some of these engineering firms, they tend to also work on a lot of the hyperscaler investments that are happening. And so it goes through the same, in some cases, areas but it's not as what we might have seen before. I would say slightly better. Operator: Our next question will come from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just a couple of tie-ups. We've obviously gotten through a lot here. I guess maybe piggybacking on to Steve's question about the actions that you're taking with respect to costs. Anything on sizing that, Vik, the impact as we kind of roll into 2026? Is it like one-for-one versus what you spent? Just kind of get a sense of that. Vikram Kini: Yes. So typically speaking, that's probably not too far off in terms of what you've seen. So typically speaking, on headcount actions, it's a mix across the globe. So roughly speaking, a 1-year payback or somewhere in that general ballpark is not that far off. So that's probably a pretty decent proxy to use as you think about moving into next year. Nicole DeBlase: Okay. Perfect. And then with respect to buybacks, I know if we go back to the second quarter call, you talked about doing up to $250 million additional buybacks in the back half. We're now at $193 million of that as of 3Q. So any thoughts on appetite for continued buybacks during the fourth quarter? Vicente Reynal: Nicole, we definitely have the strength in the balance sheet to be able to do more. So as we continue to see more continued dislocation, yes, I mean, we will be doing more in addition to continue to do the M&A. I mean, so we believe we can continue to do both. Operator: Our next question will come from the line of David Raso with Evercore ISI. David Raso: I was curious, the competitive dynamic with the recent Section 232. If I'm correct, it includes some compressors that maybe weren't involved before. Just curious how that plays into your competitive dynamic and maybe also thinking through your ability to make some of these price increases stick or have maybe further headroom to raise price? Vicente Reynal: Yes. No, David, great question. I mean if you were to look at the details of the 232 that happened here in August, it was basically removing any of all the exclusions that were on air and gas compressors. So obviously, that puts a strain not only on some of our components, but also a lot of the competitors that kind of have to import product from other countries. So with our in region for region, I mean, that kind of offers eventually a bit of a better competitive advantage for us. And it's still too early to see how this will play out. But obviously, we're taking this as a great opportunity for us to accelerate our market share and penetration. David Raso: And when it comes to the backlog, I appreciate it's not easy to do with customers, but is there any opportunities to reprice some of the longer-dated backlog? Vicente Reynal: The very long cycle projects, the projects that tend to be 12 to 18 months, those have some clauses that as their changes that we can actually make adjustments based on special alloys and things of that nature. So I would say that from a long cycle, clearly, we're not worried about that. I also -- I will say that on the long cycle, we have the opportunity to work with the supply chain to find ways on how we can mitigate the cost. But I say -- so that is mainly on the long cycle. The short and medium cycle, it's difficult to go back and put anything in the contract and have to go back and change. I mean you're reopening the invoice, reopening the purchase orders, and it's just a bit more messy. Operator: And this concludes our question-and-answer session. I'll turn the call back over to Vicente for closing comments. Vicente Reynal: Thank you, Regina. I just want to say one more time, thank you to our employees. I mean, in this very dynamic macro environment that we're playing, we continue to deliver durable growth that we believe is done by a very disciplined execution and strength of IRX combined or compounded with our ownership mindset. So thank you to our employees, staying focused on controlling what we can control and leveraging IRX to navigate this dynamic market environment. We believe we're making the right investments for the long-term future, and we'll definitely see long-term value creation. Thank you again. Operator: This will conclude today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Standex International Fiscal First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Note that this call is being recorded on Friday, October 31, 2025. And now I would like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead, sir. Huang Howe: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes, adjusted EBIT, EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. David Dunbar: Thank you, Chris. Good morning, and welcome to our fiscal first quarter 2026 conference call. Following record operating performance in fiscal year 2025, our first quarter performance provided a strong start to the fiscal year, positioning us well to exceed our previously provided guidance of greater than $100 million of incremental sales in fiscal year 2026, which includes organic