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Operator: Good afternoon, and thank you for standing by. Welcome to the Westlake Chemical Partners Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded today, October 30, 2025. I would now like to turn the call over to your host, Jeff Holy, Westlake Chemical Partners' Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you, Gerald. Good afternoon, everyone, and welcome to the Westlake Chemical Partners Third Quarter 2025 Conference Call. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the Partnership. References to Westlake refer to our parent company, Westlake Corporation, and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the Partnership, which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the Partnership's website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website. This morning, Westlake Partners issued a press release with details of our third quarter 2025 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com. A replay of today's call will be available beginning 2 hours after the conclusion of this call. The replay can be accessed via the Partnership's website. Please note that information reported on this call speaks only as of today, October 30, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2025 results. In this morning's press release, we reported Westlake Partners' third quarter 2025 net income of $15 million or $0.42 per unit. Compared to the second quarter of 2025, our third quarter sales and earnings benefited from the completion of the planned turnaround at our Petro 1 ethylene unit in Lake Charles, Louisiana during the second quarter. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve? Steven Bender: Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' third quarter 2025 net income of $15 million or $0.42 per unit. Consolidated net income, including OpCo's earnings was $86 million on consolidated net sales of $309 million. The Partnership had distributable cash flow for the quarter of $15 million or $0.42 per unit. Third quarter 2025 net income for Westlake Partners of $15 million was lower than the third quarter 2024 Partnership net income, partially due to lower margins on sales of ethylene to third parties. Distributable cash flow of $15 million or $0.42 per unit for the third quarter of 2025 decreased by $3 million compared to the third quarter of 2024 due to higher maintenance capital expenditures as a result of changes in the timing of maintenance activities in 2025 as compared to 2024. Turning our attention to the balance sheet and cash flows. At the end of the third quarter, we had consolidated cash and cash investments with Westlake through our Investment Management Agreement totaling $51 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and the remaining $23 million was at OpCo. In the third quarter of 2025, OpCo spent $30 million on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately 1x. On October 28, 2025, we announced a quarterly distribution of $0.4714 per unit with respect to the third quarter of 2025. Since our IPO in 2014, the Partnership has made 45 consecutive quarterly distributions to unitholders, and we have grown distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit. Partnership's third quarter distribution will be paid on November 26, 2025, to unitholders of record November 10, 2025. The Partnership's predictable fee-based cash flow continues to prove beneficial in today's economic environment and is differentiated by the consistency of our earnings and cash flows. Looking back, since the IPO in July of 2014, we've maintained a cumulative distribution coverage ratio of approximately 1.1x. And with the Partners stability in cash flows, we were able to sustain our current distribution without the need to access capital markets at all. For modeling purposes, we have no planned turnarounds for the remainder of 2025 or in 2026. Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc? Jean-Marc Gilson: Thank you, Steve. The stability of Westlake Partners business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risk. The high degree of stability in cash flow when paired with the predictability of our model has enabled us to deliver a long history of reliable distributions and coverage. As a result of its importance to the stability of our cash flows, I'm pleased that earlier this week, OpCo and Westlake agreed to renew the Ethylene Sales Agreement through the end of 2027 with no changes to the contract terms or conditions. The renewed Ethylene Sales Agreement maintains the same pricing formula and sales volume protections that have provided the Partnership with a distributable cash flow to make 45 consecutive quarterly distributions to unitholders since its IPO in 2014. Furthermore, we believe that Westlake's decision to renew the Ethylene Sales Agreement under the same terms that have been in place since its origination demonstrates the critical nature of OpCo's supply of ethylene to their operations and their commitment to support OpCo's continued safe, reliable operations through stable, predictable cash flows. Turning to our outlook. Global industrial and manufacturing activity remains soft in 2025, which is broadly impacting the global chemical industry. Despite the challenging global macroeconomic backdrop, the Partnership financial performance and distributions will continue to be supported by our Ethylene Sales Agreement which provides a predictable fee-based cash flow structure from our take or pay contract with Westlake for 95% of OpCos production. As has been the case since our IPO over 10 years ago, this Ethylene Sales Agreement has delivered stable and predictable cash flow to economic ups and downs, as well as planned and unplanned turnarounds. Turning to our capital structure. We maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our 4 levers of growth, in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams, organic growth opportunities such as expansion of our current ethylene facilities, and negotiation of a higher fixed margin in our Ethylene Sales Agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distribution to our unitholders. As always, we will continue to focus on safe operations along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our third quarter earnings call. Now I will turn the call back over to Jeff. Jeff Holy: Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide instructions to access the replay at the end of the call. Gerald, we will now take questions. Operator: [Operator Instructions] Our first question will come from James Altschul from Aviation Advisory Services, Inc. James Altschul: I noticed that the distributable cash flow for the quarter was less than the amount of distribution per unit. What is the outlook for getting the distributable cash flow up to a level, again, where the distribution will be covered? Steven Bender: Yes. The entire reason for that was the planned turnaround. And when we have planned turnarounds, it does impact, of course, production and therefore, sales. And so it's not unusual when we have these planned turnaround events for our coverage ratio to dip below the 1.1 target and to have some impact on those -- on that cash flows. But we have an operating surplus that is quite robust, and we'll continue and have continued to pay those distributions out of that operating surplus. And now that we've completed that turnaround successfully and back in full production, that operating surplus should continue to build, and I would fully expect that distribution to continue to be well covered by the cash flows of the business. James Altschul: Okay. So is it reasonable to assume on a pro forma basis, if we -- you would not have the impact of the turnaround that distributable cash flow would have been in excess of the distribution? Steven Bender: Yes, it would have. Operator: Just give me a second to see if anyone else would like a question. So at this time, I'm showing no further questions. And I'd like to hand it back to Jeff for closing remarks. The floor is yours, Jeff. Jeff Holy: Thank you. Thanks again for participating in today's call. We hope you'll join us for our next conference call to discuss our fourth quarter 2025 results. Operator: Thank you for participating in today's Westlake Chemical Partners Third Quarter 2025 Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Thursday, November 13, 2025. The replay can be accessed via the Partnership website. Goodbye. This does conclude the program. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the Landmark Bancorp, Inc. Third Quarter Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is my now my pleasure to hand over to your host, Abby Wendel, President and CEO, to begin. Please go ahead. Abigail Wendel: Thank you, Lucy. Good morning, and thank you for joining our call today to discuss Landmark's earnings and operating results for the third quarter of 2025. My name is Abby Wendel, President and CEO of Landmark Bancorp. On the call with me to discuss various aspects of our third quarter performance are Mark Herpich, Chief Financial Officer; and Raymond McLanahan, Chief Credit Officer. As we start, I would like to remind our listeners that some of the information we will provide today falls under the guidelines for forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, I must point out that any statements made during this presentation that discuss our hopes, beliefs, expectations or predictions of the future are forward-looking statements, and our actual results could differ materially from those expressed. We include more information on these factors from time to time in our 10-K and 10-Q filings, which can be obtained by contacting the company or the SEC. By now, we hope you have had a chance to review our press release, which announced our financial results for the third quarter of 2025 yesterday afternoon. You can find it on our website at www.banklandmark.com in the Investors section. Landmark reported another solid quarter of results, which reflect the hard work and commitment of our associates whose efforts continue to elevate Landmark's position in the market. Net income for the third quarter totaled $4.9 million or $0.85 per diluted share compared to $3.9 million or $0.68 per diluted share in the same period last year, an increase of 24.1% in diluted earnings per share. This year-over-year increase in earnings primarily reflects growth in net interest income and prudently managed expenses. Our return on average assets improved to 1.21% for the quarter and return on average equity improved to 13.0%. We maintained a steady net interest margin and improved our efficiency ratio to 60.7% in the third quarter while simultaneously investing in new talent throughout the bank and across our footprint. Total loans were flat this quarter based on period-end balances, while average loans grew nearly 10% on an annualized basis compared to the prior quarter. Brokered deposits were the primary driver of deposit growth in the third quarter. However, we also saw solid growth in noninterest-bearing demand deposits, and we reduced our reliance on FHLB and other borrowing sources. I'm happy to announce we made significant improvements in our overall credit quality this quarter as nonperforming loans declined by almost $7 million, mostly from the resolution of a large commercial loan on nonaccrual status discussed in previous quarters. Our tangible book value per share increased to $20.96, up 6.6% on a linked-quarter basis and 15.7% from the end of the third quarter of 2024, primarily -- due primarily to solid growth in retained earnings and a reduction in our accumulated other comprehensive loss. I am pleased to report as well that our Board of Directors has declared a cash dividend of $0.21 per share to be paid November 26, 2025, to shareholders of record as of November 12, 2025. This represents the 97th consecutive quarterly cash dividend since the company's formation in 2001. The Board also declared a 5% stock dividend to be issued December 15, 2025, to shareholders of record on December 1, 2025. This represents the 25th consecutive year that the Board has declared a 5% stock dividend, a continued demonstration of our long-term commitment to support growth in value and liquidity for our shareholders. Landmark's capital and liquidity measures are strong, and we have a stable low-cost core deposit base, thanks to the network of community-based banking centers we operate and our relationship banking model. We remain risk-averse in both monitoring the company's interest rate and concentration risks and in maintaining a strong credit discipline. As we look ahead, we look forward to building on the momentum of the third quarter. We will continue to invest in talented associates and make infrastructure upgrades to support continued customer growth while making Landmark an exceptional place to work and bank. I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in detail with you. Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance in the third quarter of 2025, I'll provide some additional details on these results. Net income in the third quarter of 2025 totaled $4.9 million compared to $4.4 million in the prior quarter and $3.9 million in the third quarter of 2024. Compared to the prior quarter, the solid growth in net income this quarter was mainly due to continued increases in net interest income and higher noninterest income. In the third quarter of 2025, net interest income totaled $14.1 million, an increase of $411,000 compared to the second quarter of 2025 due to higher interest income. Total interest income on loans increased $597,000 this quarter to $17.8 million due to higher average loan balances. Average loans increased by $26.7 million and while the tax equivalent yield on the loan portfolio remained steady at 6.37%. Interest income on investment securities increased slightly to $2.9 million this quarter due to a small improvement in our yield earned on our investment securities balances, while our average investment securities balance declined slightly by $1.2 million. The yield on investment securities totaled 3.35% in the current quarter compared to 2.99% in the third quarter of 2024. Interest expense on deposits in the third quarter of 2025 increased $266,000 due to a mix -- a shift mix in our interest-bearing deposits, which grew by $19.1 million. Interest expense on borrowed funds decreased by $36,000 due to lower average balances. The average rate on interest-bearing deposits increased 4 basis points to 2.18%, mainly due to growth in certificates of deposits, which have higher rates. The average rate on our other borrowed funds increased 11 basis points to 5.09% in the third quarter as our lower cost repurchase agreement balances dropped. Total cost of funds was 2.44% for the quarter ended September 30, 2025, a decrease of 38 basis points as compared to the third quarter of 2024. Landmark's net interest margin on a tax equivalent basis held steady at 3.83% in the third quarter of 2025 as compared to the second quarter of 2025. In comparison to the comparable third quarter of 2024, our net interest margin improved by 53 basis points. This quarter, we provided $850,000 to our allowance for credit losses after taking a $1 million provision in the prior quarter. Net charge-offs totaled $2.3 million in the third quarter of 2025, which mostly pertains to the resolution of a previously disclosed commercial loan. This compares to net charge-offs of $40,000 in the prior quarter. At September 30, 2025, our allowance for credit losses of $12.3 million remains strong and represents 1.10% of gross loans. Noninterest income totaled $4.1 million this quarter, an increase of $442,000 compared to the prior quarter. The increase was primarily due to growth in gains of $208,000 on sales of mortgage loans, coupled with a $184,000 increase in fees and service charges related to higher deposit-related fee income. Noninterest expense for the third quarter of 2025 totaled $11.3 million, an increase of $290,000 compared to the prior quarter. This increase related primarily to increases of $206,000 in professional fees, $120,000 in occupancy and equipment expense and $70,000 in compensation and benefits expense. The increase in professional fees was driven by higher consulting costs during the quarter. Partially offsetting these increases was a decrease in data processing expense this quarter. The combination of growth in noninterest income, coupled with control over our expenses has resulted in our efficiency ratio improving to 60.7% for the third quarter of 2025 as compared to 66.5% in the third quarter of 2024. This quarter, we recorded a tax expense of $1.1 million, resulting in an effective tax rate of 18.7% as compared to tax expense of $944,000 in the second quarter of this year or an effective tax rate of 17.7%. Gross loans remained relatively flat in comparison to the second quarter at $1.1 billion. However, our average loans grew by $26.7 million or approximately 10% annualized during the third quarter. During the quarter, actual loan growth was primarily comprised of an increase in our commercial and residential real estate loan portfolios, but offset by lower commercial and construction loan portfolios. Investment securities decreased $2.4 million during the third quarter of 2025, mainly due to maturities exceeding our level of purchases. Pretax unrealized net losses on our investment portfolio declined by $4.7 million to $9.2 million this quarter, and our investment portfolio has an average duration of 3.7 years with a projected 12-month cash flow of $85.8 million. Deposits totaled $1.3 billion at September 30, 2025, and increased by $51.6 million on a linked-quarter basis. Compared to the prior quarter, certificates of deposits grew by $22.9 million. Interest checking and money market deposits increased by $16.5 million and noninterest checking grew by $14 million. Average interest-bearing deposits, however, increased by $19.1 million in the third quarter of 2025, while average borrowings declined by $6.0 million during the quarter. Our loan-to-deposit ratio totaled 83.4% at September 30 and continues to provide us sufficient liquidity to fund future loan growth. Stockholders' equity increased $7.4 million during the third quarter to $155.7 million at September 30, 2025, and our book value increased to $26.92 per share at September 30 compared to $25.66 per share at June 30. The increase in stockholders' equity this quarter mainly resulted from a decline in our other comprehensive losses driven by lower net unrealized losses on our investment securities, along with net earnings from the quarter. Our consolidated and bank regulatory capital ratios as of September 30, 2025, are strong and exceed the regulatory levels considered well capitalized. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook. Raymond McLanahan: Thank you, Mark, and good morning to everyone. As noted earlier, loan growth for the third quarter was relatively flat on a period-end basis, although average loans grew $26.7 million or 9.8% on an annualized basis. We saw increases in our commercial real estate, mortgage and consumer portfolios. However, these were offset by reductions in our commercial, construction and land and agricultural loan portfolios. Our commercial real estate portfolio grew by $19 million this quarter, while our mortgage and consumer portfolios increased $4.5 million and $1.4 million, respectively. However, commercial and construction and land loans declined by $17.6 million and $6.6 million, respectively. Turning to credit quality. Nonaccrual loans declined by $7 million this quarter, while net loan charge-offs totaled $2.3 million, mostly driven by the resolution of a large commercial loan relationship we previously disclosed in Q3 of last year and had been on nonaccrual. Excluding this commercial loan, net loan losses remained low. Additionally, a $1 million commercial real estate loan was placed on nonaccrual last quarter has now been fully collected. The balance of past due loans between 30 and 89 days still accruing interest increased slightly, totaling $4.9 million or 0.43% of gross loans. Net loan charge-offs for Q3 totaled $2.3 million compared to just $9,000 in Q3 of 2024. Year-to-date net loan charge-offs represented 0.29% of average loans. Our allowance for credit losses stood at $12.3 million or 1.10% of gross loans. Our Kansas economy has remained healthy. As of August 31, the seasonally adjusted unemployment rate was 3.8% according to the Bureau of Labor Statistics. Regarding housing, the Kansas Association of REALTORS recently reported that home sales in the state increased 1.2% year-over-year in September. The median sale price rose 5.5% from a year earlier, and the association also reported that homes sold in September were typically on the market for 15 days and sold for 100% of their list prices. We recognize that investors are closely watching asset quality across the banking sector. We remain vigilant in our underwriting, portfolio monitoring and recovery efforts. Our strategy continues to emphasize a resilient relationship-driven approach. We're confident in the strength of our portfolio and our ability to navigate evolving market dynamics. With that, I thank you. I'll turn the call back over to Abby. Abigail Wendel: Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the third quarter. Growth in average loan balances, a steady margin and higher noninterest income all contributed to solid revenue growth this quarter. We are focused on maintaining solid credit quality given the uncertainties in the economy, and we continually look for efficiencies in our operations. With the operating success we've had over the past few years and the high-quality banking products and services we offer, our bank is well positioned to further grow our business and add to our customer base. We continue to work on strengthening our existing customer relationships and are focused on growing lending and fee businesses across all our markets. Finally, I'd like to thank all the associates at Landmark National Bank. Their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is key to our success. And with that, I'll open up the questions -- I'll open up the call to questions that anyone might have. Operator: [Operator Instructions] We currently have no questions submitted. So I'd like to hand back to Abby for closing remarks. Abigail Wendel: Thank you. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in the company, and I look forward to sharing news related to our fourth quarter 2025 results at our next earnings conference call. I hope everyone has a great day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning ladies and gentlemen and welcome to the Vontier Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Good morning everyone and thank you for joining us on the call this morning to discuss our third quarter results. With me today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meanings of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to slide 3 and I'll turn the call over to Mark. Mark Morelli: Thanks Ryan and good morning everyone. Thank you for joining us on the call today. I'm pleased with the traction we are seeing from our Connected Mobility strategy which we outlined in greater detail at our Convenience Retail Showcase two weeks ago. We've realigned the organization to better execute our strategic vision. We're reinvigorating new product development and building significant competitive advantages. We're the clear leader in this space with some of the industry's most innovative integrated solutions. I'm encouraged by the progress we are making, which is reinforced in our customer conversations. I'll touch on a few takeaways from our event in a few minutes. Turning to the quarter, we delivered solid Q3 results in a dynamic environment. The quarter played out as expected, consistent with the preliminary numbers we shared at our investor event. Our sales, adjusted operating margin, and EPS landed at or near the high end of our guidance. Our teams remain disciplined on execution, advancing our 80/20 simplification efforts and tariff mitigation actions while delivering on the critical needs of our customers. Core sales were essentially flat for the quarter. Solid underlying performance at Mobility Tech and Environmental & Fueling was offset by ongoing macro-economic pressures at our Repair Solutions segment. Importantly, demand within the convenience retail end market remains constructive and contributed to the quarter's momentum, and we see the Repair segment stabilizing sequentially. Our car wash business returned to growth a quarter ahead of expectations as customers are adopting our cloud-based Patheon solution. This solution, which we featured at our investor event, helped us secure some key wins in the quarter and has a growing pipeline of opportunities in convenience retail. Our unified payment and remote asset management solutions are delivering real value for our customers, driving low double-digit growth across retail solutions. We have generated more than $275 million of adjusted free cash flow year-to-date, and we've deployed roughly $175 million of that to share buybacks so far this year. We also took a few targeted portfolio actions in the quarter, divesting two non-core assets and exiting a minority equity stake. Concrete examples of our 80/20 simplification work in action. Our decision to exit these businesses is a result of regional simplification efforts to sharpen our product and go-to-market focus, improving the overall growth and margin profile of Vontier. Given our solid execution year-to-date and the traction we're seeing in our end markets, we're raising the midpoint of our full-year guidance, and Anshooman will provide more details in a few minutes. I'm encouraged by the fact that core growth is now tracking above 2% for the year, particularly as we've absorbed the impact from two businesses that have reset over the last 12 to 24 months. We expect mid-single-digit adjusted operating profit growth and remain on track for roughly 10% adjusted EPS growth this year. This combination reinforces a solid value creation algorithm. Turning to Slide 4, as many of you are aware, we held a successful investor event at the annual National Association of Convenience Stores Trade Show two weeks ago and used that forum to highlight the comprehensive platform we've built for convenience retail. We're now a more focused, higher-performing business with a more synergistic portfolio and broader, more comprehensive solutions. Our connected mobility strategy differentiates us. We are delivering integrated site-wide solutions that combine hardware, software, connectivity, and services to help our customers navigate complexity. This lowers their operating costs and unlocks growth through improving consumer engagement. These end-to-end solutions expand our