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Operator: Good day, and thank you for standing by. Welcome to the Imerys 2025 First 9 Months and Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Alessandro Dazza, Chief Executive Officer; and Sebastien Rouge, Chief Financial Officer. Please go ahead. Alessandro Dazza: Thank you. Good afternoon or good evening to all of you, and thank you for joining us today to review Imerys first 9 months and Q3 2025 results. Next to me this evening, as usual, Sebastien Rouge, our CFO. And as usual, please let me start by giving you some highlights for the 9 months we just closed. Imerys' performance for the 9 months is the result of a positive start to the year and a softer second part. Q3 reflected an honestly unexpected slowdown in the U.S. economy as a result of uncertainty caused by the U.S. tariff policy. Europe, even if overall activity remains low, seems to be turning the corner positively. Revenue for the first 9 months was EUR 2.583 billion, slightly down 0.7% like-for-like versus last year. Even in this context, which remains challenging, Imerys posted an EBITDA of EUR 421 million, in line with last year like-for-like and excluding the contribution of joint ventures. This demonstrates the resilience of our company also in difficult times. The adjusted EBITDA for the third quarter '25 was $140 million, representing a 17% margin and again, reflecting disciplined pricing policy, ongoing continuous cost management and positive business dynamic in the polymer and additive businesses. For the full year 2025, the group confirms its adjusted EBITDA target in the range of EUR 540 million to EUR 580 million. Last important as we do not see a significant market recovery or at least is being delayed on top of the ongoing actions on costs, and I will come back to this, the group is launching a comprehensive cost reduction and performance improvement program aimed at simplifying its organization and adjusting its industrial footprint to restore profitability. Finally, some key updates of the quarter. First on EMILI. Imerys has received an indication of interest from a potential investor to acquire a minority stake in the EMILI Lithium Project. Classic, subject to customary due diligence and approvals, this investment should be formalized by the end of January '26 and would allow the completion of the definitive feasibility study of the commercial plant sometimes around the end of next year. Consequently, any decision concerning future phases such as the construction of the industrial pilot plant are on hold and will be made in due course based on market conditions and capital allocation considerations. Second, important good news, Imerys signed today an agreement to purchase SB Mineração in Brazil. SB Mineração is a Brazilian company specialized in the production of ground calcium carbonate or GCC, based in Cachoeiro in the state of Espírito Santo. The company is a leading producer of GCC for various applications, in particular, polymers, thermosets, paints and coatings. In '24, the business generated approximately USD 30 million in revenue with a solid profitability. With this acquisition, Imerys would strengthen its footprint in Brazil, where it is already one of the main producers of carbonates. The completion of the transaction is subject to customary closing conditions, including regulatory approvals. A word on our decarbonization road map. We signed an important partnership in October with LNG to supply green energy to approximately 25% of our European operations via a 10-year corporate purchase agreement for the annual generation of 200 gigawatt hour of renewable electricity in Spain. This agreement will enable the reduction of 70,000 tons of CO2 equivalent per year or 14% of our Scope 2 emissions, so a significant step. Finally, our Imerys Graphite & Carbon business signed 2 strategic partnerships aiming at enlarging its innovative product portfolio for batteries. One is with Cnano, the global leader in carbon nanotubes, the second one with Shanghai ShanShan, who is the global leader in synthetic graphite for lithium-ion batteries. I will not enter the details and more details are available on our website on the 2 specific projects. What is important, both partnerships directly address Europe's crucial need for a regional, resilient and competitive battery supply chain based on state-of-the-art technologies. If we move on now to the next slide. Here, you see Imerys sales performance by geography for the first 9 months, which gives a good picture of the a bit contrasted economic activity by area. Europe represents about 50% of our sales or slightly less, enjoyed finally a light recovery in Q3, thanks to improving construction and industrial activity. And you see this if you compare to what we published in July with the Q2 results. Nevertheless, on a full year basis, year-to-date, business is still lagging behind last year, and we know due to soft activity in industrial sector and a poor construction market until recently. North America, the big surprise of the quarter really subdued in Q3, confirming a trend that we have seen at the end of Q2, mostly affected by tariffs, a weak industrial or weak, sorry, residential markets and a bad quarter in filtration, partly, frankly, relating to our own production issues relating to CapEx and some industrial topics. For the 9 months, sales are basically flat compared to last year or in line with previous year. We should not forget the significant impact of the devaluation of the U.S. dollar, negatively impacting sales at the level of 4% compared to last year, so becoming significant. In Asia, sales are growing nicely, not only in India, but also in China, which remains quite dynamic, especially around new technologies, electric vehicles and strong exports in general. South America, very strong first half, a bit weaker Q3, but I remain confident it will be a good year in South America. On the next slide, as usual, a deep dive on what really shows the robustness of Imerys' business model. On the left side, you can see the evolution of our adjusted EBITDA year-on-year. We do have a significant impact of perimeter, as we saw before, coming from the divestiture of the assets serving the paper market last year in July and of joint ventures, as we have been discussing since the beginning of this year. FX playing a role, as I mentioned before, but fundamentally, the core of Imerys' activity remains solid and adjusted EBITDA was resilient, almost flat compared to last year. On the right side, the balance price costs, which highlights the good continuous work done on cost reductions, first of all, but also on Imerys' agility to react to market changes in terms of pricing when needed. We know this balance remains a key factor for future success. Let's now look at our main underlying markets and their trends, and I'll be quick as we have partly already addressed the main trajectories and trends by geography. So overall, I would say what we saw in Q2 was confirmed in Q3 with overall markets, say, below expectation, especially construction and automotive, while growth in electric vehicles continues strongly, and while tariffs have a limited direct impact on Imerys, the uncertainty created by these tariffs is impacting more in general business activity and unfortunately, specifically some of our customers. To rapidly conclude on this side, construction finally, and potentially restarting in Europe, remains below expectation in the U.S. Consumer goods, resilient, certainly in the U.S., maybe slowing a bit in America for the reasons we have mentioned. Automotive, continued low production levels in Europe and in North America. China, good, benefiting from strong exports, but also these internal stimulus packages or policies launched by the government and of course, very strong EV growth in the area. General industrial activity, soft in Q2 in Western economies, strong or solid in China. so far for market trends. Sebastien, I hand over to you for more details on our accounts. Sébastien Rouge: Thank you, Alessandro. Good evening, everyone. Let me recap some of the key aspects of our financial performance, and we'll start with revenue. The group reports sales at EUR 2.6 billion for the first 9 months of 2025. It represents 0.7% decrease at constant exchange rate and perimeter as compared to last year, with volumes slightly down and prices holding well. You keep in mind the large perimeter effect, EUR 126 million, mainly due to the disposal of the assets serving paper in July '24. We have now an FX impact of minus EUR 47 million coming from a drop mostly of the USD versus euro from Q2 onwards. You can see in the chart, Imerys performance for the third quarter alone, quite similar trend for sales volume and prices and also a high FX impact. Perimeter effect is now positive, thanks to the good performance of Chemviron, the business acquired at the end of last year. If we look now into more details at our 3 business segments, beginning with Performance Minerals, the business generated EUR 1.547 billion since the beginning of '25, representing 60% of Imerys Group. Overall, the business shows a slightly negative organic growth as compared to last year due to a weak Q3, notably in America. Revenue in Q3 for Americas was down 5.7% at constant scope and exchange rate, reaching EUR 199 million. Sales were impacted by a weak residential market in the U.S. suffering from high interest rates, unsold housing inventory and also a soft filtration market. The prices held well. Revenue in Q3 for EMEA and APAC decreased by 3% like-for-like in the third quarter of '25 as compared to last year. Weak volumes, minus 4.1% were driven by low demand across main markets, where our sales to paints and automotive polymer slightly improved. I already mentioned the good performance of Chemviron's diatomite and perlite businesses integrated since January '25. Here as well, price grew in line with H1. Now looking at our solutions for Refractory, Abrasives and Construction business. We note a relative improvement of the business in Q3, posting organic growth in the quarter after a difficult H1. Business revenue reached EUR 278 million in Q3, an increase of 1.9% as compared to last year at constant scope and exchange rate. The recovery is primarily driven by stronger refractory activity, benefiting from positive momentum in the U.S. and China and some volume gains in Europe. In contrast, the construction business experienced a more mixed performance, impacted by soft end markets. In this business, prices as well held well. Now let's complete the segment review with the solutions for energy transition. Q3 revenues for graphite and carbon amounted to EUR 59 million, a 3.6% increase compared to last year at constant scope and exchange rate. Sales growth is still driven by robust end markets, primarily electric vehicles. The business also benefited from successful new product launches, in particular in polymer applications. A small note on the Quartz Corporation, our high-purity Quartz JV, 50% owned by Imerys and not consolidated, as you remember. The activity is showing some signs of normalization. However, these have yet to be confirmed as the solar value chain remains affected by persistent high inventories and the lack of significant reduction in production capacity. Now let's look at the group profitability. For the first 9 months, adjusted EBITDA reached EUR 421 million. It decreased by 21% as compared to last year, reflecting the impact of lower contribution of JVs, perimeter impact and an unfavorable exchange rate effect of minus EUR 11 million. Imerys achieved an adjusted EBITDA margin of 16.3% at the end of Q3 '25. This was supported by improved performance in graphite and carbon, resilient activity in Performance Minerals and a continuous cost management approach. Adjusted EBITDA Q3 '25 decreased by 6%, impacted by volume decrease and a EUR 10 million FX impact, which were partly offset by a positive price cost balance in this quarter again. Ongoing cost-saving initiatives allowed the group to keep fixed cost and overhead slightly lower than last year in absolute value, fully offsetting inflation. If we look now at the other elements of our income statement for the first 9 months of this year. Driven by the decrease of EBITDA in absolute value, current operating income reached EUR 216 million. With slightly higher interest expenses and lower income tax, current net income from continuing operation ended up at EUR 126 million at the end of September. You remember that last year, the group booked EUR 326 million in noncash expenses, mostly originating from the translation reserves associated with the assets serving the paper market that we divested in July '24. This year, in the first 9 months of '25, other operating expenses were limited to EUR 16 million. Year-to-date, net profit is, therefore, positive, reaching EUR 110 million at the end of September. I now hand over back to Alessandro for the outlook. Alessandro Dazza: Thank you, Sebastien. So let me conclude with some good news. First, we remain confident of achieving our guidance, which is not a given under current market circumstances. Second, I'd like to inform you that the date has been set by the relevant court to resume the confirmation hearing on our Chapter 11 case in the U.S. This is now planned to start on February 2 next year. Yes, we all wish it could be earlier, but this was the first available date provided by the court. What is important is having a date for this crucial hearing is a very important step towards the end of this process. Third, as you have seen at the beginning, we have signed, not done yet, but we have signed a new acquisition. It's a classic bolt-on. And as you can see with the recent one, Chemviron, it can be integrated rapidly, well, profitably with a lot of synergies. As you can see when you look specifically at Q3 performance, where the perimeter effect becomes only this acquisition. Then next, we indicated in the past that we were looking for a partner for the EMILI project. Well, I believe we are close to have found the first one. This will secure the financing of the next steps, giving precedence in our plans to the completion of the engineering studies for the DFS. Consequently, we will pause the investments in an industrial pilot plant and review this decision in due time and based on market conditions and capital allocation consideration. Last, you know that we relentlessly work on costs through careful management through our operational excellence program called I-Cube that you heard before. And I believe the EBITDA bridge Sebastien just showed you a few minutes ago confirms the good work done on costs. Nevertheless, we have to acknowledge that today, we do not see a significant rebound in or a market recovery in the nearby future. Therefore, we have to make a step up and the group is launching a comprehensive cost reduction and performance improvement program, aiming at achieving significant cost reduction via leaner, simplified organization and an adjusted industrial footprint with a clear target to improve profitability from 2026 onwards. More details on the program will be available at a later stage for obvious reasons. Thank you. And now I hand over to you for the Q&A session. Operator: [Operator Instructions] We will take our first question and the first question comes from the line of Ebrahim Homani from CIC. Ebrahim Homani: I have 3, if I may. The first one is about the Europe. You said that it is going better and better. Are the volumes already positive in the region? If not, do you expect that the volume will be positive in Q4? My second question is about your EMILI. Could you give us more flavor on the investor interest? Is it an industrial from the automotive industry and maybe more information on the term of this partnership? And my last question is on graphite and carbon. How do you explain the slowdown of the growth? I noticed that it is not a comparison basis effect as in Q3 2024, the branch was already declining. So the low growth, what's the explanation behind this lower growth compared to the H1? Alessandro Dazza: Thank you, Ebrahim. Well, volume in Europe, I remain prudent because we shall be prudent when I look at communications on Q3 coming in the market. I confirm that we believe the worst is behind. Construction in some areas is picking up. And I believe automotive will continue to decline in Q4, but most forecasts believe, again, that the bottom is reached and we should see a positive return of activity or at least a stabilization. Is it Q4? Is it the beginning of next year? We will see. What will definitely have a positive impact on our business in Europe in Q4 is, if you remember, there is an antidumping imposed temporarily, but valid on certain Chinese imports of minerals. And this will trigger a volume increase in Q4 for some businesses. If you look specifically at the RAC business, it was the -- except for graphite and carbon, the one posting organic growth because finally, volumes are starting to return with some gain of shares in Europe. So all in all, I am rather positive on Q4 volume development certainly into next year. On EMILI, as you can imagine, we are in the middle of discussions, by definition, confidential. So we'll be back to you when we can. And I believe it will be relatively short as we indicated in our press release and in our presentation. But bear with me at the moment, everything is covered by confidentiality. Graphite & Carbon, whilst the summer period is always a bit to be taken -- you have a small month normally in August. So you might see less deviation. Market remains solid. Growth remains solid. We have had some -- we have had 2 issues that have a little impact. For sure, we installed SAP in the two operations. And as always, there is some learning of the new system that you have to pay when you do these changes. By the way, we did the same in the U.S. this year. So for sure, this is causing a bit of disruptions. And secondly, when you ramp up at that speed, you need to run your plants. I cannot say flat out because we have capacity to follow growth for the next 3 years, but you don't turn the machine on and it goes along. We are recruiting people. We need to train the people, and frankly, we do have a bit of backlog of orders that we could not supply because we were not able to get all the material out of the door. So for me, is maybe the increase is less than Q2, but there is no negative news from the market that does not confirm the direction. Then of course, the more we grow, the more -- the higher the comparison basis will be coming from the past, but really no bad news in any form Ebrahim on G&C. Operator: Your next question comes from the line of Auguste Deryckx from KEC. Auguste Deryckx Lienart: My questions are on the Quartz JV. Given the weakness of the sector, do you see customers turning to a lower quality product, so a product with a lower purity? So in other words, are you losing market share? And the second question still on Quartz is still given the situation, do you think that you will be able to receive a dividend from the JV? And if so, what can be the level? And if not, how do you plan to crystallize the value of your stake in this JV? Alessandro Dazza: Thank you, Auguste, for the question. Specifically, listen, when you have free capacity in your operations, like it is the case in the value chain of especially solar in China today, of course, you try to save money and you try everything you can. Do we believe that we are or we will lose significant market shares in high purity? No. My view is no. At the moment, I think our customers have been trying to replace this product because of its high price and dependency really on two suppliers for many, many years, is nothing new. So I believe when the market will need to run production at strong level, a normal level to follow market growth. So once inventories are depleted, and last time we said it might be around mid next year, I think it will become again unavoidable to have the best quality because you will have the best productivity. So I remain of the opinion market share in normal conditions will remain for a high-purity top product. And on the same topic, clearly, the year is not as good as last year. Therefore, we have been more careful with the distribution of dividends. We will decide with our partners if and when is the right time. The company is making profit, good profits. You see only half of the net income in our numbers. But if you look really at what is the full potential of this business at EBITDA level, which you see in June and you will see in December, you see that it remains an incredible high-performing profitable business. And therefore, we will discuss openly with our partners what is the best for the business and for its shareholders. And based on that, we'll take the decision, which is not taken as of today, but it is part of the discussion we have as shareholders regularly. Operator: Your next question comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: Can I start with one on the financing costs of the group, please. What is the underlying run rate that is a reasonable assumption for '26? And by when does the company expect to have refinancing in place for the bond that comes due roughly EUR 600 million? Is it towards the end of the year? Or would it expect to have something in the middle? Can I also ask about the review that the group is doing of its cost structure. The -- is this extending to a portfolio review as well? And are there any further assets that the group feels it could potentially divest as part of these considerations? Alessandro Dazza: I'll let Sebastien answer your -- first, Sebastian, welcome to this call. I think it's your first time. I'll let Sebastien answer on the financing side. Sébastien Rouge: Yes. I will probably not answer extremely precisely. This being said, I think you are -- you're asking the good question. We have a next big repayment very early in '27. So we pursue a very careful approach. So we will probably refinance that either late this year or in the first half of 2026 so that we are away from any timing risk, and we will not preannounce that, but I think we'll follow your advice, which is not to do that at the last minute, knowing that on top of that, bond markets are pretty good for corporates these days. Also, I think I think our careful approach on lithium is actually a good sign that will facilitate refinancing. As far as run rate is concerned, I would say it's a little bit mechanical. We have a very detailed of our financing in our annual report, obviously, and unfortunately, when we replace a new -- an old bond by a new bond, there is a little bit of extra interest rate, mechanical, but that, I would say, is true for us like the rest of the market. Alessandro Dazza: Thank you, Sebastien. And coming to your second question, Sebastien. At the moment, there is no plan to significantly review our portfolio. We have done it in the year '23 and '24. Yes, we might sell opportunistically one or the other site, especially if nonperforming or not up to our standards, but it will be very punctual and not really a big topic. On the contrary, as you have seen, we believe we are rather on the acquisition mode, bolt-on, easy, synergetic, profitable if opportunities arise. So cost is really an organizational matter. It's a matter of lean organization, simplification. We will review, as I said, our industrial footprint if it still fits the new markets. These tariffs are causing shifts in ore production with countries that are favored by more positive depositories, other that are paying a higher bill. So within our customer base, and that's what I referred to when I said limited direct impact for Imerys, but for our customer, yes. So there might be movements in where we supply our customers that could trigger, as you say, maybe a closure of a site or a divestiture of a site in a country maybe that has been penalized by lower activity. But we really want to work on costs. We are going to use AI to simplify our administrative processes, lean organization and probably give up some nice to haves that are not affordable when you have challenging market conditions. But the portfolio is a good one. And even the more -- let's say, the business is under more pressure like some businesses in Europe, especially after the energy crisis, if these antidumping measures will be confirmed, I do believe there will be market share gains and a return to a very reasonable profitability as expected. Operator: Your next question comes from the line of Sven Edelfelt from ODDO BHF. Sven Edelfelt: I would have two follow-up questions. Alessandro, you mentioned a first investor with regards to lithium. Does this suggest the participation will be limited to a 10-ish percentage point participation? And therefore, you expect maybe some other investor or maybe I misunderstood. And the second question, on the restructuring cost that you're announcing I don't understand why you are announcing a potential restructuring cost without giving us any number. On the second question related to this one is, does that mean that given what you have from your team on the ground, you don't expect a recovery before 2027 or 2028. What's the sense of doing it right now? That's my question. Alessandro Dazza: Thank you, Sven, for your questions. The first one is, again, I cannot enter more details as we are in the middle of the discussions. But I can definitely say that your interpretation is not the right one. A partner is a partner and every partner is important, and we expect the partner to play a significant role. What I'm saying is that if you look potentially to the end of this project is a very large project one day, if we go to the end. And typically, in mining -- large mining projects, you might have several players joining forces to sustain the CapEx to bring know-how and to develop jointly. So it's nothing to be interpreted other than this, partner important, every partner important. And going forward, we will consider interested party in this project if they bring value any time. On your second one, again, don't interpret that we do not expect any rebound. I expect a rebound in Europe next year. The magnitude to be seen. And when I say high is because all the studies -- economic studies we buy by big experts do foresee a recovery in Europe. They're a bit less optimistic on the recovery in the U.S. They believe the first months of next year, the U.S. might be under pressure because of all the turmoil, inflation uncertainty and uncertainty is the right word and then a recovery in the second half of next year. What I believe is that a significant strong rebound is not for the next 2, 3 quarters. Therefore, better be ready with a stronger company, leaner, more efficient. And when volumes come, that's with a 53%, 54%, 55% contribution margin, when volume comes, then we really see a significant improvement in profitability. So we are just doing an extra mile to be stronger, to be more efficient, to be leaner, waiting for a slow or a rapid recovery in the future. So not pushing back anywhere. I do believe '26 or at least forecast say '26 should be good again, but it's not there and waiting is not an option. We did not communicate more figures Sven because there are legal processes and constraints that are being discussed and no decision is taken. There are consultations ongoing, preparation. But latest by the next communication, we will give for sure all the details in due time when everything has been set, discussed, reviewed, negotiated, approved. So it give us the time just to be there. Operator: There are no further questions. I would like to hand back for closing remarks. Alessandro Dazza: Thank you very much, and thank you for all participants to listening to this evening's press release and presentation on Imerys. Thank you very much. Good evening. Sébastien Rouge: Good evening. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everybody, and welcome to the Myers 2025 Third Quarter Results. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to Meghan Beringer, please go ahead. Meghan Beringer: Thank you. Good morning, everyone, and welcome to Myers Third Quarter 2025 Earnings Review. Joining me today are Aaron Schapper, President and Chief Executive Officer; Sam Rutty, Executive Vice President and Chief Financial Officer; and Dan Hoehn, Vice President and Corporate Controller. After the prepared remarks, we will host a question-and-answer session. Earlier this morning, we issued a press release outlining our third quarter financial results. In addition, a presentation to accompany today's prepared remarks has been posted. Both documents are available on the Investor Relations section of our website at myersindustries.com. This call is being webcast live on our website and will be archived along with the transcript of the call shortly after this event. Please turn to Slide 3 of the presentation for our safe harbor disclosures. I would like to remind you that we may make some forward-looking statements during this call. These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors are set forth in the company's periodic SEC filings. Also, please be advised that certain non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted EBITDA and adjusted earnings per share may be discussed on this call. Now please turn to Slide 4 of our presentation as I turn the call over to Aaron. Aaron Schapper: Thank you, Meghan. Good morning, everyone, and thank you for joining us. I will begin today's call with a review of our third quarter, then I will provide an update on our focused transformation program. Following my comments, Sam will provide a detailed review of the third quarter financials and our outlook for the year. Turning to Slide 5. Third quarter net sales were $205.4 million, slightly higher year-over-year as infrastructure and industrial growth was offset by continued soft demand in Automotive Aftermarket and vehicle end-markets. In addition, consumer sales, specifically fuel containers, were lower with the absence of weather-driven events. Within infrastructure, we continue to see strong demand as customers switch from wood to composite matting products used in construction, utility and other infrastructure projects. Industrial growth was driven by ongoing demand for military products. With the exception of consumer sales, our end market outlook is relatively unchanged as demand and backlog across our larger infrastructure and industrial end-markets remain steady. For the quarter, we earned $0.19 per share. Adjusted EPS was $0.26, up year-over-year. Cash flow improved significantly with free cash flow doubling compared with last year. We continue to make steady progress against our objectives, and I remain confident in our ability to improve performance. Turning to Slide 6. I would like to provide an update on our focused transformation program. We made meaningful progress during the quarter as we focus on tasks that have the biggest impact. Chief among the milestones we achieved this quarter was the completion of our MTS strategic review and the conclusion that the right decision is for us to sell this business. We have formally launched this process, partnering with KeyBanc to execute the transaction. Once complete, this divestiture will be a large step towards optimizing our portfolio with the remaining businesses better aligned with our mission of protecting assets from the ground up, enhancing our ability to apply our competitive advantages for high-return applications. We have made progress on each of our 4 objectives. Some of these changes are already visible across our organization. For example, we have made tremendous progress this year establishing a culture of execution and accountability by implementing KPIs to measure the progress and success of our business and aligning incentive plans with long-term targets and objectives to ensure that we are creating long-term value for our shareholders. We continue to build on this with continuous improvement mindset to drive performance now and into the future. We are creating clear strategies to improve performance on our entire portfolio to ensure we are achieving optimal profitability. The decision to sell MTS is a step in the right direction as it will have a notable impact towards improving our margins. We're also doing a better job of sharing best practices across the organization. For example, through a collaboration with Buckhorn, Signature has improved their structural foam mold change process, which has reduced downtime and improved throughput. As we develop this operational excellence discipline, we will become more aware of opportunities to drive best practices across the portfolio. We are on track to deliver $20 million in annualized cost savings, primarily SG&A by the end of 2025, having already identified $19 million. We consolidated production in idled 2 of our 9 rotational molding facilities to improve utilization and reduce cost. We are continuing to be diligent about costs and investigate areas where we can be more efficient as an organization while maintaining customer services that distinguish Myers in our markets. I am encouraged by the progress. We have updated our approach to developing and implementing our long-term strategy as a part of our focused transformation. This is a new framework for Myers and one that I've seen to drive proven measurable results through a disciplined approach. It begins with a strategic planning session. For this, we gathered broad key leadership, representing a cross-functional group from across our businesses for a disciplined and more collaborative process. We discussed where each of our businesses will play to win, their unique differentiators and our growth potential. This was a tremendously valuable exercise and led to great insights that will inform our strategic direction. With the strategic plan established, we are prepared to implement a strategic deployment tool, which will support disciplined planning and breakthrough objectives. We started by rolling the tool out to senior leaders who will cascade it down throughout their organizations. The tool helps businesses break down long-term goals into an annual objective, identify key improvement initiatives and metrics and assign ownership for each action. With the implementation, we will shift towards a culture of delivering results where progress is visible, measured and shared across teams. This progress on our focused transformation objectives positioned us well for the next leg of our journey. As we continue to strengthen the foundations of our business and build platforms for growth, we are creating operational rigor and instilling a mindset of continuous improvement. These will serve us well and enable us to become a highly successful company that I am confident we can become. At this time, it is my pleasure to formally welcome our new CFO, Sam Rutty, to the call. She joined us a little over 5 weeks ago. Sam Rutty made a positive impression across the organization with her energy and vision. I'm excited to have her join our executive leadership team and look forward to working with her as we launch our new long-term strategy. Her arrival will accelerate the transformation of both the business and our culture. Sam brings incredible knowledge, turnaround success and more than 2 decades of financial leadership experience across global services and manufacturing companies. She was the CFO of Brink's North America and spent 20 years with Eaton Corporation in a series of senior financial roles. She's consistently taken on big challenges and has helped her team succeed, and I know she will do the same here. Before I turn the call over to Sam, I want to thank Dan Hoehn for stepping into the interim CFO role these last 6 months. Dan is a steady hand, clear thinker and understands the business and the numbers intimately. I'm personally grateful for the partnership during the time that Dan served in this role, and I look forward to continuing to work with him as he resumes his role as our Corporate Controller. With that, I will now turn the call over to Sam. Samantha Rutty: Thank you for that introduction, Aaron, and good morning, everyone. I'm excited about this opportunity to join Myers, a manufacturing company with a clear vision and customer value proposition. I spent the early part of my career in manufacturing, an area where my true passion lies, and I'm eager to work with Aaron and the team to drive operational excellence across the organization and support the achievement of our long-term strategic objectives. I also want to thank Dan and the team for sharing your knowledge and bringing me quickly up to speed. Let me start by reviewing our third quarter results, and then I will wrap up with the outlook by end market for the remainder of the year. Please turn to Slide 8. Third quarter net sales were $205.4 million, slightly higher than last year. Material handling growth was offset by lingering distribution softness. Adjusted gross margin increased 150 basis points to 33.9% due to higher volume, favorable mix and cost productivity as well as lower material costs. Adjusted operating margin improved 20 basis points to 10.2% as higher SG&A offset some of our gross margin benefits. Overall, we reduced inefficient spend as the culture of the company shifts to a continuous improvement mindset. We are performing better this year and therefore, maintain our accruals for performance-based incentive compensation compared to this period last year when we reversed those accruals. We are pleased to be able to reward the hard work of our team as they drive improved performance. The quarter reflected strong execution despite a few unusual SG&A expenses from legal fees and medical claims. Our employees are proactively finding ways to reduce recurring inefficient costs while continuing to support our growth initiatives. I'm excited about the opportunity before us to drive continuous improvement and look forward to partnering with our business leaders to support their progress. Turning to Slide 9. Material Handling net sales were up 1.9% as strong sales of military products and composite matting were partially offset by lingering vehicle softness and lower storm-driven demand for fuel containers. Adjusted EBITDA margin was 24%, expanding 180 basis points with the benefit of higher volumes and favorable material costs. Distribution net sales decreased 4.4% on lower volumes. Adjusted EBITDA margin fell 260 basis points as the impact of lower volume was partially offset by lower SG&A. Turning to Slide 10. Operating cash flow was $25.8 million and CapEx was $4.2 million, resulting in free cash flow of $21.5 million. By managing our working capital effectively and maintaining disciplined capital spending, we doubled free cash flow year-over-year. As we evaluate our portfolio to focus on core products and addressable markets for growth, we will align our capital strategy accordingly and continue to target capital expenditures near 3% of sales. We ended Q3 with a cash balance of $48 million and total liquidity of $292.7 million, providing us with ample flexibility to support our capital allocation priorities. Please turn to Slide 11. We reduced debt by $10 million, bringing total debt to $369 million. Net debt per the credit agreement was $339 million, bringing our net leverage ratio down to 2.6x. We remain committed to achieving our target ratio of 1.5 to 2.5. We repurchased $500,000 in shares during the quarter, bringing total year-to-date repurchases of $2 million. The share repurchase program was an additive measure to complement our ongoing dividend as part of our capital allocation strategy to return cash to shareholders. Turning to Slide 12. We are updating our market outlook for 2025 that was provided during our second quarter earnings call. We still see both risks and opportunities for our end-markets, and we'll continue to monitor conditions for impacts from tariffs or other factors that may influence demand trends. Let me review our expectations by market. Industrial should continue with moderate growth, driven by demand for military products as militaries around the world replenish their inventories as evidenced by a strong backlog. We still expect sales of our military products to exceed the $40 million target for the year 2025. Year-to-date, military sales are up 119%. We expect this sales growth to be partially offset by lower sales of other industrial products as manufacturing operations slow their buying cadence in response to softer general industrial trends. In infrastructure, strong ongoing spending for large construction and utilities projects supported by conversion from wood to composite matting should continue to drive strong growth. This is reinforced by our strong backlog for these infrastructure products, most of which should be converted in the fourth quarter. We expect the vehicle end market to be down as a result of economic uncertainty. This end market includes RV, marine, heavy truck, and automotive manufacturing customers. In Consumer, we now anticipate sales to be down due to less than typical storm-related activity in 2025. On average, there are 3 landed storms in the Continental U.S. per year. This year, there have been none. Our food and beverage end market, which includes agriculture, is projected to be stable for the full year. While there were headwinds earlier in the year, we achieved 8% growth year-over-year in Q3 and are expecting further improvement in Q4 with our agricultural customers, led by a strong backlog in seed boxes. Automotive Aftermarket distribution is expected to be down. We continue to manage the business closely as we navigate a challenging end market and proceed through the process to identify potential buyers. In closing, I would like to simply state again how excited I am to be part of the Myers team. I look forward to meeting many of you in the coming weeks. I would now like to turn the call back to Aaron for some closing comments before we take your questions. Aaron? Aaron Schapper: Thank you, Sam. As I look back on the progress we've made throughout 2025, I believe more than ever in our focused transformation plan. I know our journey of continuous improvement will take time. Myers has a portfolio of well-regarded brands and products designed to protect. We are working with urgency to rightsize the organization, drive accountability and deploy capital to support growth in these brands. I'm confident that we are transforming into a focused company with a high-performance culture that drives growth with consistent, reliable results that create value for shareholders. With that, I'd like to turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] First question comes from Christian Zyla with KeyCorp. Christian Zyla: Sam, welcome officially. My first question, it looks like Material Handling organic growth flipped positive for the first time in like 11 quarters. I guess the primary driver of that growth is Signature. Can you just talk about how you see that business progressing since you've acquired it? And what are some additional growth opportunities that you're targeting in Signature and maybe in your defense business? Aaron Schapper: Yes. We're happy with the growth trajectory of Signature. I mean there's a lot of tailwinds on the infrastructure construction market that continues to push that. And then just from the current product that they offer. And also, we are excited to line up new offerings in that market, too. So we'll have some new offerings coming out in the next -- well, about 2 quarters that we think can help strengthen our business on the stadium side. And we have some good pipeline -- innovation pipeline. I think, Christian, we spent some time over the summer getting the team together and really talk about our strategic plan and then very specifically make sure that we are continuously -- continuing to develop and innovate new products, and Signature was a major part of that. They have a lot to offer the market, and we have a good pipeline of new products that not only help in the construction spaces, but will also help in other areas so we can continue to have that growth. So we're excited where we are with Signature. We believe the growth will continue to be strong. And we've got a great operational team behind that growth to make sure that we continue to get good margins. Christian Zyla: And sorry, just in defense, any further growth opportunities? Is that just contract running really well? Are there more opportunities for additional customers or additional... Aaron Schapper: Yes, sorry, specific to the Scepter side, absolutely. As kind of our militaries, both in NATO and the U.S. militaries look at a future kind of near-peer kind of competition. When you look at near-peer competition, one of the things that has been concerning for that -- for the defense industry was just making sure that the consumption of ammunition matches something that's closer to a near-peer conflict. As a result, what you get is a lot of people looking at the consumables of warfare. And so those consumables are ammunition. A lot of that ammunition needs to be packaged. And that's where Scepter not only plays a role in today, but will play a continuing growing role in the future. So for us, it's making sure that we take care of our customer, whether it be the U.S. military or our NATO allies and positioning our manufacturing to take advantage of that growth in the coming years. Christian Zyla: Great. And then my next question, Sam, maybe this one is for you. Gross margin held in really well, but SG&A still seems to be high. I guess with the cost down restructuring that you guys have done, do you expect to see a decrease in SG&A dollars in 4Q? Or is that more of a 2026 and beyond event? Samantha Rutty: I mean we are expecting our SG&A costs to start to come down. We had some unusual items in Q3 that impacted us, medical and some legal costs. A couple of those items, I would say, can sometimes be a little bit difficult to predict exactly, but we are confident that our transformation savings are going to start to deliver reductions in SG&A. And the onetime or larger impact in Q3 from the compensation incentives last year being zeroed out and was a material impact. And had we not had that, we would have seen a bigger decline in SG&A. And yes, we are confident that we'll start to see those savings impact SG&A on the top. Christian Zyla: Got it. Last one for me, and I'll turn it over. Really nice free cash flow quarter with about $22 million. What drove that? And then is that increase in part of the changes you've been making? Or is there something else that we should be thinking about? And then do you expect 4Q to be another solid quarter for free cash flow like you guess at the time? Samantha Rutty: Yes, I think a lot of focus on working capital across the organization, which will continue. It's something I plan to continue to put a lot of focus on. Capital spend is a little bit lighter, some timing going on there. So maybe a little bit higher in Q4 from a CapEx perspective. But generally, we are confident around our efforts around working capital, particularly inventory, we're trying to really focus on reductions and are anticipating a fairly good month quarter in Q4 as well. Operator: [Operator Instructions] We now turn to William Dezellem with Tieton Capital Management. William Dezellem: Relative to Scepter, would you please walk through the additional opportunities you see with military beyond the current application? Aaron Schapper: Yes. So Bill, we haven't specifically to put numbers or guidance out for what we see on the military side. We put the numbers out for what we're going to hit this year in military. We've already well exceeded that number. So we're very confident in the growth numbers on that side. However, so the military projects are all programmatic in nature. So the way that we look at the business is we make sure that we have -- as the program kind of runs through whether we're going to get to stack the next program and the next program behind that. So right now, we haven't broken out publicly what each of those programs are or the size of it. But I will tell you that we expect to -- continue to expect strong growth from that side, and we also are going to be putting CapEx plans and have CapEx plans around those growth opportunities. So you'll continue to see strong growth on the Scepter military business. We're very happy with the way that's progressing. And we're very happy with the team. The team is very -- is aggressively pursuing those goals. And I think our customers are realizing the value of making the material switches over to a lot of the plastic products that we offer as a superior product to what they're using in both steel and wood. So we feel good about where we are in that, and we keep continuing to add programs and new products to help grow that business. Operator: We have no further questions. I'll now hand back to Meghan Beringer for any final remarks. Meghan Beringer: Thank you for joining us today. If you would like to continue the conversation, my contact information can be found on the final slide of this presentation. We look forward to staying in touch. With that, we'll conclude the call. Have a great day. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon. My name is Diego, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to Greg MacLeod, Director, Investor Relations. Thank you. Please go ahead, sir. Greg MacLeod: Thanks, Diego. Good afternoon, and welcome to The Southern Company's Third quarter 2025 earnings call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and David Poroch, Chief Financial Officer. Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Qs and subsequent securities filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Chris. Christopher Womack: Thank you, Greg, and good afternoon to everyone, and we thank you for joining us for today's update. Southern Company continues to perform exceptionally well. As you can see from the materials that we released this morning, we reported strong adjusted earnings results for the third quarter, meaningfully above the estimate provided last quarter, and we expect to deliver on our financial objectives for 2025. And I have to say Southern Company has an incredibly bright future ahead. Our state-regulated electric and gas utilities continue to provide long-term value to the more than 9 million customers across the Southeast and beyond with reliable and affordable energy. The vertically integrated markets in which our electric utilities operate continue to provide transparent and orderly processes and have consistently supported our ability to meet the needs of our growing economies and electric demand while providing premier reliability and resilient service day in and day out. We've done all of this while keeping customers' rates more than 10% below the national average. Further, the rate plan extension at Georgia Power, which freezes base rates until at least 2029, excluding the recovery of storm-related costs, is a testament to the benefits of a constructive regulatory framework and our focus on balancing growth and affordability. Customers continue to be at the center of everything we do. Our focus on the customer underpins our disciplined approach to forecasting, pricing, contracting and deploying resources to serve this once-in-a-generation growth opportunity. And we continue to execute on those plans for the benefits of all of our customers. Over the last 2 months, we have 4 contracts with large load customers across Georgia and Alabama, representing over 2 gigawatts of demand. Consistent with our approach across Southern Company, these contracts include pricing and terms that are designed to pay for the incremental cost to serve new customer demand while also benefiting and protecting existing customers, helping to ensure growth does not come at the expense of affordability. I will now turn the call over to David to give an update on our financial performance. David Poroch: Thanks, Chris, and good afternoon, everyone. For the third quarter of 2025, our adjusted EPS was $1.60 per share, $0.10 above our estimate and $0.17 higher than the third quarter of 2024. The primary drivers for our performance for the quarter compared to last year were continued investment in our state-regulated utilities, along with strong customer growth and increased customer usage. These positive drivers were partially offset by milder than normal year-over-year weather, higher depreciation and amortization and higher interest costs. For the 9 months ended September 30, 2025, our adjusted EPS was $3.76 compared to adjusted earnings of $3.56 for the same period in 2024. Year-to-date, revenue grew at our state-regulated electrics, partially influenced by customer growth and higher usage, which has added $0.12 year-over-year. A complete reconciliation of year-over-year earnings is included in the materials we released this morning. Our adjusted EPS estimate for the fourth quarter is $0.54 per share, which, combined with our year-to-date performance, would represent full year adjusted earnings at the top of our 2025 annual guidance range of $4.30 per share. Turning now to retail electricity sales. Year-to-date weather-normal retail electricity sales were 1.8% higher compared to the first 3 quarters of 2024. Year-over-year weather-normal retail electricity sales, which are on pace for the highest annual increase since 2010, excluding the pandemic, demonstrate growth across all 3 customer classes. In the third quarter alone, the commercial sector grew 3.5% on a weather-normal basis compared to the third quarter of 2024. This growth was driven partially by increased sales to existing and new customers -- and new data centers, which were up 17%. Weather-normal residential sales also showed strong growth and were 2.7% higher than in the third quarter of 2024, bolstered by the addition of roughly 12,000 new electric customers in the quarter, substantially higher than historical trends. Electricity sales to individual customers also demonstrated continued strength, growing 1.5% in the quarter compared to the prior year. Year-to-date, all of our largest industrial customer segments are up year-over-year, including primary metals, paper and transportation segments, which were each up 4% or higher through the first 3 quarters. Economic development activity across our electric service territories remains robust with 22 companies making announcements to either establish or expand operations in our service territories during the third quarter, generating nearly 5,000 potential new jobs and representing expected capital investments totaling approximately $2.8 billion. Clearly, between robust customer growth, increasing customer usage in the commercial and industrial segments and the flourishing economic development activity in our service territories, the economy in the Southeast remains strong and extremely well positioned. Transitioning to our financing, I'd like to take an -- I'd like to give an update on our activities for the quarter, including the progress made addressing our future equity needs. In the third quarter, we issued $4 billion of long-term debt across Alabama Power, Georgia Power, Southern Company Gas and Southern Power. The quality and credit strength of our subsidiaries continues to draw a robust investor interest. Strong demand for our subsidiary securities ultimately translates into lower interest costs, which will provide benefits to customers at our regulated subsidiaries over the long term. With these issuances, combined with what we issued in the first half of the year, we have fully satisfied our long-term debt financing needs for 2025 at each of our subsidiaries. On the equity financing front, we continue to be opportunistic in our proactive approach and have made significant progress on our plans to source equity in a disciplined and credit-supportive manner. This approach reflects our steadfast commitment to credit quality, including our strong investment-grade credit ratings across all 3 major rating agencies. We plan to continue utilizing equity or equity equivalents in support of our path towards 17% FFO to debt within our planning horizon. Recall this long-term credit quality objective is intended to provide cushion to the quantitative credit metric targets provided by the rating agencies. As a reminder, on our July earnings call, we highlighted a cumulative equity need of $9 billion through 2029 to fund our $76 billion capital investment plan in a credit supportive manner. Since our last earnings call, we priced an additional $1.8 billion of equity through forward sales agreements under our at-the-market or ATM program. These forward equity contracts contain final settlement dates that extend through mid-2027 with the ability to call sooner if we choose. This progress and flexibility it provides significantly reduces risk in our financing plans. When considering these ATM forward sales, other hybrid security issuances and past and projected issuances under our internal equity plans, we have solidified over $7 billion of our $9 billion equity need through 2029. We are extremely well positioned to address the remaining amounts in a shareholder-friendly manner. Looking ahead and as we continue to take steps to require strong customer protections and credit provisions, our pipeline of large load data centers and manufacturers continues to be robust. Across our electric subsidiaries, the total pipeline remains more than 50 gigawatts of potential incremental load by mid-2030s. Recall that our disciplined approach to forecasting assumes that only a fraction of this load pipeline materializes. As Chris mentioned earlier, in just the last 2 months, we have 4 contracts across Southern Company system that represent over 2 gigawatts of load. As you can see, projects within our pipeline are maturing into executed contracts, which, along with their associated load ramps over the next several years, solidifies a substantial portion of our total forecasted electric sales growth of 8% annually through 2029, including average annual growth at Georgia Power of 12% through the same period. Across Alabama, Georgia and Mississippi, we now have contracts in place with large load customers, representing 7 gigawatts through 2029, which ultimately ramp to 8 gigawatts in the 2030s, and we are in advanced discussions for several more gigawatts of load. I'll now turn the call back over to Chris for further insights into the progress we are making on our plans. Christopher Womack: Thank you, David. As David noted, we have made great progress with signing new large load contracts. Just last month, as a part of Georgia Power's ongoing RFP certification proceedings, Georgia Power filed an update to its load forecast. This update forecast continues to project the capacity need consistent with the 10 gigawatts of capacity resources being requested, which include 5 natural gas combined cycle units and 11 battery energy storage facilities. These proceedings are scheduled to have a final determination by the commission by the end of this year. Separately, Alabama Power, following approvals from the Alabama Public Service Commission and the Federal Energy Regulatory Commission has completed the acquisition of the 900-megawatt Lindsay Hill natural gas generating facility to serve projected long-term capacity needs in the state. In addition, construction continues on approximately 2.5 gigawatts of new generation in both Georgia and Alabama, which includes 3 natural gas combustion turbines and 7 battery storage facilities, all of which are projected to go online over the next 2 years. Further, the South System 4 expansion at Southern Natural Gas within our Southern Company Gas subsidiary continues to move forward and will provide a valuable resource in serving the projected growth in our service territories. It is clear that we continue to make great progress executing on our plan as we deliver exceptional value to customers and investors. Consistent with our past practice and representative of our continued discipline, we expect to provide a complete update to our long-term plan during our fourth quarter 2025 earnings call this coming February. As always, this update will include refreshes to our 5-year capital investment outlook, sales forecast and financing plans as well as our 2026 and long-term EPS guidance. Consistent with our comments throughout 2025, as a part of that communication, we expect to provide additional clarity on our long-term earnings trajectory, which, as we've highlighted before, could translate into increasing the base from where our long-term EPS growth starts, which could be potentially as early as 2027. We have delivered exceptional operational and solid financial results through the first 3 quarters of the year. Just this week, Southern Company was named to Newsweek's World's Most Trustworthy Companies for 2025 list and was the highest ranked energy company in the United States on that list. Recognized companies were identified in an independent survey, and our inclusion at the top of this list is a testament to the hard work and unwavering commitment of our employees to uphold our values and operate each day at the highest standards of integrity, transparency and accountability. We are honored by this recognition, and I am incredibly proud of our team and the execution across all of our businesses. In conclusion, we're extraordinarily well positioned to finish the year strong. We have the team, we have the experience and the scale to capture and execute on the exciting opportunities in front of us. We really have a bright and exciting future ahead. Operator, we're now ready to take questions. Operator: [Operator Instructions] And our first question comes from Steve Fleishman with Wolfe Research. Steven Fleishman: I have no idea how I got on the list for questions because I didn't ask one, but I appreciate that. I didn't have any questions. Operator: And your next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe to start just on the kind of load growth outlook in Georgia, I guess, as you continue to lock in contracts under the new tariff structure there, can you talk a little bit about the reception from customers to the new structure and also how you approach the minimum bill components and ensure cost recovery from investments to support that load? David Poroch: Yes. Sure. Carly, thanks. Great question. Like we've talked about, we've moved into a mode working underneath the -- at least the Georgia, working underneath the Georgia Public Service Commission, new rules that came into place in the spring. And what we're finding is customers totally get it. They understand that these are long-term commitments that we are making to deploy resources to serve their needs. And I think these rules have really helped bring the more credit quality, more serious counterparties up to the front of the line. And we've just made great strides in structuring these contracts. And with these contracts, the ones that we've signed now, have brought to the table are great protections for customers and our investors. The minimum bills cover all of our costs, whether or not the meter spins. And once they hit their ramps and they start moving up, it's just very beneficial for the company and for our customers. So we're really happy with the education effort that we've been able to accomplish over the past year. And that's kind of the indicator as to why, to some extent, these contracts have taken a minute to get resolved just because we're taking them along the journey of the structure and the need to be able to protect customers going forward through these contracts. Carly Davenport: Great. Really helpful. And then maybe the follow-up, just on the Georgia regulatory environment, just with the upcoming certifications and potential for incremental needs on the generation side for approval. How are you thinking about potential impacts from the PSC election and those processes as you think about the longer-term plan? Christopher Womack: Yes, Carly, let's start with the election question first. Elections in Georgia for the 2 commission seats, they will be held next Tuesday. We've had a couple of weeks of early voting. I mean one of the things we talk a lot about in all of our states is that we have an incredibly long history of working constructively with whomever is in those seats. And the 5 seats that are occupied in Georgia, they've always brought different views and perspectives. And so we expect that will, in fact, be the same. And so we'll work with whomever is there. And as those positions are filled, I mean, they keep the citizens in mind as well as we keep our customers in mind. So we have a lot of alignment there. So we've always constructively worked with whomever has been elected in those seats. Do you want to add further? David Poroch: And Carly, you asked about status and kind of where we are. Recall that in September, Georgia Power filed an updated load forecast and testimony. And that load forecast, using the same methodologies as several months ago, discounting forecasted load and risk adjusting that, supported the need for the whole 10 gigawatts that we're requesting. And that process is ongoing. So we're going to have staff and other interveners file their testimony in the next couple of weeks, I think. And we're scheduled to get a ruling from the commission, I think it's December 19, latter part of December. But all that should be wrapped up, and we'll see the results before year-end. Operator: Your next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Chris, can we talk about the rebasing? You use the same language again about as early as '27. And a lot of folks are very curious to understand what the metrics that you're looking at, whether it's operational or regulatory or just frankly, incremental signed data center deals to get you comfortable to make it more of a firmer time line for that rebasing. Any thoughts that you'd observe here on how you're thinking about that time line? Christopher Womack: Julien, I mean, I think we've said. I mean there's not kind of an exact list. I mean there are a lot of things that we're going to look at to make that decision. I mean how is the economy performing, what's happening with interest rates? I mean where are we with large load contracts? I mean just a number of factors, I think, that has to go into that consideration to give us the confidence and certainty to make that kind of decision. And so I mean, as we said before, I mean, clearly, there's a lot more meat on the bone in terms of where we are and how that decision needs to be made. But yes, I mean, that's something we'll work through, and we'll give you more clarity on that in our February call for next year. Julien Dumoulin-Smith: Awesome. Excellent. And a little bit more of a nitpicky question. The $9 billion of equity you guys talked about here a second ago, in theory, if you were to get this incremental $5 billion, how do you think about that being reflected in that $9 billion? David Poroch: The upside that we discussed in the second quarter call, Julien, you mean? Julien Dumoulin-Smith: Yes. That's all in there, right? David Poroch: No. Actually, the upside to the extent that the Georgia Public Service Commission approves all of our request, we had talked about that being about another $4 billion of incremental capital. And that's likely to be financed kind of in that neighborhood of about 40% equity going forward. So once we get clarity on that, we'll be able to execute on that plan. Julien Dumoulin-Smith: And there's a little rounding out there, right, between the $4 billion and the $5 billion with gas, I think it is, if I understand all the number? David Poroch: You're exactly right, Julien. The $4 billion relates specifically to the remainder at request at the Georgia Public Service Commission. And we've talked about opportunities within our FERC-regulated jurisdictions in the gas infrastructure business, and that's about $1 billion. So you're exactly on point. Operator: Your next question comes from Shar Pourreza with Wells Fargo. Shahriar Pourreza: So just real quick on -- let me just shift gears to Southern Power. I mean, obviously, there is a lot of opportunities there, and you've got existing tolling agreements that start to expire. I guess. I guess, is there -- how do we think about just the assets, the value of the assets, the pricing environment? Have conversations started? And are there opportunities to renegotiate these tolls ahead of the expirations, just given the value of the assets? David Poroch: Yes. So like we've talked about, we've got a very large portion of these contracts under long term -- of these assets under long-term contracts, about 95% or so through 2029. And you're absolutely right. There's -- where those opportunities exist, we're -- toward the end of those contracts, we'll start having some conversations to renegotiate those and renew those where appropriate. And we're looking at a couple of live data points, right, in our -- in the RFP that was recently approved in Georgia. Southern Power on a competitive bid basis won 2 PPAs that go into effect in the early 2030s. And those are repriced about 2 -- almost 3x kind of where they sit today. So assuming that, that market holds, we see great opportunity out in the future as those contracts lay off and then we can renegotiate those and recommit those assets in the future. Shahriar Pourreza: Got it. Okay. Perfect. And then just lastly, just obviously, you guys talked about the amount of gas that's needed in the Southeast. Just around the SNG pipeline expansion, any thoughts on timing there? How are the conversations going with the counterparties? David Poroch: The SNG expansion is going well on track. I think we've talked about that being about a $3 billion investment, 100% dollars. We're a 50% owner of that. And so that project is going as scheduled, and we expect great interest in contracting that capacity. That pipe runs kind of, if you will, through our backyard, and we see that pipe being able to just serve our needs as well as a number of other needs through the -- around the adjoining states. So looking forward to getting that project taken care of. Shahriar Pourreza: Okay. Perfect. And then just lastly, if I could just slip one quick one on the equity question. Chris, there's been obviously some pretty healthy transactions that have been done around partial asset sales. Some of your peers have done it. They have been successful. It's been accretive. But just want to get a sense on have you considered sort of other avenues versus these equity or equity-like instruments and even can some parts of Southern Power be opportunities there? We're just focusing on equity and equity-like. Christopher Womack: Shar, we don't comment on kind of speculative transactions or rumors or kind of these broad questions. We're always looking to see who is the best owner of a given asset. And that's something that we'll always look around corners and make those kinds of decisions. And I think it's a little bit premature. But yes, I mean, that's something that we'll always give deep considerations to. We like our cards. We like the portfolio that we have. But I mean, there's some things we'll always take a look at. Operator: Your next question comes from Anthony Crowdell with Mizuho Securities. Anthony Crowdell: Two easy ones, 2 softballs. You talked about on the fourth quarter call, you're going to give us a capital refresh and, I guess, potentially an update on the EPS CAGR. And I think you mentioned, I don't want to put words in your mouth about maybe talking about the base starting in '27. My question is, do we get -- will we also get 2027 guidance on the fourth quarter call? David Poroch: Anthony, we've been talking about this opportunity for a good little while. And as we've seen this kind of momentum around developing these contracts come to fruition, it is pretty unique. And those contracts that we've talked about are kind of coming into play in the latter part of our planning horizon. So we do expect to be able to share some clarity on that. Like Chris talked about, a lot of things are in the mix. And as we move forward in getting these contracts taken care of, we'll be able to share what that clarity looks like in February. Anthony Crowdell: Great. And then just last question. And I apologize I have the timing wrong. I believe from your last call to this call I believe Moody's put the holding company on a negative outlook. Your equity needs had already announced before. Does that negative outlook or maybe change the view of maybe pulling forward or the timing of that remainder $2 billion of equity? David Poroch: Yes. No. We've got what we believe is a really good path to get towards 17% FFO to debt. And let's remember, the fundamental belief at Southern that a premium equity starts with being a high-quality credit. And so it's important that we're going to retain these ratings that we have. And we'd look to be able to build cushion toward that 16% threshold. That's our downgrade threshold. So our path is getting closer to 17%. And we see these qualitative factors and quantitative factors improving. The executing on the equity issuances is really encouraging, bringing these contracts to fruition is encouraging. And we're just going to continue to be proactive and disciplined in this approach. And we're going to continue to share our progress with the rating agencies to make sure that they're aware of where we're getting -- where we're going towards 17% over the planning horizon. Operator: Your next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to -- just one quick question here with regards to nuclear. I think Southern has talked in the past the importance of nuclear development for the future of the country. And we've seen support from the federal government start to move things forward in different parts of the country. Just wondering if there's any specific actions out there, support from the federal government or are there entities that would make expanding Vogtle or pursuing SMR more attractive to Southern? Christopher Womack: First of all, let me say I was incredibly excited about the actions that the administration took with Westinghouse and Cameco and Brookfield in terms of that collaboration. I mean, I think all of those things are very important to bring forth new nuclear in this country. And with this incredibly growing demand, I think it's so important that we take the steps necessary to build new units in this country. And so between the action taken announced yesterday, a couple of days ago as well as the President's executive orders on the regulatory side, all those things, I think, are very important and very instrumental in helping support the development of new nuclear in this country because as you look at bringing these new units on, these units could have 60- to 80-year lives. And so that will take us in -- meet the current future demand, but also demand into the next century. So this is incredibly important to recognize the steps in the leadership role that the government must take to address risk and find ways to help mitigate that risk. So I think it's incredibly important and really excited about the steps that are being taken by this administration. Operator: Your next question comes from Andrew Weisel with Scotiabank. Andrew Weisel: Forgive me, I'm not sure if I heard an answer to that last question. Does all of that federal government activity change your appetite? I appreciate the industry commentary, but what about your appetite? Christopher Womack: Not at this time. Andrew Weisel: Okay. But that wasn't my original question. My original question was on Slide 9, I'm interested. So you showed the demand from large load customers for 2029 and then the mid-30s. What strikes me is it's a fairly small change, only 1 incremental gigawatt is contracted and 1 additional gigawatt of committed. How much of that would you say is the same projects ramping up their demand versus an incremental project or projects coming online between those years? And then to what degree would you say the small increase is conservatism or risk adjusting or however you want to call it? It just seems like a fairly small delta relative to the trends and commentary. David Poroch: Yes. No, I get where you're coming from. What we wanted to try to display in this chart, so I appreciate your question, is that the entire 7 gigs on the 2029 column is included in the 2030 column. And so what we're trying to reflect there is ramp-up, timing and our expectations and projections based on the contracts that we have as well as in the committed section, that's reflective of the conversations that we've been having and the modeling that we've been doing through the negotiations. And so those ramp-ups do take a minute and those are projected to kind of be over about a 5-year period. It's a little different from contract to contract because obviously, these are tailor-made contracts, bilateral negotiations, not necessarily at all a unique large load tariff. And so these are tailor-made and reflect our expectations around the ramp-up. Operator: And your next question comes from David Arcaro with Morgan Stanley. David Arcaro: So looking at the 10 gigawatt large load contracted or committed numbers by 2029, I guess, I was just wondering if there's still a further opportunity to add on more gigawatts there to bring on more large load by the 2029 time frame? Or are you seeing system constraints or limits in terms of absorbing additional data centers in the near term? Christopher Womack: I think the ability to bring on more is out there. I mean so the answer to your question is, yes, there's more capacity, more opportunity. And yes, we are in advanced discussions, in advanced considerations with other large load companies in terms of looking at more possibilities. So yes, there are more upside opportunities for the latter part of this decade. David Arcaro: Yes. Okay. Got it. Got it. And then I was just wondering if you could -- could you characterize just maybe the plan for the next set of RFPs? Just looking forward for future generation needs, what years would those be representing in terms of when they come into service? And then when would you be potentially considering bringing forth those RFPs to take in the bids? David Poroch: Sure. So remember, that '25 IRP stipulation allowed for another all-source RFP to begin as early as 2026. And at the moment, we don't really have any size or parameters. We're just working through that and assessing our needs. We need to get through the processes in place at the moment, and then we'll look to the future. And that could be in the early 2030s, maybe 2032-ish, but we'll have to wait and see how that plays out, and we'll have more clarity next year. But we're really encouraged by the conversations that we've been having and the momentum continues to build, not just in Georgia, but around the service territories. Operator: Your next question comes from Angie Storozynski with Seaport. Agnieszka Storozynski: So my first question about contract-based gas fired new build. So in the past, you guys were saying that you're still waiting to see demand or interest in like fully loaded economics for gas-fired new build for Southern Power. And I'm wondering if we've already achieved that point? Or is it still a waiting period? David Poroch: For recontracting at Southern Power? I just want to make sure I understand the question. Agnieszka Storozynski: No, so like building a brand new combined cycles for a hyperscaler or whoever under a long-term contract by Southern Power meeting your return expectations? If you've already seen offers at levels that you would consider interesting? David Poroch: We continue to evaluate. And recall, I think we talked about it probably several times in the past that Southern Power, we run with a pretty high filter. We have high credit quality counterparties, long term in nature, locking up the capacity, no fuel risk. So as we find those opportunities that fit into that box, we'll definitely pursue them. And at the moment, we're just still evaluating. Agnieszka Storozynski: So the answer is no, you haven't seen them or you're still sort of debating if the terms are attractive? David Poroch: Yes, we're evaluating and having some conversations around that. Agnieszka Storozynski: Okay. And then second thing, and I know you have answered this question a couple of times already on this call about the nuclear new build. But it's -- and we keep hearing, especially from Westinghouse, right, that they are seeing interest in nuclear new build from large regulated utility operators in the U.S. And I know that it could be just preliminary discussions, but I mean, the Southeast seems to come up quite a bit. I mean I'm looking at the map. There are a few options here. So I'm just wondering, is it just, as I said, preliminary discussions? Or is it -- you wouldn't be the first one seemingly given what's happening in South Carolina. But how should we brace for any potential announcements from you? Christopher Womack: Yes. I mean I can't speak for others, but I'll speak for Southern Company. We are not there yet to make an announcement about a new nuclear plant. As we said many times in the past, we want to make sure that all risks are mitigated before we make that kind of decision. I'm excited about all the activity that's occurring around the country with considerations about new nuclear. But until we find a way to get all the risks mitigated, I mean, that's not a decision that we're going to make. But we're going to continue to work with the administration, work with other government agencies to talk about the importance and the role that new nuclear can play in meeting this growing demand. But being perfectly clear, no, we're not in a position to make that decision at this point until we find ways to make sure all risks are mitigated. Operator: Your next question comes from Paul Fremont with Ladenburg Thalmann. Paul Fremont: First question is, I just want to understand the difference between contracted and committed. Is that just an ESA versus an LOA? Or what's the distinction there? David Poroch: Sure. So let's maybe start with the contract. I mean that's a signed agreement, hopefully pretty relatively self-explanatory. We've got a commitment to deliver based on the terms and conditions negotiated and parties have signed off and we're moving forward. The RFS, request for service, that's going through the process that we've described in the past, where you kind of start with an entity looking across the states, maybe they've selected Georgia. We start having conversations with them. We start getting through -- they're going to -- within the state of Georgia, as an example, they're going to pick Georgia Power versus other providers. That takes us to a new level of conversation. More collateral is posted. The process gets more involved. Engineering studies are happening. And so the commitment then is as we're negotiating terms and conditions, pricing, ramp-ups and other needs, that's kind of like your last phase before you're getting into actually signing a contract. So committed is very far down the road, and we're working through Ts and Cs, finalizing engineering studies and on the verge of signing contracts. Paul Fremont: Okay. So that's sort of like finalizing agreements. Can you -- would you be able to characterize then how many gigawatts would be in advanced stage negotiations? I think some of your peers provide that third layer of breakout. David Poroch: Yes. So in that bucket, we're probably in the neighborhood 12-ish gigs. I mean it's fairly dynamic and it's across the system. Paul Fremont: Great. And then sort of last question for me. You are targeting or you're guiding to 8% sales growth. What year would you expect to sort of achieve that level of sales growth? David Poroch: That's in the latter part of the horizon. I think we've talked about 2029 is the target for that, and we grow into that over time. Operator: Your next question comes from Travis Miller with Morningstar. Travis Miller: I'm back. So keeping with the large load popular topic here. If I run through those numbers that you broke out in terms of projects and gigawatts, it looks like average projects somewhere less than 0.5 gigawatt, maybe 300 to 500 megawatts. One, I was wondering if that's kind of a fair assessment of what you're seeing out there? And then, two, what is the extra 50 gigawatts or the next stage look like? We've heard some utilities talking about gigawatt projects, tech companies talking about multiple gigawatt projects. So I wonder if you could characterize the current customers and then the next step? David Poroch: Okay. Yes. Thank you. So yes, I wouldn't do just the straight math. I mean these are wide ranging. We've got some on the 100 megawatts of the scale, and then we've got a couple at the north of 1 gigawatt. And so they are really all over the place. And like we've talked about, I mean, each one of these are tailor-made contracts for their own specific needs. So I'd suggest resisting the simple math. Travis Miller: Okay. That's helpful there. And then the 50 gigawatts or the next stage, 40 or so gigawatts incremental, what are you seeing from those coming into the system requesting... David Poroch: Like, like the whole pipeline. As we've talked about, those are in various stages. And as we build our forecast, we pretty heavily discount all of that through the various layers, if you will, of the contracting process. So yes, 50 gigawatts -- north of 50 gigawatts is the universe in which we're evaluating right now. And we have talked about a small portion of that coming to fruition as a contract. Travis Miller: Okay. But still the same kind of range in terms of actual project, 100 megawatts to north of 1 gigawatts? David Poroch: Yes. Yes, exactly. Travis Miller: Okay. And then do these tend to be greenfield or brownfield? Are they expansions, whether it's manufacturing or data center? Are they expansion projects or greenfield projects typically? David Poroch: Both. Yes, it's really all over the place. I mean we've got industrial customers making announcements that they're expanding their capacity here in our service territories. We've got new businesses relocating or starting up. And then the data centers, some are expanding. I think we mentioned, I think, in our prepared comments that the portfolio of data centers that we're serving today have grown at 17% year-over-year in the quarter. So really excited about what we're seeing in both the portfolio that we're serving today and the process of contracting and the diversity that those customers are bringing to the system. Operator: And that will conclude today's question-and-answer session. Sir, are there any closing remarks? Christopher Womack: Again, let me thank everybody for joining us today on our call. And as we said before, we have a bright future, and we're looking forward to what's ahead. So thank you very much, and have a great day. Operator: Thank you, sir. Ladies and gentlemen, this concludes The Southern Company Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the TF1's 9 Months 2025 Results Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pierre-Alain Gerard, Executive VP, Finance, Strategy and Procurement. Please go ahead, sir. Pierre-Alain Gerard: Thank you very much. Good evening, everyone, and thank you for joining us for our 9 months results presentation. Let's start with our key highlights on Page 3. Audience first. In the first 9 months, the TF1 Group made progress in all targets year-on-year and reinforced its leadership. Audience share rose by 0.8 points to 33.8% among women below 50 and by 0.7 points to 30.7% among individuals aged 25 to 49. The TF1 channel maintained its high audience share in the 4+ target, reaching 18.8%, up 0.2 points year-on-year. With a distinctive editorial stance on the latest international political and economic news, LCI has achieved an audience share of over 2% in the 4+ target since it moved to DTT Channel 15 in June, already ahead of our year-end expectation. In digital, TF1+ attracted 36 million streamers per month on average in the first 9 months and 41 million streamers in September 2025, a new record. Second, our financial performance. The group's consolidated revenue amounted to EUR 1.6 billion in the first 9 months of 2025, stable year-on-year. This amount includes an advertising revenue of EUR 1.1 billion. The 2% decline compared to last year reflects an uncertain and unstable environment. Also bear in mind that the first 9 months of 2024 had been a strong period for the group, fueled by a dynamic market in H1, the broadcasting of the Euro and the halo effect from the Paris Olympics. Now focusing on TF1+. Advertising revenue maintained its strong growth momentum, rising by 41% year-on-year to EUR 134 million. Regarding our COPA and net profit, excluding tax surcharge, we successfully managed to mitigate the impact of ad market headwinds as they only declined by a few million euros compared to last year. We will come back to this in more detail later. The group also maintained a strong financial position with net cash of EUR 465 million at September with an increase of more than EUR 100 million year-on-year. Capitalizing on its successful strategy, the group confirms the following 2025 targets: strong double-digit revenue growth in digital, aiming for a growing dividend policy in the coming years. The current phase of political and fiscal instability in France adversely impacted the advertising market in October, linear in particular. First indications for November are also below expectations. Given this context and with limited visibility until the end of the year, the group has adjusted its 2025 guidance for margin from activities to a level between 10.5% and 11.5% versus a broadly stable margin compared to 2024. This margin level remains solid given adverse market conditions combined with the rollout of our digital strategy. Let's go now into more details. On today's agenda, we'll first give you an update on our business segments. We will then provide additional information on our financial results. After that, we'll update you on our strategy and outlook, and we'll close with a Q&A session. For those of you who are joining us by phone, note that we are broadcasting this presentation as a webcast. You can also find it on our corporate website. Let's start with a quick update on our linear streaming and studio businesses. Now turning to Page 6 and our audience performance. Reach is the key underpinning factor of the value we deliver to customers. In the first 9 months, TV's overall daily reach stood at 76%, while TF1 Group maintained an unrivaled position, covering 52% of French people every day, well above any other media such as YouTube, SVOD services or TikTok. The group maintained its leadership across commercial targets and the TF1 channel retained a significant lead over its main commercial competitor, ahead by 9 points among women below 50 with an audience share of 23%, ahead by 8 points among individuals aged 25 to 49 with an audience share of 20%. Over the first 9 months, the TF1 channel recording high ratings in its genre, ranking #1 in French drama, news, entertainment and movies. Let's turn now to our streaming activities on Page 7. Our strategy is to leverage the group's solid content lineup to address both linear and non-linear expectations. 