growth in our core businesses as well as the full year impact of acquisitions. First, I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal first quarter 2026 results. Now let's take a look at the results beginning on Slide 3. In the first quarter, sales increased 27.6%, contributing to this growth were new product sales and sales in the fast growth markets. New product sales grew more than 35% to approximately $14.5 million. Sales in the fast-growth markets were approximately $62 million or 30% of total sales. Orders of approximately $226 million were the highest quarterly intake ever, setting us up nicely for the balance of the year. Despite Electronics showing an organic decline in the quarter, its book-to-bill ratio remains above 1 and organic orders were up approximately 8% year-on-year. We remain on track for mid- to high single-digit organic growth in Electronics in fiscal 2026. Amran/Narayan Group continues to perform ahead of our expectations. In the quarter, it delivered record sales of greater than $35 million. I'm excited to announce that in the quarter, we kicked off operations in Croatia and Mexico. Adjusted operating margin of 19.1% was up 210 basis points year-on-year. This operating performance, along with our cash generation and cash repatriation enabled us to lower our net leverage ratio to 2.4x. We are raising our fiscal year 2026 sales outlook. Barring unforeseen economics, global trade or tariffs-related disruptions we now expect revenue to grow by over $110 million, $10 million more than we communicated last quarter. The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets. In particular from the Amran/Narayan Group, which we now expect to grow more than 20% year-on-year in fiscal 2026. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth. We launched 4 new products in the first quarter and remain on track to release more than 15 new products in fiscal 2026. Sales from fast-growth markets are now expected to grow over 45% year-on-year and exceeds $270 million. On a year-on-year basis, in fiscal second quarter 2026, we expect significantly higher revenue driven by mid-single-digit organic growth and contributions from recent acquisitions and similar adjusted operating margin due to higher growth investments and less favorable product mix. On a sequential basis, we expect slightly higher revenue due to a higher contribution from fast growth end markets and new product sales and realization of pricing initiatives. We expect slightly lower to similar adjusted operating margin due to increased investments in growth and less favorable product mix. Please turn to Slide 4, which discusses how grid and new products support the increase in our sales outlook. We celebrated a significant anniversary on Wednesday. A year ago, the company made the largest acquisition in its history by acquiring the Amran/Narayan Group, a leader in low and medium voltage instrument transformers. We could not be more pleased with its integration, the seamless cultural fit and business results. Building on the shared success, we are renaming Amran/Narayan as Standex Electronics Grid within the Electronics business segment. Since we owned Amran/Narayan, sales over the past 12 months have grown nearly 35% versus the 12 months before we acquired. Looking even further back, sales are up nearly 75% versus 2 years ago. This growth continues to be driven by robust end market demand within data centers, electrification and grid modernization. To support future demand, we have expanded geographically in Croatia and Mexico. While Grid has provided a step change to our sales into fast-growth markets, I'm also excited to show here how fast growth markets as a whole has scaled, showing that there are several pathways for growth, including commercialization of space and defense. These factors give us confidence to raise our expectations to $270 million. In addition to the fast growth markets, new products are off to a strong start. We launched 4 new products in fiscal first quarter and are on track to launch more than 15 new products this fiscal year. The majority of these new products are within fast-growing end markets or new product categories and are expected to deliver margins above our core products. New product sales grew more than 35% to approximately $15 million in the fiscal first quarter and are expected to grow more than 40% to approximately $78 million in the fiscal year. These areas provide us with confidence to raise our fiscal 2026 sales outlook. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Ademir Sarcevic: Thank you, David, and good morning, everyone. Let's turn to Slide 5, first quarter 2026 summary. On a consolidated basis, total revenue increased approximately 27.6% year-on-year to $217.4 million. This reflected 26.6% benefit from recent acquisitions, organic growth of 0.6% and 0.4% benefit from foreign currency. First quarter 2026 adjusted operating margin increased 210 basis points year-on-year to 19.1%. In the fiscal first quarter, adjusted operating income increased 43.3% on 27.6% consolidated revenue increase year-on-year. Adjusted earnings per share increased 8.2% year-on-year to $1.99. Net cash provided by operating activities was $16.8 million in the first quarter of fiscal 2026 compared to $17.5 million a year ago. Capital expenditures were $6.4 million compared to $6.7 million a year ago. As a result, we generated fiscal first quarter free cash flow of $10.4 million compared to $10.8 million a year ago. Now please turn to Slide 6, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue of $110.6 million increased 42.2% year-on-year driven by 45.5% benefit from acquisitions, partially offset by organic decline of 3.1% and 0.1% impact from foreign currency. The organic decline was primarily due to a closure of one of our facilities and customer delays for alternate site approvals. Adjusted operating margin of 28.8% in fiscal first quarter 2026 increased 510 basis points year-on-year due to contribution from recent Amran/Narayan Group acquisition, pricing and productivity initiatives. Our book-to-bill in fiscal first quarter was 1.06 with orders of approximately $117 million. Organic bookings grew approximately 8% year-on-year. Sequentially, in fiscal second quarter 2026 we expect slightly higher revenue, reflecting higher contribution from the core business, partially offset by lower Amran/Narayan Group sales due to holidays in India. On a year-on-year basis, we expect mid- to high single-digit organic growth. We expect similar adjusted operating margin sequentially driven by product mix and continued strategic growth investments. Operations have kicked off in Croatia to serve our customers in Europe and support growing power requirements for data centers and grid expansion and upgrades in the region. Please turn to Slide 7 for a discussion of the Engineering Technologies and Scientific segments. Engineering Technologies revenue increased 45.6% to $29.9 million driven by 32.4% benefit from recent McStarlite acquisition, organic growth of 12.7% and 0.5% benefit from foreign currency. Organic growth was due to strong demand across space, defense and aviation end markets. Adjusted operating margin of 16.8% decreased 270 basis points year-on-year primarily due to lower margins from a favorable project mix in our recent acquisition. Sequentially, we expect moderately higher revenue due to growth in new product sales and similar adjusted operating margin. Scientific revenue increased 9.9% to $19.5 million due to 18.6% benefit from recent acquisition, partially offset by organic decline of 8.7% primarily due to lower demand from academic and research institutions that were impacted by NIH funding cuts. Adjusted operating margin of 25.3% decreased 300 basis points year-on-year due to organic decline. Sequentially, we expect similar revenue and slightly lower adjusted operating margin due to higher contribution from Custom Biogenic Systems acquisition and increased tariff costs. Now turn to Slide 8 for a discussion of the Engraving and Specialty Solutions segments. Engraving revenue increased 7.4% to $35.8 million, driven by organic growth of 5.6% from improved demand in Europe and 1.9% benefit from foreign currency. Adjusted operating margin of 19.1% in fiscal first quarter 2026 increased 50 basis points year-on-year due to higher sales and realization of productivity initiatives and restructuring actions. During the fiscal first quarter, we announced the closure of 4 sites, optimizing the footprint in the United Kingdom, United States, Italy and China resulting in approximately $5 million of restructuring charges. These actions are projected to yield approximately $5 million in annualized cost savings once fully implemented, and we expect to start realizing savings during the second half of fiscal year 2026. The segment is now substantially done with restructuring activities and is well positioned to serve its customers. In our next fiscal quarter, on a sequential basis, we expect moderately lower revenue and slightly lower adjusted operating margin due to project timing. Specialty Solutions segment revenue of $21.7 million increased 2.6% year-on-year, primarily due to slightly improved demand in Hydraulics. Operating margin of 13.3% decreased 350 basis points year-on-year. Sequentially, we expect slightly higher revenue and operating margin. Next, please turn to Slide 9 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $198 million. At the end of the first quarter, Standex had net debt of $446 million compared to net cash of $15.6 million at the end of the fiscal first quarter 2025. Our net leverage ratio currently stands at 2.4x. We paid down our debt by approximately $8 million during the fiscal first quarter 2026. In fiscal second quarter 2026, we expect interest expense between $8 million and $8.5 million. Standex's long-term debt at the end of fiscal first quarter 2026 was $544.6 million. Cash and cash equivalents totaled $98.7 million. We declared our 245th quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate our leverage ratio will further decline through fiscal year 2026. I will now turn the call over to David for concluding remarks. David Dunbar: Thank you, Ademir. Please turn to Slide 10. I'm very pleased to see continued momentum in the top line in the first quarter as new product sales grew more than 35% and as fast growth markets