total addressable market and create recurring revenue opportunities. Our recently announced go-to-market strategy simplifies the sale and deployment of our differentiated solutions through key account managers, while streamlining processes, reducing friction, and speeding development with shorter sales cycles. Moving to Slide 5, our refreshed value creation framework rests on 3 pillars. Pillar 1 supports accelerating organic growth via connected mobility and innovation. Pillar 2 focuses on optimizing our core operations to drive improved and more consistent margin expansion through the Vontier Business System, and Pillar 3 guides how we deploy capital effectively, dynamically prioritizing the highest return options available as we look toward 2026. Each pillar will play a key role in delivering results. Assuming a similar macro backdrop extends through next year, we expect the convenience retail end market to be constructive. As we discussed at our investor event, we target above-market growth led by our convenience retail solutions, including accelerating growth in car wash. We have strong multi-year secular tailwinds extending into 2026 and beyond. Repair Solutions demand is likely to remain soft, though distributor inventories are lean and we are seeing sequential revenue stabilization. We expect better operating margin performance in 2026 driven by underlying productivity improvements, increased R&D efficiency, continued 80/20 simplification efforts, and more favorable mix as volumes at car wash and Repair Solutions normalize. On top of this, we expect modest margin accretion from the portfolio management actions we are taking on capital deployment. Our approach will be consistent with what you've seen from us, balancing organic investment with shareholder returns and balance sheet health. To summarize, our strategy is working. We delivered strong, disciplined execution in Q3, converted that into cash, refined the portfolio, and we're advancing our connected mobility strategy to capture incremental share gains. We will continue to manage near-term costs and tariff pressures while investing where we see the best returns and positioning the company for above-market growth in key end markets. I want to thank our teams for their focus and agility. Their dedication to continuous improvement through the Vontier business system gives us confidence to raise our outlook and to keep executing with discipline. With that, I'll turn the call over to Anshooman Aga to walk through the quarter's financial details. Anshooman Aga: Thanks Mark and good morning everyone. I'll start off with a summary of our consolidated results for the third quarter. On Slide 6, we delivered results at the higher end of our guidance, demonstrating the resilience of our portfolio and the effectiveness of our operational execution. Total sales of $753 million were largely flat with the prior year. Adjusted operating profit margin held steady, and adjusted EPS increased high single digits to $0.78. Adjusted free cash flow of $94 million came in at 82% conversion, including a modest net headwind related to the timing of cash tax payments made in the third quarter. On a year-to-date basis, we have generated over $275 million in adjusted free cash flow, approximately 12% of sales. Turning to our segment results, starting on Slide 7, Environmental & Fueling Solutions delivered core growth of approximately 2% in line with our guidance for low single-digit growth. Our sequential Q3 performance reflects an exceptionally strong Q2 driven by shipment timings tied to appliance maintenance outage and ERP go-live. Despite these timing impacts, North America dispenser sales increased mid single digits during the quarter. This was offset by softer performance at international markets related to timing of large tenders. These results, measured against the prior quarter timing dynamic and a strong prior year comparison of 9%, underscore the team's disciplined execution. Solid demand tied to new build activity from large national and regional players as well as healthy refresh and replacement activity continues to support growth in both above and below ground fueling equipment. Segment operating margin declined approximately 20 basis points ahead of our guidance for a 50 to 75 basis point decline, supported by ongoing simplification efforts. On Slide 8, Mobility Technologies core sales grew approximately 5% supported by high single-digit bookings. Core growth was led by continued strength at Retail Solutions, up low double digits in the quarter, and car wash returning to year-over-year growth, up low single digits. We are seeing strong global adoption of unified payment and point-of-sale technologies, which together were up high teens in the quarter. That's especially notable given these products grew nearly 50% in Q3 last year. And as Mark mentioned at the start, we're encouraged by core growth in car wash inflecting positive one quarter ahead of schedule. This was mostly the result of strong demand for Patheon software upgrades, which experienced mid-teens growth in the quarter. Mobility Tech's margins increased over 40 basis points versus the prior year, reflecting the benefits of simplification efforts and improved R&D efficiency, partially offset by unfavorable mix. Finally, on slide 9, Repair Solutions sales declined 7% versus the prior year as ongoing macro-economic conditions continue to weigh on service technician spend. This was slightly ahead of performance we saw in the first half, and we are starting to see signs of stabilization. Sell-through off the truck once again exceeded sell-in, indicating continued destocking by our distributors. While high-ticket product categories, including tool storage and diagnostic, remain challenged, we're seeing momentum in lower price point offerings. Segment margin declined approximately 50 basis points, primarily related to lower volume, partially offset by stronger contributions from price cost. Turning to the balance sheet and cash flow, on Slide 10, we completed another $70 million in share repurchases in the quarter, bringing us to $175 million in buybacks year-to-date. Net leverage ended the quarter at 2.4x. We exited a minority equity position and completed divestiture of two small encore businesses: a European service business, a part of EFS, and a small point-of-sale solution to the oil and quick lube end market within Mobility Tech. In total, this netted us $60 million in proceeds. On a pro forma annualized basis, these transactions remove approximately $70 million in sales at approximately 10% adjusted operating margin. Turning to our updated outlook assumptions for Q4 and the full year on Slide 11. For the fourth quarter we project revenues in the range of $760 million to $770 million, with core sales roughly flat at the midpoint. Adjusted EPS is expected in the range of $0.82 to $0.86, up mid-single digits at the midpoint. Our Q4 outlook includes a net headwind of approximately $15 million in sales and around $2 million of adjusted operating profit related to the divestitures I discussed. For the full year, we are raising the midpoint of our guidance range. We now expect sales of just over $3.03 billion at the midpoint, with core sales up 2% to 2.5%, reflecting continued strength within our Mobility Tech and EFS segments, which have more than offset the weakness seen in Repair Solutions this year. We're expecting operating margin expansion in the range of 20 to 40 basis points and now guide to adjusted earnings per share of $3.18 at the midpoint. We've updated our other guidance assumptions, which can be found on the right hand side of the slide. We entered the third quarter with a clear view of expected timing dynamics, and our teams delivered accordingly. Our strategic priorities remain unchanged. We're focused on operational excellence, unlocking self help opportunities, and driving innovation across our portfolio. Throughout 2025, our teams have proactively mitigated the inflationary impacts of tariffs and navigated broader macro uncertainty to support margin expansion and continued growth. At the same time, we're taking meaningful steps to optimize our cost structure and expect solid margin expansion next year. With strong fundamentals and cash generation, I'm confident that we are well positioned to deliver consistent performance and long term value. With that, I'll pass the call back over to Mark for his closing comments. Mark Morelli: Thanks, Anshooman. We are pleased with our results year-to-date, which have exceeded our guidance ranges and enabled us to consistently raise our outlook for the year. 2025 has been impacted by headwinds including significant cost inflation and related economic uncertainty caused by tariffs. As Anshooman mentioned, our teams have responded well. I'm proud of the way we have executed against an incredibly complex backdrop. Our connected mobility strategy, deep domain expertise, and broad service network provide us with a clear competitive advantage to capitalize on secular tailwinds across our three end markets. I'm also proud of the progress we've made to advance our strategy and align our organization, both of which lead to accelerating top line performance ahead. I want to take the opportunity to thank everyone who was able to make it to our investor showcase in Chicago recently. This was a milestone event for Vontier in terms of demonstrating progress and in illustrating the opportunity in front of us. This sets us up to better deliver long term value creation for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research. Please go ahead. Jeffrey Sprague: Mark, I was wondering if you could give us a little more color on sort of what you're seeing on the order front and some of the kind of longer cycle aspects of the portfolio. You know, you mentioned some project investment work in DRB, you know, these international tenders you mentioned. How far do those reach out? Just trying to get an early sense of maybe the exit rate or the setup into 2026 and some of those more visible parts of the portfolio. Mark Morelli: Yes, Jeff, happy to answer that. Look, I think what you've seen is the changes occurring at Vontier have led to some longer cycle type selling of digital solutions for our customers. They tend to be quite significant in size. Their selling cycle is a bit longer than maybe selling dispensers which are more shorter cycle. You've seen that run through our P&L and also in our order book. Our orders were just under one for the quarter, but if you look at it on a year over year basis and a two year stack, it's a pretty good level that we're running at. We've also made some announcements for some orders that will be landing for next year as well. I think when you I'll give you a really good example of this, in our car wash business that turned a quarter ahead of where we've told the street. It's really on the backs of bringing this type solution to market. It's an enterprise software solution where the market for car wash is actually flat even down from where we said it was. We're getting a return of growth in that business because we're selling this solution and we're getting some really good uptake from our customers on that. By the way, we see a really good pipeline of funnel of opportunities. We see that business returning to growth in a really good setup. I like our setup that we have for 2026 and I'm very encouraged. Jeffrey Sprague: Great. And then just on this, these exits, how much more of this is there to do? Is there, you know, kind of a -- I suppose there's always some kind of evaluation of the portfolio going on. You know, have you stepped up your activity there? Should we view this as one off or maybe more pruning as we look into next year? Mark Morelli: Well, I think you should view pruning as really part of our playbook. We're constantly, as you indicated there, reviewing our portfolio and looking at opportunities. This is also a real outgrowth of an element of VBS where we've incorporated 80/20, where we're evaluating and seeing parts of our portfolio that belong elsewhere. When those things arise, sometimes it takes a while for those things to work through to find the right solution for them. I think you're seeing the culmination of some work that's been underway for a while, and I think you should just look at us to constantly use that dimension to be able to enhance our growth profile and margin profile of the business. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Please go ahead. Yunhao Jiang: This is Jimmy Jiang on for Julian Mitchell. First off, appreciate all the detail you've given on the slides. Maybe just speak to any color on Q4 sales and margins by segment please? Anshooman Aga: Yes, it's just from a Q4 perspective as we said at the midpoint, relatively flat year-on-year. From a Mobility Technology perspective that business is going to be relatively flat also in Q4 year-on-year coming off a very hard compare and also some project timing. Some of these technology projects have upfront hardware component and then you have recurring revenues. It's the timing of the hardware component out there. Our Environmental & Fueling business should continue to post growth, low- to mid-single-digit growth. For Repair Solutions, we're starting to see signs of sequential stabilization which would put it down mid- to high single digits on a year-on-year basis. From a margin perspective, Mobility Technologies in Q4 should have at the midpoint roughly a 50 basis point margin expansion. If you recall, last year Mobility Technology margins in Q4 were relatively strong at 20.7% which was 170 basis points above their full year average. Despite the harder compare in terms of operating profit margins, we think we'll get another 50 basis points in Q4 this year. EFS had a slightly easier compare from a margin perspective. We expect, in Q4, we expect, they'll be up closer to 100 basis points and then Repair Solutions on the lower volume should be down about 50 basis points. Also as a reminder, we have about $17 million of impact in Q4 off the $70 million in terms of divestitures at roughly 10% operating profit margin. Yunhao Jiang: Got it. That's helpful. Maybe just switching gears a little bit, could you speak to the general bullishness on retail fueling? One of your peers sounded pretty upbeat on CapEx in this space, so would appreciate your thoughts here. Mark Morelli: Yes, happy to make some comments on that. Also, if any of you followed our investor teach-in that we had on convenience retail here recently, we are very constructive on the end market. If you take a look at Vontier, about 2/3 of our business is exposed to convenience retail and we have the leadership position worldwide on retail fueling, which is an important element and part of that, I think that's where you're going. If you look at the announcements of the major players in this space, they're building out their footprints and there's also consolidation that is occurring. Given that we've got 2/3 share or more in some of the larger market segments where these larger customers operate, they need the tools and capabilities to be able to operate more effectively, particularly when they're putting more assets in the ground and they're consolidating. This is a great backdrop for us in particular, I think a really positive setup for 2026. Also, I think the market is coming more our way with our technology solutions and market share. I think it's a very constructive element of the secular drivers that are at work that really help out our portfolio. Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Anshooman, maybe could you just peel back on the Mobility Tech [indiscernible] you obviously pulled out some of the hardware. If you just go to the segment level, especially DRB, I think should be accelerating. I'd be curious what's offset on that. Anshooman Aga: Yes, Nigel, you were breaking up but I think the question was around a little more color on Mobility Technology being flat in Q4. It's really coming off a very hard compare for Invenco. The business had a very strong Q4 based on the timing of certain projects. We've been talking about not only the NFX wins, which had hardware upfront but also the vehicle identification system order which was really delivery, large delivery last year, Q4 and also in Q1, Q2 of this year. It's hard compares for us in Invenco in Q4 again in Q1, Q2. The good news is we do have a couple of large wins in Invenco, another one in the vehicle identification system and one in indoor payments. The timing of these, usually after you win it, there's some development work with the customers, certification through their networks before the rollout starts. These projects, the rollouts will start in the back half of next year, really Q3, Q4. It's just a timing perspective I think for these kinds of businesses versus looking quarter to quarter. If we look at an annual chunk, that's a better way to look at these. This year Invenco will grow well in the double digits and next year we feel pretty confident that Invenco should grow mid-single digits again on a hard compare. Nigel Coe: That's really helpful. Maybe on environmental as the previous question alluded. Sounds like the U.S. is sort of in a new CapEx cycle. Just talk about environmental, I think that a bit more noise. Just curious how you see developing over the next 12 months or so. Anshooman Aga: Yes. So environmental is a good growth driver for us on an annual basis and I think the growth continues into next year. U.S. obviously we're supported by the tank replacement cycle that we've talked about. Also international, we've been seeing growth now, international growth. There's sometimes timing of tenders that cause a little bit up and down in a quarter to quarter. Again from an annual basis, environmental globally is an area that we feel strong about. There's continuing regulation in the space and there's not a slowdown of regulation. The amount of regulation, the complexity of regulation keeps increasing. Also with our connected offering where instead of having on-premises connectivity, our new solutions provide cloud-based connectivity where for larger customers being able to monitor the whole fleet centrally is a big advantage and we're seeing some of that play out. We feel pretty good about our environmental business. Operator: Your next question comes from the line of Katie Fleischer with KeyBanc. Please go ahead. Katie Fleischer: Just to kind of circle back on Mobility Technologies again, I was wondering if you could give a little more details about the margins. I think earlier this year you had expectations for that segment to grow over 100 basis points year over year with the operating margins. It sounds like that's coming down a bit. Just wondering what's driving that difference there. Anshooman Aga: Yes, Katie, just let's take Q3. We had expected margins in Mobility Technologies to be up 100 basis points and they were up less than that. It's also low numbers, you know, 40, 50 basis points. You're talking about $1 million, a little over $1 million. In our EFS business, we had some higher costs and timing of projects that caused that roughly $1 million, $1.5 million of lower profit versus our expectations. If we hadn't had that, we would have been right around the 100 basis points we were expecting. A little bit of headwind at our EFS business that we're working on righting and fixing. Katie Fleischer: Okay, that's helpful. I know you're not ready to guide for 2026 yet, but you made some comments about, you know, expectations for operating leverage to improve next year. How should we think about those comments in relation to the long term targets that you guys have out there? Mark Morelli: Yes, Katie, this is Mark. Look, I like our setup for 2026. I'm cautiously optimistic. As you said, it's a little bit too early to give guidance as we're heavily into the planning cycle right now. There is some color we can give. I think we're positioned to accelerate growth. I think our market leadership on convenience retail, being two thirds of our exposure there, looks good. Other elements of our business are stabilizing, like in the Repair Solutions side and, importantly, part of convenience retail. The car wash business is inflecting up. On the margin side, I think we anticipate better drop through than what we've seen because we're accelerating some of our BBS initiatives, particularly around 80/20. Do you want to add some color, Anshooman? Anshooman Aga: Yes, just putting some numbers around what Mark referenced. While early to give guidance, you know, if you go back to our convenience retail showcase, 67% of our revenue, the market's growing 3 to 4%. We think we can outgrow that market a little bit. That would put roughly 4 to 5% maybe growth for our convenience retail part of our portfolio, which is 67%. For the remaining, which large part of it is our Repair Solutions part of the business, we're starting to see signs of sequential stabilization, which still puts pressure on a year-on-year basis, especially in half one for us. You know the U.S. consumer is still stretched, especially at the lower end, and our technicians are those consumers. We still see pressure in that business but stabilizing sequentially. Best case, you know, as of now we aren't giving guidance but flattish on the remaining part of our portfolio. Our normal drop throughs on growth are typically 30 to 35%. We feel strongly that we'll outdo those given the fact that we have a lot of the 80/20 simplification, all part of our VBS system in terms of continuous improvement. You know, we could see the drop throughs north of 50%, next year approaching almost twice of what our typical drop through of 30 to 35% would be. Somewhere in that range. Katie Fleischer: Great, thanks for the color. Mark Morelli: Katie, I'll just also add as you guys start modeling, just a simple reminder, we do have a $500 million bond that comes up next year in April and that is at 1.8%. I don't think we'll be getting another 1.8% coupon, so it's probably some headwind in interest expense next year too. Operator: Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead. David Ridley-Lane: Hi, this is David Ridley-Lane on for Andrew. So on Repair Solutions, look, you know you have a publicly traded competitor out there, Snap-on Tools. Not going to make too much of 90 day performance. But year-to-date, their segment, tool segment is down 1% and Matco is down 8%. What explains kind of the gap that you're seeing versus your peers? Mark Morelli: Yes, David, this is Mark. I think on a quarter to quarter basis you're going to see some ebb and flow. First of all, we have a lot of respect for our competitors. Anshooman Aga: Those were year-to-date numbers. Mark Morelli: Yes, you know, I think if you go back to last year, you'll see we also gained share as well. I think there is some ebb and flow, and they're on the backs of their expo that they just had this quarter. We do think that the overall market for repair, and if you look at the comments that are out there, is a good backdrop, but the consumer is under a bit of pressure, which I don't think is any news. I think the real efforts that we have there is getting better vitality for some of the lower price point items. We started the year raising price, and we've hung on to some of that price that we've raised, and now we're pivoting back to some of the lower price items. I think the good news is we're seeing sequential stabilization in the business, and I think we're really focused to get an uplift on this business for next year. David Ridley-Lane: Got it. Just for clarification, I think you said your comments on orders, was that a book-to-bill being around. Or were you saying orders were up 1% year over year, organic? Mark Morelli: No, that was a book-to-bill. Anshooman Aga: Yes, book-to-bill. The book-to-bill is just under one for the quarter, hovering around that, around one for the year. We expect to end the year roughly at one. Operator: Your next question comes from the line of Rob Mason with Baird. Please go ahead. Robert Mason: It's good to see the recovery there in DRB. You know, Mark, there's in the past M&A activity in that space seemingly has had a positive dynamic on the business. I've seen industry sources suggest more of that activity could start, more consolidation activity actually could start to happen. I know there's maybe one higher profile thing out there, but just in general, I'm just curious if you're picking that up and does that inform your pipeline as maybe those larger customers where you're strong, you start planning that out? Mark Morelli: Yes, absolutely. I think our strategy in the car wash base is to win with the winners. Some of the bigger players out there, some of the more savvy operators in the space are actually making moves to further consolidate. These folks need the tools to be able to operate their footprint. The complexity they're dealing with not only on the cost management side, but also how they can more effectively attract consumers to their car wash. We have great tool with that. With Patheon, customers see excellent returns. If you have more than 100 car washes, that's even better. As you scale, these are the tools you need to scale. That's why we're getting traction in the space ahead of the overall market turn. I think we feel really good about the pipeline and what we've got in the pipeline and the engagements we have with customers. I think it's a real example of our connected mobility strategy beginning to pay off for us and real proof points around it. We're really excited about what we're seeing there. Robert Mason: Good. Going back to the event a few weeks ago in EFS, new products around the tank gauge and capitalize on that replacement cycle. One of the things that came out of the conversations was your install base, those products are just very durable. I'm just curious if there's any other incentives that you can point to that can help customers accelerate the replacement cycle around that product, new product that you introduced. Mark Morelli: Yes, we absolutely do. This is a piece of business here that we really derive a tremendous amount of leverage off the massive installed base. This is pretty much the brand of record. If you look at underground equipment, how it's being done on a worldwide basis and particularly on the upgrade cycle in the United States. A couple things we do, we package solutions so it's easier for folks when they're looking at a complete underground retrofit. We don't make or sell the tanks, but you can package up the tanks with the piping and the sensors and make it a lot easier for them to be able to do that. We also help them on interest rate issues that might come up when they're making a total retrofit solution there. We are very engaged with our customers on how they move that forward. I think the really good news about this secular driver for us is that it's a pretty