20% of total viewing comes from non-linear perception among individuals aged 25 to 49 for the TF1 channel. This share is even higher on our strong franchises, reaching, for example, more than 80% for the reality TV genre and more than 50% for our daily soaps, Plus Belle La Vie and ICI Tout Commence. Now looking at the right-hand side of the page, let me give you an update on the platform's building blocks. On consumption, TF1+ attracted 36 million streamers per month on average in the first 9 months and hit a new monthly record with 41 million streamers in September. Overall, streamers watched 834 million hours of content on TF1+ in the first 9 months of 2025 according to Mediametrie, 1.4x the figure achieved by the Second Rank platform. In terms of site-centric figures, which cover all streaming usage not captured by Mediametrie such as specific AVOD and aggregated content, streamed hours rose by 14% year-on-year. On ad inventories, ad load reached 5 minutes and 4 seconds per hour on average in the first 9 months versus 5 minutes on average in 2024. On the value front, CPM reached EUR 13.2 per CPM, a 1% increase year-on-year. As a result, advertising revenue generated by TF1+ rose by 41%, reaching EUR 134 million at end September. On next page, after launching TF1+ in January 2024 and having positioned it as the advertising -- in the advertising market as a premium alternative to YouTube, the group has entered the second phase of its strategic plan. The first key aspect of the second phase is the new form of monetization on TF1+ involving micro payments. Streamers can now take advantage of new features, giving them a la carte access to a wide range of high-quality works and content in return for small payments. Since September, streamers have had access to previews of our top programs. This feature has been rapidly adopted by TF1+ streamers with close to 200,000 transactions recorded over the month of September. These initial figures are very promising, especially since the micro payment offer is not yet available across all telcos and only covers a small portion of our content. On the TF1+ app, the only environment where this offer was fully deployed in September, this already corresponds to 2.6 transactions per converted streamer. We have continued to enrich our offer with new features like ad-free content and exclusive live channel for Star Academy launched in October. Now turning to Page 9 for an update on Studio TF1. Its revenue totaled EUR 213 million at end September, growing by 11% year-on-year, supported by a good momentum, notably in the third quarter. COPA reached EUR 20 million at end September, up EUR 13 million year-on-year. I will come back to this in more details in a few minutes. Highlights in the first 9 months included the launch of TF1, TF1+ and Netflix of our daily series Tout Pour La Lumiere, All For Light in English, the production of Flemish version of Dancing with the Stars for the Belgian channel VTM, the delivery of the documentary series From Rockstar to Killer to Netflix, the third season of Memento Mori for Prime Video, the theatrical releases of the movie, Jouer Avec Le Feu, Avignon and Yapas de Reseau. Let's move now to a more detailed breakdown of our financial results for the first 9 months of 2025. You will find additional information in our consolidated financial statements and their notes as well as our management report, all of which are available on our website. First, a word on revenue on Page 11. The group's consolidated revenue amounted to EUR 1.6 billion in the first 9 months of 2025, stable year-on-year and above the company compared consensus. Revenue from the Media segment declined by 1% to EUR 1.4 billion. Advertising revenue amounted to EUR 1.1 billion, down 2.2%. In linear, the trend in the third quarter was similar to that seen in the first half, with spending by advertisers adversely affected by an uncertain environment. By comparison, the first 9 months of 2024 had been a strong period for the group due to the dynamic market in H1, the broadcasting of the Euro and the halo effect from the Paris Olympics on our revenue. Despite these headwinds, TF1 gained market share as the overall linear market at end September is estimated to be down by a low double-digit percentage year-on-year. In terms of digital advertising revenue, TF1+ continued to demonstrate its appeal for advertisers, rising by 41% to EUR 134 million in the first 9 months of 2025 and significantly outperforming the market. And again, let me remind you that we only disclose here advertising revenue and not a broader streaming revenue, which would be much higher. Non-advertising revenue in the Media segment amounted to EUR 264 million in the first 9 months, up 5% year-on-year. Revenue from interactivity and music and live shows in the first 9 months offset the impact resulting from the deconsolidation of My Little Paris and PlayTwo in the third quarter. Studio TF1's revenue totaled EUR 213 million, an increase of 11% year-on-year. That figure includes a EUR 25 million contribution from JPG compared with EUR 8 million last year. As a reminder, JPG has been consolidated in Studio TF1 financial statements since the third quarter of 2024, and its activity is skewed towards the second half of the year. Excluding JPG, Studio TF1's revenue still rose in the first 9 months, notably thanks to premium deliveries to platforms and successful theatrical releases, as mentioned earlier. COPA amounted to -- on Page 12, COPA amounted to EUR 191 million in the first 9 months of 2025, slightly declining by EUR 7 million and above the company compiled consensus. Margin from activities stood at 11.9%. As a reminder, in Q3 2024, COPA included a EUR 27 million capital gain from the disposal of the Ushuaïa brand. In Q3 2025, the group completed the disposal of the disposals of My Little Paris and PlayTwo that we announced during our H1 results, which generated a capital gain of EUR 17 million. Excluding those items, COPA in the first 9 months of 2024 rose slightly year-on-year by EUR 3 million. The Media segment reported COPA of EUR 171 million. This represents a year-on-year decrease of EUR 20 million, resulting from a decline in advertising revenue and lower gains from the disposal that I just mentioned. Studio TF1 generated COPA of EUR 20 million, a strong increase of EUR 13 million, notably thanks to the JPG's contribution. Studio TF1 margin was up 5.7 points year-on-year, reaching 9.4%. Regarding the income statement on Page 13, I have already commented on consolidated revenue and COPA. Looking further down, operating profit totaled EUR 175 million, broadly stable year-on-year. That figure includes EUR 9 million in amortization charges relating to intangible assets arising from the JPG acquisition and EUR 7 million in nonrecurring expenses related to the group's digital acceleration plan. Net profit attributable to the group, excluding exceptional tax surcharge, was EUR 138 million, slightly down EUR 8 million. Compared with last year, net profit includes lower gains from disposals and a decrease in financial income due to lower interest rates. Income tax expense for the first 9 months included an exceptional contribution levied on French companies under the 2025 finance bill. This exceptional EUR 15 million tax surcharge for the period comprises EUR 10 million based on 2024 taxable profits fully recognized in Q1, as you remember. Moving on Page 14 on the net cash position. At September 2025, the TF1 Group had a solid financial position with net cash of EUR 465 million, up EUR 101 million year-on-year. Our solid balance sheet is an asset to navigate the volatile environment and keep rolling out our digital road map. Note that the EUR 238 million in CapEx compared to EUR 183 million last year, but it includes EUR 27 million proceeds from Ushuaïa. The difference between EUR 238 million and EUR 210 million of 2024 reflects future deliveries for Studio TF1. The EUR 41 million decrease compared with end December 2024 mostly reflects free cash flow after working cap of EUR 84 million and the dividend payment by TF1 of EUR 127 million in April. Before turning to our outlook, let me wrap up the key takeaways of our first 9 months. In a very uncertain and unstable environment, the group successfully tackled advertising market headwinds, thus mitigating the impact on COPA. First, we managed to gain market share across the board in a more challenging market than expected, underlying the competitiveness of our ad sales. Digital grew by 41%, significantly ahead of the market, while the decline in linear was limited to 6% compared with an estimated low double-digit percentage market decline. Second, we keep a tight control on cost, as illustrated by the EUR 9 million decrease in programming costs and the savings achieved in operational costs. And on the other hand, we safeguard the resources required to fuel the second phase of our strategy. Lastly, we actively manage our portfolio, both on media and on studio, as illustrated by the disposals of My Little Paris and PlayTwo and by the successful integration of JPG. Let's now have a look at our targets for the rest of the year. First, in terms of lineup, we will maintain in Q4 the best offer of free family-oriented and serialized entertainment as illustrated by the return of Star Academy, a 360-degree experience that will be broadcast across TF1, TFX and TF1+ alongside a social media presence that will drive strong engagement, particularly among younger targets. Q4 highlights also include the new premium French drama, Monmartre as well as 6 matches involving France National Football and Rugby teams. About Rugby, as you know, TF1 has secured the rights to broadcast the 2027 Rugby World Cup and the 2026 and 2028 Nations Championship as well as the 2027 and 2029 Autumn Nations Series. The deal reinforces TF1 Group's long-term strategy to make the most popular sporting events available to French viewers on free-to-air television. As you know, our objective is to sustainably finance this premium lineup going forward. After launching TF1+ in January 2024 and establishing it as a premium alternative to YouTube, the group is in the second phase of its strategic plan, which involves 3 pillars. The first pillar of this new phase is micro payment. As mentioned earlier, this feature, which was launched in September 2025, previews has been rapidly adopted by TF1+ users. New features, ad-free content and an exclusive live channel for Star Academy were launched in October. And again, if you do the math, the additional revenue potential of this initiative is significant if a portion of our monthly streamers transact several times a month. The second pillar is the extension of the group's distribution strategy illustrated by a landmark deal signed with Netflix. Starting in the summer 2026, we will show all 5 of our linear channel on Netflix as well as more than 30,000 hours of content available on demand. This unprecedented alliance will unlock additional reach for TF1 as a significant portion of Netflix subscribers consider Netflix as their primary source of TV entertainment. In addition, TF1 will benefit from Netflix's unrivaled expertise in content recommendation. Finally, the third pillar of this new strategic phase is the expansion of TF1+ distribution among French speakers worldwide. TF1+ has been available in Belgium, Luxembourg and Switzerland since 2024 and in 22 French-speaking African countries since June 2025. Moving on Page 18. Capitalizing on its successful strategy, the group confirms the following 2025 targets: strong double-digit revenue growth in digital, aiming for a growing dividend policy in the coming years. And the current phase of political and fiscal instability in France is undermining the confidence of economic actors and is resulting in a more challenging advertising market than expected, particularly in linear. The general trend seems to be the same across Europe, but the magnitude of the decline in October, low double-digit percentage appears to be specific to France. First indications for November are also below expectations and visibility remains limited until the end of the year. At this stage, we conservatively assume that it will be the same in December. In this context, the group adjusts its 2025 margin from activities target from broadly stable compared to 2025 to between 10.5% and 11.5%, a solid margin level. Many thanks for your attention, and now I'm ready for your questions. Operator: [Operator Instructions] Pierre-Alain Gerard: We have a written question on the platform here. So it is about the organic growth of Studio TF1 in the third quarter of the year. So the perimeter effect is EUR 11 million over the 9 months. And on a like-for-like basis, the growth is 6%. Operator: [Operator Instructions] At the moment, there are no questions from the phone. I'll turn the call back to you for any closing remarks. Pierre-Alain Gerard: Thank you very much. So to summarize these results, what you need to bear in mind is that we managed to gain market share across the board. We have a tight control on cost and active portfolio management, which led us to gain market share both in linear and in digital. So in this turbulent market, this is why we adjust the margin between 10.5% and 11% which is still a strong level. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Indivior PLC Q3 Results 2025 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today, Jason Thompson. Please go ahead. Jason Thompson: Thanks, Sharon, and welcome to Indivior’s Third Quarter 2025 Earnings Conference Call. I'm joined today by Joe Ciaffoni, Chief Executive Officer; Patrick Barry, Chief Commercial Officer; and Ryan Preblick, Chief Financial Officer. We are also joined by Christian Heidbreder, our Chief Scientific Officer, who is also available for questions. Before we begin, I need to remind everyone on today's call that we may make forward-looking statements that are subject to risks and uncertainties and that actual results may differ materially. We list the factors that may cause our results to be materially different on Slide 2 of this presentation. We also may refer to non-GAAP measures, the reconciliations for which may also be found in the appendix to this presentation that is now posted on our website at indivior.com. I'll now turn the call over to Joe Ciaffoni, our CEO. Joseph Ciaffoni: Thanks, Jason. Good morning, and thank you for joining our third quarter results call. I'll start with a brief overview of our performance in the quarter and detail the progress we are making against the Indivior Action Agenda. Pat will then discuss SUBLOCADE's performance and the progress we are making to improve SUBLOCADE commercial execution, and Ryan will discuss our third quarter financial performance and our raised full year 2025 guidance. We will then open the call for questions. We are encouraged by our strong financial performance and improved commercial execution in the U.S. We are making steady progress versus our priorities and Phase 1 generate momentum of the Indivior action agenda. We have taken several actions to simplify the organization and position Indivior for success moving forward. In the third quarter, we delivered strong 15% year-over-year growth in SUBLOCADE and benefited from continued price stability in SUBOXONE Film in the U.S. Total net revenue grew 2% year-over-year and adjusted EBITDA was up 14%. The momentum we have generated year-to-date is enabling us to raise our 2025 financial guidance. We now expect total net revenue in 2025 to be up versus 2024, driven by SUBLOCADE growth of 10% at the midpoint and assume SUBOXONE Film price stability for the remainder of the year. Adjusted EBITDA is now expected to grow 15% versus 2024 at the midpoint. I want to thank the Indivior team for their performance in the quarter and for their commitment to making a positive difference in the lives of people living with opioid use disorder in the communities that we serve. For the rest of the year, we are focused on completing Phase 1, Generate Momentum of the Indivior Action Agenda, and we will be ready to enter Phase II, Accelerate, on January 1, 2026. The Indivior Action Agenda is a 3-phased multiyear operational road map intended to maximize the potential of our business and make a positive difference in the lives of people living with opioid use disorder while creating value for our shareholders. We are making steady progress in Phase 1, Generate Momentum versus our key priorities that include growing SUBLOCADE in the U.S. the remainder of the year by improving commercial execution, taking actions to simplify the organization, eliminating all nonessential activities and establishing our go-forward operating model and determining the actions and investments necessary to accelerate long-acting injectable penetration in the U.S. BMAT category and to accelerate SUBLOCADE net revenue growth in 2026 and beyond. For our top priority, growing SUBLOCADE in the U.S., improved commercial execution was the primary driver of solid dispense unit growth. Pat will discuss our commercial progress in more detail. We also took several actions to simplify the organization, improve commercial productivity for SUBLOCADE and strengthen our financial positions. These actions are expected to result in an annual reduction of operating expenses of at least $150 million as compared to 2025. Our 2026 operating budget will not exceed $450 million. To focus and simplify the organization in Phase 1, Generate Momentum, we have completed the London Stock Exchange cancellation with Indivior now trading exclusively on the NASDAQ. We consolidated our operating footprint. We restructured our R&D and medical affairs organizations while preserving key capabilities. We announced our intention to pursue a change in domicile from the U.K. to the U.S. We discontinued the sales and marketing efforts in support of OPVEE. We will continue to distribute product upon request and meet all required contractual and regulatory obligations, and we are optimizing our Rest of World business to focus on Australia, Canada, France and Germany, which generates 77% of forecasted Rest of World net revenue and 94% of forecasted adjusted EBITDA while further reducing organizational complexity. With these actions, we have established our go-forward operating model that we anticipate will generate immediate accretion to the bottom line and improved cash generation as we enter Phase II, Accelerate of the Indivior Action Agenda on January 1, 2026. We plan to provide full year 2026 financial guidance in early January. Also, as part of Phase 1, we are determining actions and investments necessary to accelerate SUBLOCADE growth in the U.S. Included in this is our new direct-to-consumer campaign, which launched on October 1. In Phase II, Accelerate, we will be focused on accelerating U.S. SUBLOCADE growth throughout the year, and we expect to immediately accelerate profitability and cash generation at a faster rate in 2026. I am encouraged by the steady progress that we are making in Phase I, Generate Momentum of the Indivior action agenda. I am confident that we will finish 2025 with momentum, and we are well positioned to enter Phase II, Accelerate, on January 1, 2026. I will now turn the call over to Pat. Patrick Barry: Thank you, Joe. We are encouraged by our strong U.S. SUBLOCADE performance this quarter, which was driven by improved commercial execution. Our commercial team is dedicated to helping people living with OUD and have a strong belief in SUBLOCADE as the #1 prescribed long-acting injectable in the category. To strengthen commercial execution, we have been sharpening the field force's message delivery with higher utilization of SUBLOCADE's core promotional materials on every call to improve overall intent to prescribe. We also are continuing to focus on improving field force call productivity to enable better reach and frequency on treatment providers. Building on our position as the clear #1 LAI, we are reinforcing SUBLOCADE's treatment benefits with prescribers, including broadening HCP awareness of SUBLOCADE's label updates. These label updates include alternate sites of injection and rapid patient induction along with the ability to receive a second injection of SUBLOCADE at day 8. SUBLOCADE's rapid induction is a unique offering in the LAI category, and this clinical option for patients can help maximize the time at effective blood plasma concentration levels by accelerating the second 300-milligram dose. This option is strongly resonating with treatment providers. This improved commercial execution led to strong SUBLOCADE net revenue growth in third quarter. Unit dispense growth was solid at 8% versus prior year and 3% versus the second quarter. Total category share of LAIs and new patient share in the U.S. for SUBLOCADE remained relatively stable at approximately 75%. We also saw 11% year-over-year growth in the number of active SUBLOCADE prescribers and 11% growth in those prescribing for 5 or more patients. The number of SUBLOCADE patients over the trailing 12 months also grew 5% year-over-year. These results are important early indicators of our commercial execution. For the rest of the year, we remain focused on executing Phase 1 of the Indivior Action Agenda for SUBLOCADE. This includes continuous improvement in commercial execution to generate prescribing momentum for the benefit of patients and identifying investments to accelerate LAI penetration in the U.S. to deliver sustained SUBLOCADE net revenue growth in 2026 and beyond. As part of the investments we are making to accelerate the growth of SUBLOCADE, we rolled out a brand-new direct-to-consumer campaign. On October 1, we launched our new campaign, Move Forward in Recovery, which is designed to emotionally and authentically connect with patients and drive awareness of SUBLOCADE as a treatment option for patients struggling with moderate to severe opioid addiction. Grounded in patient insights and shaped by research and lived experiences from patients and caregivers, its objective is to connect with patients by celebrating the everyday moments of recovery progress. Through emotionally rich visuals and a deeply personal narrative, it highlights the potential for growth, transformation and the motivation to move forward for oneself, family and community. Importantly, the campaign addresses the stigma surrounding opioid use disorder by portraying the humanity and dignity of people in recovery, shifting the narrative toward hope and possibility. This campaign is being deployed with sustained investment levels through an omnichannel approach, including national television, digital and social media and in-office and point-of-care materials, along with a newly designed patient website. We're pleased to have our new campaign in the marketplace that is raising awareness and educating patients on the hope and possibility of recovery. While I'm pleased with our progress, we have several opportunities to drive further growth in U.S. SUBLOCADE. I'm confident that we will finish 2025 with momentum and accelerate U.S. SUBLOCADE growth in 2026 and beyond. I will now turn the call over to Ryan. Ryan Preblick: Thanks, Pat. First, I'll discuss our third quarter financial performance, then our raised 2025 financial guidance and close on the financial impacts of our recent actions to simplify the organization. We are encouraged by our financial performance this quarter, which includes strong U.S. SUBLOCADE net revenue growth, stable SUBOXONE Film pricing and year-over-year adjusted EBITDA growth. We have taken meaningful steps to strengthen the business and are on track to achieve our financial commitments and complete Phase 1 of the Indivior Action Agenda, Generate Momentum. Looking at the third quarter results in more detail, starting with the top line. Total net revenue of $314 million, increased 2% versus the prior year as SUBLOCADE net revenue more than offset expected pricing pressure on SUBOXONE Film and the continued wind down of PERSERIS. Total SUBLOCADE net revenue of $219 million, increased 15% versus Q3 2024. Dispense volume growth year-over-year was solid at 8%. On a sequential basis, total SUBLOCADE net revenue increased 5%, reflecting a 3% increase in dispense volume versus Q2. Q3 SUBLOCADE net revenue included a gross to net benefit of $10 million as well as a stocking benefit of $4 million. Turning to SUBOXONE Film net revenue in Q3. We benefited from continued price stability in the U.S. Q3 net revenue included a gross to net benefit of $13 million. Total non-GAAP operating expenses were $145 million in the third quarter, down 3% versus the same quarter last year. Non-GAAP SG&A was unchanged versus the year ago quarter. Non-GAAP R&D expenses decreased 11% due to the reprioritization of pipeline activities and to benefits from the restructuring of the R&D and Medical Affairs organizations. Adjusted EBITDA was $120 million in the third quarter, up 14% versus the same quarter last year, driven by higher net revenue and lower operating expenses. Touching on the balance sheet. We ended the third quarter with gross cash and investments of $473 million, up from $347 million at year-end. The increase in cash year-to-date was driven by approximately $200 million of cash flow from operations. Based on our solid performance year-to-date, we are raising our 2025 financial guidance. Our total net revenue guidance range is increasing to $1.18 billion to $1.22 billion. This raised guidance reflects better-than-expected year-to-date performance of SUBLOCADE and stability in U.S. SUBOXONE Film pricing. We now expect total net revenue in 2025 to be up versus 2024 at the midpoint. For SUBLOCADE, we are raising our full year 2025 net revenue guidance to the range of $825 million to $845 million. This represents year-over-year growth of 10% at the midpoint. We continue to see improving fundamentals for SUBLOCADE and expect to see growth on a demand basis for the remainder of this year. We are maintaining our gross margin guidance in the low to mid-80% range and expect to come in at the high end of our non-GAAP operating expense guidance of $585 million to $600 million. While our total non-GAAP operating expense guidance range is unchanged, we now expect SG&A between $510 million to $520 million, reflecting increased investment behind U.S. SUBLOCADE and expect R&D between $75 million to $80 million, reflecting the restructuring of our R&D and Medical Affairs organizations. We are raising our full year 2025 adjusted EBITDA guidance to $400 million to $420 million, which is an increase of 15% versus 2024 at the midpoint. Turning to our actions to simplify the organization as part of Phase 1 of the Indivior Action Agenda, we made several strategic decisions that position us to realize at least $150 million in annual operating expense savings off the top end of our 2025 non-GAAP operating expense guidance range starting in 2026. These actions reduce operational complexity, increased our focus on growing SUBLOCADE in the U.S. and strengthen our financial position. All the actions taken as part of Phase 1 of the Indivior Action Agenda have resulted in non-GAAP charges of $65 million to date. These charges include severance costs, real estate consolidations, write-offs for inventory, equipment and intangibles as well as other termination payments and consulting costs. The related cash impact is expected to be $40 million and will largely be paid out in the third and fourth quarters of this year. We are on track to deliver Phase 1, Generate Momentum and achieve our revised 2025 financial guidance. We are in a strong financial position as we enter Phase 2 of the Indivior Action Agenda, Accelerate, beginning in 2026, during which we expect to drop significant dollars to the bottom line and accelerate cash flow generation. We plan to announce our 2026 financial guidance in early January. I'll turn the call back over to Joe for concluding remarks. Joseph Ciaffoni: Thanks, Ryan. In conclusion, we have made significant progress on Phase 1 of the Indivior Action Agenda, Generate Momentum. We delivered strong U.S. SUBLOCADE performance in the quarter. We improved our commercial execution, and we took several actions to simplify our organization. With our go-forward operating model in place, we are well positioned to finish 2025 with momentum and begin Phase 2 of the Indivior Action Agenda, Accelerate on January 1, 2026. On a final note, given the optimization of our Rest of World business, I would like to take a moment to recognize and thank our colleagues outside the U.S. who are potentially impacted by this decision and who have worked so hard to ensure patients have access to our medicines. Your contributions to our mission of making a positive difference in the lives of people living with opioid use disorder are important and greatly appreciated. We will now open the call for questions. Operator? Operator: [Operator Instructions] And your first question today comes from the line of Dennis Ding from Jefferies. Yuchen Ding: Congrats on the quarter. I have 2 for you guys. So number one, the new $150 million OpEx cuts for 2026, can you please break down where this is coming from? How much of this was from the recent restructuring plans from your 8-K a few months ago, which I believe was all U.S. personnel? And how much of the OUS optimization is factored into this $150 million number? And then number two, when I look at SG&A as a percentage of revenue, it's around $515 million this year or 43% of revenue. But when I look at industry peers, it's around 25%. So to get to the peer average, that implies at least $215 million cut in SG&A alone. Can you comment philosophically where do you eventually see yourself relative to peers on SG&A spend? And if your goal is to get to peer average or perhaps even better than peers? Joseph Ciaffoni: Dennis, thanks for the questions and for the congratulations. I'm going to have Ryan answer the first question, and then I'll take your second question. Ryan Preblick: Thanks for the question. Before I get to the $150 million, I just want to make it clear that the first priority we had was to make sure we put the right resourcing and investments behind [ Generate ] Momentum, behind SUBLOCADE. And then we went through the exercise of taking a look at the cost structure and the complexity in the business. And what you saw was the net result here of $150 million. And you can break it down into 4 categories. The largest category, almost half is tied to labor. We reduced our headcount by over 32%. The second component was the reduction of all the nonessential spend through the categories and the functions of the business. Then there was the discontinuation of the sales and marketing of OPVEE and then also the final decision to optimize the rest of the world. Joseph Ciaffoni: And Dennis, with regards to your second question, we did not approach Phase 1 of the Action Agenda, Generate Momentum from a perspective of targets. What we were focused on is doing what is in the best interest of Indivior creating value for our shareholders. We believe that starts with maximizing the SUBLOCADE opportunity in the U.S. And then what we did from there is we removed what we believe are all nonessential costs from the organization. My commitment as we go forward is we will continue to ensure that we are only investing in activities that are essential to us maximizing SUBLOCADE in the U.S. and also maximizing the opportunity for our portfolio in Canada and Australia. So it's really not about targets. It's about what's right and in the best interest of Indivior and the value we can create for our shareholders. Operator: Your next question comes from the line of David Amsellem from Piper Sandler. Unknown Analyst: This is [ Alex ] on for David. First one for me is you've talked about gaining traction in commercial patients who, as we know, are more profitable. Can you speak about that opportunity and also how you are balancing that with the core Medicaid population that comprises the majority of the business currently? And then second question is, can you help us contextualize R&D spend going forward given all the organizational changes? Joseph Ciaffoni: Sure. Thanks for the questions. I'll have Pat take the first one, and Ryan can take the second. Patrick Barry: Yes. No, I appreciate the question on the commercial channel. And to your point, we want all channels to grow. We want Medicaid and commercial to grow, and we're certainly taking on the big effort of driving commercial volume. And so it starts with improved commercial execution around messaging and making sure that our customers understand the broad coverage that we have and the fact that those commercial patients, in most cases, 95% of the time, will have a 0 out-of-pocket. And then it continues with the important work of our -- working with our specialty pharmacy channel to make that as an efficient channel as Medicaid. And so we're starting that work, and we do anticipate that, that -- while that will take some time, that we will see impact as we get into 2026. But the fact is that the commercial channel is growing. And certainly, Medicaid is going to be the predominant channel for us, but we think commercial is a strong opportunity for us as well. Joseph Ciaffoni: Ryan? Ryan Preblick: Yes. And on the R&D spend, what you're seeing there is the consolidation and streamlining of the R&D and the medical team cost consolidations and the complexity there. But as it stands right now, we are focused on the Phase II assets and progressing them through 2025 and looking forward to the readouts in 2026. But to be very clear, if they are ready to proceed into Phase III, we do have the capabilities to make that happen. Operator: Your next question comes from the line of Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Congrats on a great quarter here. Maybe just first on SUBLOCADE. Guidance implies a very strong Q4. Can you just speak to if we're starting to see a meaningful increase in willingness to prescribe from those label updates, kind of anything there? And then just second on that, on the LAI market generally, I mean, clearly back to substantial growth. Do you think we're now clearly kind of seeing the benefits of 2 voices out there driving market growth? Or just kind of give us an update on kind of your thoughts on the market there as it's apparent, it's very, very strong in the third quarter. Joseph Ciaffoni: Yes. So Chase, thanks for the questions. With regards to SUBLOCADE, what I believe we're seeing is the cumulative effect of improved commercial execution right now as we're getting better, we're doing better. We're also seeing the impact of the label changes as awareness rises playing through in the marketplace, along with significant investments we've made in commercial throughout the year. As it pertains to LAI penetration, what I would emphasize there is we believe and have learned we're the player that has the expertise and the resources to make the investment to create the awareness and drive the education around the category, and that's exactly what it is that we're committed to do. And I want to be clear, as we transition to 2026 with our broad DTC campaign, we are going to be investing beyond what it is that our models suggest that we should because we are committed to maximizing the potential of SUBLOCADE in the U.S. Chase Knickerbocker: And just with the strength that we're seeing, I mean, I know we're -- it's probably too early of a question, but certainly, it seems like we should be thinking about SUBLOCADE next year as maintaining kind of double-digit year-over-year growth as your guidance even implies for 2025 now. So just any thoughts you'd be willing to share there, Joe? And then just second, on capital allocation. EBITDA guide was impressive. Can you just speak to how you're thinking about capital allocation now that your balance sheet is going to be strengthening meaningfully? Joseph Ciaffoni: Yes. So with regards to SUBLOCADE in 2026, we'll hold on commenting on that until we give our financial guidance for 2026 in January. What I would say is we are encouraged that all the indicators in support of SUBLOCADE are pointing in the right direction. As it pertains to capital allocation, we're going to ask people to be patient. We want the opportunity to finish Phase I of the Indivior Action Agenda, along with our internal planning process to ensure we have a clear line of sight to the top line and the cash that we will be generating. Obviously, we'll have a lot of optionality as we go forward. Operator: Your next question comes from the line of Christian Glennie from Stifel. Christian Glennie: First one, maybe on some more around the sort of drivers here potentially on SUBLOCADE as it relates to some topics maybe we haven't touched a bit on for a while, particularly things like the -- whether there's any benefit you're seeing on average duration of use for patients, but then also the ultimate conversion of prescription into an actual dispense prescription. So anything to add there initially on that in terms of other drivers that could drive some growth? Joseph Ciaffoni: Okay. Christian, thanks for the question. I'm going to ask Pat to take that one. Patrick Barry: Yes. No, on dispense growth, we're seeing really positive indicators. We saw an 8% dispense growth year-over-year and a sequential growth that was solid off of a strong quarter. We're also pleased by the fact that some of the drivers behind that is we're increasing our prescriber base as well as increasing those from -- that are committed to writing [ 5 ] plus, which is a good indicator of solid prescribing and adoption. And so those are the indicators that we're really, really focused on. And we do believe that enhanced label is a differentiator in the marketplace because we're the only long-acting injectable monthly that has that rapid induction, and that's resonating very well with customers. Christian Glennie: And sorry, anything on the average duration that patients are on SUBLOCADE? Joseph Ciaffoni: Yes. So Christian, with regards to -- and that comes through the work we'll be doing through our specialty distribution in terms of conversion of patients to starts, and how long they continue on treatment. That's a work stream we kicked off. We're digging deeply into, and we'll comment more on that in 2026, but we expect those efforts to start to have impact in 2026. And that's one of the areas of which we believe will help accelerate SUBLOCADE dispense unit growth as we move forward. Christian Glennie: And then my second one will be around just a clarification on the OpEx guide for '26 in terms of the savings certainly. Does that imply that effectively rest of world is streamlined and as it will be by the 1st of January, effectively of '26? And then just to clarify on the R&D part, does that -- does the guidance assume that those Phase II assets progress into Phase III, for example, with the cost of that? Or is that something that may subsequently need an update? Joseph Ciaffoni: Yes. So I'll ask Ryan to take the first question. I'll take the second. Ryan Preblick: Yes. So regarding the budget for next year, where we said we will not spend more than $450 million. That includes everything. That includes our go-forward model in the U.S. and in the Rest of the World business. Joseph Ciaffoni: Okay. And from an R&D perspective, with the changes that we've made, we've preserved the capability if we're fortunate enough to have programs to advance when the data reads out to be able to do so, and that would not result in an additional increase to OpEx in 2026. Operator: Your next question comes from the line of Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congratulations on a very good quarter. Maybe just following on from an earlier question. So as we look ahead to 2026 and the potential to move into Phase III, what do you need to see from the SUBLOCADE business to move into that phase? Are you expecting the enhanced commercial focus to be running at full speed at that stage? And alternatively, how do you see the sort of long-term path to peak sales in SUBLOCADE or peak penetration in the LAI market? And then along those lines, thinking again of Phase III, sort of what are you thinking about in terms of that breakout phase in terms of assets you would go after? Are these adjacencies that may not distract from the SUBLOCADE efforts? Just any color on that would be helpful. Joseph Ciaffoni: Yes. So Brandon, thank you for the congratulations and certainly appreciate the questions. First off, I want to emphasize, we are head down in Phase I, generate momentum and looking to finish off the year and be positioned to start Phase II accelerate on January 1. The second thing I want to emphasize, we've been clear, we have to earn our way to Phase III. And that starts with internally the confidence that we have the capabilities to take on more. And then, of course, externally, that we have the credibility to do so. So we're not focused to Phase III at this point. We're focused around executing what we're setting out to do. I think to your question directly, when we transition to Phase II, the answer will be, one, the assessment of the internal capabilities, which will be aligned to the results that we're delivering relative to the guidance that we're giving. From a -- what we would be looking at, what I would be comfortable saying now if we earn our way to it, will be commercial stage assets that have the potential to enhance our growth profile and to diversify our revenue. And I'll let Pat comment on long-acting injectable penetration and what it is that we're doing to drive that. Patrick Barry: Yes. Thanks, Joe. Look, right now, we are the market leader, and we've more than stabilized share at 75%. But the fact is, is that the overall LAI category still sits at 8%. And so our focus is going to be on continuing to improve our commercial execution. As we get better, the business will get better. We do believe that our effectiveness will drive LAI category. And we also are placing a big bet on direct-to-consumer. As the category leader, we want to drive education of those OUD patients and drive traffic into our treaters' offices. And we're investing in that way in a sustained way to do just that. Certainly not going to call a peak penetration rate, but I might direct you to other analogs, whether it be the HIV market or the schizophrenia market, where the LAIs have achieved 20% to 25% peak penetration. We're a long way off from that, but that's what's encouraging for us. When we get better, we have a big opportunity to capitalize on. Joseph Ciaffoni: And Brandon, one other thing I would add, we've also -- Vanessa Procter has joined our organization, and we believe that it's important that the work that we do in advocating for these patients, inclusive of public policy will be key in ensuring access and ultimately increasing long-acting injectable penetration. So that along with the consumer are really where we're going to put our efforts to drive LAI penetration. Brandon Folkes: Great. And a follow-up, if I may, and I think this may be for Ryan, bit of minutia, but just cash flow from operations in the quarter, are there [ one-timer ] there just sort of the spend on the cost reduction and the Medicaid rebate that you called out in 2Q? Anything else? And then maybe just any color on cash conversion in 2026? And then also on that $450 million OpEx spend, is that a cash basis or an adjusted accounting figure, which may include some noncash figures? Sorry about the minutia, but I just want to get this right, and that's all for me. Joseph Ciaffoni: Ryan? Ryan Preblick: Yes. So starting with the 2025 cash, the $200 million is primarily driven by the underlying business, the strong demand that got us up and generate $200 million. But that was offset, as you can imagine, by some CapEx and some debt payments. So that's the walk in regards to 2025. In regards to 2026, that $450 million is our adjusted operating expense budget in terms of expense that will hit our P&L for next year. Operator: Your next question comes from the line of Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just maybe a quick question on SUBLOCADE in the quarter, and I apologize if it's been touched on and I missed it, but if you could give more details on the gross to net in the quarter for SUBLOCADE. Given the guidance for the year, I assume there is no risk of reversal, but could that be a sort of bigger base when you think about growth for next year? And then the second question, just on SUBOXONE. I know it's not the focus, but just if you could touch a bit on your visibility now that we've seen pricing being a bit stable for more time. The erosion seems to be stable as well. So just how you think about it in your building block when thinking about the outlook for the organization going forward? Joseph Ciaffoni: Thank you for the questions, Thibault. I'll take SUBOXONE and then hand the SUBLOCADE gross to net question off to Ryan. So, look, what I'll comment on SUBOXONE is limited to 2025, which is we are at a point in the year where in our raised guidance, we are not assuming any additional price erosion. So that's different than what we've previously said. We're assuming price stability. We've also seen a relatively slow decline from a share perspective. In terms of 2026, I'm going to hold until we have a full picture of the evolution of the payer landscape and those dynamics. So we'll -- that certainly, from a revenue perspective, will be incorporated into the guidance that we give in 2026. And then Ryan on SUBLOCADE. Ryan Preblick: Yes. So in regards to the Q3 net revenue, to give you a little color, we booked the $219 million, which was up 15% versus last year, driven primarily by the dispense. Within that number, you saw the result of our normal quarterly balance sheet review of our accruals. There was a gross to net release of $10 million in there, and then there was also some stocking in terms of shipment phasing. So that's the $4 million. So a total of $14 million of benefit in the quarter. Operator: I will now hand the call back to Joe for closing remarks. Joseph Ciaffoni: Thank you, operator, and thank you to everyone for joining the call today. We look forward to updating you on our progress as we execute the Indivior Action Agenda. Have a great day. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to EPR Properties Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Brian Moriarty, Senior Vice President of Corporate Communications. Brian Moriarty: Thank you, Sophie. Thanks for joining us today for our Third Quarter 2025 Earnings Call and Webcast. Participants on today's call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. I I'll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other such comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the Investor Center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silver. Gregory Silvers: Thank you, Brian. Good morning, everyone, and welcome to our third quarter 2025 earnings call and webcast. The third quarter marked another period of steady progress as we continue to position the company for accelerated growth and expansion. We are pleased to report a 5.4% increase in FFO as adjusted per share versus the same quarter last year and an increase at the midpoint in our FFO as adjusted guidance for the current year. Our disciplined deployment strategy is enabling us to expand our portfolio of experiential properties. Our team is leveraging both existing relationships and new partnerships, and we have a pipeline of investments that are actionable over the next 90 to 120 days. However, given the fluidity of timing, we felt it prudent to not raise investment spending guidance at this time. Larger opportunities are now accessible, and we're moving decisively to capture them as we look towards 2026. During the quarter, we also made continued progress on our strategic capital recycling program. This program has largely been focused on planned noncore theater and opportunistic education dispositions with targeted reinvestment in growth experiential sectors. Our work here has materially strengthened our portfolio and provided for accretive reinvestments. Turning to our portfolio and industry health. Our third quarter consolidated coverage remained strong at 2.0, reflecting continued portfolio stability. At the Box Office, we anticipate a robust fourth quarter and expect 2025 to set a new post-COVID high. The continued recovery of the Box Office has led to a significant increase in percentage rent from our Regal lease. We believe this percentage rent feature has strong upside in the future as we anticipate continued growth at the Box Office. We continue to be pleased with the resilience that our tenants have exhibited as consumers prioritize experiences. At the same time, to mitigate potential economic pressures on consumers, many of our tenants have launched new initiatives. These include annual pass programs with bundled discounts, dynamic daypart pricing and group discount offerings. We are also seeing widespread adoption of enhanced technology across our tenant base, which has the potential to both improve the customer experience and create greater efficiencies. I'd also like to remind everyone that we've successfully navigated many economic cycles over the past 25 years. During this time, we've witnessed the importance and resilience of congregate value-oriented entertainment and leisure in the daily lives of consumers. Lastly, I would like to comment on the status of the proposed transaction involving the sale of our Catskills Land affiliated with the Resorts World Gaming property. We've been advised that the bond transaction, which we understand will be used to fund the exercise of the purchase option will be delayed pending the recently announced proposed merger among Genting gaming entities. While our tenant has indicated their desire to complete a bond transaction and option exercise in 2026, the timing and outcome of such a transaction remains uncertain. Regardless of whether the option is exercised, our strong balance sheet and clear visibility into future opportunities position us to materially accelerate investment spending in 2026. Now I'll turn it over to Greg Zimmerman to go over the business in greater detail. Gregory Zimmerman: Thanks, Greg. At the end of the quarter, our total investments were approximately $6.9 billion with 330 properties that are 99% leased or operated. During the quarter, our investment spending was $54.5 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 275 properties with 53 operators and accounts for 94% of our total investments, or approximately $6.5 billion. And at the end of the quarter was 99% leased or operated. Our education portfolio comprises 55 properties with 5 operators and at the end of the quarter was 100% leased. Turning to coverage. The most recent data provided is based on June trailing 12-month period. Overall portfolio coverage remains strong at 2x. Turning to the operating status of our tenants. Q3 Box Office was $2.4 billion, down from $2.7 billion in Q3 2024. 7 titles grossed over $100 million, led by Superman, Jurassic World: Rebirth, and a Fantastic Four: First Steps. The Q3 2025 comparison was difficult because Q3 2024 was anchored by the strong performance of from Deadpool & Wolverine, Despicable Me, Twisters and Beetlejuice Beetlejuice. The slate for the fourth quarter is anchored by 3 films projected to gross over $200 million, Zootopia 2, Wicked: For Good, and Avatar: Fire & Ash. Box Office through the first 3 quarters was $6.5 billion, a 4% increase over the first 3 quarters of 2024. Our estimate of North American Box Office for calendar year 2025 is between $9 billion and $9.2 billion, an increase of approximately 6% at the midpoint from 2024. Turning now to an update on our other major customer groups. Andretti Karting opened strongly in Oklahoma City in mid-July. The Kansas City location opens in mid-November and Schaumburg, Illinois is expected to open in the second quarter of 2026. Our second Pinstack located in Northern Virginia is also expected to open in Q2. Notwithstanding macro pressures on consumers, our Eat & Play coverage remains strong and above pre-COVID levels, and metrics are stable when compared to Q3 2024. We saw increased EBITDARM across our Attractions portfolio, buoyed by strong performance in our Canadian assets and at Enchanted Forest Water Safari. As we have said for some time, we see a lot of momentum and investment potential in the Hot Springs space. We are very pleased with the performance of all 3 of our Hot Springs investments. Driven by attendance growth and the $90 million expansion at the Springs Resort in Pagosa Springs, EBITDARM and revenue for the portfolio are up year-over-year. Both Iron Mountain Hot Springs and Murietta Hot Springs Resort continue their attendance and revenue growth. Because of the strong performance at Iron Mountain Hot Springs, in Q3, we funded $18.25 million in accordion financing, which reflects our conservative acquisition underwriting practices. Our underwriting thesis was that this asset would continue to grow and outperform expectations. We work with our operator to include in accordion feature, which contemplated additional investment once the asset achieved agreed-upon metrics. The expansion of our Jellystone Kozy Rest RV Resort near Pittsburgh, helped drive overall growth in our experiential lodging portfolio with gains in EBITDARM and revenue across the portfolio in Q3 over Q3 2024. Our ski properties experienced revenue growth over the summer months. It's too early for any indication of the upcoming ski season. Our education portfolio continues to perform well. Our customers' trailing 12-month revenue for Q2 was essentially flat, with EBITDARM down due to expense increases. Our investment spending for Q2 was -- Q3 was $54.5 million, entirely in experiential assets and includes funding for projects that we have closed, but are not yet open. Our year-to-date investment spending is $140.8 million. During the quarter, in addition to the $18.25 million accordion funding in Iron Mountain Hot Springs, we made our first investment with the high-end Canadian fitness firm, Altea Active, providing approximately $20 million in mortgage financing secured by their club in Winnipeg, Manitoba. We are excited to start a new relationship with one of the best fitness operators in Canada and to provide growth capital to Altea as they look to expand their brand. We anticipate continuing to increase our investment spending cadence in the coming quarters. We continue to see high-quality opportunities in both acquisition and build-to-suit development in our target experiential categories. As Greg noted, our disciplined deployment strategy has enabled us to expand the depth and breadth of our portfolio of experiential properties. As we have mentioned frequently, we are especially bullish on the fitness and wellness space. And given our deep relationships, the increased focus on fitness and wellness among multiple generations and demographics and the wide range of investment opportunities from hot springs to spas to fitness. Our investment spending this quarter reflects these deep relationships and high-quality investment opportunities. As we approach year-end, we are narrowing our investment spending guidance for funds to be deployed in 2025 from the range of $200 million to $300 million to the range of $225 million to $275 million. We have committed over $100 million for experiential development and redevelopment projects that have closed, but are not yet funded to be deployed over the next 15 months. We anticipate approximately $25 million of this amount will be deployed in Q4, which is included at the midpoint of our 2025 guidance range. Our team is leveraging both existing relationships and new partnerships to develop a pipeline of investments actionable over the next 90 to 120 days. Given that some could fall into 2026, we did not think the timing was right to raise investments in any guidance now. As we look forward into 2026, we are also seeing larger opportunities and are moving decisively to capturing. As we noted on our Q2 call, early in Q3, we sold our last vacant AMC theater in Hamilton, New Jersey to the Children's Hospital of Philadelphia. We also sold a vacant parcel in Q3. Combined net proceeds were approximately $19.3 million with a combined gain of approximately $4.6 million. In the past 4 years, we have sold 31 theaters. We have one remaining vacant theater. Subsequent to the end of the quarter, we received approximately $18 million in a paydown of our mortgage with Gravity Haus, resulting from their sale of their asset in Steamboat Springs. Through the end of Q3, we sold approximately $133.8 million of assets. We are increasing our 2025 disposition guidance to the range of $150 million to $160 million from a range of $130 million to $145 million. I now turn it over to Mark for a discussion on the financials. Mark Peterson: Thank you, Greg. Today, I will discuss our financial performance for the third quarter, provide an update on our balance sheet and close with an update on 2025 guidance. FFO as adjusted for the quarter was $1.37 per share versus $1.30 in the prior year, an increase of 5.4% and AFFO for the quarter was $1.39 per share compared to $1.29 in the prior year, an increase of 7.8%. Before I walk through the key variances, I want to explain 2 offsetting items excluded from FFO as adjusted and AFFO. First, with regard to dispositions for the quarter, net proceeds totaled $19.3 million. We recognized a net gain on sale of $4.6 million. Also included in gain on sale for the quarter was a $3.5 million gain related to the exercise of an early termination option of a ground lease. Second, provision for credit losses net was $9.1 million for the quarter, and related to fully reserving one mortgage note receivable for $6 million related to our only investment with 1 small borrower, and changes in our estimated current expected credit losses, mostly due to macroeconomic conditions. Now moving to the key variances. Total revenue for the quarter was $182.3 million versus $180.5 million in the prior year. Within total revenue, rental revenue increased $6.2 million versus the prior year, mostly due to the impact of investment spending, rent bumps and higher percentage rents. Percentage rents for the quarter were $7 million versus $5.9 million in the prior year, and the increase was due primarily to higher percentage rent recognized from one of our theater tenants, offset by lower percentage rents recognized from our attraction properties. Both other income and other expense related primarily to our consolidated operating properties, including The Kartrite Hotel and Indoor Water Park and our 4 operating theaters. The decrease in other income and other expense versus prior year is due primarily to the sale of 3 operating theater properties in the first half of this year. On the expense side, G&A expense for the quarter increased to $14 million versus $11.9 million in the prior year, due primarily to higher estimated incentive pay, including noncash share-based compensation expense. Interest expense net for the quarter increased by $371,000 compared to the previous year, due primarily to an increase in our weighted average interest rate on outstanding debt to -- due to additional borrowing on our unsecured revolving credit facility to pay off lower-rate senior unsecured notes at their maturity last quarter. Equity and income from joint ventures for the quarter was $2.9 million compared to a loss of $851,000 in the prior year. This increase is due to our decision to exit our joint ventures in Broadridge, Louisiana and St. Pete, Florida in late 2024 as well as better performance at our 2 RV Park joint ventures. FFO as adjusted for the 9 months ended September 30 was $3.81 per share compared to $3.64 in the prior year, an increase of 4.7%. And AFFO for the same period was $3.83 per share compared to $3.61 in the prior year, an increase of 6.1%. Turning to the next slide, I read some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong with fixed charge coverage at 3.6x in both interest and debt service coverage ratios at 4.2x. Our net debt to annualized adjusted EBITDAre was 4.9x at quarter end, which is below the low end of our targeted range. Additionally, our net debt to gross assets was 38% on a booked basis at quarter end, and our common dividend continues to be very well covered with an AFFO payout ratio of 64% for the third quarter. Now let's move to our balance sheet, which is in great shape to support our expected growth. At quarter end, we had consolidated debt of $2.8 billion, of which $2.4 billion is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.3%. During the quarter, we amended our unsecured revolving credit facility agreement to remove the SOFR index adjustment, which decreased our all-in interest rate by 10 basis points. Our liquidity position remains strong with $13.7 million cash on hand at quarter end and $379 million drawn on our $1 billion revolver. While our leverage is below the low end of our range and our 2025 guidance continues to have no equity issuance assumed, we plan to finalize our new ATM program in Q4. We currently have a direct share purchase plan in place for equity issuance, but the ATM program will provide us with an additional tool in our toolbox for raising such capital. We are increasing our 2025 FFO as adjusted per share guidance to a range of $5.05 to $5.13 from a range of $5 to $5.16, represented an increase over the prior year of 4.5% at the midpoint. Please note that as in prior years, our fourth quarter FFO as adjusted per share is expected to be lower than our third quarter primarily due to the seasonality related to The Kartrite Hotel and Indoor Water Park and our joint venture RV properties. We're also narrowing our 2025 investment spending guidance to a range of $225 million to $275 million from a range of $200 million to $300 million. We are increasing guidance for disposition proceeds for 2025 to a range of $150 million to $160 million from a range of $130 million to $145 million. On the next slide, we are narrowing our percentage rent and participating interest income to a range of $22.5 million to $24.5 million from a range of $21.5 million to $25.5 million, and raising the low end of our estimate for G&A expense to a range of $54 million to $56 million from a range of $53 million to $56 million. We are also updating the guidance for our consolidated operating properties, which is provided by giving a range for other income and other expense. Guidance details can be found on Page 23 of our supplement. Now with that, I'll turn it back over to Greg for his closing remarks. Gregory Silvers: Thank you, Mark. As our results demonstrate, our portfolio continues to be strong and resilient. We have executed on a very aggressive capital recycling plan this year with our guidance implying over $150 million of sales. Notwithstanding this capital recycling, we are projecting to deliver over 4.5% growth in FFO as adjusted. As a result of this recycling and cash flow generation, we have positioned ourselves to materially accelerate our capital deployment in 2026. We are very pleased and excited as we bring 2025 to an end and look forward to 2026. With that, why don't I open it up for questions? Sophie? Operator: [Operator Instructions] We'll take our first question from Smedes Rose from Citi. [Operator Instructions]. Bennett Rose: I wanted to ask a little bit more about the credit losses that you're reserving for? You mentioned a $6 million mortgage note, and then just some changes -- expectations around the broader macro economy. Could you maybe just talk about that a little more? And any sort of incremental detail around what happens with the underlying property there? Gregory Silvers: Sure, Smedes. I think, first of all, again, it's a small tenant that we will -- we will see how they continue to perform. We just thought it was prudent to reserve that. If not, we have assets related to that, that we can look to take control and sell. Then the larger macro issue is just, I'm going to get this wrong, Mark, it's CECL so how that works. And there's a lot of factors that go into that. Mark, maybe you can give some more detail on them. Mark Peterson: Yes. So there's macroeconomic indicators that go into that. That can move up and down as it does every quarter, sometimes positive, sometimes negative. So really, I think just the outsized number this quarter was really the $6 million note that, as Greg said, that we determined we needed to reserve. Again, it's the only investment we have with that small tenant. Bennett Rose: Okay. And then, I just wanted to ask you, too, you've talked a little bit about accelerating acquisition volumes in 2026. Could you maybe just put some sort of scope around that in terms of where you think volume could go and let's putting aside the whole Genting thing for a minute, but if you wanted to stay leverage-neutral for '26? Gregory Silvers: Well, I think that's the question. And I think we need to be really clear about this that we -- in this acceleration plan, the Genting was never ever requirement for us to do that. Again, and Mark can detail this, we've significantly moved leverage down to below -- at or below the low end of our leverage range. So when we think about taking that up to what is our natural kind of in the midpoint of that at 5.3, and looking at our cash flow generation, we feel comfortable that we can go to that $400 million, $500 million range without any additional need of capital recycling. So when we talk about those levels, we're very comfortable without Genting or without any transaction involving that property being able to do that. So I think the narrative that we need that to occur in order to allow us to do those levels is factually inaccurate. But Mark, maybe. Mark Peterson: Yes. And just to add to that, if you just do the math, forget Genting, do the math on, say, $500 million investment spending when you utilize our cash flow, a little bit of disposition kind of do the math. You end up still probably below the midpoint of our targeted leverage range, again, because we're beginning so low at about 5x. So we'll be below 5.3 if you just do the math. The Genting thing purely becomes an opportunity to delever our balance sheet by about 0.3 turns if you do the math on that. So again, as Greg said, we view Genting as an opportunity, not an overhang, not necessary to execute our plan, but would provide us additional dry powder, but again, not necessary to execute our plan next year to grow significantly. Operator: We'll take our next question from Kathryn Graves with UBS. [Operator Instructions]. Kathryn Graves: My first, I'm wondering if you could just provide some capital on the duration of the mortgage financing investment with Altea Active? And then, maybe just talk a bit about how that kind of investment fits within your larger array of investments that you have available to you? Gregory Silvers: Sure. Greg, do you want to... Gregory Zimmerman: Yes. So it's structured as a mortgage mostly because of implications of Canadian currency, et cetera. And the idea is to provide growth capital for Altea as they grow their business. It's structured as, I believe, a 20-year mortgage. So long-term mortgage, not short-term financing, and we expect to be in a long-term partnership with Altea. Gregory Silvers: I would say, I would echo what Greg said. What we found often in Canada is for taxation purposes, mortgage structures, allowing you to have a more efficient structure. And so we've leaned into that, but I would just tell you that mortgage is probably more like a synthetic mortgage, it reads like a lease -- synthetic lease, I'm sorry, synthetic lease. Kathryn Graves: Got it. That's helpful. And then my second question, several of your more retail-focused peers have reported seeing increased competition for deals from private players, family offices, et cetera. I'm wondering if you've also seen any of this competition in your acquisition landscape or whether you're asset class and sort of the uniqueness of it, maybe it helps buffer from some of that competition. And then has that also allowed cap rates to kind of stay where they are? Have you seen some compression more recently in your current pipeline? Gregory Silvers: I'll let Greg also jump in. But I would say always, I think there's competition out there. I don't think it's as many debt play in our spaces as do in the retail space, but I do think there is -- as we talked about, there's been increased deal flow. I think that's starting to work in our favor. And I think cap rates have fairly -- been fairly stable, right? Gregory Zimmerman: Yes. I think cap rates are stable, for sure. And again, we'll run into all those kind of investors in larger deals. But as we say repeatedly, we've got a pretty granular approach, our team is out all over the country in Canada, looking for deals. So that's how we're able to find great assets like Altea Active and some of our Hot Springs resorts. So I think we're pretty comfortable that in that space, we've got a very nice run rate, and as we increase our ability to participate in larger ticket deals, we'll probably run into more of the competitors the change. Operator: We'll take our next question from Upal Rana with KeyBanc Capital Markets. [Operator Instructions]. Upal Rana: Could you touch on the larger investment opportunities that you're seeing in the market today? Gregory Silvers: Well, without disclosing any specific, I think it's pretty broad-based. I think we're seeing nice large opportunities in several of our verticals, so it's not limited to kind of one area. And like I said, we think of those as over $100 million and over. And I think, there's probably somewhere between 3% and 5% in the market right now. So I think it's, again, somewhat of a change from what we've seen from the first half of the year, no doubt. So it's both exciting. And as we talked about in the spaces that we play, we're very much known to all the players. And so we're seeing all these deals, and we're excited about the opportunity set. Upal Rana: Okay. Great. That was helpful. And then I appreciate the ATM program status update you provided. Could you provide some color on your strategy and how you plan to issue equity in terms of what your pricing is and when? Mark Peterson: Yes. As we mentioned, we're not dependent on equity for next year's plan with just debt financing and our free cash flow, et cetera. We'd be under the midpoint of our range. That said, opportunistically, we may decide to raise equity. Certainly, the price has to be at a point where it makes sense, and that would just allow us to delever further and provide more dry powder. And our ATM program will allow us to do that in an effective way, currently, we have a direct share purchase plan, and we can also dribble out stock, but we are excited about the ATM program and the ability to do forward-type deals and so forth. So -- but it's entirely contingent on the market and the market is in a good place, a good price for us, and it doesn't make sense to issue equity to lower our leverage. Operator: Our last question comes from Jana Galan with Bank of America Merrill Lynch. Jana Galan: Thank you for quantifying the larger deals on the market that you're looking at. Can you also give some color on the smaller ones and then maybe kind of yield differentials between the large and smaller investment opportunities? Gregory Silvers: Yes. And I'll let Greg also join in. I mean, we've made a lot of our path over the last several years of kind of what we would say is the $25 million to $75 million deals, and those are still very much out there. Those are the, what I would say, much more of the bespoke relationship deals that we have, and those have always been part of what we have done. I think those are less -- they're less competitive and they're, again, because of this bespoke nature, how we get those deals, but I think those are still comfortably in the 8s. I think it gets a little more competitive when you get into larger deals, and people looking for volume. It doesn't mean that those are materially moving that may be 25 basis points, but I think we feel like we're in a position to be competitive with those given our understanding of those deals. But Greg, probably... Gregory Zimmerman: No, I think, you covered this. Jana Galan: Great. And then just maybe on the new Altea mortgage loan, and maybe it's due to the discussion you had about the way it was structured, but just curious on the yield there. Is that more representative of the Canadian market? Gregory Zimmerman: No. I mean, the number we quoted is in U.S. dollars. And so if you use U.S. dollars, the yields we're getting are similar to what we would get in the U.S. Operator: This completes the allotted time for questions. I will now turn the call back over to Greg Silvers for any closing remarks. Gregory Silvers: Thank you, everyone. We appreciate your time and attention. Look forward to talking to you guys many times in the fall, and have a great day. Thank you. Gregory Zimmerman: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Ivanhoe Mines Third Quarter Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Thursday, October 30, 2025. I would now like to turn the conference over to Matthew Keevil, Director, Investor Relations and Corporate Communications. Please go ahead. Matthew Keevil: Thanks very much, operator, and hello, everyone. I'd just like to, first and foremost, thank you all for joining us today. It's my pleasure to welcome you to Ivanhoe Mines' Third Quarter 2025 Financial Results Conference Call. As the operator mentioned, this is Matthew Keevil. I'm the Director of Investor Relations and Corporate Communications. On the line today from Ivanhoe Mines, we have Founder and Executive Co-Chairman, Robert Friedland; President and Chief Executive Officer, Martie Cloete; Chief Financial Officer, David van Heerden; Chief Operating Officer, Mark Farren; Executive Vice President, Corporate Development and Investor Relations and Mr. Alex Pickard; and Executive Vice President, Projects, Steve Amos. We will finish today's event with a question-and-answer session. You can submit a question using the Q&A box on the webcast as well as through the conference operator via your phone line. Please contact our Investor Relations team directly for follow-up questions that are not answered during the call. Before we begin, I'd like to remind everyone that today's event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in our October 29 news release as well as on SEDAR+ and at www.ivanhoemines.com. It is now my pleasure to introduce Ivanhoe Mines' Founder and Executive Co-Chair, Robert Friedland, for some opening remarks. Robert, please go ahead. Robert Martin Friedland: Well, thank you to everyone, all of our stakeholders all over the world. I'm addressing you from Riyadh, Saudi Arabia, where we've just concluded the future investment initiative that occurs here annually in Saudi Arabia, and it has become the premier investment destination in the world for people that are interested in the materials that comprise our supply chain and country's national security as it pertains to critical raw materials. And so it's particularly appropriate that we welcome the Qatar Investment Authority with their $500 million equity investment in Ivanhoe Mines. As a leading institutional shareholder in this country with superb relations throughout the Islamic world, which I believe is the least explored part of this planet's mineral endowment. We welcome our Qatar Investment Authority as a long-term shareholder, and we'll be talking more about our excellent relations and future together in the near future. It's also a very good day today to tell you that yesterday, we fed the first ore to the concentrator at what will become the largest precious metals development in our industry. It was in the 1980s that we began working in Limpopo province in the northern part of South Africa to find a giant deposit on the northern limb of the Bushveld, which is quite different than the rest of the Bushveld. We have discovered a super monster, very long-lived, ultra-important Tier 1 polymetallic mine. And the ore was fed to the Phase 1 concentrator yesterday, opening up at least a 100-year era of a very important developer of gold, platinum, palladium, rhodium, nickel and copper. And rhodium is one of the most strategic of all metals, but platinum and palladium are also used in data centers and are critical to every server in almost every data center in the world. So with that, I welcome all of you. It's -- I want to thank all of our people that have been working on our recovery program from the seismic event we experienced in May. We're delighted with our progress and the efforts of our people. And with that, I'll turn this over to Marna to start telling you the story. Thank you very much. Martie Cloete: Thank you, Robert, for your introductory comments, and good morning, good evening, everyone, and thanks for joining us on our quarterly call. It's indeed quite exciting times here in South Africa. We're preparing for the G20 Summit later this month. And I think we couldn't have timed the start-up of Platreef better to coincide with this important event in South Africa. You are seeing a picture of our management team there in front of a discharge and settling pond. That's part of our Stage 2 dewatering. And I'll quickly talk you through our quarter 3 turnaround strategy and some highlights at Kipushi. We're really on the brink of a new horizon. We had new horizons as a tagline associated with us before. And I'm bringing it back again today because we're quite excited about our plans coming together at Kamoa-Kakula. So if we can turn over to the next slide. The third quarter was always expected to be a slightly softer quarter, but we were reflecting on what we've achieved physically on site. And if we take the team and the massive effort that went into our dewatering. It's going exceptionally well. The pumps that we flew in from China made a difference. We're seeing a record speed of building projects, and Mark will take you through that in the presentation a bit later today. The team has really pulled off a significant effort to get the mine dewater as quick as possible. And we've got a team of technical experts. We brought them together. We're busy with our new life of mine plan that we plan to release sort of in the first quarter of next year. And we currently anticipate to bring Kamoa-Kakula back to copper production of over 550,000 tonnes in the future. We were anticipating to be in a position to publish our guidance for 2026 and 2027 a bit sooner, but we did find that there's a lot of moving parts. We are dewatering real time. We have these technical experts that all need to reach consensus. We are quite excited about what's coming through these numbers. And we would rather take the time and get everything accurate and then publish it out to the market. So by the latest, we will put these numbers out probably early January, but maybe before then. So that's what we anticipate to do over the next couple of months. Just quickly speaking about Kamoa-Kakula and focusing a bit away from our turnaround strategy, but it's been a very exciting time on the smelter. We're going to start with the heat up soon. We're going to feed first concentrate into the smelter early December. And the technical people on the call will talk you through what that looks like and how we will go about feeding the smelter in early December. We've also completed turbine 5 at Inga [indiscernible] , another major project that the team completed very successfully, and we're starting to transmit power through the grid, and we expect to receive another 50 megawatts through the grid in November. And then as Robert mentioned, exciting times at Platreef. And then Kipushi is sort of a rising star that we shouldn't lose track of. We've completed the debottlenecking program, and we are on track to meet our production and cash cost guidance at Kipushi. And then the same for Kamoa-Kakula. We're also on track to meet our revised production guidance and cash cost guidance at Kamoa-Kakula. Just one number I want to sort of address head on is the cash cost that you see at the bottom of your screen. That is the quarterly cash cost at Kamoa-Kakula. It does read higher than the numbers that you usually see. That's just because of the base used to calculate this cash cost for the quarter. We had lower production. We carried some G&A in that number. And then obviously, we were feeding a bit lower grade feed into our plant. So that's the reason why you see a differential there. So if we move over to the next slide, talking about health and safety, it remains our #1 priority. And I think these statistics speak for themselves, especially for a company that's currently executing projects and running large turnaround strategies. We haven't had any LTIs recently at -- on site at Kamoa-Kakula. And the construction of the smelter, which is a significant achievement, was completed without a single lost time injury recorded. I think that is really a great testimony to our project team and our construction teams. And then similarly, the construction of the Kipushi concentrator plant that started in September of 2022 as well as the recently completed debottlenecking program. They were all achieved without a single lost time injury. So I think a big shout out to our operational teams on the ground. They are doing an exceptional job. So with that as an introduction, we will now delve into the details, and I will ask David to take you through our financials for the quarter. David Van Heerden: Thank you, Marna, and good morning and good day to everybody joining the call today. We can move straight into the next slide. Kamoa-Kakula sold almost 62,000 tonnes of payable copper in the third quarter. Production for the quarter was in excess of tonnes sold, and that led to an increase of contained copper and concentrate inventory on hand that increased to 59,000 tonnes at the end of the quarter. That was up from almost 54,000 tonnes on hand at the end of Q2. The inventory at the nearby Lualaba copper smelter in Kolwezi was approximately 7,000 tonnes at the end of Q3, and that's down from the almost 19,000 tonnes that was there at the end of Q2. So the majority of the inventory is really sitting ready to be smelted by the Kamoa-Kakula copper smelter. It is really a supersized piggy bank at the current copper price, which is just waiting to be broken. We expect unsold inventory to gradually decrease, and we've said this previously, but we sort of maintain that, that should decrease to around 17,000 tonnes as the smelter is ramped up. Kamoa recorded revenue of $566 million in the third quarter, and that was at a realized copper price of $4.42 per pound of payable copper. Moving to the next slide. Kamoa-Kakula recorded EBITDA of $196 million for Q3, and this was impacted by the lower tonnes sold and the lower grade of ore processed as the recovery plan progresses. Considering that this is what at least we believe to be Kamoa-Kakula's loWest point of the turnaround, the margin of 35% looks pretty good. And cash cost for the third quarter of 2025 was $2.62 per pound of payable copper. Cash cost for the year-to-date sits at $1.97 per pound, and it's still well within our guidance for the year of $1.90 to $2.20 per pound of payable copper. Grade mined at Kakula was roughly 5% in Q1, 4% in Q2 and decreased to 2.5% in the third quarter, which was sort of in line with the overall grade processed from Phase 1, 2 and 3 as well as from the surface stockpiles in the third quarter. We do expect that mining of the higher-grade areas on the Western side of the Kakula mine will ever commence in November. As Marna mentioned, Q3 was really an anomalous quarter when it comes to cash costs, not only because of the impact of lower grade, but also because of other factors that will be addressed as the turnaround progresses. At the moment, the mining teams are doing mainly mining development tonnes as part of the reestablishment, which does come at a higher cost than stoping. The crews are also getting used to the smaller heading sizes and efficiencies are expected to improve in the future. And as we have explained previously, we will get noteworthy cash cost reduction benefits and from the smelter from early next year as the smelter ramps up. If we move to the next slide, and this illustrates the usual Kamoa-Kakula EBITDA waterfall. The EBITDA waterfall highlights the drivers of the quarter-on-quarter EBITDA change for Kamoa-Kakula. So while we recognized $90 million of abnormal cost in Q2 relating to the seismic event in May 2025, this was down to $9 million in the third quarter, resulting in a delta of $81 million illustrated as the green bar to the left. In Q3, only cost relating directly to the dewatering effort was classified as abnormal. So for Q3, this was mainly the cost of diesel to run the generators powering the dewatering pumps as the mining crews were no longer idle. The other big driver of our lower EBITDA was then the impact of the lower tonnes sold, which was almost $300 million. The higher quarter-on-quarter copper price resulted in a $25 million benefit. Logistics cost was a little bit lower quarter-on-quarter and other costs also came down from the elevated levels in Q2. We turn to Kipushi on the next slide. Following Kipushi's record production in Q3, Kipushi sold almost 50,000 tonnes of payable zinc, recognizing a record quarterly revenue of $129 million. Kipushi's contribution to Ivanhoe's EBITDA was $27 million for the quarter. I think a pretty good result. Considering that Kipushi had a number of days downtime while the times for the second phase of the debottlenecking was completed in August. Mark will talk you through the success of the debottlenecking later on in the presentation, and we expect Q4 results to be further improved as the production benefits are realized. Cash cost remains nice and stable and right in the midpoint of our guidance. We expect to see the benefits from the increased production from the fourth quarter onwards. Turning to Ivanhoe Mines' consolidated profit and EBITDA on the next slide. Ivanhoe recorded a quarterly adjusted EBITDA of $87 million in Q3. The key driver of the lower adjusted EBITDA was really the lower sales at Kamoa-Kakula, as I've already explained, and its impact on Ivanhoe's share of the Kamoa-Kakula's EBITDA. This was partly offset by the increase in Kipushi's EBITDA as exploration expenditure and overheads remained largely consistent. Ivanhoe's profit for the third quarter was $31 million compared to $35 million in Q2 2025. Turning to a liquidity snapshot on the next slide. Ivanhoe had $1 billion of cash and cash equivalents on hand at the end of September, while Kamoa had cash on hand of $125 million. We completed a private placement with Qatar Investment Authority, as Robert already mentioned in September for gross proceeds of $500 million and received a further $70 million from Jun as they exercise their anti-dilution rights. And Kamoa Copper concluded a 2-year term facility of $500 million during the quarter and drew down $370 million in early October. Both Ivanhoe Mines and [indiscernible] also funded our proportionate share of a $135 million cash flow from Kamoa-Kakula in September. Turning to the CapEx spending plans on the next slide. We lowered both the top and the bottom end of Kamoa-Kakula's 2025 capital expenditure by $100 million and just shifted that into 2026. The work on Kamoa-Kakula’s updated life of mine integrated development plan is well underway. And then the 2026 CapEx will be narrowed and better defined as that is completed and worked into the guidance. Expenditure at Platreef is tracking at the lower end of the 2025 guidance and the capital expenditure guidance range for 2025 and 2026 is kept unchanged. The first feed of the ore into the Phase 1 concentrator took place, as Robert mentioned, recently. And the Phase 2 expansion is proceeding as it's laid out in the feasibility study completed earlier this year, which plans then for the Phase 2 concentrator module to come online in the fourth quarter of 2027. We are also working on a senior project finance facility for Platreef Phase 2 for a total of $700 million, and that's progressing pretty well and expected to close in the first quarter of next year. Kipushi's debottlenecking program was completed in August, ahead of schedule, under budget, and I've already mentioned, Mark will take you through that. And we have slightly raised CapEx for Kipushi just to cater for accelerated construction of the second tailings facility Paddock as we prepare for increased production following that debottlenecking. On the next slide, this slide shows our consolidated pro rata financial ratios, which have improved compared to where we were at the end of last quarter. That's mainly due to the cash received from the September private placement from QIA. And we are in a very healthy pro rata cash position with over $1 billion of cash on hand. And we are taking on a little bit of more debt at the Kamoa-Kakula level, but EBITDA and therefore, the net debt ratio will improve as we continue to execute on the turnaround plans at Kamoa-Kakula and as EBITDA from Kipushi increases and Platreef's EBITDA is added in the future. Our target net leverage ratio remains 1x through the cycle, and we still believe that, that will come down in the near term as these -- as we progress our plans. I now hand over to Mark Farren, our Chief Operating Officer, to start the operations update portion of today's presentation. Mark Farren: Thank you, David. If you go to the next slide, please. Thanks. Okay. So we have spoken about this, and we do think this was the bottom. It wasn't really the milling so much. I mean we milled 3.4 million tonnes, but it's the grade. It's really the grade. And it's -- if I can explain to the listeners, it's really about 2 things. So mainly, it's getting into the higher-grade areas of the Kakula mine, which is all in the lower section of the mine, obviously, where the water issue is. And then as we move and develop the footprint at Kamoa 1 and Kamoa 2, the grade improves. So you're going to look at a number of things that will influence the grade over the next immediate short term and then over the longer term. So that's why we're sort of pretty sure that we've hit the bottom of everything, hopefully, and we'll see a big turn from now going forward. What is encouraging is Phase 3 concentrator is running sustainably at about 30% above its design capacity. And when we talk long term, you will see the references always to 17 million tonnes. So setting up this infrastructure that we have to get to the 17-odd million tonnes and then to put -- to increase the grade in all the different areas to get that target -- short-term target, I think, of getting over the 550,000 tonnes of copper. That will be in all the project plans and all the long-term plans that you see coming forward. And my belief is that -- and there will be some further increases above that in the longer term. Next slide, please, David. Just to talk about the water. The blue looks like a fish. We call it a whale. It actually looks like a whale. But you'll see the West and the East have been joined. Between the 2, it was sort of flooded between the 2 and in the lower sections of both. The mining was actually taking place in the top sections of the West and the top sections of the East a little bit. And those areas are actually the lower grade areas, so the 2% grade areas. The light blue on the Western side is going to be the first target area that we dewater. And we've done this in stages. So Stage 1 was to install temporary pumping capacity and stabilize the water levels at levels way above where they are now. And then Stage 2 was to put these high-capacity centrifugal pumps down these vertical shafts and then pump out at 2,600 liters per second. Those pumps were imported. They were installed within 6 weeks, and I think the team on site has done an absolutely fantastic job to get all that pumping infrastructure working. Stage 3 is really going down the declines and opening up within the existing infrastructure, pumping infrastructure and rehabilitating the underground infrastructure and then dewatering first the West and then the East. And we believe in the month of November, the West will be completely dewatered and then we will target the East. And I believe that early next year, the total East will be dewatered. And as you can imagine, all the crews are waiting to go back into the higher-grade Western section. It's all been scheduled, and I'll talk about the life of mine planning in the next couple of slides as well. But there's a proper solid pumping plan to get the infrastructure back on track and to get the crews back into the higher-grade mining. Thank you. Next slide. So this is just a picture of what we've had to do. We had to go down through ventilation shafts, about 300 meters deep put in very high capacity pumping systems in. I thought the idea was very clever and it's worked extremely well. It's probably going to be used in the longer term as well because these pumps are working really well as long as the water is clean. So I guess, going forward, we'll use these high-capacity pumps in different areas of the mine. Thank you. Next slide. This is just a picture to show you what we're dealing with when we talk about rehabilitation. So you'll see the spalling on the side walls, and that was really what that whole incident was about. The seismic activity we referred to is mainly side wall spalling. It's a pillar spalling, which has to be then rehabilitated as you go down and then recapacitate the pumping infrastructure as you go down. The next slide will just show you what it looks like when it's rehabilitated. Next slide, please. So if you have a look at this, the side walls and the hanging walls are re-supported and it looks like a new mine, and it goes quite fast. We've made very good progress, I believe, with the rehabilitation. And I think, like I said, the month of November, we should open up the whole Western front, which is about 50 new faces that the teams can mine. Next slide. Yes, and a different approach to planning. This is just one of the pictures, but it's done the same principles are applied to the new mines, the Kamoa 1 and 2 mines, they have the same principles applied. You've got a very good and Marna referred to it, a very good competent team that's working on the mine design of the future. We do believe it will be finished by quarter 1, 2026. And we'll move as fast as we can to give short-term production guidance, aiming for the next 3 years and then the longer term as well. We do believe the engineering is being done with the best experts in the industry to make sure that we get back and that we don't have a repeat of any of this again. The plan short term, in my opinion, is to get back to 70 million tonnes with the best possible grades. And then you can see that little block in green, which means that we will exceed the 550,000 tonnes per annum in the medium term. Medium term to me is the next 2, 3 years. So -- and then take it on from there to grow the business. Next slide, please. The smelter, we did speak about the smelter. It's sort of coming in at the right time for us because of a couple of things. Number one is obviously, the thing we've always spoken about is our logistics costs. So we're now half the logistics cost. We dropped it to less than half, I guess, because we're going to report -- we're going to export now 99.7% blister copper, anode copper actually. And the other thing that's just coming sort of -- it's going to help us quite a bit is the asset credits. And you can see that we're expecting to receive prices of in and around $500 per tonne, which is very high in the industry. But there have been Zambia -- there have been export bans in Zambia, which means that the logistics cost to bring asset in from other countries is going to cost a lot more. So we're sitting right in the DRC where we need the asset for all the other mines. And so I think it's going to be very useful for us. And then obviously, David, a little piggy bank needs to be broken that 59,000 tonnes of unsold copper needs to be fed into our smelter. And what we've had to do because of the [indiscernible] interruptions. [indiscernible] is still not perfect. We're doing a lot of work to stabilize the infrastructure as well, and we did speak about Inga being commissioned, which was done very, very well. There are other things that we're doing on that network to stabilize the network completely, and they will take a little bit more time. But we've put in uninterrupted power supply of 60 megawatts. It's a huge project on its own, and it's being commissioned as we speak, which means that we can start feeding our direct to blister smelter. It's over $1 billion project that was done extremely well in my opinion. I think one of the best installations in that country or the best installation that the country has ever seen. I'm very proud of the work that's been done. And that thing will be heated up in the month of November and first heat in December. So we are very excited for those reasons. We're going to make money on the asset, and we're going to drop the transport cost a lot. Thank you. Next slide. The turbine at Inga is complete. It's online at the moment. It's a huge project on its own. It's been done very, very well. And we will be receiving the first 50 megawatts of power in November, and then that ramps up. If you cast your minds to what it was, it's 180-odd megawatts of power that comes out of that turbine, of which we will be able to receive 150 megawatts. As we fix, like I said earlier, we strengthened the transmission. There are upgrades that we're busy with, such as these resistor banks that we're going to complete in quarter 2 2025, 2026 to increase and improve the stability of the whole infrastructure. There are capacitors that we're also installing as additional projects. But generally, we're strengthening the network for the country. So that whole DC line and its changes over to AC are being strengthened as we speak. Thank you. Next slide. The green power, we're busy executing 2 of 30 megawatt on-site solar facilities with battery storage. I think these are 2 fantastic projects that also bring our operating cost, our power cost down compared to diesel hugely. It's less than half of the diesel cost. So we're having -- our