constitute a growing portion of our revenue. The first year performance of Amran/Narayan Group now renamed as Standex Electronics Grid was above expectations and is expected to grow more than 20% in fiscal 2026. The growth within grid and from new product sales helped support a record order book in the fiscal first quarter, leading us to raise our sales outlook for fiscal 2026. We remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions. Operator: [Operator Instructions] And your first question will be from Chris Moore of CJS Securities. Christopher Moore: Congrats on another good quarter. It looks good. At some point, I don't know, either Q3 or Q4 call, you talked about Standex being roughly 2/3 of the way in this optimization journey other than potentially selling 1 of the business segments, what are the biggest areas of focus to help this further on the optimization journey? David Dunbar: Well, I think we've got 2 things going on. There will be ongoing -- some ongoing portfolio work, although the greatest value creation will come from realizing the potential of the organic growth initiatives. It's taken years to ramp-up new product development. New products are coming out. We've repositioned the business into faster-growing markets. And I don't know what's higher than 2/3, it's 4, it's 5/9s or something like that. I don't know, because you see the momentum of new products and fast-growth markets, what -- this year, $340 million of our sales will come from new products and fast-growth markets. So that is getting to be big enough to be able to weather the storm of any irregularities in our core markets. So in terms of optimizing our business model, we're well positioned to grow in all conditions. I think we're almost there. In the next year or so, that momentum will get us there. And on the portfolio optimization, as you know, we really only have good businesses in the portfolio. And if the right opportunity comes along to simplify, we'll do it as we have in the past. Ademir Sarcevic: Yes. And Chris, as you know, a track record, we'll continue doing what we have done in the past, and we have some really exciting platforms. And to David's point, some really good assets that at some point in the future, we may look to monetize, but we like what we have. Christopher Moore: Got it. Very helpful. You talked about new products a couple of times, 15 this year. Are there a few that really kind of stand out in terms of -- that are being introduced this year? David Dunbar: Well, being introduced -- we have some exciting products in electronics. We had a couple released in the first quarter, that will go into relays and into test and measurement applications. And test and measurement is an end market, we don't talk a whole lot about, but it is driven by electrification, by grid, by data centers. Every time you generate a new generation chip or a new EV, you need test equipment to test the production and this test equipment has a lot of relays in it. And a lot of these relays are the relays we make. So we have 2 new products that are released this quarter to go into that end market. We also in Scientific. We're excited about the release of the ultra-low temperature freezer, which the first version was released last quarter, and we'll continue to expand that. That gets the scientific business into its largest -- into the largest end market that it serves. Christopher Moore: Perfect. And maybe just last 1 for me. Obviously, Amran/Narayan is performing exceptionally well, 30% growth. You're talking about 20% this year. I know you don't want to get ahead of yourself. Is there -- any -- are you seeing any slowing down in growth at this point in time? And you just opened up Croatia, it sounds like there's lots of opportunities there? David Dunbar: Well I would tell you, Chris, we are not seeing a slowdown in growth. Although we continue to look forward -- we're maybe somewhat conservative. But I'll tell you, in this coming quarter, we have a lot of meetings with customers. We've got the Croatia site ramping up. We've freed up some space in our Mexico clients and electronics, which we are now devoting to produce product for Amran, which will give us more capacity there. So over the next few months, we'll develop a better view of the outlook -- and of course, we'll update that in our next earnings release in February. But the end market remains strong, driven by electrification, modernization of grid and continued spend in data centers. So we see no slowdown right now. Ademir Sarcevic: Yes. And Chris, the bookings are very strong. We just posted the highest sales quarter in Amran/Narayan or Grid, as we call it today, of $35 million. The bookings were still over 1. Over 1 book-to-bill. So the momentum continues. Operator: Next question will be from Ross Sparenblek at William Blair. Ross Sparenblek: Sticking with electronics here. Can you maybe just help us think about some of the momentum you're seeing, particularly in the legacy business, what end markets, what stands out, it looks like from what we can tell those orders have really started to pick up the last 5 quarters, but again... David Dunbar: Yes, just a couple of things. We communicated the