steady driver that's in its early innings. It's not this massive driver that's going to drive a whole bunch of revenue in a couple quarters. I think it's going to be a pretty steady replacement cycle over the next five plus years, which I think is great. That's the kind of driver, regulatory drivers, that we like and I think we're just well positioned there to win. Anshooman Aga: I will also add, while Mark covered directly the question in terms of the incentives and how we help drive that, there's a significant value proposition of having connectivity and asset management, asset monitoring, which our solution provides, which the old solutions did not provide. When we talked about last quarter, one of our large customers doing a phase fleet wide upgrade, it's because of the value proposition that our connectivity, our new product offering provides. It's also the latest CARB certification that we provide. There are a lot of benefits. Also, to Mark's point, we are stimulating demand with a lot of these actions. Operator: Your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead. Unknown Analyst: It's actually Jose on for Andy, maybe going back to Repair Solutions. The margins there seem to be stabilizing, and you pointed to strong price cost contribution in the slide, and I think Matco was the business that was the most exposed to tariffs for you. Maybe talk through how the customer reception has been on those price increases and what you're expecting kind of moving forward. Mark Morelli: Yes, I'll jump in. I'll let Anshooman also talk about Repair as well. Look, there's no question that the tariffs have sort of been more significant for Repair Solutions. If you look back over a couple year basis, even from like Trump 1.0 to Trump 2.0, we have really worked very hard to source in region for region. I think, you know, when our setup, when we approach this year, is we source and manufacture 75% in region for region, which is a pretty significant change over the last couple years. We've made a lot of progress. I think we're going to be on our target of getting less than 10% of product sourced in China by the end of this year. I guess that long body of work has really been paying off for us. No question there's been headwinds there on costs and some of the supply chain related issues. I think as we get into next year and hopefully we see the tariffs stabilizing, I'm really proud of the management team for their ability to manage that and offset that. The pricing that we went out with earlier in the year, we've seen some drop through on that price increase that we've made. We're not making any further price increases at the moment, but we did pick up some on the price, and I think as we get into next year, as we continue to work through the tariffs adequately, we'll have better year over year compares on the tariff issue as well. Do you want to add some color there, Anshooman? Anshooman Aga: Yes, our gross margins have been pretty flat at Repair year-on-year, which basically we passed on the cost of the tariffs. Generally we've been okay passing through that. Some places it's a little more targeted where we have to make decisions around portfolio, et cetera. A large part of it, as Mark Morelli talked, has been moving supply chain and trying to optimize our cost position. Also because of leveraging a more not only a U.S. supply chain, but also other countries outside of China. We will be under $50 million of procurement from China by the end of this year on a run rate basis. Our teams have done a really good job mitigating some of the higher tariff exposures. Unknown Analyst: Got it. Helpful. Maybe kind of turning over towards cash, I did see that you slightly lowered the conversion to 95% for the full year from your 100%. At the event a couple weeks ago, you talked about targeting over 90% conversion through 2028, which is a little bit lower than the 100% you guys talked about at your previous investor day. I was wondering if you could touch on what's contributing to that and maybe elaborate on any working capital opportunities that you're working on. Anshooman Aga: Yes. If you also noticed, our tax rate is creeping up a little bit from 21% to 21% to 21.5% for this year. Part of it is to do with the R&D law change. We probably will take a lot of the cash benefit over two years because it does impact the tax rate when you take that. That's part of the 100% going to 95%, just managing our overall tax rate. We're splitting some of the tax benefit over the two years versus taking it all in one year. In terms of greater than 90%, I think that's a pretty good cash conversion. As you're going to have growth in the business, working capital kind of grows with your growth rate. One way to think about it is cash conversion of 100 minus your growth rate is a pretty good target to go for. Greater than 90% gives us some buffer, I would say. We feel very strongly that we have a really good cash conversion profile in our business. Operator: I'm showing no further questions at this time. I would like to turn it back to Mark Morelli for closing remarks. Mark Morelli: Thank you. Thanks again for joining us on today's call. We're exiting 2025 with fundamentally stronger operations, improving trends across our core businesses, and clear momentum on our connected mobility strategy. We're delivering differentiated solutions in attractive end markets, and we're committed to creating long term value for our customers and returns for our shareholders. Importantly, our shares remain meaningfully discounted to peers, underscoring the upside as we continue to execute. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. And at this time, I would like to welcome everyone to today's Provident Financial Services Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Adriano Duarte, Head of Investor Relations. Adriano? Adriano Duarte: Thank you, Greg. Good afternoon, everyone, and thank you for joining us for our third quarter earnings call. Today's presenters are President and CEO, Tony Labozzetta and Senior Executive Vice President and Chief Financial Officer, Tom Lyons. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the third quarter. Tony? Anthony Labozzetta: Thank you, Adriano, and welcome, everyone, to the Provident Financial Services earnings call. I'm happy to share Provident's third quarter results today, which demonstrated continued strong performance and advancement on several strategic initiatives. Looking back over the past 12 months, we have made notable progress driving consistent and diversified growth, while also improving operational efficiency across our entire organization. Our hardworking team remains focused, contributing to our strong results by expanding our loan portfolio and pipeline broadening our deposit base and driving record revenues for the second consecutive quarter. During the quarter, we reported net earnings of approximately $72 million or $0.55 per share, which is consistent with the previous quarter. Our annualized return on average assets was 1.16% and our adjusted return on average tangible equity was 16.01%, while we are pleased with the bottom line metrics, we are even more energized by the meaningful improvement in pretax free provision revenues during the third quarter, which grew to a record of nearly $109 million. Our pretax pre-provision return on average assets of 1.76% has improved substantially compared to the 1.64% in the prior quarter and 1.48% for the same quarter last year. We believe this improvement serves as a good indicator that we have consistently enhanced the underlying profitability of our business, even as we have accelerated and diversified our loan growth. One of our primary areas of strategic focus continues to be deposits. And during the quarter, our deposits increased $388 million or an annualized rate of 8%. It is worth noting that this growth was primarily driven by core deposits, which increased $291 million or 7.5% annualized. We continue to remain focused on efficiently funding our strong commercial loan growth and have made investments in people and capabilities to support quality deposit growth over the intermediate term. Switching to loans. During the third quarter, our commercial loan -- our commercial lending team closed approximately $742 million in new loans, bringing our production year-to-date $2.1 billion. As a result, our commercial portfolio grew at an annualized rate of 5%, driven primarily by C&I production. Our strong capital formation, combined with the growth and diversification of our loan portfolio has reduced our CRE concentration ratio to 402%, if adjusted for the merger-related purchase accounting marks. This compares favorably to the 408% in the prior quarter. Our loan pipeline grew appreciably to nearly $2.9 billion, with a weighted average interest rate of approximately 6.15% as of quarter end. The pull-through adjusted pipeline, including loans pending closing, is approximately $1.7 billion. We are proud and encouraged by the loan team's performance and the strength of our pipeline as we approach the final stages of 2025. While we have worked hard to grow and diversify our loan pipeline, our commitment to managing credit risk and generating top quartile risk-adjusted returns has remained unchanged. Nonperforming assets improved 3 basis points to 0.41%, which compares favorably to our peers. We also saw a decline in nonaccrual loans during the third quarter, while our net charge-offs were only $5.4 million. Overall, we've remain very comfortable with our credit position and our underwriting standards, and we continue to look for the risk appropriate opportunities to grow our business. We believe it is worth reiterating that our exposure to rent-stabilized multifamily properties in New York City is modest at $174 million or less than 1% of total loans, all of which are performing. Additionally, our credit exposure to non-depository financial institutions is limited to $292 million of mortgage warehouse loans. We are comfortable with the credit structure of these loans, including the controls we have in place to minimize risk. Furthermore, the customers we deal with our established and well-known counterparties to our banking. Another area of strategic focus is growing noninterest income, which performed well during the third quarter. Provident Protection Plus continues to drive consistent growth in our noninterest income with revenues up 6.1% when compared to the same quarter last year. While normal seasonality drove a step down in revenues when compared to the linked quarter, we remain optimistic about the high level of business activity occurring on our insurance platform. Beacon Trust saw revenue growth in the third quarter, increasing to $7.3 million. We are excited to announce that Beacon's new Chief Growth Officer, Annamaria Vitelli, joined us in September and will bring our demonstrated track record of driving strategic growth to expand Beacon's market presence and deepen client relationships. We also continue to invest in our SBA capabilities, which have been a steadier contributor to noninterest income. In 2025, generating $512,000 gains on sale in the third quarter. Year-to-date, we have generated $1.8 million of SBA gains on sale, which is up from $451,000 in the comparable period last year. While our total assets have grown 3% year-to-date, our strong and consistent profitability continues to build Province capital position, which comfortably exceeds well capitalized levels. As such, this morning, our Board of Directors approved a quarterly cash dividend of $0.24 per share payable on November '28. I'd like to conclude my remarks by emphasizing how proud we are to see the results of careful planning and hard work translate into continued strong performance in the third quarter. None of these accomplishments would be possible without the dedication and commitment of our employees. We will continue to execute our key strategic initiatives aimed at sustaining growth in our core business, while simultaneously making the necessary investments on our platform to ensure Provident is well prepared for the future. Now I'd like to turn it over to Tom for his comments on the financial performance. Tom? Thomas M. Lyons: Thank you, Tony, and good afternoon, everyone. As Tony noted, we reported net income of $72 million or $0.55 per share for the quarter, with a return on average assets of 1.16%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 16.01% for the quarter. Pretax pre-provision earnings for the current quarter increased 9% over the trailing quarter to a record $109 million or an annualized 1.76% of average assets. Revenue increased to a record $222 million for the quarter, driven by record net interest income of $194 million and noninterest income of $27.4 million. Average earning assets increased by $163 million or an annualized 3% versus the trailing quarter, with the average yield on assets increasing 8 basis points to 5.76%. Our reported net interest margin increased 7 basis points versus the trailing quarter to 3.43%, while our core net interest margin increased 1 basis point. The company maintains a largely neutral interest rate risk position, but anticipates future benefits of the core margin from recent Fed rate cuts and expected steepening of the yield curve. We currently project the NIM in the 3.38% to 3.45% range in the fourth quarter. Our projections include another 25 basis point rate reduction in December of 2025. Period-end loan sales per investment increased $182 million or an annualized 4% for the quarter, driven by growth in mortgage warehouse and other commercial and multifamily loans, partially offset by reductions in construction and residential mortgage loans. Total commercial loans grew by an annualized 5% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.7 billion. The pipeline rate of $6.15 is accretive relative to our current portfolio yield of 6.09%. Period-end deposits increased $388 million for the quarter or an annualized 8%, while average deposits increased $470 million or an annualized 10% versus the trailing quarter. The average cost of total deposits increased 4 basis points to 2.14% this quarter, while the total cost of funds increased 1 basis point to 2.44%. Asset quality remained strong with nonperforming assets declining to 41 basis points of total assets. Net charge-offs were $5.4 million or an annualized 11 basis points of average loans this quarter, while year-to-date net charge-offs were just 6 basis points of average loans. Current quarter charge-offs reflected the resolution of several nonperforming loans and the write-off of related specific reserves. Our provision for credit losses increased to $7 million for the quarter as a result of growth in loans and commitments and minor deterioration in our CECL economic forecast. Our allowance coverage ratio was 97 basis points of loans at September 30. Noninterest income increased to $27.4 million this quarter, with solid performance realized from core banking fees, insurance and wealth management as well as gains on SBA loan sales. Noninterest expenses were well managed at $113 million with expenses to average assets totaling 1.83% and the efficiency ratio improving to 51% for the quarter. Excluding the amortization of intangibles and the related average balance, these ratios were 1.73% and 46.72%, respectively. We project quarterly core operating expenses of approximately $113 million for the final quarter of 2025. Our sound financial performance supported earning asset growth and drove strong capital formation. Tangible book value per share increased $0.53 or 3.6% this quarter to $15.13 and our tangible common equity ratio improved to 8.22% from 8.03% last quarter. That concludes our prepared remarks. We'd be happy to respond to questions. Operator: [Operator Instructions] Our first question today comes from the line of Tim Switzer with KBW. Timothy Switzer: My first question is on the margin. I think you guys have -- I understand kind of the interest rate impacts on the floating rate book in your deposits there. But I think you guys also have quite a bit of loan back book repricing as well. Can you maybe update us on the quantity of loans that are fixed rate repricing over the next 12 months or so? And then what kind of uplift you would expect on the yields just at current rates? Thomas M. Lyons: I think, I can give it to you in pieces, Tim. The total repricing is just under $6 billion to $5.9 billion. Within that, the floating book is about $4.950 billion. So the balance is either longer-term adjustable repricing in the period or fixed rate. Timothy Switzer: Got you. And do you have kind of like what the blended yield is on that fixed rate and adjustable portion? Thomas M. Lyons: I do not. I know I mean the margin projection reflects all of that. So you can see the increase based on the expected new loan rates of 6.15% that's in the pipeline. But I don't have it at my fingertips the current portfolio rate for that piece of that segment. Timothy Switzer: Got you. Okay. And there's been some discussion on other conference calls about increasing loan competition on pricing. Could you maybe discuss what you've seen in your markets and then kind of dissect that between C&I and then the CRE market? Anthony Labozzetta: Sure. Yes. I think that's a fair statement that we've seen some increased competition in the lending market for sure, mostly on the CRE side with what the either the private space or insurance the agencies are doing. In fact, some of our -- we had about $348 million of payoffs this quarter. Some of that had to do with that. Some of it have to do with loans just selling. But on the C&I side, we're not seeing the same level of competition that we are on the CRE side. But I would say it's a fair statement to say overall, the competition has grown stronger. However, I would like to end that by saying that our team is still building a pipeline that's kind of record high at $2.9 billion. So in our pull-through, I say we're closing about 65% of the things we touch, so those are good consistent metrics for us. We're careful about what the economy looks like. We're doing good loans to good sponsors under good terms, but we're aware that there's some pricing competition or structure competition out there. Timothy Switzer: Got it. That's helpful. And if I could get 1 more follow-up. Could you maybe add some color on how some of your new specialty verticals like ABL and health care are contributing to the loan growth? Anthony Labozzetta: I think as we might have mentioned on the written prepared comments was -- this quarter, the C&I reflected most of our growth, which includes health care, maybe our warehouse lending did very well for us this quarter. In fact, those were all double-digit growth in some of those categories, where our CRE was relatively stable because of some of the prepayments, unanticipated prepayment we saw was in that class. So again, those are good. That's the areas that we are strategically focused on scaling up. We're doing it very well. We're very proud of that. We have the good teams to handle that. It's also driving a good result on our CRE concentration ratio, as I mentioned, so it's having all the strategic effects that we desire. If CRE kicks up, I think, this quarter, while I said that loans grew 5% the effective production would have been somewhere around 7%, 7-plus-percent if the prepayments were not there in the CRE space. So I'm pretty proud of the productivity this bank has right now. And our focus will continue on those verticals, which we put in place strategically. We expect them to be high single double-digit growth because the scale of that book is not substantial, so that all the productivity is going to be substantial. And while CRE will run in that 5% space. Thomas M. Lyons: Tim, the other thing I could add, if it helps with the projected loan mix is the pipeline breakdown. Commercial real estate represents about 42% of the pipeline. The specialty lending category, which includes the ABL and health care, you were referring to is about 14% there's 5% in resi and consumer and the balance is the other commercial loan categories, middle market and other commercial lending. Operator: And our next question comes from the line of Feddie Strickland with Hovde. Feddie Strickland: Good afternoon, everybody. Just wanted to touch on noninterest income, the guide seems to imply about a $1 million step down linked quarter. Is that just an expectation of lower loan prepayment fees, plus maybe some seasonality on the insurance? Thomas M. Lyons: Yes, you got it, Feddie. It's maybe a little conservatism in there as well. But the prepayment fees, again, subject to some volatility. They were about $1.7 million this quarter. So we scaled that back, but who knows what we'll see. Personally, I'd rather hold the loan and leave the fees out. But yes, that -- and the seasonality in the fourth quarter is not necessarily the strongest for insurance. We see well going into Q4 too. Q1 is where we see the pickup, right? Feddie Strickland: And I guess, along the same lines of noninterest income. Can you talk about the opportunity on the wealth side as we enter '26 and whether you're working to bring on additional talent there? Anthony Labozzetta: Well, absolutely. As I mentioned on the call, we've hired Anna Vitelli. She's the Chief Growth Officer. She's building -- she's charged with growing and service and retainage of -- in a way of extraordinary service in that space and deeply integrating it with the bank. So we think there's a lot of great opportunity. So Anna will build out our needs, adding more sales and production staff and organizing ourself in a fashion that will give us the things that we're looking for. But certainly, these investments are aimed at 1, growing new AUM and deepening connections that we have within the organization already. Feddie Strickland: Got it. And just 1 more quick 1 for me on capital. Just hoping to get your updated thoughts on how do you think about capital and about deployment via dividends versus buybacks versus organic growth, while still managing the CRE concentration piece as well. Thomas M. Lyons: Yes. I think our first preference remains organic growth at profitable levels. And again, recognizing the strength of our pipeline, that's where our energy has been focused -- that said, we are at comfortable levels of capital there. We're close to $11.90, I think, on CET1 at the bank level. So there's opportunities for us there. We certainly think we're trading at an attractive price at this point. With regard to dividend, we kind of like to get back to a 40%-ish payout ratio, somewhere in the 40% to 45% range. So I think that's when we look at that more carefully. The other thing is we're in the middle of budget season here, which is why we didn't give a lot of forward guidance. We want to wait until January to give everybody a full year update. But that will help inform our capital decisions as well as we get more confidence around our asset growth and capital formation projections. Operator: And our next question comes from the line of Dave Storms with Stonegate. David Storms: I appreciate you taking my questions. Just wanted to start with some of the decrease in deposit costs and maybe get your thoughts on how much more room there might be to run here and what that looks like from a competitive landscape? Thomas M. Lyons: Decrease in deposit costs. Well, we saw growth in noninterest-bearing, which was helpful to us. The overall cost of funds was only up 1 basis point to 2.44% this quarter. So there was a little bit of shift in mix. While deposit costs were up it was still at an attractive rate in terms of funding advantage relative to the wholesale borrowings. So that's really what we try to manage, obviously, is the overall cost of funds. That all said, we do have -- we had the Fed rate cut at the end of September, the 17th, I think it was -- and then this most recent 1 is yesterday, I guess. So we're going to see the benefit of that of both of those cuts in Q4. The September cut was effective on October 1, and the most recent cut will be effective November 1, in terms of beta overall, I think we conservatively model something in the 30% to 35% range on deposits. David Storms: And then just 1 more, if I could. It looks like your efficiency ratio is hovering right around that 50% mark. Curious as to how much of a push there is to get that under 50% and maybe what that would entail? Thomas M. Lyons: I don't think it's necessarily a push, but rather our desire to continue to make prudent investments and build for the future. So I think where we are is a really attractive level. If you look at a pure overhead management, the OpEx ratio at 183% and that's inclusive of some fairly significant intangible amortization is really quite well managed. So I don't know that there's a lot of room we're going to look to take down on that just because I think there's investments that we want to continue to make to support growth. Anthony Labozzetta: I would argue that we've been steadily making the requisite investments in our business to build out the platform for our future. The efficiency ratio, we will see that come down further by enhanced revenue opportunities. And then you might see a blip up with further investments. And I know obviously, we'll get a positive operating leverage, and you'll see it move back down. And that's kind of the trend we've been watching, but I think Tom says -- it's in this area, it can go down another point, if we're building the revenue base and then represent factor in future investments. Thomas M. Lyons: Yes, Tony made a really good point. I was focused on the expense side, but I think the revenue opportunities are there. You saw 2 consecutive quarters of nice growth and record levels for us. We do project core margin expansion over the next several quarters of, say, in the 3 to 5 basis point range each quarter. So and again, we talked about some of the investments that we hope to see returns on in the fee-based businesses over the course of the next year. A lot of room there. Operator: Our next question comes from the line of Gregory Zingone with Piper Sandler. Gregory Zingone: Quick question. How frequently are you bumping into private credit firms nowadays? Thomas M. Lyons: I'm sorry, Greg, could you say that again? We have difficulty hearing you. Gregory Zingone: I asked how frequent are you bumping into private credit firms nowadays? Anthony Labozzetta: Yes. We know that's out there. We're not -- it's not really been a factor for us, at all. Most of the business we're doing is relational. So clients are not that reticent to go to private credit for 1 transaction knowing that the whole relationship is important to them and us. So again, we're very cognizant of it being out there and the scale of it. However, it has not been a factor in us building our pipeline or getting our deals closed. Gregory