first 2 will be running in quarter 2, 2026. They're big installations, they have fantastic installations, and we are working on work to expand that on-site solar facility to 120 megawatts. So the first 2 will give us about 25% -- 20% to 25% of our energy requirements, and you can work out what the rest will do. And I think it's expandable. It's something that we want to take forward and expand incrementally as we grow our business and as we expand into the Western Forelands. It has a very good benefit of being clean and cheap and it complements hydropower very nicely. So I think -- as we move into the future, we'll be working on clean hydropower and clean solar power to expand our business. Thank you. Next slide. Kipushi, we did speak about Kipushi, I think, a couple of times. We were dealing with the debottlenecking projects. Both of them are now complete. It was split into 2 basically, a shutdown in June and a shutdown in August. Both are complete. There's a little bit of work that we're still doing to add energy back up basically, diesel back up just as contingency back up, and that will be complete in November. We are taking Kipushi to about just north of 250,000 tonnes -- 250,000 to 300,000-odd tonnes of zinc. That will happen from next year and there will be a strong quarter. This last quarter, quarter 4 will be stronger than quarter 3, which was quite a significant improvement over quarter 2. But we are moving to set up Kipushi to do about 250,000 to 300,000 tonnes of zinc next year, which puts it on the next slide, I think, next slide. Yes, puts it #3 in the world. So it's a small mine, but it's very high grade. And you can just have a look at that grade. It's north of 30%, that little red dot, and it takes us to pretty much the third biggest in the world. Also, I might add that the zinc price has gone up quite nicely. Our C1 cash cost has been contained very well by the operational people. And the project has been done, I think, competitively on time, on budget. It's gone really well. And we're looking forward to see what Kipushi does over the next couple of years. Thank you. I think, Alex, are you going to do Platreef? Steve Amos: I'm going to take this Mark. Thanks. I'll take it. Yes. So yesterday was a big day for Platreef. We fed the mill with first ore in a long time, ran the mill for 4 hours at 30% bore load, which is in line with mill hot commissioning strike ramp-up. We've since stopped the mills. We're going to add the rest of the ball, so up to 100% charge. That will probably take us a day, 1.5 days, and then we'll restart the plant and start the ramp-up. I would expect approximately a week or so from when we restart the mill, hopefully tomorrow until when we get the first concentrate. So that will be an exciting thing for Platreef. Next slide, please. I'll talk a bit about Shaft 3. Shaft 3, 4 million tonne per annum rock hoisting shaft. It's the picture in the middle. You can see the sinking head gear, the brown construction there. Really necessary for Phase 1, to sustain Phase 1, but also very important for Phase 2 to ramp up the production to 4 million tonnes plus and to create a nice big stockpile before we start the Phase 2 plant. With this shaft and with Shaft 1, Shaft 1 is the shaft on the left-hand side in the background, we'll have a total of 5 million tonnes of hoisting capacity. Shaft 1 will, for the most part, be used for mine and material and Shaft 3 will be used for rock hoisting. In the foreground, you can see a whole lot of steel work that is the permanent head gear structure for Phase 3, which we will load into place. The schedule, and we're on schedule is end of March 2026 to start hoisting rock from that shaft. That includes underground rock handling, which is a crusher to conveyors and a tip and then obviously hoisting the -- hoisting through the shaft. Next slide, please. I'll talk a bit about Phase 2 and Shaft 2. So Phase 2, for those of you who don't know, is a 4 million tonne mine and concentrator, produces about 450,000 ounces, platinum, palladium, rhodium and gold, about 10,000 tonnes of nickel, about 5,000 tonnes of copper. We've awarded the EPCM contract to DRA based in South Africa. They're the same contractors that did the Phase 1 work. We've started the early procurement. We plan to break ground with the earthworks in Q1 next year. And then Q3 or Q4 2027, we start the big plant. So that's a total of 4 million tonnes with the hoisting capacity. For Shaft 2, which we require for Phase 2, but it also opens up Phase 3. We've just awarded what we call the Slype and line contract. What we've got on site at the moment, you can see the head gear complete. We've got a 3.1 meter diameter raise bore all the way down to 950 meters. What the Slype and line contract does is that it slype the 3.1-meter diameter shaft to a 10-meter diameter shaft. We then line the barrel and equip the barrel. And by Q4 2028, we plan to use that shaft for mining material. At a later stage, we equip that shaft to hoist rock -- and eventually, that shaft will be an 8 million tonne per annum rock hoisting shaft, which will support Phase 3 of the project. Yes. So very exciting. We will mobilize the crew for the slype and line in Q1 next year. And that's about an 18 -- 24 to 30-month project. Next slide, please. Do you want to take that, Alex? Alex Pickard: Yes. Thank you, Steve, and good day to everybody on the call. It's Alex Pickard here. We added this slide really just to congratulate ourselves, I think, on the impeccable timing of first production at Platreef after certainly more than 25 years of effort. We're just past LME Week here in London, and there's obviously been a lot of emphasis in the market on the gold price and also the copper price. But in fact, the PGMs, the Platinum Group Metals are the best-performing metals year-to-date. So platinum is up approximately 78% and palladium is up 56% since January. So this means that Platreef will produce even stronger margins, remembering, of course, that as we ramp up to Phase 2, we expect to be one of the lowest cash cost producers in the whole industry because of the large-scale mechanized underground mining and also the byproduct credits that we received from nickel and copper. So on the chart on the right-hand side, you can see the spot basket price for Platreef today, which includes platinum, palladium, rhodium and gold is $1,900 per ounce. And then the target cash cost once Phase 2 is up and running is $600 per ounce. Phase 1 is certainly sub-$1,000 once we are fully ramped up. If you look also at the sensitivity analysis that we put in our most recent feasibility study, which was published earlier this year, at spot prices, the NPV is 40% to 45% higher than the base case we presented. And I think we're very firmly of the view that the NPVs that you see here on the bottom left are not really reflected in Ivanhoe Mines share price today. But hopefully, that will start to change as we will be reporting revenues and earnings from Platreef from the next quarter, which is quite exciting. So moving to the next slide and to exploration, starting as usual with the Western Forelands. So across the Western Forelands this year, we've drilled over 40,000 meters of diamond drilling, and that includes a lot of work that we've been doing around the Makoko district, which is pictured here. I'll ask the audience just to look quite carefully at this graphic, which is showing the 18-kilometer long strike length. And what you can see is the outline of the Makoko West and Kitoko ore bodies where we announced the upgraded resource in May of this year and over 9 million tonnes of contained copper between those 3 ore bodies. You can also see, if you look to the east, the proximity of Kakula West, which is only 8 kilometers away. And then on this chart, what you're looking at, the larger colored circles that you can see are the holes that we've drilled this year subsequent to the new resource, and you can reference the grade of those holes against the scale that's shown in the key. So what you can see is that we've been very productively infilling the area between Makoko West and Kitoko with some good grade intersections. And as well as that, we've been stepping out to the south of Kitoko and also to the east of Makoko with some success. And I think what we have in the Western Forelands really is some of the best banquet book copper drilling that you will find anywhere in the world. Our discovery cost is demonstrated at less than $10 per tonne of copper across the Western Forelands. We're now moving into the wet season. It's sort of starting in November and certainly in December. But we've made preparations, again, I think it's the third year running that we'll be drilling through the wet season. So watch this space at the Makoko District, but also elsewhere in the Western Forelands license package. On the next slide, -- so really the continuation of the strategy that we have at the Western Foreland is the work that we are doing in neighboring Zambia and Angola. So starting first with Angola, we have a huge license package, over 22,000 square kilometers. So that's multiple the size of the Western Forelands. We've been conducting baseline geochem and geophysics, which is now complete. And we are about to start our first drilling on this land package in the fourth quarter. So that's quite exciting. We have 2 drill rigs mobilized for over 6,000 meters of drilling. Zambia is not quite advanced. We only recently acquired that large land package. And really, we're doing the sort of foundational work to set up to commence drilling in Zambia in Q2 of 2026. So watch this space on both of those fronts. And then the final slide, moving even further afield, I think Marna mentioned new horizons and Kazakhstan is certainly a new horizon where we've formed an exploration joint venture to earn up to 80% over time, and that is over 16,800 square kilometers. So again, it's, I think, about 7x the size of what we're looking at in the Western Forelands. I think given that we only signed this joint venture in the first quarter and we really state the licenses in Q2, the team -- the joint venture team have done a fantastic job of mobilizing very quickly, and we are already drilling. So we've already started a 17,500 meter diamond drilling campaign. And then some very good initial news is that we have seen visible copper mineralization in the first drill hole on that license package. So we are very excited about the future in Kazakhstan and looking to leverage from that. So that concludes the presentation, and I will pass back to Matt Keevil to chair the Q&A. Matthew Keevil: Thanks very much, Alex, and thanks, everybody. We'll now proceed with the Q&A period. First and foremost, we're going to clear the phone lines of any questions coming in through the phones from our analysts. So operator, please do move forward with the phone Q&A period. Thank you. Operator: [Operator Instructions] Your first phone question will be from Ralph Profiti at Stifel Nicolaus. Ralph Profiti: Very pleasing to see the recovery plan at Kamoa-Kakula going accordingly. And congratulations on the landmark investment by QIA. Marna, as the mine has been dewatering and continues so, have you seen or do you expect to see inflow rates increase basically due to the pressure differential between sort of external and in situ pressures on dewatered workings. It sounds like judging from the progress that inflow rates have at least been relatively stable. And at last, I remember, sort of 3,800 liters a second was kind of that rate. And is this still the case? Martie Cloete: Thank you, Ralph. I'm going to let Mark answer the question. It's quite a complicated setup because you've got horizontal pumping as well as vertical pumping. And obviously, as you go ahead and dewater, you need to move infrastructure down. There's temporary installations and permanent installations. So it's not -- you don't sort of measure it per meter day by day. But we haven't seen increased inflow rates. I think that's safe to say. But Mark maybe just explain to you how the meters that we dewater differentiate from day-to-day as a result of sort of these different pumping installations that we are busy with. Mark Farren: Thanks, Marna. No, that's right. You're actually not wrong, you're pretty good. So we pump around about 4,000 liters a second. It hasn't changed yet. And then we're trying to lower the whole system, let's call it the system, which relies on the vertical pumping system, but also the horizontal -- let's call it the horizontal or the [indiscernible]. So your rehabilitation and your [indiscernible] system also needs to go down at the same rate. So vertically, it's about a meter per day that we lower. We have not really significantly increased anything. So we're running at about 4,000 liters a second for now. We have updated our hydrological model, which tells us over in the future. So in the future, when you carry on mining, particularly towards the West, we will increase our pumping rates. So in other words, we will encounter more water. We know about it as we move further West when we're mining. But that's going to be all in hand. If you add the pumping capacity that we have currently, we're sitting with about north of 10,000, about 11,000 liters -- let's say, 10,000 liters a second of pumping capacity with an inflow of 4,000. As we increase hydrologically, as the water increases as we move West, we increase that vertical and horizontal pumping capacity where it's needed. So it's nothing out of the ordinary and nothing that we don't expect. Thank you. Ralph Profiti: Understood. I appreciate that. If I can sort of switch gears, a completely different topic and encouraging to see the progress on Platreef. Can you help me bring you up to date on the offtake agreements negotiations with multi-parties and counterparties. I'd just like to know what the milestones we should be looking for as those are secured in the future. Martie Cloete: I'm happy to take that. But Alex, maybe you can also just augment. So the Phase 1 concentrate we've placed with Northam, and that's pretty much finalized and in place. And then a portion of our second phase concentrate we've placed with Sibanye. We actually had a meeting this morning with SFA, and they're currently doing a tour of South Africa and capacity. And we understand that there's likely to be capacity for the remainder of our concentrate, but those portions we still need to tie in as we bring Phase 2 online. But we are quite confident that we will find a home for the remainder. There's also expansion capacities at some of the existing fully integrated producers where one can join forces to do capital expansions if need to be, but we don't even think that would necessarily be needed. Operator: [Operator Instructions] Next, we will hear from Andrew Mikitchook at BMO Capital Markets. Andrew Mikitchook: Yes. So some great questions already been asked and answered. But maybe if I could just get a few more comments from Mark on -- maybe on the basis of Slides 20 and 21, where you showed the before and after of the rehabilitation in Kakula. Is that representative of what you're seeing? Or what's the range of impact you're seeing as you're dewatering and your crews are going in there to rehabilitate. And generally, I don't personally consider myself an expert in rehabilitation. Is what we're seeing in those pictures extensive or expensive or time-consuming to rehabilitate? Mark Farren: That's a good -- yes, so it's a good question. It is representative of what we're finding. There are some areas that are much better than that. And there are some -- there's 1 or 2 areas on the eastern side that are worse than that, that we're busy with. But we haven't found anything that we can't deal with. So we're finding the pillars falling as we lower the pumps, we rehabilitate them with crews that are trying to do it. I think there's 7 different crews that are doing different areas, and they've done 10-plus kilometers of this. So they're pretty familiar with what to do. They're making the progress. They're keeping us on track. And like I said to you, we should get the West open and dewatered in this month, in the month of November, which is a major breakthrough for us. And then we can put the resources in and make sure we get the eastern side reestablished with their pumping systems, et cetera, et cetera. So I do believe they've made the progress we needed them to make. The risk to me was putting in those big pumps that we didn't know about. We didn't know or I didn’t used them before. We didn't know if it was going to work, and it worked exceptionally well. So we have made the progress that we wanted to make, and we continue to make good progress. We will talk to you if something goes wrong, we will talk to the market and say, look, we hit this problem or that problem. But so far, I think it's going very well. Thank you. Andrew Mikitchook: And just to come back to the other project of the moment, the Platreef. We just come back to the Shaft 1 and 3 and how those are performing so far in terms of ramping up the Phase 1 because they're the key that are holding together both the ramp-up and the expansion to Phase 2. Just how has the performance been so far? Mark Farren: I'll do that one as well, if you don't mind. So Phase 1, we sort of pushed out the commissioning of that plant to focus in on the critical infrastructure to get Phase 2 running. So Phase 2 really had to be done through shaft #3. Shaft #3, as Steve pointed out, it is a 4 million tonne hoisting shaft. That shaft will be commissioned and running in quarter 1, basically by March next year. Remember, Phase 1 is something like 700,000 or 800,000 tonnes a year. It's a tiny little mine. It's a small little mine. But we have gone very quickly. We were executing Phase 2 in parallel. That shaft, that shaft #3 is what we needed. And that I'm telling you now will be running at the end of quarter 1 next year, which completely derisks Phase 1 hoisting. So in other words, the longer open stoping that you need to do in Phase 1 is completely derisked. You can put mining material down, you can blast, you can hoist, you can do everything else you need. and it accelerates the development towards the footprint of Phase 2. So we can increase the development as much as we need to. We can open up the long-haul stoping phases for ourselves while Steve Amos is busy building the concentrator. So I think the decision to do that shaft #3 was a good decision. And he also spoke about shaft #2, which we also do Phase 2, although it's for Phase 3. So it's sort of derisking Phase 1 by doing shaft #3, getting Phase 2 ready early and then longer term, setting up Phase 3 by doing shaft #2. So the sequencing is working, in my opinion. The risk is much lower than it would have been. And I think we've done a good job there. It's going to work. Thank you. Operator: [Operator Instructions] And next question will be from [indiscernible] at Bloomberg Intelligence. Unknown Analyst: I just had 3, if you don't mind. Firstly, on recoveries, you've mentioned that you're aiming to target recoveries of 90%. Obviously, recoveries have been lower than that given the grades you've been processing. And of course, then you'll move up to that 95% later on when things are fully recovered. But just on that 90%, we're roughly at, I think, around 82% in the quarter. When should we apply that 90%? Is that potentially going to come in as early as kind of Q1 next year? Or is that a little bit later? Alex Pickard: Maybe I can answer that one. So the reason for the lower recovery, the 82-odd percent is twofold. Low grade, which means a couple of percent -- low feed grade, which means a couple of percent reduction in recovery. And there's also some oxidized copper that had been sitting on the stockpiles. The stockpiles have been there for a number of years, which is not recoverable. The sulfide is oxidized, it's not recoverable by [indiscernible]. So I think once the stockpiles will be depleted by the end of the year, and once we start mining fresh rock, we will get back to the close to 90% recovery, which we were sort of achieving before we had the issues. I'm not sure if we mentioned that we are busy with a project called Project 95 at Kamoa Phase 1 and Phase 2. It's basically installing a whole lot of regrind capacity. And the reason we call it Project 95 is we're going to take the 90-odd percent recovery up to 95% recovery, and that will be commissioned in Q2 next year. So Q2 next year, we'll be mining fresh rock, the grade will be better and the plant will be achieving 95% recovery on Phase 1 and Phase 2. Unknown Analyst: Okay. So it's 95% from Q2 next year on Phase 1 and Phase 2 and potentially is 90% by Q1. Is that correct? Alex Pickard: Yes, correct. Unknown Analyst: Okay. Got it. And then just another question on the stockpiles, which you're working through, which have helped kind of feed the concentrators while you rehabilitate the mine. So the plan is those stockpiles are depleted by the end of Q1, although I think I may have misheard, but you may have just mentioned they may be depleted by the end of this year. But I just want to kind of try and understand the transition from stockpiled ore feeding the concentrators to mined ore, so kind of having run-of-mine feed come through. Is there a risk? How are you kind of managing that transition? Kind of is there a risk that you deplete some of your inventories, your stockpiles, your surface stockpiles before you've got sufficient run of mine ore to feed the concentrators? David Van Heerden: So yes, I think there will be a reduction in throughput through the concentrators, in particular, at Kakula. The additional tonnes we mined at Kamoa will tram across to Kakula to try and assist there as well. I think there's an upside in terms of the material being fresh in terms of recovery and processing. But the production rate at Kakula Phase 1 and Phase 2 will reduce slightly just because there's not enough fresh run of mine to fill those plants to fill the 10.5 million tonnes that we've -- capacity that we've got installed there. Unknown Analyst: Okay. Understood. And then final question, just on the stockpiles, the copper and concentrate stockpiles at 59,000 tonnes. How should we think about how that gets drawn down over the course of 2026? Kind of what's the optimal level that, that hits and by when? Unknown Executive: I think the optimal level from what I can remember is about 19,000 tonnes. That's the inventory and the stocks ahead of the smelter. They've got a ramp-up plan, which completes in about Q3 2026. So certainly by Q3 2026, that 59,000 tonnes will be down to 19,000 tonnes. Operator: And at this time, I would like to turn the conference back over to Matthew Keevil. Matthew Keevil: Thanks very much, operator. And we've come up on the hour here, and there are no questions sitting in our webcast queue. So with that, we'll wrap up for the day. Thanks again, everybody, very much for joining us, and we're looking very much forward to a lot of great news coming out of the recovery program and the ramp-up of Platreef over the next few months. So we look forward to talking to you again, and have a great day. With that, please wrap up, operator. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Your host for today's conference call is Matthew Grover, Senior Director of Investor Relations. Mr. Grover, you may begin your conference call. Matthew Grover: Thank you, Bahn, and welcome to AvalonBay Communities Third Quarter 2025 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at investors.avalonbay.com, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I will turn the call over to Ben Schall, CEO and President of AvalonBay Communities, for his remarks. Ben? Benjamin Schall: Thank you, Matt. I'm joined today by Kevin O'Shea, our Chief Financial Officer; Sean Breslin, our Chief Operating Officer; and Matt Birenbaum, our Chief Investment Officer. Before discussing our Q3 results, which were below our prior expectations and our updated outlook for 2025, I want to start by emphasizing a series of AvalonBay tailwinds and strengths that keep us confident in our ability to drive superior earnings and value for shareholders. First, our portfolio with its heavy concentration of communities in suburban coastal markets continues to be well positioned. With a more uncertain demand backdrop, we believe that those markets and submarkets with lower levels of new supply will continue to be the relative winners. Our established regions are particularly well situated with deliveries as a percentage of stock projected at only 80 basis points next year. And given how challenging it is to get new development approvals and the amount of time it takes to get those approvals, we expect our markets to continue to benefit from below-average levels of supply for a number of years. A second differentiator for us is the $3 billion of projects we currently have under construction, which will generate a meaningful uplift in earnings and value creation in 2026 and 2027. These projects are tracking ahead of our initial underwriting and importantly, are benefiting from reduced construction costs, which translates into a lower long-term basis for shareholders. These projects are 95% match funded with capital that we previously raised through a mix of equity and unsecured debt with an initial cost of capital of below 5% providing an attractive spread to our development yields on these projects. Third, our balance sheet is in terrific shape with low leverage and over $3 billion of available liquidity. As we look ahead, this balance sheet strength provides us with the flexibility to continue to redeploy free cash flow, disposition proceeds and low-cost debt into our next set of accretive development projects as well as to buy back our stock when appropriate, as we did in Q3, having repurchased $150 million of our stock at an average price of $193 per share. Finally, we continue to advance on our set of strategic focus areas, which are generating incremental earnings and cash flow from our existing portfolio as well as on new developments and acquisitions. This year, we've made strong progress in advancing toward our longer-term portfolio allocation targets with a continual eye towards enhancing the cash flow growth of our portfolio. And we remain very excited about our progress on our operating model initiatives, including the expanded set of uses for technology, AI and centralized services. By year-end 2025, we expect to be roughly 60% of our way toward our target of generating $80 million of annual incremental NOI from these operating initiatives. Turning to the third quarter. Slide 5 in our earnings presentation summarizes our Q3 and year-to-date results. We are on track to start $1.7 billion of development projects this year with a projected yield in the low 6s on an untrended basis. We've also completed our planned capital sourcing activity for the year, having raised $2 billion of capital at an average initial cost of 5%, generating a spread north of 100 basis points relative to development yields. Slide 6 provides the breakdown of third quarter core FFO relative to our prior expectations. Of the $0.05 underperformance relative to our outlook, $0.03 was attributable to same-store portfolio results, of which $0.01 related to lower revenue and $0.02 related to higher operating expenses, including in repairs and maintenance, utilities, insurance and benefits. Turning to Slide 7. Apartment demand has been softer than anticipated this year, which we attribute mainly to the reduced job growth backdrop with related factors, including higher macroeconomic uncertainty, lower consumer confidence and a reduction in government hiring and funding. As shown on the left side of Slide 6, the National Association of Business Economics, or NABE, is now projecting growth of 725,000 jobs in 2025, down from the over 1 million jobs in their prior forecast. And for Q4, NABE is projecting growth of just 29,000 jobs per month. We revised our revenue expectations as part of our midyear forecast with results for July and August generally tracking to those expectations, as shown on the right-hand side of Slide 7. As Sean will discuss further, softness on rental rates in August continued in September, along with a slight occupancy dip. With further softness continuing into October, trends that are now incorporated into our updated outlook for the remainder of the year. As shown on Slide 8, we've also updated our expense outlook for the year to 3.8%. After benefiting from meaningful operating expense savings in the first half of 2025, we've had trends run against us across a set of expense categories without any offsetting savings. For example, in repairs and maintenance, we knew that certain savings from the first half of the year would be incurred in the second half, but have incurred more and higher cost repairs and non-repeat projects than anticipated. Other unfavorable variances include insurance, utilities and associate benefit costs. Given our Q3 results and these revenue and operating expense trends, we've updated our outlook for the full year, which Kevin will now discuss in more detail. Kevin O'Shea: Thanks, Ben. Turning to Slide 9. We present our updated operating and financial outlook for full year 2025 as compared to our prior outlook on our second quarter call and on our initial outlook for the year that we provided in February. We are lowering our full year core FFO per share guidance by $0.14 to $11.25 per share, which reflects an updated expectation for year-over-year earnings growth of 2.2%. Our updated full year outlook reflects same-store residential revenue growth of 2.5%, same-store residential operating expense growth of 3.8% and same-store residential NOI growth of 2%. Turning to Slide 10. We highlight the components of our updated outlook for full year core FFO per share in the second half of the year for key parts of our business as compared to our prior outlook on our second quarter earnings call. Specifically, as Ben previously mentioned and as detailed on this slide, our third quarter core FFO per share results were $0.05 below our prior outlook. And for our fourth quarter core FFO per share, we provide a comparison between our prior outlook and our current outlook. The expected $0.09 decrease is primarily driven by $0.06 of lower NOI from the same-store portfolio, consisting of a $0.04 decrease in same-store residential revenue and a $0.02 increase in same-store residential operating expenses. The remaining $0.03 reflect lower expected earnings contributions from lease-up NOI, commercial NOI, joint ventures and other stabilized NOI. Taken together, our 3Q results and revised fourth quarter outlook resulted in an updated outlook for the full year core FFO of $11.25 per share. And with that overview of our updated outlook, I'll turn it over to Sean to discuss operations. Sean Breslin: All right. Thanks, Kevin. Moving to Slide 11. As Ben noted, we started to experience some softening in key revenue drivers during the quarter. In Chart 1, economic occupancy was generally consistent with our expectations in July and August, but fell below our previous outlook in September and has continued to be below our previous expectation for October. Similarly, rent change started to trend below our midyear outlook in August, driven primarily by weaker move-in rents, which are depicted in Chart 3. While move-in rents softened across most regions, the deceleration was most pronounced in the Mid-Atlantic, Southern California, which was driven by L.A. and Denver. In terms of underlying bad debt, while we ended the quarter close to our original estimate, we experienced an uptick in August, which contributed to the unfavorable revenue variance for the quarter. Turning to Slide 12. We now expect same-store revenue growth of 2.5% for the full year 2025, down 30 basis points from our midyear outlook. The primary drivers of the reduction are average lease rate, which is estimated to account for 20 basis points, along with economic occupancy and underlying bad debt, which are projected to be about 5 basis points each. Our established regions are projected to produce 2.7% revenue growth, while the expansion regions are forecast to be modestly positive. As I mentioned on the previous slide, while the softness we've experienced has been somewhat broad-based, it has been most pronounced in the Mid-Atlantic and L.A. The Mid-Atlantic has been choppy since the second quarter, and it softened further during Q3 as the probability of a government shutdown increased. Given the shutdown has become a reality and is heading into a second month in a couple of days, we expect continued weakness in the region through year-end. And in L.A., job growth in the film and television industry has continued to be weak. It's been estimated that the number of film and television jobs in L.A. has declined by roughly 35% as compared to just 3 years ago. And stage occupancy, which reflects the percentage of time sound stages are being used by production companies in the region, has been trending in the mid-60% range recently, down from 90%-plus levels just a few years ago. While new tax incentives were passed in July this year to support film and television production in California, any employment benefit from them won't likely be realized until sometime in 2026 or beyond. Moving to Slide 13. As we start thinking ahead to 2026, while job growth has been below expectations recently, our portfolio is positioned to perform relatively well given 2 important factors: First, the very low level of new supply expected in our regions; and second, a lack of affordable for-sale alternatives. New supply in our established regions is expected to decline to roughly 80 basis points of existing stock in 2026, which is not only less than half the trailing 10-year average, but also a level we haven't experienced since 2012. It's also roughly consistent with what occurred during the '90s decade, which was a terrific time period for us. On the right side of Slide 13, although mortgage rates have been trending down recently and home values have flattened out or declined in many regions, for-sale housing remains very unaffordable in our established regions. It still costs almost $2,500 per month more to own the median-priced home relative to the median apartment rent in these markets. Overall, while we don't have a crystal ball regarding job and wage growth for 2026, again, our portfolio is relatively well positioned for any demand environment given the supply picture and the lack of affordable alternatives. And as it relates to our portfolio and the setup for 2026 revenue growth, we're currently projecting our earn-in to be roughly 70 basis points. Additionally, we continue to expect improvement in underlying bad debt as we work through the backlog of cases in several established regions and our various screening tools further constrain new entrants to the bad debt pool. Forecasted benefit for the calendar year 2025 is approximately 15 basis points. For 2026, I would expect at least 15 basis points and likely more given some of the underlying activity we're seeing across the portfolio. And third, while it won't likely be as strong as the last couple of years as we begin to stabilize our AvalonConnect offering for residents, we still expect another well above average year of growth in other rental revenue in 2026. Now I'll turn it to Matt to address our development activity. Matthew Birenbaum: Thanks, Sean. Turning to our development activity. As shown on Slide 14, our current lease-ups continue to perform better than our initial expectations, reflecting the conservative underwriting approach we take, where we do not trend rents and analyze every new start primarily on its current economics. Our development underway reached $3.2 billion by the end of the third quarter, was 95% match funded and underwritten to an untrended yield on cost of 6.2%. We opened several new lease-ups over the summer and now have 6 communities where there is enough leasing activity for us to update the rents and yields to current market. This $950 million in development activity is running 10 basis points above the initial projections, thanks to $10 million in cost savings and rents that are $50 per month higher than pro forma, generating a further lift to the value creation and earnings accretion these communities will deliver once they are complete and stabilized. We have another 3 communities, all in New Jersey that are just starting their lease-ups and rents at those assets are currently set at 2% above pro forma. So the trend of development outperformance is likely to continue as all 9 of these communities look to complete their lease-ups next year. And the 13 communities that won't start lease-up until 2026 or '27 should open at a time when there will be much less competitive new supply, as Sean detailed earlier. Turning to Slide 15. We are strategically increasing our development underway when the industry as a whole is retrenching, taking advantage of the benefits of our integrated platform to build at a time when costs are lower and competition is more subdued. As we look to 2026, many of these favorable tailwinds should persist, although we are also mindful of the softening revenue environment and the associated impact on our cost of capital to fund new starts going forward. And with that, I'll turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Jana Galan with Bank of America. Jana Galan: Maybe following up on Matt's development comments. Just curious kind of how you're looking at the next crop of projects and properties, kind of how you're thinking about those? And maybe also comparing that with you guys were active on share repurchases in the quarter. If you could kind of talk to those capital allocation decisions. Benjamin Schall: Sure, Jana. Thanks for the question. Let me start by just reemphasizing the strength of our balance sheet. It's in a terrific shape today and really does provide us with a ton of flexibility as we think about our capital allocation choices going forward. I do think about a fairly rich menu of opportunities today. I'll start with reinvestment opportunities back into the existing portfolio. We're active this year on revenue-enhancing investments, see a similar set of opportunities as we look to next year. On the development side, as a baseline, we're thinking right now in terms of 2026 development starts in the range of $1 billion of starts. And that's based on looking out on our pipeline and the set of opportunities. They tend to be -- that $1 billion tend to be in our established regions where operating fundamentals are a little bit more stable today. We are seeing strong construction buyout savings in those markets as well. And based on today's rents and today's costs -- those projects aren't starting today, but based on today's rents and those costs, yields on that $1 billion are in the 6.5% to high 6% range. So a meaningful spread to where we can raise incremental capital. And then as we always do, we will flex and adjust as we need to. As folks know, we approve every development project, project by project. We have, for sure, raised the target returns that we're looking from our developers next year, but expected, and we're hopeful that we'll be able to have another year of fulsome development activity. And then given our balance sheet strength, we also have the opportunity to buy back our stock as we did in the third quarter and the extent that, that continues to present an opportunity for us to invest accretively into our existing portfolio. So that's the general setup where we sit today as we think about capital allocation choices. Operator: Our next question comes from Steve Sakwa from Evercore ISI. Steve Sakwa: I appreciate all the comments on the markets. Maybe for Ben. Just as you talked about SoCal and then obviously, the government shutdown won't go forever, but I mean, do you kind of look at those markets maybe differently just on a long-term basis? And would your, I guess, preference to have lower exposure in both of those markets kind of on a go-forward basis? Benjamin Schall: Yes. I'll start at a high level and then turn it to Sean to talk about what we're seeing on the ground, Steve. On a high level, we continue to advance on our portfolio allocation targets, which do have us -- this goes back to a couple of years ago, looking to reduce our exposure in the overall Mid-Atlantic as well as in California. The other emphasis point that I would give to you is we've not only set targets at a market level, but we've also set targets within our regions. And I'll use the Mid-Atlantic as an example here, on the heels of our D.C. disposition, our recent DC sales, we've been looking to increase our exposure in the Mid-Atlantic heavier to Northern Virginia based on a number of factors. And so on the heels of that transaction, we now have close to 50% of our portfolio in Northern Virginia. So that's how we kind of continue to -- it's a combination of looking longer term, but then also making shorter-term transaction activities. And then, Sean, if you want to speak to what you're seeing on the ground more in both of those markets? Sean Breslin: Yes, Steve. I think probably the right way to think about this, obviously, the government shutdown was looming in Q3. It's become a reality. We've seen this story play through before. It's not a long-term sort of secular shift for the most part, tends to be cyclical in nature. As Ben noted, we're happy that we have kind of half our portfolio currently in Northern Virginia and also, as he noted, tilting it more towards Northern Virginia, which is holding up better than the district or some of the markets in Maryland. The big thing with the Mid-Atlantic that I think we have to all look at also is, we delivered about -- projected to deliver about 15,000 units of new supply in 2025. That's projected to decline to just 5,000 units across the entire DMV for 2026. So to the extent we get to the other side of this and we get into a more stable and even modestly growing job environment, that's a pretty good setup for revenue growth when we get there. And then Southern California, obviously, has gone through cycles in the past, broadly diversified economy. Certainly, the entertainment sector has taken a hit. Some of the tax incentives and other activities will likely bring it back at some point in the future. And that is a market that, again, broadly diversified economically, which is generally good in terms of that diversification benefit, but tends to run at one of the lowest levels of new supply relative to stock of any of our regions in the country. And that is likely going to be the case as we look forward over the next couple of years for such a massive market to see a pretty meaningful reduction in supply. So I do think we're thinking about these both the short-term decisions, but not thinking too differently in terms of the long term other than the rotation within the region as opposed to outside the region is the way I'd probably think about it. Operator: Our next question comes from Eric Wolfe from Citi. Nicholas Joseph: It's Nick Joseph on for Eric. Maybe just going back to the capital allocation answer earlier. You mentioned development starts maybe in the mid-6s to high 6s. I think buybacks would be somewhere around the mid-6s now. How does that compare to what you're seeing kind of real time in the transaction market? Have kind of going-in yields changed at all given some of the weaker rent growth assumptions? And as you think about that, is there also a difference within some of the different markets that you're looking at today? Matthew Birenbaum: It's Matt. I guess I'll take that one. The short answer is we haven't really seen any change in where the market is pricing stabilized asset sales. It's still kind of anywhere from the mid- to high 4% cap rate range to low to mid-5% cap rate range depending on the geography. And even our own activity is kind of a good example of that. I put D.C., the district on the higher end of that range. But suburban Seattle might be on the lower end of that range where we just sold an asset this quarter at a 4.6% cap on our numbers. So it has not -- it's been pretty sticky. And if anything, as kind of long rates have come down a little bit, that's given buyers more confidence. So I think transaction velocity, multifamily trades in Q3 were up pretty materially over Q3 of '24. It is still selective in terms of the assets that are getting that bid are assets where there is reasonably good momentum in the rent roll or at least they're not backsliding. But so far, cap rates are holding firm and values. Operator: Our next question comes from John Pawlowski with Green Street. John Pawlowski: Matt, just a quick follow-up and if I could fit 2 in. Did I interpret your comments on the D.C. cap rates accurate that those sold before dispositions were right around a low-5 cap? And then Kevin or -- Kevin, can you provide more details on the -- really what drove the repair and maintenance surprise? Are we running into labor availability issues? Or what else went wrong in the R&M functions? Matthew Birenbaum: Yes. John, it's Matt. The cap rate on the DC sales was probably mid-5s. There was a little bit of retail in the portfolio. So the residential cap rate was probably kind of low to mid-5s, but I'd say the overall transaction was right around 5.5%, and then... Sean Breslin: John, it's Sean. On the R&M side specifically, it's kind of a smattering of different things. What I'd say at a high level is we had a pretty good experience going through Q2, as Ben mentioned in his opening remarks in terms of the benefit, we expect a little bit of that to come back. But unfortunately, just kind of hit a bad streak in Q3 in terms of various accounts that came through on the repairs and maintenance side, slightly higher cost per turn in terms of the way the units came to us. Some of them are skips and a VIX, the higher cost. So I wouldn't say there's one particular pattern there other than we just probably underestimated a little bit kind of where we land in Q3 relative to what happened in Q2. Operator: Our next question comes from Adam Kramer with Morgan Stanley. Adam Kramer: I think last quarter, there was a discussion around lease-up at an asset or 2 in Denver development assets. Just wondering if there was any update there for those assets. And then I guess just more broadly, if you sort of think about the performance of development assets and lease-up, how are they doing? And as sort of some of them maybe from a year ago or 9 months ago, as you get closer to sort of that annualizing the initial leases, what is sort of the performance in terms of people at renewal given sort of the pace of lease-up? Matthew Birenbaum: Adam, it's Matt. I'll start on that one, and then I think Sean can also provide some other detail specifically around our Denver lease-ups. But in general, as I mentioned at the opening, our lease-ups continue to perform well, and we're getting a little bit of outperformance on rent. And importantly, we are also seeing pretty significant cost savings. And the good part about that is that stays with you forever. That reduced basis, the NOI will move around over time, obviously grow over time, but it will have its ups and downs. But the basis is forever. And just between the deal that we completed in the first half of this year and Annapolis, which we completed this quarter, and we have another completion coming next quarter in Maryland, just those 3 deals alone, there's probably $12 million worth of cost savings on 1,000 units, that's $12,000 a unit in lower basis. So that's pretty compelling. And that -- so I would expect more of our yield outperformance on what we're leasing up now and into next year to come from the denominator and the numerator, but we're still getting a little juice on the numerator in general. And in generally, we lease at a pace so that we can have the assets full within 12 months. So essentially, we don't wind up competing against ourselves on renewals. We are very mindful of that. And in general, we've been able to achieve that. There are a couple of exceptions and the one in Denver is a good example of that, where that submarket in Governor's Park there south of downtown is just littered with supply. So Sean, I don't know if you want to share a little more on that and contrast that to some of the others. Sean Breslin: Yes. Just to give you some insights on Denver, we really had 2 lease-ups. One just finished and stabilized at the end of the third quarter, which is in Westminster. And then the other one is Governor's Park, which Matt has referenced. So on average, they did about 20 leases a month during the third quarter, which is a little bit below where we typically would like. But again, Westminster was heading right to stabilized mode. So a little bit softer pace there. And then concessions on the Westminster deal averaged about 150% of a month's rent, and it was more than 2 months rent at the Governor's Park deal. So certainly a soft environment in Denver. I think that's pretty apparent to pretty much everybody nowadays. But fortunately, we have one that's stabilized and the Governor's Park deal is approaching 90% leased at this point. So we're getting pretty close. Matthew Birenbaum: The other piece of good news I'd add, and I think I mentioned this last quarter, too, it just so happens a lot of our lease-up activity now and as you look to next year is in the suburban Northeast, which is still pretty strong. I think we -- as I mentioned, we have 3 lease-ups that are opening -- that are leasing now in New Jersey and a fourth one that's just finishing its lease-up, and that market has been very solid. Operator: Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Just thinking through potential share repurchase activity from here, I guess, do you have capital lined up to fund that today? Or would you need to source additional capital to fund future purchases? And just wondering if dispositions are the best -- still the best avenue for that today? Kevin O'Shea: Sure. Austin, this is Kevin. So a few points for you to consider here. I guess, first of all, from a balance sheet point of view, as Ben outlined, we're in terrific shape right now. As you can see from our earnings release, our leverage is 4.5x net debt to EBITDA. If you give us credit for the forward equity of nearly $900 million we have in place, that's essentially another half turn lower. So we're kind of at around 4 turns. We have nearly full availability on our line of credit. It's only $200-plus million in commercial paper. So we have plenty of access to liquidity, and we have leverage capacity to the extent we wish to use it. From a share repurchase authorization standpoint, as you probably noticed in our earnings release, we essentially reloaded or reauthorized our share repurchase program. So we now have $500 million of additional authority to be able to tap into here going forward. So we have that set up as well. And I think as kind of outlined by Ben, we're prepared to be nimble. We do currently plan on having, call it, roughly $1 billion in starts next year, but it's -- the decision of whether to engage in a buyback or development is not necessarily a binary one, as you even saw from us in the third quarter, where we continue to be constructive on development and also bought back $150 million in shares. So not in a position to tell you today what we're going to do tomorrow, but we are in a position to act on a buyback if it makes sense. And we recognize that our shares are attractive. But we also recognize that development is attractive and a point of indifference also gives us fresh assets with a low CapEx profile and a strong growth profile. So there are certainly strong merits to continuing to do development, significant amount of what's in our development book, but we have the capacity to engage in a buyback if appropriate. From a standpoint of how much -- how we think about funding it longer term, certainly, we would likely tap available liquidity in the form of commercial paper to do so, which prices in the low 4% range today. But ultimately, as we think about framing how much we would do, we are limited by our gains capacity, which is in the normal year, about $500 million of asset sales and an intention to essentially term out whatever we buy in terms of the buyback on a leverage-neutral basis with its proportionate share of recycled asset sales, if that's the case and incremental longer-term debt. So we feel like we have plenty of room to be constructive in, there, but -- so -- but it's not necessarily a binary choice, and we're prepared to be nimble and react to the appropriate market singles. Operator: Our next question comes from Jamie Feldman with Wells Fargo. James Feldman: As we've been listening to the calls throughout the day, the #1 incoming question is just how do these residential companies have visibility on where the market is going, first for guidance through year-end, but also just to kind of get through the spring leasing next year. So I know there's only 2 months left in the year, so that's probably an easier part of the question. But just as you think about your crystal ball setting guidance and even thinking about where this cycle could go before it gets better, can you point to some of the things that are giving you confidence or that people should be thinking about or that you're thinking about and watching because every company is certainly taking numbers down or their outlook is down given September and October. Benjamin Schall: Jamie, I can start. The -- emphasize a couple of different elements. One, sort of our portfolio positioning, for sure, emphasizing the level of low levels of supply that we're seeing now and particularly as we get into next year, and Sean mentioned it, but just to reiterate, we don't need a ton of incremental demand given that supply backdrop to see some strong results as we get into next year. As you think about the overall job environment, the hope is that we're headed towards a period where there's increased certainty on the macroeconomic side, increased certainty around where tariffs are going to land, the end of the government shutdown. So increased certainty, increased confidence. The rate dynamic potentially also leads to further investment, but we can kind of shift out of our current environment to there and you lead to businesses further investing and also investing in their workforces, that's sort of the other side of this dynamic for us as we think about the job picture. Operator: Our next question comes from John Kim with BMO Capital Markets. John Kim: I wanted to talk about bad debt, which came in a little bit higher than you were expecting. And I wonder -- I just wanted to know what the potential source of that was and if you have a disproportionate amount of bad debt that came from recent development lease-ups. Sean Breslin: Yes, John, it's Sean. Yes, the miss in bad debt we referenced is in the same-store pool. So the development assets wouldn't be in that book. And it's really a relatively modest number. It's about 5 basis points different in terms of what accounted for the variance. And in a book like that, when you're dealing with court times and dockets and when the share is going to show up and all that kind of good stuff, 5 basis points is a pretty tight margin of error. But obviously, it was a negative variance. So overall, we feel good about where we're headed with bad debt. I can tell you that as you look at where we are now in terms of the number of accounts that we need to work our way through compared to the end of 2024, we're down 20%, 25%. So it's moving in the right direction. It's just a matter of kind of processing people through. So I would expect, as I mentioned in my prepared remarks, as we look forward to 2026, if we're getting about a 15 basis point benefit this year, I would expect at least, if not likely, more than that benefit in 2026 just based on what we're seeing as different cases work their way through the system and our screening tools get more and more sophisticated in terms of limiting the number of new entrants to the pool. John Kim: But in general, I know it's not part of the figure with the same store. Do you tend to get higher bad debt on lease up communities? Sean Breslin: Not necessarily. No. If it is, it can be an outlier community here or there. It's really kind of market specific in terms of the type of customers you're dealing with and tools you use. But in general, it's not necessarily an outlier across the development book as compared to the same-store pool. Operator: [Operator Instructions] Our next question comes from Rich Hightower with Barclays. Richard Hightower: But just to follow up on the jobs discussion. I guess, as you're having conversations with tenants in the D.C. market specifically, I guess, what are the chances that there's another shoe to drop with respect to sort of delayed impacts from DOGE. And if someone's laid off, there's usually sort of a lag before they think about vacating the unit or stop paying rent or things like that. And then secondarily, there's been a lot of headlines around weakness in the entry-level job market specifically. And that's not a D.C. comment, that's broad-based. But how does that affect your portfolio more broadly? So I guess kind of a 2-parter. Sean Breslin: Yes, Rich, it's Sean. I'll start and others can add as needed. As it relates to the districts or the D.C. region specifically, what I'd say is likely any impact that came through related to DOGE specifically and some of the activities that happened earlier this year, we probably would be feeling that about now just given normal sort of severance periods, notice periods, things like that. So there's probably an element of that embedded in the current environment. Of course, some of those people may have left 3, 4, 5 months ago. But I think the question now is as we turn to 2026, as I mentioned earlier, the supply picture looks drastically better in terms of the reduction in supply, getting down to like 5,000 units is not a number we've seen in D.C. in a very, very long time. So on the demand side then, if we can clear through the shutdown and get back to kind of normal business, I think we'll be in much better shape. I think the question really is what happens with some of the furloughs? Do they turn into permanent reductions, et cetera. We have not heard that, but certainly, that's a possibility. So I think we just need better visibility coming out of the shutdown in terms of the potential impact. And then if there is one, then we would lag that for whatever time period is appropriate 6, 7, 9 months. As it relates to your second question on the AI side, we feel pretty good about our overall position. I mean we're not necessarily -- I mean, the average age of our residents is in the kind of mid-30 range. It's not fresh out of college or even in the young 20s or mid-20s, which is where a lot of the focus is lately in terms of kind of new entrants into the employment base and the types of jobs that they perform being likely more automated. The other thing I would say is, particularly in some of the markets that we're in, in the coastal regions, they're pretty high value-add jobs. So when you think of the people that are coming into San Francisco or Seattle, as an example, more and more of the demand for that activity is people with the skills to help propel AI forward. I'll give you an example, I mean, I was in San Francisco not too long ago in Seattle. And when you talk to our teams on the ground, people coming in looking for new apartments propelling the momentum you see in that market, is people coming in heavily in the AI sector and other sectors, highly educated coming potentially from somewhere else or within the region. So we feel good about the high value-add nature of the jobs in those regions still likely being the winning formula as opposed to maybe the lower value-add jobs that might go away in some of the service industries, back-office operations, customer service operations, things of that sort. Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Two questions. The first is on the asset sales, the $585 million in the quarter, I think all of those were developments and it was a slight economic loss. Just curious, you guys speak about the value creation. So the economic loss definitely jumps out. So is there anything specific, was it 1 or 2 of these projects that drove that? Or in aggregate, just want to better understand why there was a loss on the sale? Matthew Birenbaum: Yes. Alex, it's Matt. So those particular sales actually 2 of the 6 were acquisitions were Archstone assets, and 4 of the 6 were assets we developed. So it was a mix. And those particular communities, it was really driven by 2 where there was a material loss relative to our economic basis. One was an asset we developed was Brooklyn Bay, which was kind of an unusual submarket pocket in South Brooklyn, not a very large asset, less than $100 million investment, but that one was one that wasn't one of our better investment decisions. And the other one was one of the assets in NoMa that we got from Archstone. And NoMa has just been one of the uniquely difficult submarkets in the district and really anywhere in our footprint, really ever since we bought it. And we bought 60-plus assets from Archstone, and most of them have been pretty good investments. And obviously, that whole platform investment was very favorable for us. But once in a while, in a portfolio of that size, you're going to get 1 or 2 that don't do so well. So that was kind of what happened there. But I'll tell you, even -- I was looking at it today, even on the $800 million in dispos that we have for the entire year this year, which includes this $600 million, the unlevered IRR on that whole basket of 2025 dispos is in the mid-8s. So it's still pretty good investment returns given that. There are years when certainly, I think on average, we're probably in the low double digits, but that's still a pretty good investment return. And I think, as you know, our long-term track record has really been second to none, I think, in the REIT space, at least in the multifamily space for an awful lot of years. Alexander Goldfarb: Okay. And then -- yes. Benjamin Schall: Yes. Alex, the other element I'd just add on to Matt's commentary is these are a set of assets that have been on our target list for a while now. And we're waiting for asset values to recover to a certain degree to be able to execute. And so in any portfolio, you're going to have some low performers, but we really think about this as pruning those assets out, redeploying that capital into higher growth opportunities. Alexander Goldfarb: Okay. And then the second question is, it definitely seems like in REIT land, people are discovering nuancing the markets more, right? Like you want very Westside L.A. or east side in Seattle or different -- more Northern Virginia. So as you look at your development pipeline and your land options, have you like done -- has there been a big culling where you're like, hey, some of those sites that we originally picked they're not in submarkets we want anymore. Just trying to understand better how the -- as you start the next round of projects, how that has evolved versus what your land bank or land options were a few years ago? Matthew Birenbaum: Yes. Alex, I would say we've been pretty mindful of that really for the last several years. So if you look at our dev rights book today, it's almost all -- I mean, it's both bottom up and top down, right? We're looking for the best risk-adjusted returns, and we are looking to generate value creation on every deal we do, but we are also looking to develop assets that we think are going to be good long-term performers in our portfolio. And so we do actually incentivize that. We will demand a higher target yield if it's in a submarket we think is a little bit weaker. But we've been kind of tacking that way for a while now. And just to give you another example, Ben mentioned kind of within the Mid-Atlantic, more focused on Northern Virginia. Within Southern California, we've been really focused on San Diego, which is almost an expansion region for us. And this quarter, we just started a very big project in San Diego. We have 2 deals under construction in San Diego now, 2 more development rights. And we haven't started a development in L.A. County for 5 or 6 years. So our focus is completely on San Diego, Orange County and then Ventura in SoCal as an example. And again, in Seattle, same thing. Our portfolio is heavily east side. Our development focus has been entirely on the East side really for the last 7 or 8 years. Benjamin Schall: Alex, I'd flip your question, which is in an environment where others are pulling back and don't have our capabilities, these are the windows we actually can move on our best real estate, structure them the best way. Think about the amount of land that we actually have investment in today, very, very low. And these also -- and this is the environment also this cohort of projects tend to be some of our most profitable, both for the sort of the upfront deal striking that we do as well as for those projects opening a couple of years from now, facing less new supply. Operator: Our next question comes from Haendel St. Juste from Mizuho Securities. Michael Stefany: This is Mike on with Haendel at Mizuho. My question is, does the D.C. DOGE job cuts multiplier effect on the D&B region give you less confidence in market rent growth going into 2026? And how does that potentially impact the acquisition property and your portfolio in that region? Sean Breslin: Mike, this is Sean. Two things. One is in terms of the ripple effect, as I mentioned earlier, the DOGE impact, if anything, is probably being felt around now given the lag effect between the time people were noticed and when they actually departed. If there was a ripple effect, we probably would be seeing more of that now. I think it's a little uncertain at this point that we've actually seen that. And then on your second question, we have not acquired anything in this region in quite a long time in terms of assets. Is there another question there, Mike? Operator: Our next question comes from Michael Goldsmith with UBS. Ami Probandt: This is Ami. Are the remaining deliveries and lease-ups from the supply cycle more concentrated in urban or suburban areas? And then if we do see interest rates continue to tick lower and development activity pick back up, do you think [indiscernible] will be more likely to be concentrated in urban or suburban locations? Matthew Birenbaum: Ami, it's Matt. So as you look out over the next year or so, there's still more deliveries coming next year as a percentage of stock across our footprint in urban submarkets than suburban submarkets. There are a couple of regions where that's not true, I think specifically Northern Cal and maybe New York. But in general, in almost all of our other regions, we're still seeing -- we still expect a bit more supply, urban and suburban. The gap between the 2 is narrowing. It was wider 2 years ago. It was a little bit wider this year. But actually, I'm a little surprised there's still urban supply coming. As you look out beyond that, where the next slug of starts might be, the economics on development certainly work better in suburban submarkets today. That's what we're finding. I think that's what the market is finding. However, entitlements are more difficult, at least in our established region in the suburbs. And so you have to have been at it for a while if you're going to have a deal ready to go. And the other thing that we have half an eye on, I'd say, is in many of the urban cores, the cities are now trying to encourage conversion, adaptive reuse of outdated office to multifamily, and they're actually providing incentives to do that. So it is possible that if that starts to make sense, that supply could materialize fairly quickly because those are existing buildings that would be converted with a shorter build cycle time. Operator: Our next question comes from Alex Kim with Zelman & Associates. Alex Kim: Just a quick one for me. We saw the spread between renewals and new move-ins widen again this quarter, and part of that's due to the seasonal trend this time of year. But curious if you have any thoughts on that dynamic and what that means for rent growth for both front-end pricing and renewals moving into '26? Sean Breslin: Yes, Alex, it's Sean. Yes, fair point. I mean, typically, you would start to see a seasonal shift between the rent change for renewals versus move-ins at this time of the year. And nothing new on that front. Other than on the move-in side, as I indicated in my prepared remarks, it has been weaker on the move-in side in terms of rent change than we would have anticipated, reflecting some of the deceleration that we've talked about in some of the markets that I identified earlier like the Mid-Atlantic and L.A. and Denver. So certainly a little more meaningful than seasonal in those particular markets, but you would expect that to continue likely through year-end. And you don't start to see any kind of shift in that in a material way until you get to the spring leasing season and asking rents really start to move up through that period of time typically. So that's what would normally occur. At this point, we haven't provided a forecast for 2026, but that would follow the historical norm. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Ben Schall for closing comments. Benjamin Schall: Thank you, everyone, for joining us today, and we look forward to connecting with you soon and at NAREIT in early December. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Rush Enterprises, Inc. reports Third Quarter 2025 Earnings Results. [Operator Instructions] I would now like to turn the conference over to Rusty Rush, President, CEO and Chairman of the Board. You may begin. W. Rush: Good morning, and welcome to our third quarter 2025 earnings release call. With me this morning are Jason Wilder, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary. Unknown Executive: Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2024, and in our other filings with the Securities and Exchange Commission. W. Rush: As indicated in our news release, we achieved third quarter revenues of $1.9 billion and net income of $66.7 million or $0.83 per diluted share. I am pleased to announce that our Board of Directors approved a $0.19 per share cash dividend. The commercial vehicle industry continued to face challenging operating conditions in the third quarter of 2025. Freight rates remain depressed and overcapacity continues to weigh on the market. In addition, while the industry gained some clarity regarding the tariffs that will be imposed on certain commercial vehicles and parts beginning November 1, economic uncertainty and regulatory ambiguity remains, especially with respect to engine emissions regulations. These factors are impacting our customers' vehicle replacement decisions. Despite these headwinds, I am proud of the financial performance our team delivered in the third quarter. Our employees' commitment to operational discipline and customer service was evident in our ability to maintain strong aftermarket results and manage expenses effectively. And I'm deeply grateful for their dedication. Our aftermarket operations accounted for approximately 63% of our total gross profit in the third quarter, with parts, service and collision center revenues reaching $642.7 million, an increase of 1.5% compared to the third quarter of 2024, and our absorption ratio was 129.3%. In the third quarter, our aftermarket products and service businesses remained resilient despite ongoing market challenges. Our strategic focus on technician recruiting and retention, expanding our aftermarket sales force and identifying new customer segments helped to offset weak demand. Looking ahead, we anticipate continued challenges in our aftermarket business due to seasonal trends and broader industry headwinds, but we remain confident that our diversified customer base and operational discipline will allow us to successfully navigate the remainder of the year. With respect to truck sales, we sold 3,120 new Class 8 trucks in the U.S. during the third quarter, accounting for 5.8% of the total U.S. market. While this represents 11% year-over-year decrease, we outperformed the market primarily due to stable demand from our vocational customers, underscoring the strength of our diversified customer base. Looking forward, economic and regulatory uncertainty continues to dampen customer demand, particularly with respect to new Class 8 trucks. We believe that the weak demand the industry is currently experiencing will negatively impact new Class 8 truck sales for at least the next 2 quarters. That said, if stricter emission laws become effective as planned and if capacity continues to exit the market due to bankruptcies, retail sales being below replacement levels, and continued enforcement of government policies regarding English language proficiency and non-domiciled drivers, Class 8 truck sales may be strong in the second half of 2026. In the medium-duty market, we delivered 2,979 Class 4 through 7 medium-duty commercial vehicles in the U.S. in the third quarter, representing an 8.3% year-over-year decrease and a 5.6% market share. We also sold 448 Class 5 through 7 commercial vehicles in Canada, which represents 10.7% of the new Canadian -- of the Canadian Class 5 through 7 commercial vehicle market. Despite ongoing industry headwinds, our medium-duty results in the third quarter outpaced the broader market. Our performance was bolstered by a significant increase in bus sales following our acquisition of an IC Bus franchise in Canada, which further diversified our customer base. Looking ahead, we expect medium-duty commercial vehicle sales to remain stable through the remainder of the year. We sold 1,814 used commercial vehicles in the third quarter, essentially flat compared to the same period in 2024. While financing remains a challenge for used truck buyers, we believe our inventory is rightsized and that our used truck sales strategy is on track. Unlike the new truck market, the used truck market is less exposed to tariff concerns and regulatory uncertainty, which may provide customers more confidence and incentive to consider used trucks as part of their fleet mix in the near term. We expect fourth quarter used truck sales to be in line with the third quarter. Rush Truck Leasing achieved record revenues of $93.3 million in the third quarter, up 4.7% year-over-year. Our full-service leasing revenue increased as we brought new vehicles into service, which also helped lower operating costs and increased profitability. Rental utilization was lower year-over-year, but improved sequentially, and we are confident our leasing and rental performance will be solid for the remainder of the year. On the capital allocation front, we remain focused on returning value to shareholders during the third quarter. We repurchased $9.2 million of our common stock as part of our expanded $200 million repurchase authorization, and we also paid a cash dividend of $14.8 million in the quarter. In summary, despite the aforementioned industry headwinds, I believe we've delivered solid results, and I'm proud of our team's performance in the third quarter. Our employees across the U.S. and Canada continue to demonstrate resilience, and I'm deeply grateful for their dedication. With that, I'll take your questions. Operator: [Operator Instructions] And our first question comes from Andrew Obin from Bank of America. Andrew Obin: I'm sure the team works very hard. Just a question, could you just tell us, we've been stuck in this cyclical malaise for a while now. We've been waiting for the turn of the cycle for a while now. Can you just expand and tell us what are you seeing? When do you feel things actually bottom? And what's the path going forward? What gets this thing sort of on court and just lets the sales actually go up eventually? W. Rush: Right. And I'm guessing, Andrew, that you're speaking about from my customers' perspective. Is that correct? Andrew Obin: Yes, correct. Yes. W. Rush: Okay. Well, great. Well, I just so happened, I spent the last couple of days in lovely San Diego, California at ATA, which is the largest truck convention -- our customer truck convention there is. So I met with quite a few customers while I was out there. And I think as I mentioned in one of the paragraphs there in the press release, and I mentioned a little bit earlier, this is the first time I'm going to say, I mean, we've been 3 years in a freight recession, 3, okay? This usually doesn't last, but 12 to 16 months, I have never seen in my career, it go so long, right? And you could figure out why supply was not coming out, right? There's supply and then there's demand. I can't really speak to demand as well. That's more of an economic-driven, the only economy-driven stuff around tariffs and just around the economy itself. But from a supply side, the crazy thing is it just has not come out of the market. It always comes out faster. And I think if you look at it after rates were way up in '21, '22 and they started coming down. That's been that 3-year row, just depressed freight rates from the customer perspective, especially on the truckload side, not so much on the LTL side, but on the truckload side for sure. And I think the government has finally got their arms around some of this when -- I mean, one of the things I learned while I was there is you read a lot and people are saying this is non-domiciled driver thing and the English-speaking proficiency, but really around the non-domiciled driver thing. Most some of the numbers I've heard before, well, if we can enforce that, it's going to be up to the states to enforce that, okay? And I've heard numbers of 5% or something. Well, I was there. Some of the carriers I talked to said that was way understated. And like 15 to 20 of the states are really starting to enforce it right now and that they all have to get on board. And so over the next little bit, it could take out up to 15% of the drivers, which are probably some of the smaller carriers have been using to hang on and stay. Those are the carriers that usually go out in a freight recession first, not your more well-capitalized bigger guys, but the smaller carriers are always that variable piece that get in and get out based upon where rates are. And so that's one of the things that I believe will, for sure, help. Also, I think we -- people continue to buy trucks after we came off of allocation, we should have not slowed down selling trucks or producing trucks quicker than we did because there's 2 sides to it, right? That's the attrition side. Well, the other side is what are you producing, right? Well, right now, the last -- the back half of this year, I mean, you're talking we're going to be down in production 30%, 35%, 40% at all the OEMs combined. I'm not sure exactly where it is, but it's down dramatically. And I think that's going to continue into the first quarter for sure, maybe the first half. If you add that, you think about that, so you're shutting down the supply side, the intake side, you're taking people out of the attrition side. Well, you should start to get a more rightsized or balanced fleet out there with what market demand is, right, or what freight tonnage is. And I think you can see that if you look out. Now on top of that, even though the carriers, and I'm on their side, would prefer that it's changing the law that's going into effect right now. The current law, the way it stands is 35 -- don't give me, it's changing to 35 particulates on the NOx side. It's 200 currently, okay? But the new law says 35. I'm with the carriers. They would prefer a pause on 35 and they -- but I'm not in the middle of that, but you see folks and customers that are putting pressure on the EPA to pause that law. Right now, I can't tell you where it goes. But if it stays as is and goes into effect, I do believe it will change -- if it stays as is, you will see change in the warranties will come down because a lot of the cost for that is going to be more. But it's still going to add more cost where tariffs have added more cost to an industry that's been in a 3-year recession. But people are asking for, like I said, carriers are asking to say 200, and I support them on that. I don't know. But currently, if you look at the law, it said it's going to go to 35. Well, that's going to add more cost also by the end of next year. So you tie that in with tariff costs, which are happening for sure, starting Saturday with the new tariffs, I mean, the tariffs already all year, but with the new 232 rule and how that affects everything, you're going to put -- the EPA thing will only increase cost on trucks at the end of next year. So you add that with a better rightsized fleet, for the environment. That's why I wrote you can see a much stronger back half of next year. Now I would prefer that we also have freight tonnage growth with that. So it's not just regulatory driven. I think if we can get some freight growth, which I hope we get some certainty. I mean uncertainty for everybody has been the craziest thing trying to run a business all year, okay? But we get some certainty around whatever it is, add that in, like I said, take it supply out. And even if it stays that 35% will help truck sales, but I'd like for my customer to be more healthy. And I think getting the right-sized fleet is the most important thing with a pickup in freight tonnage. And that's why you see some optimism. I'm more optimistic now for that -- the big over-the-road market. Look, that's still 2/3 of the market that's out there, all right? Vocational is awesome. And we do more in vocational than 1/3 of our business, but that's still the largest segment, and it has been obviously headwinds for everyone, my customers more than me for the last 3 years. So I know that's a long-winded answer, but you're used to my long-winded answers, I'm hoping. And that's sort of the way I see it right now. I have a little more optimism than I have had after coming back from San Diego, that's not happening right now, okay? Remember, we had 5 months, 6 months of the lowest order intake since 2009. I'm the tail of the dog. So we are going to feel it in Q4 and Q1 without question. At the same time, it feels good to really believe that you can see real drivers to get back and get the market rightsized long as the economy stays in good shape. That's sort of the way I see it. Andrew Obin: And just a follow-up question. I ask it on every call, but what's your read on the macro, just general macro outside of the stuff that feeds into your customer base? Is it getting better? Is it getting worse? What are you excited about? What are you worried about? W. Rush: No. I'm not an economist, Andrew. What I worry about? I worry about unemployment, which for sure would affect consumer demand. That bothers me. I worry about -- I don't feel that we have seen the full effect of tariffs, no way. We had a prebuy prior to August, but we're draining those -- as we drain those inventories down, we've got to restock. I have seen many large companies, manufacturers, customers across all segments that have eaten a lot of those costs. I don't see them eating those costs forever, which ends up being pushed down to the consumer at the end of the day. Those are the 2 things that bother me more than anything. I'm hoping we can get around all that. But I do -- an inflationary -- a little more inflationary environment if tariffs get pushed through because everybody knows that people prebought prior to August, but we're draining those. So -- and you put that in, we get some more unemployment. You read some of the stuff you see. I see a little anecdotes out there myself that have me a little nervous, a little bit concerned. I can't say this is going to -- this is a number or this is what's going to happen. But I do have some concerns as I look at -- just look around myself and try to pay attention to what's going on, right? Like I said, I'm not an economist. I'm just looking at it from my street level, but I do have quite a bit of touch and feel with a lot of different companies and things out there. So besides all the big stuff you read about when you read about UPS and these big companies that are laying off right now, Amazon by laying all these people off. There you go. That's what I'm worried about. Andrew Obin: And I'll -- just feeding into that, I'll just take advance and ask one last question. How is your parts and service business trending on a daily basis into the year-end? Is it getting better? Is it getting worse because that's also a good indication and also obviously has quite a bit of torque to your financials. W. Rush: Yes. Well, it was flat to slightly up for the third quarter, but September was softer than I would have liked. Remember, we naturally or yes, we naturally have seasonality. And I've always told folks if I could get rid of sometimes November, December, January and February, I might keep the holidays for the kids. But other than that, from a business perspective, if I could sometimes we're in the south, -- it can help a lot of our stores in the South, the majority of them are. So that's a little harder, a little softer. You have fewer working days. We typically tick down 3% or so, 3% to 4% from Q3 and Q4 and Q1. It will start picking back up, hopefully by late February, March. It softened a little quicker in September. I'm waiting to get October finished tomorrow night. I'm hoping that we can try to get pretty close to flat with last year. I'll be really close, I think. But it's still to be -- how about TBD, to be determined. There are certain things I look at that show month-over month, we got the same amount of backlog in our work in process in the parts and service. But I do -- I'm hoping it's just like normal seasonality, and we have a slight downtick and less -- we have 1 less working day, which is quite a bit of gross profit as big as our parts and service operations are and it's the holidays, factories shut down between Christmas and New Year, but you deal with that every year. So I'm hoping we stay in the range of what we typically do. I was a little disappointed with September. Typically, we'll start in October. But we'll see here by the end of the working -- the month by midnight tomorrow night on Halloween because they'll be closing tickets and doing what they do every month, getting it all in. So we'll see, but I expect it to be fairly close to flat with last year's number, which if we're there, given the environment, I'll be okay with it. I'll be okay with that. Operator: Our next question comes from Brady Lierz from Stephens. Brady Lierz: I wanted to start kind of just with the outlook for the remainder of '25 and the first half of '26. You've mentioned a couple of times on the call that you expect a challenging end to '25 and for that to persist into 1Q. But can you expand just a little on that? I mean what are your customers telling you as to why they're not placing orders? Is it just uncertainty around regulation? Or is it uncertainty around tariffs? Or is it both? And if we got more certainty around those items, could we see a meaningful improvement -- and then maybe just kind of related, your vocational customers seem more resilient. So are there some company-specific opportunities you have to help offset this weakness and outperform the market? W. Rush: Well, from a delivery perspective, we slightly outperformed the Class 8 dip. I think [indiscernible] market was up more than that, I think, in Q3. But around -- I'll go to your first part, Q4, first Q1, maybe partially into Q2, I can't tell. Look, remember, like I said earlier, we're the tail of the dog. And when you look at the order intake from April, May, June, July, August, September, it's like September, it was 20,000 units. We have months that was 7,400 units. This is North America, 11,000. Those were the worst order intake months since 2009. I know that every manufacturer has taken more down days over the last -- since July. Everybody built as much as they could in the first half of the year. There is not one manufacturer, not one that hasn't taken many down days and weeks, okay, so far in this quarter, okay? So we're building less trucks. I guess it's less to sell because there's been less demand. And you can circle lead. That's all of the above. When you see you hit it, it's really 3 things. It's their business. It's everybody's business, but the uncertainty, tariffs that make freight go up and down and cost of trucks go up and down. And then you add in, can we get an answer on emissions next year because everyone I spoke to, if their business can get a little bit -- a little -- which we're not -- I'm not saying they're getting it now because you got to take care of those supply issues that I rambled on and talked about earlier when I talk about the amount of trucks on the road, has to get in line with freight. If you can get that back in line, bring some certainty, here's what the emissions regulations are, whatever they are. And if they stay as they are currently under the law, I don't think there's any question in spite of the large freight customers, they'll probably try to pull a little bit forward, not have huge prebuys, but they will try to shift some stuff maybe they do in Q1 or '27 or Q2 and try to shift some of those purchases into the back half of the year. If it stays as it's written right now and doesn't get -- there's not a pause and they get a little relief, which I said before, for their sake, it might hurt my truck sales in the back half. But for their sake, I just assume they get it -- get that relief. But it's what you said. But really, they need to get aligned -- really, we've got to get the supply aligned with tonnage, and to where they can get a little contract rates. I mean if you look at the TL side, I mean, if they got 2%, they were lucky this last year because they were going down, down, down 10%, 15-plus percent the prior couple of years. Well the cost of trucks and everything operationally and inflation went up, up and up, they have nots, you've seen the ORs and some of these things, and they're not what they historically have been on that side. Now LTL still fared better. Of course, 2 years ago, they got a little tailwind with the demise of yellow and stuff. So when the third largest carrier goes out. And there's many fewer barriers to entry or there's excuse me, more barriers to entry in LTL with all the doors and terminals and all the stuff that's required in that space. So they've weathered it better than the TL side. But I just got to tell you, the next couple of quarters is going to be tough. You can tell by the order intake that's been there. And it wasn't like everybody was ordering trucks handover fish. Some people -- it was -- we weren't even -- it's difficult to give a price on a trucks deal. But remember, the tariffs, the definition of it just came out 1.5 weeks ago, okay? And these manufacturers are just pouring through it, trying to make sure they clearly understand it, okay? Because it gets pretty complicated as to where -- how these tariffs are figured out from where you build and what are your suppliers because people use different suppliers and where that comes from, et cetera. I would tell you that we'll probably have a whole lot more clarity as to how things are going to pick up in the next 30 to 45 days. There wasn't a lot of clarity at ATA because people -- it was good for some manufacturers and bad for others. And they're trying to sort it out with the Rule 232 is what I'm talking about, but that just came out, whatever, 10, 12 days ago, 10, 11 days ago, and folks are just pouring through it, making sure that they understand it right. So I mean I'll be honest, you couldn't price a lot of people right now. And when you can't do that from a manufacturer, that somebody is supposed to buy something. It's been crazy all year because you would price like you would give quotes that were only good for 90 days, right, or maybe 120 based upon the ever-changing environment around tariffs. Well, that's difficult. You've got all these question marks. If this happens, this will, if not, it's no good. I mean this is the world we've been living in for the last 6-plus months, which has made it extremely difficult. So as all I can tell you is clarity, clarity, clarity and less uncertainty and continue taking supply out and hopefully get a little bump in freight early on in tonnage here. I don't see it right now. But I would hope as we get into the first part of next year, we do see something by the time we get out of Q1, into Q2, something there while you're taking supply out over here, while you're building less trucks, so your intake is less. So you should naturally be squeezing down the supply of trucks. I mean that's all I can -- the best way I can describe it, which for me, the hard part was while we were in a freight recession, we just kept building and selling trucks longer than we probably should have. But now we're on that rightsizing piece, along with the government activities around drivers that are going on the things I mentioned earlier. So anyway, I have some optimism. It's just not over the next 6 months. Okay. Brady Lierz: That's very helpful color. And if I could just follow up on medium-duty. Medium-duty has continued to kind of be a stable growth driver for your business. Can you talk about what you're seeing in medium-duty into the end of the year? And just maybe any preliminary thoughts on medium-duty in 2026? W. Rush: Medium-duty is a different environment, right, a different market by far than the Class 8 world. I would tell you, we expect it to be fairly flat in Q4 with Q3 on the medium side. Most of the downturn will be -- for us will be on the Class 8 side, for sure. Like I've mentioned, there's no question we're going to deliver fewer trucks and things because you can see order intake, that kind of tells you what you're going to eventually come to regardless of what our share percentage might be, there's going to be a lot less deliveries in this country because we haven't taken many orders in for the last 6 months. I would tell you there's a lot of leasing around the medium-duty, okay? And also what we call our Ready-to-Roll inventory. It's just -- it's more about the general economy and what's going on around there. Housing has a lot to do with. There's a lot -- the leasing companies. I would tell you, we're working some stuff that had me somewhat hopeful for the entire year next year. But it too will probably suffer some, maybe not to the degree, right? It will be more stable, I believe, than the Class 8 business will for the next couple of quarters. But at the same time, I don't know that we can comp -- I don't believe we'll comp to the same that we did this year, but it won't have as big a hit, say, as the heavy-duty side will right now. So that's about all I can tell you about it. It's pretty much hand-to-hand combat out there still right now, right? If you want a truck, I still build a queue this year. All good news tell me, there's lots of slots open for everyone, for all manufacturers. So that's -- it's going to be November 1, and we shut down, most manufacturers shut down in the last 10 days of the month of December. So -- and they're still not full by any stretch in their backlogs, and that's why they keep taking shutdown days. I'm talking about all manufacturers. Some will probably do better than others, but I'm not going to get into all that right now. But -- all I can tell you is that medium-duty should weather better from a downturn perspective given the diversity of its -- of the markets it serves because it serves so much the general economy. But it's not totally -- it will get – it will suffer some for sure, though. Brady Lierz: That's super helpful. Maybe just a final quick follow-up. Could you share what you're seeing in the used truck market, particularly how is used truck pricing trending just given this, like you said, volatile backdrop to say the least? W. Rush: Well, I think it's been fairly stable. And when I say that, normal depreciation, unlike, say, a year ago, if you asked me that, I would have told you no, depreciations for 2 years for sure, we're double depreciating. I would tell you now depreciation is more in line with what you typically would see from a percentage perspective. So that's good. And our used trucks, while it's always more difficult winter time with used, but we've done a really nice job. I'm proud of the job we've done on the used side all year long, managing our inventories and staying and doing whatever we have to do to support our customer base. Because remember, one thing about used is you have -- you've got -- you take trades, right? So you have to have the flexibility and the ability to take trades. We've managed -- we've taken our inventory up a little on purpose during this last couple of quarters to try to move more, not to -- we've taken it way down, okay? I think we've probably split the middle on where our inventory is currently from where I used to carry it to where we do now because you got to turn your used inventory. And our turns are -- they're maybe not as tight as they were at one time, but our production overall, you got to have inventory to do that for sure. As always, when you think about, as I mentioned in my comments to open, used trucks, they don't have to worry about tariffs or emissions, do they, okay? So there is somewhat of an advantage to that -- there's not -- there's certainty around used trucks. So they're not worried about tariffs or, as I said, emissions. when you're buying a unit. So that's a plus. So we've had a really nice year, and we expect it to be solid going forward. I mean the problem is just -- the volumes just can't make up for when heavy-duty pops down. But remember, we -- the thing about the company, and I think sometimes people lose sight of is we have many revenue streams. Remember, I got a great leasing fleet. We're super profitable in our leasing operations. We're profitable on our parts and services. You can tell all the time. Everybody is focused always on truck sales, and they are a big piece of what we do. But at the same time, they're not the most -- parts and service is the one stable piece that you -- when I say it -- it does not have the volatility of the Class 8 truck sales market. So fortunately, we have all those revenue streams that help us weather the storm, but we top it up, knock it out of the park when you're not -- you need to have all pieces contributing. But the good part is, unlike some other businesses where they're tied to just 1 or 2 revenue streams, we have many more, which allow us to get through environments like we're seeing right now and continue to put out the kind of results we do. Are they the best results we've ever had, of course, not. But we're not going to sell as many trucks, but they're going to be solid and they're going to be good. And forgive the environment, a whole lot better than my customer base has had to put up with. I feel sorry sometimes what they've had to go through the last 3 years. A lot of them have anyway, especially like I said, on the truckload side and some of the others. So anyway, I know it's probably more you want to hear about, but that's just how I it. But now we're good where we're at on used and hope to continue to have solid quarters there. Operator: Our next question comes from Avi Jaroslawicz from UBS. Avinatan Jaroslawicz: So I know parts and service business is a pretty big focus area for you guys in trying to grow that. Can you just remind us what you're doing to pick up more share in that part of the business? And is that more challenging to pick up more share in a softer market like that, like what we're seeing now? And also, where are you still seeing opportunity within that space? W. Rush: Well, it is more challenging without question, right, because the overall market is down. I would tell you we're holding our own this year. I don't know that we've picked up as much as we would like to because when you get in this type of environment, it becomes much more highly competitive and especially with the inflation stuff we've seen in the parts arena this year, it becomes more competitive, to be quite honest. Some folks are just looking to turn cash, right? And sometimes margin sometimes takes a backseat. So you have to balance what you're doing between taking share and margin and results at the same time. And so that becomes a challenge in this type of environment when it's not a growing sector, we've remained fairly flat all year, right? I would tell you we're in line, maybe a little bit better than the overall from a dealer -- break it into independents and dealers. And I would tell you from a dealer perspective versus other dealers, I think we're in pretty good shape. The independents, they can get down and dirty when it comes in this type of environment. But our overall deal is this. And over time, I don't want to look at it just every quarter. I'd rather look at it annualized and over a couple of 3 years. If the market goes up, just make a simple math, 5%, we want to go up 6%, okay? Why that means we're taking share. We have historically been able to do that and then throw a little M&A in there and do better than that some years, right? But -- so I'm not going to say we've done that this year, but I think we've taken some maybe not as much as I would like. We want to be 20% better, right? Because to be 20% better, if you're taking a little bit more, you're just slowly ramping up your share. It's not an add water and stir arena. And as far as what we do, like our technology and our data is second to none, okay? So it's continuing to take that. And without getting into each and every project that we have out there, we always have projects going on to help enhance it that support growth, right? They're not just -- we don't go about it the same way every year like what we go about our business, but we keep enhancing and adding technology and stuff to make it easier and easier for our customers to do business with us. And that's the key piece from our perspective as we look at going forward. Our industry is -- it's not like consumer, right? It tends to operate a little behind the time well, which can be challenging because you have to keep pace with your customers, right? And when I say that, I don't want to downgrade our industry, but it's typically still a little more hands-on than, say, some other consumer type things and how you go about it. But technology continues to be a bigger piece of it. And I don't like to get into some of the things we do just because I consider them proprietary. I think those investments and also our investments in folks and people, our growth in the mobile service area, those types of things, we have goals that are pretty well stated out there. I think most a lot of investors understand that because we expound on them quite a bit when we go to conferences. I have 3 up here coming up in the next month. to let people know those types of investments, where we want to grow our mobile service fleet to x and then we want to take our total technicians, and we want to grow our outside service -- excuse me, our outside parts and service, what we call ASRs, take those guys more -- grow that part of our business, too. But sometimes you got to be careful because in a market that's getting really tight, you need to have a market out there, but we still think there's a lot of runway, and we will continue to do it and have the goals we have around, like I said, to try to do about 20% better from a growth perspective. If market goes up 5%, we want to go up 6% because it's not somewhere you're going to go from 5% to 15%. If market is 5%, we're not going to take 15%, I mean if I'm giving stuff away or doing this and doing that. And that would not be -- I don't believe that's the right way to go about it. Operator: That concludes the question-and-answer session. I would like to turn the call back over to Rusty Rush, President, CEO and Chairman of the Board, for closing remarks. W. Rush: Well, everyone, this is the longest gap between earnings calls. We won't be talking to everybody until February. So in the meantime, I wish everyone a happy holidays and safe holidays, and we'll talk to you in February. God bless you all. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Murphy USA Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Christian Pikul, Vice President of Investor Relations and FP&A. You may begin. Christian Pikul: Hey, good morning. Thank you, everybody. Thank you, Jeannie. With me are Andrew Clyde, Chief Executive Officer; Mindy West, President and Chief Operating Officer; and Donnie Smith, Chief Accounting Officer and Interim Chief Financial Officer. After some opening comments from Andrew, both Mindy and Donnie will provide an overview of the financial results, operating performance and a review of our 2025 guidance metrics before we open the call to Q&A. Please keep in mind some of these comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K, and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the Investors section of our website. With that, I'll turn the call over to Andrew Clyde. Andrew Clyde: Thank you, Christian. Good morning, and thank you all for joining today's call. I'm quite positive. This is a call I will always remember as I expect it to be my last earnings call as Chief Executive Officer of Murphy USA. It has been an incredible honor to serve as Murphy USA's leader, and doing so has been the pinnacle of my professional career. For those joining live today or reading the transcript later, I would encourage you to take away 3 things from today's call: continuity; resilience; and momentum. In terms of continuity, yesterday's announcement signaled both continuity in Murphy USA's leadership and continuity in our long-term capital allocation strategy. Having foretold this day to investors as a hypothetical in the past, we certainly appreciate the need to be as clear about future strategy and capital allocation as we are about future leadership. And as both our 50-50 strategy, and Mindy are well known to investors, we believe this announcement sends a clear message about what Murphy USA will continue to deliver and what investors should continue to expect. At the end of our Murphy USA Board meeting last Thursday, I officially notified the Board of my intent to retire as President and CEO at the end of the year. The timing reflects a very thoughtful, intentional and multiyear CEO succession plan, which led to Mindy's appointment as Chief Operating Officer back in February of 2024. And after almost 2 years in the current structure, we are ready to make the final transition. As you saw in yesterday's press release, Mindy becomes President of Murphy USA immediately and will become CEO and a member of the Board of Directors on January 1, 2026, and I'll remain as adviser to the company through February 2027. Mindy and I took this company public in 2013, and she has been by my side every step of the way through the peaks and the troughs, through the campaigns that made the business better, through the major inflection points like COVID and the Walmart transition that shape the business we run today, leading by example in establishing a winning culture. In short, she is well positioned to lead Murphy USA into its next chapter, providing the continuity that all our stakeholders will value from a successful transition. In terms of continuity in our capital allocation strategy, the Board took this opportunity to authorize a new $2 billion share repurchase program as we were about 80% through the existing $1.5 billion program, while at the same time renewing our dividend policy at its 4-year anniversary where we have naturally increased the cash pool for dividends. Having repurchased about 60% of the share since the spin ahead of target dates and increasing dividends at a compounded annual growth rate of 20% since inception of the dividend, Murphy USA is committed to the continuity of its capital allocation approach to reward long-term investors. Complementing our 50-50 approach is the Board's commitment to new-to-industry store growth and reinvestments within the existing network, and Mindy will touch on both sides of the 50-50 strategy in her remarks as she will carry this very bright torch into the future. In terms of resilience, Murphy USA's third quarter results speak for themselves. Despite earning $0.02 per gallon and less on fuel margins, we generated the same EBITDA as Q3 a year ago due to the underlying improvements made to the business and the enduring strength of our core category capabilities that yielded outsized results. Updated guidance metrics for the full year highlight the team's efforts as merchandise contribution is expected to be in the upper end of the guidance range as exceptional Q3 results and Q4 momentum more than offset first half temporal effects. And OpEx and G&A expenses are both expected to finish positively below the low end of our guidance due to ongoing initiatives in our previously announced staff restructuring. With regards to fuel, in our most recent investor meetings, we described the low price, long supply and consequently low volatility environment is a trough, the most challenging for an EDLP fuels retailer and contrasted it to the 2022 peak. Ultimately, how a firm responds in a trough speaks to its true resilience and whether it can sustain its commitment to an EDLP strategy and emerge a winner on the other side when the cycle normalizes. And Murphy USA has done just that. Through capabilities that strengthen its competitiveness and enhanced customer stickiness, we are performing significantly better than in the prior trough environment, and we continue to lean into value. Most importantly, we continue to see the structural component of the retail fuel margin grow as the marginal retailer remains challenged and passes through to customers its higher breakeven requirements. This does not only supports Murphy's ability to lean into price in the current low price environment, but highlights the upside potential for when margins normalize, and we certainly expect the cycle to normalize. In fact, over the life of any 25-year store investment, one should expect 3 peaks every 6 to 8 years and 3 troughs based on the last 25 years experienced with normalized periods in between. And when we invest, we are basing our economics on mid-cycle factors, noting there is significant upside over time from the consistently increasing structural component of the margin. In terms of momentum, while Q3 merchandise results are exceptional, we would argue that on an annualized basis, the performance reflects ongoing trends that we expect to continue. For example, nicotine promotional dollars have grown at an impressive 12% CAGR since 2020. While we will never be able to predict exactly what products are being promoted in which quarter, our capabilities to engage consumers in the category are unparalleled. In other areas, QuickChek reported its fourth successive quarter of same-store food and beverage sales growth, and total center store categories grew by 5%, while same-store operating expenses moderated, increasing by only 2.8% for the quarter, and ongoing campaigns are designed to further this momentum. New store openings are now projected to be over 45 for the year with a strong pipeline supporting 50-plus stores in 2026 and into the future. Currently, nearly 40 stores are under construction that will open in Q4 and early Q1 of 2026. While the newest stores ramping do not have the same subsequent year EBITDA impact of stores further into the ramp, getting this first group of about 50 stores under our belt creates a line of sight to future earnings growth as new build classes come on board. Before handing over the call to Mindy and Donnie for additional remarks, on a personal note, my announcement comes with a great sense of accomplishment for what the Murphy USA team has achieved together in the past 13 years and a deep appreciation for an opportunity one can only dream about. As I noted in our internal announcement yesterday, the most resilient for us in our business is our team members, the people who make it all happen each and every day. I cannot begin to express my appreciation for their leadership and followership as we have strived to make the business better. Their efforts and sacrifices are too numerous to name, and provide the inspiration and energy for future initiatives to keep on making the business better. They define the winning spirit culture at Murphy USA, and I believe it is one of the greatest hallmarks a company can have. And for that, I'm both internally grateful and exceptionally proud. So it is with confidence of an enduring business model, a robust growth and capital allocation strategy and a winning Murphy USA spirit reflected in our future leader and leaderships and team members that I'll look forward to in my next chapter, both personally, professionally and as a Murphy USA shareholder. I'll now turn the call over to Mindy to review some highlights around our capital allocation strategy and third quarter results. Mindy? Mindy West: Thank you, and good morning, everyone. But before I start, it has been a great ride, Andrew, with a lot of ups and downs. You built the foundation of this very successful public company and have improved it in every type of environment, which is just remarkable. And I want you to know, I truly appreciate your wisdom, your mentorship and your friendship. You will be missed. But it is not goodbye because you know that I'm going to be calling you. For those of you who don't know much about me, I joined Murphy Oil, the same year in which we opened our very first Murphy USA store. I was also here by Andrew's side as we launched this company as a public entity. And at that time and since, we highlighted 5 key value pillars still relevant today, one of which investing for the long term has been illustrated through our continued commitment to our 50-50 capital allocation, balancing growth and share repurchase. So with our new Board authorization, as you said, I am happy to carry the torch into the future. Now let's talk about third quarter results. As Andrew alluded to, we are pleased with the third quarter. As mentioned, third quarter EBITDA was $285 million, virtually flat to the prior year despite all-in margins running about $0.02 lower. This is a significant achievement and is representative of our philosophy that especially during challenging times, we dig in and make the business better. So when the next peak environment presents itself, the earnings power and operating leverage will be that much stronger for longer-term investors. Let me break down fuel performance just a little more, which remains strong despite that low price, low volatility environment. Average per store month volumes were down 1.8% in the third quarter and down 0.7% on a 2-year stack. However, all-in margins of $0.307 including retail margins of $0.283 are stronger than one might expect in this environment. If we compare to peak all-in margins of $0.343 that we experienced in 2022, that included roughly $0.04 of impact attributable to that once and every 6-year falloff in prices in the third year of 2022, coupled with about $0.015 to $0.02 of margin attributable to the tight supply and high volatility environment, and then further adjust for the $0.02 we are now investing to short volumes in the current low price environment. Given all that, we might expect all-in margins to be in the $0.26 to $0.27 range. So to reiterate, we firmly believe the current margin structure includes $0.03 to $0.04 of structural uplift since 2022, which would translate to materially higher fuel contributions in a return to normal environment for Murphy USA. Important to note, fuel margins are highly correlated with the environment in which we are operating. While investors frequently ask why margins are lower year-over-year, why can't they see more of a structural uplift, our answer continues to be that current results are largely attributable to the low volatility and low price environment, which is masking the potential of our business in a normal environment where we believe we would experience several pennies of incremental margin opportunity. Turning to merchandise. Total margin contribution dollars were up $24.4 million or 11.2% in quarter 3. There are 2 key drivers of these exceptional results. First, nicotine categories are up over 20%, driven by strong promotional activity and center of the store categories grew approximately 5%. Through the continued evolution of Murphy Drive Rewards and other capability building initiatives, Murphy USA has dramatically increased the efficacy of our promotional efforts across the store, especially when it comes to executing needle-moving product offers to support our vendor partners. While promotional opportunities of this size do not show up every quarter, when they do, manufacturers recognize our ability to execute. We don't always know when or how these opportunities will arise. But when combined with our team's innovative and creative approach to optimizing promotional impact, it's important to recognize the third quarter margin benefit is not onetime. For instance, while not a data point we would otherwise go out of our way to provide, in the third quarter, we also saw strong promotional activity in the traditional smokeless products that drove double-digit margin growth in that category. So taken together across a wide variety of products over time, the collective impact of nicotine promotional dollars has been both significant and sustainable. In fact, since 2020, nicotine promotional dollars have grown at a very impressive 12% CAGR, as Andrew mentioned, and performance that we would expect to replicate going forward. Turning to center of the store, where total margin dollars were up about 5%. We saw strength across the board, driven by mid-single-digit gains in our largest categories, packaged beverages, general merchandise, candy and lottery, where the $1.9 billion Lotto jackpot did help to drive traffic and transactions. Total food and beverage sales were up 2.7% in the third quarter. Margins remained pressured, though, down 2.2%. At QuickChek, we continue to focus on price and value for our customers, which is propping up sales and traffic and translating to better performance across the rest of the store. Excluding food and beverage, total non-nicotine sales and margin at QuickChek were both positive for the first time in 2025, up 3.1% and 5.8%, respectively. Of course, merchandise sales do not happen in a vacuum. To grow sales and effectively execute promotional opportunities, the store has to look good, be well stocked and in functional working order, in addition to being properly staffed. Yet per store operating expense was only up a modest 2.8% in the third quarter or 5.6% on an absolute basis, 2/3 of which is attributable to new and bigger stores. So we continue to enforce restraint in our expense profile, controlling what we can control to ensure the network is running as efficiently as possible. We are making significant strides in reducing loss prevention year-over-year and holding labor expense study, which is helping to reduce our overall cost structure. Bottom line, Murphy USA is performing at a fundamentally different level than it was in the prior trough due to the capabilities we have built and our ability and commitment as a management team to make the business better. As a result, we are improving our competitive position through best-in-class promotional execution and relentless discipline around maintaining a low cost structure, both at the store level and the home office. I am highly confident in the resilience and durability of our business model. And as noted in the capital allocation update we released in conjunction with our third quarter earnings, we are taking action to strengthen shareholder distributions and help maximize shareholder value as we navigate towards the next peak in the cycle. First and foremost, we remain steadfastly committed to new store growth, primarily through our acceleration of our new-to-industry store program to 50-plus stores and opportunistic supplementing organic growth with small-scale M&A opportunities as they arrive. Second, we have received board authorization to begin executing against a new $2 billion repurchase program through 2030 once we close out the remaining $337 million on the existing $1.5 billion authorization. Third, we expect to continue to grow the dividend payout 10% annually, starting with an additional 10% increase or $0.63 per share for the dividend payable on December 1 of this year. Lastly, we will explore other reinvestment opportunities in the network to help improve the customer offer and reinvigorate the same-store base, while maintaining a leverage ratio at or below 2.5x for the long term. I'll close out my comments with a little color around October's performance. Preliminary October fuels results continue to reflect the strong fundamentals I mentioned earlier, despite the transitory impact of low prices and low volatility. Average per store month volumes are running 98% of prior year at retail-only margins approximating $0.32, exhibiting resilience amidst an otherwise lackluster price profile. Here is another important takeaway for October. Even at these lower absolute price levels, when we saw prices fall early in the month and margins ran up to the mid-$0.30 level, we were able to put some of that on the Street to create separation against our peers, and in that environment, we saw volumes at about 100% of prior year. The run-up in prices towards the end of October mitigated some of that impact, resulting in slightly lower volumes. But the point is, the team is executing extremely well against our strategy and the fundamentals are supportive when a little volatility in margin shows up even if only for a brief period. So that business is behaving as we would expect and October results reflect underlying strength that would be even more apparent in a higher price, higher volatility environment. With October largely behind us, we do have a higher degree of confidence in our 2025 guidance metrics, which we updated in our earnings press release. So I will now turn the call over to Donnie. Donald Smith: Thanks, Mindy and Andrew. Starting with our new store development program. We are continuing to make excellent progress. During this quarter, we brought 8 new stores into service, along with another 11 raze-and-rebuilds, bringing the year-to-date total as of September 30 to 22 and 20, respectively. In Q4 2025 and Q1 of 2026 combined, we expect to open roughly 40 new stores, all of which are currently under construction. This figure includes a small package of 4 stores we purchased in the Denver market that should be opened by year-end, an example of an opportunistic small-scale real estate play in an attractive market where we want a bigger presence. This gives us line of sight to at least 45 new store openings in 2025 as we continue to grow the new store pipeline, positioning us for 50-plus stores in 2026 and beyond. For fuel volume, we expect 2025 volumes to come in below the low end of our original guided range, which was 240,000 to 245,000 gallons per store month. Year-to-date through the third quarter, average per store volumes are approximately 236,000 gallons per month, reflecting both the Q1 storm impact and the lower relative price sensitivity of customers in a low absolute price environment as we have discussed in previous calls. Based on current trends and our expectations for the remainder of the year, we're adjusting our full year fuel volume guidance to between 235,000 to 237,000 gallons per store per month. For merchandise contribution dollars, as previously discussed, third quarter results highlighted the strength of our promotional engine, causing us to tighten our full year guidance at the upper end of the range to between $870 million and $875 million. On the expense side, if you've seen us on the road over the last 6 months, you've probably heard us talk about self-help and how we're actively managing our costs and driving savings across the organization to help improve performance amidst the challenging fuel environment. Our efficiency initiatives continue to demonstrate benefits as evidenced by the new labor model we rolled out in the spring that has helped ensure we have the right people in the store at the right time, which is also controlling labor costs and reducing overtime. Similarly, we are seeing benefits in loss prevention where in-store training and other investments have paid dividends through reduced shrink. Collectively, these efforts are making an impact, resulting in a lower projected monthly per store operating expense range of $36,200 to $36,600 per store month, down from our original guided range of $36,500 to $37,000 per store months. On the home office side, as noted in the press release, we completed an organizational restructuring during the quarter, which will help streamline our workflows and processes and eliminate technical redundancies while preserving our agile, data-driven decision capabilities. As such, our 2025 SG&A guidance range is being adjusted lower to $230 million to $240 million for full year 2025, which is exclusive of the restructuring charge. From a tax perspective, year-to-date income taxes have come in lower than planned due to some discrete state tax refunds we received and acquisition of some federal energy tax credits. As such, we are tightening the all-in expected effective tax rate to between 23.5% to 24.5% for the full year. When you input all this into the models and use $0.30 per gallon as a fuel margin placeholder for the full year 2025 versus the $0.295 year-to-date through Q3, you should end up somewhere pretty close to $1 billion of adjusted EBITDA, which likely shouldn't surprise anyone, given how we framed our original 2025 guidance in January. At that time, the midpoint of our ranges suggested adjusted EBITDA of about $1.06 billion at $0.315 a gallon. At $0.30 and about 5 billion gallons, $0.015 variance in margins would generate plus or minus $75 million, all else being equal. As we look at year-to-date performance, we have more than offset the impact of lower volumes with improved merchandise performance, OpEx efficiencies and G&A cost savings. With that, I'll hand the call back to Andrew. Andrew Clyde: Thanks, Donnie and Mindy. And let me close out the call by thanking the analyst community and our investors for your support, your challenge and your candidness over the last 13 years. Your questions early on about a business that wasn't necessarily well understood when we spun off really pushed us to think more deeply about our unique way of creating value, allocating capital and building a flywheel that played to our strengths, helping us win with all our stakeholders. Your challenges around future potential headwinds and the sustainability of fuel margins pushed us to think more analytically about industry structure and the behavior of the marginal retailer. I can probably point to less than a handful of slides over 13 years across all our conferences and meetings where over 90% of our discussions focused around. I would like to thank our conversations that helped to shape the broader narrative, not just for Murphy USA, but for the convenience industry as a whole. Thank you for being a catalyst, a partner with us and keep pushing us in the years ahead. We'll now turn the call over to questions. Operator: [Operator Instructions] Your first question comes from the line of Ed Kelly with Wells Fargo. Edward Kelly: Andrew, congrats on your retirement. So I wanted to start just on fuel margins. It sounds like the quarter is off to a good start on the margin front, rack prices have been down. But the data would suggest that's -- and I think you're telling us that maybe that's fading a bit. Any color on the cadence in terms of fuel margins so far in the quarter and maybe what you're seeing in the last week? And then I just wanted to follow up on something that you mentioned about investment to drive volume. Obviously, you've seen some elasticity on more of the recent work. So what is that telling you about your plans moving forward in terms of putting some money on the Street to drive better volumes in this environment? Mindy West: Thanks, Ed. I'll take that question. Yes, as I said for the month of October, we did see a run-up in prices towards the -- we did see a run up in margin at the beginning of October. That spike kind of normalized itself as we ended the month. So while the impacts were short lived, the market did behave exactly as we would expect during that time. And so when you talk about your questions about investing for traffic, we absolutely know on a site-by-site basis where we need to be versus our key competitors and where the right pricing position is. And so really, our margins are more a function of the low -- and our volume are really more a function of just this low price environment where our customers are just not as price sensitive and are going to go to a more convenient location. It doesn't mean we leak off every trip, but assuming we may leak off 1 of every 3, 1 of every 4, that certainly starts to have an impact. When I look over this last quarter, the thing that sticks out to me most was it was remarkable for its flatness, which really resulted in little volume or margin creation opportunities. And just to illustrate the lack of volatility as I looked at this with my analyst group a couple of days ago, post-COVID, we have never seen a quarter where every month's retail margin was pretty much exactly the same. And in fact, you can add May and June to that list because they weren't that different either. So essentially 5 consecutive months of flat margin. So when we look at the margin side, despite very low volatility, fuel margins are remaining strong at $0.30 all in. So that's showing that even in an environment entirely unproductive and value capture opportunities or volume capture opportunities, what we managed to do was actually pretty impressive and really speaks to that structural component still being in there. And then as I said, in October, when we saw that brief price run-up, we executed, we generated the margin and volume recovery you would expect. So what I would say is the fuel engine isn't broken. It just needs to jump start to get things moving. We saw them in October. It wasn't long lived, but we will see it again, and we will be there to capitalize on that. Edward Kelly: Great. And just maybe a follow-up on the ZYN promo in the quarter. Obviously, a nice event for you. Can you just maybe talk about your execution of that event and what differentiates you there, the traffic benefit that you saw? And then looking out the potential for additional similar promos or events that you might see that I think you're indicating that you don't see it as a one-off. So just more color there. Mindy West: Yes, great question. And we don't get into the details of any particular promotion. I'm sure you can appreciate, in any given quarter, as we say, there are dozens that contribute to our results. Some are more material than others. Obviously, this one was material. So I do appreciate your question because I think what's important about this one is it really does showcase the strength of our ability to execute for our vendor partners. This is really more about a strategic partner investing to drive share, utilizing our large and very loyal nicotine customer base. It also provided the added benefit for us growing awareness in an already growing category and driving traffic to the store and utilizing our operations, just outstanding ability to execute and deliver on a promotion. We will expect that to continue as manufacturers are going to continue to invest and reduce risk products. And Murphy USA can be an important catalyst to that because when you think about it, we sell 5x the industry average volume. Our promotions also have about 4x the industry average upsell. So that makes us 20x more effective using their money. And we also are able to measure that halo effect of promotions because of our loyalty engine that really major in nicotine. So when the promotions come, and they will, we're happy to execute on their behalf, and we have the engine in the store with the sales culture that is very strongly reinforced, our manufacturers know that we can deliver. So while this one, yes, was maybe a one time this year and really material impact, we certainly expect there to be other promotions throughout the sweep of time and continue to propel that CAGR of promotional dollars going forward. Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: Congratulations to all of you. Andrew, you're going to be missed. So stay in touch, but happy for you in this next chapter. I had a quick follow-on question on ZYN. You guys just raised your merch contribution guidance for the year after, I guess, pointing to the low end of the range last quarter. So obviously, expectations improved and you had good performance in the quarter. Should we assume most of that's driven from this ZYN promotion in September? Or were there other drivers that give you the confidence to kind of raise your merch contribution guidance for the year? Mindy West: Bonnie, I'll take that one. It does definitely include ZYN. When we think about the first half of the year, the timing of cigarette promotions and also the Lotto jackpots resulted in comps kind of below our expectations, which we talked to in the last call. Those did turn around in the second half. Obviously, this one promotion was part of that. But also one key data point I'll share. Nicotine pouch volumes were growing around 45% in promotion. In October, we have seen that jump to 120% of prior year volumes, and we will likely see that halo effect continue on into November. And also, just as importantly, noncombustible nicotine products have fully offset our decline in cigarettes, but it's also not just a nicotine story. We have seen growth in the center of our store categories, as I said, up 5% in margin dollars, and importantly, also saw strength across the board. It wasn't just in one place. It was in packaged bev, it was in general merch, it was in candy. So I think that highlights the underlying strength of our offer in addition to the nicotine. Andrew Clyde: Bonnie, one thing I will add here is if you think about some of the investments we talked about a year or so ago, our digital transformation initiative and the expected impact on sustainable center of store growth, we're seeing all that benefit, and we've been seeing it for the last few quarters. The relaunch of QuickChek Rewards driving food and beverage same-store sales growth there and investing in value through that advanced program suddenly driving the food and beverage, but also the center of store. So these are some of the investments that we've highlighted over the last couple of years that in this environment are really flowing through across categories. So it's just coming together in a really nice way. Bonnie Herzog: Okay. That's helpful. And if I may, I wanted to ask about capital allocation. You raised your quarterly dividend by an impressive 19%. And the Board also authorized a new share repurchase program. So it does seem like you're increasing returns of cash to shareholders. So how should we think about that relative to your ability to grow the business? I mean, should we assume growth moving forward might be more moderate and maybe you're seeing a bigger opportunity to return more cash to shareholders versus reinvesting? Just any color there would be helpful. Andrew Clyde: Yes, Bonnie, let me take this one. When we say our 50-50 capital allocation, I mean, we mean 50-50. We've done strategic work over the last couple of years to test the bookends of that. And we're really confident at that level of balanced capital allocation that makes sense. If you remember, when we initiated a dividend 4 years ago, we benchmarked it against peers at about a 0.67% yield. We haven't kept up with that yield because of the outstanding share price performance. And so with this auto pilot program, where the cash pools raised 10% every year and the quarterly dividends simply then a function of the shares outstanding, we simply took this as an opportunity to increase that, to bump up the yield for long-term investors who are holding the stock, especially when the stock is a little bit in a trough. If you think about the incremental $4 million from that extra 10% in the pool, that's one store, right? And we're going to more than make that up given the growth pipeline that we have in front of us. The other thing I would note, the bonus depreciation benefits that we're going to get from the One Big Beautiful Bill is over 10x that amount, and that's going to go back into reinvesting in the stores, whether it's remodels, maintenance programs with dispensers or future raze-and-rebuild growth in out years. So the dividend is just simply a way to recognize long-term shareholders holding the stock. When we model out the business at the 50 store a year growth in a normalized environment, we're generating significant excess free cash flow in years in the future that more than allow us to do that, take care of the balance sheet, take care of the share repurchase program. And so as we complete the end of a $1.5 billion program, we heard loud and clear from investors, it's really important as you think about the transition to be just as clear about future strategy and capital allocation. So it's really important to send this message at the same time that we're committed to this balanced growth and returns to shareholders, and we'll continue to maintain that balance as well as our conservative balance sheet. Operator: Your next question comes from the line of Irene Nattel with RBC Capital Markets. Irene Nattel: I'll echo the congratulations, Andrew, and it's been great. Just a couple of follow-up questions, if I may. You talked about the halo effect on in center of store of the ZYN promo. If you kind of dissect out the transactions from those -- from the customers that benefited from the promo versus those that maybe didn't because they just don't use nicotine, was there any difference in consumer behavior? I guess in other words, how much was the growth really just a halo from the promotion versus the rest of the customer base? Mindy West: I'm not sure, Irene, that we're fully able to parse that out. But what I will tell you is that the uptake for the ZYN offer were largely customers that were already coming in there to purchase another nicotine product anyway. So it wasn't necessarily an extra trip or incremental traffic that we were driving. It was just kind of an and to a visit they already had. So I think that, that speaks well to the center of store because I think that, that category was increasing on its own, and we would have seen that even despite the nicotine promotion. Obviously, the Lotto jackpot helps us as well because we know that, that also is a factor that can drive an incremental trip into the store. But for the ZYN only, I would say that there may have been some secondary impact on center of the store, but I think it would have been very small as those customers were in the store to buy nicotine anyway. Andrew Clyde: Yes. And one thing to add to that, Irene, is we talked about the temporal effects of the lottery and the nicotine promotion in the first half of the year, we are reporting a really strong Murphy-only center of store activity in the first half of the year. So this as many says, this maintains that momentum. It offsets the temporal effects for the first half of the year. And when you look at it over any 12-, 24-month period, it's a really steady cadence despite some lumpiness from quarter-to-quarter that we saw this year. Irene Nattel: That's great. And then coming back to the whole capital allocation discussion. I'm wondering what level of EBITDA or free cash flow underpins that $2 billion program if you want to keep your leverage at around 2.5x because if we kind of look at current consensus numbers and we assume that 50-50, the $2 billion implies about $400 million a year over 5 years, let's say. And it's a little -- you're kind of getting a little tight there. Andrew Clyde: Yes. So we'll lean into the balance sheet, as we've talked about, in '26, '27 with the cadence of the new stores and the expectations from those which are ahead of our projections in terms of returns. We expect that to turn the other side. So just like we did with the $1.5 billion program, we gave ourselves 5 years to do it. We're completing it in just a little over 3, given ourselves 5 years to do the $2 billion at current equity prices. We can see ourselves doing that quicker as well. So you're right, it gets a little tighter. We've always said we can go over 2.5x. Our covenants aren't hit until 3x, 2.5x is a longer-term target that we expect to stay within. So if we bump above it for a short period of time to take advantage of some downward pressure, we'll absolutely lean into that and the balance sheet that we've established. Operator: Your next question comes from the line of Pooran Sharma with Stephens Inc. Pooran Sharma: Just wanted to say, hey, congratulations, Andrew. I know we'll probably interact a few more times here, but wanted to say it's been a pleasure working with you and wish you nothing but the best in the future. My first question, maybe just for Mindy. Mindy, you've talked about how you've been with the company really from the beginning. And I just maybe wanted to focus on your prior positions. I mean I think you held the CFO role. You were put into the COO role. Can you maybe talk about how that kind of prepared you or how that has prepared you to take on the CEO role coming this new year? Mindy West: Great question. And you're the first one that's asking that. So I'll be thinking through my response here. I think I have a great background for this role. One, I grew up in this business, so very familiar with our culture and the way that we do things and the way that we work. Through the CFO lens, especially at spin Andrew and I got to take this company public. And so we're taking public a company that existed within a subsidiary of a subsidiary of what used to be a fully integrated oil and gas company that was investment grade. So it kind of got to incubate under that environment in a very entrepreneurial way, which was fantastic. But obviously, when you think about taking something public, suddenly you need to have a lot of discipline. You need to have guardrails in place. You're now no longer investment grade, so every penny matters. Everything that wasn't material in that business before, now suddenly became material. So that gave me a great basis for what does it take for a public company? What do we really need to care about? How do we manage our performance? How do we make commitments to our shareholders and keep those and at the same time, balance our growth prospects and ambitions with maintaining a very solid and resilient balance sheet? So I think from the financial aspect, I have that pretty much down. I don't remember exactly what year it was that Andrew decided to add fuels to my CFO role. I want to say it was around 2017, 2018. And so that got me a real feel for one of the main engines of growth within this company, one of the main drivers of EBITDA fuels. Obviously, a very complex department as well. And so that gave me some exposure to some of the more commercial aspects of the business, especially the main commercial aspects of our business. So I got to season in that for a while. But then when you think about, okay, what was missing, it was really that connection with the customer because I had never done anything that was business to customer. It was only business-to-business from the commercial side. So bringing the COO role underneath me gave me one exposure to what we sell inside the store, so the merch category for the first time, but also a real understanding of the mission that we are serving for those value-conscious customers, how much they really count on us to be able to get through their lives on a month-by-month basis. And so that experience really rounded me out because now, I understand absolutely the financial discipline side, I understand the commercial aspect side, but I also understand that connection with the customer and also the connection with the staff that is actually serving that customer and how much we absolutely expect from them and how we need to make sure that whatever we do, we're simplifying their ability to serve our customers every day. So hope that answers your question. That's the first time anyone has ever asked me that, but I think that, that all 3 of those roles really did serve to round me out and prepare me in this journey to become CEO. Pooran Sharma: Yes. No, absolutely. I appreciate the color there. I guess on my follow-up, maybe just wanted to focus on costs. I think in the past, we're following a peak margin environment. You've been known to focus on costs and take them out. And so with this earnings release, we saw a reduction in store OpEx and SG&A. Just wanted to get a sense of how much opportunity is there ahead? Do you see like a good amount of opportunity to take out cost in 2026 and 2027 if you need to? Just wanted to get a sense of potential magnitude there. Mindy West: Obviously, this onetime restructure with order of magnitude far above what we would be able to do in the future because this was intended to be kind of a onetime reset of SG&A costs. But look, we're going to continue to optimize our business. So what you saw at this restructure, we streamlined our operations to scale the business properly and to force us to do more with less. So we've now made us leaner, but I think now we're uncovering opportunities, identifying what are those other opportunities for automation, for consolidating resources where it makes sense to streamline the workflow, to look at some of the overlaps in the business where we're not as efficient as we could be. So now that we've become leaner, I think the next step is how do we get more efficient. And so I do think that there is more to come there. And then we're going to continue to optimize the performance of our existing store network. I think we're off to a great start with our store productivity excellence initiative and other ones. And so we will continue to hold the line on costs. It's obviously really important now when the external macro environment for fuels is a bit of a challenge. But it also will reap benefits for us in the future when that does turn around and does normalize because we will be able to bank more of that extra margin because of the efforts and diligence that we're applying now. So do I think that it's going to be order of magnitude in a one time, one sell swoop, what it was in this quarter? No. But there are certainly plenty of opportunities that we already do see, and I'm sure we'll uncover new ones as we go forward. Operator: Your next question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: My congrats to both of you guys as well on the new roles. Andrew, it's been a pleasure to work with you and get to know you over the last years. And Mindy, I look forward to continuing the relationship. I guess, first, I wanted to circle back. It was a comment in both of you guys' prepared remarks, and it's the nicotine promo CAGR over the last 5 years, I believe, 12%, which is pretty notable on a 5-year basis. And during that time, we start to see the evolution of the nicotine category with alternate nicotine. So I'm just kind of curious, as you think about that type of environment over the next 5 years, what does the change of the category and the composition of the category would alter nicotine due to that type of opportunity from promo dollars? Is altering nicotine going to, in your view, be accretive to that, make it look even better or less? Or just kind of curious how you think about that changing of the category. Mindy West: Absolutely, Bobby. Yes, we look at that as an opportunity because we own that customer. We know that customer better than anyone. And so again, just to our knowledge and ownership of that customer, along with our ability to execute, along with our loyalty program which majored and nicotine, we are ideally suited to help the manufacturers move those customers down the risk spectrum and incidentally moving them into what are higher-margin products. So we would absolutely expect that to continue because they get a great ROI. They know what they are getting when they invest with us. Andrew Clyde: Yes. Bobby, I think back over the last 13 years, and some of the things that have surprised me the most and someone who pays attention to industry structure and how that influences performance and competition, If you think about the tobacco category, it's a fairly concentrated industry amongst the manufacturers. And you can put the packaged beverage companies in the same category, yet the amount of innovation we've seen over the last decade is phenomenal from what you would expect to see in a concentrated industry, right? So you're seeing this continuum of risk introduce new products. You're seeing the different players making investments. Some working, some not working as well. Making acquisitions, some working, not working as well. And there's actually pretty good competition amongst those players. And as they introduce new products, new brands within those products, et cetera, part of their go-to-market strategy has to be through retailers who can get their product in front of customers. And on the nicotine side, as Mindy noted, we're the only retailer in the space who intentionally build a loyalty platform around the nicotine category. And so the benefits that we're able to provide to these manufacturers who continue to innovate, which we are very thankful for, I think is just going to continue to evolve. There's also a lot of upstarts in the category, right? So as others try to get a toehold into nicotine pouches where the top 3 players might control 90%, there's companies out there that want a shot, and they just have to look at packaged beverage like energy drinks to see well, Celsius was one of those small players. And you know what, they finally got a toehold in the category. So there's a lot of Davids out there looking at the Goliaths, and they, too, realize the only way they can get the customers' attention, right, is going to be through the broader capabilities we have, especially the store upselling capabilities because they're not going to get the preferred shelf space where the customer can see it in the back bar, they're going to get it because of the upselling. So I'm really excited about the future of these categories, but even more excited about our capabilities as we continue to hone them for both packaged beverage and nicotine providers. Robert Griffin: Very good. That's helpful. And I guess lastly for me, when you think about the $0.02 that you guys referenced, a margin on the Street to help drive volume, and the potential of that going away where you could keep it or not have to do that, is that purely just a volatility pricing environment returns to "more normal," or is there also a competition aspect in certain key markets for you guys that is basically independent of the underlying commodity environment? So that would actually have to behave differently, too, for you to be able to get those $0.02 back. Mindy West: Probably I would say yes and yes, kind of. So when I think about your first scenario, it's really more a function of just this low price environment, especially given that we're sub-$3 because prices do matter. People just, for whatever reason, are just not as price sensitive, are not willing to go across -- drive across town to save $0.02 a gallon when prices are below $3 versus above $3. So really, the phenomenon that would need to change would be the overall price profile being higher. With regard to competition, that obviously has an impact, especially in key markets where we're seeing competitive intrusion because really good competitors are going to act the same way that we do when we go into a new market, which is the price load to gain share. That's not actually irrational, that's a very rational thing to do. And what happens is when everybody gets their share, then everybody raises prices and plays nice. So over the sweep of time, that doesn't have an impact, but in certain key markets during certain months, absolutely. But we disrupt the market in the exact same way when we open our site. So that's why I say, yes and yes, kind of because, yes, there will be a competitive response for those new-to-industry sites, but it only lasts for a few months for just a short period of time. Andrew Clyde: And Bobby, the only two cents I would add there, no pun intended, is -- and we've always seen competitive entry. And I think what we're seeing now is just kind of more isolated in locales, as Mindy said, that dissipates. It's not like there's the big play like where Walmart rolled out so many neighborhood markets in a period, and you saw that effect more at scale. I think another thing when we talk about peak to trough, fundamental difference between, I would say, kind of the low price trough we're in now versus the one post 2014 is when we had $0.16 all-in margins and you had significantly lower margins after your variable cost, putting $0.01 or $0.02 on the Street was a significant, much more significant part of your available gross margin. And so if you go back to those periods, the volume impact that we witnessed is significantly more impactful than what we're seeing now. And so in this type of environment, you can put $0.02 on the Street because partly, you're getting a couple of cents every year from the structural dynamic that happened then, but not at the same level of inflection. And at $0.30 margins, the variable margin that's left is significantly greater. And so it's much more beneficial to maintain that volume, even if it's at 98%, 99%, no one in the higher price, more normalized environment, the customer goes back to their more normalized behavior and you get that back. So those are the kind of trade-offs, and I'd say this trough, we're doing much better than the prior one for a whole set of reasons. But part of it is the fact that the higher structural margins we're enjoying allows us to make some different decisions with respect to price-volume trade-offs. Operator: Due to time constraints, our final question comes from the line of Jacob Aiken-Phillips with Melius Research. Jacob Aiken-Phillips: I guess congrats is in order to all 3 of you given the next -- you've taken a new step in your professional journeys. So I guess to start off, a little bit more on fuel. I'm curious. The run-up in early October, were you also putting a couple of cents back on the Street? And can you give a little more color on what drove the increase in October? Then also the updated guidance seems to imply that you'll have positive fuel gallons and maybe positive same-store fuel gallons in 4Q. So any thoughts generally on that? Mindy West: Yes, I'll take that question, Jacob. Thanks for your question. The tightness in the market was due to a refinery that was briefly offline for a week or 2. But in a well-supplied environment, it all normalized pretty soon. The pipeline was reversed in order to get product back up into the Midwest. And so it ride itself quickly. But during the course of those couple of weeks, that was literally the most sustained run-up that we had seen in a while. So that allowed the market to completely restore. We restored with it, which then allowed us to create some separation and essentially achieve some really nice margin and get 100% of our volume. Carrying that forward, I can't extrapolate that into the rest of the fourth quarter because we really haven't seen that yet. I was just giving that as an example of when we do see that happen, we are able to respond. The market is also responding in the way that we would expect it to, which will then allow us to create time periods in which we can get outside margin and as well as volume. But this past quarter was just essentially flat, which we've always said is the worst environment for us from a fuel standpoint. We did see some pickup in October. I hope we see it going into Thanksgiving. That would certainly be nice to carry some high margins over the holiday period. But not ready to extrapolate the rest of the quarter that we're going to be at 100% of last year's volume. Jacob Aiken-Phillips: Got it. That's helpful. And then sorry to ask another question on capital allocation. But you reaffirmed the 50-50 and the share buybacks and increased the dividend. I'm just curious, it seems like you're trying to accelerate new store growth to 50 plus next year, maybe some accelerated R&Rs and perhaps some other remodels or other smaller projects. So I'm just curious how we should think about CapEx next year? And if that number is elevated, should we expect repo to be up or is that more balanced over the next few years? Andrew Clyde: We haven't given our CapEx guidance for next year, we're finalizing our plan on that, certainly as part of our ramp to get to the 50. This year, we had real estate that goes into that. So one of the things we're clearly looking at is the trade-off between more raze-and-rebuild versus remodels and maintenance programs. We do expect significant bonus depreciation benefits from One Big Beautiful Bill, that can actually address a lot of that incremental capital that we're talking about and using those tax benefits for reinvestment. And as we said on the share repurchase, we'll continue to be disciplined and also opportunistic on that given we've got the balance sheet we can lean into should we want to take advantage of particular opportunities. So we look at this like anything over a 3- to 5-year period, not just the next 12-month period. And that's why we remain very bullish about the business as we think about where we're going to be, '28 to 2030, where we view the fuel margins to normalize, where we look at our store count, where we look at EBITDA and look where the outstanding share count is. So we expect to see attractive returns, both on new stores to reinvestment capital as well as the share repo over that period. And we'll be back -- actually, Mindy will be back in February with the guidance for 2026, which will include that capital. So I think this wraps up today's call. I've enjoyed these earnings calls. I talked to CEO peers, they kind of speak to me, my gosh, we got our earnings call coming up or we've got the investor meetings or whatever. Spending time with the analysts and investors has been one of the most fun parts of this job. We've had an incredible story to tell. We've had incredible people to tell the story with. We have an incredible talented group of team members that actually live the story where we get to be the chief storytellers, and we're really proud of that, but also the capital allocation discipline that we know investors care about. And I think this message coupled with continuity of leadership with Mindy succeeding me and clearly knowing the business and the people and the team and how we create value and our capital allocation approach positions this company in excellent shape for the near term as well as the longer term. I look forward to seeing some of you on the road or one-on-one calls as we kind of wrap up some year-end investor discussions. And thank you again for supporting Murphy USA and me as CEO during this tenure. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on October 30, 2025. And I would now like to turn the conference over to Mr. Jared Conley. Thank you. Please go ahead. Jared Conley: Thank you, and welcome to Extra Space Storage's Third Quarter 2025 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, October 30, 2025. The company assumes no obligation to revise or update any forward-looking statements because of the changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, Chief Executive Officer. Joseph Margolis: Thank you, Jared. Good morning, everyone, and thank you for joining us today. Extra Space delivered solid results in the third quarter with Core FFO of $2.08 per share, meeting our internal expectations and demonstrating our ability to generate consistent earnings through our diversified platform. Same-store occupancy at quarter end was 93.7% and averaged 94.1% during the quarter, a 30 basis point improvement year-over-year. Last quarter, we reported that our high occupancy allowed us to begin pushing new customer rates, which inflected positive for the first time in 3 years. This trend continued and accelerated in the third quarter as we achieved new customer rate growth of over 3% year-over-year net of discounts. While new customer rates continue to improve, same-store revenue prior to other income was flat and slightly below our internal projections. This was partially due to strategic discounts, which were offered in the quarter focused on long-term revenue optimization. Excluding the impact of discounts, same-store new customer rate growth was approximately 6%. While these initiatives created a short-term headwind in the quarter and for the year, we view them as an investment for future revenue growth and still believe we are well positioned for accelerating revenue going forward. We have also been active in our diversified external growth channels. We have been able to complete and secure strategic off-market transactions through deep industry relationships at attractive going-in and long-term yields. I am particularly excited about the $244 million purchase of a 24-property portfolio in Utah, Arizona and Nevada, which is the primary driver of our increased acquisition guidance to $900 million. A portion of this acquisition closed earlier this week, with the rest to close shortly when we complete the assumption of the seller's below-market secured loans. The acquisition will be primarily capitalized by the disposition of 25 assets, 22 of which are former Life Storage properties and which should close late this year or early in 2026. The stabilized yields of the newly acquired stores will be greater than those of the disposed assets, and those assets are of higher quality and in markets which provide better diversification and future opportunities for growth. Additionally, our Bridge Loan Program delivered strong performance with $123 million in originations during the quarter, and we strategically sold $71 million in mortgage loans. This program continues to provide interest income, attract customers to our management platform and serves as an acquisition pipeline as we deepen our relationships with key industry partners. Finally, our third-party management platform expanded by an additional 95 stores during the quarter with net growth of 62 stores. Year-to-date, we have added over 300 stores, which brings our total managed portfolio to 1,811 stores. This multichannel approach to prudent growth allows us to create value across market cycles, whether through direct ownership, joint venture partnerships, lending activities, management services or other creative structures. Our ability to deploy capital efficiently across these complementary strategies positions us to capitalize on market conditions regardless of the external environment. As a result, we are raising our full year Core FFO guidance per share at the midpoint, reflecting our confidence in our operational execution and gradually improving storage fundamentals. While we expect same-store revenue to remain relatively flat for 2025, we have driven outsized growth in our other revenue streams, which are bridging the gap until the positive trend in new customer rates translates into revenue acceleration. I will now like to turn the time over to Jeff Norman. Jeff Norman: Thank you, Joe, and hello, everybody. As Joe mentioned, our third quarter Core FFO was in line with our internal expectations at $2.08 per share. Same-store revenue declined 0.2% year-over-year, which was slightly below our internal forecast. While the improvement in new customer rates is taking time to translate into revenue growth, we are encouraged by the sustained positive rate trend we achieved during the third quarter. While many operators continue to see year-over-year rate and occupancy declines, we have been able to increase rate growth sequentially every month since May due to our strong acquisition -- customer acquisition platform and proprietary pricing systems. We are also encouraged that our other income streams outperformed expectations and helped offset the same-store NOI headwinds. Tenant insurance and management fee income were both stronger than anticipated, demonstrating the value of our diversified revenue model. As expected, property taxes normalized in the quarter, returning to a growth rate of 1.6%, and we expect taxes to be low again in the fourth quarter. That said, same-store expenses were still above our internal estimates driven by repairs and maintenance and marketing expense. We view marketing expense as a revenue driver and continue to see strong returns from our marketing dollars. Like discounts, marketing spend causes a short-term drag from an expense standpoint. However, we made this strategic decision to increase marketing spend to enhance long-term revenue growth. Our balance sheet remains exceptionally strong, providing significant financial flexibility to execute on strategic opportunities. We maintain a conservative capital structure with 95% of our interest rates being fixed, net of our bridge loan receivables. During the quarter, we recast our credit facility and added $1 billion in capacity to our revolving line of credit. Through the recast, we also reduced our revolving and term interest rate spreads by 10 basis points. We also executed an $800 million bond offering at a rate of less than 5% which completed our 10-year debt maturity ladder. We are raising our full year Core FFO guidance to a range of $8.12, $8.20 per share based on our year-to-date performance and updated fourth quarter outlook. For same-store revenue, we are adjusting our forecast to a range of negative 25 basis points to positive 25 basis points growth for the full year, acknowledging that the positive impact from improving customer rates has not driven acceleration early enough in the year to reach the high end of our previous range. We are raising our same-store expense growth guidance to 4.5% to 5% due to our decision to invest in marketing to drive long-term revenue growth, while other expense categories will continue to normalize moving forward. Our updated guidance also incorporates higher interest income projections based on the strong performance of our Bridge Loan Program, higher tenant insurance and management fees and lower G&A as we continue optimizing operational efficiency across the platform. The self-storage sector continues to demonstrate its resilience with our business model proving its strength as market fundamentals gradually improve. Our geographically diversified portfolio of over 4,200 stores across 43 states provides significant protection against localized economic fluctuations. Our scale and data give us a significant operational advantage over other industry participants and our high occupancy and positive rate momentum all position us well as we close out the year and head into 2026. With that, operator, let's open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Michael Goldsmith from UBS. Michael Goldsmith: First question, you're starting to see new customer rate growth, and it's well up above over last year. But I guess, like how long does that take to flow through the whole algorithm to start to benefit same-store revenue growth? Trying to understand kind of when we should start to see this drive that improved second derivative of same-store revenue growth? Jeff Norman: Thanks for the question, Michael. In terms of specific timing, it depends, as you can imagine, on churn and other factors. So I'm not able to pinpoint a time when you see that inflect specifically into revenue growth. But what we can tell you is we're encouraged to see that go from slightly positive rates in May to then over 1% in June, over 2% in July, 3% to 4% in August. So 3% for the quarter net of discounts is an encouraging trend for us. As we extend that into October, it's over 5% net of promotions. So we continue to see that accelerating trend. As we get into '26, we'll guide and give a little more detail about how that translates into revenue, but the trend is encouraging. Michael Goldsmith: Got it. And my follow-up question. It sounds like you've been using discounts and promotions to drive customers to the channel. Has that continued into October? And is the plan to continue to lean on that in the fourth quarter? Joseph Margolis: So we in the past several years have not used discounts as a tool very much. And that's why historically, we've given one number for new customer rate growth because there really was almost no difference between the new customer rate growth before and after discounts. In the quarter, we've tried an effort -- continual effort that we always do to optimize long-term revenue. We tried some different discounting strategies, particularly in states with states of emergency to try to maximize performance in those states. And it's proven to be a short-term headwind, although we believe long-term value creation. So that's why we're now kind of giving 2 new customer rate numbers, gross and net of discounts, because there is a more meaningful difference between there, and we want to be fully transparent. And how long and in what fashion we continue will depend on the results of the testing. Operator: And your next question comes from the line of Jeff Spector from BofA. Jeffrey Spector: Great. I appreciate the details so far. Joe, maybe can you discuss a little bit more on your comment regarding the short-term headwind. Just to confirm, was there anything specific you can cite, whether it was a particular region, EXR legacy versus LSI. Is there anything that helps you or investors understand like what exactly happened, maybe that was a bit worse than expected? And so we know it's -- you'll consider, I guess, next year in the guidance. Joseph Margolis: Yes. So I would say our efforts -- our new efforts with discounting were focused first on states with states of emergency, so I think Los Angeles and some other states and then also some randomized stores to produce a good data set, if that's helpful. Jeff Norman: And Jeff, if I understood the spirit of your question, I think you're wondering is this sort of a permanent change versus something temporary? I'd view it as more temporary. We leaned into it in this quarter and the headwind is felt primarily in the quarter. Jeffrey Spector: Okay. And just to confirm, you're seeing normal seasonal patterns. This has nothing to do with seasonality. Jeff Norman: Correct. October has continued to play out pretty similar to September. As we mentioned, we've actually accelerated rates further, still have healthy occupancy. It's 93.4% today. So continues to be a positive trend into October. Operator: And your next question comes from the line of Caitlin Burrows from Goldman Sachs. Caitlin Burrows: The prepared remarks talked about the $244 million portfolio acquisition. Wondering if you could give any detail on the initial and stabilized yields and how long you expect it will take to reach the stabilized yield and kind of what that upside is driven by? Joseph Margolis: Sure. Happy to, Caitlin. So the portfolio is a mix of stabilized assets and their stabilized assets are 78% occupied. So we're happy to get our hands on them and prove the performance to our standards. But there's stabilized stores and then the balance of the stores are in different stages of lease-up, kind of from very beginning to close to completion of lease-up. So the yield is a blend of different types of stores. That being said, the leverage deal, we're assuming $50 million of debt at 3.4%. The leverage yield is about 4.5% in year 1 and gets to the mid-7s by the end of or into year 3. Caitlin Burrows: Got it. Okay. And then wondering if you guys could talk about what you've seen recently on the reasons for storage use and if there's been any changes? Joseph Margolis: No real changes than we've talked about for the last several quarters. When we look at moving customers, in the third quarter we were at about 58%. That's up from mid-50s in the first and second quarter, but that's a seasonal increase. More people move in the third quarter than early in the year. So I don't think it's an indication of any significant improvement in the housing market. Just as a data point, the peak was the third quarter of '21 at 63%. So third quarter of '25, we're at 58%. So you see the decline in the for-sale housing market there. That's been partially picking up, that lack of demand has been partially taken up by customers who cite lack of space as a reason they're storing, and they stay about twice as long. Their average stay is about 15 months versus 7.5 months for the moving customers. So no real change in that dynamic. Operator: And your next question comes from the line of Ronald Kamdem from Morgan Stanley. Ronald Kamdem: Just 2 quick ones. Just the corollary to sort of the discount conversation being increased, should we take that as also sort of implying that maybe the marketing spend on sort of the web and all that is maybe incrementally less efficient as it was in the past. I guess the question is, has anything sort of changed in terms of those dollars online being spent and the return you're getting on those? Joseph Margolis: That's a really good question. So we view marketing spend as an investment, and we test every dollar we spend has to have a certain ROI or we're not going to spend it. And we haven't seen any decline in that ROI. So we don't -- we wouldn't tell you that our marketing spend is any less efficient. And I think you can see the benefit of that spend in the rate growth that we experienced. So I mean, to answer your question without all the excess words is, no, there's not been any diminution in the effectiveness of marketing spend. Ronald Kamdem: Helpful. And then my follow-up is just on the expense side. Obviously, property taxes, it is what it is, but this year seemed to be a little bit sort of outsized, right? You guys are running over 6% year-to-date on all expenses here. Just any sort of comments as you're sort of flipping over the next couple of years. Is there an opportunity for even more expense savings outside of property tax essentially? Joseph Margolis: Sure. Let me just give some high-level comments on that, and then we can get into specific line items. We're in a very high-margin business. And we want to make sure that we invest in the properties in a way that maximizes long-term revenue. So that means we want to invest in R&M to keep the properties up and of the condition that we want them to be because we know in the long term that chicken comes home to roost. And similarly, we want to invest in our people because we know that through testing and data, when you take customer -- take store managers out of stores, it hurts you on the revenue side, it hurts you on the safety side, it hurts you on the catastrophic events side and it hurts you on the cleanliness side. So we're going to try to be as efficient as we can without impacting the long-term value of our stores. And we just talked about marketing. It's the same way. We look at it as an investment that has a return. And frankly, when we've had over 300 people choose us to manage their properties even though we're more expensive, we know that our view of how to take care of scores and people is agreed to by most of the marketplace. So that's our general philosophy. We want to be as efficient as we can. We want -- we don't want to spend money we don't have to. But we're going to take the long-term view and make sure we protect our revenue stream. Jeff Norman: And Ron, maybe to hit a couple of the specifics around some of the expense line items. You mentioned property taxes. Last call, we talked about how it was a bit of the tale of two halves with -- or excuse me, with property tax expense. We have lapped that comp. So you saw that drop significantly in the third quarter. As a reminder, a lot of that first half was driven by outsized increases at the legacy Life Storage stores and that mark-to-market has taken place. So it was at 1.6% in the quarter. We expect it to be low again in the fourth quarter. And then as we look at a few of the other line items, we know payroll and benefits stands out as being outsized relative to our norms. A lot of that's a comp from last year. If you look at the 9-month number, it's sub-3% and that's more in line where we'd expect it to be in the full year, closer to that 3% inflationary level. And then Joe touched on our approach to marketing and R&M, we view those more as investments, and we'll make those investments as needed knowing that there's a long-term return. Operator: And your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Todd Thomas: I wanted to go back to the discounting strategy. Two questions. First, what exactly was the catalyst for offering these strategic discounts? And then second, you mentioned that this was tested or rolled out in some markets like L.A., where there are some state of emergencies, but it was -- it seems like it was a drag on customer rate growth to the tune of about 300 basis points or half of the gross increase that you achieved. You talked about October, but are you expecting both net and gross customer rate growth to continue increasing moving forward? Joseph Margolis: So I'll start by saying we are always trying new pricing offerings and strategies based on the amount of data we have, the amount of stores we have, the amount of testing we can do. So this isn't out of line with what other things we've done in the past to try to improve long-term performance, right? We're not running this company for the third quarter of 2025. We're trying to maximize long-term revenue. Jeff Norman: Todd, maybe to hit the second half of your question, we won't get ahead of ourselves in terms of forecasting rate growth because we're more focused just on revenue growth overall, and we're open to using any of the levers as needed. That said, based on what we've seen sequentially since May and into October, that the increase in pricing power has been a trend. Todd Thomas: Okay. But in terms of the impact that the discounts had on overall portfolio rate growth in the quarter or move-in rent growth in the quarter, what percent of the portfolio had you rolled out or were you testing this discounting strategy on? Just trying to get a sense of what the magnitude of these discounts were like and potentially, assuming you're pleased with the results and you roll this out more broadly across the portfolio, just trying to get a sense for the magnitude of these discounts. Jeff Norman: Yes. Good question, Todd. I think we're electing to share a lot of detail about the specifics of the test because, frankly, we view this as a competitive advantage. But in terms of trying to help quantify the magnitude maybe another way, you talked about gross rent growth to new customers of about 6% in the quarter and the net number being closer to 3%. For October, that has tightened significantly. So it's gross improvement of a little over 6%, net improvement of a little over 5%. So I guess, it gives you a feel of sort of the more temporary nature of some of the testing and it being less of a drag thus far into the fourth quarter. Joseph Margolis: Todd, I also want to be clear. We're not saying that the sole reason we made a change to our revenue guidance was this discounting strategy. It's certainly a factor. But I'll also say that it has been a little slower than we expected for the new rates to roll into the rental, right? That's nothing -- that's not something we can predict perfectly. We do know it will happen over time, but it's hard to predict exactly when and how quickly that happens. So I just want to be clear on that. Operator: And your next question comes from the line of Eric Wolfe from Citi. Eric Wolfe: If I look at the last couple of years, you've had move-in rents down double digits at times, obviously improved a lot lately. But if I look at the times when move-in rents were down the most, your revenue per occupied foot wasn't down nearly as much, right? I think it was generally kind of just been flattish, right, over the last couple of years. So I guess I'm trying to understand, as move-in rents recover, why wouldn't the contribution from ECRIs come down, right? If the contribution went up over the last couple of years as you discounted more, as you discount less, why wouldn't that contribution from the ECRIs just come down? Jeff Norman: Yes, it's a great question, Eric. If you think through just the way that as we pull these levers and as rates flow into and out of the portfolio, it's a gradual process. So the same way of -- after 3 years of negative rates, we were still able to maintain relatively flat revenue growth by using all of our levers. It takes some time coming out as well and for that to inflect and reaccelerate on the other end. Specific to ECRI, generally, our approach has been very similar on a year-over-year basis. There's no meaningful difference with perhaps the small exception being that we are following and abiding by state of emergency restrictions in some states that put a little bit of a cap or a little bit of a headwind on a year-over-year basis to ECRI. So maybe modestly less contribution. But outside of that, it's generally similar. Joseph Margolis: Yes. And I would just add, importantly, that customers are accepting ECRI at the same rate as they have in the past. We don't see any greater reaction in terms of move-out from customers. Eric Wolfe: Got it. So the move-in rents not flowing through as quickly to the rent roll really isn't a function of ECRI specifically, that contribution starting to come down. I guess the question is what is causing that? Like -- and maybe it's just like some math problem like it's tough to solve, but like what would make the contribution from move-in rents be a bit less than expected? Jeff Norman: Yes. The primary driver in the third quarter was slower churn. You'll notice that both our rentals and vacates were lower. So it's just a little slower churn than we had modeled. Operator: And your next question comes from the line of Michael Griffin from Evercore ISI. Michael Griffin: Maybe to follow up on Wolfe's question there. I'm curious, Joe, if you can give us a sense of -- and I realize you're not going to give '26 guidance, but where those move-in rates need to go before you start to adjust your ECRI program, right? I understand that you all solve to maximize revenue, but it seems to me that as these move-in rents remain lower, you're going to have to make up for it on the ECRI upside. So at what point, not to say that we reach an equilibrium, but that this regime of higher ECRIs to solve for revenue comes down somewhat? Joseph Margolis: Yes. I look at it a little differently, right? Street rates, new customer rates are going up and that gives us more headroom to increase ECRIs to existing customers, right? We don't want to move existing customers up too far over street rate, right? It provides somewhat of a cap, a guide for us. And as street rate goes up, that puts more and more of our customers into the eligible pool to receive an ECRI. So one of the challenges over the past several years is as street rates decline, more and more of our customers were in the group that were ineligible for ECRIs. And now as that switches, that pattern should change. Michael Griffin: I appreciate the color there. And then maybe just on the acquisition opportunity set. I mean it seems like there are more transactions coming back into the market. You seem pretty constructive on this deal that the part of it is closed and part you're expecting to close by year-end. But maybe give us a sense of the opportunity set within the transaction market? Are buyers and sellers more willing to come together on price? Is it interest rate stability? Like I guess, what's the catalyst for maybe an incrementally positive outlook as it relates to acquisitions? Joseph Margolis: So I'm not overly positive on the open market. I don't see cap rates at a level that given our cost of capital, it's attractive for us to be the high bidder in a competitive bid. And we've seen lots of deals that we've managed, where we had first and sometimes last shot that we let them go because we want to be disciplined and adhere to our cost of capital metrics. But what I am encouraged and positive about in the future is our continued ability to create accretive deals through our relationships like the one we just discussed through our joint venture partners, which we've done several of which were at very high yields this year. We have another one of those under discussion and through being creative and the vast industry relationships we have, right? Having over 1,800 properties we manage, gives us an awful lot of relationships that allow us to do transactions others can't. Jeff Norman: Yes. And Grif, I'd just add, being involved in the industry in all these ways, it allows us to hang around the hoop. Oftentimes, these acquisitions really are triggered by a life event for the seller or maybe a debt maturity or something else where it's not really a market function that's pushing them to sell it. It's more of an event, and we want to be close by when those events happen and have first shot. Joseph Margolis: I mean another example is our Bridge Loan Program where to date, we've bought 22% by dollar volume of the collateral we've lent against. So that provides somewhat of a proprietary acquisition pipeline for us, too. Operator: And your next question comes from the line of Juan Sanabria from BMO Capital Markets. Juan Sanabria: Jeez, if I'm beating a dead horse here, but on the discounting, I guess a 2-part question. What's the strategy behind using it more aggressively in some of the rent restriction areas like L.A.? And then in October, you mentioned the gross versus net delta shrunk. So does that mean you're not discounting as much as you did in the third quarter? Or just why is that discount narrowing in October? Joseph Margolis: So we're always looking for ways to maximize long-term revenue while complying with law and substituting discounts for ECRIs is an effort to do that. And our use of the tool and how it evolves as we learn more will change over time. And that's one reason you see a difference in October or will see a difference in October. Juan Sanabria: Sorry. And then just on the dispositions, you noted that there's a big kind of portfolio that you've put out there for market. Just curious if you could share any feedback on pricings in the market for those assets. You mentioned that on the acquisition side, cap rates are necessarily super attractive. So it probably means good demand on those Life assets. Any color would be appreciated there. Joseph Margolis: Yes. We'll provide more color when they close. But we had bidders. We've selected a buyer. We're going through the process. I mean, I think it's very important for us as a company every year to look at our portfolio and due to market concentrations or individual asset growth or capital requirements, try to consistently improve the portfolio by doing some dispositions. And we're a little heavy historically this year because we're 2 years out from the Life merger, and we want -- we have some Life assets that we want to dispose of. But I think we'll sell assets every year and just try to recycle the money into better long-term assets. Juan Sanabria: Not to be greedy, but one very quick follow-up on the occupancy. I think you said October was 93.4%. Just what's the year-over-year delta on that? Jeff Norman: So the year-over-year delta is about negative 40 basis points, Juan. And I would look at that much more as a result of last year's comp. If you look at our same-store occupancy September to October in 2024, it actually accelerated, part of that was related to the Life Storage assets. That's about the time we unified everything under the Extra Space brand. We got aggressive with pricing and took a lot of occupancy at those stores. So if you look at the sequential progress, 93.7% at the end of September, 93.4% in October, pretty similar to what we've experienced historically. Operator: And your next question comes from the line of Ravi Vaidya from Mizuho. Ravi Vaidya: I wanted to ask about the bridge lending book. How do you expect the lower rate environment to impact the growth of this part of your business? Do you expect maybe that some operators might take more traditional financing options? And would a greater proportion of the mezz lending turn into acquisitions from here on out? Joseph Margolis: So I think a lower rate environment will affect the bridge lending program if it loosens up the acquisition market. Many of our new bridge lending customers, who are folks who if they could get the price they have in their head would sell the asset, but they can't get in the market today. So they're looking for a bridge solution to get them to a future date when they could sell. So I think there's some countercyclicality between the acquisition market and the bridge lending business, and that's fine, right? That's one of the reasons we have all these different growth channels because in any 1 year, one could grow more than the other, and we just -- we want to be doing what's right, given current -- what's best for our shareholders given current market and economic conditions. Jeff Norman: Yes. And one thought, Ravi, that I'd add to that as well, as we've talked about, we originate these loans in a mortgage mezzanine structure. And as interest rate spreads as a whole tighten, the required spread of our A note buyers also tightened. So in terms of kind of the relative spread that we can bring in, we have some flexibility there, especially to the extent that we're holding mezz notes to optimize those yields. Operator: And your next question comes from the line of Nicholas Yulico from Scotiabank. Nicholas Yulico: I'm trying to just piece together this quarter versus last quarter, some of the comments on occupancy and pricing. Last quarter, you guys felt good about occupancy, you felt good about pricing. You hit an ending occupancy number, which was the highest you had in several years. And then for whatever reason, then this quarter, I felt like you were pushing pricing and then you didn't get what you wanted. You had some discounts you offered. And so I guess, you did that in relation to -- I don't know, some worries about occupancy or move-in volume coming in through the front door. Is that the right way to look at this? Joseph Margolis: Yes. I respectfully think it's not. I think that we don't solve for occupancy. We don't get worked up if occupancy is 20 or 30 basis higher or lower. We don't solve for rate either. We solve for long-term revenue, and in some instances, if that's going to be a little higher rate and lower occupancy or a little lower rate and higher occupancy, we're ambivalent. We just want the highest long-term revenue. And the discounting strategy was not a reaction to any type of occupancy number. It was more thinking about we see more and more of these state of emergencies, how can we change our pricing structure to maximize revenue as these things come up across the country. Nicholas Yulico: Okay. I guess the issue here is that it kind of feels like you guys have higher occupancy than the industry. And you can see that in various ways, but presumably, you guys took some market share over the last couple of years as you went to this discounted pricing on the front-end strategy. And I'm just wondering if the issue here now is that the rest of the industry just doesn't have as high occupancy. So if you guys are trying to push rate, has -- you got to deal with the rest of the industry and what they're going to do. And so I'm just wondering if that is something that played out this quarter, again, where you guys seem like you're in a little bit better position to be pushing rate than the industry and then you hit a wall and problem is that the rest of the industry isn't at the same sort of starting point as you guys right now in occupancy. Jeff Norman: Yes, I appreciate the question, Nick. I would say, I don't think we've hit a wall, right? We continue to see rates accelerate through the quarter and beyond and continue to be pleased with the occupancy level. I think this is a fragmented enough industry that while we kind of think of the industry as maybe being the large public operators, and we're comparing and contrasting 10 basis points here and there. I think holistically, we look at this as we've had negative rates as an industry for a long time. That -- despite that, we've been able to maintain flattish revenue growth for the last couple of years. And now as new supply moderates and as we maintain those high occupancy levels, we've been able to push rate, and we keep seeing it going. As Joe mentioned, we're always testing things. And the beauty of it is we have a large enough portfolio, we don't really have to guess. We can run tests and see what the winning strategies are and what is resulting in stronger revenue outcome. So I think we're pretty comfortable that the data is telling us how to maximize revenue. Joseph Margolis: It's easier to push rates when you have higher occupancies. And as long as our customer acquisition platform can fill the funnel, which they can, we'll do much better with rates at higher occupancy than lower occupancy. Operator: And your next question comes from the line of Spenser Glimcher from Green Street. Spenser Allaway: Just going back to the dispositions. Is there anything you can share on the 24 assets being sold just in terms of geography or rent levels just relative to the portfolio average? And as you continue to call the portfolio, as you mentioned, are there many more Life assets that you would say fit the disposition criteria, perhaps due to a lack of market concentration, just not being as efficient to operate? Joseph Margolis: So the existing portfolio has a concentration in Florida and the Gulf Coast. And I would say there are -- there certainly are more Life Storage assets, but there's not -- I think this is the big chunk. I don't think we'll do another 22 property portfolio. Spenser Allaway: Okay. And anything you can share on how those assets rent levels compare to the portfolio average? Joseph Margolis: They're lower. Spenser Allaway: Okay. And then just maybe the second question here. Can you just remind us what your on-site personnel looks like today just for your properties and then as well as regional managers, how many assets are these employees overseeing on average? And are you comfortable with this headcount for the near term? Joseph Margolis: So we're at about 1.4 full-time employees per store. It obviously varies, 100,000 square feet in Manhattan is going to be staffed more heavily than 45,000 square feet outside of Lexington, Kentucky. We're continuing to use technology to -- and testing to try to get more efficient, right? And some of it is when you have a cluster of stores, how can you staff efficiently without having every store staffed at a full-time basis and other testing that frankly isn't unique in the industry. I think everyone is doing it. But at the end of the day, we want to meet the customer, how the customer wants to meet us. And 30% -- a little more than 30% of the customers still walk into the store wanting to talk to a store manager. They all have phones. They all have computers. They can do a full transaction with us if they choose online. But they choose to go to the store for a reason. They want to see how clean it is. They don't really know what a 10x10 is. They have some questions on the store. And if you take the store manager out and force them to choose to scan the QR code or force them to call up someone on the phone, some of them will do that, but some of them will turn around and go across the street to a competitor. So as long as we have customers who are choosing to walk into the store, we will make sure we have a store manager there. Because if we cut expenses by 15% and lose one rental a month at our average rate, that's negative 2.5% NOI experience. So we're going to protect that revenue line item very carefully while still being smart on the expense side. Operator: And your next question comes from the line of Michael Mueller from JPMorgan. Michael Mueller: Just a general question here on acquisitions. Just curious, when you buy something that's not stabilized or actually something that has stabilized even, how much can you typically raise the going-in yield just from taking the assets, putting them on the platform and kind of getting the expense efficiencies? And I'm just thinking about that, like what's the low-hanging fruit in terms of going from an initial yield up to a stabilized yield that obviously has some additional revenue impact in it? Joseph Margolis: Yes. So it's a really good question and it varies widely. So if we're buying a store that's already on our management platform, either because it's -- we have a bridge loan on it or it's our management platform, then we've already optimized NOI. And it's much more of a core purchase, and we'll try to do a lot of those with joint venture partners to enhance the yield. If we're buying something that's managed by a third-party operator, it varies widely because the quality of the third-party operators vary widely. Some are very good and some are not as good. But it's not uncommon for us to see 150 basis points or more increase in NOI once we can get it on our platform. Operator: And your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Omotayo Okusanya: The repairs and maintenance during the quarter and the elevation in that number, was that -- is that like a broad-based R&M across the entire portfolio? Was it more concentrated on the LSI portfolio because there was kind of maybe some deferred maintenance still associated with that portfolio? And how do you just kind of think about kind of going forward, the outlook for R&M? Jeff Norman: Yes. Thanks for the question. Yes, some of that outsized growth is driven specifically by the legacy LSI properties. And again, we expect that to normalize. We had some catch up to do on those properties but just started seeing that normalize. And -- but all in all, as Joe had mentioned, we want to take care of the properties. So in general, we're going to make sure that we're doing whatever we need to do to protect those assets. But yes, a little bit of an outsized contribution from the Life stores. Omotayo Okusanya: That's helpful. And then on the Bridge Loan Program side of things, could you just kind of talk a little bit about kind of what you're still seeing out there, ability to kind of put money to work and kind of at what kind of yields? Joseph Margolis: So we had a very active year last year. I think we did $880 million of originations. And a lot of that was new development stores that needed to pay off their construction loan and want to bridge to stabilization. That business has gone fairly quiet as the amount of new stores being delivered is going down, which is overall a good thing. That's been replaced somewhat by folks who need to buy out an equity partner because things are going slower than usual or wanted to sell, as I said earlier, and can't. So we've done through 3 quarters, a little over $330 million worth of originations. So we're on a good pace for that. The pricing of loans we have on our books, the A notes average about 7.6%. The mezzanine notes are about 11.3%. So over time, we would like to keep our on balance sheet balances fairly steady. It will go up and down slightly quarter-to-quarter but change the mix to have more B notes and fewer A notes on balance sheet. Operator: There are no further questions at this time. I will now hand the call back to Mr. Joe Margolis for any closing remarks. Joseph Margolis: Great. Thank you very much. Thank you, everyone, for your time and interest in Extra Space. I just want to reiterate that we're positive about the future. Our rent -- rate trends are positive and improving every quarter. Supply continues to go down. Our ancillary businesses are growing and help bridge the gap while we -- while the time it takes for these new higher rates to flow through the rent roll take time. So we're really encouraged about going into 2026 and are excited for better things tomorrow. Thank you again for your interest. Operator: Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 DHT Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laila Halverson, CFO. Please go ahead. Laila Halvorsen: Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings third quarter 2025 earnings call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until November 6. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the third quarter of 2025, we achieved revenues on TCE basis of $79.1 million and adjusted EBITDA of $57.7 million. Net income came in at $44.8 million, equal to $0.28 per share. After adjusting for the $15.7 million gain on sale of vessel related to the sale of DHT Peony and the noncash fair value loss related to interest rate derivatives of $0.4 million, the company had a net profit for the quarter of $29.5 million, equal to $0.18 per share. Vessel operating expenses for the quarter were $18.4 million and G&A for the quarter was $4.1 million. For the third quarter, the average TCE for the vessels in the spot market was $38,700 per day. The vessels on time charters made $42,800 per day, while the average combined TCE achieved for the quarter was $40,500 per day. DHT has a robust balance sheet with low leverage and significant liquidity. The third quarter ended with total liquidity of $298 million, consisting of $81.2 million in cash and $216.5 million available under 2 of our revolving credit facilities. At quarter end, financial leverage was 12.4% based on market values for the ships and net debt was just below $9 million per vessel, which is well below estimated residual ship values. Looking at our cash flow for the quarter, we began with $82.7 million in cash, and we generated $57.7 million in EBITDA. Ordinary debt repayment and cash interest amounted to $17 million and $38.6 million was allocated to shareholders through a cash dividend. Maintenance CapEx amounted to $1.6 million, and we invested $26.2 million in our newbuilding program. Additionally, we placed a $10.7 million deposit for the acquisition of DHT Nakota. The sale of DHT Peony generated proceeds of $51 million, and we used $22 million for prepayment of long-term debt. Positive changes in working capital and other items amounted to $6.8 million, and the quarter ended with $81.2 million in cash. Now let's move on to our quarterly highlights. Many of these have already been communicated as subsequent events to the second quarter or as part of our recent business update. We entered into a $308.4 million secured credit facility to finance our 4 newbuildings. The facility is co-arranged by ING and Nordea with backing from K-Sure. It is competitively priced at SOFR plus a weighted average margin of 132 basis points. The facility has a true 12-year tenure and a 20-year repayment profile. We have also entered into a credit facility with Nordea to finance the vessel acquisition announced in June. This is a $64 million reducing revolving credit facility with a 7-year tenure and a 20-year repayment profile. It is priced at SOFR plus a margin of 150 basis points, and it's consistent with our established financing approach. The vessel to be named DHT Nakota is built in 2018, and we hope to take delivery in a couple of weeks' time. In September, we made a $22.1 million prepayment under the Nordea credit facility covering all scheduled installments for the fourth quarter of 2025 and all of 2026. The facility matures in the first quarter of 2027 with only $3.7 million remaining, representing the final installment. 8 vessels serve as collateral for this facility with a current combined market value of about $650 million. During the quarter, we entered into 8 3-year amortizing interest rate swap agreements totaling $200.6 million. The average fixed interest rate is 3.32% compared to current 3-month term SOFR of 3.84% with maturity in the fourth quarter of 2028. As a subsequent event and as announced on October 13th, Svein Moxnes Harfjeld was appointed to the Board of Directors. He will, of course, continue to serve as President and CEO of the company. And now over to capital allocation and dividend. In line with our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividend, the Board approved a dividend of $0.18 per share for the third quarter of 2025. This marks our 63rd consecutive quarterly cash dividend. The shares will trade ex-dividend on November 12, and the dividend will be paid on November 19th to shareholders of record as of November 12th. On the left side of this slide, we now present our estimated P&L and cash breakeven levels for 2026. These figures include all true cash costs, and the difference between the 2 is estimated at $7,500 per day for next year. This discretionary cash flow will remain within the company and be allocated to general corporate purposes, primarily to fund the remaining installments under our newbuilding program. On the right side of the slide, we illustrate the accumulated dividend since we updated our capital allocation policy in the third quarter of 2022. The total accumulated amount is $2.93 per share, which reflects strong shareholder returns during a period of share price appreciation. Finally, let me update you on the bookings to date for the fourth quarter of 2025. We expect to have 901 time charter days covered for the fourth quarter at $42,200 per day. This rate includes profit sharing for the month of October and the base rate only for the months of November and December for contracts with a profit-sharing future. We anticipate 1,070 spot days in this quarter, of which 68% have already been booked at an average rate of $64,900 per day. The spot P&L breakeven for the fourth quarter is estimated to be $15,200 per day. And with that, I will turn the call over to Svein. Svein Moxnes Harfjeld: Thank you, Laila. As you all have likely noticed, the VLCC market is demonstrating significant strength. This strength should positively impact our earnings for the latter part of the fourth quarter. The current freight market strength is driven by growing demand for seaborne transportation of crude oil in combination with increasingly aging and fragmented structure of the fleet. Importantly, for VLCCs, the workhorse of the crude oil transportation markets, they are regaining their market share, though it's most competitive freight offering and efficiency. Geopolitics, trade and tariff dynamics, sanctions and conflicts are adding to the picture, creating disruptions and focus on security of supply as the global fleet is reducing its efficiency and productivity. The U.S.-China meeting in Kuala Lumpur agreed for a 1-year postponement on many issues, including the port fees. OPEC's decision to reduce spare capacity by reversing production cuts and bringing more crude oil to the market seems to be well absorbed, partly supported by the Chinese demand for both consumption and stockpiling. Research suggests Chinese stockpiling to not only be short term and optimistic, but the longer-term need to fill its increased storage capacity and meet defined requirements for strategic storage. Further, it suggests the need to boost its oil security with concerns of interruption in supply from sanctions and potential regional political conflicts playing a part. Lastly, a diversification in foreign reserves by buying oil and gold is said to be a consideration. Goldman Sachs reports that the world's biggest oil companies are expected to press ahead with plans to accelerate production growth when they report earnings. Analyst estimates compiled by Bloomberg suggests planned output growth between 3.9% and 4.7% to be in the cards. We have, as per usual, been traveling to spend time with our customers, and these reports mirror some of the key takeaways from our most recent trip. Several of our customers expect to expand their footprints and are presenting opportunities with demand for our services and more ships. We are grateful for this encouraging support, which leaves us highly constructive on our franchise and future. As always, we are looking into opportunities to develop DHT with continuous improvements in our service offerings and possible expansion. We have what we believe to be a resilient strategy with a focus on solid customer relations, offering safe and reliable services, maintaining a competitive cost structure with robust breakeven levels, a strong balance sheet and a clear capital allocation policy. The whole DSC team continues to work hard and operate with leading governance standards and a high level of integrity. And with that, we open up for questions. Operator? Operator: [Operator Instructions] We will now take the first question coming from the line of Frode Morkedal from Clarksons Securities. Frode Morkedal: So on the port fees, that's interesting, suspended for a year. So I guess the question I had is like, is this a good thing for the market because I guess a lot of people had estimated some type of inefficiencies because of it, especially on the Chinese port fees, right? So maybe if things go back to normal, what's the impact on the market and maybe on your own positions? Svein Moxnes Harfjeld: So the jury, of course, is still out. But if I reflect on when the port fees were introduced, then the market typically took a time out, right? So you had a very quiet short period before people sort of got their heads around what was going on and then went on to continue fixing ships. Of course, some of that have maybe improved the sentiment a little bit, and you have some replacement jobs and all that with short notice that could drive up rates. But as sort of the later period now, you would note that most of sort of the biggest shipowners, they are responding to the questionnaires that were presented by the Chinese authorities. including disclaimers on information and stuff like that. And I think it appeared that there was a relatively modest part or minor part of the fleet that were actually exposed to this and that would create sort of a true cost disruption. So right now, of course, with the news again that this is being put on hold for a year, we will have a little time out, and then I think people will restart to fix ships again. So let's see how it plays out. But as we said on the prepared remarks here, we do believe that the strength in the market in general is because there is simply strong demand and fragmented and shrinking fleet. So -- but exactly how it translates into TC earnings is, of course, too early to say. Frode Morkedal: Yes. Clearly. I don't know if -- do you know if China still has this tariff on U.S. crude oil? I haven't seen any news on it. Svein Moxnes Harfjeld: Sorry, I didn't hear you. Frode Morkedal: China retaliated on having like a tariff on U.S. crude oil specifically, right? So you didn't -- the U.S. crude exports to China basically went away. Svein Moxnes Harfjeld: But U.S. crude oil export to China has been very, very modest, right? It's just a small portion of total exports. So -- and the big -- the 2 state-owned oil companies in China, they also use facilities outside China to store and transship oil and all of that. So -- but I guess this truth sort of includes everything, I would assume. So that's at least what the commercial secretary suggested after the meetings. So if there were any, I think that will probably be out of the equation as well. So I would guess so. Frode Morkedal: Yes. Interesting. I guess question with spot rates now clearly very high, how is the effect on the time charter side? Do you see levels improving or maybe duration is improving? Or is it still a bit too early? Svein Moxnes Harfjeld: I think you've seen increased interest and there are some shorter-term charters that have been done at sort of improved rates. But of course, with the delta on spot voyages and yesterday's time charter rates, it's very hard to put the right price on it. And if you consider some of these long voyages that the VLCCs tend to perform, U.S. Gulf Far East cargo is 120 days. I mean the premium in the spot market will have a big impact on the balance earnings of a time charter and what would be required. So it's very hard to find a midpoint that sort of works for both parties. So I think, again, here, we will have to see a little bit. I would expect that if the firm market continues at sort of current levels for a while, then people will have to man up, so to say, and the bid-ask that will have to come in and in particular, on the customer side that they will have to pay up if they really want time charters. Frode Morkedal: Yes, makes sense. And I guess I would expect that you would consider adding time charter coverage if that happens, right? As we have stated many times, we like in general to have some level of fixed income. We have a number of time charters coming off now in the next few months. So, there's an opportunity to reprice those charters, if you like, or maybe develop new charters with new customers for different ships. So if we can find a common ground on something that is meaningful, prefer a bit longer tender, we are open to that. And we are sort of in -- I wouldn't say negotiations that's overstating it, but in sort of preliminary discussions on what customers might be looking for in general. And -- but these things take quite a long time to develop. So one has to be patient. Operator: [Operator Instructions] The next question comes from the line of Geoffrey Scott from Scott Asset Management. Geoffrey Scott: There's always been a reluctance from the more respectable charters to take ships that are over 15 years old. In 2009, 2010, 2011, there were a lot of deliveries of these in those 3 years. They're coming up to or have just passed 15 years. As prices go up for charters, -- do you see any reduced reluctance of the major charters to take ships over 15 years? And is there any possibility that they'll actually go past 20 years to 21, 22, 22.5 in the next couple of years? Svein Moxnes Harfjeld: There's always been a bit of a dynamic in -- when it comes to acceptance of the age or the perceived age limit of ships on the market. So in the stronger market when the customer has less choice, they seem to be a bit more pragmatic. I think as a recent, most customers accept ships up to 17, 18 years of age. We have 3 ships built in 2007. They are all on time charters to significant counterparties. But I think beyond 20, then at least for our sort of profile and what we do, the commercial opportunities are limited. There are other owners that can find some pockets and trades where they can use these ships, but it's somewhat limited, I would say. So our commercial life expectation of ships are up to age 20, although the quality of our ships could operate well beyond that if the market had opportunities. It's not really for us. But of course, the sanctioned trade have created a big market for older ships. I would think that, that market is somewhat satisfied now, and there are some people looking to even renewing that fleet by seeing if they can scrap ships that are 25 years or even older and then look to buy ships that are 17, 18, 19 years old to replace those ships that are 5, 6 years older. So it's a bit of a dynamic environment, and it's evolving rather than changing very abruptly, I would say. Operator: There are no further questions at this time. I would now like to turn the conference back to Laila Halvorsen for closing remarks. Svein Moxnes Harfjeld: Okay. I'll step in for Laila and say thank you very much for attending the call and wishing you all a good day ahead. Thank you. Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Analyst and Investor Update Call Q3 2025. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Rob Smith. Please go ahead. You can go ahead, Mr. Smith. Richard Smith: Serge, It's Rob. I lost your introduction. Maybe you've you got to switch line now? Operator: You can go ahead, Mr. Smith. Richard Smith: Operator? Operator: Can you hear us, Mr. Smith? We lost connection to the speakers. Please stay on the line. Richard Smith: [Technical Difficulty] Shanghai, China, where KION is at the CeMAT trade fair, which is currently taking place here in Shanghai. But I'll tell you more about that later. Please look for our update presentation on the IR website for today's call. I'm going to start with a summary of our third quarter 2025 results and several exciting business highlights. And then, Christian will update you on the efficiency program before taking you through the detailed Q3 financials and our updated outlook for 2025. And then, I'll be back for our key takeaways before we open the line for questions and answers. Starting, please, on Page 3. The third quarter was another solid quarter, in line with our expectations. Group order intake was EUR 2.7 billion, a 10% increase compared to the prior year. Revenue was flat at the KION level with the increase in Supply Chain Solutions compensating for the anticipated decline in the ITS segment. Adjusted EBIT was EUR 190 million, corresponding to an adjusted EBIT margin of 7%. Year-over-year, while the SCS continued to improve its profitability, profitability in ITS reflected the expected negative impact of lower volumes. Both operating segments improved their adjusted EBIT margin sequentially. Free cash flow was a strong positive EUR 231 million. And earnings per share was EUR 0.87, an increase of nearly 60%. On Page 4, I'll share with you some recent business highlights. In September, Linde Material Handling announced its partnership with the European aircraft manufacturer, Airbus, for the deployment of automated logistics solutions on the Jean-Luc Lagardere site in Toulouse, where the aircrafts of the A320 family are assembled. A range of robotic solutions designed to help optimize the efficiency and safety of Airbus' logistics processes have been commissioned. These innovations include the R-MATIC trucks, retractable mast autonomous guided vehicles, or AGVs, for a much more reliable material flow management and improved working conditions, helping Airbus build the 320 family. Also in September, KION Group received the highest award, which is a Platinum rating, from EcoVadis for the first time. This places KION among the top 1% of the more than 150,000 companies rated by EcoVadis. KION joined its well-established brands, Linde Material Handling and STILL, which were awarded the Platinum award from EcoVadis again in 2025. This positive group-wide development highlights KION's steadfast commitment to our sustainability strategy. And here at the CeMAT in Shanghai, China, KION is showcasing an advanced physical AI-powered Omniverse solution as part of the large-scale collaboration with NVIDIA and Accenture to reinvent industrial automation. CeMAT fair visitors are experiencing how AI-driven industrial trucks and digital twins can transform supply chain operations. The showcase is a milestone on KION's path to an adaptive autonomous material handling standard for customers worldwide. And Dematic unveiled the first demonstration of the FD system, showcasing its end-to-end workflow and innovative evolution of Dematic's multi-shuttle technology. It's ideal for a wide range of industries, including third-party logistics, supermarkets, e-commerce, apparel, pharmaceuticals and electronics. CeMAT is a truly inspiring experience for us: for me, personally inspiring, for our Board members, for our teams. I'd like to share with you our mutual impression of an atmosphere that's very powerful here. Our supply chain solutions industry is an industry of the future, and we are all in the middle of the beginning of this future at this point with lots of excitement still to come. CeMAT is a strong manifestation of the trends we at KION identified that are driving our business and our own innovation, especially electrification, the increased demand for warehouse trucks, e-commerce, automation and robotics. Yesterday, at the CeMAT, we signed 7 ecosystem strategic partnerships with highly innovative players that are outstanding in their respective fields of the supply chain solutions industry. With win-win partnerships like these, KION is enhancing its ecosystem focus on innovation, advanced robotics and automation technologies. With all what we've seen during these recent days, I'm very convinced KION is well positioned to shape the supply chains of the future. I'll hand now over to Christian, and he will take you through an update on the efficiency program, our detailed Q3 financials and our updated outlook for 2025. Christian Harm: Yes. Thank you, Rob. As promised over the last months, we are providing you now with an update on the efficiency program that we announced in February of this year to achieve a sustainable annual cost saving of around EUR 140 million to EUR 160 million from 2026 onwards. For the implementation of those cost-saving measures, nonrecurring items of approximately minus EUR 240 million to minus EUR 260 million were initially expected. I'm sure, you have all seen our announcement last week. Following the constructive and effective teamwork with our works council labor representatives, we have made substantial progress in the negotiations in most jurisdictions, particularly in Germany, giving us a better view on program instruments, financials and timings. We still have some jurisdictions in which we are still negotiating, which is why we don't have a final number yet. But we can now more precisely quantify the expected expenses, and we are now able to lower them to between EUR 170 million and EUR 190 million in 2025. The savings target remains largely unchanged at between EUR 140 million and EUR 150 million. We are able to achieve almost the same savings with much lower expenses, mainly because many employees accepted our voluntary redundancy package. As a consequence, we don't need additional redundancy schemes. We expect the savings to start impacting the bottom line already in the fourth quarter '25 with a small amount and anticipate the majority of the savings to become effective in 2026 and the remaining will then support earnings in outer years. Of the EUR 197 million efficiency program-related expenses recorded in the first half of 2025, we were able to release approximately EUR 34 million in the third quarter. Many leavers have, for personal tax reasons, opted for the severance payment to be paid out in the first quarter '26 rather than at the end of this year. Accordingly, this will shift a significant portion of the lower-than-initially-expected cash out for the efficiency program from the fourth quarter to the first quarter of next year. Let's go now to Slide 7 for the key financials of the ITS segment. Order intake reached 60,000 units in the third quarter, which is a sequential decrease of 14%, a pretty normal seasonal development in the third quarter. Year-over-year, the increase was 17%, an acceleration of the growth rate seen in the first 2 quarters, which is also due to the lower prior year base. New orders in value terms increased 8% year-on-year, driven by a 17% increase in the new truck business. The service business also showed continued growth at 1%. The order book reflects ongoing lead time normalization, and its margin quality is in line with our expectations, as reflected in our outlook. Revenue declined by 3% year-over-year to EUR 1.9 billion. The 3% growth in service partially compensated for the expected 9% decline in the new truck business. Again, remember that in 2024, the new truck business revenue significantly benefited from the tailwind of a high order backlog. Adjusted EBIT at EUR 171 million and the corresponding adjusted EBIT margin at 8.8% reflected the expected impact from lower volumes, resulting in lower fixed cost absorption in a year-over-year comparison. The sequential improvement in the adjusted EBIT margin, despite the usually weaker summer quarter, is supported by a slightly higher gross margin. We will now continue on Page 8, which summarizes the key financials for SCS. Following the record order intake in the second quarter, which was also impacted by the favorable timing of some order signings, orders in the third quarter declined by approximately 50% sequentially but still representing a 16% increase year-over-year. This year-over-year growth was once again driven by a 46% increase in business solutions orders, while the order intake in customer services was down 12% on a strong prior year quarter. Remember, we had flagged in the second quarter update call to not extrapolate the record order number for every quarter going forward. While we may have passed the trough, we are still in a lumpy recovery trajectory, and we are also likely to see the next quarter below the EUR 1 billion mark again. While last quarter's increase in order intake was very much driven by the pure-play e-commerce vertical, their share in this quarter's business solutions orders was 24%, meaning that the growth was fueled by customer in other verticals. As a result of the growth in order intake, the order book increased 16% year-over-year, and that year-over-year increase would have shown an even higher growth rate of 22% without the adverse foreign exchange translation effects. Overall, revenue increased both sequentially and year-on-year and is starting to benefit from the recovery in the order intake, which increased the business solutions revenue by 15% year-over-year in the quarter. The adjusted EBIT improved strongly year-on-year to EUR 48 million, with adjusted EBIT margin increasing to 6.2%, following higher revenues and improved project execution. Let's quickly run through the key financials for the group now on Page 9. Order intake benefited from the improvement in demand in the new business in both operating segments. The order book reflects the increased demand in SCS, partially offset by the continued lead time normalization in ITS and FX translation losses in SCS. Revenue in SCS is starting to benefit from the order intake recovery since the beginning of 2025, offset by the expected revenue decline in the ITS new truck business. Adjusted EBIT at EUR 190 million and the adjusted EBIT margin at 7% was impacted mainly by the lower fixed cost absorption in ITS and the normalized EBIT in the Corporate Services Consolidation segment, which was partially compensated by the strong earnings improvement in SCS. Now Page 10 shows the reconciliation from the adjusted EBITDA to group net income. Nonrecurring items in the quarter included approximately EUR 34 million release of provisions for the efficiency program. Please note that due to the overall lower-than-initially-expected expenses for the efficiency program, we have revised our full year 2025 expectations for nonrecurring items to between minus EUR 210 million and minus EUR 230 million from between minus EUR 240 million and minus EUR 275 million. You will find this information on the housekeeping slide in the appendix. In this quarter, [ PPA ] items were at the usual quarterly level. Net financial expenses improved year-over-year, mainly due to the positive impact from the fair value of interest derivatives and the lower net interest expenses from lease and short-term rental business. We have also adjusted our expectations for full year 2025 net financial expenses to between minus EUR 140 million and EUR 160 million from previously between minus EUR 170 million and EUR 190 million. Pretax earnings grew 9% to EUR 142 million in the quarter. Tax expenses of only EUR 23 million in the quarter corresponded to a tax rate of 16%, significantly lower than in the prior year quarter. The main driver for the lower tax expenses in the quarter resulted from a revaluation of the deferred tax liabilities amounting to EUR 38 million, following a June 2025 resolution of the German government on the lowering of the federal corporate tax rate from 2028 onwards. And then, the net income attributable to shareholders increased disproportionately by 58% to EUR 114 million, corresponding to earnings per share of EUR 0.87. Now, let's continue with the free cash flow statement on Page 11. Free cash flow in the quarter reached positive EUR 231 million, substantially driven by an improvement in net working capital in ITS. In contrast to the prior 2 years, we had a EUR 50 million cash out in -- sorry, where we had a EUR 50 million cash out in the fourth quarter for additional pension funding, we funded [ EUR 50 million ] in the second quarter and EUR 35 million in the third quarter. Page 12 shows the development of net financial debt and our leverage ratios. We had a solid decrease in net debt to EUR 818 million at the end of the third quarter 2025. Consequently, the leverage ratios improved across both net debt definitions by 0.1x compared to the end of June 2025. Our leverage ratios continue to remain slightly lower than the level last seen post our December 2020 capital increase. But this time, we achieved the improvement entirely through self-help measures. Slide 14 now lays out our updated guidance for the fiscal year 2025. I will quickly walk you through it. Based on the 3 solid quarters -- the first 3 solid quarters and our visibility for the fourth quarter, we have narrowed the guidance range for ITS. For SCS, the good year-to-date performance, including the growth in order intake since the beginning of the year, allows us to increase the lower end of both the revenue and adjusted EBIT guidance. In addition to the above, the narrowed group guidance range reflects our expectations of more negative adjusted EBIT contribution from the Corporate [ Services ] Consolidation line. This difference is around EUR 10 million in the midpoint, driven by higher expenses for long-term incentive programs, resulting from the increased share price and for strategic projects. And finally, as outlined earlier in this presentation, we expect lower expenses and related cash out for the efficiency program in addition to a significant portion of that cash out shifting from the fourth quarter '25 to the first quarter '26. Accordingly, our free cash flow guidance increased substantially to between EUR 600 million and EUR 700 million from previously EUR 400 million to EUR 550 million. As always, you will find the slide on the housekeeping items in the appendix. And with that, now, I hand back to Rob for our key takeaways. Richard Smith: Thank you, Christian. Let's move to Page 15, where we have our key takeaways. KION achieved another solid quarter, completing the first 9 months of 2025 in line with our expectations. Both the industrial truck market, as well as the warehouse automation market, have passed through their troughs and are on a recovery path amongst geopolitical challenges. KION is growing order intake in both operating segments. Following the constructive and effective teamwork with our works council labor representatives, we have made significant progress in implementing the efficiency program. With most jurisdictions having completed their negotiations, we're able to reduce our expected costs for the efficiency program meaningfully, while delivering the targeted savings. A significant portion of the associated cash out is shifting from the fourth quarter of '25 to the first quarter of '26, preserving cash in 2025. With 9 months of 2025 behind us and increased visibility on the fourth quarter, we have narrowed our guidance ranges for revenue and adjusted EBIT. We've also increased our outlook on free cash flow for fiscal year 2025 due to the lower expenses for the efficiency program and the shift of the related cash out. Our outlook remains subject to no significant disruptions to supply chains as a result of trade barriers, especially tariffs and restrictions on access to critical commodities. This does conclude our presentation. Thank you for your interest so far. We look forward to taking your good questions. Back to you, Serge. Let's open the line. Operator: Thank you, Mr. Smith. Can you hear me? [Operator Instructions] Richard Smith: Serge, we can't hear you. Operator: Can you hear me, Mr. Smith? Richard Smith: Nor can we hear [indiscernible]. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We will continue with the Q&A shortly. Richard Smith: I trust everyone has heard Christian and me for the last 15 minutes, but we don't hear any... Operator: Can you hear me, Mr. Smith? Richard Smith: [ Haven't ] put on the other line yet. Operator: Do you hear me now, Mr. Smith? Christian Harm: Okay. Raj is writing us the question and we're answering to that. Richard Smith: It's an outstanding solution. Operator: Okay. We'll start with the Q&A. The first question comes from Sven Weier. Sven Weier: I hope you can hear me, Rob and Christian. Operator: Please ask the question. We will forward it, Sven. It will take a bit. Richard Smith: Actually, now, I do hear you. Sven Weier: You can hear me? Okay. Great. So I have 2 questions, please. The first one is a more short-term question. And obviously, you had a great order intake development on the truck side in Q3 against what were, I guess, tough economic circumstances in Europe. So wondering if you could see a continuation of that also in the fourth quarter so far? That's the first one. Richard Smith: I'm sorry, I hear your voice, and there was some feedback on the line. If you would be so kind just to repeat that, maybe we'll get a better chance the second time. Sven Weier: Of course. Yes. I hope you can... Christian Harm: [indiscernible] will order intake continue like this in the fourth quarter? Richard Smith: Yes, sure. Let's talk about that, Sven. I mean, maybe we look at both segments. Historically, the fourth quarter is a very strong segment, probably the strongest segment for order intake in the ITS segment. Seasonally, the third quarter is usually a little lighter and the fourth quarter is a strong fourth quarter. I anticipate that will be a similar situation this year, no reason not to think it would. And as we say in both segments, we're past the trough. We're in a growing -- we're back into growth mode in the markets, and our order intake is certainly in growth mode. We have expected we got a better third quarter this year than we did last year in SCS. And as we described, we expect certainly a stronger second half this year than the second half last year. And we're looking for a good fourth quarter here. Sven, I trust that answers your first question. Sven Weier: Yes, and I could hear you really well. So that's fine. The second question is a little bit more looking forward on the... Richard Smith: So, you had a second question as well, Sven? Sven Weier: Yes. Can you hear me? Can you hear me, Rob? Operator, can you pass it on? Operator: Please ask your second question, and we will forward it to Mr. Smith. Sven Weier: Yes. So the second question is around the general sentiment among your clients, both in ITS and in SCS, in terms of their investment plans going forward. Do you sense they want to grow CapEx and it's just politics preventing them to do so, meaning that if there was any clearance on the political side, that this investment is released? Or what's the kind of general investment sentiment among both client segments? Richard Smith: The general sentiment, Sven? There we go. How about that? General sentiment among clients in ITS and SCS. Do we sense they want to grow CapEx and our geo -- let's talk about that. I think it's pretty exciting. I think everybody thinks it's exciting that President Xi and Trump came together today, shook hands, and it looks like there's a significant de-escalation of tensions there. And no one has seen any effect of that yet, but I do feel that that's a very good step in the right direction, and I think all our customers are going to feel that way, too, in all markets. I think it was positive. I think it was already priced into the markets, but I think it will be a positive thing for our customers, especially on the SCS side. The Fed has reduced the rates now again. So with 2% in Europe and the lowest rate in America over the last 3 years, that has to be a positive thing. And our customers have been very active with us in the pipeline. And it's just a matter of going through and converting those into orders now. We've talked about that being lumpy. But the trough is behind us. We're in an upward slope. And we're expecting to have a second half stronger than the second half last year. And we think we'll have a seasonal adjusted good fourth quarter as usual on the ITS side. So I think the sentiment is clearly much more positive post the meeting with Trump and Xi today than has been in the lead up to that over the last several months. Operator: Ladines and gentlemen, please shorten a bit your questions since we're forwarding them to Mr. Smith. The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I have 2 as well. My first one is on the phasing of savings. So I think if you look at the savings, it translates to EUR 35 million to EUR 37 million per quarter, and you want to achieve fully in 2026. So maybe if you can give us some indication on how we shall think about phasing and by when do you expect the full run rate to be achieved? The second question is on lower interest rates from lease and short-term rentals. Christian Harm: Okay. So the question was on the phasing of the savings for the efficiency program, right? Let me take this one. So, as I said, right, we will have a small part of the savings already in the fourth quarter of this year, and then the far majority of the savings then in 2026 and actually very much sort of forward-loaded in the year. And there will be a small remainder potentially in the following year. So we will have a small part right now and the majority in the beginning of 2026. Akash Gupta: And my second question is on lower interest rates -- lower interest from lease and short-term rentals. I mean, your rental revenues were up 2% in the quarter. So maybe if you can elaborate what is driving this lower interest from lease and short term. Is this due to lower interest rates, or something changed in the way how you do business? And what shall we expect going forward in terms of the sustainable interest from lease and short-term rentals? Christian Harm: That's actually a consequence of the lower negative interest that we had against the prior year. We don't change the way we do the lease business. There is no structural change in how we perform the lease business or the short-term rental business. We have actually just a lower negative -- a lower interest against the prior year, and that's the consequence of that. Well, I mean, that will -- so, that sort of will potentially continue in the fourth quarter as a development. But then, sort of over next year, that effect will then actually disappear as the rates actually align themselves again. Operator: Next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Perfect. Trust, operator, you can hear me. One question would just be what is the reason for cutting down the upper end of the savings range from EUR 160 million to EUR 150 million? And I'll take the second question afterwards. Christian Harm: Okay. Yes. Well, okay. So I think cutting down the upper end is a pretty harsh wording actually on the adjustment, right? When we defined the efficiency program, we basically targeted the entire EMEA region and all the countries in the setup. Now, the EMEA region actually has not a consistent level of personnel costs, nor do sort of individual jobs and functions have all the same personnel costs. So, on the implementation, now, as we are sort of finishing sort of the execution of the program, the mix that we have between countries and between functions, as we have come to the end of that, is slightly different to the mix that we had planned initially. So that's the background of that slight adjustment, I would call that rather. Tore Fangmann: Understood. Second question would be on the higher gross margin in IT&S. Is this a question of mix? Or is there some pricing in there? Or is it just more efficient production? Christian Harm: So the question on the gross margin in ITS, it's basically a mix. I mean, we did not have issues in production throughout the year. We have been reporting in the past that production is actually running overall quite well. So there was no impact on that. So when we look at the gross margin impact there, that's mainly mix. Operator: The next question comes from Martin Wilkie from Citi. Martin Wilkie: It's Martin from Citi. My question was on the pipeline in Supply Chain Solutions. There's a lot of debate across the industry as to whether the interest rate environment has prevented some projects going ahead, and we are now seeing rates coming down. Richard Smith: I appreciate the question. And you're asking on what's the pipeline in our Dematic business, our Supply Chain Solutions business. Very healthy pipeline, continued very active discussion with our customers. And I've been sharing that. It's stayed healthy. It stayed quite active pipeline. And now, as we've been talking for the last couple of quarters, customers are coming in and starting those projects. So the difference, I think, now to previous times is, we see ourselves and the market is clearly with the trough behind us and on an upwards order intake trajectory now. So the pipeline is good. The pipelines continue to be good, and it's very active with our customers. Operator: The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: My question relates to SCS. And I was wondering why the gross margin was down so much sequentially in Q3? I think it was down 300 bps. Christian Harm: So the question was on SCS. Why is the gross margin down sequentially? So as we -- I mean, we have been talking about closing out the legacy projects over the recent months, right? Closing out legacy projects, as we close them, still comes with the cost, right? We had some costs in the third quarter that we had to reflect for the legacy projects in the business solutions margin, right? And that's reflected here in the gross margin development sequentially for SCS. Now, on the legacy projects, maybe just overall, right, we are -- as I've said, we are continuously closing out those projects. Also in the fourth quarter, we will have a further closing out of legacy projects. There will be a very small number remaining for the next year. And again, as a reminder, that's also not new. There will be one large project that we have that will last into 2027. But we are closing the legacy projects out as we speak. And at times, that comes with costs. We had to reflect some in the third quarter. Gael de-Bray: Could you perhaps quantify this cost in -- I mean, in Q3 and maybe in the first 9 months so far? Christian Harm: Quantify the cost of the -- separate out the legacy cost development in the first 9 months. Operator: The next question comes from Lasse Stueben from Berenberg. Lasse Stueben: Could you please share the verticals and regions in SCS that are driving the orders from the non-e-commerce side? Richard Smith: Sure, Lasse. Let me -- why don't I try it a little bit differently because orders are up well year-on-year in all 3 regions. What I'd call out is, if you want to talk verticals, the order intake in SCS, some good growth in the non-e-commerce verticals of third-party logistics, also food and beverage. And we also had [Audio Gap] in durable manufacturing. So those 3 really stood out. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We lost the connection with the speakers. We'll shortly continue with the conference. Ladies and gentlemen, please hold the line. The conference will shortly continue. Richard Smith: Can you hear us now? Operator: Mr. Lasse , you can ask your question now. Richard Smith: [indiscernible] answering your question again. You were asking where are the pickup year-on-year in non-e-commerce. A matter of fact, all 3 regions are having good growth on a year-on-year basis. The strongest is in the Americas, but all 3 are making good year-on-year growth. And the verticals that are non-e-commerce pure-play verticals that are picking up in a good way would be the third party, the 3PL vertical. Food and beverage has a good pickup and durable manufacturing as well. I hope you caught all that. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: So I just want to ask about the guidance for ITS. So the full year guidance is reduced in terms of range. And if we look at the midpoint of the guidance for the revenue number for ITS, that would imply, in the fourth quarter, revenue number could be down quite a bit, something like 8% if we take the midpoint of the full year guidance as a reference. That is a bigger decline compared to the previous quarter. Is that something you see to be fair? Or you're probably a bit conservative on your guidance for ITS revenue? Christian Harm: So the question is, whether the midpoint Q4 for ITS implies lower year-on-year, is that fair? Well, I mean, we had this development for 3 quarters now in a year, right? Also the fourth quarter will not be an exception to that, right? I said we will have small impacts from the efficiency program kicking in the fourth quarter, but that will not be sufficient to reverse that trend -- that will not be sufficient to reverse the trend already. So therefore, the fourth quarter, in that respect, has to be seen in the context of the entire year. And so, yes, we consider that actually fair. Operator: The last question comes from Alexander Hauenstein from DZ Bank. Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Rob Smith for any closing remarks. Richard Smith: Serge, thank you for helping us do the best that we could in the Q&A session and thank everyone for your patience during the Q&A session and your interest during our call. We're looking forward to continuing this dialogue with our investor conferences in November and early December. We'll be back in February for our full year results and our guidance for 2026 at the end of February. Obviously, the Q&A session wasn't as easy as we expected it would be and as it normally is. And so, our IR team will be clearly available to everybody that has a question they'd like to get a little bit more detail and depth on in rest of today and the days to come to make sure that the messages that we've got are well understood and the results that we've brought are well appreciated. So thank you for your interest, and we wish you all a good weekend. Goodbye now. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Third Quarter 2025 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. [Operator Instructions] Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries. Michael Fries: All right. Welcome, everyone, and thanks for dialing in to our Q3 results call today. After Charlie and I run through our prepared remarks, we'll open it up for what we hope is a lively Q&A. And as usual, I've got my core leadership team on the call with me. And before I jump into the presentation, I just want to acknowledge and be sure that everybody has seen the press release we put out yesterday regarding John Malone, who has decided to step off the Board and move to a Chairman Emeritus role at the end of the year. Of course, he's making a similar move at Liberty Media. I won't repeat all the key messages that we put in the public statement, you can read that, and I encourage you to do that, except perhaps to emphasize how important, impactful and enjoyable my relationship with John has been over the last 25 to 30 years and how pleased I am that as he implies in the release, he intends to stay very engaged with me and the Board as we execute our strategic plans. And knowing John as I do, he will surely do just that. Of course, I'm happy to take any questions on this as well at the end. Now getting back to our results, let me kick it off with some key highlights from the quarter. If you're going to breeze through these slides later, these first 2 are perhaps the most critical in my opinion. I believe everyone is familiar with how we're organized today in order to create greater transparency around strategy, capital allocation and value creation, everything we do falls into 1 of 3 core platforms at Liberty Global. These include, of course, Liberty Telecom, where we're focused on driving commercial momentum in our broadband and mobile businesses and most importantly, finding ways to unlock the intrinsic value of these companies for the benefit of shareholders, and I'll get into that a bit more in the next slide. Of course, that starts with operating performance. And as you'll see, despite intense competition, we had a strong third quarter with sequential improvement in broadband net adds across all 4 markets, for example. Importantly, our networks are proving to be critical sources of both competitive differentiation like our 5G expansion in the U.K. that's being fueled by the recent spectrum purchases and value creation, like our agreement with Proximus to rationalize fixed networks in Belgium, which I'll cover off in just a moment. Now a theme you will hear a few times today is lowering leverage and strengthening our balance sheet at Liberty Telecom. And Charlie and his team have worked tirelessly this year to strengthen the balance sheet, beginning with refinancing over $9 billion of 2028 maturities, particularly in the U.K. and NL at very reasonable credit spreads. And that includes the debt financing we just announced that funds the fiber rollout in Belgium while deleveraging Telenet, our serveco in the market, and Charlie will dig into that. Now turning to Liberty Growth, which includes our investments in media, infrastructure and tech that today totaled $3.4 billion and by the way, provide a source of capital to drive future value creation. This is a highly concentrated portfolio where the top 6 investments comprise over 80% of the value. We're still targeting $500 million to $750 million of noncore asset sales from the portfolio. And as I mentioned on our last call, we're not going to rush this and price bad deals in the process, but we have generated proceeds of $300 million year-to-date when you include the partial sale of our ITV stake last week. So we are well on our way. Of course, one of the bigger portfolio companies is Formula E, which heads into season 12 in December with significant tailwinds, including double-digit growth in revenue, fans and viewers last year, a knockout calendar of 18 races and the public reveal of the Gen 4 car, which debuts a year from now and doubles the max power of what is rapidly becoming the coolest car in racing. And we'll highlight in just a few slides our data center investments. With the boom in AI infrastructure, we believe we have a tiger by the tail, as I say, with over $1 billion in assets today and growing. And finally, the quarter brought some great progress at Liberty Services, where we manage large and profitable tech and financial platforms and at our corporate level, where we are in the midst of reshaping the operating model. I think the big news here is that we are improving for the second time this year our guidance for net corporate costs in 2025. We started the year forecasting around $200 million of net corporate cost. In the second quarter, we improved that to $175 million, and now we're improving it further to $150 million for this year. Perhaps even more importantly, we see visibility in 2026 to just $100 million of net corporate costs. Now this is a hot button for us as most analysts reduced their target price for our stock by, I think, $8 to $10 per share, just related to that $200 million net corporate spend. These announcements today should dramatically improve our valuation narrative, and you can bet we'll be pounding the table on it starting right after this call. I think Charlie will also address it. Lastly, on this slide, we note that we're forecasting $2.2 billion of cash at the holding company at year-end, assuming just the $300 million of asset sales year-to-date. Now the next slide provides an update on our strategic plan to unlock value for shareholders. And I guess this is the key takeaway today. First, let me reiterate what we laid out on our second quarter call back in August. Following the continued success of the Sunrise spin-off about a year ago, we remain committed to pursuing similar transactions that would further unlock value for shareholders. This may include the separation of one or a combination of core operating businesses you see on this slide actually through a spin-off, tracking stock, listing or similar equity capital markets transaction. I imagine many of you still own or follow Sunrise. The stock has performed well and trades around 8x EBITDA with an 8% dividend yield today. And looking back on that deal, I think 4 key factors laid the groundwork for its success. Number one, Switzerland is a largely rational telecom market. Number two, Sunrise had a less levered balance sheet, thanks to our capital contribution at around 4.5x on the date of the spin-off. Number three, Sunrise has a clear network strategy and CapEx profile. And number four, Sunrise has a solid free cash flow story that supports a progressive dividend policy. That was the formula. Strong balance sheet, a rational market and a predictable path to stable or growing free cash flow. I won't surprise you to learn that this looks a lot like the things we are working on in the Benelux. For example, at VodafoneZiggo, we've installed a new team with a winning plan that is built around generating long-term free cash flow in a largely 3-player market. We have now refinanced something like 80% of the 2028 maturities with the remainder targeted for this quarter or early next year. In Belgium, we are even further along. Our recently announced agreement with Proximus, which is currently being market tested by the regulator, rationalizes the build-out and wholesale monetization of fiber in a large part of Flanders with really only one network in 65% of the market. On the back of this, we just announced a EUR 4.35 billion financing for our netco there, which we call Wyre, which fully funds the build-out of fiber and allows us to reduce leverage at the Telenet servco, including all 2028 maturities. Even more exciting, we're in the early marketing stages of selling a significant stake in Wyre. This is an increasingly common value creation strategy in Europe, as you know, with the proceeds used to further deleverage our Telenet servco to about 4.5x. That's going to take a quarter or 2 to finalize all of these steps, but we're feeling more and more encouraged about the possibilities in this region for a value unlock in the time frame that we articulated. Now of course, we continue to work on other ideas, which we'll update you on in time. And as I said last quarter, all of the operating businesses or assets you see on this slide and some that aren't even shown can be singled out or combined with one another to achieve a value unlock transaction. So stay tuned. Now as I said, a key enabler of that strategic road map is ensuring that our operating companies are driving commercial momentum in what are increasingly competitive markets, right? And the long-term goal here is generating meaningful free cash flow. Now towards that end, each OpCo has been implementing a series of commercial initiatives and network improvements that are starting to impact results positively. This next slide summarizes a handful of those initiatives, which provide important context for the results that follow. Starting in the U.K., where Lutz and the team have been busy across a number of fronts, including the recent rollout of our new pay TV and broadband bundles, which now include Netflix for free that further differentiates us from the competition, in particular, AltNets. VMO2 is also redefining the flanker brand segment with the introduction of Giffgaff broadband services that complement Giffgaff mobile leadership. And we're rapidly transforming the O2 mobile network using the recently acquired spectrum to launch our first 5G gigabyte, plus we announced the U.K.'s first direct-to-cell satellite service with Starlink for what we call rural hotspot. So a lot happening in the U.K. Stephen and the VodafoneZiggo team have completely reversed trend in the Dutch market, delivering the lowest broadband churn we've seen since early 2023 and positive mobile net adds in the quarter. Lots of things are working right here, including being the first to roll out 2 gigabit speeds nationwide with upgrades underway for a DOCSIS 4.8 gig launch next year. We're also investing in the Vodafone brand on the back of the iPhone 17 launch. So the how we will win plan that Stephen has developed is quickly becoming the why we are winning plan, which is exactly what we needed in this otherwise rational telecom market. John Porter and the Telenet team have gone from strength to strength in Belgium in the last 3 quarters, supported by doubling of broadband speeds for nearly 1 million customers, their rollout in the South and a multi-brand strategy in mobile. And the fiber upgrade in Ireland is proceeding at pace with over 650,000 premises built now, and Tony and the Virgin team are ramping up our wholesale business with Vodafone and Sky and expanding their own reach to new off-footprint territories with fiber. And just to put a marker out there, with CapEx set to fall by 50% in the coming 2 years, we're planning for significant free cash flow out of the Irish business as well. Now the results on the following slide illustrate this improvement. Don't get me wrong, we are in a dog fight everywhere, but we are fighting right back and differentiating our products and services, attacking vulnerable competitors and driving better results each quarter. In fact, 3 out of our 4 markets, we've demonstrated improved sequential fixed and mobile subscriber results throughout the year and in Holland over the last 2 quarters. Again, at VMO2, our fixed churn initiatives, things like proactive management of the base and one-touch switching activity are gaining traction and improving broadband performance in a very competitive market. Meanwhile, postpaid mobile subscriber performance has consistently improved quarter-after-quarter this year, including ARPU growth supported by pre to postpaid migrations and our loyalty plans. VodafoneZiggo reported its third straight quarterly improvement in broadband losses with another strong ARPU result and postpaid mobile adds were positive again, driven by the initiative described just a moment ago. Telenet maintained positive broadband net add momentum for the second quarter running, driven by successful cross-sell campaigns, including back-to-school, while fixed ARPU growth was supported by price adjustments that they implemented during the second quarter. Postpaid net adds in Belgium were negative despite a strong performance on the base brand, while mobile postpaid ARPU continues to show pressure from the competitive environment. And in Ireland, Virgin Media's broadband base was largely flat with aggressive fiber offers in the market driving higher churn and impacting fixed ARPU. Postpaid net adds on the other hand, remained strong, and that's supported by a EUR 15 for life offer launched in May, boosting gross adds. So Charlie will walk through our financial results that are tied to these numbers in just a moment. Let me first turn to Liberty Growth. And by now, you're hopefully more familiar with the components of our portfolio, which, as I mentioned, increased in value to $3.4 billion at Q3. That's around $10 per share. As you can see here, 45% of the value or about $1.5 billion consists of premium media, sports and live events businesses, which we and most everyone else these days see as great long-term investment strategies. Another 40% is in digital infrastructure, which I'll dig into a bit more on the next slide. And then most of the balance resides in our tech portfolio, which consists largely of venture capital investments in companies, many that are leading the way in AI, cloud and cybersecurity. Now while it might appear like a complicated and diversified mix of investments from the outside, as I said earlier, it's important to remember that 6 of these deals comprise over 80% of the portfolio's value today. You can see them listed at the bottom of the page. Things like a controlling interest in Formula E, which I spoke about, and our remaining 5% of ITV, for example, and the 2 largest assets in our digital infrastructure vertical, which I'm going to highlight on the next slide. Now both of these infrastructure investments are substantial, adding up to over $1 billion of value for us today, and they performed extremely well, especially in the current environment where the development of AI infrastructure seems to have exploded. We're thrilled to own a minority interest in Edgeconnex. It's a global data center platform controlled by EQT and focused on hyperscalers across over 60 Tier 1 markets in 20 countries around the world. And we first invested in this company back in 2015. It was much smaller, and we have a net $150 million invested today. And the good news is that we've already taken $50 million off the table and our residual stake is conservatively valued at over $500 million. That equates to a 30% IRR over the last decade. On the right, you'll see our 50-50 JV called AtlasEdge, which is a regional data center provider focused on Tier 2 markets. The company has strong positions in Germany, Austria and Iberia and is seeking to expand capacity to 180 megawatts. We have a net investment here of about $345 million, and we've had our interest valued by third parties at around $600 million today. Again, both of these companies find themselves in the middle of multiple AI infrastructure and data sovereignty projects, and we are focused on driving continued growth right now in what is an increasingly hot space. So I look forward to your questions on all of this, but let me first turn it over to Charlie to walk through Liberty Services and our numbers. Charlie? Charles Bracken: Thanks, Mike. Turning now to Liberty Services and Corporate. On the left-hand side of the slide is an overview of our central services, which focus on 3 core activities: our corporate group provides strategic management and advisory services in operating and managing financial and human capital as well as technology strategies and investment. Liberty Tech focuses on the delivery of scaled tech solutions, particularly in entertainment and connectivity platforms as well as cybersecurity for our telecoms companies. And Liberty Blume develops and provides tech-enabled back-office solutions, not just to companies within the Liberty Global family, but also increasingly to third parties. We are reinvesting these tech-enabled efficiencies within Liberty Blume to drive 20% plus organic revenue growth in 2025. During the third quarter, we undertook a significant reshaping exercise around both Liberty Corporate and Liberty Tech to drive cost efficiencies going forward and make both organizations more agile and well positioned for the future. Starting with Liberty Corporate, we undertook both voluntary and involuntary redundancy schemes, which have reduced headcount by around 40%, with 90% of those leaving by year-end. And in Liberty Tech, we can continue to leverage our successful Infosys partnership with 4 years of proven track record to help secure additional efficiencies and simplification savings. We expect both the corporate and Liberty Tech initiatives to drive around $100 million of annualized cost savings. Bringing all this together, you will recall that we began the year guiding to less than $200 million of negative adjusted EBITDA, and we've already upgraded this to around $175 million of EBITDA at Q2. Now we're pleased to reduce this further for 2025 to around $150 million of negative adjusted EBITDA, supported by the in-year benefits of our corporate reshaping programs. Now perhaps more importantly, turning to the fully annualized impact. Once we see the benefits of this reshaping annualized from 2026, we expect our corporate adjusted EBITDA to broadly halve to around $100 million. And from there, we still see scope for further improvement as we evolve our operating model through additional third-party revenues, advisory fees and management services agreements alongside the scope for further cost optimization. So to put this in context, at the beginning of the year and the average analyst sum of the parts valuation, there was around $10 per share negative impact based on the capitalization of these corporate costs, which was typically at around 12x to 14x enterprise value to operating free cash flow. We now expect the run rate of negative corporate costs to essentially halve versus the start of the year going forward, which would drive a significant reduction around half of this discount in our analyst valuation. And we would also argue that an EBITDA multiple more in line with the telco comparables, which is much lower, is the right way to value these costs, which would further reduce the impact. Moving to the treasury slide. We've been extremely proactive year-to-date and through Q3 in dealing with our 2028 maturities in what has been a favorable overall high-yield market, in particular in the bond market. Overall, we've successfully refinanced close to $6 billion across our credit silos year-to-date, and this actually increases to $9 billion if you include the underwritten Wyre financing that Mike has already discussed. At Virgin Media O2, using existing benchmark financings, we were able to complete mainly private tap transactions amounting to $1.4 billion, bringing to total refinancing year-to-date at Virgin Media O2 to over $3 billion, which leaves us only with around $100 million of outstanding 2028 maturities. VodafoneZiggo, we issued just under $1 billion of senior secured notes during Q3, leaving us with around $500 million of outstanding 2028 maturities. And at Telenet, we've already completed $600 million of financings year-to-date and have recently secured a EUR 4.35 billion underwritten facility for Wyre. Now this will allow us to significantly refinance Telenet overall and formally separate the Wyre and Telenet servco capital structures and in the process, repay all the 2028 maturities. Now all of this proactive refinancing activity has significantly reduced our 2028 maturities and has actually maintained our average life of our debt at close to 5 years and broadly comparable credit spreads versus our historic levels. Turning to the next slide. We remain committed to our capital allocation model and strategy to both replenish our cash balance while also rotating capital into higher growth investments and strategic transactions. Starting with cash generation, we continue to see free cash flow in line with our expectations as set out for the year across our opcos and JVs. As has been the case in previous years, we expect the JV dividends to be largely paid in Q4 given the free cash flow phasing of Virgin Media O2 and VodafoneZiggo. Across all the OpCos, CapEx remains elevated, primarily driven by extensive 5G rollouts in the U.K., Belgium and Holland. And also fiber investment is ramping in Belgium, and we continue to invest in Virgin Media O2's fiber up and Virgin Media Islands fiber-to-the-home program. And this is along with our DOCSIS upgrade path in Holland. Turning to our cash walk on the bottom right. Our consolidated cash balance was $1.8 billion at the end of Q3 with an additional $180 million received since then with a partial ITV stake disposal in October. During Q3, we saw modest investments into Liberty Growth of $77 million, which was primarily Formula E and AtlasEdge and spent $56 million on our buyback program. We're currently tracking towards a buyback of around 5% of shares outstanding for 2025. Moving to the Liberty Growth walk. The fair market value of our Liberty Growth portfolio remained stable versus Q2 at $3.4 billion. This was primarily driven by the investments in Formula E and AtlasEdge, offset by the partial disposal of our Airalo stake and a small fair market value reduction in our Liberty Tech portfolio. Turning to the key financials on the next slide. Virgin Media O2 delivered a modest revenue decline of 1%, excluding the impact of handset sales, nexfibre construction revenues and 2 months of Daisy contribution. This was driven by declines in our B2B revenues, which were offset by growth in our consumer businesses. Adjusted EBITDA at Virgin Media O2 continued to grow at 2.7%, supported by cost discipline and lower cost to capture year-on-year. Moving to VodafoneZiggo. We saw a revenue decline of 4%, largely driven by the decline in ongoing repricing of our fixed customer base. Adjusted EBITDA was impacted by the revenue declines and commercial initiatives supporting the new strategic plan. Telenet revenue and adjusted EBITDA growth were both impacted by a positive deferred revenue benefit in the prior year of $18 million. In addition, revenue growth was also impacted by the decision not to renew Belgium sports rights, which was more than offset by associated lower programming costs. Turning to our guidance slide. We're updating 2 items of guidance. Firstly, Virgin Media O2 revenue guidance, where we are confirming growth in the consumer and wholesale revenues. But given the Daisy transaction, which completed during the third quarter and the creation of O2 Daisy, we're currently reviewing the impact of Daisy on B2B reporting, but can confirm our previous guided M&A impact from Daisy of around GBP 125 million of revenue in 2025. And secondly, as discussed previously, we're improving our Liberty Global Services and Corporate adjusted EBITDA guide to $150 million in 2025. All other OpCo guidance remains unchanged. Now that concludes our prepared remarks for Q3, and I'd like to hand over to the operator for the questions and answers. Operator: [Operator Instructions] The first question comes from the line of Maurice Patrick with Barclays. Maurice Patrick: Congrats Mike, on the new role. Just maybe a question given the topical FC article this morning around [indiscernible] in the U.K. I wouldn't expect you to comment on that transaction. But maybe a good opportunity, Mike, ahead of Telefonica's CMD next week to talk a little bit about your outlook and view on investments in the U.K., specifically around the fiber side, whether you -- the NetCo sale plan could still be resurrected,our view around buy versus build and the cost. You've always said you'd consider buying if the cost was comparable to your own build cost. How your thoughts are evolving there would be very helpful. Michael Fries: Sure. And we're not sure what Telefonica will be addressing next week, obviously. We'll all find out. But I think we've been consistent on the fiber point, at least through the course of this year, which is that we'll continue to upgrade our own fiber, and we're now reaching Lutz and his team have access to 8 million fiber homes through a combination of our own upgrade of the Virgin Media network and, of course, the next fiber footprint. So we continue to, at least with our own homes at the Virgin Media side, continue to upgrade fiber and increase the footprint and the reach of that technology. That's point one. Point two is we've always stated and if you -- we are actually now deal down with the up deal we did about a year or so ago, we've always stated that the market requires rationalization that AltNets, most of them will find it difficult to continue doing what they're doing in the manner in which they're doing it, and we're supportive of opportunities to consolidate and rationalize the fixed network environment, period. So I'm not commenting, as you suggested, on any particular deal. I would simply say, if you look at our history, where we used nexfibre in the case of up to begin the process of rationalizing, we're open-minded and open for business, if you will, for opportunities that would achieve just that. So I think it's still a bit of a moving target everywhere, but we're hopeful that in the next 6 months, things will start to settle, and we may or may not be part of those transactions that precipitate that settling. Operator: The next question is from the line of Polo Tang with UBS. Polo Tang: I've got a question about the Dutch market and the improvement in terms of broadband that you're seeing there. So can you maybe just talk about competitive dynamics, both in the broadband market, but also in terms of mobile? And how confident are you that you can stabilize the broadband base in 2026? And will this come at the expense of further declines in terms of ARPU? And can you maybe also comment in terms of whether FWA is having any impact on the broadband market? Michael Fries: Sure. That's a great question for you, Stephen. Stephen van Rooyen: Yes. Thank you, Mike. So like 3 questions. Can you hear me. Michael Fries: Yes. Stephen van Rooyen: Yes, can you hear me? So I think 3 questions. So first is stabilizing broadband adds. We see the market is pretty competitive, although rational. We've set out a plan, which we've spoken to you about at length over the last 12 months, which is working. The heart of the plan is to get us back to broadband growth. That will take us, I think, the balance of next year, but that's what we're pushing towards. It's an uncertain journey because we can't predict what the competition will do, but certainly, we are pushing our plan forward. The heart of that plan is bringing down churn. You'll have seen and we are pleased with how much we've been able to deal with the churn in our base, and we'll continue to push on with that through the next year. In mobile, I think it actually was. I think there's a lot of activity like most European markets in the value segment. We're well positioned there with hollandsnieuwe, which has done pretty well for us. We think that there's more we can do in that space, and we'll continue to pursue that through 2026. And then on fixed wireless, look, I think it's a variable in the marketplace. It's probably a question more for Odido than for us. We're focusing on our plan, reducing our broadband losses, getting our broadband back to growth, and we've accommodated for that within our plan. So I don't really have much to say about what's happening on fixed wireless there. Operator: The next question is from the line of Joshua Mills with BNP Paribas. Joshua Mills: My question is on the U.K. market and the competitiveness we're seeing. So wondering if you could give us a bit more color on what you're seeing on the ground. I note that the ARPU development this quarter for fixed line was negative, which may be expected, but perhaps disappointing following the 7.5% price increase in April. And then on B2B, I understand that there's some moving parts with the Daisy acquisition. But could you just give us an idea of what the underlying B2B growth would have been this quarter and whether that's running ahead, below, in line with expectations, that would be great. Michael Fries: Lutz, why don't you take the broadband and ARPU question and Charlie, you can address the B2B question. Lutz Schüler: Yes. I mean the market is -- the broadband market is very competitive as we speak. On one hand side, you see offers already around GBP 20 for 1 gig from AltNets in the market per month. And then Openreach came with 2 promotions. I don't know if you're aware, but for copper to fiber migrated customer, you are paying to Openreach for the next 24 months, GBP 16 for 1 gig. So this one promotion, the other one is you don't pay anything when you migrate a fixed wireless access customer onto the fiber network of Openreach, which leads to the fact that you see a very price-driven market. You see in the affiliate market, which is the most price-sensitive market prices from Sky also in Vodafone around GBP 21 for 1 gig. How are we doing in this? I think we are doing pretty well here because as you all know, we have the highest ARPU in the market. We have the customers who have the demand for the highest speed in the market. And yes, on one hand side, to now lower churn of our customers, we have offered prevention offers with some dip on ARPU. And also, obviously, we have to get our fair share of acquisition, which leads to lower ARPU. But in the scheme of things, losing only 28,000 customers and having only a dip of 1% of ARPU, we personally think it's pretty good outcome within a pretty competitive market. But let's wait for the announcements of our competitors. Michael Fries: Charlie, do you want to address the B2B. Charles Bracken: Yes. So look, as you know, we closed those O2 Daisy in the quarter, we've got a lot of work to do to try and reconcile accounting policies, the revised plans because things like a clean room. So what we've been trying to do is say, look, the businesses that remain outside that perimeter, we still expect to see growth and have had growth year-to-date. The business that we've actually contributed into O2 Daisy, which is our fixed and mobile B2B connectivity business, that has declined this year. You're right. We haven't actually broken that out and how we take that offline. But I think what we need to do is now we've got this not a joint venture, but a partnership. But in the Q4 results, we'll give you the separate financials and obviously explain how the impact of that business is and how we think it's going to grow in the future as we finalize the integration plans. Operator: The next question is from the line of Robert Grindle with Deutsche Bank. Robert Grindle: Congratulations, John, as well as Mike for his new position. I'd like to pick up on the central costs and valuation point, if I may. I suppose that's for Charlie. What would you say the costs are to drive the EUR 100 million annualized savings at the center? Do you reckon it's like a 1-year payback period or longer? Is there any stock impact at all from all these redundancies and any CapEx which goes to offset the savings? Or is effectively the EUR 100 million a straight drop through? Charles Bracken: Sorry, it's a pretty good payback. I mean it's de minimis CapEx. Yes, sorry, it's a pretty good payback. There's de minimis CapEx, which is one of the reasons why I think an EBITDA multiple is perhaps a more appropriate way to look at it. If you do take the view that these are costs necessary to run a telco and we just scale them across the portfolio and indeed across our growth assets. So I think whether it's the telco multiple, what that is, but it's certainly along those lines in my mind. In terms of the cost to achieve it, there is some degree of restructuring, but broadly speaking, pays back within, I would say, less than 12 months. So very little frictional cost. Operator: The next question is from the line of Nick Lyall with Berenberg. Nicholas Lyall: Just a very quick one, please, Mike. On Slide 4, I'm just interested why you picked the Benelux markets first and maybe not VMO 2 in the U.K. market. Is it simply just because of size? Or are there any one of those 4 criteria that you just don't think it ticks the box on yet and maybe others are far closer to? Could you just maybe describe why that might be, please? Michael Fries: Sure. Yes, I think we're -- we want to trend towards a Sunrise type framework everywhere we operate. And I think there is a pathway to do that everywhere we operate. We seem to be making and are making meaningful progress in the Benelux for all kinds of reasons, both Dutch market and the Belgian market are highly rational markets, closer to Switzerland than anything else, I would say. They have their own unique peculiarities around competition, but largely rational 3-player markets. We've been able to attack the balance sheet, specifically in Belgium, where we've successfully created a netco and the servco there and have done the -- are in the process of executing the classic move of putting more debt on the netco as it builds out. It's a higher quality credit. I'm not allowed to tell you what the credit rating is of this EUR 4.35 billion financing, but it's the first time we've ever seen one. I can promise you that. And using the proceeds and the financing capabilities of a netco to delever the servco, which is the remaining core commercial business. And those combination of steps have been in the works for quite some time. And now we did and have attempted to do similar things in the U.K. as somebody mentioned just a moment ago and not suggesting we can't get to the same place in the U.K. at some point. But it does appear like, in particular, in Belgium, we are on our way to executing on those 4 key measures. And so that, to us, is worthy of highlighting and letting you know we're busy, very busy in this part of the platform and the portfolio and that if we made a commitment to make some decisions around these things, and I think more likely than not, we'll be making some decisions around this part of our business in the relatively near term, certainly within the time frame that we've outlined. We hope in all of these markets. Ireland, I mentioned, is going to have a massive reduction in CapEx. It's going to start generating free cash, but it's small. But certainly, Virgin Media Ireland looks and will tick the box on many of these particular metrics. The U.K. is -- look at a trophy business for us, certainly something we are committed to for the long term and is an increasingly important investment. And we are by no means suggesting that we can't achieve similar results or benefits in the U.K. We're simply saying there, we have a partner, and we have to align with our partner on the best next move. We have a market that's a bit fragmented today. And as we discussed a moment ago, it's going to require some form of rationalization. And so these are things that we work on with our partner. So I'm not suggesting for a second, we can't achieve similar things in the other assets or markets identified on that slide. I'm simply saying we're making good progress here. We'd like you to know about it. Operator: The next question is from the line of David Wright with Bank of America. David Wright: Congratulations, Mike, on the new role. It's obviously quite a significant event to see John stepping away after such a significant impact on the industry. A couple of questions, please. And the first is just on the U.K. guidance and maybe my colleagues are better at this than me, but I'm trying to understand whether there seems to be a change in perimeter here. And I'm looking at the numbers, I'm inclined to think that the same perimeter with the shift in B2B could have forced you to possibly push the revenue guidance lower. This is like-for-like without Daisy. It does feel like you could have had to push the revenue guidance lower. I'm just wondering if that's the case. I'm just struggling to reconcile that. And then the second question I had, it's just your language you used before, Mike, which I just found a little surprising, which was you sort of said we'll have to see what Telefonica wants to do. Now I might have expected you to sort of say we'll announce our plans jointly next week. Does Telefonica have any sort of strategic rights or priority around the U.K. business in the shareholder agreement? Maybe I've just read this incorrectly, that might be the case. I appreciate that. Michael Fries: No, David, I'm glad you asked that question. Yes. I appreciate that second question because as I spoke those words, I occurred to me those probably didn't come out very clearly. No, first of all, no, this is a 50-50 joint venture. We make decisions jointly, and I have a very good dialogue and working relationship with Mark, we are 100% aligned on everything that's happening in the U.K. So that is not what I intended to say. There was a reference to their Capital Markets Day and I'm just pointing out that we're not part of that. They have a lot of things to talk about to the market, and they will surely talk about those. But we don't expect any surprises, if you will, around the U.K. market. We're aligned and talk every week about what we're going to do together. So thank you for asking that. I'm glad I could clarify that. On the guidance, listen, I'll let Charlie dig into it. The way I see it is we're providing greater transparency at a time where it's probably needed for analysts to understand what's growing and what's not and what are we getting our arms around. So Charlie, do you want to address that? Charles Bracken: Yes. So look, I'm sorry if it's confusing. And you're right. The difficulty is that we've now got this company called O2 Daisy, and we own 70% of it. 30% of it we don't own. And therefore, at some point, hopefully very soon at the end of Q4, we're going to give you the key financials of that. And as we align that company, it is tricky because there's different accounting policies, as I'm sure you'd d and blah blah. So we're trying to do is confirm what we can't tell you. So we can tell you that the businesses, excluding the ones that went in there are growing and we expect to grow. And we have told you that to date, the B2B connectivity business, mobile and fixed that we have put into O2 Daisy is in decline. Now if that means you would interpret that as the combination of O2 Daisy would have meant that the business would have not been growing, maybe that's right. But it's somewhat academic because we've got to work through what the O2 Daisy combination is going to develop. And the whole idea was the 2 companies are very synergistic and not just in costs, there's a material cost saving there but also with some revenue growth. So I mean, I apologize if that's not clear enough and having to take it offline, but certainly how we see it. David Wright: Super, Charlie. Could I just add a quick one? Are there any puts and calls around that 30%? Or is that just the ownership at Infinite right now? Andrea Salvato: Charlie, do you want me to take that. It's Andrea. Charles Bracken: Yes. Yes, Andrea. Sorry, yes, you should answer. Andrea Salvato: Yes. No, there are no puts and calls, David. Operator: The next question is from the line of Ulrich Rathe with Bernstein Societe Generale Group. Ulrich Rathe: My question is about the refinancing, obviously very impressive. Question to Charlie. Are all of these financings, can you confirm fully swapped in the usual policies that you used to have in terms of into the local currencies of the operating units and also in terms of fixed rate swaps? Because I do think -- I do remember you did some refinancings where you actually didn't implement these older policies. So just wanted to confirm that the refis now are back to the old policies? Charles Bracken: Yes. To be honest, I don't think we've changed our policies. The bonds, we've all swapped at our fixed rate at the rate we issued at, which in some cases is actually higher. So just to confirm the 2 questions. One is all currencies are matched. So everything in the U.K. is sterling. We're not taking dollar or euro risk. So that's a tick on all the policies. On the interest rates, all bonds are fixed by nature. And on any bank debt, we haven't done a ton of bank debt because the bond market has been so strong, to be honest. We have maintained the swaps. Remember, the swaps are independent of the original bank financings. So we are monetizing or riding those low interest rates until '28, '29, '30. But thereafter, we would have to come in at higher rates, and we are gradually pushing out those hedges. So we are maintaining a pretty good 3-, 4-, 5-year sort of fixed profile depending on which market it is. I hope that sort of answers the question. Operator: The next question is from the line of James Ratzer with New Street Research. James Ratzer: I was going to ask one question. I mean tough to keep it to one. But on Virgin Media, in their release, they are saying they're planning to bring to 4x to 5x in the medium term. I was wondering if you can kind of talk us through the plans to get there. I mean does that require some inorganic steps like a kind of dividend removal, you in Telefonica injecting capital into VMO2? Or do you expect to get there organically through EBITDA growth? Michael Fries: James, that was a little hard to hear. I want to be sure we got the question right. I think you're asking about leverage expectations at VMO2 staying within the 4x to 5x range. And I think that is our objective, and I think that is achieved in a number of ways. But one you didn't mention, which is organic EBITDA growth, which Lutz and the team have been able to deliver consistently. So organically, the business should delever over time. I don't think we're in a position today to talk about dividends or asset sales or things of that nature, although we do have tower -- residual tower interests that could be used in that regard, and we're always open-minded about it. But getting within the range that we've maintained historically is always our underlying goal. Charlie, I don't think there's much to add to that, but go ahead if you think there is. Charles Bracken: No, no, I think that's absolutely right. Look, listen, we are 4x to 5x levered. We're definitely through that in the U.K. So some good synergies potentially from the O2 Daisy deal, which we've talked quite a bit about today. And as Mike said, we expect some organic growth, and let's see how we go. Operator: The next question is from the line of Matthew Harrigan with The Benchmark Company. Matthew Harrigan: I'll just ask one question right out of the blocks. I mean I think when you look at the U.S. and the U.K., it's kind of competing dysfunction on the political side. But that look was recently quoted on Starmer's infrastructure tax. And I don't think there'll be any implications this year, but what might be the longer-term implications? I was on the comcast Q&A, so I apologize if you talked about this in the main discussion, but I'd rather suspect you didn't get to the topic. Michael Fries: Matt, you're asking -- that's a big question, politics in Europe vis-a-vis our business. I mean, I'll step back a minute to say that I think we are approaching -- hopefully approaching a bit of an inflection point here where our industry, for example, the mobile industry just put a letter out to Von der Leyen, I think, 2 days ago, 3 days ago, making it clear to her that change is critical, necessary, needed if Europe is to maintain any sort of path to leadership in digital, industrially, really any category productivity. So we continue to make our case as an industry, as a sector that we're not just critical infrastructure. We are necessary for pretty much every aspect of growth and productivity that regulators and politicians are searching for. So maybe get off our throats. And that is, I think, being received positively. In the U.K., in particular, I think the government has had a growth initiative, a growth-minded approach to regulation. Recent changes at the CMA, for example, the Competition Commission there are positive in that they seem to be reflecting a much more growth-minded approach to M&A and to industry consolidation. So I think there's green shoots across the markets we operate in. There are still pain points, broadband taxes and things of this nature that are unnecessary, and we continue to fight those on a regular basis. But I think more broadly, I would say it's more of a tailwind these days than not. And whether it's sovereignty, where governments are realizing that their -- the critical infrastructure of telco is part of the solution for broader sovereignty and independence or whether it's just good economics that you need healthy telecom infrastructure to compete in the global marketplace. All of those things, I think, are coming together a bit, and I'm more encouraged now than I've been in a long time. Operator: This will conclude the question-and-answer portion of today's call. And I would like to hand back to Mr. Mike Fries for any additional remarks. Michael Fries: Great. Well, thanks, everybody. I appreciate you joining as always, and we look forward to getting back on the phone for our year-end call probably in the February time frame, hopefully, with updates on the strategic road map on how we're driving commercial momentum and more importantly, also how we're reshaping or continuing to reshape our corporate operating model. So I appreciate your listening in today, and we'll speak to you all very soon. Take care. Operator: Ladies and gentlemen, this concludes Liberty Global's Third Quarter 2025 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There, you can also find a copy of today's presentation materials.