book-to-bill and the bookings in the quarter were both very good. And remember, about 80% of what we sell in electronics goes to OEMs. So there's a longer cycle to convert the bookings to shipments. Strong bookings in defense in the legacy magnetics business. In the switches and sensors business, we're seeing strength in North America and Asia geographically. We're seeing strength in test and measurement end markets and also the distribution market is up, which is kind of a reflection of general kind of general end markets. Ross Sparenblek: Yes. I mean distribution feels like it's been doing well for a while. When we think about kind of the mix profile the backlog is magnetic the biggest piece of growth being the lower mix product line? David Dunbar: I don't think so. I don't think it's significantly -- I think both SST and magnetics order growth was similar. Ademir Sarcevic: Yes. I think, Ross, every -- if you look at magnetics or sensors and switches or Amran/Narayan, for that matter. The book-to-bill for all of those businesses has been over 1. And it's been actually, September was the strongest booking month we had in a very long time in all of those 3 businesses. And October is actually coming in very strong. So the strength is kind of across the board right now. So when we talk about having that mid- to high single-digit organic growth this quarter in Electronics, it really will come from all parts of the business. Ross Sparenblek: Okay. That's great to hear. I mean we think about kind of the lead times on converting this and then maybe the incrementals and the type of operating leverage we should expect for the legacy business given the prior cost out as we think about the second half of 2026? David Dunbar: Yes. In general, if you think about the legacy business, if you just lump together on average, the switches and sensors and magnetics business. Orders in the quarter about 30% convert within 3 months and then maybe another 30% in the following quarter and the remainder beyond Q3 and beyond? Ademir Sarcevic: Yes. And I think, Ross, from a margin standpoint, which I think was. David Dunbar: It was the second part. Ademir Sarcevic: Second part of your question, we really want to get -- obviously, there's going to be some margin improvement as we continue through the year. But we're also putting some money into investments. For example, we just started up the Croatia site. There will be some initial investments we're going to have to put through before that site gets ramped up. So we'll see margin improvements, but that will be offset with the growth investments we have to make because we really want to make sure that this business continues to grow at a good organic growth rate going forward. Ross Sparenblek: Yes. I definitely appreciate that. But if I recall, you guys have taken out like something like $7 million or $9 million of prior cost out actions that we haven't really seen because of the destocking over the last couple of years. So there should be some natural lift there, right? Ademir Sarcevic: Correct. Yes. Operator: The next question will be from Mike Shlisky at D.A. Davidson. Michael Shlisky: I have noticed on social media and electronics. I did see the Grid brand being launched at least on social media not too long ago. But is your effort -- is the effort really not just across Amran, or across the entire electronics segment? Is there 1 brand being presented to the entire customer base? I wasn't sure if it was beyond just the Amran. Just can you comment on what your plans are for... David Dunbar: Yes, yes. I'm glad you asked that, Mike, just to make Yes. I'd like to make sure there's no confusion about that. After we acquired Amran/Narayan, we looked at that end market and thought there's a lot more we want to do with this business. And calling it Amran/Narayan was too narrow. That's a great trade name. Customers know Amran/Narayan. So internally, we started calling it Grid technologies because there's other acquisitions we can make. We have some product development underway that will get us into new product segments. So Grid is a better name for that business. And then we looked at the others and that, well, the switches and sensor business, SST, that name is obvious -- may not be obvious to people. And the magnetics business is even less accurate. So we step back and said, how should we refer to each of these businesses, so we chose a Grid for the -- what is now the Amran/Narayan business, but we'll grow into a broader business. Edge is a commonly used term for the point at which electricity is converted into useful work in products. That's what our magnetic business does to power conversion and power management products that go into our OEM businesses. And Detect describes what the switches and sensors do, they're largely used in proximity and level sensing devices. So they detect the presence of a fluid or the closing of a door or something. So Detect, Edge and Grid are the terms you'll hear us use more often in the future to describe those businesses. Michael Shlisky: Got it. That's very helpful. And maybe just turning to the topic is your -- it seems like there's a lot of smaller areas of whether it's the academic