Zingone: Awesome. And at first glance, your average fee in wealth management of 70 bps seems kind of high. Have you felt any pressure on pricing recently? Thomas M. Lyons: I wouldn't say recently, it has actually come down. I can remember us being as high as 77 basis points probably 2 years ago or so. But it's been pretty stable, sorry... Gregory Zingone: I was going to ask on top of that, where are new relationships coming on today? Thomas M. Lyons: I would say similar levels because it has remained steady at 72 basis points for quite a few quarters now. Gregory Zingone: And then lastly for us, M&A is picking up in the industry, it seems like a pretty good time to ask you guys. What are you looking for in your next potential acquisitional target? Anthony Labozzetta: Well, I would actually answer the M&A question a little bit differently, right? So I think our primary focus here is on the organic growth strategies that we outlined. We're pretty excited about build-outs and our advancement at the middle market space, we think there's a huge opportunity for us to create shareholder value and 1 that we think is most relevant. That being said, we're always evaluating opportunities that might be out there. I think we've proven that we have a great merger DNA, we can get stuff done. We have the right platform to do that. We'd love to see our currency trade at a place, where it's more reflective of what we're worth. So we'll always evaluate opportunities from every direction, but it's a wonderful place to have the optionality, and we're creating that by having an organic growth and focusing there first. Operator: All right. And our next question comes from the line of Stephen Moss with Raymond James. Stephen Moss: Good. Maybe just starting on purchase accounting here. I realize it's probably elevated from the prepays this quarter. But curious as to how you guys are thinking about that going forward. And also on the subject of prepaid, just kind of curious, do you think those will continue to be elevated in the near term? Or do we -- from the fee income, kind of we're going to moderate down to more [indiscernible] levels? Anthony Labozzetta: I think the prepays, usually, if we look at past trends, the third quarter seemed to have a heightened pickup, which is the summer months. We expect that to normalize and maybe $150 million to $200 million range, I would say, is more normalized, but you always have in that number that I gave, there's a lot of businesses that sold as much as it wasn't a huge, huge number of refinancing elsewhere, probably $90 million of it refinanced elsewhere. So there's always going to be activities, companies selling companies coming. We just have to have an organizational capacity to grow at a level to make up for that. But if I were to put a number on it, I would say $200 million, $150 million, $200 million is probably a good place to be. Thomas M. Lyons: And with regard to purchase accounting, Steve, I'd say our normal number runs about 40 to 45 basis points of the NIM. I would expect that to persist throughout the next 4 quarters. Stephen Moss: Great. And then kind of on the theme of organic growth and hiring. I heard you guys' comments around the efficiency ratio. Just kind of curious how you guys are thinking about hiring for 2026. You've definitely made a number of investments over the last 12-plus months. Kind of curious if there's maybe another step-up in terms of bringing people over in the new year or just color around that? Anthony Labozzetta: Yes. I mean, so I think we have a pretty good visual to our strategic planning process of what our needs are to give us the productivity in future years, particularly in areas of focus. It is our expectation that we'll continue to invest. If you look at what insurance does, we hire roughly 10 to 12 new producers every year to keep pace with that. We're expecting that to happen in the Beacon space, our commercial platform continues to hire not only in new geographies, but in verticals that we're investing deeper in. I would expect more investment in the middle market space for us next year. All of those things we have clarity of what the positive operating leverage will be derived from that. So it is part of our process in terms of forecasting and strategic planning that. We'll build all that out for you in the first quarter and you'll get a better clarity of the investment against the returns. Operator: And it looks like there are no further questions at this time. So I'll now turn the call back over to Tony Labozzetta, for closing comments. Tony? Anthony Labozzetta: Great. Thanks everyone for your questions and for joining the call. We hope everyone has an enjoyable end of the year and a holiday season. We look forward to speaking with you again soon. Thank you. Operator: Thanks, Tony. And again, this concludes today's conference call. You may now disconnect. Have a good day, everyone.
Essi Nikitin: Hi, everyone. Welcome to YIT's Third Quarter 2025 results webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. The results will be presented to you by our CEO, Heikki Vuorenmaa; and CFO, Tuomas Makipeska. Without further ado, I will hand over to Heikki now to go through the latest developments in the company. Please go ahead, Heikki. Heikki Vuorenmaa: Yes. Thank you very much, Essi. And welcome also from my behalf to the third quarter '25 webcast. In third quarter, we overall delivered solid performance, in line with our expectations. The contracting segment's profitability continues to improve, and they were the main profit drivers during the third quarter. Our apartment sales and production keeps' increasing in the residential segments. And CEE has taken the role as our primary market in terms of revenue, volume and profits. Order book for the contracting segments are developing well and broader demand environment remains healthy as we move into the fourth quarter. In fact, our next year order book is stronger than in the recent years. Our recently executed employee survey indicates strong commitment from the team towards our new strategy. And supported by the good operative progress, we revised our full year guidance. But let me share numbers and some key highlights from the quarter. The low amount of apartment completions in the residential business impacted our numbers on a group level as expected. The revenue declined to EUR 402 million, burdened by the residential segment volumes. Also, it impacted our adjusted operating profit, which was on the level of EUR 12 million. What we are really pleased is that, our contracting segments' trend is improving all the time, and the contribution to profitability is increasing. Infra revenues continues to increase during the quarter to EUR 127 million, increasing 30% compared to last year. Adjusted operating profit reached almost 6% in Infra and 4.5% in the Building Construction segment. But as we then look our business performance over the past 12 months, we can clearly see how the 3 out of 4 segments are delivering as they operate in the favorable market. Revenue is still primarily coming from the contracting segments, and representing altogether 65% of the rolling 12 months revenue. The residential operation in the CEE are expected to grow strongly, as you can see here. The project completion schedule for that next year, worth of EUR 450 million, would imply or indicate even almost 60% volume growth compared to the rolling 12 months figures. And of course, those starts, what we have been doing, those are done with a healthy gross margin levels. The resilience of the group is increasing and the dependency to single market or a single segment is declining. Our Contracting segment operates with a strong order book. So all-in-all, the company is heading to right direction. Let's move then to individual segments, and we start with the Residential Finland. As I mentioned already, the revenue has been on the declining trend. And the same trend continued this quarter as we didn't have any completions during the third quarter '25. We mostly sold apartments from our inventory during the quarter and focused to launch new projects that will be then completed during '26 and '25. Key for us is to ensure that our product designs meet the market expectations and consumer preferences. And the team here is working on with the internal efficiencies to manage the costs and identify further opportunities across the operations. The inventory of unsold apartments is reaching a normal level. Helsinki Metropolitan Area still carries excess from the decisions done during the '22. Our focus on reducing the inventory has now yielded results, and the inventory is no longer an issue for us. Actually, when we look outside of the capital area, we start to already have some shortages like in Oulu, Turku, Jyvaskyla to mention a few of the cities. Altogether, we started 224 new apartments during the quarter. And those were done mostly on the -- outside of the capital area. And the reason is on the previous slide, as discussed that we still carry an excess supply, and that we make those starts on the regions where we see that demand is healthy and we are convinced that those products are on a good micro locations that will be sold to consumers during the construction period. And as I mentioned here, the story actually is quite the same as in the second quarter. So, no completions and it had the implications that we already discussed. Our revenue and profits on this segment, same is in the CEE, is based on completion, and it has been a meaningful impact on our profitability. The completions -- overall completions this year, if we look 274 units, this could be actually the lowest point in time. This is just 20% of the completions on 2023 when we are comparing to the previous years. And here, we can see the implications where the residential business bottomed out. Now we have been starting new projects and gradually, we see that the market is improving and heading towards better times. But then we move to the residential CEE, which is our primary residential business in the future. The segment performance is very strong, which is hard to observe from our IFRS numbers as this reports revenue only at completion. It's also good to note that this team at the moment is managing a substantial amount of new projects and the future revenues, which is not yet visible on the pages here or the figures here. And as said, this has been now become our principal market. There is about 60 million people living on the operating countries that we are building the homes for consumers, and we see that there are future opportunities still to grow. Revenue and profits for the segment are heavily tilted towards the Q4 this year. The sales speed continues to increase and reach new levels. Now over 1,200 units in a rolling 12-month basis. We also continued with the new starts, a bit more than 300 units during the quarter. And by now, projects valued almost EUR 450 million are in production that are estimated to be completed in 2026. And the sales of those projects are progressing well. Favorable market conditions will reinforce the segment's roles as a key driver for the growth in the future during our strategic period. We actually had one project completion during the Q3 ahead of schedule, and that was the city in Krakow, Poland. It was one of our newest cities that we opened, and I'm very pleased that the team were able to find lead time acceleration opportunities to get the project completed already ahead of schedule. However, majority of the completions are scheduled for the final quarter this year. And total, we talk about 10% more during 2025 than what we had in 2024 in terms of completions. But let's leave the residential segments and we move to the contracting segments, starting with our Infra operations. Infra, solid performance continues. Top line and profitability continue to grow. The rolling 12 months revenue is to reach EUR 0.5 billion level soon. Actually, during the quarter, we saw already again, a 30% growth in revenue. The business has a strong order book, tendering pipeline extremely active and the customer NPS is increasing. And I'd like to double-click on one part of the market, what the segment is operating in. This is one of the megatrends what we have highlighted and it relates to the data centers. The data center investments may play a big role for the Finnish construction companies in the coming years. We have already publicly announced 3 data center partnerships by now. The market in Finland strongly increasing, investment plans announced reaching already EUR 12 billion. We made a decision a couple of years ago to invest in capabilities, both in our project management, in general terms, but also in the MEP, and that decision is now yielding results. Data center market offers great potential for us. And we are happy to work with the close cooperation with customers to deliver the solutions on time under the tight schedules that the data centers typically has. Our recent wins further strengthens YIT's position as the leading data builders -- builder of data centers here in Finland. And this is supporting our strategic focus. We are capable to actually offer full EPC solutions for the data centers as well through our diverse capabilities, and as we have capabilities both in Infra as well as the Building Construction segment. And as we combine all that, so that makes us competitive in those tendering processes. But coming back to Infra order book, and it has remained on that steady level, but the content here is a bit shifting. We actually observe increasing amount of orders from B2B customers in our order book. We still see that we have probably one of the strongest order books among the industry players, and it's approximately 19 months of work. It gives us an opportunity to develop the projects with our customers in such a way that we will find the best solutions for them, which suits for their projects. But before moving to Building Construction, I have to say that it's yet again a solid quarter from our Infra team. We also have positive news from our Building Construction segment. The revenue growth is still ahead of us, but the profitability of the segment is taking steady steps forward. This quarter, we recorded EUR 7 million profit and on the rolling 12-month basis, we are approaching 3% level. The balance sheet continues to have a lot of opportunities to release the capital, yet it also negatively impacts the segment's profitability. The negative impact from the capital employed, what we have, exceeds the gains from the balance sheet, which is the fair value gains that we are reporting during the quarter. We have secured a good level of new orders, and we are looking actually ahead with a quite positive outlook. We have about 17 months of work in our books, and we're enabling us here again also to focus on the long-term customer development activities. The market continues active and so does the tendering. Then a view to our operations. Overall, our operations are running smoothly, even though we have significantly scaled up our production volume in the residential segments. The production has now increased 60% in the residential business year-on-year, above 4,000 homes in production today. Project margin net deviations are positive in the contracting segments and supports the profitability. Our supply chain is under control. However, we start to observe workforce availability tightness in our operations, especially in Slovakia and Czechia, which needs attention from our supply chain teams going forward. Then to overall market view before handing over to Tuomas. We have actually updated our view on infrastructure market here in Finland from normal to good. Our operations in the Central Eastern Europe benefits from the favorable market conditions and the strong demand that we are seeing, especially on the residential segment, but also there is a normal to good market in the building construction segment, depending a bit on the specific country. The residential market in Finland is improving. However, it is still on the weak level and there's still way to go before we are reaching a normal level of residential market here in Finland. But that concludes my first part and time to hand over to you, Tuomas, to cover our financial performance for the quarter. Tuomas Mäkipeska: Yes. Thank you, Heikki. Let's go through our financial development in the third quarter and start with a summary of our key metrics there. So, our return on capital employed was at 3% and gearing at 85% at the end of the third quarter. Our key assets amounted to well over EUR 1.6 billion, while the net debt decreased to EUR 669 million at the end of the third quarter. The cash flow for the quarter was EUR 0 million. So all-in-all, the quarter was very stable and according to the plan also from the financial perspective. And as a result of the stable performance year-to-date, actually, we revised our guidance, and we now expect the adjusted operating profit for the year to be between EUR 40 million to EUR 60 million. But let's look at each of these topics in more detail in the following slides. Our return on capital employed improved from the comparison period but was at a lower level than in the past 2 quarters. The low amount of consumer apartment completions during the quarter, which impacted adjusted operating profit in both residential segments is visible in this metric. We will continue to drive profits and capital turnover to reach our financial target of at least 15% by the end of 2029. But some highlights regarding capital employed from the segments. So, in Residential Finland, the capital employed has been on a downward trend supported by the efficient use of our plot portfolio and sale of completed apartments from the inventory. In Residential CEE, we have been able to release EUR 75 million of capital over the past 12 months, even though at the same time, our apartments under production have increased by over 70%. So, this is mainly thanks to our strong plot portfolio, solid apartment sales and other capital efficiency measures. The Infrastructure segment continues to operate with negative capital employed, supporting the whole group's financial performance. And the capital employed in Building Construction continues to include noncore assets, which burdened the segment's profitability, as Heikki mentioned before. Let's move on to the cash flow development. Cash flow after investments for the third quarter was 0, and we can see from the graph that the cash flow in our business is cyclical and typically heavily tilted towards Q4. When looking at the longer period, the 12 months rolling cash flow was almost EUR 70 million positive at the end of the third quarter and has now been actually positive for the last 7 quarters. Cash flow from plot investments in the third quarter was minus EUR 9 million, and the plots we invested in during the third quarter were mainly located in Poland, which supports our growth in the region in the future. So, this demonstrates our ability to operate the businesses with a positive cash flow while investing in growth where the returns are the highest. Net interest-bearing debt decreased from the comparison period and remained stable when comparing to the previous quarter amounting to EUR 669 million at the end of Q3. Gearing was at 85% and decreased from the comparison period. In addition to the positive rolling 12 months cash flow, the decrease was supported by hybrid bond issuance, which took place during the second quarter this year. The net interest-bearing debt included IFRS 16 lease liabilities of EUR 260 million, as well as housing company loans of EUR 138 million. And the combined amount of these items has decreased by over EUR 80 million from the comparison period. This is thanks to our decreasing inventory of unsold apartments as well as capital efficiency actions relating to leased plots. When excluding the before mentioned lease liabilities and the loan maturity housing company loans from our net debt, the adjusted net debt amounted to some EUR 270 million. This translates to an adjusted gearing ratio of 35%. We remain determined to reduce the indebtedness of the group and operate within the set financial framework of 30% to 70% gearing. We have an asset rich balance sheet. Our key assets amount to well over 2x the net debt. When comparing the components of our key assets to the year ago situation, the changes in the company are clearly reflected there. Production has increased by around EUR 60 million, as we have accelerated our production, especially in the favorable markets of the CEE countries. As we have accelerated starts, our plot reserve has decreased by some EUR 100 million, but it continues to remain strong, enabling the construction of approximately 30,000 apartments across our operating countries. Completed inventory in our balance sheet has decreased by over EUR 80 million from a year ago as we have continued to successfully sell the excess apartment stock. So all-in-all, we have effectively used our balance sheet and will continue to do so going forward. Capital released from the balance sheet and capital efficiency in business operations continue to be top priorities in our strategy. As communicated, we identify potential to release up to EUR 500 million of capital from our current apartment inventory and through divestments of the noncore assets. These noncore assets include real estate, plots and ownerships in associated companies that are not in the core of our current strategy. And the released capital will be reallocated to fund residential segment's profitable growth and reduce indebtedness of the company, which will consequently lower the financing cost and support the net profit generation. In maturity structure of the interest-bearing debt having only limited amortizations scheduled for this and next year allow us to focus on profitable growth of the businesses. The amortizations maturing in 2027 and 2028 will be addressed as a part of normal refinancing planning. Then to the guidance, which has been revised. We have narrowed the range for the adjusted operating profit guidance. We now expect group adjusted operating profit for continuing operations to be between EUR 40 million to EUR 60 million in 2025. Previously, we expected the adjusted operating profits to be between EUR 30 million to EUR 60 million. The guidance update is a result of the stable financial performance of the businesses during the first 9 months of the year. Our outlook, however, remains unchanged. So, to summarize the Q3 financial development before handing back over to you, Heikki. The stable financial performance across our businesses seen during the first half of the year continued in the third quarter. Our plot portfolio continues to be strong, which enables us to start new residential projects and consequently support profitable and capital-efficient growth. And releasing capital is a strategic priority as we continue to allocate capital to our most profitable businesses. So based on these facts, our current financial position clearly serves as a basis for the targeted profitable growth according to the strategy. So that covers the finance part of the presentation. So now back to you, Heikki. Heikki Vuorenmaa: Thank you, Tuomas. And I think there's also other reason to say thank you. As we have announced, you have taken the opportunity to join another great company as a CFO in a couple of months, and this is opportunity for me to say thank you for the intensive 3 years that we have time to spend together. And I think that I could not have imagined a better person on that 3 years to work with in order to successfully turn around the company and reset the new strategy and put the foundations in place for the growth of the company is or has ahead of it. So, a big thank you for all the work and the commitment that you have done for the YIT. Tuomas Mäkipeska: Thanks, Heikki, for the kind words, and thank you. It's been a pleasure. And it's been an absolute pleasure working with you and working for YIT for these roughly 4 years. And I think we have accomplished a lot together, and we have really transformed the company during the last couple of years. So, I think it's been quite a ride together. And I think it also makes me sad a bit to leave the company, but I will be following you. And I think YIT has the right strategy, the skilled management and absolute professional employees throughout the segment. So, I think these are the ingredients for the future success of the company under your management. So, I'm really confident that you will keep up the good work and be successful in the future. So that's what I think from the future perspective as well. So, thank you. Heikki Vuorenmaa: Thank you very much. And I think now it's -- as we have introduced the third musketeer along the team that Markus Pietikainen, and you haven't been so visible in this stage, but of course, you have been on a close cooperation that what we have been working with you already for 2 years, given the financing and in terms of the whole group but also project financing. And we have a strong leadership bench and it's my privilege, and I'm really excited also to announce you as our interim CFO. And as you maybe introduce a bit about your personal background. So next, we're also covering the strategic progress. So you've been now with kind of seeing the first full year of the strategy. So how do you are looking forward, the implementation and execution of that as well. So please, Markus. Markus Pietikainen: Thank you, Heikki, and thank you for the opportunity. So, a few words on my background. I'm a finance major from Helsinki. I worked 12 years with Wartsila in different positions. I worked in Group Controlling, Corporate Development. I ran the Treasury, Group Treasury, and also ran a Business Unit out of Houston. So that's my Wartsila background. I also worked for JPMorgan for 5-years in different investment banking positions in London, and then also as Chief Investment Officer for Finnfund. So, this is, in brief, my background. And to your question on the strategy, I think that the first year into the 5 year strategy, we are clearly now seeing results of the strategy working out. We have a very strong outlook in the CEE countries on the residential side. This is a good margin business with tremendous growth opportunities. If you look at the 2 contracting segments, which we have, both have very robust order books, clearly, headwinds from -- and a good support from data centers, and also the defense sector. So, we see good trends supporting these 2 contracting businesses. And then fourth, the Residential Finland. I think that there clearly the trough is behind us. We've, I think, announced today the tenth self-developed project. So clearly, we are past the difficult times. And obviously, there is opportunities there going forward. So, this is a great opportunity for me to join the leadership team and really excited about this opportunity and looking forward to working with you all. Heikki Vuorenmaa: Very good, and welcome, Markus, to our team. Same time sadness but also joy and excitement, it's the today's feeling that I'm having. But now it's the time for us to go into the section that has been already promised, so how we are executing our strategy during the third quarter. First, high-level look on our revenue and profitability as well as return on capital employed. We covered this already on the early part of the presentation. The revenue is still yet to start to show the growth trends due to the low amount of completions, what we are having this year. Same thing is impacting our adjusted operating profit margin on a rolling 12-months basis during this quarter. And the return on capital employed, while it has been trending in the right direction, took a bit step back during the quarter. And it requires, of course, the profit to come, but also capital release actions that we have in the pipeline to be executed. But the highlights from our strategy during the Q3 comes from actually our strategic focus to elevate the customer and employee experience to next level. When we look on our customer feedback and NPS, it has been continued on a very high level already for the several quarters. We have also made changes in terms of how are we serving our customers that has maybe liability repairs in the Residential Finland. And the lead-times on that side has been decreasing already 60% compared to '23. And this is then, of course, reflecting as a better customer feedback, as well as when the issues that has been identified are closed on a faster pace. Also, we have been working a lot with our apartment designs, not just one apartment but also the floor layouts in order to introduce new designs in this type of a market, and it has been also what our efficiencies we have been taking. So, it has provided us opportunity to price those with a lower price than before into that market when we have been launching the new starts. And investing to our own capabilities and teams. So, we have been becoming the leading pillar of the data centers in Finland, as mentioned that we have already announced the 3 projects. But the key big highlights from this quarter is our -- the commitment of our employees towards our new strategy. We're measuring our employee satisfaction on an annual basis, and the Net Promoter Score from our employees increased from level of 30 to level of 37, and that is a significant increase compared to a year ago. The main drivers was how our teams are understanding the strategy but also how they are seeing the future of the company to develop. 