Jakub Cerný: Hello and good afternoon, ladies and gentlemen. Welcome from Komercni banka, and thank you for sharing your time with us. Today, it is the 30th of October, 2025, and we are going to discuss the results of Komercni banka Group for the first 9 months and third quarter of 2025. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board of Directors and CEO of Komercni banka; Jiri Sperl, our Chief Financial Officer; and Anne de Kouchkovsky, Chief Risk Officer. Standing by in case you have questions from them are Miroslav Hirsl, Head of Retail Banking; Katarina Kurucova, Head of Corporate and Investment Banking; and Margus Simson, Chief Digital Officer. As always, we will begin with the presentation of results, which will be followed by the questions-and-answer session. [Operator Instructions] Now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you. Jan Juchelka: All right. Hello, good morning or good afternoon. Thank you for giving us the opportunity and sharing the time with us for the presentation of Komercni banka results for the first 9 months and for the third quarter. Together with me, there will be Jiri Sperl speaking and Anne de Kouchkovsky speaking either for financial performance or for quality of assets. We can jump directly into Page #4, please. So Komercni, in the first 9 months, was growing nicely its loan book by 3.6% on a year-over-year basis with a strong driver coming from housing loans. Here we were achieving, on a year-over-year basis, almost 50% growth. And we are -- in nominal values, we are coming back to the record high numbers on that particular product. Let me also reiterate for the fact that it's Modra pyramida, the subsidiary which is completely and entirely in charge of this product, and that we have, in parallel with this strong business performance, achieved super high productivity gain when joining together or merging together the 2 product lines, the historical product lines: one from the bank, one from Modra itself. I will come back to it in detail. Deposits were up only mildly by 0.1% on a year-over-year basis. The third quarter, though, injected 2.6% growth. And what we are happy to see is that current accounts are growing by 3.2%, and we hope it's the beginning of a trend, it's not an ad hoc event. Other assets under management, which is, in our case, is pension schemes, insurance schemes, Amundi product, or private banking products were growing by 6.6%. Inside this category, the mutual funds were growing by almost 10%. The bank remained very strong on capital, so 18.4%. Core Tier 1 was 17.6%. Loan-to-deposit ratio in very, I would say, safe territory, 82%. Both short-term and long-term indicators of liquidity being safely high above the required levels. Obviously, and this is something what we will present in detail, there was the asset quality playing important role in the composition of the net profit. The net profit was totaling at CZK 13.6 billion. On reported basis, we are growing by 8.3%. If we take out the one-off effect of sale of our headquarter building exactly in the third quarter of 2024, on a recurring basis, the net profit would be growing at the level of 35.1%. Cost-to-income ratio, also thanks to very strict cost management, was landing at 46.4%. ROE, 14.5% on a standalone basis. What happened also on the side of our business and our financial performance is that we are successfully approaching the very last stage of transferring clients from old to the new world. As of end of September, there was 1.46 million customers already in the new systems, out of which almost 300,000 were newly onboarded customers, so numbers which have never been seen before in the reality of KB. We successfully continue on that front, we are above 1.5 million, and we are above 300,000 newly onboarded clients. On the corporate governance side, we have a new Chairperson of our Supervisory Board, Cecile Bartenieff, also recently appointed Head of Mobility and International Banking and Financial Services at Societe Generale. And we will -- we have announced a new CFO, Etienne Loulergue, to some extent, alumini of Komercni banka because he used to serve as Deputy to Jiri Sperl approximately 5 years ago, will become the CFO of KB Group starting 15 of December, 2025. And as we have Jiri Sperl at his probably last presentation of results today, I wanted to thank him warmly for his professional service, and I am encouraging everyone around this call to enjoy Jiri's presentation today. We were ranked #1 cash management bank in Czech Republic by Euromoney survey, which was conducted in the third quarter of this year. We can move to next page. As we are approaching the advanced stage or very final stage for retail banking of the transformation program, we wanted to refresh everybody's memory of how monumental piece of work is behind us and where is it heading to. So let me say that the light motive of our transformation was simplification. The significant simplification of products and the clients' proposition, including the same users' environment in the mobile phone, in the desktop solution, and in the branch, i.e., relationship manager solution, is one of those aspects. You know, probably, that we have replaced -- we have put in place a new core banking system. We have completely created the analytical layer above that, and as I have already mentioned, these front-end solutions including. The application, which is named KB+, is bringing a new customer experience to either our existing customers or future customers. When a person is equipped by bank ID, which is a dedicated identity, digital identity provided by a joint venture established by banks in Czech Republic, the onboarding takes less than 10 minutes and there is fully functional account immediately at hand to the new customer. The account is, depending on the subscription plan, multicurrency. It's covering 15 currencies and it is holding also, I would say, dynamic exchange rate functionality inside. We are fully equipped with this mobile application by instant payments in Czech koruna, incoming and outgoing, instant currency exchange with preferential rates for those who are paying for their subscriptions. We have terms and saving deposits embedded, building saving embedded, domestic and international ATM withdrawals, and deposits free of charge, travel insurance, insurance of personal belongings, and payment cards. We have a dedicated button for chat and video call. We have virtual assistant insight. We have dividend credit cards, overdrafts, mortgages, consumer loans, loan consolidation inside the solution. We have pension savings, mutual funds, and investment contracts inside the solution. We have periodic cash flow reviews inside the solution, and we will chip in the online brokerage soon in 2026. All of this, because we were launching the new bank in April 2023, was built from scratch, in fact, as a greenfield solution, and I'm very proud of everyone who contributed into this monumental piece of work in favor of our clients. How our clients are liking it? The Net Promoter Score is at 38 positive points. More they use the application, higher the NPS score is recorded. It is #1 most downloaded banking application in the country. We are currently beating also the international challengers and all our competitors. In App Store and Google Play, we are getting 4.3 or 4.5 respectively as a feedback on the quality and satisfaction from the users. One of the less attractive indicators, but super important for us and even more important for our clients is the vital process availability for KB+ customers, which is achieving 99.8%. And again, something what is given or perceived as automatic, I would praise highly everyone who is in charge and who is behind this excellent process stability and availability for the customers. On the side of marketing, we brought to the market, amongst the first banks, the dedicated bracelet for kids and youngsters where they can get the first impression and feelings about taking care of their own money without using mobile phone, without using any other feature. We went out with a series of excellent, if not even artistic set of cards, of payment cards, in co-operation with students of one of the famous artistic universities in Prague. Obviously, as we are staying the ice hockey bank of the Czech Republic, we are also coming out with a dedicated card, payment card, which is dedicated to ice hockey and ice hockey in the Olympic -- in combination with the Olympic Games. Next page is bringing us a bit closer to the numbers and graphs sort of related to the transformation story. So on the left-hand side upper part, you can see that we are sprinting to the finish line of transferring, or migrating if you wish, our retail clients from the old world to the new world. We are almost there. We are confident that we will be delivering what is the key indicator for that, which is 90% of the total number of our clients, whilst onboarding heavily new clients in the system. The predominant share of mobile banking in the new solution is sort of given. So the numbers are very high. 84% of the total interactions with the bank are done from mobile, only 16% from the PC, and 1% from other channels. We are increasing number of clients interactions. So, we have more often and more frequently our clients in the application, which is a great news because it seems that it's designed as more like user-friendly, the ergonomy of the solution is better, and we don't use it only as a service tool, but also as a sales channel. When speaking about sales through a digital solution, let me bring your attention to the lower part of the -- the lower graph at the left-hand side, where we have a school case, if I may say, from both the growth of digital sales and the productivity gain stemming from that. So we have started back in 2020 somewhere around 16.5%. If we moved the X close to 2018, it was probably 14% of our capability of digital sales, which was growing and massively growing after the launch of new era of banking in 2023 to the today's levels of 54%. In parallel with that, thanks to very hard work of our management in retail banking, but also in operations and other parts of the bank, we were constantly pushing down the number of FTEs related to the same activities. So here, you see the results. As far as digital sales per product are concerned, you see that, for example, investment contracts are fully digitized by 100%, overdraft 65% or 66% respectively, et cetera, et cetera, when reading from the right to the left. Starting recently, we are putting the target numbers for digital sales for each of those products individually. Not always, we will be trying to achieve 100%, but what is probably more important that the overall number of 54% will be further growing. And it will be us deciding what is the targeted level. Next page, please. So when speaking about the transformation, it's digital, it's simplification, but it's also searching for other efficiency gain and productivity gain inside the group. One of them, one of the cases was the complete adoption of KB Poradenstvi, which is the network of tied agents originally acting below the name of Modra where we were unifying the brand, where we were simplifying the product portfolio, where we were engaging with the agents and equipping them with the proper proposition, not only from Modra but from the entire KB Group, harmonizing the IT environment for them in order to make them fully integrated into our system, centralizing the -- everything what is back office on that particular activity, and bringing them to the campus of the headquarter of Komercni. We did it also with other companies. Everyone who is 100% owned went through the same process. Modra on its own went through an incredible story for the last couple of years when we were changing the systems, fully digitizing the customer journey, or almost fully digitizing because we don't have still digitized solution for the [ cadaster ] of real estate, but soon to be there. And we have merged everything what was mortgages with Modra pyramida. So instead of having 2 product lines, we are having 1 product line. And again, the achieved productivity gain will be above 100% once the overall transformation is being finalized. SGEF, SG Equipment Finance, Czech and Slovak Republic was fully acquired by KB Group. You probably know that above our heads, there was the disposal of SGEF International by Societe Generale. And as a result, we are 100% owner. So again, the OneGroup principle will be applied, and we will unlock additional potential for both commercial and business activities, as well as the synergies on the side of the back offices. We have picked up also upvest. Why? Because it's a super successful platform for raising money and investing them into real estate development. These guys are able to subscribe high multiples of the previous year, and they do it for a couple of consecutive years already, and we became 100% owner here. So we can move to the next page. And here, I'm bringing you back to the reality of today. So Czech Republic, Czech Republic is a very stable country from both economic and I hope we will confirm also from the political point of view. We are like a couple of weeks after the general elections and the new government is to be established. When speaking about the new government, what we hear from the nominees or from the main representatives of the political movements and parties who won the elections, there should be a fiscal stimulus for Czech economy stemming from this new government. So we will see how that will work. But we very much see investment-oriented -- or public investment or infrastructure investment-oriented group of people preparing themselves to step into the government. If you combine that with the expected or already existing fiscal stimulus for German economy, the overall environment of making business in Czech Republic is being improved more or less as we speak. In combination with that, the representatives of the winners of the election -- of the general elections are also speaking about compressing the energy prices, which might help also with lower level of imposes towards the inflation. So let's see, but at least the first signals are from, let's say, business perspective, pretty promising. The GDP was growing by 2.6% on a year-over-year basis. Industrial production was down, a combination of weakening Germany performance plus a bit of mess on the supply chain part and the impact of tariffs imposed by the United States is bringing a little bit down the industrial production, which is perfectly balanced by strongly growing construction output by 17.1% back in August 2025. This is stemming from infrastructure investments and also pretty booming investments on the side of real estate housing, but not only. The unemployment rates remains very low. On the other side, the wages are growing and beating the inflation. So 7.8% nominal value -- nominal growth, but 5.3% real growth of wages in the country, which is also giving the answer of who is the main engine of the growth of GDP, which is the title remaining in hands of Czech households. The inflation, as I have mentioned, was at 2.3% level in September. Czech National Bank is remaining calm for the time being and is keeping the repo rate at 3.5%, which is minus 50 bps on year-to-date basis, but was not changed for -- at the latest pricing session of the Board of [indiscernible]. Czech koruna is strengthening vis-a-vis Europe and even more vis-a-vis U.S. dollar. Probably, we can move to next page. And this is already the business performance. So as I have already mentioned, the gross loans were up by 3.6%, very strong dynamics related to mortgages and Modra loans, so housing loans in general, 55.2% when you compare Q3 '24 versus Q3 '25. We believe that the finetuning of the capacity of processing the new requests, combined with the fact that the dynamics of the market will remain strong, will bring us to slightly higher market share as KB Group. The rest of the segments were growing at approximately -- we're growing at around 2%, 2.5%, 2.6%, 2.7%. So, I would say, in general, the businesses, the households were taking, let's say, appropriate part of the new financing from KB. When zooming on corporate financing or corporate loans, we are witnessing the growth of 2.7% Q3 versus Q3. Inside that, the SGEF solutions were growing slightly higher than small businesses and corporates. So next page, please. All of this obviously was translated into KB being at and servicing its clients with the main transformative transactions. You can see public sector represented by Elektrarna Dukovany. Also private sector represented by almost the entire rest of the transactions you see in front of you with the exception of 2, which are municipal driven. Everything what is green here represents the format of green financing or green bonds. We can move to the next page, which is bringing us to deposits. It remained stable, plus 0.1%. I would say we would love to see that higher, and we took appropriate measures and established concrete tasks to get higher portion from deposits. When decomposing the deposits on the side of -- by the category, we are happy to see that the dynamics of growth of nonpaid, i.e., current accounts, is coming back to, let's say, better levels, 3.2%, whereas the saving accounts are in competition, mainly with investment solutions. When speaking about investment solutions on the left-hand side, you see that overall, we were growing by 6.6%, the assets under management in mutual funds by almost 10%, whereas the life insurance and pension schemes 2.1% and 2.3% respectively. So next page is bringing us to financial performance, and it's my pleasure to hand over the word to Jiri Sperl. Thank you. Jirí perl: Thank you very much, Jan. Indeed, a very good financial performance in Q3 and first 9 months of the year. I want to repeat key figures once again. So KB Group generated almost CZK 13.6 billion net profit after tax, which is 8.3% more than 1 year ago. And if we put aside the one-off coming from the sale of Vaclavske namesti in Q3 last year, the growth would be even much higher at 35%. It's visible from the waterfall chart on the left-hand side that basically all categories contributed positively. That's true that highest year-on-year impact is coming from super positive cost of risk that thanks to excellent asset quality of KB loan portfolios and also due to release of part of retail overlay provisions switched from the creation of the provision in 2024 to net release in 2025. And so the impact is massive. It is around CZK 2.3 billion. It's also very much worth to mention that also the top line was growing in first 9 months by almost 3%, while costs went down by 4.3% and thus generating very strong positive jaws. Also the quarter-over-quarter perspective, our trend is positive, that's right upper chart, and growing as seen there, i.e., quarter-over-quarter plus 3.3%. Naturally, the very good P&L result transposed also to the solid profitability indicators, ROTE being at 16.5% which -- and this should be reminded as well. At the same time, strong CET1 ratio at almost 18%, exactly 17.6%. This is bringing me to the balance sheet evolution. So the balance sheet shrink a bit year-on-year by 2.3%, which is, however, almost solely due to the very volatile repo operations with the clients. So if we compare the balance sheets year-over-year, it would be roughly CZK 80 billion less in Q3 this year versus 1 year ago. So this is basically explaining full variation. On the liability side, still, there is not a covered bond worth roughly -- or exactly EUR 750 million that was successfully issued in mid of October. And of course, you will see it in the balance sheet during the Q4 results presentation. On the asset side, there are basically no changes in trends, only to mention that the volumes of the [indiscernible] continue to decline a bit year-to-date as we are preferring for the time being investments into repo with the Czech National Bank, and of course, swapped into longer maturities following the long-term duration of our liabilities. Now let me go briefly through the main categories as usual. Although I would say there are not too many surprises, the positive trends do continue and will continue, including mainly positive jaws generation. So let's start with the net interest income. So, to say, despite the fact that NII was, I would say, severely hit by doubling of mandatory reserve requirement as of January 1 this year, it is growing. It is growing solid pace by 3.3% year-on-year. And it's basically the case both for key categories, [ checklist ]. So what I mean is income from the deposits and income from the loans, and both growing by roughly 4%. The drivers behind are, however, a bit different. NII from deposits is positively influenced mainly by spread effect -- by spreads, supported by improved structure of the deposits, while the income from loans is driven solely by volumes and the spreads remains basically flattish. Similar trends are visible also from the quarterly perspective, that's right bottom chart. On quarterly perspective, NII is growing by plus 1.5%. NIM, the chart on the upper left-hand side, on a year-to-date basis, it is 1.70. It is flattish quarter-over-quarter, but positive year-on-year by 6 bps, which is a positive news after some time. On top of that, we are expecting that the trend of the rise is going to continue also in Q4 this year, and I can touch it during the Q&As if needed. Let's move to the fees income. So income from fees and commissions is also growing by plus 3.4%. And there are, again, the usual suspects in terms of growth, i.e., mainly fees from cross-selling and specialized financial services, both growing on a 9-month basis by 13% to 14%. In the area of the cross-sell fees, it is a reflection of both volume growth of nonbank assets under management, but also improved structure, which is still continuing improving. And what I mean is that there is kind of [indiscernible] from more money market type of mutual funds to more dynamic. Quarterly perspective, that's right bottom chart, it's growing 1.3% quarter-over-quarter, and here almost solely supported by the cross-sell fees. At the same time, we also see first signs of improvements on the deposit product fees where the income from new packages/tariffs are classified. The mirror of course can be seen in the transactional fees. Financial operation is growing pretty dynamically year-over-year by 7.6% again on 9 months basis. And here it is solely influenced by the capital markets activities and mainly boosted by interest rates hedging activities, while the FX income from the payments is more or less flattish. That's the blue part of the chart. The dynamics is even higher on a quarter-over-quarter basis, growing by strong 15.4%. And here both elements contributed strongly, including those of the FX from the structured book growing by a strong 10%. Here, to say the jump in FX income from the structural book was somehow expected due to the seasonality or seasonally strong FX convers as I was somehow indicating over 3 months ago. And finally, before passing words to Anne, OpEx. So on 9 months basis, OpEx is declining strongly by 4.3% year-on-year, supported by -- basically by all components, except the depreciation and amortization. So let's go briefly into the structure. So personnel expenses, it's almost solely down on character by the decrease -- by the increased efficiency of the bank and thus decreased the number of the employees. So year-on-year, the number of FTEs is by almost 6% lower. First. Second, administrative costs also declining by minus 4%. But here, that is not the main, let's say, candidate or driver of the growth of the decline. And basically the savings go across all main categories. Skipping to regulatory funds, it was already commented in detail during the Q1 this year presentation, and the exception is depreciation and amortization. And again, here, no surprise. It is still reflecting main investments in digitization and our transformation in more general sense. All in all, this led to the further improvement of our cost-to-income ratio to the level and here commenting 9 months basis as well of 46.1%, while 1 year ago it was 49.2%. And that's the output of the positive jaws as I was commenting briefly before. Having said that, simply the trends are further continuing even in this chapter, and a good evidence is that the quarterly cost-to-income ratio, that's the very bottom part of the chart, that the quarterly cost-to-income ratio in Q3 into this year is the lowest at least since last 2 years. Now let me pass the words to Anne, who is going to comment quality of the assets and cost of risk. Thank you. Unknown Executive: Thank you. Good afternoon to everyone. So as it was mentioned, the loan portfolio grew up by 3.6%, and this is in the context of a very stable credit risk profile. So this is attested in several metrics. So first of all, you see that stage 2 is now below 10%. So this is obviously driven by the release of the inflation overlay that was put on the retail in 2024. So we decided to release in Q3 the part related to the small business segment. We also have a very, I would say, stable NPL share at low level, which is at 1.8% this quarter. And together with this NPL provision coverage ratio is very stable as well. It shows that the portfolio is well performing, well covered, and demonstrating the asset quality. If I go in more, I would say, maybe brief details in the segment on SME and small business and consumer loans, it's a very resilient portfolio. And mortgage loans and large corporates, we are in the low -- even 0 default area. So if we can move to the next slide. Cost of risk, as it was mentioned, it's -- release of cost of risk at CZK 328 million this quarter. I already mentioned and it was also mentioned by Jiri that it's very well driven by the release of this overlay that we had on the retail. But it's also driven by some successful recovery on the non-retail exposures, which led us to recover 100% of our exposure and consequently release the provisions. So all in all, we end the -- for the 9 months at cost of risk of minus 20 basis points. And for the next quarter, we intend to continue to release the remaining part of the inflation overlay on the retail, which is still in place for consumer loans, that will be then released for the fourth quarter, and will lead us to the minus low-teens in the cost of risk for the full year probably as we do not expect, as attested by the portfolio quality, any big event before the year-end. So that's about it on my side. Jirí perl: Yes. Thank you, Anne. And let me complete the presentation with last 2 slides, first one focusing on the capital. So capital remains very strong at 18.43%. There is a slight decline year-to-date, mainly due to the slight negative impact on OCI related to the release of the provisions as commented by Anne, so-called lack of provisions. Still, however, the capital adequacy is safely in the upper part of our management buffer, maybe better said almost at the upper edge of the management buffer, despite accruing [ 100% ] net profit as a dividend and the new methodology, i.e., Basel IV. Also MREL, adequacy is safely within regulatory limits at 28.8%. And this is bringing me to the full year outlook as usual. So there aren't too many changes in the macro, only 2 slight adjustments. First, no cuts of repo rate is expected by the end of this year, which was the case 3 months ago in terms of outlook. And second, there is slightly positive adjustments in the economic growth from 1.9% to 2.1% this year and also for next -- for the years to come. In terms of banking market growth, we keep fully the guidance, i.e., both lending and deposits, at a mid-single-digit pace. In terms of growth of KB, we stick to the original guidance at lending side, i.e., mid-single digit. In terms of deposits, we downgraded the guidance from mid-single digit rather to low- to mid-single digit, but at the same time, the structure of the deposits is expected to improve further. Revenues and OpEx are basically confirmed. Maybe one comment to the top line, probably more precise would be to say lower edge of low- to mid-single digit growth. OpEx as confirmed, i.e., mid-single digit decline -- decrease. And finally, cost of risk guidance, Anne has briefly touched that before, but it significantly improved from around 0 3 months ago to the level of low-teens. Well, that's it. Now before passing word back to studio, probably let me use this opportunity and to say also a couple of words on my side. First, thank you, Jan, for your kind words, and thanks also to all you connected. Indeed, this is my last earnings call in a position of KB's CFO. I have to admit that it has been a great 10 years serving at this position. And I truly appreciated every opportunity to meet with you and discuss the bank's performance and time to time also everything around. As Jan mentioned, Etienne will be stepping into the role as my successor starting mid-December, and I don't have any doubts he will successfully take over. He knows the bank perfect well and has all the qualities needed to help lead KB towards, how to say that, towards its bright future. So, Etienne, all the best in this exciting position. Thank you all once again. And now returning the word to studio. Jan Juchelka: Okay. Thank you. Thank you, Jiri. I will just conclude the call very -- the presentation part of the call very quickly. So we can say that the combination of strong capital base, the already delivered very strict management of costs, the fact that we are approaching the very final stage of the transformation and we have fully functional, very stable, and attractive solution for our retail clients, combined also with the operating efficiency, further, let's say, simplification and scalability of the new digital platform will create a good base for improvement in the commercial momentum of the bank further on. We believe that the cost of risk, which is in negative territory and is commenting by many of you as the good contributor but not like sustainable contributor into the profitability, will turn into enabler for further commercial and business growth in the next months and quarters. We will also free up additional energy and time of our bankers. They were super busy with assisting our clients with migrating from the old to the new world. They will now put all their energy on sales and servicing the clients in day-to-day reality. This is what is somehow framing our hope for the next -- and determination for the next steps, which will be driven by our activity and our, I would say, full dedication to -- for the growth of the bank on the side of business and commercial and financial performance. Thank you very much. I'm giving back the words to Jakub Cerny, and we are ready to answer your questions. Thank you. Jakub Cerný: Thank you to all the speakers. Let me add that we have been also joined by Jitka Haubova, our Chief Operations Officer. So we have the complete Board of Directors with us today, and you can ask Jitka as well. It means that in the next part of today's meeting, we will be happy to answer your questions. Let me remind you that this meeting is being recorded. [Operator Instructions] So our first question comes from the line of Mate Nemes from UBS. Jan Juchelka: We cannot hear you, Mate. Mate Nemes: Can you hear me now? Jan Juchelka: Yes. Mate Nemes: Excellent. Perfect. First of all, I wanted to say thank you to Jiri for years of hard work, transparent commentary and help you provided to analysts in capital markets, and we'll be dearly missing you. My question would be on loan growth. It's good to see that there is acceleration quarter-on-quarter and also year-on-year in loan growth. I think you've been quite clear that that's a focus area for the second half of the year, Jan, to your comments about freeing up time for the bankers, certainly starting to be visible and sales volume of housing loans visibly picking up. I'm wondering if you could give us perhaps some flavor of what you're seeing in the last quarter of the year and expectations also going into 2026. Can we expect this momentum to continue and maybe also see a much awaited recovery in business loan volumes? I think, Jan, last quarter, you were quite positive about potential infrastructure projects and lending towards that. When can we see that in the numbers? Jirí perl: I can probably start and then my colleagues, the heads of business [indiscernible] will complete me. So a couple of comments on first 9 months of the year. I would say that the retail loans were growing relatively strong. It's mainly the case of mortgage loans. So I gave you through that there is a space for improvement in the area of consumer loans. That's one thing. In terms of corporate loans, to say the growth was a bit subdued, but at the same time, we are expecting by the end of the year relatively dynamic move. Why? Because the pipeline is relatively rich and strong. And I'm sure Katarina is going to comment on that. In terms of 2026, we are providing the detailed guidance at the end of the year results, i.e., end of January next year. But I can indicate that the strategy of KB is very much growing, and it will be very much the case for retail as currently all tools are available. So retail is going to be the market shares growing mid- to high-single digit. In terms of corporate, it will be more about the sticking to the market shares, at the same time gaining a bit, but definitely not as dynamic as retail in 2026. Now I'm passing words to my colleagues who will probably go into deeper details of component to me. Thank you. Unknown Executive: Okay. So if I might add a few words on the corporate, not to repeat what was already said. We do see strong pipeline. We are actually seeing acceleration in the lending business for the SMEs. So we are pretty confident towards the year-end. In terms of the large corporates, it's kind of a little shaky market because we are seeing a strong and very lively bond market, which is nice on the fee side also for us. But it also has a negative impact because some of the loans are being refinanced by the bonds issued by the big groups, and also there is a strong pressure on the margins arising from the high appetite on the bond side. So on the large clients, we are optimistic more towards the next year because as you mentioned yourself, there is still quite a huge infrastructure project loading up in Czech Republic, and we are confident to be participating in those. And that should be definitely a very nice contributor to the large segment of our clients in terms of both volumes and profitability. Jan Juchelka: I will probably add one sentence. You probably saw the pages with the tombstones that we were the instrumental bank when financing the preparation of the new nuclear project of the country under the name of EDU II together with other banks, but we were, let's say, the main driving force there. There will be more to come on this side of energy sector. You might recall that there were 2 large transactions. One of them concluded beginning of the year where state was taking over part of the storage capacities and transmission of gas, whereas [ Czech ] as the state-owned -- majority state-owned company was taking over GasNet, which is a distribution of -- regional distribution of gas, et cetera. So we are around these transactions. We will be continuing with that. What is slightly delayed on that front is the transport-related infrastructure project, which partly maybe also because of the elections we're a little bit lagging behind the original schedule and original calendar. The rhetoric of the new representation of the majority in the parliament, at least, is that they will continue intensively on that front, and we want to be part of it as well. Mate Nemes: That's very helpful. Can I have a follow-up perhaps, as you mentioned, the new forming government? Can you share your thoughts on probabilities around a more effective banking tax? Jan Juchelka: With strong disclaimer that we don't have the crystal ball and we don't see the future, the reality is that we don't evidence any strong push on that front and/or any traces of planning or projecting that into the budgetary exercise or in the preparation of the budget. So the Czech Banking Association is obviously acting preventively and trying to get the right feeling about -- around that because rightly you are picking up one of the potential risks for the entire market. For the time being, we don't see anything happening. Jakub Cerný: Our next question comes from the line of David Taranto from Bank of America Securities. David Taranto: I have a quick one. Are there any regulatory headwinds or tailwinds on the capital side over the next year? Anything that could affect the Board's appetite to sustain the 100% payout aside from the internal capital generation? Jirí perl: Should I take it, Jan, or you will? Okay. Well, there was a big methodology change starting this year. I mean, implementation of Basel IV. Probably, you noticed that at the end of the day, the impact of Basel IV for KB was basically neutral. Having said that, almost all components of that have been incorporated even before. For the time being, we are not expecting any regulatory changes. But with the same disclaimer like I was mentioning before, we do not have a crystal ball, but currently nothing is on the table. Maybe here to mention that Basel IV was implemented starting from 2025, but not fully, i.e., it was related to credit risk and operational risk. But still the capital needs for market risk is coming, and you will see that at the beginning of next year. I can just indicate that the impact will be rather positive. Thank you. Jakub Cerný: So the next question comes from the line of [ MC ]. So I would like to ask you to introduce yourself and then ask your question. Jirí perl: That's Marta Czajkowska? Marta Czajkowska-Baldyga: Yes. Sorry. No, it's Marta Czajkowska-Baldyga from IPOPEMA. Sorry for that. So I have 2 questions. [ Audio Gap] Jirí perl: We cannot hear you. Jakub Cerný: Sorry, Marta, could you unmute yourself? Sorry. Marta Czajkowska-Baldyga: Yes. I think that it's -- do you hear me now? Jakub Cerný: We can hear you now, yes. Marta Czajkowska-Baldyga: Okay. So, first of all, thank you, Jiri, for your transparency and your hard work. And 2 questions from my side. First, on the deposit market and the situation right now. Could you please discuss this? I mean, we hear from the competitors that there is increased competition on this market and KB itself lowered its outlook for deposit growth this year. And could you please discuss this development in the context also of potential pressure on the margin? And the second question is on the cost of risk. Could you please disclose how much of the management overlays related to retail segment do you still have on your books to be released in the fourth quarter? And just related to that, would you say that 2026 outlook would still be below the -- through the cycle level in terms of cost of risk? Jirí perl: If I may, I will start again about the deposits, and again, no doubt my colleagues will complement. So based on the growth of deposits in first 9 months or even year-over-year was rather subdued. We are partially commenting on that same answer ago. And by the way, it was the case both for retail and corporate. And one of the reasons on the corporate -- on the retail side was that the branch network was heavily migrating according to the plans and succeeded. We are getting -- or the migration is going to be completed by the end of the year. I'm talking about individuals. But of course, it was about not negligible capacities on our side. For corporate, and that's probably what you are referring to, there was -- in the first half of the year, specifically [indiscernible] competition on the market. And our interpretation at the time was that this was linked to the fact that not all incorporated the impact of the doubling of obligatory reserves as of January this year into the client rates pricing. Now it seems it is going to be normalized. And I believe that at the end of Q3, we can see the first fruits of the change. The Q3 dynamics is much higher. On top of my head, that is around 2.6% where both key segments are growing. And to be frank, we expect that this trend is going to continue. Maybe, to mention here one more point. This was also visible in the market shares for the last 3 months. I don't have in front of me September ones. They should be available by the way today, but August, July and June, KB was gaining market shares in terms of deposits. And now I will have my colleagues to comment further. Thank you. Unknown Executive: So, on retail side, I don't have much to add. Maybe to give you a few details from inside the structure of the deposits, we are doing pretty well on unpaid deposits, current account balances, and you saw it in the presentation. Recently, we stabilized the development of term deposits. So we are now, like, flattish to slow growth again. We are doing really, really well on saving accounts. And I have to admit that some time ago, we probably slightly underestimated the role saving accounts play in collection of deposits. It was all fixed. And now we can see basically week by week how well we cumulated deposits on saving accounts. And we have a few more bullets to shoot to make it even faster. So I'm rather on optimistic side for deposit development on retail. Jan Juchelka: But probably in more general terms, what we see, what is happening on the deposits, we can probably confirm what you heard from the other players that the hunt for the deposits is more visible on the market, plus the clients have changed their management of spurred money, if I may say. They do search for returns. By definition, we are in the Czech Republic. They are searching the safe returns, if I may say. So saving accounts highly probably will be the field where the whole battle will be happening at the highest intensity. There was also one sub-question on overlays and cost of risk until the year-end. I don't know, Anne, if you want to react on that. Unknown Executive: Yes. So your question was the remaining part on the retail, right? So I don't know if the amounts were mentioned earlier, but -- yes, it was mentioned earlier. So we have remaining CZK 100 million, if I'm not mistaken. Jiri, please help me because I'm still struggling a bit between euros and Czech koruna, sorry, as I just joined 2 months ago. And as I said, it is on the consumer lending and we intend to release. And then we have still an overlay on corporate, which is in a bigger amount. This is under discussion because it was created as well on inflation assumption that are not, today, really relevant. But still, given the very unstable environment we are living now in, we will intend to keep overlay on the corporate part. But I cannot really comment because it's really under discussion on the, I would say, which amount, but it should be more or less the same as we have today, but on different assumptions, broader assumptions, like more international geopolitical instability, tariff threats, not only inflation. Jirí perl: Exactly, as Anne was commenting on that. Maybe let me complement by 2, 3 sentences because one of the questions was that the years to come. That [indiscernible] is not sustainable to be in a materialize part data sustainable. So starting from 2026, we are getting back to normal cost of risk, i.e., reverberation. Some of you might remember that according to risk [indiscernible] statement, some are [indiscernible] like through the cycle cost of risk, we are targeting 25 basis points, but it's very likely will not be the case for next year. If I should indicate, you should probably expect, let's say, high-teens in terms of bps. Unknown Executive: Complement -- as it was mentioned by my colleagues from business, we want to push on some segments that are, by definition, creating more cost of risk, which is small business, I mean, SMEs in the corporate and consumer lending in the retail. So that's why we expect to go back more in our limits that are in the risk appetite of the bank. Jakub Cerný: So we don't seem to have further questions as through the platform. So now I would like invite participants who are connected through telephone. [Operator Instructions] So, Marta, you have the floor. Marta Czajkowska-Baldyga: If you could discuss the outlook for remaining part of the year for NII, and if you could be kind enough to tell us if there is any change in that for 2026 going forward? Jirí perl: Yes. I was talking to [indiscernible]. Well, again, I will start – probably, let's start with the main drivers, which are, first, growing of the client base -- further growing of the client base. Of course, critical will be to make them active, first. Second, material increase of the digital sales. First one I would mention would be the continuing change in the structure of our deposits in favor of current accounts. At the same time, let me be very clear that we are not aggressive in that regard. Of course, 5 years ago, it was current accounts portion, and the total deposits was 80%. Now we are closer to 50 and are using very conservative assumptions. On top of that, we are expecting continuing growth of the volumes basically in line with the dynamics visible in Q3, and it is relevant both for loans and deposits. And probably last point to mention is slight improvement of NIM. If I'm saying slight, I compared to, let's say, year-over-year. It will be around, let's say, 5 basis points plus/minus. And the main drivers here will be already mentioned improved structure of the deposits. That's -- for 2026, the story is a bit similar, i.e., the main driver of the growth in the area of net interest income will be shared volumes. As I was mentioning before, a very dynamic growth of both loans and deposits. And also we will see there, let's say, outputs or results of the improved structure of deposit because it is in the P&L for the time being only partially. So in 2026, we should see more visible impact. So in terms of NPIs, we are expecting mid- to high-single digit, and of course, the main driver of that, at least in absolute terms, will be income from net interest income. I'm not sure. Did it help? Or -- okay, [indiscernible]. Jakub Cerný: So let's wait a few moments if anyone has another question, either through the platform or directly asking via telephone. There does not seem so. So I would like to hand back to Jan for a concluding remark. Jan Juchelka: All right. Thank you, everyone, for being with us today. It was a big pleasure for us to share with you our views on not only the results, but some of the key aspects of making banking business in the Czech Republic in the context of the macroeconomic reality. And we do believe that going forward towards 2026, there might be new emphasis for the entire market, and we want to play a significant role as we have done until now. Obviously, and thank you again for very precise questions. You somehow spotted the main aspects or points of our interest of -- not only interest, but of our activities. So we will definitely hunt for higher volumes on both the side of financing, as I will just repeat the words of Anne, mainly in those categories where we are lagging behind our natural market share. So it's more like consumer lending and financing the small businesses and mid-caps. On the side of hunt for deposits, we will definitely continue making our improved propositions for the clients, and work on the appropriate balance between paid and unpaid deposits. Speaking about all the means how to get there is mainly, I would say, favorable starting point on the side of cost of risk and the normalization Anne is mentioning is simply stemming from the fact that we are constantly flying below our line of risk appetite statement. So we have space to grow and the space to grow is mainly in the categories I have already mentioned. Let me also reiterate on the fact that we have made very hard work and series of unpopular decisions on the side of cost management during 2025. Some of the effects will be visible a bit later than in the third quarter. But I need to thank all of my colleagues who have implemented the necessary measures on keeping the positive jaws in place. We feel strong on that discipline and we will continue working on it further on. So we are very much looking forward to meeting you a quarter from now or at your request any time in between you would be interested in knowing more about Komercni banka. Thank you very much for paying attention to our bank, and we are super committed, and we are looking forward to speak to you soon. Thank you. Unknown Executive: Thank you very much. Jakub Cerný: Thank you. This concluded our call today. You can now disconnect.
Operator: Welcome to the Bristol-Myers Squibb 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 Chuck Triano, Senior Vice President and Head of Investor Relations. Please go ahead. Chuck Triano: Thank you, and good morning, everyone. We appreciate you joining our third quarter 2025 earnings call. With me this morning with prepared remarks are Chris Boerner, our Board Chair and Chief Executive Officer; and David Elkins, our Chief Financial Officer. Also participating in today's call is Adam Lenkowsky, our Chief Commercialization Officer; and we welcome Cristian Massacesi, our recently appointed Chief Medical Officer and Head of Global Drug Development. Earlier this morning, we posted our quarterly slide presentation to bms.com that you can use to follow along with Chris and David's remarks. Before we get started, I'll remind everybody that during this call, we will make statements about the company's future plans and prospects that constitute forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the company's SEC filings. These forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date, and we specifically disclaim any obligation to update forward-looking statements even if our estimates change. We'll also focus our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items. Reconciliations of certain non-GAAP financial measures to the most comparable GAAP measures are available at bms.com. Finally, unless otherwise stated, all comparisons are made from the same period in 2024, and sales growth rates will be discussed on an underlying basis, which excludes the impact of foreign exchange. All references to our P&L are on a non-GAAP basis. And with that, I'll hand it over to Chris. Christopher Boerner: Thanks, Chuck. Welcome, and thank you for joining our third quarter earnings call. Q3 was another strong quarter, reflecting focused execution across the business as we continue to make progress on our plan to position Bristol-Myers Squibb for long-term sustainable growth. Building on the momentum from the first half of the year, we saw continued strong demand across our growth portfolio, achieved positive clinical and regulatory milestones and further aligned our cost structure with the needs of our business. Let me start with a high-level review of our quarterly performance on Slide 4. Our growth portfolio delivered another strong quarter with sales increasing 17% year-over-year, strengthening the foundation we're building with assets that are early in their life cycle. Growth was driven by multiple products, including our IO portfolio, Reblozyl, Camzyos and Breyanzi. And due to our strong performance to date, we are again raising our top line guidance and maintaining the midpoint of our bottom line guidance. David will provide more detail shortly. Our 2 recent launches performed well in Q3. Cobenfy is delivering steady growth as we continue to receive positive feedback from physicians on key indicators supporting our expectation that this is a meaningful first indication for Cobenfy. Qvantig's launch is also tracking well. From a clinical and regulatory standpoint, I want to highlight a few recent updates. On the clinical data side, in our protein degradation platform, the Phase III EXCALIBER study for Iberdomide in patients with relapsed or refractory multiple myeloma demonstrated a statistically significant improvement in MRD negativity rates. Now that we have these results in hand, we will be discussing these compelling data and potential paths forward with health authorities. The trial will continue to evaluate PFS, which is expected in 2026. CELMoDs have the promise to be a new foundation in the treatment of hematological malignancies. More broadly, our multipronged protein degradation platform has the opportunity to also address solid tumors, initially with our oral androgen receptor ligand directed degrader, among others. At the World Lung Conference last month, we presented Phase II data for pumitamig with our partners at BioNTech. The clinical development program is both advancing and broadening for this important asset. Last month, we initiated the pivotal triple-negative breast cancer study and plan to share early data at the San Antonio Breast Cancer Symposium in December. Additionally, pivotal studies for pumitamig and chemotherapy combinations are now initiating in first-line microsatellite stable colorectal cancer and first-line gastric cancer. This week, we announced encouraging data at the American College of Rheumatology Convergence Conference, which continue to strengthen our conviction behind CD19 NEX-T in autoimmune diseases and Sotyktu in rheumatology. We presented additional follow-up data for CD19 NEX-T in both lupus and scleroderma and presented the first disclosure of data in myositis. For Sotyktu, the long-term extension data from the Phase II PAISLEY study continues to validate its potential in lupus as we look forward to Phase III results. On the regulatory side, we achieved several milestones, which include our potential first-in-class bispecific ADC iza-bren receiving breakthrough therapy designation for previously treated advanced EGFR-mutated non-small cell lung cancer. And earlier this month, the FDA granted Fast Track designation to our anti-tau antibody for the treatment of Alzheimer's disease currently in a Phase II study with data expected to read out in 2027. Together, these milestones highlight the potential of our pipeline to both enhance and sustain growth in the outer years by addressing critical areas of unmet need and the importance of advancing these programs quickly and efficiently. On the business development front, we recently announced we are acquiring Orbital Therapeutics to strengthen our cell therapy franchise, where we have industry-leading expertise. This acquisition will add a potential off-the-shelf best-in-class asset, OTX-201, which can be administered in the community setting. This in vivo CAR-T represents a novel treatment approach that could redefine how we treat autoimmune diseases. We will also gain access to Orbital's differentiated RNA technology platform, which combines various RNA engineering and advanced delivery methods. In addition, we saw progress with our partner, SystImmune, as we announced that the first patient was treated in the global Phase II/III trial of iza-bren in previously untreated triple-negative breast cancer ineligible for anti-PD-L1 drugs. In August, we closed the previously announced licensing agreement with PhiloChem for exclusive worldwide rights to [ Onco-ACP3, ] potential best-in-class radiopharmaceutical therapeutic and diagnostic agent with the opportunity to become a breakthrough treatment for prostate cancer. We continue to be excited about the overall opportunity with radiopharmaceuticals and believe PhiloChem added to RYZ offer a transformational platform for cancer treatment. In terms of progress, we opened a U.S. manufacturing hub with the ability to deliver RYZ's next-generation radiopharmaceutical therapies directly to patients within just 3 days of production, a critical advantage due to the short shelf life of RPTs. The facility is currently manufacturing clinical doses of RYZ101, which is in Phase III clinical trials for GEP-NETs. Moving on to key data catalysts on Slide 5. As we've said before, we are entering a data-rich period. We continue to anticipate data readout for ADEPT-2 by the end of this year and have 2 additional Cobenfy studies in Alzheimer's disease psychosis, both of which are expected to read out next year. We anticipate needing 2 of these 3 studies to read out positively to support regulatory approval. The pace of pivotal readouts will accelerate in 2026. As a reminder, over the next 12 to 24 months alone, we expect data for 7 new molecular entities and 7 meaningful life cycle management opportunities. Among others, we will see data for admilparant in IPF, a fatal lung disease with high unmet need, CELMoDs, iberdomide and mezigdomid, which represent a significant step forward in the treatment of multiple myeloma, the broad milvexian program, where we are running 3 large Phase III trials to address ongoing unmet needs for patients with cardiovascular disease, including an AFib trial that could potentially open treatment to at least the 40% of AFib patients not suitable for Factor Xa today, Cobenfy in a broad range of Alzheimer's-related neuropsychiatric conditions and Sotyktu in lupus and Sjogren's. Together, these represent an attractive set of near-term catalysts that can further shape our pipeline and longer-term growth trajectory given the significant commercial potential of these indications. And looking out a bit further, by the end of this decade, we have the potential to introduce 10 new medicines to the market and at least 30 significant life cycle management opportunities. This strategy is designed to set BMS on a clear path of strong and sustainable growth which remains our guiding principle. Beyond the specific commercial and R&D highlights, the company continues to focus on strong financial discipline. Consistent with prior quarters, while we generated significant cash flow in the third quarter, we also continue to be prudent in managing our expenses as we align our cost structure with the projected shape of our business. In addition, we progressed our efforts in the quarter to rewire how we operate, including continuing to integrate digital technology and AI across the company. We anticipate these efforts will drive additional efficiencies going forward and significantly enhance the agility of the organization. So what does this mean? Between our growth portfolio performance, the business development activity I just referenced, including the BioNTech partnership and combined with our broad pipeline and strong financial discipline, we feel even better about our longer-term growth potential. I want to take a moment and thank my colleagues around the globe who are committed to our mission to discover, develop and deliver innovative and life-changing medicines to patients. With that, I'll turn it over to David. David Elkins: Thank you, Chris, and good morning, everyone. I'm pleased to report another strong quarter of execution. The growth portfolio continues to perform well, and we continue to maintain cost discipline. Now turning to the third quarter sales performance on Slide 7. Total company sales were approximately $12.2 billion, which reflects strong demand across our business. Global sales of the growth portfolio increased 17%, driven primarily by demand across multiple brands, notably our IO portfolio, Reblozyl, Camzyos and Breyanzi. Beginning with a review of the oncology portfolio on Slide 8. Opdivo global sales were approximately $2.5 billion, up 6%, driven primarily by continued demand. In the U.S., sales grew 6% to roughly $1.5 billion, largely driven by a strong launch in MSI-high colorectal cancer and continued share growth in first-line non-small cell lung cancer. This growth was achieved even as we saw expanded uptake of Qvantig. Outside the U.S., sales grew 6%, driven by demand with expanded indications across multiple markets. We are pleased with the expanded growth of Qvantig with sales of $67 million in the quarter. Growth was fueled by continued use across all indicated tumor types as well as the permanent J-code received in the quarter. Due to the strong performance year-to-date, we now expect global Opdivo sales together with Qvantig to deliver stronger growth than previously guided, with sales expected to increase in the high single-digit to low double-digit range for the full year. Turning to our hematology performance on Slide 9. Reblozyl global sales were $615 million in the quarter, reflecting continued strength across our MDS-associated anemia indications. We are annualizing over $2 billion in sales for the brand. In the U.S., revenue growth continues to be strong, up 38%, primarily due to demand in first-line RS-positive and RS-negative setting as well as improved duration of therapy. Outside the U.S., Reblozyl sales grew 31%, driven by demand in newly launched markets. Moving to Breyanzi. Sales were $359 million in the quarter and now annualizing over $1 billion. Global sales grew 58%, reflecting strong demand across all indications. In the U.S., sales were $251 million, growing 45%, reflecting growth in large B-cell lymphoma, and expansion from new indications approved last year. Outside the U.S., sales were $109 million, more than doubling due to continued strong demand across existing markets, along with added demand from newly launched markets. Transitioning to our cardiovascular performance on Slide 10, starting with Camzyos. Global sales increased 88% to $296 million, reflecting continued robust demand. This is another asset in our growth portfolio, also now annualizing over $1 billion. In the U.S., sales were $238 million, up 76%, driven primarily by increasing new patient starts. Outside the U.S., sales growth more than doubled, driven by continued launch momentum in multiple markets. Eliquis global sales were $3.7 billion, growing 23%, primarily driven by continued strong demand and the expected favorable impact of Medicare Part D redesign. U.S. sales grew 29% and ex U.S. sales grew 11%. Moving to immunology performance on Slide 11. Sotyktu sales grew 20% globally. In the U.S., sales remained consistent with prior year due to demand being offset by higher rebates associated with our increased commercial access. Now turning to discuss Cobenfy on Slide 12. Cobenfy sales were $43 million in the quarter and $105 million year-to-date. As previously communicated, sales and weekly total prescriptions continue to grow steadily. We remain focused on disrupting the entrenched D2 prescribing behavior by educating physicians on Cobenfy's innovative profile, and we've completed our field force expansion to increase reach and frequency to targeted health care professionals. Now let's move to the P&L on Slide 13. Gross margin was approximately 73%, primarily due to product mix. As expected, operating expenses decreased by approximately $100 million to roughly $4.2 billion compared to the same period last year, primarily reflecting the savings from our ongoing strategic productivity initiative. Our effective tax rate in the quarter was 22.3%, reflecting our earnings mix. Overall, diluted earnings per share was $1.63 due to strong performance in the quarter and includes net charges of approximately $530 million or $0.20 per share attributed to acquired in-process R&D and licensing income, primarily related to the PhiloChem asset license and SystImmune milestone payment. Turning to the balance sheet and capital allocation highlights on Slide 14. Our financial position remains strong. We generated cash flow from operations of about $6.3 billion in the third quarter with nearly $17 billion in cash, cash equivalents and marketable securities as of September 30. Our capital allocation priorities remain unchanged as we continue to take a strategic and balanced approach. As Chris mentioned, in recent months, we closed our licensing agreement with PhiloChem, announced the acquisition of Orbital Therapeutics and advanced our SystImmune partnership. Strategically investing in our growth portfolio of brands, along with business development are our top priorities. We also continue to be on track to further delever our balance sheet. As of the end of the third quarter, we have paid $6.7 billion of the $10 billion debt paydown we've committed to by the first half of 2026. And we remain committed to returning capital to our shareholders through the dividend. Now turning to our non-GAAP guidance on Slide 15. We are increasing our full year revenue guidance by $750 million at the midpoint to a range of $47.5 billion to $48 billion, primarily reflecting continued strong performance of our growth portfolio. We continue to expect the legacy portfolio to decline approximately 15% to 17% for the year, our Revlimid sales expectation remain at approximately $3 billion, along with the continued impacts from generics of Pomalyst in Europe, Sprycel and Abraxane. Our gross margin guidance for the year remains unchanged at approximately 72% and our operating expense guidance also remains unchanged at approximately $16.5 billion, reflecting over $1 billion in net savings versus 2024. Regarding OI&E, we now expect annual income of approximately $500 million due to higher-than-anticipated royalties, licensing income and favorable interest income. We are maintaining our full year tax guidance of approximately 18%. As a result of our strong performance year-to-date, the midpoint of our revised 2025 non-GAAP guidance would have increased by approximately $0.20 per share. This increase was offset by the net impact of acquired in-process R&D charges and licensing income, primarily related to PhiloChem asset license and a SystImmune milestone payment. As a result, we are narrowing our expected EPS range for 2025 to be between $6.40 and $6.60, which leaves the midpoint of our range unchanged. Taken all together, I'm pleased with the performance of the business year-to-date, and I'd like to thank our colleagues around the world for their continued focus and execution. With that, I'll turn the call back over to Chuck to start Q&A. Chuck Triano: Thanks, David. And before we start our Q&A session, I want to note that questions related to our solid tumor development programs will be answered by Adam rather than Cristian during today's call. And with that, Betsy, could you please poll for questions? Operator: [Operator Instructions] The first question today comes from Chris Schott with JPMorgan. Christopher Schott: Just I want to start with ADEPT-2. Is there any additional updates you can give us in terms of any actions, if any, that you've taken following some of the clinical site reviews you highlighted on the 2Q earnings? And then maybe just kind of putting the broader ADEPT program into context, as we think about ADEPT 1 and 4 next year, can you just talk about the relative confidence you have in those studies relative to ADEPT-2, just given some of the differences in study designs? Just maybe an update kind of broadly on how you're thinking about that indication. Christopher Boerner: Sure. Thanks for the question, Chris. Maybe I'll start and then obviously, Cristian can chime in with any additional context he has. So just remember, ADEPT-2 is obviously an ongoing study, and it's an ongoing study, as I referenced in my prepared remarks, that has a readout in the next 2 months. So we're not going to be able to provide a lot of specific comments on the product. But what I can say are a few things. First, I will reiterate that we expect results by the end of the year. And of course, we'll communicate those results as we normally do. The second thing I would say, which really gets to the second part of your question is while we remain blinded to the data, our confidence in the Cobenfy development program, including in ADP, continues to be strong. And with respect to ADP, I'd just remind you of the source of that confidence. We obviously have compelling external data going back to the Lilly day in the late '90s. We're hearing very interesting real-world stories based on our experience, albeit in schizophrenia, -- and of course, we have internal data with respect to the ADEPT-1 lead-in and the ADEPT-3 extension data. So that's what I would say about ADEPT-2. But if I step back from the specific studies, remember, the work that we're doing in development fits with the focus that we have on execution really across the company. And given the importance of the late-stage studies, I think it's prudent that we take whatever learnings we can and pull whatever appropriate levers we can to ensure that we deliver these studies with the highest [ PTS ] and on time. We're obviously excited to have Cristian on board to bring a fresh perspective to that. So net-net, I feel good about where we are in terms of working through the broader development programs and ensuring that we're executing appropriately. But Cristian, I don't know if you want to add anything. Cristian Massacesi: Thanks, Chris. Yes, let me try to, first of all, reassure that the Cobenfy development program is progressing at really a rapid pace. We currently have in the development plan, 14 studies that are ongoing or in the process to be activated. 10 of those studies are pivotal studies. We actually posted and maybe you have seen a third pivotal study in bipolar mania, BALSAM-4. We are also expanding the indications. We plan to initiate pivotal studies in autism spectrum irritability in next year. So the program is moving at pace. I think, Chris, you answered very well the reason to believe. I want to add -- part of your question was some differences. Just to clarify, ADEPT-4 is very similar to ADEPT-2 is the sister or the brother study. So we are doing ADEPT-4 exactly in the same patient population with the same primary endpoint than ADEPT-2. The readout, as you know, is projected next year. ADEPT-1 is slightly different because it's a relapse prevention design. This is a trial in which patients are enrolled into Cobenfy for 12 weeks. And then at the end of that period, based on the response on the psychosis metrics and CGI, the patient is randomized to Cobenfy and placebo. So different approach, but same setting. Operator: The next question comes from Geoff Meacham with Citi. Geoffrey Meacham: Just have a couple. Also on Cobenfy, but more commercial. How would you guys characterize the speed of reimbursement and maybe the depth of prescribers in the U.S.? I guess I'm just looking for what could be a tipping point of demand as it sounds like maybe there's more work to do on education. And then I also wanted to loop in Cristian here. I know obviously early days, but can you give us a sense of your priorities and maybe approach to development for a diversified portfolio like Bristol's? Christopher Boerner: Adam, then Cristian. Adam Lenkowsky: Yes. Thanks for the question. So we're pleased with the progress that we made in Cobenfy's first full year on the market, and we're establishing a new treatment paradigm in what we knew was going to be a highly entrenched market. As you have probably seen, we've now surpassed 2,400 TRxs on a weekly basis, and we expect to see continued steady growth. We are adding a significant number of new trialists each week. Physician feedback continues to be positive regarding Cobenfy's profile, and we're very pleased with the kind of the pace of access that we're able to establish early on. As you know and as a reminder that this is a heavy Medicare, Medicaid population. And so we have virtually 100% access across both. Now stepping back, there's clearly more work to do in year 2. We need to continue to increase both breadth and depth of prescribing, which will drive additional growth for the brand. We've onboarded our expanded field force now in the community and in the hospital setting. And so based on the leading indicators that we're seeing, Cobenfy is going to deliver continued steady growth in schizophrenia and longer-term growth is going to be fueled by additional indications, as Cristian has stated, and that's what we've also seen with other antipsychotics in the market. But we are confident that Cobenfy will be a big drug over time. Cristian? Cristian Massacesi: Yes. Jeff, thanks for the question. Let me tell you why I decided to join BMS beyond the fact that I like Chris, is -- the first thing is the science. BMS always did a very strong science and continue to do it. And of course, the portfolio is an impressive portfolio across therapeutic areas with a lot of potential first-in-class and/or best-in-class assets. So this is, of course, the basis. I also like very much the focus that BMS is having in the therapeutic areas where it's playing because beyond oncology and hematology, the focus on immunology, cardiovascular, in neuroscience specifically, those are TAs where you have the intersection, the best intersection of what is the current or the emerging biology rationale and the medical need. Of course, the BMS people has always been very highly reputated. I formed a very strong development organization here. What I want to do here, what I'm starting to do and we're going to continue to do is evolve this drug development organization to try to deliver on the pipeline, the short and mid- to long-term pipeline, focusing on the key strategic priority. I have 3 main areas where I started to work and will continue to work. The first thing is how we prioritize our ongoing and future opportunities. Usually, it's science, strong science that needs to be the basis we do. Execution, flawless execution is incredibly important in development and then the value because what we do needs to bring value to the patients and, of course, to the company. The other aspects I'm starting to work with a lot of urgency is integrating new way of working in development. We are a turning point. We cannot continue to do things like we were doing in the last decades. We have AI. We have a novel solution and tools, and this needs urgently be integrating the way we work. The last thing is people. I need to continue to build -- I want to continue to build the right teams and attract talent in the company. Operator: The next question comes from Evan Seigerman with BMO Capital Markets. Evan Seigerman: I want to touch on the competitive landscape for the PD-L1/VEGF bispecific. So we saw some data at ESMO with PFS benefit in the HARMONi-6 trial in squamous non-small cell lung cancer. Can you just help frame how that maybe informs how you're thinking about your partnership with BioNTech? Does it make you more incrementally confident? Or is it really too early to read into kind of your program? Christopher Boerner: Thanks, Evan. Let me just say one thing about BioNTech, and then I'll turn it over to Adam. That partnership continues to go very well. We have a very tight relationship with BioNTech, both on the development side and of course, anticipating the commercial opportunity on the commercial side. And so far, that relationship is quite strong. But Adam, do you want to go through the details? Adam Lenkowsky: Sure. Thanks, Chris. And Evan, good to talk to you. So we believe that pumitamig has the potential to become a new standard of care. The data that we have seen both from BioNTech as well as from the competitors adds to our conviction and broad development program that we have for pumitamig. We have multiple trials that are currently ongoing across several solid tumor indications. As you know, we've got first-line non-small cell lung cancer. We just presented data in small cell lung cancer. And we also have triple-negative breast cancer first line initiating. We will be presenting TNBC data at San Antonio Breast in December. We've also been working with urgency with our BioNTech partners and made very good progress building a robust clinical development program. In fact, we'll be initiating 2 new studies that are now posted on clinicaltrials.gov in first-line [ MSS mCRC. ] And as you know, that's not a place where first-generation PD-1, PD-L1s have shown activity as well as in first-line gastric cancer. So our focus is on speed to market. Our opportunity is to be either first or second to market across indications. And we feel very good about combining our industry-leading commercial and operational capabilities with BioNTech's scientific expertise, and we plan to maximize the potential of this asset. Operator: The next question comes from David Amsellem with Piper Sandler. David Amsellem: So I wanted to come back to Cobenfy and not trying to read too much into the prescription data over the summer relative to earlier this year. But I did want to ask about how you're thinking about potential or key barriers to adoption thus far? Is it GI tolerability? Is it twice daily dosing? Is it just prescriber inertia in terms of the dominance of the D2 blockers? Just wanted to get a better sense of what you're hearing and seeing in the field and what you think you need to do to drive more acceptance of the product among psychiatrists. Christopher Boerner: Thanks for the question, David. I'll turn it to Adam, but one thing I just was in the field with Cobenfy sales reps very recently. And what I would say is that once physicians begin to use these products and patients have access to it, One thing that gives us a lot of confidence about the long-term potential of this product in schizophrenia is the feedback that we're getting from both. Feedback continues to be very strong, but I'll let Adam go through the specifics around your question. Adam Lenkowsky: Yes, David, I appreciate the question. So as I said earlier, we're pleased with the progress that we've made. We're now just about a little over one year in the market right now. And this is an entrenched market as we know that. This is the first new mechanism that's been approved in over 3 decades in the space. And so I think what's really important, what we look for in terms of leading indicators are adding new trialists, and we're tracking very well on a weekly basis as well as new prescriptions. When we look at the feedback, in general, the feedback is very positive regarding Cobenfy's profile, as Chris mentioned. I would say that the #1 question that we get as a team is around how to switch from a D2 to Cobenfy And even from physicians who are sitting on the sidelines, that's the question they want to know. And so we've got robust peer-to-peer activities that are ongoing. We've introduced real-world data, and we have a Phase IV switch study that reads out early next year, all will help build physician confidence. What I will say is if you look historically, all the recently launched D2s, we are tracking ahead of all recently launched analogs in schizophrenia. So based on everything that we're seeing, we feel good about the performance for Cobenfy. We're going to continue to see steady growth and the inflection will come as we continue to add new indications. Operator: The next question comes from Asad Haider with Goldman Sachs. Asad Haider: Congrats on the quarter. Just first for Chris or David, on the cost side, as it relates to your strategic productivity initiatives where another $1 billion in cost savings is expected to drop to the bottom line by 2027. Any updated thoughts on the shape of this over the next couple of years in the context of the potential R&D expenses associated with the development of BNT327 as it starts to move forward into later-stage Phase III programs, recognizing, of course, that you have other Phase III programs over the next 18 to 24 months that are going to come off. Just trying to understand the margin trajectory as we go through these pushes and pulls. And then second for Cristian, maybe just double-clicking on your previous response. Could you share with us any early thoughts on the pipeline and if there are programs that you're particularly encouraged by? Christopher Boerner: Maybe I'll start and turn it to David for the first question, and then Cristian, you can pick up the second question. Just on the cost side, as David goes through some of the specifics, the one thing I would just remind everyone is that the way we think about cost and our investment profile generally is there's a balance that's going to be maintained. One is continuing to invest in areas to drive value and growth. That's not only on the pipeline, including [ BNT, ] but the R&D organization more generally. And then, of course, as we did this past few quarters, investing in the growth profile of the company with Adam's organization. At the same time, we have committed, and I think you've seen it in the numbers over the last number of quarters, is we're going to be disciplined with respect to financial management, and that's going to be our operating approach going forward. David? David Elkins: Yes. Asad, I know '26 is top of mind for many folks. And so let me just share with you how I'm thinking about it overall. First, we're exiting 2025 with really strong performance from our growth portfolio. Year-to-date, it's up 16%. And as I said in the prepared remarks, we now have 4 products that are annualizing greater than $1 billion in that growth portfolio. So we're exiting this year in really good shape as we head into next year. We're also executing well against our efficiency commitments. We're on track for $1 billion this year, and we have clear line of sight to the $2 billion that we're targeting by 2027. So we feel good about that as well. And also remember, we have numerous Phase III programs completing next year and going into 2027. And just as a reference point, our 2024 cost base was $17.8 billion, and we're guiding $16.5 billion this year. So we made really good progress. And I'd say, overall, we have clear line of sight to the pushes and pulls of '26, and I feel confident in our ability to manage the cost base. And as Chris said, what we're doing, we're focused on balancing up investments that we need to do in order to drive growth in the growth portfolio as well as to create headroom for additional business development, and we'll balance that with our savings program. And look, we're getting smarter as we go and we see additional opportunities. So we have a lot of P&L flexibility, and we're going to remain financially disciplined as we go through this transition period. And this financial discipline not only helps us manage our margins, but it also provides a strong basis to deliver cash flows to strengthen the balance sheet as we committed to, provide both strategic and financial flexibility and to continue to build on the growth portfolio. Chuck Triano: Great. Thank you, David. Let's take our next -- Cristian, sorry. Cristian Massacesi: Yes. Chuck, I can speak lengthy obviously -- thank you for the question. I mean I cannot speak about solid tumors and oncology, but there are a lot of exciting readouts and assets in the portfolio. I think we talked about Cobenfy, how invested we are on this drug and how excited we are because there are multiple readouts in front of us. I want to speak on 2 short-term potential readouts. One is milvexian. When I dig into milvexian, I think BMS, first of all, has a deep expertise and understanding of this area, this market, cardiovascular. This is an oral next-generation Factor XIa anticoagulant and can be the first maybe and the only Factor XIa in atrial fibrillation and ACS and potentially best-in-class in SSP. So I'm really eager to see the readout of these studies. ACS, SSP are planned next year, and we are really pleased that we can complete the atrial fibrillation study next year. The other drug I want to point out is admilparant because admilparant is playing in a very difficult disease, pulmonary fibrosis that is a huge medical need. Chris mentioned that. I think we have very strong proof of concept in both IPF and PPF because the Phase II study that is underneath the registrational programs show more than 60% improvement in lung function decline. I think this is -- give us a lot of confidence on the 2 pivotal studies. I'm very eager to see the IPF1 [ readynamics ] here. But now let me talk a little bit about the platform because this is short term, more on the midterm. I'm really, really excited in what are some of the scientific platform this company can leverage. One is the protein degradation. BMS is a leader in this space, I think Revlimid, Pomalyst. And I think today, targeted protein degradation is one of the priority research platforms across the TAs. In our portfolio, if you scrutinize a little bit every stage, Phase III, II and I, we have more than 10 drugs in clinic that are protein degraders. And what excites me most is not that we just have a platform with preliminary data. Now we have Phase III data. iberdomide met the primary endpoint in EXCALIBER relapsed/refractory multiple myeloma for MRD negativity rate. And of course, we released that. And this is the first readout of one drug in this platform that give us confidence. The other one briefly, I want to mention because I think it's very relevant is the platform that we are putting together in cell therapy for autoimmune diseases. We have an autologous CD19 CAR t. We presented the data in [ CR ] a few days ago, preliminary data, spectacular data with -- across indication, lupus, scleroderma and myositis. And we have also a CD19 allogeneic CAR T in this space that is in clinic, can represent an off-the-shelf option. And we acquired Orbital now that give us the in vivo platform that can be transformative in this space for multiple reasons. So this is great, if you think because it's, first of all, a step forward in the concept of immune reset and potentially to cure more patients with autoimmune diseases, and BMS can own this space. This is very exciting. Chuck Triano: Thank you, Cristian. Now we can move to our next question. Operator: The next question comes from Mohit Bansal with Wells Fargo. Mohit Bansal: My question is regarding the VEGF-PD-1 and the data we have seen from Summit so far. So what is your impression of the data, especially on the OS side of things? And the second part of the question is that -- I mean, there are 2 ways to think about it. One is like you could actually go after indications where PD-1s work really well or you could go after indications where VEGFs work well and PD-1 could add some value there. Is there an either/or approach here? Or could there be a scenario where it works better to improve the efficacy of VEGF with the VEGF PD-1 approach? How do you think about that? . Adam Lenkowsky: Yes, Mohit, thanks for the question. So in terms of what we have seen, we are encouraged by the magnitude and consistency of the PFS data that we believe will ultimately translate into a survival benefit over time. So the data we've seen adds to our conviction of the broad development plan that we're building. I do think in terms of the strategy that we have employed, as you can see, our strategy really is twofold. One is to become the new standard of care. For example, when you look at the studies we have