research institutions or maybe even space or even airport. Can you give us a broader view on the impact of the government shutdown on your business? Maybe you can talk individually -- about business and also kind of broadly, is there a number we can point to as to what that might be affecting your business today? David Dunbar: Yes. So immediately -- I mean, I can't think of any recent rapid change in prospects of any of our business due to shut down. But if you step back, some of our North American businesses are dealing with uncertainty with their customers. Our federal business, our hydraulics business, our scientific business has been affected, as you know, by the reduction in spending in the NIH. So that's not directly related to the recent shutdown, but it's related to government policy. So that North American bid of the business is affected. In terms of any recent changes, Ademir, would you? Ademir Sarcevic: No, I think you summarized it well. David Dunbar: Except there's me. I've got some travel plans in the next few weeks. I hope I can make. But that won't affect our business results. Michael Shlisky: Well, hopefully, you can just switch it over to Zoom, if you have to. The last question was about -- I think you had mentioned the word repatriation potentially to pay down debt, something like that. Can you just share with us, Ademir, was there any onetime tax in the cash repatriation there? Ademir Sarcevic: No, no, no. That's not the reason. I mean there are sometimes -- when you get the money out of foreign jurisdiction, there's a little bit of a holding tax you have to pay. But lot of our cash is actually sitting in international locations, and we have a process in place, by which we try to repatriate as much as we can on a quarterly basis, and we'll continue to do that. But there is no significant tax impact. Operator: Next question will be from Gary Prestopino of Barrington Research. Gary Prestopino: A couple of things here -- the growth in sales, especially from new products and fast-growth markets. Is that safe to assume that the bulk of that is really a function of products going into data centers, Grid modernization, et cetera, things like that? Or is it kind of spread around those 5 fast growth markets that you guys cite all the time? David Dunbar: Well, the Amran/Narayan acquisition, all those sales are reported in fast growth in data centers. Well, that's not just data centers, but it's all reported in fast growth. So this year, of the $270 million of fast growth, more than half of that -- about half of that would be data center and fast growth, electrification and grid business from Amran/Narayan. But the rest is we have a healthy space business. Defense is growing nicely. Believe it or not, the Electric Vehicles are growing, although it's a smaller piece of the total. So I'd say it's pretty well spread. And the new -- you mentioned new products. The new product sales of $77 million -- these are products released in the last few years, and the majority of those sales are not in the fast growth markets. The new products to be released this year in the coming years will be more heavily weighted to fast growth. So there's very little overlap in those 2 numbers this year. Gary Prestopino: Okay. And then just in terms of -- you're putting up a plant in Croatia or you've initiated production in Croatia, correct? Can you give us some idea of what the capacity for production is at that plant because that's going to be serving what I would assume is you see the growth prospects that you see in Europe itself? David Dunbar: Yes. We're working closely with European customers to plan capacity for that. I think in the last call, or 2 calls ago when we talked about this, we said that over -- in 3 to 5 years, we think that gets to $60 million in sales. That's based on kind of current customer plans and our current capacity. But we have ability to expand beyond that -- and I think as we go 1 year after the other, we'll have a better feel of what the ultimate capacity is there, there's space to build out more footprint if we need to. We can add additional shifts in machinery. But I'd say $60 million is a good conservative number what that will do. Gary Prestopino: Okay. And then just lastly, on Slide 3, just to be -- just so I'm clear on this. You're citing the 15 product launches and then the bars to the right of that $55 million and $78 million, that's the actual sales that you expect to attain from the new product? David Dunbar: Yes, yes, right. Yes, we should have put -- yes, right, right. We should have put the dollar symbol there. It's $55 million last year, $78 million in sales this year. Good catch. Gary Prestopino: No, that's just -- just to be clear, I have a simple mind. David Dunbar: Okay. Yes. All right. That's fine. Operator: Next question will be from Matt Koranda of ROTH Capital. Matt Koranda: So the confidence in Amran/Narayan or Grid, I guess, recalling now, sounds as high as ever. But if I back into the book-to-bill for Amran/Narayan, it looks like it's just about 1x. Maybe just can you talk about order trends that you're currently seeing them or as you currently see them and then just how that informs the view on the 20% growth this year? David Dunbar: Yes. Well, if you look at the -- it's more than 1. 