98% of trainees would like to continue working at YIT after we are -- after the summer or the period of time that they have been working with us, and we continue to invest in our people. And most recently, all of our leaders are going through the leadership training, which is then building more competencies and capabilities to their toolbox in order to lead the construction side, the projects, but also the teams on desired manner. So good progress also on this during the quarter. And operator, I think now it's already time to open up and start to have the questions Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: A couple of questions from me. So, first about these so-called noncore assets you are targeting to divest in the future. So, can you give us any ballpark like how much these assets are currently generating earnings? Tuomas Mäkipeska: I can start and continue, if you wish then. So actually as you, Heikki, mentioned, so altogether, if you look at the noncore assets, noncore assets on our balance sheet and the costs that they actually create and comparing that one to the benefits of having a kind of fair value gains there. So, these costs are offsetting the gains and are exceeding the gains. So that is what we have publicly communicated. We are not disclosing any numbers regarding the noncore assets piece-by-piece, or the operational costs related to them. But in a big picture, so as we say that, they continue to burden our profitability, so that effectively means that the costs exceed the benefits. Heikki Vuorenmaa: Yes. Anssi Raussi: Okay. Got it. And maybe then about your cash flow. So, as you mentioned that the Q4 is typically the strongest quarter in terms of seasonality. So, could you give us any estimate like, should we look at, 2024 Q4 or 2023 or something like we have seen in the previous years? Heikki Vuorenmaa: I'll take this one. We're not guiding quarterly cash flows or even yearly cash flow for this year. But as we have -- throughout our presentation, we have explained that our growth in CEE countries is not tying more capital or be cash negative largely. Then also the increase in -- or growth in the contracting segments are actually supporting the positive cash flow generation, and we are confident that we have a strong cash flow for the Q4. So that we can say. But anyway, so we're not giving any ballpark on a number basis. Anssi Raussi: Okay. That's clear. And by the way, thank you, Tuomas for now. So happy to continue our cooperation in the future as well. Tuomas Mäkipeska: Likewise, Anssi. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Heikki Vuorenmaa: I would actually -- before we close, so I would actually like to thank also the cooperation with the analysts throughout these years. So, it's been also a pleasure working a very smooth cooperation with you during this phase. And most of or part of you will, of course, meet in the next roles as well. So, thank you very much for the cooperation on my behalf. Essi Nikitin: Okay. Thank you. As there are no more questions, we thank you all for participation and wish you a great rest of the day. Heikki Vuorenmaa: Thank you very much. Tuomas Mäkipeska: Thank you.
Operator: Good day, and welcome to the Altria Group 2025 Third Quarter and 9 Months Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir. Mac Livingston: Thanks, Angela. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's third quarter and first 9 months business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy. William Gifford: Thanks, Mac. Good morning, and thank you for joining us. Altria continued to build significant momentum in the third quarter with exciting progress across our businesses. For the third quarter, we delivered strong financial performance growing adjusted diluted earnings per share by 3.6%, and we continue to make meaningful progress across our smoke-free portfolio and toward our long-term adjacency goals. on! held steady in a highly competitive environment, and Helix announced plans to launch on! PLUS its innovative next-generation oral product. Horizon also made important regulatory filings for a joint venture and heated tobacco products. Looking at our long-term adjacent growth opportunities, we announced a collaboration with KT&G to explore opportunities in international innovative smoke-free products and U.S. non-nicotine products. And importantly, we continue to demonstrate our commitment to returning value to our shareholders. In August, we announced our 60th dividend increase in 56 years and yesterday, our Board authorized an expansion of our share repurchase program. My remarks this morning will focus on results from on! and the launch of on! PLUS, updates on our heated tobacco and e-vapor portfolio, the state of the regulatory environment and our strategic relationship with KT&G. I'll then turn it over to Sal, who will provide further details on our business results, 2025 outlook and our continued commitment to providing significant cash returns to shareholders. Let's begin with on! and the nicotine pouch category. Oral nicotine pouches continue to be the primary driver of the estimated 14.5% increase in oral tobacco industry volume over the past 6 months. In the third quarter, nicotine pouches grew to 55.7 share points an increase of 11.1 share points year-over-year. Competitor promotional activity was highly elevated during the third quarter, particularly during September driving incremental growth for nicotine pouches. We continue to monitor how this elevated promotional activity influences longer-term brand adoption. Despite this competitive landscape, Helix was steady in the third quarter, growing on reported shipment volume to over 42 million cans, representing an increase of nearly 1% versus the prior year. For the first 9 months, Helix grew on! reported shipment volume to over 133 million cans, representing an increase of approximately 15% versus the prior year. While third quarter shipment volumes for on! were influenced by trade inventory dynamics driven by promotional activity in the category we remain encouraged by the steady consumer demand reflected in our estimated retail takeaway. In fact, on! retail share of the total oral tobacco category was 8.7% for the third quarter and first 9 months, demonstrating stability for the quarter and an increase of 0.8 share points for the first 9 months. on!'s retail price increased by approximately 1.5% in the third quarter versus the prior year. In contrast to the balance of the nicotine pouch category, where average retail prices for the category declined 7% nationally and more than 70% in 1 major retail chain. A clear reflection of the intense promotional activity during the quarter. Yet, Helix's year-over-year results continue to be a meaningful contributor to the oral tobacco products segment adjusted OCI stability and adjusted OCI margin expansion in the third quarter. Helix is positioning itself for long-term sustainable success. Helix recently launched on! PLUS in Florida, North Carolina and Texas, and we are encouraged by the recent actions from the FDA that signal progress toward a more efficient and transparent authorization process for nicotine pouches, which I'll discuss later in my remarks. on! PLUS launched with 3 flavors and 3 nicotine strengths, which we believe are complementary to the current on! portfolio. We believe on! PLUS is a premium and differentiated product that we expect to appeal to both adults who dip and competitive nicotine pouch consumers. on! PLUS uniquely delivers on 3 desirable attributes for pouch consumers. Comfort, nicotine delivery and flavor satisfaction. In recent research, we compared on! PLUS MINT against several leading competitive brands. While a small sample size on! PLUS outperformed all competitive brands in the sample. on! PLUS achieved the highest purchase intent score driven by the comfort of the pouch. In addition, innovation and consumer preferences remain at the forefront of Helix strategy. Helix continues to build a pipeline of new on! PLUS flavors and looks forward to bringing them to the U.S. market. In heated tobacco, Horizon completed a key milestone on its path to bring Ploom to the U.S. In August, Horizon filed a combined PMTA and MRTPA with the FDA for Ploom and Marlboro heated tobacco sticks. We believe the science and evidence supporting Horizon's applications are compelling and present a strong case for FDA authorizations. Our teams are working diligently on Ploom's go-to-market plans and we look forward to engaging smokers with this innovative product. Moving to our e-vapor business and NJOY. We believe we have completed the product design of a modified NJOY ACE solution that addresses all 4 disputed patents. Our teams are evaluating the potential pathways to bring the modified ACE product to market. During the third quarter, both NJOY and JUUL initiated new litigation against one another. JUUL initiated litigation in federal court and before the ITC against NJOY, asserting claims of patent infringement based on sales of NJOY DAILY and on any other products NJOY may be developing that would infringe JUUL's patents. We do not expect a final determination from the ITC before early 2027 and intend to vigorously defend our positions in this litigation. In addition, NJOY initiated litigation against JUUL in Federal Court and before the ITC are certain claims of patent infringement based on the sale of certain JUUL products. As we assess our path forward with ACE and work diligently on our innovative product pipeline in e-vapor, the market remains saturated with flavored disposable e-vapor products, the majority of which we believe have evaded the regulatory process. At the end of the third quarter, we estimate the e-vapor category included approximately 21 million vapors, up nearly 2 million versus a year ago. During the same period, disposable vapors increased by an estimated 2.4 million to nearly 15 million. We believe that flavored disposable e-vapor products continue to represent over 60% of the category. This remains a significant issue, but we are encouraged by the recent enforcement actions and constructive regulatory dialogue that signal progress. For some time, we have advocated for stronger enforcement against the listed products as well as for an acceleration in FDA market authorizations for smoke-free products. During the third quarter, we observed notable enforcement efforts targeting the listed products and welcomed positive plans from the FDA regarding the pace of authorizations within the nicotine -- oral nicotine pouch category. On the enforcement front, we continue to see elevated engagement and action from federal agencies and government officials. These actions included coordinated raids executed by the federal multi-agency task force across the U.S., resulting in the seizure of hundreds of thousands of illicit vapor products from retailers and wholesalers and the potential for further legal action. Ongoing seizures of illicit products, including seizure by HHS and U.S. Customs and Border Protection of more than 4 million units of illicit vapor products with an estimated retail value over $86 million, the largest seizure of this kind and a targeted nationwide operation led by the Drug Enforcement Administration focused on illicit activity at vape shops. These federal actions alongside efforts at the state and local level are signs of progress. However, we believe sustained and coordinated enforcement is necessary to materially impact the state of the market. We remain steadfast in our commitment to supporting a well-functioning regulatory system. It is critical to unlock the full potential of tobacco harm reduction. These ongoing enforcement efforts are essential to provide adult consumers with access to regulated products that are supported by science and are aligned with public health goals. Beyond enforcement, we have been advocating for the FDA to accelerate product authorizations and establish a responsible marketplace for smoke-free products. Regulatory speed and clarity are also essential to delivering innovative options that meet adult consumer preferences and advanced harm reduction. In September, the FDA launched a pilot program to streamline PMTA reviews for oral nicotine pouches and Helix was notified by the FDA that applications for on! PLUS are included in the program. We're encouraged by this development from the FDA, and we are actively engaging with the FDA on these product applications. While the pilot only applies to certain nicotine pouches, we hope it signals broader FDA efforts to increase the speed of regulatory decisions across all smoke-free platforms. As we pursue the smoke-free opportunity within the U.S., we remain committed to our long-term adjacent growth goals. In September, we took another step forward when we announced a new collaboration with KT&G. First, we are jointly exploring opportunities to grow global demand for nicotine pouch products, including the potential expansion of the on! portfolio into select international markets. As part of our initial steps in international modern oral, we entered into an agreement with KT&G to acquire an ownership interest in Another Snus Factory, the manufacturer of the LOOP Nicotine Pouch brand. LOOP is currently available in a range of strengths with unique flavors. Our research shows that complex flavors are driving growth for modern oral in international markets and we are pleased to add our investment in ASF to complement our portfolio of on!, on! PLUS and FUMI to effectively compete across all modern oral product segments. Second, our collaboration includes the exploration of opportunities in U.S. non-nicotine, specifically in the energy and wellness space with KT&G's Korea Ginseng Corporation, leveraging their product expertise and our commercial capabilities. In addition, as part of our relationship with KT&G, we're exploring ways to improve operational efficiency in traditional tobacco with the potential benefits for both companies in our respective home regions. We believe this collaboration further supports our enterprise goals and may strengthen our capabilities relevant to international nicotine products. We're excited about our new relationship with KT&G and look forward to providing updates on our joint efforts. In summary, Altria continued to build momentum in the third quarter. Our core tobacco businesses remained resilient. We advanced our smoke-free portfolio, and we opened new pathways for long-term adjacent growth in international modern oral and U.S. non-nicotine innovation. These efforts support the commitment to our vision and enterprise goals. I'm confident in our strategy, energized by the opportunities ahead and thankful for our team's continued dedication to delivering long-term shareholder value. I'll now turn it over to Sal to provide more detail on the business environment and our results. Salvatore Mancuso: Thanks, Billy. Altria delivered strong third quarter and first 9 months financial performance. Adjusted diluted earnings per share increased 3.6% in the third quarter and by 5.9% for the first 9 months. In the smokeable products segment, adjusted operating company's income grew by 0.7% to nearly $3 billion in the third quarter and by 2.5% to $8.4 billion for the first 9 months. Adjusted OCI margins expanded to 64.4% for the third quarter and first 9 months, representing impressive margin growth of 1.3 percentage points and 2.7 percentage points, respectively. Smokeable products segment reported domestic cigarette volumes declined by 8.2% in the third quarter and 10.6% for the first 9 months. When adjusted for trade inventory movements and calendar differences, the segment's domestic cigarette volumes for the third quarter declined by an estimated 9%, slightly above the estimated 8% volume declines at the industry level. For the first 9 months, when adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes declined by an estimated 10.5% and by 8.5% at the industry level. PM USA continues to execute on its strategy of maximizing profitability over the long term. While maintaining its focus on Marlboro and the premium segment, PM USA recognizes the opportunity to compete within the discount segment, guided by data-driven strategies. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category. In the third quarter, Marlboro expanded its share of the premium segment by 0.3% to 59.6% versus the prior year and by 0.1% sequentially. At the same time, PM USA continued to strategically invest behind Basic, appealing to a price-sensitive cohort of adult smokers within the discount segment. Many adult smokers continue to face discretionary spending pressures resulting from a variety of macroeconomic headwinds, including the compounding effects of inflation. Leveraging PM USA's data analytics and robust RGM tools, Basic grew 0.9 share point sequentially and 1.4 share points year-over-year for the third quarter. The discount segment of the industry expanded by 2.4 share points year-over-year with Basic capturing over half of that growth. Importantly, our data show that most of Basic share gains came from adult smokers already within the discount segment, with limited impact on Marlboro. As a result of the combined efforts across the PM USA portfolio of brands, cigarette retail share increased sequentially for the second consecutive quarter to 45.4%, growing 0.3 share points in the third quarter. Cigars also continued to be a meaningful contributor to our smokeable products segment results. For the third quarter and the 9 months, Middleton reported shipment volume increased 2% and 1.1%, respectively, as Middleton outperformed in the large mass cigar industry. Let's turn now to the Oral Tobacco Products segment. In the third quarter, adjusted OCI declined by less than 1%. Over the same period, the segment saw improved profitability through impressive adjusted OCI margin expansion of 2.4 percentage points to 69.2%. For the first 9 months, adjusted OCI increased by 3.3%, with adjusted OCI margin expansion of 1.8 percentage points to 69%. Helix's year-over-year performance was a meaningful contributor to the stability of adjusted OCI in the third quarter and to the adjusted OCI growth for the first 9 months. Total segment reported shipment volume decreased 9.6% for the third quarter and 5.2% for the first 9 months. As growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that third quarter and first 9 months, oral tobacco products segment volumes declined by an estimated 5.5% and 3.5%, respectively. Oral Tobacco Products segment retail share was 31.1% for the third quarter and 32.9% for the first 9 months. In the highly profitable moist smokeless tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results. We recorded $157 million of adjusted equity earnings in the third quarter, up 9% and versus the prior year. As Billy mentioned, our businesses performed well in a dynamic environment during the first 9 months of the year, and we effectively maintained the strength of our core tobacco businesses while investing toward our vision. As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.37 to $5.45, representing a growth rate of 3.5% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate in the fourth quarter as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers and will continue to closely monitor their purchasing behaviors. Our strong financial performance for the first 9 months enabled us to return nearly $6 billion to our shareholders, including $5.2 billion in dividends and $712 million in share repurchases. We remain committed to providing significant cash returns to our shareholders. as demonstrated by our recent dividend increase and share repurchase announcement. In August, our Board increased our regular quarterly dividend by 3.9% to $1.06 per share, marking our 60th dividend increase in 56 years. This milestone underscores our legacy of delivering consistent shareholder value and highlights the resilience of our businesses through decades of change. And today, we announced that our Board authorized the expansion of our existing share repurchase program from $1 billion to $2 billion, which now expires on December 31 and 2026. Lastly, our balance sheet remains strong. Our debt-to-EBITDA ratio as of September 30 was 2x in line with our target of approximately 2x. With that, we'll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period. Operator: [Operator Instructions]. We will take questions from the investment community first. Our first question comes from Matt Smith with Stifel. Matthew Smith: Sal, you raised the low end of the guidance again, which is nice to see here, but the fourth quarter implies a deceleration in the earnings growth. You called out lapping the share repurchase and the MSA legal fee expiration. Are there any other key puts and takes as we think about the fourth quarter and more importantly, the path to growing smokeable OCI again? Salvatore Mancuso: Thank you, Matt. No, as you mentioned, we did talk about the share repurchase and the MSA legal funnel. I'll also say we continue to monitor consumer spending, the marketplace remains dynamic. So I would really focus on that, but we feel really good about the ability to narrow guidance by raising the bottom. We're very pleased with the first 9-month financial performance. And then smokable profitability, again, we feel really good about PM USA's performance, their ability to expand margins for Marlboro remains strong within the premium segment. So we feel really good about the smokable business and happy to be able to provide the guidance. Matthew Smith: And as a follow-up, you called out the underlying cigarette industry rate of decline moderating on a sequential basis. Billy, I know you provide the 12-month bridge that shows the macroeconomic factor. But with -- sometimes that 12-month bridge can not move as much on a quarter-to-quarter basis. So when we think about the moderation that we saw sequentially, can you talk about the drivers that you think are leading to that? William Gifford: Yes. Thanks for the question, Matt. I think when you step back and look at it, you're right, the 12-month doesn't move quite as quickly. I think what you're seeing in the marketplace -- and look, our consumer is still under pressure. Again, they don't need improvement. They just need consistency. And we've seen a bit of consistency around gas prices, inflation, things of that nature, and we'll see how that continues through the year. And I think we're starting to see some of the -- and I talked about it in my remarks, some of the stepped-up enforcement in e-vapor, it puts consumers back at play. We would love to be able to keep them in the smokeless category, but when enforcement happens, it certainly puts them at play and they consider other nicotine categories. Operator: And we'll take our next question from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: All right. I guess I have a question first on the nicotine pouch category. The competitive environment has really intensified. So could you touch on what you're seeing and whether I guess you've been happy with the performance and positioning of on! considering the moderating growth. And then could you talk about some of your initiatives that you're implementing, I guess, to maybe turn the performance around. I guess I'm kind of wondering, do you feel that you need to step up promotional spend. And then finally, could you maybe share early feedback on the rollout of on! PLUS and I guess, assuming it's positive, should we assume you'll roll out that brand nationally. William Gifford: Yes, thanks for the question, Bonnie. You're right. The competitive environment significantly stepped. I mean when we try to dimensionalize it on! was moving up, call it, 1.5% at retail from a price perspective. while the entire category was down 7% on a national basis, but as much as 70% in a major retail. So it was a significant shift in promotional spending by competitors. We had that early on with the on! in the marketplace when we launched, and we've talked about how we're bringing the revenue growth management tools over to the category. So we're extremely pleased with the performance where we were moving up in retail price and the category was moving down