in first-line non-small cell lung cancer versus standard of care as well as in small cell lung cancer, but also a good example of expanding beyond where PD-1, PD-L1s play, and that's in MSS CRC. And so that's the balance that we are taking as it relates to the strategy for pumitamig. The other exciting factor that we have across both of our companies is the ability to combine pumitamig with novel combinations. So we've got a host of novel combinations, ADCs, targeted treatments, et cetera, that both companies will look to employ as quickly as possible. And we very much look forward to sharing these additional studies as they ready to be posted online in clinicaltrials.gov. Operator: The next question comes from Tim Anderson with Bank of America. Timothy Anderson: A couple of questions. The first is on trough earnings. Chris, are you still looking at very late 2020s relative to what you may have been forecasting, say, a year ago? Is that trending towards being pulled forward or being pushed back or maybe staying the same? There's been lots of developments both at Bristol and then industry-wide. And I'm wondering if any of that has changed the timing of reaching trough earnings. And then just on Cobenfy, as you undoubtedly know, there's heightened investor nervousness around ADEPT-2 on the back of comments that were made in Q2. Do you think investors read too much into those comments that Summit had made? Christopher Boerner: So first of all, Tim, before I answer the questions, I just want to say congratulations on your next move. We're going to miss you on the calls, and we won't take it personally. With respect to trough, as you know and as we've discussed previously, we have not given long-term guidance just as a standard of course, and that applies obviously to how we're thinking about the specifics of the trough. What I will say is that there's a consistency in what our focus has been. We continue to be focused on making this trough as shallow and as short as possible. We still anticipate that we're going to be exiting this decade with growth. Our North Star continues to be that we're going to grow as quickly as possible in order to maximize that exit trajectory, and we're doing the things necessary to enable us to do that. You see the performance that we've delivered on the commercial side. Obviously, that provides a very good foundation for how we think about our ability to navigate through the trough and exit with robust growth. Cristian has commented on the strength of our late-stage pipeline. We've got to continue to deliver that. And clearly, it's going to be important that we continue to maintain financial flexibility so that if we find additional substrate that makes sense for us to be the owner of that we can engage either in partnerships or business development as appropriate. And that's generally how we're continuing to think about the trough. With respect to the comments last quarter and this quarter, look, what I can say is that there's a lot of focus on execution at the company. There's a lot of focus on ensuring that we continue to deliver on that pipeline. We obviously understand there's a lot of focus on individual programs, including the ones that are going to be reading out most near term, and that would include the ADEPT programs. So I wouldn't read too much into it other than to say that there's a lot of focus on us being able to deliver on each of the stages of our strategy, commercial execution. I think we feel really good about what we delivered this quarter, the strength of the late-stage pipeline and executing that, and we've talked about that and then also continuing to deliver strong financials with disciplined cost management, and we've done that, too. So we feel good about where we are. Operator: The next question comes from Luisa Hector with Berenberg. Luisa Hector: Maybe a policy question. I just wondered whether we should be worried about the lack of any subsequent deals with the administration. Is there perhaps a bandwidth issue? Just trying to -- you're in the queue waiting your turn to negotiate. And then maybe to sort of expand that a little bit on to potential DTC offerings. You already have Eliquis. Anything you can comment in terms of that going live, any impact on volumes? And then perhaps just a mention of that guidance that you have for Eliquis for '26 and '27. How confident are you? Can you tighten those ranges at all now that we're sort of through '25? You've seen the Part D restructure impact and the DTC. So some of those changes there, how they're informing your view of Eliquis as we go forward? Christopher Boerner: Thanks for the question, Luisa. Maybe I'll start, and then I'll flip it over to Adam. Look, obviously, the policy environment remains very dynamic, both from a U.S. and an ex U.S. perspective for that matter. I don't know that I'd read too much into no additional deals over the last week or so. What I would say from a BMS standpoint is we continue to actively engage with the administration. I would characterize those discussions as frequent. And while not always fully aligned, they're always constructive and thought-provoking on both sides. Clearly, [ MFN ] and tariffs are front and center, but we continue to monitor a host of other issues, including the shutdown and what potential impact that could have downstream. And then there's, of course, a lot going on ex U.S. Framing all of that for us, though, is that we agree with the President on the need for equalization of prices. U.S. prices need to come down. We're sharing ideas to do that. Ex U.S. prices need to come up. We've seen some good progress, for example, in the U.K., but more needs to be done. And accomplishing those objectives while preserving the ecosystem for innovation that we have in the U.S. is what we're focused on. So there's a lot going on. It's manageable. We have a great team in D.C. of whom I'm incredibly proud, and we're engaging at the right levels. I'll let Adam handle the DTC questions. Adam Lenkowsky: Yes, Luisa, thanks. So as far as the direct-to-patient program, as you know, as part of our commitment to increasing patient access, we with our Pfizer partners for Eliquis, we announced that Eliquis would be available via direct-to-patient at a discounted rate over 40% less than the list price. I can tell you since launching the program, we have received a substantial number of inquiries through Eliquis 360. If you remember, we also subsequently announced that Sotyktu will be available via our own direct-to-patient platform at a greater than 80% discount effective January 1. So we're launching this as part of our commitment to patient access and affordability. As Chris mentioned, we're listening, we're coming forward with solutions, and we're doing that with urgency. As it relates to Part D redesign, for Eliquis, we are seeing a more even distribution of sales like we talked about throughout this year. We expect to see similar in the Q4 time frame as the coverage gap has been removed. And that is being offset by patients in the catastrophic phase for products like Revlimid, Pomalyst and Camzyos, for example. So when you look on a net basis, we're roughly equal in terms of the positives and the negatives. Operator: The next question comes from David Risinger with Leerink Partners. David Risinger: Congrats on the strong third quarter results. So I have 2 questions, please. First, milvexian is being dosed at 25 milligrams BID in secondary stroke prevention, which is the same daily dose as Bayer's asundexian 50 milligrams QD. So could you please discuss milvexian's profile, including its potency relative to asundexian? And comment on asundexian secondary stroke prevention Phase III trial readout in coming months and implications for milvexian's secondary stroke prevention readout in the second half of '26. And then my separate question is, are IRA prices for the first 10 price-controlled drugs in 2026, including Eliquis currently being renegotiated? Christopher Boerner: So I will ask Cristian to start and then Adam, you can briefly comment on the second question. Cristian Massacesi: So let me start with your first part of the question relating to the dose. We believe that we characterize very well the dose, not only the scheduling, the dose and the design of the trial that we are running. Specifically on your question on the dosing, don't forget that we have a BID administration. And BID administration can actually ensure a better coverage of the exposure that you need to get what you want to get. So this is, we believe, is an important differentiation. So vis-a-vis what maybe other competitive drug can be using. So we are very confident. This is a work that has been scrutinized very carefully in BMS and also with our partner, J&J, in this setting. Let me tell about your second part of the question. I don't want to speculate on future competitive program results. But first of all, a positive competitive SSP trial can be great for patients and validates the Factor XIa mechanism in this space. I am confident that our Phase III program that has been developed, as I say, with high scrutiny can maximize the efficacy of milvexian and potentially can provide even a superior profile in SSP. And don't forget that in AF and ACS milvexian is potentially the only Factor XI that can play in this indication. And these are, of course, the very important part of the market. Adam Lenkowsky: Adam I'll just add one thing, Cristian. Thanks for the answer. We were able to, if you've seen clinicaltrials.gov, accelerate now the readout of atrial fibrillation for milvexian, which is the largest opportunity for the product. So now we expect all 3 studies to read out in 2026. As far as IRA, no, there was no plan to revisit Eliquis negotiation, and that price will be effectuated January 1. Operator: The next question comes from Carter Gould with Cantor. Carter Gould: I asked this question with an appreciation that your time lines have been consistent, but there's been lots of discussions around potential scenarios where you might add patients to sites that -- I'm talking about ADEPT-2, you might add patients to sites that under enrolled based. And can you address those discussions and say definitively, whether you've gone back and added more patients since enrollment was completed based on your own ct.gov entries? And could that address the variance between what was implied by those time lines and the actual time lines to data? Christopher Boerner: Thanks for the question, Carter. And again, I appreciate there's a lot of interest in the study. All I can say is that we continue to expect the results by the end of the year. We're obviously going to communicate those results when they're available. And the good news is that it's practically November, so we don't have to wait long for the turning of that card. Operator: The next question comes from Terence Flynn with Morgan Stanley. Terence Flynn: Maybe just another policy one. We've seen some headlines around these GLOBE and GUARD, what I assume are CMMI pilots for Medicare. Can you weigh in at all in terms of those, if there's any progress or any details in terms of how those might play out? And then a second question is just on iberdomide and your upcoming discussions with the FDA on a potential for a filing on MRD. What's your confidence level that FDA will actually move in that direction? Or do you think they're going to want to see more definitive data first before acting on MRD? Christopher Boerner: I'll hit the first one, and then I'll ask Cristian to take the second. So on the CMMI potential demos, look, we've obviously seen the same coverage. You've seen I think it's too early to say really anything about what's in them, when they might read out and what the implications of that are. We're obviously actively monitoring and engaging, but nothing new to report there at the moment. And then, Cristian, do you want to take the second piece of that on Iber? Cristian Massacesi: Yes. Iber showed this positive outcome in MRD negativity rate. We announced it. FDA -- we are very pleased that FDA keep this very in consideration. There was a lot of discussion. It is an endpoint that, of course, we discussed and we agreed with the agency. We will share the data, and we will discuss not only with FDA, with multiple regulatory agencies to see if this readout can grant or not an accelerated conditional approval, and we will keep you posted on the next steps. Operator: The next question is from Courtney Breen with Bernstein. Courtney Breen: Just one for me, particularly as we think about the PD-1 VEGF opportunity and the clinical development plan that you've alluded to here. What learnings are you taking from your first round in the PD-1 battle, the development and commercial kind of competition with Merck? What would you have done differently in that? And how are you using kind of a look back at that strategy to improve your approach in arguably a more complex and competitive environment? Christopher Boerner: Thanks for the question, Courtney. And I'll turn it over to Adam, but what I would just highlight is the first learning you can get is with the deal itself. The reality is based on the experience that we've seen in the first round of PD-1, PD-L1 competition, one of the things that's most clear is that the first and second players in that particular race have garnered the vast majority of the commercial value and the ability to help the most patients. And so our focus coming into this was that we wanted to make sure that if we were going to enter what could be a much more competitive space that we were in a pole position. And so I think that's what we were able to do with the BioNTech deal. But Adam, do you want to provide specifics? Adam Lenkowsky: Yes. Courtney, thanks for the question. Just a reminder, we're the only company to launch 3 IO assets with YERVOY, OPDIVO and Opdualag. So we understand what it takes to compete and win in a highly competitive market. We've got the infrastructure in place. We can leverage the capabilities that we've built over the years. As Chris mentioned, order of entry clearly matters. We've seen that with PD-1, PD-L1s today. I would also say the importance of community oncologists is critically important. They are responsible for about 70% of the prescribing here in the United States, and we've got decades-long relationships there. Finally, I think the ability and agility to pivot quickly to support new indications is critical. So we've seen this velocity of launches in this first generation of I-O with Opdivo now over 30 indications. And the final thing I'd mention in terms of learnings, I do think it's critically important to look at more novel, novel indications. We have seen over the last decade since Opdivo was introduced a host of new mechanisms and modalities that have been introduced to the marketplace that will continue to raise the bar on overall survival. So taken together, we're excited about the opportunity we have with pumitamig and our partnership with BioNTech, and our focus is to transform the current standard of care. Operator: The next question comes from Akash Tewari with Jefferies. Akash Tewari: Just on ADEPT-2, I think your team has hinted there are no site irregularities that you're seeing right now and dropouts seem to be similar to the schizophrenia studies. So if that's the case, why hasn't the data been locked at this point? And why open more ex U.S. sites? And can you also comment specifically on what you learned from the open-label period in your relapse prevention studies with Cobenfy and Alzheimer's psychosis? Christopher Boerner: Yes. Again, I'm just going to reiterate what we said previously. The study is going to be reading out in the next couple of months, and we're very close to that. So we're not going to provide additional comments on the specifics. I would also just step back, though, and remind you of what I said earlier, which is the confidence that we have in the overall Cobenfy program, which is what Cristian spoke to. And then with respect to why we have so much confidence in the Alzheimer's disease psychosis program, I would just remind you of 3 things. First, we have compelling external data coming forward from previous studies. We have heard considerable feedback, albeit in the schizophrenia indication on the performance of the product on psychosis symptoms, which again gives us a lot of confidence, albeit in a separate setting. And then, of course, we have additional data that we have internally. And so we feel good about where we are with the program at large. And obviously, we'll wait to see the ADEPT-2 data between now and the end of the year, and we'll report that out when we get it. Cristian, anything you would add? Cristian Massacesi: Yes. I mean, for ADEPT-1, as I said before, this is a relapse prevention design. So it's a different endpoint, primary endpoint compared 2 and 4 and of course, the study is ongoing. We don't want to share data on the lead-in phase. This is -- we are putting the patient on Cobenfy for 12 weeks, and then we will assess the response with the same criteria for psychosis and CGI. And based on that, the patient will be randomized. Of course, the patient needs to have a certain degree of response to be randomized. This is important because, of course, it's a learning -- that part of the study is open label, but of course, we don't -- we will share the data in the moment in which we will release the data. Chuck Triano: Operator, if we could take our last question, and then I'll ask Chris to make some closing comments. Operator: The last question today comes from Stephen Scala with TD Cowen. Steve Scala: I'm curious if you have concluded the IRA negotiations for Pomalyst and how did the results compare to expectations? GSK indicated yesterday that its negotiations concluded for one of its drugs, and they did not sound troubled in the least at the result of those negotiations. And I'll leave it to one question given the time is short. Christopher Boerner: Steve, Adam, why don't you take that? Adam Lenkowsky: Steve, thanks for the question. Appreciate it. The IRA negotiations officially conclude tomorrow. And so we are currently finalizing that. There's not much I can say about the negotiation, except for the fact that, as you know, the negotiations for Pomalyst. And so Pomalyst by the time the MSP is effectuated in January 27, Pomalyst will have lost exclusivity in the U.S. So again, we don't feel like this will have any impact on the company and the outlook of the company. And we believe that this -- the price will be made public at the latest, November 30. What we saw last year is that it should come earlier. But taken together, we feel good about the negotiation and where we'll be at the end. Christopher Boerner: Thanks, Adam. And thanks, Chuck, also for choreographing today's call. We know it's a busy morning for all of you, given that there are several companies in our sector that are going to be reporting. So I want to thank you all for joining the call this morning. In closing, our year-to-date results, I think, reflect the focus that we have on execution with strong performance from the growth portfolio, our business development activities that we spoke about during the call, continued progress on our strategic productivity initiatives and solid free cash flow generation, we're doing what we said we would do. We look forward to the clinical data readouts accelerating into 2026, which, as discussed, have the potential to, we believe, shape the potential of our pipeline and provide more certainty on the shape of our growth trajectory. So again, thank you all for calling in today. And as always, the team is available for any follow-ups. So have a great rest of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's Third Quarter 2025 Earnings Conference Call. My name is Danielle, and I will be your moderator for today's call. [Operator Instructions] Our call is being recorded. I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question-and-answer session. Tom Fitter: Thank you, Danielle, and good morning, everyone. Welcome to Magnolia Oil & Gas' Third Quarter Earnings Conference Call. Participating on the call today are Chris Stavros, Magnolia's Chairman, President and Chief Executive Officer; and Brian Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on Slide 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's third quarter 2025 earnings press release as well as the conference call slides from the Investors section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros. Christopher Stavros: Thank you, Tom, and good morning, everyone. Thanks, everyone, for joining us today for a discussion of our third quarter 2025 financial and operating results. I plan to highlight our quarterly results, which represent another strong period of consistent execution for Magnolia and continues to deliver on the capital-efficient program that we outlined during the first half of this year and one that's provided us with more free cash flow. Brian will then review our third quarter financial results in greater detail and provide some additional guidance before we take your questions. We continually remind the financial community that Magnolia's primary goals and objectives are to be the most efficient operator of our best-in-class oil and gas assets to generate the highest returns on those assets and while employing the least amount of capital for drilling and completing wells. A substantial portion of the free cash flow Magnolia generates is returned to investors through our secure and growing cash dividend and ongoing share repurchases. And we continue to enhance and expand our asset base through bolt-on acquisitions stemming from our cumulative subsurface knowledge and experience near areas where we operate and understand well. Magnolia's latest quarter is characterized by achieving these objectives, and our year-to-date performance demonstrates our ability to execute our business model despite the decline in product prices that we've seen recently. We operate a focused business with an emphasis on driving financial returns and do not plan to add incremental activity at current product prices. At Magnolia, our mission is straightforward, generating consistent and sustainable free cash flow through disciplined capital allocation, pursuing on [Technical Difficulty]. All that said, and turning to Slide 3 of our investor presentation, Magnolia delivered another strong quarter, and our overall business continues to operate exceptionally well. We achieved a record quarterly total production rate of 100,500 barrels of oil equivalent per day during the third quarter, representing year-over-year production growth of 11% with total production [Technical Difficulty] quarter saw low single-digit year-over-year growth despite a small sequential quarterly decline due to the timing of turn-in lines, while oil production at Giddings grew by nearly 5% compared to the prior year. As we are now well into the fourth quarter, our production is off to a very strong start, and we anticipate both record total production and oil production in the current period. Continued strong well performance during the year is expected to provide us with full year 2025 total production growth of approximately 10% and well above our initial guidance of 5% to 7% at the start of the year. Our Giddings well results have not only outperformed our expectations, but have exceeded levels of the last couple of years and despite a similar drilling and activity program. The outperformance led us to defer the completion of several wells into next year, allowing for a reduction in our capital earlier this year and is expected to result in a roughly 5% savings in spending during 2025. This had the dual benefit of improving our free cash flow during 2025 as well as enhancing our operational flexibility as we move and look into 2026. Our adjusted EBITDAX for the third quarter was $219 million and operating income margins were 31% during the period, while our annualized return on capital employed was 17%. Each of these metrics was supported by solid overall production volumes during the quarter in addition to strong relative price realizations for both natural gas and NGL production. Our disciplined approach around spending, a focus on financial returns, including our efforts and initiatives to improve the efficiency of our D&C program, all contributed to limiting our capital reinvestment rate to 54% of our adjusted EBITDAX during the third quarter. Our low reinvestment rate helped generate a strong level of free cash flow in the quarter of $134 million. We returned 60% of this free cash or approximately $80 million to our shareholders through the repurchase of more than 2.1 million Magnolia shares and the cash payment of our quarterly base dividend. Both our consistent share repurchase program and the secure growing base dividend are a mainstay of Magnolia's ongoing investment proposition. Incorporating these outlays, we ended the quarter with $28 million of additional cash and with a cash balance of $280 million at quarter end, which was the highest level of the year. As I mentioned, we expect to end the year on a strong note and with record oil and gas production in the fourth quarter and with capital spending of approximately $110 million. As we did during 2024, we continue to focus on our field level operating costs, which have reduced our lease operating expenses through capturing additional production efficiencies in such areas as water handling and fluid management as examples. These and other initiatives are the result of continuous improvements in how we plan, drill, complete and operate our wells. Additional drilling and completion efficiencies that we expect to realize will accrue to the business through additional learnings and the further delineation of our Giddings asset. We expect these efficiencies to accumulate at a measured pace and have no plan to accelerate our activity to pursue this. Looking ahead to 2026, we remain committed to our business model, which limits our capital spending to 55% of our adjusted EBITDAX or gross cash flow. Similar to 2025, we plan to operate 2 drilling rigs and 1 completion crew next year and expect to allocate a modest amount of capital toward appraisal activities in both Giddings and the Karnes area and to further enhance our resource opportunity set. Assuming current product prices, we expect that our 2026 program would deliver mid-single-digit total production growth with capital spending at similar levels to 2025. This also allows for significant free cash flow generation in support of our investment proposition, providing a secure and growing dividend and consistent share repurchases. We remain well positioned with ample financial and operational flexibility, allowing us to adapt within a volatile product price environment. When we ask our larger shareholders why they're invested in Magnolia, a common reply is because you do what you say you're going to do. Since our founding more than 7 years ago, Magnolia has consistently executed around the principles of its differentiated business model, which includes our strong balance sheet and disciplined capital spending philosophy designed to maximize free cash flow generation from our high-quality assets. We remain committed to our business model and our strategy that has helped compound per share value for Magnolia shareholders. I'll now turn the call over to Brian to provide some further details on our third quarter 2025 results and some additional guidance for the fourth quarter. Brian Corales: Thanks, Chris, and good morning, everyone. I'll review some items from our third quarter results and refer to the presentation slides found on the website. I'll also provide some additional guidance for the fourth quarter of 2025 before turning it over for questions. Beginning on Slide 5, Magnolia delivered a strong quarter as we continue to execute our differentiated business model. During the third quarter, we generated adjusted net income of $78 million or $0.41 per diluted share. Our adjusted EBITDAX for the quarter was $219 million with total capital associated with drilling, completions and associated facilities of $118 million, representing 54% of our adjusted EBITDAX. Third quarter production volumes grew 11% year-over-year to 100,500 barrels of oil equivalent per day while generating free cash flow of $134 million. Looking at the quarterly cash flow waterfall chart on Slide 6. We started the quarter with $252 million of cash. Cash flow from operations before changes in working capital was $247 million, with working capital changes and other small items impacting cash by $5 million. We added $25 million of small bolt-on acquisitions comprised of additional acreage, working interest and royalties that we discussed last quarter. During the quarter, we paid dividends of $29 million and allocated $51 million toward share repurchases. We incurred $119 million of drilling completions, associated facilities and leasehold and ended the quarter with $280 million of cash. Our cash position is the highest it has been all year despite lower oil prices and acquiring approximately $65 million of bolt-on acquisitions during the year. Looking at Slide 7. This chart illustrates the progress in reducing our total outstanding shares since we began our repurchase program in the second half of 2019. Since that time, we have repurchased 79.4 million shares, leading to a change in weighted-average diluted shares outstanding of 26% net of issuances. Magnolia's weighted average diluted share count declined by approximately 2 million shares sequentially, averaging 190.3 million shares during the third quarter. We currently have 5.2 million shares remaining under our repurchase authorization, which are specifically directed towards repurchasing Class A shares in the open market. Turning to Slide 8. Our dividend has grown substantially over the past few years, including a 15% increase announced earlier this year to $0.15 per share on a quarterly basis. Our next quarterly dividend is payable on December 1 and provides an annualized dividend payout rate of $0.60 per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares and increasing the dividend payout capacity of the company. Magnolia continues to have a very strong balance sheet, and we ended the quarter with $280 million of cash. Our $400 million of senior notes does not mature until 2032. Including our third quarter cash balance of $280 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $730 million. Our condensed balance sheet as of September 30 is shown on Slide 9. Looking at Slide 10 and looking at our per unit cash costs and operating income margins. Total revenue per BOE declined approximately 12% year-over-year due to the decline in oil prices, partially offset by an increase in natural gas prices. Our total adjusted cash operating costs, including G&A, were $11.36 per BOE in the third quarter of 2025, and our operating income margin for the third quarter was $10.98 per BOE or 31% of our total revenue. Turning to guidance. Fourth quarter D&C capital expenditures are expected to be approximately $110 million, which would bring the total capital for the year to about the midpoint of our previously reduced annual capital budget. This includes an estimate of non-operating capital that is similar to that of 2024. We are reiterating our full year 2025 outlook for total production growth of approximately 10% compared to our guidance at the beginning of the year of 5% to 7%. Total production for the fourth quarter is estimated to be approximately 101,000 barrels equivalent a day, and we expect that total production and oil production for the quarter to be at the highest levels of the year and new Magnolia records. Our price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston, and Magnolia remains completely unhedged on all of its oil and natural gas production. The fully diluted share count for the fourth quarter of 2025 is expected to be approximately 189 million shares, which is about 4% lower than fourth quarter 2024 levels. We expect our effective tax rate to be approximately 21%. And with the passing of new legislation during the third quarter, we expect 0 cash taxes for full year 2025. We are now ready to take your questions. Operator: [Operator Instructions] The first question comes from Neal Dingmann from William Blair. Neal Dingmann: Nice quarter and nice to be back on. Chris, my question for you or Brian, you continue to have these pretty amazing operational efficiencies. And I'm just wondering if that continues at the pace that we've seen driven by these Giddings wells, could you envision -- I mean, again, I think about, will you keep -- would you accelerate production potentially even more than 10%? Would you be able to or would you think more so about you'd even be able to cut CapEx? I'm just wondering when you toggle those 2 and if you keep having the same upside, where could we see those benefits lie next year? Christopher Stavros: Neil, thanks for the question. Good to have you back. Look, we can do largely anything we'd like to do, or we want to do within the context or framework that you mentioned. I think the point is, we want to stay true to the business model, and it is -- it works for us and it works for our shareholders in terms of maximizing the free cash flow that we have to give back to them. So rather than elevating activity levels, if you will, or rushing to get there, they will get there with time and over time. And as we continue to pursue new areas and probe around the vast acreage position that we have in Giddings and also parts of Karnes and appraise more of it and bring more of it into the fold, we will have more of the way in realized efficiencies. I'm very confident of that. We've seen it. There's a litany of things that I can tell you that the teams are working on that they currently see rather than -- I could spend 20 minutes on talking just about that, and we're going to talk more about it as a team. So that will happen as we go forward. There's no real reason to rush the activity levels or rush the production volumes or reach or stretch for higher levels that could get you into a situation where you're forced to spend that much more as your volumes sort of decline and get you on that sort of treadmill. So, we sort of live within the model, moderate mid-single-digit growth. If the assets exceed that, which oftentimes they have over the life of Magnolia, we've seen that better-than-expected performance, we'll take it. But we're not going to overstretch or overreach on the capital or activity just because we'll live within the model and we'll live within our governor of the capital. And I think in that way, everyone will be satisfied. Neal Dingmann: No, I'd love that if you're able to do that. And then just lastly, when you look at M&A, you guys have been doing a fantastic job of replacing your -- more than replacing your inventory. When you look at just sort of white space in your general area, is there still plenty of white space? Or how would you describe the -- I don't know, I guess, the ability just to continue to do these strategic bolt-ons. You guys have done a nice job, as I said, replacing the inventory as there's still a lot of potential to do so. Christopher Stavros: Yes. No, good question. There's a fair amount of white space, as you called it, and there's a fair amount of smaller private operators that -- things that we'll always evaluate. It has to be the right fit. And I will say that, first and foremost. It has to be the right fit for Magnolia. It has to, at its essence, actually improve the business, improve the company, improve our durability to fit into the model and extend what we have been able to do over the last however many years. So, if we can find something that fits that way or looks like us, we will do that or we will certainly consider it if it presents the proper fit. There may be some things like that. Not a day goes by where I don't get an e-mail or a phone call from a banker, they're transactional, so they love to reach out. But they may not like us very much because the answer is more likely no than yes. So, we haven't found any of those things. But we continue to try and chip away and these are just, over time, additive to our business. A lot of it or certainly some of it has come through the appraisal program that we've had over the years where we learn about a certain area, we like it, we tend to figure it out, and then we look for more of it in the way of filling in that white space if it can be had. So, we'll continue to do some of those things. Operator: The next question comes from Tim Rezvan from KeyBanc Capital Markets. Timothy Rezvan: I want to start, Chris, you mentioned in your prepared comments and in that last response, appraisal work going on at Karnes. There's a market perception that Karnes is sort of on its last legs as one of the earlier shale plays. So, can you talk about what you're referring to with the appraisal activity there? Is that non-op? Is it operated? Is it Austin Chalk or something else? Just curious any color you can provide. Christopher Stavros: Well, I wouldn't write Karnes off just yet. Certainly, good rock is good and tends to have a long life. So that is good rock and some of the best, they're in Karnes. We're continuing to look at that and see what else we can do, what iteration of it that we're on. And fortunately, I still think it's relatively early for us. So, there may be more to be had there, and we'll continue to probe around. I'm not going to say exactly what we're going to do, but -- or exactly what we're planning on doing, but there will be some things that we will test that may have some upside or provide some extended life, if you will, to Karnes. That would not surprise me in the least. The question is always, when you do these appraisal things, what do the economics look like? There's no unlikelihood that we're not going to find producing quantities of oil and gas. That's certain, for sure. The question is, can we do it economically and provide a good amount of duration around it. I think there's a reasonable chance around that. So, I'm not -- certainly not going to write it off. And again, I would say the same thing with Giddings, although Giddings is a lot bigger just in terms of its footprint, and we're quite active there, too, and we have some things planned as well. So, I think I'm optimistic. Timothy Rezvan: Okay. I guess, we'll have to stay tuned into next year. And then my follow-up is sort of a similar theme. The Western Haynesville evolution has been interesting and now there's folks leasing sort of up to your acreage line. I'd be shocked, I think, if you did some appraisal drilling there. But is there a discussion at the Board level about trying to understand if you think you have that resource? And do you have the deep rights? Christopher Stavros: That's a bit further afield in the area that you're referring to compared to where we are. We currently don't have an area up and around where you're talking about. There are other areas within Giddings that have extensive amounts of natural gas exposure. We've talked about that at the organizational level throughout. And again, as I mentioned earlier, it's more about, to some extent, economics as opposed to quantities of producible hydrocarbons. We know it's there. It's just, can we figure out a way to make it more economic. Operator: The next question comes from Carlos Escalante from Wolfe Research. Carlos Andres E. Escalante: I'd like to go back real quick to your discussion on appraisal -- on your appraisal program. So if -- just taking an early look at how you intend to manage your appraisal program in 2026, particularly in the event of any weakness, I wonder how you would intend to manage that and what are the levers that you could pull? Because at your current adjusted EBITDAX and CapEx, we certainly think that implies, at least in our view, that you won't touch your growth capital until perhaps anywhere close to $50 per barrel WTI. So, I wonder if you can frame the appraisal program in the context of those levers and again, in the event of a sustained oil weakness. Christopher Stavros: Yes. Thanks for the question, Carlos. Look, the appraisal program has been quite beneficial to Magnolia in terms of our resource and capabilities over time and expanding the footprint in Giddings. So, I'd be somewhat reluctant to take a machete to that program and just cut it off too harshly. You need to do what you need to do and some mix of oil and gas prices. But in the current outlook or in the current sort of price dynamics that we're seeing, there is still room for a reasonable amount of that type of activity, and we'll continue with that. Look, I say this internally all the time, few ways to find resource and you decline every day, just like all our peers, you either buy it or you find it. And we continue to look for ways to supplement our existing resource and the appraisal program for us up to now has worked out exceptionally well. And -- particularly in Giddings, we've tested some new concepts. We've tested some of the boundaries. There's almost always really -- not almost, but really always going to be producible amounts, again, of oil and gas when we drill. The question is, can we make the economics of a particular area work well for us that fit into our matrix of returns and a competitive for other -- competitive for capital. So, we'll continue to do that. It's an important element of what we do, and we'll continue to examine different parts of it and try to high-grade the program, if you will. Carlos Andres E. Escalante: Wonderful. Appreciate that, Chris. And then on my follow-up, I think that certainly to us, at least from a [ vantage ] point, one of the many sell points that Magnolia has as an organization is its ability to capitalize on natural gas realizations compared to a lot of your oil levered peers. We just had a very interesting quarter in Waha, for example. So, just wondering where you are today and considering all the reshuffling that you see just in the backyard of where you are with Gulf Coast LNG growing and growing, if there are any kind of initiatives that you have for sustaining your organizational level that may be aimed to further improve that and further gain that edge that you have over some of your oil level peers? Christopher Stavros: Well, thanks for the commercial message. I really appreciate it on the natural gas realizations. I would agree with you that we've been able to benefit from some strong realizations on a year-over-year basis and into most of '25. The answer is, I don't exactly know. I mean there's a lot of complicated factors. Had we taken actions based on some impressions or opinions that we had heard, say, a year ago and done some things to perhaps consider hedging basis or even consider options such as that, we probably would have been wrong. The impact of what you've seen up to now coming out of the Permian with it, and in some of the associated gas producing areas as we move more gas to Waha, et cetera, hasn't seemed to influence it yet. I don't know if it will, but I would have -- others said that it would have and they were wrong, and there's a lot of other variables and factors that may offset that. So, I'm not necessarily willing to lean in and make something fully deterministic on somebody's view because there's just so many moving parts. Operator: The next question comes from Charles Meade from Johnson Rice. Charles Meade: Chris, I'd like to go back to the A&D market and ask a question there. Can you offer your view? Have you seen anything different on the packages that you look at around Giddings, either in the quality of what is available, what's being brought forward or the ask that you're seeing relative to the value? Christopher Stavros: Are you referring to South Texas or Giddings specifically or just South Texas inclusive of the entire trend? Charles Meade: I was asking more specifically about Giddings, but I'd be curious to hear whatever view you want to share on the whole kind of Eagle Ford Austin Chalk trend, if you care to. Christopher Stavros: Yes. Well, let's start with Giddings. Giddings is, it's fairly -- in terms of the bigger packages or bigger concentrated assets, it's fairly concentrated. There's us and a large private player without naming names. And then there's probably a smattering scattered positions of a variety of private players. There are very few, if any, sizable or even smaller packages in Giddings that are operated by public companies, just to set that straight. In this environment, what may happen is that bigger packages may be sort of holdouts for live to fight another day or live to see a better day, if you will, on product prices, oil prices before considering a sale. And smaller things may be more reasonable as far as connectivity and alignment between a buyer and a seller because the seller may run out of patience or money or whatever. And those are small things, and they may just ultimately pop up somewhere else at the end of the day. So that smaller things may be more easy to move. I can't guarantee that, but certainly a better chance at that than a larger thing as prices come down because the bid and the ask just widen apart between the players. Broadly, in South Texas, I would tell you that, look, everything is getting generally gassier. GORs are rising and the quality is waning. There are pockets of things here and there, but I would characterize it as generally over time, gassier; generally over time, somewhat scattered and maybe less synergistic opportunities. On occasion, you'll find a private player who's done a good job. But true to form, many private equity backed players will press on the accelerator to push activity and volumes in order to create more cash and [ EBITDA ] to try to sell an asset. That typically doesn't work very well for a public buyer to acquire somebody else's declined rate while they run through the better part of their inventory. So that's sort of how I would just characterize things generally. Charles Meade: Got it. And then a question about your -- I guess, your flexibility around your activity levels. When I look at -- you guys have been really steady at 2 rigs, 1 frac fleet. But at least from the outside looking in, it looks like if you were to have to drop from there, you're kind of sitting right above the minimum efficient threshold of keeping 1 frac crew pretty much continuously busy. So, is that something that you guys think about? And is that something that you -- I mean, do you agree that it would be the case that you'd lose some efficiency if you had to cut activity in response to lower commodity prices? And how would you manage that? Christopher Stavros: Not really. I'm not all that worried about it. We have very strong relationships with the crews and equipment that we use. I don't see our activity pulling back dramatically in this environment, if at all. We could certainly adapt and do some things. From an efficiency standpoint, I'm not all that worried about it. We've entered into some contracts that give us quite a bit of flexibility to take advantage of some softness in pricing that we've seen recently, but at the same time, not so long as to take us out of play and considering things that -- if things should worsen in the market to take advantage of that later on. So, I'm not very worried about it. Operator: The next question comes from Peyton Dorne from UBS. Peyton Dorne: I know earlier you gave the indications on the 2026 budget. But I just wonder if you have any details to share on how the plan theoretically might be shaped. And I ask just because you've highlighted the 6 well deferrals and maybe targeting completions to benefit from higher winter gas prices. So, we just infer from that, that maybe the spending is going to be a bit more weighted to the first half or first quarter '26. Christopher Stavros: Yes, thanks for the question. I would say generally, and this is probably not maybe very different from any in the industry, the spending levels will probably be a little bit more skewed to the earlier part of the year, which will include some test areas and also just because we have a little bit more line of sight on pricing sooner and we'll pull forward some activity and volumes into the first half, first quarter of the year. So, if I had to skew it that way, I would say it will be a subtle heavier amount of activity and capital in the early part of the year, but not a dramatic difference, say, from 1Q to the back half. I mean on a percentage basis, it wouldn't look that way. It will be more subtle. Operator: The next question comes from Phillips Johnston from Capital One Securities. Phillips Johnston: First question is on oil volumes. Chris, I think your comments on the second quarter call suggested that oil production should grow in '26 at a rate that's a little bit below the mid-single-digit target for total BOE production. Is that still a good way to think about next year, which I think would sort of put you somewhere in the 40,000 to 41,000 a day range, give or take? Christopher Stavros: Yes, that's sort of what I would think. I mean, like I said, the fourth quarter is off to a very strong start. I anticipate sort of record volumes, BOEs, but also oil in the fourth quarter. If I had to frame it, I would say, clearly, the record was earlier in the second quarter. So, we did 40,000 a day of oil. So, if I added gas, you'd sort of be at -- 40,000 to 41,000 is a fair number. I would expect lower single-digit oil growth year-on-year full year '26 over full year '25, call it, 2% to 3%. Phillips Johnston: Okay. Perfect. And then, for modeling purposes, if we assume you sort of remain at this current 2-rig program throughout next year, would that still imply somewhere around 55 gross wells next year? Or has the annual run rate continued to sort of creep up some with the efficiencies? Christopher Stavros: Yes. I think plus or minus, that's about right. It's not a dramatic shift or change in the number of actual gross wells. Operator: The next question comes from Zach Parham from JPMorgan. Zachary Parham: You exited the quarter with the most cash on the balance sheet you've had since 1Q '24. Obviously, that's a great problem to have. But how do you think about use of that cash? If you continue to build cash, do you consider potentially increasing your buyback pace? Christopher Stavros: Well, the goal is not only to generate free cash. It's ultimately, to your point, really find a way to put it back into the business or utilize it to generate more returns over time, properly allocate it. We'll just have to see how things move out or transpire into the -- late into the year and into next year as far as the business. And I don't -- we're not going to sort of amp up activity, if you will, to reach for more volumes necessarily. That's not the point. The point is to look for pockets of maybe underperformance or disruptions in the equity. And if we have the opportunity to buy more shares, sure, we'll do that. Or if we had the -- and the shares that we repurchase actually, conveniently work in our favor and with the model in terms of providing us with a little bit of advantage on the base dividend. So, it just means we can grow per share amount of the dividend a little bit more as a result of buying the shares and have less cash outlay that way. So, it does provide us with a lot of flexibility, Zach. And I think we'll just sort of wait and see and take a lot of things into consideration on all those aspects of cash returned to the shareholders and even ultimately into looking at some bolt-on opportunities if they come along and if we can find something that's attractive and the right fit for the business. Zachary Parham: And then my follow-up, just wanted to ask on OpEx. You guided to $520 per BOE for LOE in 4Q. Can you just give some color on how you expect that to trend into 2026? I know you've done a lot of work this year to try to bring that down. Christopher Stavros: Yes. I think as I mentioned in my comments, I think that there are some things that we're looking at in terms of saltwater disposal, managing chemicals, fluid management generally, managing our crews in the field somewhat more efficiently. So, I think there's -- so far, we've had a lot of small wins and improvements in several areas. And I think some of that will stay with us. But in particular, as you know, workovers continue to represent the largest variability in the field level operating costs from quarter-to-quarter. But we're doing some good work, I think, on surface facility expenses and other things in terms of moving around both oil and gas. And I think that should generally help us. So, I said $520 for the fourth quarter. Seasonally, you start to -- you pick up a little bit in the year seasonally into the first quarter. But once you get through that, I think you can come down a little bit from the $520 level into next year, I believe, at sort of current commodity prices. Operator: The next question comes from Tim Moore from Clear Street. Tim Moore: Congrats on the great free cash flow and execution. One of the questions I have for you, Chris, or maybe even Brian, is how should we think about the gathering, transportation and processing expense going forward as a percentage of revenue? I know you commented earlier this year about maybe up-ticking a bit. Oil price came down, that doesn't help. But are there any kind of drivers you can speak to that maybe give a little bit utilization benefit for it maybe next year if the current commodity prices hold up? Brian Corales: GP&T, I think you're referring to it. It's not really a percent of revenue generally. I'm sorry, it's not -- when you look at, it should be relatively -- as long as commodity prices are somewhat stable, it should be relatively stable. If you see increases in gas and NGL pricing, you could see that cost go higher. And on the flip side, if commodity prices, gas and NGLs go lower, you may see some savings there. Tim Moore: That's helpful. And then just a follow-up. I know Chris already gave some comment on some of the improved efficiencies with water disposal, fluid handling, some of the chemicals. I was just wondering, if you're working on Giddings very well and getting some efficiencies. Are there any other kind of surface repairs or low-hanging fruit there? Or do you think it's mostly done in seventh inning? Christopher Stavros: There's always going to be some things that we continue to look at in terms of process management and doing things better. So, it's really never over. You're always turning over rocks and looking for other things to create more and more efficiencies over time, whether it's with personnel, crews, moving things -- the business of moving things in many ways. And so, moving and managing equipment -- moving and managing your products. So, there's always things to pursue beyond just what I mentioned. Operator: The next question comes from [ Phil Shen ] from ROTH Capital. Unknown Analyst: So, my first question is about the Giddings expansions. So, in the last quarter, we know that we expand by 40,000 acres. So, I'm just wondering like if any new wells were drilled in the areas? And also if not, like do you expect any potential expansion or any new wells in the future in that area? Christopher Stavros: Yes. If you're -- thanks for the question. If you're referring to some of the wells that we've drilled earlier this year and even late last year and a new area that provided us with quite a bit of the outperformance that we experienced, the answer is yes. We do plan to go back there. Those wells are continuing to perform quite good and continue to outperform with time. We will plan to go back there next year and over time in the future. There's more to go after there, and I expect it to be folded into the program partly into next year and beyond. Unknown Analyst: And my second question would be about the Eagle Ford production. So, I saw that the production from Eagle Ford was a bit up this quarter. So, I was wondering, was like any wells drilled in the quarter? If so, how was the performance for the wells? Christopher Stavros: I assume you're talking about the Karnes area. Look, we go to Karnes a couple of times a year. And again, we have one completion crew. So, you will see some -- little bit of volatility just in terms of Karnes production. So, I think you can probably assume that if there was an increase, there was probably a little bit of activity, whether operated or non-operated. Operator: The next question comes from Noah Hungness from Bank of America. Noah Hungness: For my first question here, Chris, I was wondering how are you seeing service pricing right now? And how do you see that -- and do you think it's aligned with kind of where the curve is for oil prices? Christopher Stavros: Thanks for the question, Noah. Yes. Look, I mean, things have come down into -- throughout the better part of 2025, conditions are still relatively soft, but I think the rate of change has lessened here recently for us, and probably for the sector, for the industry, for us, I mean, I would tell you, we're obviously going to see some things on the OCTG side still that's tariff related that will have some underlying upside pressure. Most, if not all of that, really probably all of that will be offset by the softness that we're seeing and the improvements that we're seeing, that combination of some of our own efficiencies, but also some of the savings that we're getting out of contractual arrangements and working with our vendors. So there still is some softness, but I would tell you that for the moment in this range of product prices, things have -- seem to have found a bit of a leveling out, if you will. That's not to say that that couldn't change if product prices were to turn south late this year or into next year. Typically, what's underpinning some of that is the industry sort of prepping itself for more activity into -- early into the new year. And so, some of that is seasonal. If that were to dissipate or as it dissipates into '26, you could see some further round of softness perhaps, but we'll see. It remains to be seen. Noah Hungness: That's really helpful. And then for my second question, could you -- I know you have the 6 deferred completions that you'll be carrying into '26. But could you maybe talk about how many DUCs that you're carrying into the new year? And then also how many DUCs you think you'll be exiting 2026 with? Christopher Stavros: We -- generally, no, we don't really carry planned DUC like DUCs. That's why, I guess, we talked about the deferral of some of these earlier this year. But outside of kind of work in process wells, we don't really plan to -- we don't usually carry DUCs. Brian Corales: We're not purposefully carrying DUCs. I mean it's really more -- it will end up being more of a timing issue than anything else. Noah Hungness: Okay. So, would it be fair to assume you're carrying the 6 deferred completions into '26, but then you'd be exiting with basically 0 deferred completions with the current plan? Christopher Stavros: Right. Outside of wells that are kind of in process, correct. [ No more ] DUCs. Operator: The next question comes from Greta Drefke from Goldman Sachs. Margaret Drefke: I actually wanted to follow up on the last one that was just asked there on your outlook for activity and the macro a little bit. In a situation of a potentially derating in oil prices through the remainder of the year or into 2026, can you provide any color around what price potentially could you see some incremental deferred completions or activity adjustments? Or if you have any sort of framework for how you could evaluate potential further completions or turnaround timing changes? Brian Corales: Yes. I mean our program, it's not a static program. It's a dynamic program. And we have, as I mentioned in my remarks and in response to the questions, I mean, we have a lot of both financial and operational flexibility, especially considering some of those deferrals that have snaked through the system in 2025. As I said, that's really provided us with a bit of a cushion, if you will, into 2026. That's a sizable benefit. Look, if we continue to see some good performance as we exit the year and going into '26, that could provide us with further cushioning and the ability for additional flexibility to respond to odd movements in product prices if that were to occur. But overriding that, we do have sort of the business model governor of our spending, which sort of limits us to the 55%. We try to stay true to form to that and keep to that plan because that does keep us honest and straight narrow. But like I said, we have a lot of flexibility in the program to maneuver around product prices. I'm very comfortable with how the business is running right now and where we sit. So, there's lots of capabilities that we've built into that process. So, you can look at the sensitivities for oil and gas prices and model it out as to what the downside-upside is, if you will. But I mean, generally -- right now, at current prices, I'm not concerned about where we are. Margaret Drefke: Great. And then just as a follow-up, as you highlighted in your update, Magnolia's 2-rig 1-crew program over the past several years has supported about 50% production growth over that period of time. I was just curious; can you speak a bit about how much of that growth you view is attributable to improved rig and crew cycle time efficiencies versus acquisitions and versus well performance improvements potentially over the past few years? Christopher Stavros: Yes. We've not acquired very much in the way of production over the 7 years we've been operating. I mean most of it has been maybe 1 or 2 transactions that provide us with any measurable amount of volumes that we can speak to. But most of it has been done organically. So, we probably produced over the -- on a compounded basis, maybe 8% sort of compound annual growth for the business. By and large, most of that has come from organic drilling completions of the business, not -- we haven't folded in a lot of PDP that I can speak to. Operator: This concludes our question-and-answer session and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Hello. My name is Dustin and I will be your conference operator today. At this time, I would like to welcome you to California Water Service Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to James P. Lynch, Senior Vice President, CFO and Treasurer. Please go ahead. James Lynch: Thank you, Justin. Welcome, everyone, to the third quarter 2025 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO; and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until November 29, 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available at the company's website at www.calwatergroup.com. Before looking at our third quarter 2025 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases and other reports filed with the Securities and Exchange Commission. And now, I will turn the call over to Marty. Martin Kropelnicki: Thank you, Jim. Good morning, everyone. Thanks for joining us today. Happy Fall. A few items to update you on. First and foremost, I want to start and give a quick update on our 2024 General Rate Case. The administrative law judge assigned to this case a few weeks ago indicated that he may need additional time to process the rate case given the size and complexity. It's a little different than the rate case we had last time that was significantly delayed. We know this judge is actively working on the case. Additionally, the assigned Commissioner continues to stress the importance of getting decisions out on time if not early. In addition, during that meeting, the judge also authorized us to file a Tier 1 advice letter on January 1 for inflationary offset if their decision is delayed. That is really different than what we've gone through before historically at Cal Water with the California Public Utilities Commission. This would essentially, if they are late, allow us to put an inflationary step increase with a Tier 1 advice letter effective January 1. Additionally, the judge also granted us a memo account, which gives us the authority to track and recover our cost, revenue and cost that would normally be recovered if the rate case was effective on January 1, 2026. So I think this is all good news. Again, we don't believe the delay is going to be significant given the commissioner's comments both in meetings with us as well as in public forums as well as the judge actively working on the rate case. And I give the Commission some huge kudos for being more transparent. For some of those of you that were with us in the last rate case, we didn't know nothing for a long time while the rate case was delayed. So there's good communication going on. They're putting steps in place in the event that if the decision is slightly delayed. But given where we are right now, I do not believe there will be a significant delay. Greg Milleman will talk about that a little bit later in the deck. Before I turn the call back over to Jim, I want to update you on a couple of things, including a strong financial performance as well as our operational highlights for the first 9 months of 2025. First and foremost, we continue to invest in our water infrastructure. During the quarter, we invested $135 million. That's up 14.8% so almost 15% Q3 of this year over Q3 of last year and were up 10% year-to-date over 2024. In addition, during the quarter, Jim's team was busy. They refinanced short-term borrowings with the issuance of $370 million of long-term notes and bonds. This transaction was significantly oversubscribed. In fact I will tell you for a bond deal, it was the most oversubscribed bond deal I've ever had the pleasure of working on in my 30 years of doing this. The nice thing about having a significantly oversubscribed deal is it helps minimize credit spreads, which lowers costs for our customers over the long run. We have continued our expansion in Texas while we wait for the commission to approve our General Rate Case settlement. We do have an all-party settlement in Texas that we're just waiting for final commission approval on. And we received an additional $24 million in net PFAS settlement proceeds during the quarter, which brings our year-to-date total recovery to about $35 million. Again, this will be a direct offset for customer costs as we implement the new PFAS rules. In addition to that, we've made steady advancement across multiple regulatory proceedings in the service territories that we operate in. So it was a very, very, very busy third quarter. The third quarter this year is the third year of the rate case, which is always the hardest year for us in California and California is by far our largest operating entity. And as Jim is going to walk through, the financial performance continues to be quite good during the third year of a rate case as we wait for regulatory relief. So Jim, I'm going to turn it over back to you. James Lynch: Great. Thanks, Marty. Well, as Marty mentioned, we did experience a strong financial performance and again, that is all the more meaningful considering we are in the third year of the rate case and that tends to be the year where we're most constrained from an earnings perspective and a cash flow perspective. So we're very pleased with the performance. Q3 2025 revenue increased $11.6 million or 3.9% to $311.2 million and that compares with revenue of $299.6 million in Q3 of 2024. Net income for the quarter was $61.2 million or $1.03 per diluted share and that's consistent with our prior year net income of $60.7 million or $1.03 per diluted share. If we move to Slide 6, you can see the impact of the activity during the third quarter and the impact that that activity was having on our results as compared to 2024. The primary drivers were the tariff rate increases and income tax rate changes, which combined added $0.30 per diluted share. And that was mainly offset by consumption decreases, unbilled revenue changes and water production rate increases, which combined totaled $0.19 per share. In addition, depreciation and interest rate expenses combined added $0.09 of additional expenses per share. Slide 7 shows our year-to-date financial results. And as we discussed on our Q2 2025 call, the company's delayed 2021 general rate case decision did result in interim rate relief that was recorded in 2024. In reporting our 2025 year-to-date results, we present both GAAP and non-GAAP metrics for 2024, which you can see on the next several slides. The non-GAAP financial measures effectively remove the impact of the 2023 interim rate relief from the 2024 results. Operating revenue for the first 9 months of 2025 was $780.2 million compared to $814.6 million for the first 9 months of 2024. That represents a decrease of $34.4 million or 4.2%. However, when you remove the 2023 interim rate relief from 2024 results, our year-to-date revenue in 2025 actually increased $53.1 million or 7.3% over the non-GAAP 2024 revenue. Net income attributable to group was $116.7 million or $1.96 per diluted share. That's a $54.4 million or 31.8% decrease compared to $171.1 million or $2.93 per diluted share compared to the same period in 2024. But again, in 2023 when you remove the interim rate relief from the 2024 results, our 2025 year-to-date net income actually increased $9.8 million or 9.9% over non-GAAP 2024 year-to-date net income and earnings per share. That's an increase of $0.12 in terms of our earnings per share. The primary drivers of our year-to-date diluted earnings per share when compared to non-GAAP 2024 results were tariff rate changes, consumption and income tax rate changes, which added $0.76 per diluted share. In addition, recall that in Q1 2025, we recorded the recovery of the California Palos Verdes pipeline memorandum account, which added another $0.05 per share. These increases were partially offset by water production rate volume increases, which totaled $0.29 per share and an increase in depreciation expense that was $0.13 per share. Moving to Slide 9. We continue to make significant investments in our water infrastructure, as Marty mentioned, in order to continue the delivery of our safe and reliable water service. Our capital investments for the quarter and year-to-date were $135.2 million and $364.7 million, respectively, and that represents on a year-to-date basis a 9.8% or roughly 10% increase compared to 2024. As a reminder, our capital investments do not include an estimated $217 million of remaining PFAS project expenses. We expect we'll incur those over the next several years. Turning to Slide 10. The positive impact of our capital investment program and what it is having on our regulated rate base is presented on this slide. If approved as requested, the 2024 California GRC and infrastructure improvement plan coupled with the planned capital investments in our utilities and other states will result in a compounded annual rate base growth of almost 12%. Moving to Slide 11. We continue to maintain a strong liquidity profile to execute our capital plan and explore strategic M&A investments. As of the end of the quarter, we had $76 million in unrestricted cash and $45.6 million in restricted cash. We also had $255 million available on our bank lines of credit. As Marty mentioned, in October we successfully completed $370 million in long-term financing. That included $170 million of senior unsecured notes that we issued at group and $200 million of first mortgage bonds that we issued at Cal Water. The notes carry interest rates of 4.87% and 5.22% and have maturities in 2032 and 2035. The notes also received an A rating from S&P. The bonds, again those are at Cal Water, will mature in 2025 and carry an S&P rating of AA-. The transaction closed on October 1 and it will further strengthen our balance sheet and support our ongoing infrastructure investments. With that, I'll now turn the call back over to Marty. Martin Kropelnicki: Jim, one clarification. The bonds, which will mature in 2055. James Lynch: The bonds do mature in 2055, yes. Martin Kropelnicki: Thank you for clarifying that. I'm on Slide 12 looking at our dividend program. We're pleased that yesterday, our Board announced and declared our 323rd consecutive quarterly dividend in the amount of $0.30 a share. Earlier this year in January, the Board approved our 58th annual dividend increase as a publicly traded company. This dividend increase for 2025 represents a 10.71% dividend increase and results in a 7.7% 5-year compound annual growth rate for our dividend. Looking ahead on Slide 13 and talking about some of our priorities on growth. As mentioned last quarter, BVRT, which is a joint venture that we own 94% or 95% of, continues to represent a strong area of interest and growth for the company. California Water Service Group made an initial investment in this subsidiary in 2021 with the goal that was to support the water ancillary utility development in the South Austin, San Antonio mega region. Year-to-date we've added 1,100 new connections to our utility services, the utilities that we started in that area back in 2021 and 2022. That puts us just shy of 5,000 connections added to our system. In addition to the 1,100 connections that we've added so far year-to-date this year, we have another 15,500 committed, but not connected customers. These are customers who have provided deposits or developers who put deposits in escrow waiting to connect to our systems as new houses are being built. This region currently has a population of 5 million people and is projected to exceed 8 million by 2050, which makes it comparable to the Dallas-Fort Worth region today. The biggest challenge for growth in this area is timely infrastructure development, especially roads, water and wastewater systems. We believe this area continues to provide a strong opportunity for Cal Water to partner with state and local and the private sector to align our utility investments to support the state's economic development in this region. So very happy with the growth that we're seeing in BVRT. And these were greenfield developments that 5 years ago there was nothing there, basically ranch land where developers went in and established permitting to build large frac family housing. On other fronts on the Texas side, we have reached a full settlement with the Public Utilities Commission in Texas with our first rate case. We're waiting for approval for that and we expect that to come in the fourth quarter of this year. From a growth perspective, we're working closely with major developers to support their water and wastewater infrastructure needs and expect several new deals in Q4 of 2025 as well as when we move into 2026. To further that, we're pursuing alternative water resources to serve the growth in that area, including a private public partnership with the Guadalupe Basin River Authority to bring water into that South Austin market through pipeline expansion. I'd like to move on to Slide 14 to give you an update on PFAS. The EPA has reaffirmed the maximum contaminant level for PFOA and PFAS at 4 parts per trillion and we continue to assess the standards for additional PFAS compounds. So this is really the start of the PFAS family in forever chemicals. For those of you that have really studied it, you'll know there's an estimated 5,000 elements out there they think that are these PFOA and PFAS families that still have to be discovered and researched. So this is the first 2 PFOA and PFAS and the EPA has reaffirmed the target 4 parts per trillion. The agency has proposed extending the compliance deadline for PFOA and PFAS treatment for the first 2 from 2029 to 2031 with the final rule expected in 2026. States are taking varied approaches. Some like the State of Washington, as I mentioned last quarter, have adopted their own rules, which align to the prior EPA guidelines while others continue to evaluate the local implementation timelines and the effects within their state. From a group perspective, we are managing our PFOA and PFAS programs across the enterprise with 1 project team that's responsible for coordinating across the enterprise. Cal Water remains focused on delivering safe high quality water through continued investment in treatment systems and well replacements across California, Washington and New Mexico. As part of this effort, certain treatment will potentially shift between the years. And as Jim talked about our capital growth rate, and just to remind everyone, we have separated out PFAS and it's not included in those estimates. It's included in the footnotes on that slide. So we estimate there's approximately $217 million of PFAS investment needed between 2025 and 2029 to better align with the requirements that are coming out. Our phased adoptive approach helps ensure that we meet the compliance requirements while managing our capital deployment to minimize the impact on our customers. Speaking of minimizing the impact on customers: from a legal standpoint, we continue to make progress recovering PFAS related costs through litigation. Cal Water is a participant in 4 separate class action settlements related to PFAS contamination. Shawn Bunting, our General Counsel, has played a leadership role for the water industry in these proceedings. In May of '25, we received $10.6 million in proceedings net of legal fees from the first 3M settlement, the first of 10 scheduled installments. In addition, in September of this year, we received an additional $24.2 million in net proceeds bringing the total year-to-date net of legal fees to almost $35 million. This $35 million will be a direct offset to the $217 million that we're talking about, again in an effort to keep rates affordable for our customers and to hold flouters accountable for the damage they've done to the water systems. We expect to begin receiving payments from the remaining settlements later this year and well into 2026. I'm now going to turn the call over to Greg Milleman for an update on the regulatory side. Greg? Greg Milleman: Thank you, Marty. If you'd please turn to Slide 15, I'd like to provide some additional comments on our California 2024 General Rate Case. Our General Rate Case continues to move forward. As we mentioned last quarter, hearings before the administrative law judge occurred in May. After the hearings, the ALJ requested additional information that the parties to the proceeding responded to in June. We then filed our briefs on July 7 and our reply briefs were filed on July 28. A final law and motion hearing was scheduled for August 5, at which point the case was turned over to the ALJ to draft a proposed decision. As Marty mentioned, in October, the ALJ requested more time due to the complexity and size of the case. At the same time in the event of a decision delayed beyond January 1, 2026, he authorized the company to implement an interim rate increase effective January 1, 2026 tied to CPI. He also approved an Interim Rate Memorandum Account to capture lost revenues resulting from a decision delay. While we are disappointed with the prospect of a delayed decision, we are pleased with the ALJ's action to allow an interim rate increase and the lost revenue tracking account and are still confident that we will see a resolution in the near term. Turning to Slide 16. We have other regulatory updates in the other states where we operate. In Hawaii, the Public Utility Commission approved a $4.7 million revenue increase for Hawaii Water's 5 Waikoloa systems effective October 9, 2025. In Washington State, Washington Water filed a rate case with the Washington Utilities and Transportation Commission seeking a $4.9 million revenue increase to recover system investments and higher operating costs. The utility also has completed key infrastructures aimed at enhancing reliability and water quality. The proposed effective date of these new rates would be December 15, 2025. And finally, as Marty mentioned, in Texas, our BVRT utility filed a rate case in June 2024 with the Public Utility Commission of Texas covering 5 systems. During the second quarter of 2025, BVRT reached a settlement with consumer advocates and the Public Utility Commission of Texas approval is currently pending. With that, I will now turn the call back over to you, Marty. Martin Kropelnicki: Greg, can you just comment the communications of the commission this rate case cycle versus the last rate case cycle in California? Because from my perspective, it's been really different, a huge improvement in terms of transparency and communication with the Commissioner and judges. Can you please just give me your perspective on that as well? Greg Milleman: Yes, absolutely. Actually since we received the -- had the October 3 update from the ALJ, we've spoken with the Commissioner 4 times during that time frame at various meetings and events. And all 4 times, he's commented that he would like to see this decision moved out on a timely basis. We've never had that in the 2021 case. And so I think that's why we're optimistic that even if the case is delayed a little bit, we will be seeing something much sooner in this 2024 case. Martin Kropelnicki: Yes. It's great seeing the Commissioner was really the assigned hearing officers where the Commissioner is so involved in the rate case and really sticking to it as well as the communications from the judge I think have been, I would almost call them, outstanding. I don't want to get too far ahead of our skis, but I mean the proactiveness on both the judge and the Commissioner I think is really different than what we've experienced before. Thanks, Greg. Before I close out, I want to take a moment to reflect on what we achieved so far this year. Despite operating in the third and most challenging year of our rate case cycle in California, we delivered solid financial performance and operational performance. We've continued to strengthen our balance sheet with the $370 million of long-term financing that Jim and his team concluded in the third quarter. And we've continued to invest heavily in sustainability and the reliability and the quality of our water systems with the $365 million invested in the 9 months year-to-date for 2025. We've also continued to make meaningful progress on PFAS treatment and the recovery of the $35 million in net settlement proceeds received year-to-date. Again the PFAS treatments, we'll continue to call those out separate from our normal capital program so you can clearly see what the net impact is to our customers as well as to rate base and any offset on the recoveries that we have. As Greg said, we've been busy on the regulatory side making meaningful progress in Hawaii as well as Washington and Texas as we stayed laser focused on getting our 2021 rate case done -- 2023 rate case done for California '24. As we look ahead to 2025, a couple of things I think are important. On October 14 of this year, we celebrated our 99th anniversary since our founding in 1926. Some of you heard me talk about this. We were founded by 3 World War I veterans who came back from the war who had a profound sense of service not only to their country, but to customers, communities and the stockholders. As we move into 2026, which will be our 100th year or our centennial year of operations, our priorities really haven't changed. It's maintaining operational excellence, executing our capital programs responsibly and achieving timely outcomes in our rate cases and continue to deliver value for both our customers and our stockholders. With our disciplined financial approach, constructive regulatory relations and our commitment to sustainable and reliable growth, we're confident that California Water Service Group is well positioned as we move into our 100th year of operations, which we look forward to celebrating next year. So Dustin, with that, I'm going to turn it over to you and we'll start the Q&A, please. Operator: [Operator Instructions] And our first question comes from the line of Angie Storozynski from Seaport. Agnieszka Storozynski: So my main question is about your rate base growth projections. I understand that those are slide, I don't see even the number. Again the rate base growth implying 11.7%. That's based on a filed rate case, GRC rate case. Now we have a partial settlement in this rate case, which seems to take down CapEx projections and I know that there's PFAS spending that could be additive here. But as we sit today, how much of a drag do I have on those projections for rate base versus what you're showing in that slide, in Slide 10? James Lynch: So Angie, thanks for the question. So right now we don't have a partial settlement in California, which is the largest driver of our capital expenditures. We are building in anticipation of achieving most of what we have asked for in the rate case. As you know, 2025 is the first year of the '26 rate case just because of the wonkiness in California and the way that they line their capital requirements up with the rate case delivery. So at this point, the settlements that we've talked about -- the settlement that we did talk about was the one in Texas, which we're really pleased on and we're waiting for regulatory approval there on that particular rate case. We still feel committed to the projections that we've provided in the slide. We think that we have made a good case in California to get the majority, if not all, of what we have asked for recognizing the fact that historically, there's a discount that we receive from the commission as we go through the remaining portions of the rate case to get to the final decision. I don't know, Marty, if you want to... Martin Kropelnicki: Yes. I think Angie's question so if you look at the forecasted growth those 3 years out, they're kind of boxed and I say this is what we filed for. And as Greg always reminds me, we never get 100% of what we ask for in the rate case process. Having said that, if you go back and look at the last 10- to 15-year average, we typically average about a 10% compound annual growth rate on our capital spending year-over-year, which ultimately flows into the rate base. So for planning purposes, Angie, probably around 10% is probably a decent number to use excluding the PFAS. And Jim has been very careful on all the slides that we put out there to footnote what our estimates are and those estimates are still evolving, but they're obviously getting more firmed up every time we go into another quarter because the engineers are doing more and more work on the treatment that we need to provide. But that will be incremental rate base growth net any legal proceeds. And that's also why we'll update everyone every quarter on what we've recovered on the legal side. So right now you could take that $217 million less the $35 million. That would be the net rate base estimate as of right now when we have to be in full PFAS compliance. But I expect we'll get some more legal proceeds to come in to help bring that number down. Agnieszka Storozynski: Right. I understand the PFAS component that seems relatively small vis-a-vis what's actually in the GRC. But I'm looking at the August filing, right, the undisputed parts with the California advocates, even based on that, there is actually more than this reduction to that rate base projection versus what you're guiding to. Again, it seems like it's actually pretty substantial. It's almost like a 20% reduction versus what you have projected in the rate base. Again just a rough math. And again, I understand that this is just the portion of the settlement. But there was a filing August 4, I mean I'm looking at it right now. Greg Milleman: Angie, what that would be is it's a listing of undisputed items that per the commission, we needed to file it as a settlement and most likely what you're looking in that in there, you're seeing what Cal Water proposed contrasted to what the public advocates proposed. Those are not settlement numbers of capital. That's just the parties' positions and it needed to be attached to the document. Martin Kropelnicki: And in fact I think the judge asked the parties to do that to help him expedite doing his legal review to make his conclusion and finding the facts while comparing the 2 parties. So he lined everything up and this is just one of the areas that he lined up what we asked for versus what the advocates are saying. Agnieszka Storozynski: Okay. So the hope is that the judge doesn't adopt the advocates position basically? Greg Milleman: Correct, yes. Martin Kropelnicki: Yes. I think, Angie, if you go back and look at the last 3 rate cases, kind of the thing I look at is kind of how successful have we been in the last 3 rate cases. And Greg, I think we've been north of 80% of our ask as high as 90% of our ask over the last 3 cycles. Greg Milleman: Correct. Yes. Agnieszka Storozynski: Okay. I understand. But yes, okay. I'm going to actually look at the 2021 rate case, how it compared to the position of [ Cal Water ]. It's just that the way I look at it is that you're overstating the rate base growth again at this stage of the rate case proceeding and I'm rooting for you. It's just that I'm looking at the current status of the proceeding. It doesn't seem like you can get close to these numbers. James Lynch: Angie, let me correct something you said. We haven't overstated anything. That is a really bad word as a public company. Again, what we put in the disclosures is what was asked for in the rate case and that's why we carefully footnoted it so people can clearly see it. Our typical growth rate is about 10% on the CapEx line kind of year-over-year over the long haul and obviously those numbers will change. But I'm a little cautious when you say what you said because the disclosures are pretty clear and that's also that way in the 10-Q and 10-K. Martin Kropelnicki: And Angie, I just would encourage you to give me a call if you take a look at the 2021 rate case because the way the actual capital delivery number was in that rate case was divided between what was allowed in the rate case and subsequently allowed through advice letter filings and it's differentiated in there. Our view is to take a look at what was allowed through both avenues in order to evaluate how successful we were in our capital ask. Operator: [Operator Instructions] And our next question comes from the line of Davis Sunderland from Baird. Davis Sunderland: As you said, Happy Fall, Marty. Actually I should give credit to Angie for this question, who asked a similar question on the H2O call earlier this week. So I'm going to steal and just kind of modify a little bit. But I guess my first question is just obviously big news earlier this week with American and Essential and the merger, which will bring American into the State of Texas. And I guess my question is does this change how you guys think about growth or willingness to lean into this market or the opportunity there? And then I have one follow-up. Martin Kropelnicki: Yes. I think our stated position kind of on M&A and growth is really kind of the same. Obviously from a planning standpoint, we've been very happy with our organic rate base growth because it's been kind of north of 10% for the last 15 to 20 years. So we're clearly focused on executing our business plans internally. Our primary growth engine is that reinvestment in our existing infrastructure. Being a West Coast utility, a lot of our infrastructure was built out kind of post World War II and it's now coming to the end of its useful life. So we think we're going to be busy just with replacement infrastructure on the West Coast for the foreseeable future and we don't see that piece of the business slowing down anytime soon. From a growth perspective, we think our investment in BVRT has proven to be very, very valuable in terms of being in the right market. Real estate is about location, location, location and that is such a rapidly growing corridor. So we now own 7 utilities in that area. We have the partnership with GBRA to bring water in for another 10,000 customers in the South Austin market. So we'll continue to build out that market. And then from an M&A perspective, it's about being opportunistic. I think American and Essential, we know them really well, they're great companies. I'm sure they had their reasons for why they ended up merging. I'm sure those will be in their proxy agreements when they put those out. And so I think there's a lot of reasons why the overlap service territories in our East Coast-based utility. I think Essential has been more in Texas and not as much American. So I think with Chris Franklin being in charge of kind of the integration work, they will be evaluating all that, what the footprint is going to look like. So I think there'll be more to come on that. For us, obviously, we're kind of Western states focused from Texas all the way to Hawaii and we're going to stay focused on our business plan as it's developed. Davis Sunderland: That is super helpful. And then maybe just 1 more for me. We've obviously been in this higher for longer rate environment for a lot longer than many expected, myself included, and some hawkish comments yesterday from Powell and potentially a lesser likelihood, I'll say, of rates coming down quickly. Just wondering how you guys build this into your guys' planning for the rest of the year looking into 2026 and any other thoughts on that? Martin Kropelnicki: That's a really good question, Davis. For us and look, I'm really happy with our financial results this quarter because if you lay out the timing of the rate case, all the inflation we saw in the last 3 years, we've really absorbed in the P&L and we've been able to still kind of grow the company. So getting the rate case done in California is going to be really important because that kind of trues up our costs, including that inflationary bubble that we lived in. A couple of things that I think are important especially given California is our largest operating entity is we do have that cost of capital adjustment mechanism. That's a 2-way mechanism. So as rates kind of move up and down annually, we are going to evaluate that and we can apply for changes using that mechanism, which I think is a very beneficial mechanism that a lot of people tend to overlook. So I think for us, we like to focus on earning our regulatory rate of return. As an economist, my team knows I keep a keen eye on interest rates and what's happening in the economy and we try to stay a step ahead of what's happening. And so we've been able to preserve the balance sheet, continue to grow rate base, continue to grow earnings despite some of the economic headwinds we've really had the last 3 years or 4 years. And really what will be nice about the next rate case in California assuming rates start to stabilize a little bit more is this bubble that we have, the inflationary bubble that we've had to absorb will be behind us. But again, not too much worried about the bubble because we do have that cost of capital adjustment mechanism in California and that is our largest operating entity. I don't know, Greg, if you want to add anything or Jim, add anything on that? James Lynch: Yes. I would only say, Davis, we did talk a little bit about the fact that we refinanced our short-term debt into long-term debt. I think we got some really favorable rates on that long-term debt and we basically took almost $355 million off of the lines of credit and moved that into the longer-term interest rate environment, if you will. So I think we're positioned very well right now in terms of moving forward. I don't think that if the Fed slows down significantly in terms of bringing the short-term rates down, that would give us any cause to change our current plans. Martin Kropelnicki: Yes. I think one of the challenges for the Fed is most people forget about the fact that the Fed is very quant-based. They look at numbers. While with the government shutdown, they have a limited data set that they're evaluating off of. And I think while it wasn't too bad for them for the meeting yesterday, the longer this government shutdown goes on, the more absentee data they won't have to look at as they do their evaluations. And again, if anyone's ever gone to any of the regional quarterly Fed meetings, they are very, very quant focused. And obviously the big thing I think they were focused on yesterday, I haven't read the minutes of the meeting, but I would speculate is that you're seeing a kind of a rapid softening on labor. And I think that was the key component that the Feds were looking at and certainly we're seeing that right now. Davis Sunderland: This is all super helpful. Appreciate the time, guys. Thank you very much and best of luck with the rate case rest of the year. Martin Kropelnicki: And we'll see you in a few weeks at the Baird Industrial Conference in Chicago. We look forward to seeing you. Operator: Thank you. There are no further questions. I will now turn the call back over to our Chairman, President and CEO, Marty Kropelnicki, for closing remarks. Martin Kropelnicki: Thanks, Davis. That was a good robust discussion today. Obviously if you may ask any questions, feel free to reach out to us. There's a lot of investor stuff happening in the fourth quarter so Jim and I will be on the road quite a bit; Chicago, New York, et cetera. So please reach out if you have questions. And we look forward to reporting our year-end results to everyone in February of 2026. So have a great Thanksgiving and a happy holiday. Be safe and we'll talk to everyone really soon. Thank you. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's 2025 Third Quarter Results Conference Call. Today with us, we have Mr. Carlos Lisboa, Ambev's CEO; and Mr. Guilherme Fleury, CFO and Investor Relations Officer. As a reminder, this conference presentation is available for download on our website, ir.ambev.com.br as well as through the webcast link. We would like to inform that this event is being recorded. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparisons with third Q '24 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit and EBITDA on a fully reported basis in the earnings release. Now I will turn the conference over to Mr. Carlos Lisboa. Mr. Lisboa, you may begin your conference. Carlos Eduardo Lisboa: Good afternoon, everyone. It is a pleasure to be here with you again, and thank you for joining our call today. We closed the second quarter, making important decisions to position ourselves well for the remainder of the year. Reflecting on the third quarter, these choices were even more relevant as industry volumes remain softer than expected, mainly in Brazil. This quarter reflects the results of our choices. Our brands continue healthy with most of our top 10 markets maintaining or improving brand equity, particularly in Brazil. Net revenue grew, supported by resilient net revenue per hectoliter growth, up 7%. Top line performance combined with cost initiatives drove EBITDA growth of 3% with 50 basis points of margin expansion, while normalized EPS grew 8%. Looking at the film rather than the photo, in a year-to-date perspective, we are positive about the decisions we have made and the resilience of our business. Supported by the strength of our brands and our solid market share, top line grew 4%, driven by a healthy net revenue per hectoliter of 7%, which led to EBITDA growth of over 7% with 120 basis points of margin expansion. Cost initiatives continue to make a difference with cash COGS per hectoliter growing below net revenue per hectoliter and normalized EPS grew above 7%. Following our capital allocation strategy and confident on our long-term value creation potential, on October 29, the Board of Directors approved a BRL 2.5 billion share buyback program with the main purpose of canceling shares as a way to return cash to shareholders. Behind these results line the foundations of our growth strategy. Starting with Pillar #1, lead and grow the category. To be a true category captain, we must place our customers and consumers at the center of our decision-making process, being able to better understand and serve the demand, a capability that becomes even more important when the operating environment turns more dynamic, allowing us to: Number one, lead the beer category. Our core brands remain resilient even though volumes declined given its higher sensitivity to industry environment. Our premium and super premium brands strengthened and continue to grow in volumes more than 9%; and number two, shape new avenues of growth. The Balanced Choices portfolio grew 36%, including non-alcohol beers growing above 20%, continued to expand ahead of the company's volume. As leaders, we continue to develop the category, aiming not only to sell more, but to expand the consumer base and the number of occasions over the long term, ultimately creating sustainable value. As for Pillar 2, digitize and monetize the ecosystem. This pillar continues to be instrumental to our business. It provides valuable insights into our consumers, customers and operations while expanding our addressable market. The third quarter marked another solid step towards making our digital ecosystem a competitive advantage for our company. When it comes to new growth engines, BEES Marketplace maintained its strong momentum with GMV growing 100% to an annualized BRL 8 billion, driven by the expansion of our commercial partnerships. Meanwhile, on the direct-to-consumer front, Zé Delivery recorded a 7% increase in GMV even amid a softer industry, supported by a 9% rise in average order value. In revenue management, BEES continues to enable a more assertive and data-driven decisions. With a more granular view of elasticity by brand, pack and customer, we can optimize our discounts and promotions to improve the return on every real invested. For example, this quarter in Brazil, we increased the number of SKUs per pack in 5% and improved by 30% the return on promotions. And in cost and expenses management, BEES also played a key role in the SKU optimization program we mentioned last quarter. It helped us expand the distribution of our main SKUs, improving production efficiency while ensuring that our customers continue to find the right portfolio for their businesses. In summary, the combined impact of the revenue and cost management led to an expansion of our gross margin in the quarter. Speaking of cost performance, let's move into Pillar #3, optimize our business. This year, we have been emphasizing our disciplined approach to costs, and this quarter clearly shows why it matters. While we expected costs to continue to accelerate, driven by FX, commodities and the operational deleverage from lower volumes, our efficiency efforts paid off. We managed to keep costs mostly in line with previous quarter, freeing up resources to continue investing in the long-term growth of our business. Looking ahead, there is still work to be done as we pursue the lower half of our Brazil beer cash COGS per hectoliter guidance, which will support our ambition of protecting consolidated EBITDA margins in the full year. Speaking of margins, our disciplined approach to revenue, cost and expense management once again delivered results. Four of our business units expanded EBITDA margins, and all of them delivered growing or flat EBITDA consistent with the last 2 quarters. Now let's turn to the commercial highlights from our main markets. Starting with Brazil beer. This was the second consecutive quarter of industry softness. It is understandable that this can raise some concerns about the category's prospects. So before we go into our business performance, I would like to take a moment to share a few insights into what we see as situational factors, meaning either short term or cyclical and structural factors that may impact the industry over time. Over the past 2 quarters, the beer category equity has improved, which is a good proxy for future share of throat, while consumers' participation in beer remains stable. This reinforces our view that there are no meaningful short-term structural changes in consumer behavior toward the category. The industry's decline was mostly related to fewer consumption occasions, particularly in the on-trade channel, which was affected by 2 main factors: Number one, weather. The past 6 months were colder than normal, especially in the South and Southeast off a tough comp as 2023 and 2024 were the 2 warmest winters on record. This impact, according to our estimates, represents approximately 70% of the industry decline. And number two, consumer purchasing power. The macro environment, particularly in the North and Northeast, continued to constrain discretionary spending. These are situational drivers for the short-term or cyclical nature, underpinning our confidence in the long-term fundamentals of both the category and our portfolio. That said, let me share 3 potential trends and needs that can turn into structural drivers. Number one, the beer category in Brazil has evolved. We value it, and we will be part of it. However, easy-to-drink beers are still the preferred choice of Brazilians. Number two, certain groups of consumers prefer sweeter beverage. And number three, more consumers are seeking a balanced lifestyle. As a consequence and not by coincidence, we have been working to address these trends and needs. Our portfolio of brands spans a wide range of liquid profiles. Our easy-to-drink brands are relevant in all price segments and the brands that are growing the most in our portfolio address such need. We already lead the ready-to-drink space with products such as Beats and Brutal Fruit, which cater directly to the sweet-seeking consumers. Additionally, we are launching Flying Fish, a successful international brand with the aim of developing the flavored beer segment in Brazil. This segment has been growing globally, reaching over 3% mix of the beer industry in several countries. And for balanced lifestyle seekers, our non-alcohol portfolio, together with Stella Pure Gold and Michelob Ultra has a strong appeal, offering moderation alternative without giving up the great beer experience. In summary, while we read the current industry headwinds as situational, our strong portfolio and innovation agenda ensure we remain well positioned to capture future growth and keep shaping the beer category. Now let's move to our performance in Brazil beer. Over 100% of the volume decline is explained by the industry performance. Our brands once again improving equity, gaining low single-digit sellout market share according to Nielsen, while expanded net revenue per hectoliter. The market share gains came across all relevant segments. In the core segment, volume declined by low teens, reflecting the overall industry context. However, the market share progressed versus last year as relative price improved through the quarter. Premium and super premium brands once again stood out, growing mid-teens and gaining sellout market share, reaching close to 50%. After 6 years of consistent recovery, we achieved the highest share level since 2015 according to our estimates. This performance was driven by Original, Stella family and Corona, the latter 2 at the top end of the price index. And our balanced choice portfolio maintained strong momentum, growing mid-60s. Stella Pure Gold more than doubled its volumes. Michelob Ultra grew over 80%, and our non-alcohol beer portfolio expanded by low 20s, further strengthening our leadership in the segment. Moving to Brazil NAB, throughout 2025, the CSD industry has experienced a deceleration from up low single digit in Q1, to down mid-single digit in Q3 according to Nielsen, driven by similar situational factors that impacted the beer industry. In addition, our revenue management decisions last quarter led to an inventory phasing into this quarter, impacting sell-in performance. In this context, our brands continue to strengthen and our market share grew year-to-date and was stable to low single digit down in the quarter according to our estimates with a net revenue per hectoliter above inflation. Our nonsugar portfolio once again delivered double-digit growth and now accounts for more than 25% of total NAB volumes. In Argentina, the consumption environment remained challenging. Our beer volumes declined mid-single digit, underperforming the industry, reflecting an unfavorable temporary price relativity dynamics. However, brand equity remained stable, supported by the strength of our mega brands. Furthermore, we remain constructive on the long-term prospects for both the country and the beer category. In the Dominican Republic, the operating environment and beer share of throat continued to improve sequentially, supported by a healthier price relativity across categories. Presidente brand, the cornerstone of the category, strengthened its equity once again, reinforcing its leadership and cultural connection with consumers in the country. Finally, in Canada, the beer industry declined by mid-single digit in the quarter. We estimate that we outperformed the industry in both beer and beyond beer. The Ontario market continued to progress, supported by the route-to-market expansion implemented last year. Our beer performance was led by Michelob Ultra, Busch and Corona, which we estimate were among the top 5 volume share gainers in the industry. Now let me hand over to Fleury, who will walk you through our financial performance in more detail. Guilherme Fleury de Figueiredo Parolari: Thank you, Lisboa, and hello, everyone. Today, I would like to walk you through our financial performance highlights using our capital allocation framework. Starting with our priority #1, to invest in our business. Here, our focus is to allocate capital efficiently and maximize return on investments. One way we do that is by driving efficiencies across our cost and expenses baselines, freeing up resources to continue to invest behind our business and our brands, strengthening the connection with our consumers. Building on that, in quarter 3, our disciplined cost management allowed us to quickly adapt our brewing processes to a more challenging operating environment and deliver strong productivity with tighter process controls and lower conversion costs, mainly in our vertical operations. As a result, we expanded EBITDA margin in most of our business units once again. Now moving to net income. Our normalized net income reached BRL 3.8 billion, up 7% year-over-year, mainly driven by a lower effective tax rate, which more than offset higher financial expenses. Our stated net income reached BRL 4.9 billion, up 36% versus last year, reflecting one-off effects I will detail in a moment. In this quarter, our net financial expenses closed at BRL 1.1 billion, about BRL 400 million higher than last year, mostly due to 2 factors we already addressed in quarter 2. One, a higher FX hedging carry costs in Brazil due to interest rate gap between Brazil and the U.S. And two, the cost of sourcing U.S. dollars in Bolivia. On income tax, our effective tax rate in quarter 3 was 6.7% compared with 23.6% a year ago. The decline reflects mostly 3 one-offs, which totaled BRL 630 million and didn't have a relevant cash tax impact in the quarter. Excluding them, our effective tax rate would have been around 20%, consistent with recent levels. Let me go over them. One, following a change in legislation, we recognized a partial reversal of previously recorded tax liabilities associated with the 2017 amnesty program as detailed in Note 8.2 to our Q3 financial statements. Number two, fiscal incentives recognition. And number three, the Barbados divestment that generated a gain of BRL 884 million, where part of it was nontaxable in Dominican Republic. The sale of Barbados is a tangible example of our second capital allocation priority at work, evaluate inorganic opportunities. Here, we completed the first steps of the transaction, transferring control to KOSCAB, a long-term partner in the Caribbean. The transaction simplifies our structure and keeps our brands in the region. Further details are disclosed in Note 1 to our financial statements. Lastly, regarding our third priority, return cash to shareholders over time. As we approach the end of the year, I remain confident on the consistent cash generation of our business. Cash flow from operating activities remained solid, totaling BRL 6.9 billion despite softer volumes and higher cash taxes this quarter. Versus 2024, our cash flow from operating activities is down BRL 1.2 billion, mainly due to a slower monetization pace of existing income tax credits in Brazil. These credits will continue to be used over time, aligned with our tax strategy and are detailed in Note 7 to our Q3 financial statements. Lastly, during the year, we already announced a total dividend of BRL 6 billion. Also, as Lisboa mentioned, we are starting a new BRL 2.5 billion buyback program after the completion of the previous one in June. Both the dividend distribution and the share buyback program reinforce our confidence in our business and our commitment to returning cash to shareholders over time. With that, let me hand it back to you, Lisboa. Carlos Eduardo Lisboa: Thank you, Fleury. As we start the fourth quarter, I believe that we are well positioned to close the year on solid footing and to start 2026 with strong momentum. We are also excited for the FIFA World Cup next year, a great opportunity to connect again 2 of the greatest passions in Latin America, beer and soccer. To close, I want to thank our team for their resilience, especially in moments like this. Our grit and focus on what we can control are inspiring and give me even more confidence that we are becoming a better version of ourselves. Thank you for your attention, and I will now hand it back to the operator for the Q&A. Operator: [Operator Instructions] Our first question comes from Lucas Ferreira with JPMorgan. Lucas Ferreira: My question is on the COGS line. I think that was one of the positive surprises we had with the results, especially in a quarter where production probably was softer, right? I was expecting some sort of effect of a lower fixed cost dilution, but COGS came better than expected. So if you guys can explore that in a bit more details why the COGS were lower specifically this quarter? Does it have to do with the hedging strategy, some sort of a calendarization of that hedge effect or -- but also on the initiatives for reducing your cost base, if you can get into this? And then since you're reiterating the guidance, what would imply for the fourth quarter like sort of big acceleration of the cost per hectoliter, if this acceleration is also has to do with sort of the hedging calendarization or if there is anything else that we have to be aware of? Guilherme Fleury de Figueiredo Parolari: Lucas, it's Fleury here. Can you hear me well? So Lucas, let me just start by saying that, as you probably remember, I think Ambev has been known for its very strict discipline and action-driven organization. And I think that comes on over time. Working in emerging markets, we developed a capacity of navigating volatility while delivering results. Why I'm starting with that is because if you go back one step in Q2, I mentioned to you guys that most of the benefit that we were having in our COGS was related to the SKU rationalization and what we control. On Q3, it's not different from that. It comes from a series of initiatives on what we can control. That goes from production costs, to breweries footprint and production and also utilizing our vertical operations in which we normally have better costs. So in essence, I think this is what the company does well. It's really focused on what we control, a series of initiatives. And I might frustrate you, there's no one single one, but there's a collection of initiatives that has been working through the organization with PMOs, of course, with Lisboa and myself with several areas. So that's how we were able to achieve, I would say, a positive cash COGS increase compared to what we have said before. Now moving to guidance. I think Lisboa made it very clear on his initial speech, but I will reinforce. The guidance is the guidance. We are not changing our guidance for Brazil beer cash COGS per hectoliter, excluding marketplace. What is important to highlight is now with what we know, we will continue to work very hard to deliver the guidance within the first half of the range, if I may say, 5.5% to 7%, which is our ambition. And by doing that, together with our continued disciplined revenue management, I believe we could potentially look into the expansion of margins over time. Operator: Our next question comes from Henrique Brustolin, with Bradesco. Henrique Brustolin: I wanted to explore a little bit more the beer industry environment in Brazil. Very interesting, the comment you made, Lisboa, in terms of the weather representing the 70% of the decline and the remainder, the weaker consumer. I would like to hear a little bit more how you see this trend shaping up into Q4, especially if you could comment on the consumer part of this equation. And also, given that the headwinds were apparently different, right, in the North, Northeast than to the South, Southeast, if you also saw any big difference in terms of the volume performance across these 2 regions or even how the portfolio performed within the different categories? These would be my questions. Carlos Eduardo Lisboa: Henrique, nice talk to you. Thank you for the question. Let me highlight a few points here to clarify some of your doubts, right? First and foremost, everything that we see somehow is very aligned with what we flagged in our second quarter result announcement, right? So -- but having said that, during the quarter, we saw the most important driver, situational driver, which was the weather gaining even more relevance, right, since the winter time pretty much took the entire quarter, right, different from what happened in quarter 2 when mostly impacted June, right? So I think the most important point to have in mind is the following. The underlying consumer engagement, which we measure based on participation and category equity remains very solid, right? And the decline was pretty much connected to a reduce in number of occasions, right? And the reason why for that is exactly the 2 situational factors that I flagged in the beginning of the conversation in the session, right? South and Southeast, pretty much the reasons where we see accounting for majority of the volume in Brazil, pretty much 60%, impacted by colder and rainy conditions compared to a drier, right, and hotter conditions last year, right? And the North and Northeast, the other impact, right, which is connected to disposable income constraints, which, by the way, also impacted the first quarter. This was not necessarily a surprise for us. We have been measuring that since the beginning of this year, right? So it's interesting to see that especially the weather, but also the disposable income constraint impacted mostly something that we also highlight during the second quarter announcement, the out-of-home occasion, which is very relevant for beer in Brazil, right? In other words, impacting particularly bars and restaurants, right? So now moving towards your question about what's coming, right, more. So -- when we reflect about the situational end, right, which is weather and income, the weather remains in October, still a concern for us, Henrique, because we haven't seen any meaningful change. On the other hand, on the structural end, we also see a continuation of a good momentum our brands presented in Q3, right, which is what gives us confidence that we are well positioned for the quarter to come -- the last quarter to come this year, which will give us a pretty nice carryover into next year, which was the part of what we -- sorry, that we had a technical issue, but I was highlighting that we feel good and optimistic about the year to come because we're going to have the chance to jump into a year when we won't probably see that much of a hard comp impact coming from the weather, which was the most important detractor, right, situational detractor for us this year, combined with the chance to put together -- unite 2 amazing passions for Latin Americans, which are beer and soccer with the World Cup. And on top of that, as I mentioned before, this year, when we reflect about participation and occasions, occasions were more impacted by the 2 situational factors. And next year, we're going to have the chance to explore more occasions since the World Cup time will match exactly with the hardest period for us in the year. And on top of that, especially in Brazil, we're going to have a pretty interesting number of holidays that will help us create new consumption occasions for us. Operator: Our next question comes from Nadine Sarwat with Bernstein. Nadine Sarwat: Great to see your commentary about Ambev reaching nearly 50% share of Brazil premium and super premium beer for the first time in a decade, and I appreciate the comments that you made in your prepared remarks. With that benefit of hindsight now of the 6 years of seeing that improvement that you called out, can you comment on which initiatives you feel have been the most successful in getting you and your brands to this point in that segment? And what are your aspirations for your share of that segment over the coming quarters and years. Carlos Eduardo Lisboa: Nadine, thank you for your question. Very interesting. As you said, was a true V curve for us since 2015 until today, right? And just to emphasize what you said, in the last 6 years, we gained 14 points of market share, consistent every single year. And that came mostly as a consequence of our ambition, Nadine, of being a true category captain, right? A captain that will bring to our consumers, not only in Brazil, but across the board in all markets. But since your question is about Brazil, but especially in Brazil, more and more alternatives to enjoy beer in different occasions. And by doing so, expanding our portfolio, we also have a chance to bring more consumers to our portfolio, right? So if I have to answer your question with just one point, that would be my answer, right? Because we are here to build a portfolio strong enough to make our category even more appealing to our consumers. And by the way, beer in Brazil has one of the strongest equities across all markets globally, okay. And the point about the portfolio that I also like the most is the following. We know that as consumers graduate and as we bring new consumers to the category, they want to have optionalities, right? They want to attend different needs in different occasions. And that's exactly when the portfolio makes a difference, right? And today, we have a pretty interesting portfolio with complementary roles to play this mission, right, from Original to Spaten, right, in the first layer of the premium. And then to Corona and Stella family in the latter part of the pricing index with different emotional and functional benefits. And the interesting piece of that is since they are complementary, they are bringing incrementality for us instead of only cannibalization, right? And this is the, in my point of view, the magic around what we are doing here. And it's very interesting because the same way we are building premium, now we are building a new growth engine that we call balance. And the balance piece is also gaining a lot of acceleration. And on top of that, something that I'm not sure was that clear for you all, we are building a new growth engine beyond beer. And that beyond beer business during the last 3 years had been growing double digits, and we have been growing ahead of industry. And today, we are also the leaders as we are the leaders in beyond, as we are the leaders in premium, right? So in essence, we are leading where growth is and where growth will be in the future. Operator: Our next question comes from Thiago Duarte with BTG. Thiago Duarte: My question is, I'm trying to get a sense of the sustainability of the SG&A reduction that we saw not only this quarter, but I think throughout the year, although it might have been stronger this quarter. In the release, you mentioned the variable compensation accrual changes. You also mentioned the phasing in marketing expenses in CAC. So my question is, of the 0.4% consolidated organic reduction year-over-year in SG&A in the quarter, how much would you say is related to this phasing of marketing and bonus accruals? And how much you believe it's more of a sustainable gain in efficiency that you saw in expenses. Then if I may, a quick second question related to pricing in Brazil, Beer Brazil. So I think that's more to you, Lisboa. Looking at the volume performance of the last 2 quarters, how surprised are you of the demand reaction to the price hike that you guys implemented ahead of the second quarter? And how that potentially affects the implementation of pricing that you normally do historically in Q4 of every year? Those would be my questions. Guilherme Fleury de Figueiredo Parolari: Lisboa, do want me to start? Carlos Eduardo Lisboa: Yes. Guilherme Fleury de Figueiredo Parolari: So Thiago, thank you very much for your question. Let me start more broadly, then I'll go into the details. If you look into our consolidated income statement, but that applies to most of the markets in which you operate, what we've been doing is we continue -- despite the impact that we had in volume, we continue to invest in sales and marketing as a percentage of net revenue, slightly increased quarter-over-quarter, and that is the investment that we're very careful of maintaining. Why? Talking about sustainability, is that is the one that connects our brands with our consumers, and that's how we connect with our flywheel on value creation. Specifically, what happened throughout the year is like we've been, I would say, managing well distribution costs even with lower volumes. So we were able to have a better absorption of fixed costs even with declining volume. And on administrative expenses, I think here, it connects a lot with the way we compensate our executives and our employees. If you remember, Ambev is very well known for having a part of the compensation, which is variable, which is important for us, and it's very connected with the performance of the year. If I were to summarize, there are 3 parts. One is the base salary. The other one is the variable compensation, and we also have long-term incentive plans that are discretionary and distribute in order to make for the variance in value creation over time. This long-term incentive is normally share related. So the employees and executives receive with a tenure of 3 years with that. Specifically this year, when I'm talking about variable compensation, this connects a lot with our company, which is in a difficult year, even though we've been working very hard on the levers that we can control, and we are delivering still like margin expansion, so on and so forth. It's also we've been going through a difficult time that is not structured. As Lisboa said, it's conjuncture that affects the volume. Therefore, the variable compensation of our teams were aligned with that. And with what we know today, what we have done was an adjustment on the accrual that we've made throughout the year. So to summarize, we are continuing to invest on what is very important, which is sales and marketing. Our focus and discipline is also helping on the distribution and on the admin that is very connected with how we see the performance of our company with this adjustment on the variable compensation for the year. Now I'll turn to Lisboa. Carlos Eduardo Lisboa: Thiago. Let me touch on the second part. I think the most important message for you is the following. According to our modeling, industry modeling, our price increase has no impact whatsoever on the industry performance this year due to the fact that prices for the industry, for beer, they are still below inflation. What brings somehow a small impact, very small compared to the situational factors that I flagged before is the mix piece because it continues to grow way ahead of volume average growth with a higher price level. But in the end, consumers always have a chance to choose brands without such a higher price to consumer, right? And that's the benefit of having, again, a strong portfolio of brands. and that's exactly what we hold here in Brazil, right? Not only strong core brands with different competitive situations by region, which differ a lot, by the way, in Brazil. Brazil is a continent, right? And on top of that, we have the premium portfolio that also give us optionality to play around and it's very interesting because we are gaining new capabilities with our digital ecosystem, right? And BEES -- within BEES, we have an AI-powered revenue management. In other words, we can personalize promotions to boost sales, optimize discounts and increase ROI simultaneously, right? In the end, just to finalize the point and somehow addressing the final piece of your question in terms of ambition, our ambition is always to keep our prices in line with inflation because we know the pricing component is a very important accessibility for consumers in Brazil, right? And a good part of our consumers come from middle, low pyramid of the population. So it's important for us to always keep control in order to allow them to stay connected to the category. Operator: Next question from Isabella Simonato with Bank of America. Isabella Simonato: I would like to follow up on your last answer, right, about price and volume correlation. I mean, I understand that beer inflation is pretty much in line with general inflation in Brazil. But my guess is that the timing of the price increase, right, that you guys did in June, and that was followed by the competition in the middle of a bad weather season, right? I mean, how much could that have exacerbated or created a different elasticity, right, to that price increase in the moment that it was done? I think -- that's my question. And a little bit similar to what we saw on NAB, right? Because I think it was really surprising to see volumes coming down by that much, especially when we look at the competition, right, volumes move up in the quarter. So I believe you lost share, but more to understand the pricing strategy for this quarter, which unlike peers, is well above inflation, right, and to understand how you're guys seeing the volume reaction on that segment as well? And if I may, a second question on LAS. I think we saw a big -- pretty important pickup on margins. Just if you could elaborate a little bit on the drivers of that, even though volumes in Argentina were not that strong, I think, will be clarifying. Carlos Eduardo Lisboa: Isabella. Look, as you said, beer CPI in line with overall CPI, no change there, right? According to our models, no different elasticity despite -- or caused by the unfavorable weather, right? So in our point of view, the timing of our price increase was very interesting, came at the right moment for us to avoid any kind of distraction vis-a-vis what we flagged for you all in the beginning of this year in terms of ambition for us, right? We said we want to protect and evolve with the profitability of the industry. We want to keep a very tight control and disciplined cost expenses because in the end, we want to bring growth with profitability. That's what we said, and we continue very focused behind that. On the situational side, meaning weather and disposable income, both categories, both industries, right, beer and soft drinks, were somehow impacted, right? But always keep in mind that for beer, the impact is harder because it is impacting mostly the most important occasion for the category, which is out-of-home, right? And you all know what I'm saying here, right? But pay attention to the following. The point about -- I think it's a little bit tricky to compare both businesses, right? We took the price increase for beer in the second quarter of this year. During the third quarter, we saw the relativity change, right, gap shortening, and that gave us the chance to put our share back on track. In fact, we see the balance between share and relative price even in a better position today than before than last year, which is very interesting for us, right? On the contrary, actually, what happened with soft drinks, we increased -- we had our revenue management agenda impacting mostly the end of the quarter 2, right? And that brought an impact and a difference between sell-in and sell-out according to Nielsen, right? The CSD industry declined by mid-single digits, which was pretty much in line with our sellout, okay? The difference comes exactly from the inventory, and that is the consequence of our revenue management decisions in the end of quarter 2. Guilherme Fleury de Figueiredo Parolari: Now moving to, Isabella, to your question about LAS. I think when we look at LAS, their story, you need to understand of 2 different markets that consolidates into that. One is Bolivia and one is Argentina. Let me start with Bolivia. Bolivia continued to be a market that we are delivering strong results throughout the P&L, which is more than offsetting the impact that we had in Argentina, which in the quarter, if I may say, the demand was still recovering, but not there yet. So there were impacts on inventory level. And also, we couldn't fully implement our revenue management in Argentina in the quarter given the economic situation there. So it's a story of 2 markets. One is Argentina that is tougher and the other one is Bolivia. Overall, it's very important to highlight that we remain very confident about the 2 markets and specifically in Argentina, which has been a more difficult environment. Just to remember that we are operating there since 2000. And we believe that we have the best portfolio of brands that connect with the people, the right initiatives there on revenue management and cost to make it continue to be an important engine for our company going forward. Operator: Thank you. This concludes the Q&A session. And I would now like to pass the word back to Ambev's team for closing remarks. Carlos Eduardo Lisboa: Thank you for joining our call today. I would like to leave you with a final message. We are becoming a true ambidextrous company, making progress in all 3 pillars of our strategy, resulting in growth with profitability. Year-to-date, our top line grew 4%, while EBITDA was up 8% and EPS grew 7%. We are taking market intelligence to new levels, better understanding our consumers, their trends and translating them into actionable insights, making an already loved category even stronger. All in all, we are leading where growth is, especially in our main market, Brazil. Thank you, and see you soon. Operator: Thank you. This concludes today's presentation. You may disconnect, and have a nice day.
Operator: Good morning, and welcome to the Markel Group Third Quarter 2025 Conference Call. [Operator Instructions] During the call today, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included in our press release for our third quarter 2025 results as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the caption Safe Harbor and Cautionary Statements and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and reconciliation to GAAP for these measures in the press release for our third quarter 2025 results or in our most recent Form 10-Q. The press release for our third quarter 2025 results as well as our Form 10-K and Form 10-Q can be found on our website at www.mklgroup.com in the Investor Relations section. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead. Thomas Gayner: Good morning, Kelvin, and thank you very much. Welcome, and thank you for joining us for today's call. I'm delighted to be joined by my colleagues, Brian Costanzo, our CFO; and Simon Wilson, our CEO of Markel Insurance. We're also joined by Mike Heaton, our COO, for the question-and-answer portion of the call. At Markel Group, we're committed to relentlessly compounding your capital and building shareholder value. I'm happy to report that so far in 2025, we continue to do exactly that. I'm particularly pleased that throughout the first 9 months of 2025, every reportable segment made positive contributions to the value of the Markel Group. They also did so in a capital-efficient way, generating significant cash flows that helped fund our ongoing share repurchases and buildup of liquidity. The first 9 months of 2025 stand as compelling evidence of how our differentiated model works. Brian will provide more on our detailed financial performance in a minute, and Simon will speak about our ongoing improvements in our insurance business. But before I turn the call over to them, I would like to say a bit more about our progress this year. First, as you know, our Board and management have been intensely focused on improving our core insurance business. We've taken many decisive actions over the last few years, including: one, exiting underperforming businesses, most notably reinsurance; two, making key leadership changes, including appointing a new insurance company CEO with a proven track record of success; and three, implementing key organizational and structural changes to improve accountability, including shifting most of our overhead directly into the businesses. I'm pleased to report that these actions are beginning to translate into results as we achieved a combined ratio of 93% within Markel Insurance in the third quarter compared to 97% in the comparable period. While this was aided by light cat activity this year, looking underneath some of the lines we exited, the improvement in our core insurance business is becoming clearer. We believe this is just the beginning. The improvements in insurance profitability so far provide evidence that our actions are starting to drive better results. I think it's also worthwhile to point out that we have reported favorable reserve development on an annual basis each year for more than 2 decades now. This reflects our inherent conservatism and commitment to financial integrity. Simon will provide more comments on our insurance business, but the headlines are that we're doing more of what works and less of what does not. We are simplifying the business, increasing accountability to front lines and setting the stage for renewed growth and improved profitability. In all of the businesses we own and oversee, our CEOs have continued to run their businesses with professionalism, long-term focus and extreme skill, navigating through volatile and uncertain economic conditions to deliver strong returns on capital and profitability. The Markel Group system also continues to generate significant cash flow, offering further evidence of the strength of our model. Over the trailing 5 years ending September 30, 2025, our cumulative operating income was nearly $13 billion. This incoming cash gives us financial strength and offers us flexibility to pursue opportunities we understand with partners we trust while returning capital to our shareholders at the same time. Our opportunity set is significant. We can reinvest in our existing businesses or expand into new public and private businesses. Much of our growth capital has been deployed in the industrial, consumer and other and financial sectors, where over decades, we have developed a core set of competencies around culture, capital and leaders, each of which adds to our ability to relentlessly compound your capital. I'll also note that we've earned strong returns on those investments. In the 5-year period of 2020 to 2024, the insurance, industrial, financial and consumer and other segments of Markel Group paid dividends up to the holding company of approximately $2.2 billion. We invested $1.7 billion in acquisitions and additional interest in our existing businesses, primarily in the industrial and consumer sectors, all while supporting substantial growth in insurance. Regarding share repurchases, from the end of 2020 through the end of Q3 2025, we've returned approximately $1.9 billion of capital to shareholders via repurchases, again, while strengthening the balance sheet. Share count was reduced from 13.8 million to 12.6 million. In our investment operations, we continue to remain focused on preserving and protecting your capital. We earned 8.4% on our equity investments so far in 2025. The book yield on our fixed income is 3.5%, and our reinvestment yield was 4.2%. We aim to be thoughtful stewards of capital and seek to match our liabilities by investing in only the highest rated fixed income securities. This safety-first approach has served us well. We are then able to utilize the strength of our balance sheet to invest in the areas where we see the best opportunities to deploy capital. As part of our Board-led review, we also committed to improving our financial disclosures to ensure that you can better see where our earnings come from, how we allocate capital to its highest and best use and how capital has performed overall and in all parts of the Markel Group system. Last quarter, we enhanced our disclosures for the insurance operations to better align it with the business' strategy and provide more detail for investors. This quarter, as you can see from our 10-Q and the supplemental materials we provided yesterday evening, we have provided additional new disclosures, including now reporting our business results into 4 segments: insurance, industrial, financial and consumer and other. I'm sure it will take a little time for everyone to process and digest our new disclosure format, but I hope you will find it helpful in how it describes the ways our diversified set of businesses reinforce our overall financial strength and stability and how our significant reinvestment options and highly efficient and low-cost capital allocation all work together to generate steady and diverse cash flows and relentless compounding of your capital over time. We believe that a key part of our success has always been how our Board and leadership team maintain strong oversight over the company's operational, financial and value performance, always evaluating ways to improve. With that, I'd like to turn things over to Brian. I look forward to answering your questions after he and Simon provide you with an update. Brian? Brian Costanzo: Thank you, Tom. Good morning, everyone. As Tom mentioned, after a listening tour with our investors earlier this year, we decided to undertake the effort partnering with our Board and third-party advisers to further enhance our financial disclosures. Markel Group's evolution created the opportunity to take a fresh look at how we report our financial results to shareholders. We released the first part of these changes in the second quarter to align with our reorganized Markel Insurance segment. Last night, we released the remainder of our changes across Markel Group. We are excited to hear your feedback. We believe that these changes will help investors both better understand your company and provide improved insights into how both Markel Group as a whole and its family of businesses are performing. While I will reference several of these changes as I walk through our quarterly results, the primary changes to our financial disclosures include changing how we present investment gains and losses to provide investors with a better sense of reoccurring operating results from our businesses through: first, moving the presentation of investment gains and losses to outside of revenues; and second, introducing a new metric for adjusted operating income, which excludes investment gains and amortization expense from our operating results. We also reorganized our business results into 4 reportable segments: Markel Insurance, Industrial, Financial and Consumer and Other, and shifted to adjusted operating income as our segment performance metric for each of our reportable segments, collapsed our investments segment into the new reportable segments, introduced new consolidated and segment-level KPIs such as organic revenue growth and return on equity for Markel Insurance; and finally, updated business descriptions to help investors more fulsomely understand our family of businesses across the variety of industries in which we operate. We also created a Reporting Changes Guide for shareholders, along with supplemental recast financial information that aligns with our new segment structure for the trailing 7 quarters. We filed both by an 8-K last night, and they are available to you now on the SEC's website and our Markel Group website. We hope these tools are helpful in navigating through the changes in our financial disclosures. With that, let's turn to the results for the period, starting with our consolidated results. Consolidated revenues were up 7% for the quarter and 4% year-to-date. Revenues in all periods are conformed based on our updated measurement, which excludes net investment gains from our total revenues. All reportable segments were up year-over-year for both the quarter and year-to-date periods. Operating income for the quarter was $1 billion versus $1.4 billion in the comparable period last year. Operating income includes net investment gains, which as historically been the case, drove most of the year-over-year variance. Net investment gains were $433 million for the quarter compared to $918 million in the comparable period last year. Our new metric of adjusted operating income totaled $621 million for the quarter, up $121 million or 24% versus the same period last year. A quick reminder that adjusted operating income excludes net investment gains and amortization expense. We believe this metric will provide better insights on the reoccurring operating performance of our businesses. Insurance contributed $153 million of the adjusted operating income increase for the quarter and $100 million year-to-date due to improvements in underwriting results and increases in net investment income. The other segments were relatively flat compared to last year for both periods. Operating cash flows for the first 9 months were $2.1 billion. Comprehensive income to shareholders was $793 million for the quarter and $2 billion for the first 9 months of this year. Turning now to our operating segments, starting with our Markel Insurance segment. Results from our Markel Insurance segment now include underwriting and insurance activities, along with the results from our investments that are held by Markel Insurance subsidiaries. This change to a balance sheet view let it be clear what the after-tax returns on our insurance capital are on an annual and 5-year average basis. Due to the inclusion of equity securities within our insurance capital, we believe a 5-year average metric is a better gauge of long-term performance. The average after-tax return on equity for Markel Insurance for the 5-year period of 2020 through 2024 was 12%. Underwriting gross written premiums were up 11% year-over-year for the quarter and 4% year-to-date, driven by growth in our personal lines, general liability lines and our international lines for the year and our reinsurance professional lines in the quarter. The increase in reinsurance professional lines was driven by the timing of 2 large contract renewals that occurred prior to the execution of the renewal rights deal. Premium volume for the quarter within our Wholesale and Specialty division was down 6% versus last year, due to the exit of our U.S. risk-managed professional liability lines earlier this year and down 1% excluding the 5% impact from these exited lines. Our International and Programs and Solutions divisions both had strong growth in underwriting premiums in the quarter of 25% and 12%, respectively. Earned premium was up 5% for the quarter and 2% year-to-date due to increased growth in more recent quarters. Adjusted operating income for Markel Insurance was $428 million for the quarter, up from $276 million in the same quarter last year. The combined ratio for the quarter came in at just under 93% compared to 97% last year. The 4-point improvement consisted of lower cat activity, which drove 3 points of the difference with lower losses from CPI contributing another point. For the year, the combined ratio stands at 95% for both periods. The results from our runoff Global Reinsurance division added 2 points to both our current year quarter-to-date and year-to-date combined ratios. Our International division continues to produce fantastic results for the year, with a year-to-date combined ratio of 84%. The quarter and year-to-date expense ratio of 36% is slightly higher than a year ago. Higher expenses were primarily driven by higher personnel costs, primarily within our international division, and increased third-party professional fees and severance costs. Prior year loss development was consistent at 6 points favorable in both the quarter and year-to-date periods in both years. For our 2025 year-to-date results, favorable development across several product classes across the globe was partially offset by adverse development in our reinsurance casualty lines and in our discontinued risk-managed professional liability lines, both of which were recognized during the first half of this year. Investment income within our insurance operations was up 10% for the quarter and 9% year-to-date due to higher interest rates and volume of investments held within our fixed income portfolio. As a reminder, 96% of our fixed income portfolio is rated AA or better. Moving next to beyond our Markel Insurance segment and starting with the Industrial segment. Revenues were $1 billion, up 5% versus the same quarter 1 year ago, driven by increased industrial production activity and demand in the wind energy, construction and building products industries, partially offset by softening demand in the auto industry. Adjusted operating income was $101 million for the quarter versus $112 million in the same quarter a year ago, down 9% year-over-year driven by softening demand in the auto industry and higher raw material and labor costs across several businesses. Next, within our Consumer and Other segment, revenues and adjusted operating income within the Consumer and Other segment have a significant seasonal variability due to the timing of sales of ornamental plants, which are heaviest during the second quarter of the year. Revenues were $291 million, up 10% versus the same quarter a year ago. Revenue growth benefited from the acquisition of EPI and higher sales volume of ornamental plants. Adjusted operating income was $17 million for the quarter versus breakeven in the prior year. The increase year-over-year was driven primarily by the contribution of EPI and increases from operating leverage resulting from the higher sales of ornamental plants. Next, within our Financial segment. Revenues for the quarter were $162 million, up 16% year-over-year due to higher fronting fees and earned premium within our program and lender services products. Adjusted operating income was $61 million for the quarter, down 23% from the same period last year driven by favorable loss development on the runoff reinsurance contracts for Markel CATCo Re, which were recognized in the third quarter of 2024, all of which was attributable to noncontrolling interest. Excluding that impact, adjusted operating income across our other businesses was up notably in line with the revenue growth. Finally, regarding capital allocation. For the year, we repurchased shares totaling $344 million, reducing our share count to 12.6 million shares from 12.8 million at the end of last year. With that, let me pass it over to Simon to discuss more about Markel Insurance. Simon Wilson: Thank you, Brian. Good morning, everyone. It's great to be with you on the call today to discuss a solid set of results for Markel Insurance for the quarter with a combined ratio in the low 90s and GWP growth of 11% versus Q3 last year. This growth is mainly being driven by our high-performing international and personal lines divisions, where prior year strategic investments in new people, products and systems are paying off. Where our performance is more challenged or market conditions are less favorable, we are concentrating on improving the portfolio, and as such, growth is muted. Cycle management remains at the forefront of our minds, but we are taking advantage of areas where we have developed competitive advantage. The team at Markel Insurance couldn't be more aware that we need to demonstrate genuine progress to you. It is good to be started along that path. The coordinated set of recent actions are beginning to have an impact on the organization. Step by step, we're working towards achieving our full potential. Step 1, the first big step we began in earnest around 2 years ago when we began reshaping our portfolio with a particular focus on casualty and professional classes in the U.S. In both areas, we have made meaningful changes to tighten our risk appetite as well as improving pricing and terms. Where we were unable to achieve the required improvements in specific areas, we made the decision to exit lines. As a result, we've seen tangible benefits. Our year-to-date combined ratio within our recurring business stands in the high 80s. This factors in 2 items versus our reported combined ratio. First, excluding the 3.5-point impact from exited lines, the largest of which are U.S. and European risk-managed professional lines along with CPI and second, a 2-point drag in the overall combined ratio from the Global Reinsurance division results. We're now seeing improved and more consistent underwriting performance in the divisions where these changes were implemented. I remain excited by the sequential improvement. It's still early days, but we believe these early outcomes validate the tough decisions we made to set a stronger foundation for future growth. Step 2, with the portfolio streamlined and greater discipline in place, our next big step began earlier this year, shifting our focus from simply pruning the portfolio and exiting unprofitable lines to actively pursuing profitable growth. Our strategy is based on a clear go-to-market structure, where we have created a series of distinct P&Ls, each headed by a leader who has full responsibility and accountability for the performance of their unit. This structure pushes decision-making closer to the customer and allow for greater speed and response time. Specific actions we have taken are as follows: We have collapsed our matrix reporting structure in the U.S. We reorganized into 4 simple and distinct divisions. We removed reporting of State National and Nephila into Markel Group. We aligned our financial reporting to the new structure so that we can clearly see where there is underperformance that needs to be addressed. We can also see where we are having success, enabling us to divert investments to these areas to continue to fuel profitable growth. We moved over 80% of the people that previously worked for the central functions into the newly created P&L. This provides transparency over costs for business owners and also ensures that the work of these individuals is fully aligned with business needs. And on our last earnings call, I announced the exit of Global Re. Every single one of these changes were designed to simplify our business model and enhance our ability to provide market-leading specialty insurance products to brokers and customers around the world. Beyond these organizational changes, we strengthened our margin of safety by increasing reserves, particularly in our Reinsurance division and our risk-managed or large-account U.S. D&O book. This continues Markel's tradition of conservative reserving, which protected our balance sheet through cycles of uncertainty. We've consistently have reserves that are more likely redundant and deficient, demonstrated through 20 consecutive years of favorable prior year loss reserve releases. Step 3, now that we've made our way through the bulk of the necessary organizational changes, we are turning our focus to execution, including developing bottom-up, customer-focused business plans by our new P&L owners for 2026 and beyond. I'm confident these plans will enhance the experience of our customers, which will in turn grow the business and ultimately increase our profitability. While we are still early in the game, the overall energy and execution I'm witnessing across the business continues to be encouraging. First, let me share a story about our U.S. personal lines business that illustrates the impact of the changes we have made. As we reorganize the business into distinct P&Ls, one business unit that stood out for the right reasons was our personal lines business based out of Wisconsin. This organization has been growing strongly over several years with excellent profitability. Jeff May runs the business and outlined a plan to overhaul the technology stack over the next 2 years. In our previous structure, this investment opportunity hasn't managed to rise sufficiently up the priority list. But now that Jeff sets the priorities for this business, the plan was very much on the table. We took the decision to go ahead with the implementation within days. And Jeff and his team are now implementing a system which will consolidate our position as the market leader in E&S homeowners business in the U.S. with expectations to grow this business to over $1 billion a year in annual GWP. Second is a story about how we are doing more with less in our core U.S. Wholesale and Specialty business. After taking the helm in late April this year, Wendy Houser set about reorganizing our business, Wendy reduced the total number of regions from 8 to 4, simplifying our go-to-market structure and creating the opportunity to reduce costs. Some tough decisions were made, particularly around people, but we're now operating the business at a lower salary base than before without impacting levels of service. The 4 regions have full P&L responsibility with an excellent line of sight into the financials, and so I expect this recent cost discipline to continue. Stories like this exist throughout Markel Insurance. The new structure helps bring them to the surface and enables us to do several things at once. If our business leaders have well-thought-out plans, we are ready and willing to support them. What will success look like a story like this compound? What can you, as investors track to know that things are progressing. Early progress isn't always obvious right away in the numbers, especially in long-tail insurance. It will first show up in the way our people think, the speed at which we move and serve and the trust and credibility we're restoring with our partners and our customers. Some of the signposts or leading indicators where monitoring include employee engagement source, customer net promoter scores, growth in submission count, increase in our quote rate, improvement in our quote-to-bind ratio and growth in new business within our targeted areas. As these indicators start to move in the right direction, the financials should take care of themselves. The WSIA conference in San Diego last month, Wendy Houser, the President of our Wholesale and Specialty division, said very pointedly to the press that we're back. Our leadership team is confident in the changes we've made. It will take time to show up. But with each passing day, the team is working together in new and better ways. I'm excited about our position in the marketplace, whether it's in our top quality international operations, our niche business units such as surety and personal lines, or our improving core U.S. Wholesale and Specialty division. We have plenty of runway to grow and to grow profitably. We'll continue to work hard to make that a reality. With that, I'll hand you back to Tom. Thomas Gayner: Thank you, Simon. And with that, Kelvin, we'll open the floor for your questions. Operator: [Operator Instructions] Your first question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: And I'd like to start in the insurance division with the expense ratio at 36%, which is relatively high versus specialty peers. And then kind of contrast it with what you're doing in technology spend and how to make the company more efficient. Could you talk on the interaction of those 2 dynamics and where the expense ratio could go over the next few years? Thomas Gayner: Thank you, Andrew. I'll ask Brian to start off addressing that. Brian Costanzo: Sure. Let me say a couple of things there. First of all, like where we are this year, we're kind of right where we thought we would be for this year. If you mix in the fact that we've had some product exits, some contraction in a few spots where we needed to shore up the overall underwriting results, that does carry a little bit of a burden on the expense ratio. The other piece I would say is where we are growing. If you think about those classes, international lines in Europe, expansion in Asia, U.S. surety, those lines are very, very profitable for us, but they do shift the mix between the loss ratio and the expense ratio that are added to the expense ratio overall. From an investment standpoint, Simon mentioned the investment in the personal line space. Now that we have individual businesses, we have an investment portfolio that's out there. We're looking to make the investments that we need to, to kind of shore up our results overall. While we're focused on expenses and managing those and we expect to bring those down over time, we're really focused on the combined ratio and the overall profitability of the business and in our return on equity, the new metric that we put out there and that overall kind of capital return and the returns that we produces inside of insurance. Maybe the last thing I'll mention there is we talked about the exit of Global Re in that division. And while that division has poorly performed from a combined ratio perspective and been a drag on the results, 2 points kind of in the quarter and year-to-date, that division does have a lower than kind of normalized expense ratio for us. So as that premium burns off, at around a 28% expense ratio, that will be a little bit of a drag on the overall reported expense ratio as the earned premium remix is back to the insurance side. Simon Wilson: Maybe, Brian, I might just add a couple of points on this, Andrew, as well. It's Simon. Look, I'm obsessed with the combined ratio. That's the most important metric that we have overall. Brian talked about the mix between some of our business units, which have been performing incredibly well the last few years. And the odd thing is there that mainly they've had a high expense ratio. Now what I wouldn't say is that a high expense ratio leads to a great combined ratio. That's not the point here. But what we do need to be very conscious of is as we look to the expense ratio and we look to reduce it, and we very much are focused on that as a strategic imperative, we need to do that in areas where we're actually cutting costs out of the business, which are frictional costs. There are some costs here where there are genuine investments like the personal lines thing, it will probably heighten the expense ratio for a couple of years in that area. But in the long term, that creates a heck of a lot of scale potential within a business like personal lines. Where I'm really looking for the rubber to hit the road is in these individual P&Ls and looking at individuals who want to invest in the business. That case has to be rock solid because anything which is just sort of fat within the organization, I think that's going to get highlighted a lot more than it has been in previous years now, and we're going to go after that. We're going to go after it hard. So the point I'll make is we have got a focus on the expense ratio. It is in the context of the most important metric that we have is the combined ratio, but we're looking to get rid of expenses that aren't additive to the business. But we're not going to stop investing in areas that I think it's got a great potential to build the franchise over a period of time. So it might be a bit bumpy over '26 and Brian spoke about Global Re there, but believe me we will be focused on that metric as we go through '26 and into '27, it's an area where we do need to improve. Andrew Kligerman: Very helpful. And then maybe just thinking about gross written premium, which was strong at 11%. And I mean international has been just a really bright spot. But looking at U.S. Wholesale and Specialty, I think Brian said the exit of the risk managed business, the U.S. risk managed business, it was up about 5%, and then in Programs and Solutions, we saw a 17% increase, could you give a little color on where you're seeing the successes in programs and U.S. Wholesale and Specialty, respectively? Brian Costanzo: Yes. Maybe I'll start, Andrew. On the Wholesale and Specialty, so the reported results was down 6. 5 of that 6 points we were down was the impact of the risk-managed product line exit. So down 1, excluding that, relatively flat. What I would say there is you think about the 3 products we write there, professional, casualty, property, casualty is up while we're being very selective, but we're getting good rate on that business, low double-digit rate on kind of primary, higher than that on more excess lines. So the growth is not growth in exposure. It's growth driven by rate. Property, we are trying to grow, but there's a little bit of challenge in the rate environment there. Professional has been relatively holding flat. We've been growing a little bit in our management liability lines and some of the commercial professional. But that is an area both in the property and the professional space where growth in the future is where we're targeting. Simon Wilson: Yes. And obviously, let's talk about -- we'll talk about Wholesale and Specialty first. You just mentioned that the sort of the nuts and bolts of that, Brian. That, I would say, Andrew, we've got to get to grips with the loss ratio situation in that business. That's what's been hurting us. That's why we've made those decisions to exit lines in the various areas. And frankly, casualty is a difficult class of business. At the moment to get the price right, we can see that. So selective in terms of our risk appetite, making the right decisions in terms of additional pricing. And those 2 bits in combination should get us to the combined ratio that work for us. But we're not -- we're certainly not putting our foot to the floor in the casualty area even though the rating is pretty attractive, in some respects, just because the exposure there is equally -- probably tricky in terms of where to place your chips in that particular area. Elsewhere in Wholesale and Specialty, yes, there's competition in the professional and the property. We think that we've got a really good mouse trap in those 2 areas to attract business into Markel, the clarity of the new structure, I think, is paying dividends with our partners, the broker partners that are out there. And I think that will continue to attract business back into the Markel that's within appetite and at the right price. So there will be continued headwinds from the market conditions in those 2 areas. Programs and Solutions, really nice business areas. They're very discrete. And I think we've mentioned personal lines where we feel we've got probably a better product and a really good way of interacting with that particular area. We're also seeing a lot of growth and a lot of growth opportunity in the program space. The business that's run by Jeff Lamb here. That is an area where it's clear that many of the large wholesale brokers are investing a heck of a lot of resource into those -- into that program space. That provides opportunities to us. We are highly, highly selective in that space, but just the number of new opportunities that are coming through. The desk is driving a degree of growth there. And we think we've picked some good programs to be on, which are growing with in the marketplace. Finally, I'd probably call out the workers' comp business and the surety business continue to be really solid businesses for us. They've been fairly discrete within the Markel Insurance world. We now called them out that much more. But because they've got those singular leaders on top, they are able to focus on the customers and focus on the actual products that they're getting over the line there. And I think that additional degree of independence is allowing those businesses to grow, and I think that will continue over time. So Programs and Solutions, I think there are some specific market conditions, which continue to help us. I think the new structure helps those guys. In Wholesale and Specialty, it's loss ratio first alongside the combined ratio. And I think as that stabilizes, as we go into next year, I think our position in the market will help us continue to grow in that particular area in areas that we think we can make profit. Brian Costanzo: Maybe on the international side, I'll add. That's a place where we've been consciously investing in people, some of the driver of the elevated expense ratio is the personnel costs in that division. You're starting to see the fruits of that coming through the top line with growth in kind of expanded territories in Asia and Europe, along with product expansion where we've been rolling out casualty products to more geographic regions. We've invested in people in both of those spaces, seeing that start to come through the top line growth more pronounced this quarter. Operator: Your next question comes from the line of Andrew Andersen, Jefferies. Andrew Andersen: Some good favorable reserve development overall. If I were to maybe just pick at one thing and a question here is I think you called out some adverse on international professional liability. Can you maybe just expand on that just expand on that, maybe what accident years? And the reason I ask is I think you were releasing from international professional liability in '23 and '24. Brian Costanzo: Yes, that is correct. We did have a couple of large claims come in and large claims. I'm talking the 5 million, 10 million-ish site claims from a net standpoint to us. While we had adverse development there, it's nothing to the range of the things we've been talking about in the past few years. So it's a fairly modest amount. It just happened to be the driver in the period. We feel really good about overall that book and the profitability. In terms of the periods, it's more -- it's not in the current year. It's more of the couple back prior years than it is the current year or in years that are more deep into the tail. Andrew Andersen: And then just thinking about capital management. Buyback has been maybe a little bit lighter in the last 2 quarters than I would have otherwise thought. So I would love to just hear your thoughts, Tom, on kind of capital deployment priorities, whether it's buyback. And I think there might have been an article earlier this quarter just about insurance M&A perhaps being back on the table. And maybe that was misconstrued, and it was more of a comment around teams and technology for insurance M&A, but I would just love to hear your overall thoughts there. Thomas Gayner: Well, I think you answered the second part of the question, when you asked it. So I think it was misconstrued. We have successfully added teams and talent over the years, and we look to continue to do that. The first important principle is actions speak louder than words. The #1 use of capital and capital deployment we've had for the last couple of years has been buying back our own shares. We're price sensitive when we do so. Unfortunately, market seems to be acknowledging and understanding and appreciating a bit the changes we've made here. And you look year-over-year, the stock price was up at any given point in time, 15% to 20% compared to what it had been last year. So we respond to that. We're sensitive to that. We continue to buy stock through our program on a daily basis. And you can expect us to continue to do that, and you can expect us to be very rational and buy more if the price is low, and buy less as the price moves up, and our largest single capital allocation choice has been to repurchase shares. In rough, rough numbers over the course of the last 5 years, the share count at Markel at its highest was just a bit shy of 14 million shares. It's now down to 12.6 million. In rough numbers, that's 10% of the shares that have been repurchased. The next 10% reduction, I don't think that will take 5 years, especially at these kind of prices. So that might happen in 3 to 5 years. So 10% tranche is done, another 10% tranche underway. So we'll be buying back stock. Operator: Your next question comes from the line of Mark Hughes of Truist. Mark Hughes: When we think about international versus the U.S., you talked about some of the expense versus loss ratio dynamics. Is the combined ratio opportunity better internationally? Is there just a -- that's a better loss environment? Thomas Gayner: Before Simon answers that question, you're talking about international, the U.S., first thing I thought about was the Ryder Cup. And the U.S. needs to do better. So we're working on that. Simon Wilson: I've been thinking about the Ryder Cup a lot lately, but not really thinking about it. So there we are. Thank you for that reference, Tom. That's excellent. I think there are plenty of places in the U.S. where you can go after business from a loss ratio perspective, which is very, very attractive. They typically are in the, I would say, lower exposed areas, but also almost lower premium type areas. They're kind of the small, micro business. We, international, have been building that side of our business for probably 10 to 12 years. And the loss ratio, let me tell you, back in '16, '17 in international wasn't that great. But I think as we scaled up those retail operations that we've got in places like Europe, Canada, the U.K. regions and increasingly in our Asia Pacific business, the weighting of the business, which is that small, micro business is really -- has grown within that division. And we've seen the loss ratio come down consistently as a result. Quite a lot of the business that we're backing out, the London operations. I mean, people think about London as kind of large ticket volatile business. Well, quite a lot of the business that we have back there is delegated authority business where the ultimate customer is smaller micros. So there's a very like heavy focus in our international business at a small and micro end of the risk area. Now that has 2 dynamics. One is typically a relatively low loss ratio, but it does go alongside that higher expense ratio. And frankly, I don't mind paying a little bit more to excess and service business, which is going to consistently perform at a lower loss ratio. I think that's a healthy kind of balance that we've got within the business. We do, of course, have larger ticket risks as well to look at in the energy space, for example, and some of the marine risks. But by and large, we've got a relatively small micro focus with our international operations, and we've been really pleased with that. That's probably been lacking a little bit in some of our -- in the U.S. portfolio as a whole. So we've been in the mid-market there. And in recent years, and we've had core results actually in many of the areas where we've gone into the very large risk segment. Things like the U.S. large ticket D&O is a perfect example, where we've gone down that route. So I do think over time, one of the things that I'd like to bring with increased focus on technology. Some of the teams of people that we're going to be bringing in, in those programs and solutions businesses will be to go after that small and micro business within the U.S. to an increasing level. And that will, over time, I think, bring down the loss ratio to a degree. So maybe it won't be exactly in line with international. But I do think there's a ton of opportunity in the U.S. to go after. Maybe it's not just -- not been a huge focus of what we have been doing, but it will be a focus of what we'll be doing in the future and the investments that we'll be making. Thomas Gayner: At risk of answering a different question than what you asked, so my colleagues caution me on this all the time because this is not going to help you model anything better or make a quantitative point, but it's a qualitative point that really drives the results over time. So this exact discussion is something that Simon and I actually talked about at some length when the two of us, along with some other colleagues, walked 130 miles last year from Pittsburgh, Pennsylvania to Cumberland, Maryland on the Great Allegheny Passage. And one of the things we talked about was -- I mean, obviously, insurance is a business where it's never going to be perfect, and you're always going to have losses. But what does it look like to have a loss? What does the loss mean? What is the way in which you can be compensated fairly for the size and scale of the losses you're taking? And what should your overall profile be to understand and absorb the losses that are just part and parcel of this business? So that effort has been underway for a while. There have been some very thoughtful work done on where we should be and where we shouldn't be. And you're starting to see what I would call the green shoot of this quarter where that's starting to pay off. But we look forward to green shoots coming in the years to come. But I can assure you a lot of thought and work and thoughtfulness has gone into the way we approach the business. Mark Hughes: Appreciate that perspective. Curious to get your thoughts if it looks like storm season, at least domestically is going to end up being pretty quiet. What do you think that means for property in 2026? Thomas Gayner: Well, as the old saying goes, what you see depends on where you stand. And there are some people in various parts of the world right now that would not think that this was a benign storm season. So our thoughts and prayers are with them. That's real damage. And one of the things we hang our hat on and we're proud of in this business is we help people get back on their feet when they've experienced either sudden and dramatic loss or gradual losses over time. Clearly, again, I think you've answered your own question to some degree, the overall aggregate cat losses were lower this year than what had been expected. And that tends to put pressure on rates. The good news about Markel writ large is spread of business. So we are not a cat-dependent or exclusively or even majority property-oriented company. So this is a normal course of business. Simon Wilson: Yes. And I'll pick up at an exact point there, Thomas. If I look at the portfolio overall, property plays a relatively small part of our overall offering. We're more of a casualty professional lines and then sort of nuanced specialties that go alongside it. So probably relatively small. I do think you've seen insurance cycles before. If you look at the specific cycle within property, there's going to be pressure on reinsurance. As a buyer of reinsurance, that should probably benefit us going into next season, but that will have a knock on in the primary markets where, particularly in the U.S. brokerage property space, I think that's going to come under even more pressure next year than it has done this year. And it definitely is a competitive part of the market at present. What we're doing in that is very much focused on price adequacy. If it works within the portfolio, the price is adequate, then we'll continue to compete in that area. Once you go over the line and it's not adequate anymore, we don't need to chase that market down. I think the other thing that benefits us a little bit is we also say that our international portfolio is typically small, micro. I do think the majority of our U.S. risks are probably medium, small. In that part of the market, it's slightly less competitive in property than it is in the large ticket risk where you've got kind of structured and layered programs, which really are in very much in the competitive space at the moment. So I think we're pretty well placed. One by virtue of not being overly dependent on the property market. But secondly, the part of the property market that we do play in, I think, it's a little bit more sheltered from this level of competition in other areas. So expect to see more competition, but I like our position in the market overall because of the balance of the portfolio that we've created over time. Thomas Gayner: And one final point to pick up on that and extend it. The good news is we don't have to chase it down because we have other things to do. And that's not just within the realm of insurance. We do have an investment portfolio, which has been collapsed into the segments, but it still exists. And it's a pretty big number of recurring dividend and interest income that flows in here. We have a set of industrial, commercial and financial consumer businesses that generates pretty nice returns, too. So the good news is we have the ability to remain rational in ways that people without our structure would not enjoy. Mark Hughes: And then finally, any observations on mix shift to and from the E&S market and what that might mean for you all? Simon Wilson: Yes, it's a very dynamic market at the moment. That's for sure. I think you're saying -- the property question that you asked previously, I think that's probably the most intense area where you're seeing movement between E&S and retail. At the moment, there's a lot of pressure in the E&S space, in particular, in property. So maybe that will drop back into the retail market. I think in professional lines as well, that happened a little bit earlier where we saw some of that going back into the retail market rather than the wholesale market. So there's a little bit of that, that we definitely see. So there's nuances between E&S and the admitted market, for sure. One area where -- which is counter to that is casualty. I mean the casualty market is a hard market at the moment for good reason. And we're seeing a lot more opportunity in the E&S space there. Structurally, I would suggest that the wholesale market, we've seen this over a number of years, is a different place now than it was even 5 years ago and certainly a decade ago. So the expectation is that an awful lot of this business that has flowed into the wholesale marketplace will remain there albeit in some areas at slightly more competitive rates. But we're looking at that part of the market now being almost like 25%, I think, of the U.S. commercial lines space, maybe a little bit higher than that if you include the Lloyd's market. And as well my sense is that it stays at that level and probably continues to edge up a little bit just because of the sophistication of what we see from the wholesale brokers and retail brokers trying to get into that space as well. So I like the fact that we play E&S. We can move the rate as we need to. We can change terms and conditions. I also like the fact that there is a pull factor into that marketplace due to the strength of the wholesale marketplace is just materially different than it was a decade ago. Mark Hughes: In the spirit of the Ryder Cup, I was trying to think of some way to heckle you all, but facts up today. So I guess I'll just not do that. So I appreciate the good answers. Have a great day. Operator: Your next question comes from the line of Drew Estes of Banyan Capital Market Management. Drew Estes: I really like the reporting updates. So thank you all for that. I have a couple of questions regarding your fronting operations, which are sizable. One is a housekeeping item and the other one is a more general question. So first on a housekeeping item. I was surprised that Markel Insurance, it's fronting operations were so large as opposed to State National. Is that mainly business that's flowing through to Nephila? Brian Costanzo: You got it, Drew. That's right. So we bifurcated kind of where the fronting is reported. So what sits in our programs and solutions division in the insurance segment, that is the business that we front on our Bermuda paper for Nephila. And that's the only thing that sits in there today in that division. The State National business, the traditional program services business, that sits in the Financial Services segment. Drew Estes: And for the more general question, a lot of alternative capital seem to have flown into the E&S market. And there's a lot of new fronting carriers out there that have clearly taken some share. And I'm curious, are these new entrants gaining share mainly by relaxing collateral and capital requirements? And if so, how do you ensure the State National doesn't relax its standards in an environment like that? Thomas Gayner: Yes. Thank you, Drew. It's an excellent question. And clearly, State National was at the forefront and the leader and really the pioneer in developing the market. And when you're the leader in the first actor, you can kind of set terms and conditions in the -- define the field and have it as you like it. In every business in the world that I've ever observed in my lifetime, when somebody does well, competition appears. And the terms and conditions change and set and evolve over time. And fronting and State National is no different whatsoever. The good news is the culture, the long-term discipline, the return on capital discipline that is consistent with everything else we do about Markel, applies at State National as well. And they compete in the world in which they live, but they do so with adherence to standards and values and discipline that's consistent for the rest of the organization. So we don't get to choose what the external environment is like. We get to choose the discipline we have to face it. And we've got a long history around here of doing exactly that across the organization, no matter where you're talking about. Drew Estes: I appreciate that, and I'm glad to hear it. But just quickly as a follow-up, is it -- are you seeing the new entrants compete by relaxing collateral and capital requirements? Or are they mainly focused on pricing? Thomas Gayner: Well, I think -- I mean, that's really all the way of saying pricing. So it's sort of a net price when you define it, as lower collateral, what have you. So it's -- the price is the answer. Operator: Your next question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: Just following up on the prior question about fronting. In both segments, actually, in insurance, it was up 51%, $1.8 billion in the last 9 months. And I'm kind of wondering, what was driving that? What kind of gave you that upside? And same thing in the financial segment where operating revenues were up 18% in the 9 months to $513 million. I assume a big part of that was fronting. And maybe you could give a little color on where you're seeing that -- just the outlook in both segments for the fronting business. Brian Costanzo: Sure, Andrew. It's Brian. So let's take the fronting at Nephila and programs first. There, what we've seen, Nephila had some nice growth in premium. We've used the MBL balance sheet that's allowed them to place more business with the AUM that they have on their books and grow that business at attractive rates that are out there in the property market. If you think back to when they placed a lot of that business, first 4 to 6 months of this year was a very attractive rate environment. That book is going to perform very well on the fronting side, and it's going to perform very well, considering where we are thus far in the year from an investor standpoint with the low level of cat losses that are out there. So the vast, vast majority of that is property cat business that's fronted in the program space. So with the rate environment, growth aspirations at Nephila, that's really what drives the fronting revenues that we see in the programs and solutions division. Within program services, it's kind of a mixture. They signed on some new programs as they -- renew and brought in some new business. And then you've just got underlying growth in their kind of wider range of programs. They're hitting kind of all product classes. It's a pretty varied and mixed set of business there across property, casualty, workers' comp lines that they front and they just got natural growth coming from their producers that are partnering with them to front business. Andrew Kligerman: So it sounds like in both segments, these trends are sustainable into 2026. Brian Costanzo: Yes. I would say you're looking at -- the property market is certainly going to be a bigger driver on the vision and the Nephila fronting where it's going to be more broader insurance trends and our ability to kind of add on new programs. In the program space, you can have chunky things come in and out. You signed new agreements. People either move on or if you're fronting for them because they're -- they've been downgraded from a rating standpoint, they cure that, that program goes away. So there can be some chunky movements from time to time in that program services business in both directions. Andrew Kligerman: And then in the industrial segment, there was a little pressure, I think, Brian, you called out soft auto demand and higher materials costs in the auto area despite good performance in the other segments. Do you see this continuing to play out over the next year or so? Thomas Gayner: Andrew, it's Tom. Yes, I would describe this quarter and really this 9 months, it's just normal oscillation of the business. So we had some things that were white hot last year that weren't quite as white hot this year. You have the tariff noise and the general economic environment. So there's puts and takes across the line. And I think that's normal for this collection of businesses. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gayner for any closing remarks. Please go ahead. Thomas Gayner: Thank you all for joining us. That concludes my closing remarks. See you next quarter. Thank you. Operator: The conference call has now concluded. Thank you for attending today's presentation. You may disconnect.