1.05, 1.06, 1.06 or 1.07 or something like that. But it's not -- I mean the book-to-bill in the quarter would support the growth rate we've seen over the last few years for this business, close to 30%. Ademir Sarcevic: And Matt, 1 thing the Amran/Narayan posted a record sales quarter of over $35 million in Q1, I think 35.5% and the book-to-bill was over 1 to David's point. So it continues to kind of grow and compound. So we continue to see those strong orders. They are not slowing down. Matt Koranda: Got it. Okay. You got a high delivery on those orders as well. I guess that's a high-quality problem to have. Okay. And then the rebrand of like to Grid, I guess it makes it sound like there's quite a bit more to do with the product portfolio there. So just curious if you could elaborate for us what types of products you would look to acquire or maybe even organically develop to fill in any gaps that you see in the portfolio? David Dunbar: Yes. I think it accomplishes a few things. 1 is people were confused a little bit by the terms Amran and Narayan, what are those 2 different businesses. We have 1 global business. And we have 2 trade names. Amran's more common in America and Narayan rest of the world. So calling it global Grid, Standex Electronics Grid, it's 1 global business. So I wanted to clarify that. We have some -- there's some new products that they're developing that will go into other applications that they're still transformer products, but they'll go into different applications. If you look in a switchgear or a transformer or a substation, there are other products that our customers buy. I won't name those products now because until we have a specific plan or a specific acquisition probably doesn't make sense to go into detail. But there are a handful of other products that our electrical OEMs would also buy, if we had them. Matt Koranda: Okay. Understood. And then maybe just with leverage now kind of in the low 2s. Probably a bit more reduction later this fiscal year. It seems like capacity to make bigger acquisitions is coming back. Could you maybe just speak to the appetite currently on that front? And also, it sounded like you alluded to, there could be simplification actions to come. Is there anything closer to the horizon than not. I guess it's been dangled out there for a little while, but just curious how close you are to any action on that front? David Dunbar: Well, we've had enough experience and it's very hard to predict timing on those things. And we have -- so yes, I think, it's reasonable to expect we will continue to simplify the business, simplify the portfolio although I can't give you a time or an expectation of when the next steps might be taken, but believe -- believe me, we're working on it. And the -- yes, so we do want to build up more powder -- prior to this Amran/Narayan acquisition, the highest leverage we'd ever been to is 2.4x, 2.5x or 2.4x now. We are continuing to reduce that. But we're also simultaneously working the funnel -- so we are building powder. And when the right opportunity comes up, we'll be able to move. Operator: [Operator Instructions] Next is a follow-up from Ross Sparenblek at William Blair. Ross Sparenblek: Just wanted to quickly touch on the Engraving again. It looks like that pipeline is showing some signs of activity. I mean, we don't need a lot of volume to come back in there to get to normalized levels. Just wanted your thoughts. And then the second piece is prior cost out with the new efficiencies or productivity of the shutdowns. It feels like 20% margin is no longer the ceiling? How quickly do you think we can get there is a little bit of a volume? Ademir Sarcevic: Yes. Look, I mean, the engraving market, as you know, the auto market, especially in North America, has been very weak for a while now. And it's bottomed out. And now, we are -- and now I'm sorry, we were having a little bit of a noise, noise in the room. But now the market is stabilizing and is starting to improve, and we are seeing some signs in the recovery in Europe as well as in Asia. So look, I mean, over the last couple of years, we shut down about 15 sites. And with this last announcement that we made. So we do believe that we're going to start seeing some of the savings for the last shutdown starting to realize in Q3 and Q4 of this fiscal year. And that 20% margin number that you're talking about is within reach, and we feel very confident that when the market comes back with some strength that we'll be able to surpass the 20% as well. Operator: At this time, it appears we have no further questions. I would like to turn the conference back over to Mr. David Dunbar, CEO. David Dunbar: Yes. Thank you. I'd like to thank everybody for joining us for the call. We do enjoy reporting on our progress here at Standex. Thank you again also to our employees and shareholders for your continued support and contributions. I'm very excited about the company's potential in fiscal year '26 and look forward to speaking with you again in our fiscal second quarter 2026 call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.