significantly. I know people get hung up on some of the shipment volume. I think the encouraging aspect that we see is on the retail takeaway volume. And when you look at that, that's the true demand by the consumer, and that was steady even in that highly competitive environment. Much too early on on! PLUS to really mention, we are certainly excited about the differentiation that product has and research, and we're excited to be able to bring that to market and expand it when it's appropriate. Bonnie Herzog: All right. And then I just wanted to also ask about your KT&G partnership, it was recently expanded and you touched on this, but just hoping for a little more color on the operational efficiencies you see, especially as it relates to opportunities to maybe take advantage of the double duty drawback. Also, could you give us a little more color on I guess, opportunities for alternative revenue streams as well as further expansion internationally given this partnership? William Gifford: Yes. Thanks, Bonnie. And you touched on 2 of the 3. We really see it as 3-pronged. Certainly, the modern oral initiative, being able to expand on! and on! PLUS in international markets is something that we'll be exploring. Rounding out our portfolio with the inclusion of LOOP into that, so we feel like that completes the portfolio, and we look forward to continuing discussions with them on how to think about expanding internationally into other markets. The second point is certainly the non-nicotine opportunities. And I tried to highlight a little bit where we would explore working with them. They have certainly the product expertise in the Korean red ginseng and we would look to work with them based on our commercial distribution strength in the U.S. of what are the opportunities there and certainly, we'll share more when it's appropriate. And the third was the operational efficiencies. And what we saw there was it was the ability to adapt our manufacturing center for cigarettes for items that are specific to international markets, whether that be pack size or trace and tracking and things of that nature. It certainly, to your point, allows us to take advantage of duty drawback. That's a benefit of it. But it also opens up the door for us to think about international opportunities in the future. Operator: [Operator Instructions]. We'll go next to Eric Serotta with Morgan Stanley. Eric Serotta: Billy, starting on on! PLUS, I realize it's very early days, but you did mention it as premium positioning. Could you talk a bit about the price point as you launch in the 3 states where you did a realizing only a matter of weeks or less. But how are you thinking about the relative price point of on! PLUS relative to on! and relative to competitors, which I realize are moving target at the moment. And then Sal, controllable costs and smokables were up pretty significantly year-on-year, I realize they were down in a year ago. So there was perhaps a comparison issue. But how are you thinking about controllable costs going forward? Or is there any additional color you could talk about in the quarter? And the smokeable OCI growth was relatively muted at less than 1%. Was that really the controllable cost, or are there other factors that you'd point to that constrain the OCI growth in the quarter? William Gifford: Yes. Thanks, Eric. So I'll kick this off and then Sal can follow up with the question for him. I think when you think about on! PLUS, we certainly see that as a premium-priced product because of the differentiation and the satisfaction we think it brings in the experience to the consumer. In our research, the consumers choose that as the top product in there from a total experience standpoint, and we think it can demand the premium price at retail. Certainly, in any introduction, you have introductory price promotions. We know as soon as we get it in consumers' hands, they experience that differentiation that I'm trying to highlight to you. And so we'll certainly have introductory price promotions as we look to expand when appropriate. Salvatore Mancuso: As far as controllable costs go, I guess I'd start by saying that I would not look at controllable costs quarter-by-quarter. I think -- I really believe you need to look at the cost over the long term exactly for the reasons you highlighted in the question. There are some comparison issues. Costs are not linear. There's timing within a quarter. So you touched on that in the question. I think you are right to point that out. As far as controllable costs going forward, I'm going to be careful not to kind of lean into future guidance and things like that. But I would tell you how we think about costs. Obviously, in a declining category like smokeable and cigarettes in particular, cost management is an important part of the growth algorithm along with pricing. We do manage our overall costs. Obviously, we've shared with you the Optimize and Accelerate program that, that program is not just about effective cost management and cost reductions. It's also about better performance and speed to market. And we are taking those cost savings and reinvesting that in our future. I'll also share that we spend a lot of time continuing to hone our data analytics in our revenue growth management tools, and that has been extremely helpful. And while it manifests itself as price realization in the P&L, I look at that as productivity because we are better able to use promotional investments to support our brands and PM USA and data analytics team continue to do a terrific job of using data analytics and those RGM tools extremely effectively. So we're very happy about that. And then OCI for smokeable, I really would look at that over a longer term, again, not a particular quarter smokable is up 2.5% on a year-to-date basis. Very pleased with its performance, especially when you see the strength of Marlboro within the premium segment. Operator: We'll go next to Faham Baig with UBS. Mirza Faham Baig: A couple from me as well. Firstly, if I could come back on the duty drawbacks. If we take a bigger look at the at the picture. Altria is likely to make around $3 million in federal excise tax payments this year. Should this be the amount that we think about the potential benefit from the duty drawbacks. And is this likely to be the sort of key engine that drives group EPS growth to high single digits over the next couple of years to meet the mid-single-digit EPS CAGR to 2028. So that's the first question. The second one, going back to the pilot program that the FDA is running. Does this or could this impact your decision to go ahead with the national launch on on! PLUS, i.e., you may wait for the decision on this? Or you may take a decision irrespective of the program? And the second one on that is why do you think it's possible for the FDA to accelerate this process on nicotine pouches, but it's not possible to do so in vapor, which is arguably a much larger category and reviews there began much earlier. William Gifford: Yes. So quite a few things in that question. So if I don't touch on one, please follow up. I think when you think about the duty drawback, I wouldn't jump to a conclusion at this point in time. It's really about a relationship with international players. How do we think about producing cigarettes for international, some of the other benefits that we get certainly drawback is an additional benefit to that. When you think about the pilot program, I want to be clear that we want a functioning regulatory system. So we're going to always make our decisions based on what's the long-term best interest of the company with an eye towards what is best to get a functioning regulatory system. I think your question related to pouches versus vapor, I think from comments from them, but just the interpretation of it being called a pilot program, they wanted to start where it made sense to start, and that's in nicotine pouch. It's a fairly set category, even though we've seen some players maybe enter the marketplace illicitly. It gives them a way to thinking about the category in total and then differentiated products and what's different between individual products in the marketplace, which should speed up their review of that. I think when you think about vapor, the marketplace is a mess right now. And so I think the nature of a pilot program is to learn. They will learn manufacturers, including us, will learn. It's been a very collaborative process with constant engagement through the application review process, which is very different and very encouraging from the FDA we experienced under the previous administration. So I think once you have those learnings, we would hope and encourage the FDA to expand it to other categories. Mirza Faham Baig: I guess just a quick follow-up. Could you clarify that the EPS growth is suggested to accelerate to high single digits over the next couple of years in order to meet your mid-single-digit EPS CAGR. Is that still the ambition? William Gifford: Our ambition is the goal. We haven't changed our goals from an overall CAGR that we stated previously. And that's been our stated goal. So yes, that's the way I would think about how we're going to manage the business going forward. Operator: There appears to be no further questions at this time. I would now like to turn the call back over to Mac Livingston for any closing remarks. Mac Livingston: Thanks, everybody, for joining us today, and have a great day. Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
Operator: Greetings. Welcome to the Gannett Company Q3 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Esposito, Head of Investor Relations. You may begin. Matthew Esposito: Thank you. Good morning, everyone, and thank you for joining our call today to discuss Gannett's third quarter 2025 financial results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer; Trisha Gosser, Chief Financial Officer; and Kristin Roberts, President of Gannett Media. If you navigate to the Gannett website, you will find that we have posted an earnings supplement in addition to our earlier press release. We will be referencing it today on the call as it provides you with additional detail on this quarter's performance and our full year 2025 business outlook. Before we begin, please let me remind you that this call is being recorded. In addition, certain statements made during this call are or may be deemed to be forward-looking statements as defined under the U.S. federal securities laws, including those with respect to future results and events and are based upon current expectations. These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement as well as the risk factors described in Gannett's filings made with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or correct any of the forward-looking statements made during this call. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In addition, we will be discussing non-GAAP financial information during the call, including same-store revenues, free cash flow, total adjusted EBITDA, adjusted EBITDA margin and adjusted net income attributable to Gannett. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earnings supplement. Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any Gannett securities. The webcast and audio cast are copyrighted material of Gannett and may not be duplicated, reproduced or rebroadcasted without our prior written consent. With that, I would like to turn the call over to Mike Reed, Gannett's Chairman and CEO. Michael Reed: Thank you, Matt, and good morning, everyone. I'd like to start this morning by drawing your attention to some very notable highlights from the third quarter and subsequent to the quarter end. First, we accomplished a significant milestone within the quarter with our total debt falling below $1 billion for the first time since our merger in late 2019. And we are nearing another milestone with total digital revenues growing to 47% of total company revenues in the quarter, an all-time high, and we believe that we'll close in on 50% in the fourth quarter. Our $100 million cost program is now fully implemented. And as a result, we expect to start realizing the full benefit in Q4, and that is expected to drive significant year-over-year growth in adjusted EBITDA in the quarter. We had a few large digital clients shift spend from the third quarter to the fourth quarter, and those clients have begun their campaigns in October. While that influenced Q3 results, it positions us well for a strong fourth quarter. And finally, we were pleased with Judge Castell's partial summary judgment ruling earlier this week in our lawsuit against Google. The decision represents an important step forward as it establishes liability on certain claims. We remain encouraged by the continued legal progress addressing Google's monopolistic practices and are optimistic about what this means for both Gannett and the broader publishing industry. Turning to the business. We remain confident in our strategy, our execution and the sustained progress we are making toward our long-term growth objectives. Let me call out a few more important highlights from the third quarter. Our audience grew sequentially on what was already an extremely large base, and we delivered another quarter of year-over-year growth in digital advertising revenues. In our digital-only subscription business, digital-only ARPU reached a new high, and we saw digital-only subscription revenue improve in Q3 from Q2, movement in the right direction after our strategy shift this year. And our DMS business saw improved year-over-year trends in core platform revenue and average customer count, while core platform ARPU remained near all-time highs. Subsequent to the quarter end, we had a couple of nice developments on the licensing front. First, on October 8, we had the full launch of our Perplexity deal timed with the launch of their Comet browser. And we are very excited to announce this morning our new AI licensing deal with Microsoft. This new deal is timed with Microsoft to support the upcoming launch of its publisher content marketplace, which you'll hear more about later in the call. We are hopeful to keep building on our growing portfolio of AI licensing deals with the announcement of additional partnerships. Debt reduction continues to be a top priority for us. And for the first time since our merger in 2019, total debt fell below $1 billion, which marks a significant milestone in strengthening our balance sheet and reducing leverage. With regard to financial performance in the third quarter, it's important to note that revenue was influenced by several large customers shifting their spend from Q3 into Q4, the largest of which was Perplexity. Adjusted EBITDA was impacted in the quarter by approximately $7 million versus our expectations, driven by revenue moving into Q4 and incremental expenses, primarily a pull forward of expenses associated with our cost reduction actions, including medical and benefit-related costs tied to employee exits from the organization. While these factors created some noise in the quarter, most of our key fundamentals and metrics remain strong and the drivers we were most excited about for the second half of the year continue to hold, including the momentum across our audience in terms of growth and engagement, our diversified growing digital product portfolio as well as our $100 million cost reduction program. With these items in place, we expect to drive meaningful year-over-year adjusted EBITDA growth in Q4, along with solid growth in total digital revenues and free cash flow. Based on what we are seeing already in October, we expect to deliver a strong fourth quarter. Now let's discuss a few key operational highlights from the third quarter. Our digital strategy focuses on expanding our audience, deepening engagement and maximizing monetization across the customer journey. In Q3, we continued to drive one of the largest digital audiences in the media industry with 187 million average monthly unique visitors, which grew more than 3% compared to Q2. This significant scale, combined with our unique ability to stay closely aligned with our readers' preferences, drove another quarter of at least 1 billion page views per month domestically. As a result, digital advertising revenues recorded another quarter of year-over-year growth. And moving forward, we expect to accelerate this momentum into Q4 as several new advertising deals have now moved through the pipeline. Separately, the focus in 2025 on the quality of our digital subscriber acquisition strategy is showing positive results. Digital-only ARPU achieved a new high of $8.80 in the third quarter, up approximately 8% year-over-year. Q3 also returned to sequential growth over Q2 for digital-only subscription revenue. While it will take a few more quarters to return to volume growth, these wins show that our intentional actions are working. And moving forward, we will continue focusing on acquiring high-value subscribers in our core local markets, where we offer a differentiated product, trusted brand and create meaningful value for our customers as evidenced by the growth in digital-only ARPU. With the innovative work Kristin and her teams are doing to expand our content experiences and product portfolio, we believe we have a strong value proposition for our consumers and advertisers. And with that, I will turn the call over to Kristin to share more work underway to strengthen our media business. Kristin? Kristin Roberts: Thank you, Mike. Gannett Media continues to lead with purpose by providing essential content that informs, engages and entertains audiences across the country. By listening to our audience and leveraging data to understand how they interact with our platforms, we maintained our position as one of the nation's leading news and information providers among content creators. We also continue to keep our readers deeply engaged as we delivered another quarter with more than 1 billion page views per month across our network. As we enter the final months of the year, we recognize that sustaining audience growth and engagement requires an innovative approach. Video is undeniably the most critical format for our future as Americans increasingly turn to video platforms for their news and information. Thanks to the work our unified video team has done over the past year, we are well positioned to meet audiences where they are and deliver content in the format they prefer most. One of the areas where we have seen tremendous success with video is through our sports coverage and OneTEAM Sports. In the third quarter, we launched a comprehensive suite of sports hubs for the Big Ten, SEC and NFL that brings fans closer to the action through vertical video and story carousels that create an immersive mobile native experience. These hubs also feature real-time scores, player stats and standings that give fans immediate access to the information they care about most. Early results show that time spent within these hubs is double compared to traditional browsing on our platforms, along with higher engagement levels, which in turn creates a promising opportunity to further monetize our loyal sports audience. We're taking the same approach to new categories that spark passion and loyalty, whether it's entertainment or our recently launched USA TODAY Pets, which debuted in July with new branding, a fresh design and a video-first content strategy that spans the full journey of pet ownership. As we grow this passionate audience, our teams are expanding monetization opportunities through affiliate partnerships and sponsorships, while enhancing the platform with new features such as vertical video support and additional storytelling formats that are designed to deepen engagement and give our readers more reasons to register and subscribe. On that note, our digital-only paid subscription volumes continue to reflect the deliberate actions of our refined acquisition strategy. I'm encouraged to see new highs in digital-only ARPU, which drove sequential growth in digital-only subscription revenues from Q2 to Q3. As I mentioned on the prior call, games remain a key focus for us in the back half of the year, and that progress is evident with the launch of PLAY, a unified digital hub for casual entertainment and gaming. Designed to align with the daily habits of USA TODAY readers, PLAY brings together everything from morning horoscopes and comics to afternoon puzzles in one convenient destination. What's most exciting is the promising upside we see in games as a new consumer revenue stream. Nearly 1/3 of our readers already play games online, but only a small share are currently doing so on PLAY. That means every incremental gain and engagement has an outsized impact. For instance, if we can get 1 more percent of our audience to play games at our current play ARPU rates, that equates to an additional $10 million annually in digital-only subscription and digital advertising revenue. Overall, this presents a great opportunity to expand our audience, deepen engagement and drive incremental revenue as we continue introducing new features and promoting PLAY across our network. Across every initiative, from video to new verticals to games, our teams are working with creativity, focus and urgency to meet audiences where they are and deliver experiences that truly resonate. I want to thank our teams for their continued collaboration and determination. We are building meaningful momentum, and I am confident that our collective efforts are setting the stage for a strong finish to the year. Back to you, Mike. Michael Reed: Thanks, Kristin. It's exciting to hear about all you and your teams have going on and especially exciting to see our PLAY business launch, which we believe has tremendous potential. Now shifting gears to AI. The value of real-time trusted content continues to increase, and we are excited to partner with Microsoft on the upcoming launch of their publisher content marketplace. We are proud to be one of the select few U.S. publishers participating in their pilot program with Microsoft Copilot. And this exciting new initiative represents one of the first large-scale efforts to fairly compensate publishers for AI usage of their content to ground AI-powered features and results with trusted output. With regard to our AI content monetization strategy, in addition to creating valuable trusted content at scale and licensing at fair value is our new approach to deploying technology to block AI bots that try to scrape our content. Today, we are blocking over 99% of AI verified bots other than Google that try to scrape our content without licensing agreements in place. In September alone, we blocked 75 million AI bots across our local and USA TODAY platforms, the vast majority of which were seeking to scrape our local content and about 70 million of those came from OpenAI. This is a clear signal of just how valuable our content is to these AI engines, especially our local content, which we are uniquely positioned to deliver at scale. We will continue to partner with and provide access to companies that are interested in licensing our content responsibly and fairly. However, current structures limit publishers' ability to control how some major platforms such as Google use unlicensed content, an issue we continue to advocate for as part of building a fair and transparent AI ecosystem. Additionally, in Q3, we announced that DeeperDive, our industry-first Gen AI answer engine is now fully implemented on USA TODAY. Following a successful beta in Q2, DeeperDive brings the power of Gen AI conversations directly on USA TODAY's platform for all users, tapping into years of proprietary real-time, high-quality content created by journalists and editors at USA TODAY and across the USA TODAY Network. Since launching in mid-September, readers have asked more than 3 million questions with average daily activity well over 50,000 interactions. These early results show strong traction and highlight the meaningful opportunities to drive higher readership, deeper engagement and in turn, enhanced monetization on our platform. Now turning to our DMS segment. We continue to see encouraging stabilization across our key metrics with year-over-year trend improvement on our core platform, which includes revenue and average customer count, while ARPU remained near all-time highs. These gains reflect the positive impact of our strategic initiatives such as AI smart bidding and enhancements to our AI-powered software solution, Dash. For those who have been following our progress, I would like to provide a quick update on where these key initiatives currently stand. Starting with AI smart bidding. Search remains a key lead gen tool for our SMBs, and we've created greater efficiencies through the use of AI smart bidding. The adoption continues to ramp. And by year-end, we expect close to half of our U.S. budgets to be leveraging it. We are seeing encouraging results so far as it delivers a better cost per lead versus traditional integration strategies. Turning to Dash. We continue to see strong momentum with our voice and SMS agents managing a growing volume of customer interactions. Our voice agents are managing 15% of calls for enabled customers. As a result, we are driving greater efficiency and simplifying daily operations for the SMBs we serve. In parallel, for customers whose needs fall outside our core platform's ideal profile, particularly larger bespoke or media-heavy programs, we are increasingly serving them through capabilities in our Media segment. This approach puts each customer on the best fit solution, protects platform unit economics and enables us to grow DMS at the company level while concentrating incremental investment where ROI is highest on our own platform. Together, these efforts are building a stronger, stickier and more resilient DMS business, and we see a clear path to sustained growth. I'd now like to turn the call over to Trisha to provide additional details and color around our 2025 third quarter financials. Trisha? Trisha Gosser: Thank you, Mike, and good morning, everyone. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In the third quarter, total revenues were $560.8 million, a decrease of 8.4% or 6.8% on a same-store basis. Despite the static revenue trends in Q3, we expect notable improvement in the fourth quarter, which is driven by a more significant impact from AI licensing revenue and larger digital advertising campaigns, along with targeted subscription pricing adjustments and platform enhancements. In Q3, operating costs and SG&A expenses decreased approximately 8%, reflecting our ongoing focus on disciplined cost management. That being said, Q3 expenses reflect incremental costs associated with our cost reduction program, which removed $100 million in annualized costs from our base. We believe the reduction of expenses, primarily associated with our headcount reductions, also accelerated some costs into the third quarter in areas such as medical and other benefit-related programs, which traditionally we would have expected to incur in the fourth quarter. Total adjusted EBITDA was $57.2 million in the third quarter, representing a 10.2% margin. These results were impacted by the timing of large drivers of revenue and adjusted EBITDA that shifted into the fourth quarter as well as the expense impacts I just mentioned. Many of our most profitable revenue drivers will contribute more meaningfully in Q4 rather than Q3, and our cost reduction program is fully in place as we enter the fourth quarter. As a result, we expect robust year-over-year growth in adjusted EBITDA in the fourth quarter as well as our third consecutive year of full year adjusted EBITDA growth. Total digital revenues in the third quarter were $262.7 million, a decrease of 5.3% or 4.1% on a same-store basis and represented 47% of total company revenue. Within digital, advertising revenues increased 2.9%, driven by a continued improvement in client retention and our large audience base. We anticipate even stronger results in the fourth quarter, fueled by strong advertiser response to our sports, pets and other high engagement verticals. In Q3, digital-only subscription revenues totaled $43.7 million, representing sequential growth of 2.4%. As a reminder, we faced our toughest year-over-year comparisons in Q3 as we cycled the prior year's benefit from system conversions and grace relief. Digital-only paid subscriptions also continue to reflect the intentional actions to optimize our acquisition costs by prioritizing long-term monetization versus shorter-term volumes. We believe these deliberate actions are paying off, evidenced by digital-only ARPU achieving a record high of $8.80 and growing approximately 8%. We expect digital-only ARPU to increase in the upcoming quarters as we maintain our focus on attracting and retaining more profitable subscribers. Looking at the Domestic Gannett Media segment. In Q3, segment adjusted EBITDA was $35.4 million, representing a margin of 8.5%. Revenue trends in Q3 on a reported basis continue to reflect the sale of the Austin American-Statesman in Q1 and businesses divested in late 2024. Turning to Newsquest. In Q3, segment adjusted EBITDA totaled $14.6 million, up 4.6%, while segment adjusted EBITDA margins increased 50 basis points to 23.9%. Revenue trends also posted their second consecutive quarter of growth, increasing 2.5% year-over-year. In our Digital Marketing Solutions segment, Core Platform revenue in the third quarter was $114 million. Segment adjusted EBITDA was $9.8 million. We ended the quarter with approximately 13,400 core platform customers and core platform ARPU remained near record highs at approximately $2,800, which reflects growth of 2%. We see encouraging signs of stabilization. And in Q4, we expect year-over-year improvement in both core platform revenue and segment adjusted EBITDA. and to better serve our customers in certain categories, particularly large multi-location businesses, we have transitioned some of these clients to be serviced through our Media segment, where they can leverage additional tools and capabilities. Now let's shift to the balance sheet. At the end of the third quarter, our cash balance was $75.2 million and outstanding net debt was approximately $921 million. Debt reduction remains a top priority, and we continue to make meaningful progress during the period. In Q3, we repaid $18.5 million of debt and generated $4.9 million of free cash flow. For the 9 months, we have repaid $116.4 million in debt, which brings our total debt to below $1 billion, and we expect to repay over $135 million in debt during 2025. As we look at the full year, several large revenue drivers that were originally expected to contribute to the third quarter are now expected to start in the fourth quarter. As a result, we now anticipate digital revenue to be down in the low single digits for the full year on a same-store basis, with growth in the low single digits in the fourth quarter. We believe the expected strength of the fourth quarter, combined with continued expense discipline, positions us to achieve full year growth in adjusted EBITDA and 30% growth in free cash flow. We know there is more work ahead to strengthen our financial results, but the third quarter also underscores the progress we're making to build a more durable and diversified business. With the scale of our audience, the strength of our brands and the ability to leverage our content across multiple revenue streams, we believe Gannett is well positioned to create lasting value. Combined with an ever-improving balance sheet and a disciplined focus on the execution of our strategy, we believe we are laying the foundation for long-term value creation. I will now hand it back to the operator for questions, and then we will go back to Mike for some closing thoughts. Operator: [Operator Instructions] Your first question for today is from Giuliano Bologna with Compass Point. Giuliano Anderes-Bologna: Congrats on the continued execution, especially on the securing another important AI licensing deal. As a first question, you referenced some of the developments this week in the Google antitrust lawsuit that you have outstanding. Can you share what the development was and how you think it impacts the case and how the case should move forward as a result of that development? Michael Reed: Hey, Giuliano, good morning. Thanks. Yes, let me start by explaining that or actually emphasizing that this is a very positive development for Gannett as it relates to our case against Google. And so a little more detail on what happened on Tuesday this week, Judge Castell the federal judge in New York issued a summary judgment ruling in our case against Google. And effectively, the court agreed with the Department of Justice's earlier findings earlier this year that Google illegally monopolized the digital advertising market and ruled that Google can't relitigate those issues in our case. So Judge Castell said Google basically -- said Google can't relitigate the issues in our case. That was a big win for us. But trying to simplify it, what it means for us. It means the court has already established liability on key aspects of our claims. And the case really now focuses on damages and remedies for these claims. And this is another important point, Giuliano. We believe this ruling has the potential to move the case forward more quickly now, allowing us really to concentrate on demonstrating the harm caused and the remedies we're seeking, which obviously include compensation for the damages done to us. So it was a significant win for Gannett that establishes liability, and we think moves the case along quicker and also will lead to a more fair and open digital marketplace eventually. So this was a really positive milestone for us, and we're excited about the developments this week, but also staying really focused on the next steps of the process in this case. Giuliano Anderes-Bologna: That's very helpful. Maybe shifting gears a little bit. You noted some of the large revenue drivers shifting, yes, from 3Q into 4Q. Can you unpack what's driving that timing and whether it reflects broader trends you're seeing in advertiser demand or digital monetization or onetime shift. Michael Reed: Yes, sure thing. I think the first point I really want to emphasize here is we do think based on October's activity that it is simply a timing shift. And I'll start with Perplexity, and that was really not -- that was just due to a product launch timing shift. We signed the deal with them, as you know, towards the beginning of the third quarter, and their common browser was scheduled to launch in September, and that got pushed to early October. And so the revenue that we had planned on for September from that licensing deal didn't begin until October. So truly a timing shift tied to a product launch. The good news is it launched in early October, and we are enjoying that partnership now with Perplexity, and it will help the fourth quarter now. We also saw a number of digital advertising deals that were in the pipeline shift from Q3 spend to Q4 spend. And again, the good news here is that we're successfully seeing those deals up and running in October and running their messaging and contributing to revenue in October. So we do believe that there's not more to it than a timing shift, both for the advertising customers that shifted as well as Perplexity. So we feel good about -- feel disappointed that it impacted the third quarter, but really excited about the positive impact it's going to have for us on the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate it. I guess can you give some more color on the incremental expenses that you incurred during the third quarter? And do you think any of these will continue to have an impact going forward? Trisha Gosser: Hey, good morning, Giuliano, this is Tricia. Yes, the biggest component of the incremental expenses that we saw compared to what our expectations were for the quarter were associated with the headcount reductions that we completed in the quarter. So that was tied to that $100 million cost takeout that we did. So we saw things like medical and other employee benefits programs spike up in the quarter. And we really think that, that was tied to people exiting the organization. And to your question about whether we think that continues, I don't think so. I actually think it has the ability to have a favorable impact on Q4. Generally, we see a spike in claims towards the end of the year, and we really think that, that was pulled forward into the third quarter as people exited the organization. The other thing I would highlight that's really important is that cost program is now fully implemented. So we're going to see the full benefit of that impact in the fourth quarter, and that really should set us up to have a strong year-over-year EBITDA growth in the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate that. And then next question, given that the digital revenue mix is now approaching 50% of revenue, how do you see that evolving into '26? And what gives you confidence in the durability of those revenue streams? Trisha Gosser: Yes. As you know, in Q3, we were about 47% of total revenues coming from our digital businesses. We expect that to be closer to 50% in the fourth quarter and then expect that to surpass 50% in 2026. And I think it's important to note that the makeup of our digital revenue is much more diverse today than it has ever been. You heard Mike talk about Perplexity launched earlier this month. We announced a Microsoft AI licensing deal just this morning. We've signed agreements with AI licensing partners throughout the year. We think there are more AI deals to be coming in the coming quarters and months. You heard Kristin reference the launch of PLAY, and we think that could be a good contributor from both the digital advertising and a subscription standpoint. And so we continue to develop these new revenue streams that can be created from the content and the core competencies we already have, creating high-quality content at scale and attracting this massive audience. And so we have all these new revenue streams taking hold, and we're also seeing some progress in our foundational revenue streams. The DMS initiatives that Mike mentioned, the fact that our digital-only subscription ARPU continues to grow and to reach new highs as our strategy takes hold. Our digital advertising deals have been strong as we enter the fourth quarter, and that ladders on top of what's already been a growing business. So we've got this really diverse digital revenue profile. We've got this really strong audience and the direction of each of these components is headed in the right direction, and that gives us a lot of optimism on the fourth quarter, but getting to that 50% plus composition in 2026. Giuliano Anderes-Bologna: That's very helpful. And then maybe the last one, touching on the AI side. You referenced the new AI partnership, including Microsoft. Can you elaborate on how those partnerships translate to monetization? And what do you see as next steps? Trisha Gosser: Sure. Kristin Roberts: Trisha, I'll take this one. This is Kristin. And first of all, thank you, Giuliano. I'm always very, very happy to talk about the value of these partnerships. I think that what is foundational to a healthy future for AI on the web is content that is high quality, of course, also trustworthy and factual. And so the way we're thinking about this is that as AI agents become sort of central to how people are discovering and consuming content, we -- alongside companies such as Microsoft, we believe that publishers play a critical role in determining the value of their content in these experiences. So now Microsoft is focused on building a scalable and equitable solution, one that is going to ensure that publishers are fairly compensated for the value that they're delivering through their content offerings, their premium content offerings. And so to this end, they are piloting this publisher content marketplace. They're doing this with a number of select U.S. publishing partners, and the aim here is to learn and to shape the tools and the policies and the pricing models really that are going to define this era. I'm certainly happy -- I think we're all very happy to be participating in creating that marketplace, creating it with Microsoft and with Perplexity and other partners. Each of our licensing deals, Giuliano, is structured a bit differently. Some of them include direct licensing fees, others include revenues sharing components. What I would say is that they all expand the ways that we can monetize the content we already produce and do it at fair value. So we see significant long-term opportunity in the space. The AI content marketplace certainly is still developing. I think the ultimate models for monetization are not quite fully defined yet. So our approach is to participate early, help shape the framework and then ensure that our agreements do not trade off the long-term upside of this evolving ecosystem. So I'd just say that overall, we view these partnerships as early building blocks for a more sustainable, more balanced digital ecosystem and one where publishers are rewarded for the value they are creating. I hope that helps. Operator: Your next question for today is from Matt Condon with Citizens. Matthew Condon: My first one is, just can you elaborate on what you're seeing as far as traffic coming from these AI platforms? Are you seeing meaningful click-through rates and meaningful traffic coming to your sites from these platforms, then thinking specifically about Perplexity just as that deal is launched in the early days here? Michael Reed: Yes, Matt, thanks, and thanks for the question. No, there's not meaningful traffic coming from AI search companies. And that's really why the value from a monetization standpoint for publishers like Gannett has to be from the licensing of our content. The whole model of answers on AI search platforms is they get the full answer on that platform. So the Google model of the blue links click back to the publisher's site is not the same model inside of the AI platform. So that's why we've been so focused on these monetization deals, these licensing deals because we don't see the traffic coming back. The other point I would make, Matt, is that we are actually blocking 99% of all the AI bots trying to scrape our content, other than for those platforms that we have to deal with or, as I mentioned early on the call, with Google for which we can't block because we still need that search traffic from the blue links, even though they don't distinguish and let us authorize content for the blue links only and not for AI, which is the problem I mentioned in the ecosystem that I mentioned earlier in the call. So the short answer is no, there's not a lot of traffic coming from the AI search platforms. That's why the licensing deals are so important. However, what's also important is that we're blocking the scrapers. And so in order to get traffic on their sites based on our content, they need to pay us for that content. And we continue, as you hear from Kristin on these quarterly calls, we're continuing to develop ways to go direct to the consumer and bring the consumers directly to our platform and also using other social media ways to bring consumers to our platform. And I think the final point I would make is despite not getting traffic necessarily from the AI search platforms, we're not having an issue with overall traffic. You heard this morning we had 187 million uniques on average on our platform in the third quarter, and that was up from 181 million uniques in the second quarter. So we're doing a great job creating the right content and doing the right -- doing a great job in driving consumers to our platform. Matthew Condon: Great. And maybe just a follow-up on that. It's just obviously, one of the major companies that you're blocking is OpenAI. And can you just talk about just their willingness to come to the table, maybe other AI platforms that you don't have partnerships today, their willingness to come to the platform and negotiate deals where you do feel like you'll get fair value for your content. Just how is that pipeline developing here today? Michael Reed: Yes. OpenAI, as you heard, was -- is the biggest offender in terms of trying to scrape. I mentioned we had 75 million AI bots we blocked and about 70 million of them were OpenAI. Another interesting data point there is that we're rounding down, it was a little more than 70 million. 69.9 million of the AI bots from OpenAI that we blocked were seeking our local content, really interesting. They really want our local content. We blocked them 69.9 million times in September. OpenAI is not willing to cut a fair deal at this point. We continue to talk to them, and we'll continue to block them. And we do know that there's value in our content. Otherwise you wouldn't have seen over 70 million attempted scrapes in the month of September alone. So short answer, Matt, no, we haven't gotten to a good place with them yet. We're really hopeful to. Our goal is to be -- and you heard it in Kristin's discussion and answer to the question Giuliano asked is we want to be proactive in creating the right solutions here with our AI partners. And so that remains the path we'd like to take, and we'd love to take that path with somebody like OpenAI. Matthew Condon: That's interesting. And then maybe just shifting gears here to the DMS side of the business. Can you just elaborate on what you were talking about, about pushing certain clients to the Media segment? Talk about the benefits there are both for those clients and for Gannett, just, yes, how, just how that strategy will develop over the long term. Trisha Gosser: Yes. Matt, this is Trisha. Good morning. I think there's 2 things here. First is how do we invest with the highest ROI in our platform? Who is the right ideal customer for our DMS platform? And how do we focus our investments to make sure that we are delivering the best experience and the lowest cost per lead for those customers on our platform. And we think we've identified what that ideal customer profile looks like. For those who sit outside of that, so you heard us talk about really large customers that are multi-location. There are tools on the market today that allow us to do that more quickly, get those campaigns up and running with more speed and to manage many, many different locations at scale, still leveraging some of the knowledge we have within the company and within the platform. But rather than develop that on our own platform, we're starting to leverage some tools in the media space that allow us to serve not just the ideal customer on our DMS platform, but a broader category of DMS advertisers. We also see that there's a percentage of DMS customers who want a predominant media buy. So a lot of our customers buy across our platform. But when somebody wants a predominant media buy with DMS, we can use some of these tools to service that buy more effectively. So it's really about how do we get the most value out of our platform and how do we deliver the best experience for our customers. Matthew Condon: Great. That's very helpful. And then maybe just one last one for me. Just great to see debt below $1 billion for the first time since the merger. Can you just talk about where we sit today as far as just real estate and asset sales and further debt paydowns? Trisha Gosser: Yes. So we're at $116 million of debt paydown through the year. We feel very comfortable that we'll get to $135 million or above for the full year. We still have a few small to midsized real estate deals in our pipeline that we expect to get through Q4, maybe Q1. We know we've talked about this before. We will always have some things in our portfolio that we're able to monetize. But I think once we get through this next chunk, we've largely monetized our real estate portfolio. But we also see that we're generating a good amount of free cash flow. We have several drivers for improved free cash flow next year. This year, we'll be up 30%. Next year with a lower debt balance and lower interest rates as well as the improving trends in our revenue and our EBITDA, we'll have a significant amount of free cash flow to address our debt. So there's always something in our portfolio. But I think from the real estate perspective, we've got one more small chunk, and then we've largely monetized that. Operator: Your next question is from [ William Kavaler with Odeon Capital ]. Unknown Analyst: Going back to licensing, this is obviously becoming a critical or is expected to become a critical revenue stream. Do you guys have any intention of breaking out that licensing revenue so that we can kind of look at that, say, like a library cash flow kind of revenue stream? Michael Reed: Yes. Great question. I think 2 thoughts there. One, and Kristin mentioned this earlier too, is the business model for our AI partners is still developing. And I think the long-term play for us on how we monetize the AI partnerships with the most upside is still developing. And so I think we want to see how those 2 things develop, and it does have to become a bit more of a meaningful piece of our overall revenue streams. But the short answer to your question is, yes, I could see us breaking licensing fees out at the right time as it becomes a more significant part of our overall digital revenue stream and as we have more confidence in what the sustainable revenue model is for us. Operator: We have reached the end of the question-and-answer session, and I will now turn the call back over to Mike for closing remarks. Michael Reed: Yes. Thank you, and thanks for being with us today. And as we part, let me leave you with a few thoughts to wrap up this morning. As you heard from us this morning, we're very optimistic about a strong fourth quarter, and we're nearing a month into that quarter, and we're encouraged by what we're seeing in October. To summarize, we had some clients shift digital spend from Q3 into Q4, and we'll realize the full benefit of our $100 million cost reduction program in the quarter. And that's all on top of what is typically a strong quarter for us from a seasonality standpoint. So high expectations for the fourth quarter. We're thrilled to have our Perplexity licensing deal up and running now in October and also really excited to be able to announce our next licensing deal with Microsoft this morning. And as I mentioned on the call, we do expect to announce a couple more AI partnerships over the next couple of months or a couple of quarters. We're encouraged by the pipeline there. And also, this came up just a minute ago, but we're really excited about how we continue to strengthen the balance sheet and continue to reduce debt. we're particularly excited to see our total gross debt drop below $1 billion. And with interest rates declining and lower debt balances, Trisha just mentioned, we expect that to lower our interest costs quite a bit in 2026, and that will be a big contributor to our free cash flow growth next year, which that free cash flow growth will allow us to continue to pay down debt above and beyond what our normal amortization is. And then final thought is just we're pleased, as you might expect, to see Judge Castell's ruling on Tuesday in favor of our partial summary judgment filing in our case against Google. This establishes liability for Google and moves our case an upcoming trial to a damages case for our key claims. And we're hoping a trial date gets set very soon. Although we think -- altogether, we think this sets us up for a strong fourth quarter and a strong future, and we look forward to updating you on the fourth quarter results early next year. Thanks for joining us today. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to AIXTRON's analyst conference call Q3 2025. Please note that today's call is being recorded. [Operator Instructions] Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Gunner. A warm welcome also from my side to AIXTRON's Q3 2025 Results Call. My name is Christian Ludwig. I'm the Head of Investor Relation and Corporate Communications AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on Page 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other media. However, we will place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you to our Q3 '25 results call. I will start with an overview of the highlights of the quarter and then hand over to our CFO, Christian, for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an update on the key business developments of the second quarter on Slide 2. The important messages for Q3 '25 are our free cash flow in the quarter was EUR 39 million, totaling EUR 110 million in the first 9 months '25, while inventories are down to EUR 316 million, coming from EUR 369 million at the year-end '24. This shows we are well on track with our strategy to rebuild our cash position after we had depleted that with the construction of our 300-millimeter cleanroom, the innovation center in the years '23 and '24. In Q3, we recognized new orders of EUR 124 million, which lead to an equipment order backlog of EUR 287 million, where we have achieved a book-to-bill of 1.04. We concluded the quarter with revenues of EUR 120 million. With that, we were in our guided range of EUR 110 million to EUR 140 million. The gross margin reached 39% in Q3 and averaged 37% in the first 9 months. This figure includes a one-off expense related to our implemented personnel reduction earlier in the year. Adjusted for this effect, the gross margin after 9 months came out at 38%, slightly below previous year's 39%, mainly due to volume shifts and FX headwinds. As the market remains soft, we had to adjust our fiscal '25 guidance 2 weeks ago. We are now expecting revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance of EUR 530 million to EUR 600 million, and a gross margin of now 40% to 41%, down from previously 41% to 42%, and an EBIT margin of now around 17% to 19% from previously 18% to 22%. AI continues to be the main end market driver, especially for our Optoelectronics segment. Automotive-driven power electronics demand, on the other hand, remains soft. Christian will now provide a detailed look into our financials on the following pages before I take over with an update. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the key points of our revenue development on Slide 3. In a soft market environment, we achieved revenues of EUR 120 million, down versus the EUR 156 million last year, but well in the guided range of EUR 110 million to EUR 140 million. For the first 9 months, revenues came in at EUR 370 million, down about 9% year-over-year. A breakdown per application shows that 66% of equipment revenues after 9 months come from GaN and SiC power, 14% from LED, 16% from Optoelectronics and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with EUR 80 million. The aftersales share of revenues after 9 months was up by 2 percentage points year-over-year to about 22%. Now let's take a closer look at the financial KPIs of the income statement on Slide 4. I already talked about the revenue line. Gross profit decreased year-over-year in Q3 '25 to EUR 246 million. Gross profit in the quarter was negatively affected by approximately EUR 8 million due to volume shifts from Q3 into Q4 and around EUR 2 million due to FX effects. Subsequently, the gross margin in the quarter came in at 39%, down 4 percentage points versus the prior year. After 9 months, gross profit was at EUR 136 million, 15% below last year's figure. At 37%, our gross margin after 9 months was 2 percentage points lower than after the same period last year. But please recall, as stated in our Q1 release, this includes a one-off expense of a mid-single-digit million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for these effects, the gross margin after 9 months would be around -- at around 38%. For the remainder of the year, we calculate with an average U.S. dollar-euro exchange rate of 1.15 and the continued weakness of the Japanese euro rate. Due to high expected revenues in foreign currency in Q4, we expect an additional around EUR 3 million negative impact in revenues and gross margin with the larger part resulting from the U.S. dollar and the smaller part from the Japanese yen. Together with the above-mentioned EUR 2 million effect realized in Q3, this totals to approximately EUR 5 million negative FX impact, which corresponds with the 1 percentage point gross margin adjustment of our guidance. OpEx in the quarter were slightly up by 4% year-over-year to EUR 31 million, primarily driven by higher R&D spending compared to the previous year. For the first 9 months, OpEx came in at EUR 94 million, a reduction of minus 6%, driven primarily by around 13% lower R&D expenses. R&D expenses were down mainly due to reduced external contract work and consumables costs. As stated before and visible in Q3 numbers, R&D costs in H2 will be higher than the H1 number. So for the full year, we expect R&D costs to be slightly lower than in 2024. EBIT for the quarter is EUR 15 million, a significant drop versus Q3 2024. The main drivers besides the already mentioned negative factors impacting gross profit is a negative operating leverage effect resulting from lower revenues. The weaker performance in Q3 led to an EBIT of EUR 42 million for the first 9 months, a decrease of 30% year-over-year. This translates into an EBIT margin of 11%. Again, please record the one-off expense in connection with the personnel reduction I've mentioned before. Adjusted for this effect, the 9-month EBIT margin would be around -- at around 12%. Now to our key balance sheet indicators on Slide 5. On a more positive note, working capital has continued to come down -- has come down by around EUR 100 million since end of fiscal year '24. Several balance sheet items contributed here. We continued to decrease inventories to EUR 316 million compared to EUR 369 million at the end of 2024. Year-over-year, inventories have been reduced by EUR 111 million as we continue to work through the surplus accumulated last year. And as stated before, we expect further inventory reductions to materialize throughout 2025 and into 2026. Trade receivables at the end of September were at EUR 129 million compared to EUR 193 million at the end of 2024. The reduction versus year-end is mainly the result of the collection of the payments related to the large shipments end of 2024. Advanced payments received from customers at quarter end were at EUR 73 million, a nice recovery of about EUR 20 million versus end of last quarter, but still down about EUR 9 million from end of 2024. This is primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments now represent about 25% of order backlog. The fourth key element of working capital, trade payables, has now come down to EUR 24 million from EUR 34 million at the end of 2024. This reflects a now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow after 9 months improved to EUR 128 million, a strong improvement of EUR 100 million versus last year's EUR 28 million. On the back of the improvement in operating cash flow, free cash flow improved even more. It came in at EUR 110 million after 3 quarters compared to negative EUR 58 million last year. This was supported by a strong reduction in our CapEx. With EUR 18 million after 9 months, our CapEx was significantly lower than last year's number of EUR 86 million. This is primarily due to the now completed investment in the innovation center. As of September 2025, our cash balance, including other current financial assets improved to EUR 153 million. This equals an increase of EUR 88 million compared to EUR 65 million at the end of fiscal year 2024, despite the dividend payment of about EUR 17 million in Q2. As stated before, a key priority remains the rebuilding of a strong cash position. Our financial decisions continue to be guided by this objective to ensure a robust liquidity foundation for the future. This has served us well in the past, and we see ourselves well on track towards this target. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with optoelectronics and lasers. In optoelectronics, AIXTRON has seen a continued recovery in demand for datacom applications, which began earlier this year and has been reaffirmed in Q3. This trend is expected to continue into '26 and beyond. Our customers are increasingly transitioning to 150-millimeter indium phosphide substrates and photonic integrated devices, PIC devices requiring advanced epitaxial performance. This segment is technology-wise very demanding. It requires excellence in the uniformity, doping control and defect management, areas where our G10-AsP platform excels. Historically, AIXTRON has held a market share of over 90% in this domain served by our G3 and G4 planetary reactors. The G10-AsP is now establishing itself as the tool of record to the laser market, replacing legacy systems at leading customers. Q3 shipments and scheduled Q4 deliveries underscore our strong market position with repeat orders from key customers such as Nokia. Additionally, VCSEL demand is recovering, driven by LiDAR modules and automotive applications. We, therefore, expect that tools for the various laser applications will contribute significantly to our full year order intake and also into next year '26. Now let me move on to our LED business. We are seeing first encouraging signs of reinvestment in red, orange, yellow -- ROY LED applications. Utilization rates for red, orange, yellow LEDs have been high throughout the year with double-digit system shipments for mini LED applications driven by demand for RGB fine pitch displays. Notably, some TV manufacturers such as Samsung are shifting to full RGB backlighting, boosting micro LED demand. While overall micro LED demand remains moderate, medium-term drivers are positive. We've received multiple orders for our G10-AsP platform, primarily for red pixel production in next-generation AR devices. The recent announcement of Meta's AR glasses based on micro LED technology signals a broader trend with more OEM products expected in '27 and '28. Our G5+ and G10-AsP platforms are ideally suited for these applications, which require ultra small pixels and defect-free epitaxial die. The launch of Garmin's first micro LED watch is likely to further stimulate demand across blue, green and red micro LED segments. In solar, after years of moderate investment, we are now seeing renewed interest, including multiple orders for low earth orbit -- LEO satellite applications in constellation projects. LEO satellites are those that orbit the earth at altitudes of about 2,000 kilometers. They enable both fast communication as well as high-resolution earth observation by operating in a zone just above the earth's atmosphere, where they can maintain strong signal connections with ground stations. These satellites work in interconnected constellations of hundreds of thousands of satellites of hundreds or thousands of satellites to provide global coverage, examples are Starlink or OneWeb. We anticipate this trend to continue in the years '26, '27 and '28. Let me now come to gallium nitride power. AIXTRON continues to lead GaN power segment with over 85% market share across all wafer sizes and power ranges. Although demand is softer compared to last year, we are seeing solid volume orders for both 150- and 200-millimeter solutions, particularly from Asian customers with ramp-up plans extending into '26 and '27. We've also strengthened our partnership with imec. Together, we are accelerating innovation at both the architecture and device level. imec has been using both our G5+ as well as the G10-GaN platform for its 150- and 200-millimeter partner programs for quite a while. And we have now shipped a 300-millimeter gallium nitride platform to enable broader access to imec's recipes. We see first power semiconductor manufacturers adopting 300-millimeter GaN technology such as Infineon Technologies. Regarding the overall GaN market, we are still dealing with a moderately oversaturated installed base, requiring some more time to absorb existing capacities. This digestion phase is expected to continue for some quarters before a broader recovery sets in. With that, let me come to silicon carbide. While end-user demand remained soft, we observed moderately increased utilization rates at some of our customers. On the one hand, this is due to new EV models being launched, which drive demand. On the other hand, SiC is starting to enter the AI data center value chain, especially in voltage classes of 1,200 volts and above. You have seen the new NVIDIA power architecture, which relies exclusively on wide band gap power devices. At the International Conference for Silicon Carbide and Related Materials -- in short, ICSCRM in Busan, Korea early in Q3, various industry players confirmed midterm adoption of super junction silicon carbide technology. This technology basically means that instead of one thick silicon carbide epi layer deposited today, we will see in the future multiple thinner silicon carbide epi deposition steps. These thinner epitaxial layers require enhanced uniformity and shortened process time. Our G10 silicon carbide platform is well positioned to meet these needs, offering superior productivity due to the benefit of the batch concept, especially for thinner layers. We are proud to have shipped our 100 G10-SiC CVD system, marking a major milestone and reinforcing our leadership in the silicon carbide power segment in this quarter. The silicon carbide market is still undergoing a longer digestion period, particularly in western-oriented regions. As a result, there are no major decisions for new fab investments on the agenda these days. In summary, we can say that the soft market period still continues in almost all markets, apart from the laser market, driven by the hunger for data from AI applications. A demand pickup will not materialize in '25, and visibility in '26 is still limited. With that, let me now move to our guidance. Due to the market situation just described, we had to adjust our guidance for 2025, 2 weeks ago. Based on the current soft market environment and assuming an exchange rate of USD 1.15 per euro for the remainder of the year, we now expect the following outlook for '25. We expect to generate revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance, which was initially EUR 530 million to EUR 600 million. FX effects led to an approximately 1 percentage point reduction of gross margin and EBIT margin. As a result, we expect now a gross margin of around 40% to 41% and an EBIT margin of around 17% to 19%. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit million euro amount in the relation to the implemented personnel reduction in the operations area earlier this year. The measure will lead to annualized savings in the mid-single-digit million euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around 1 percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. Let me, at this place, also give you a first outlook for the next year 2026. We clearly see that the medium and long-term drivers for AIXTRON's growth such as demand for GaN and SiC power devices, LED and micro LED applications, lasers and LEO solar applications remain intact. However, visibility for the fiscal year '26 remains low. And as of today, we do not see signs of a demand recovery yet. Therefore, our view today is that 2026 revenues are likely to be slightly below those of '25, maybe flat. Furthermore, assuming an exchange rate of USD 1.15 per euro, we expect the EBIT margin not to come out below the range of the current year, maybe better. As always, we will give you a firm guidance with the release of our financial year results end of February 26. With that, I'll pass it back to Christian before we take questions. Christian Ludwig: Thank you very much, Felix. Thank you very much, Christian. Operator, we will now take the questions. Operator: [Operator Instructions] The first question comes from Janardan Menon from Jefferies. Janardan Menon: I just wanted to touch upon your final comments on 2026 to start off with. You said that 2026 is likely to be flat or down, but it sounded like you expect Opto to be up, and your trend -- when I look at your Q3, GaN seems to be doing quite well, while SiC is down quite sharply. So would it be fair to say that at current visibility, you would expect Opto to be up, SiC to be down and GaN to be somewhat flattish. Is that a view that -- which would be sort of a preliminary view for next year? Felix Grawert: It's a good -- I think you got a perfect read on this one. Let me try even to quantify it for you. I think roughly in terms of percentage of revenues, we expect as a percentage of total revenues next year, we're expecting to gain about 10 percentage points for Opto, 10 percentage points gain for GaN and minus 20 percentage points in silicon carbide. So a pretty weak year for SiC, but very strong year for the Opto segment. It used to be a smaller segment. So adding 10 percentage points of the total is quite a significant one. This also helps on the margin. You have seen my comment related to margin quality. And GaN also as a percentage gaining a bit. Janardan Menon: Just a follow-up. On the SiC side, yes, I understand that demand is quite weak right now. There's quite a bit of supply out there and automotive is still sluggish. But listening to companies like STMicro and all who are under quite severe margin pressure on the silicon carbide side, they seem to be accelerating their 6-inch to 8-inch transition because they see that as a way to improve their profitability. And ST specifically said that they'll do it within -- through the course of '26 and by early '27. I would assume that that would be true for other parts of the installed base as well given the price pressure on silicon carbide. Do you not see this as a driver at all for your silicon carbide revenue? And do you really need the end demand to recover before any improvement happens? Felix Grawert: I think you catch it very well. Yes, the 6- to 8-inch transition is going very fast, especially at outside of China players. I think worldwide outside of China, we see the 6- to 8-inch transition progressing at rapid speed, as you have indicated with one company name, and we see the same in other players. In fact, we do hear from some of our customers that while end customer revenue is flat or down, the unit numbers are going up and unit numbers is, of course, what we as an equipment maker like, because in the end, it's about wafers and increasing numbers of wafers. So in fact, we expect that by the end of '26, the transition in the Western world, as I may call it now, including Japan, is probably concluded '27, '28, I would expect the volume to be completely going on 8-inch. We do see on 8-inch also much better quality wafers, which helps the customers in terms of yield. That's one of the cost reduction drivers. Also 8-inch substrates are getting good pricing now. Initially, they used to be very expensive. Now the pricing for 8-inch substrates is going well. And that, at some point, means the excessive overcapacity that I was speaking about at some point will be digested. I would not dare at this point to give an exact prediction because there's multiple variables that we are just discussing. But I think we can clearly see at some point, the overcapacity will be digested and then there will be new demand. Janardan Menon: But that transition doesn't mean buying new 8-inch machines from you, is it to generate revenue for you? Felix Grawert: At some point, it will mean buying new demand and new tools when the existing overcapacity is consumed. Right now, we talk about existing overcapacity, which is just being converted. Operator: Next up is Martin Marandon-Carlhian from ODDO BHF. Martin Marandon-Carlhian: The first one is on something that you put on the press release on gallium nitride. You talked about utilization rate rising in data center. And I was wondering what does it mean exactly? I mean, does it mean that you already anticipate orders in the near term linked to the new 800-volt architecture from NVIDIA? Does that mean something else? Felix Grawert: Let me explain what we mean by that. Thanks for the question. What we have seen is we have seen in the years, especially '23 and '24, we have seen quite a number of gallium nitride orders, which were happening a bit ahead of the wave, such that, I would say, early '25 at the existing volume customers, we have seen quite a significant overcapacity of installed base also in gallium nitride. That was the reason why in '25, compared to '24, our gallium nitride shipments have been slowed down quite a bit, because our existing and established volume customers literally had also in GaN, not only in SiC, but also in GaN, some overcapacity to be digested. So as we started into '25 at some of our customers, also in gallium nitride, we have seen installed base utilization to be quite low. Now towards the end of '25 and looking into '26, we see that a much larger fraction of the installed capacity is being utilized at the existing GaN customers, while those who newly entered the GaN market in '24 and '25 in previous earnings calls, you may have recalled that we said -- well, there's still new players entering the market to gallium nitride. And those new entrants at this point in time are still in the qualification or in the device and the sampling phase of their technologies to their end customers. You have seen the numbers that I was just commenting towards the question that Janardan was asking. We expect the GaN segment for us to be slightly up next year. Again, it's an indication, qualitative indication. as we see that utilization is increasing, and we expect due to the increasing utilization, some expanding orders from some customers kicking in. The broad market recovery, as I've indicated, with the real volume pull, we don't expect in '26. We rather expect that in '27, '28, but some increasing orders in '26. Does that answer the question? Martin Marandon-Carlhian: Yes, that's very clear. But just a follow-up on this. I mean, why would you anticipate more of that volume in '27 and '28? Because we read that this new architecture from NVIDIA is supposed to be for Rubin Ultra, which is launched in H2 '27. So I was expecting capacity maybe to come a bit earlier than this. So does this mean that maybe it will not be 100% GaN for some steps at the beginning, the 50 and 12-volt steps and it will go gradually. I mean just can you explain a bit why it should come more gradually, let's say? Felix Grawert: So this is based on our current view, what we have and the signals we get from our customers. I share the view that the new 800-volt architecture will lead to significant volumes around '27, '28. This is also our view, I share that. Now for us, it's always very difficult to predict the exact timing when customers will place the orders for new equipment because we do see certain trends, but we cannot look into the exact budgets and plans of our customers. Therefore, at this point in time, we can only comment on what we are currently seeing. If later on in the year, volume kicks in and orders accelerate, we are very happy to it. We don't see signs to that yet. Martin Marandon-Carlhian: Great. And maybe a last question on GaN. I mean, you all is saying that the GaN market will be close to $500 million this year with that data centers really being really a contributor. What would you guess would be the size of the data center market for GaN compared to the overall size of the market this year, like $500 million? Felix Grawert: So I do not have the exact timing for my message in mind. We have looked at a midterm perspective, I think somewhere triangulating '28, '29, '30, something a little further out. And in this triangulation that we've done, the data center opportunity with an upside of about 50% on top of the market without the data center opportunity. You may recall that we have a slide out there in the investor deck, which on the X-axis has 3 time horizons. I think '20 to '23, I think '24 to '26 and whatever '28 to '30, something like this. And on the Y-axis, the different voltage levels, low voltage, medium voltage and then very high voltage. And there, we have put the AI data center opportunity, and this is the market that I'm referring to. Martin Marandon-Carlhian: Maybe last question for me on the gross margin. I mean the current guidance implies record gross margin in Q4. Just can you help us maybe see the main drivers of this? Christian Danninger: Yes. Martin, Christian here. I'll take that one. I mean, like in the last years, the Q4 will be the strongest quarter just by volume, purely shipments. Beyond that, we expect an improved product mix, especially a higher share of final acceptance revenues coming with high margins and also some fixed cost degression effects. A little bit of color on the product mix. We expect a big share of G10 family products, around 50% of Q4 revenue so that you get an idea. So also looking at the -- comparing this with the last year, these margin ranges appear achievable for us. Operator: Next up is Didier Scemama from the Bank of America. Didier Scemama: I've got a couple of questions maybe clarification on the comments you made earlier on '26. And perhaps my math is not right, so please don't shout at me if I'm wrong. I think you said the SiC part of the business would be down 20 percentage points in terms of group sales. I mean, by my calculation, that would imply a pretty minor revenue contribution in '26. So is that correct? And then equally, Optos up, I think you said 10 percentage points within the group, that's going to put it at something like EUR 150 million next year. Is that the right ballpark? Felix Grawert: I would say right ballpark, right indications, Yes. As far as we can say. I mean, it's very early, but we really want to give you some… Didier Scemama: Yes, of course. Felix Grawert: Yes, exactly, yes. Didier Scemama: No, that's incredibly helpful to me perfectly honest. So I guess the question, when I look at the comments you put on the 9-month report, you said about 50% of the bookings came from power electronics. So I have to assume that the rest mostly come from Optos because LEDs, et cetera, is fairly de minimis, which if you compare to what you said last year, means that the bookings in Optos are probably up meaningfully, which is again consistent with what you said. So perhaps when you look at history, Optos, like all the other segments have tended to be incredibly cyclical. So would you think that there is duration in that growth in optoelectronics beyond '26? Or do you think that the big CapEx cycle we see currently for silicon photonics and lasers is going to be as we've seen in the past, a big year and then it falls off a cliff. Felix Grawert: I think you asked the trillion, the multitrillion dollar question, how long the AI bubble will last. I do not have the crystal ball for you, right? If I would, I might not be sitting in this place right now. Didier Scemama: Okay. Well, yes, I mean, honestly, I wish you good luck. Felix Grawert: I think it fully relates given the serious note, yes. Some joking aside, a big part of the laser part is, in fact, coming from the datacom, right? And the datacom, again, is driven by the AI and the AI data center build-out. So it's really hinges on that one, to a very big part, probably 50%, 60%. So it really depends on how exactly that's progressing. But we can only see what we have now in our visibility. But a longer-term view 2, 3 years out, I think it's as difficult as for everybody predicting the AI trend. Didier Scemama: No, for sure. And if I may, as a follow-up, I mean, you mentioned Nokia/Infinera as a customer for your G10 platform for their peak products. Can you give us a few more examples of key customers for that division so that we understand the underlying dynamics, please? Felix Grawert: Unfortunately, I cannot, because we keep customer names always strictly -- very strictly confidential as under NDA. We stick to that. We are extremely sensitive to that. I can give you a qualitative indication. Imagine you think who may be the top 10 providers for data communications devices for AI, you can assume that at least 80%, 90%, maybe 100% of those guys are our customers currently placing order with us and 90% of those are placing orders for the G10-AsP. Maybe I can give you that indication. And I really mean it as I say it. Operator: Now we're coming to the next question. It comes from Madeleine Jenkins from UBS. Madeleine Jenkins: I just had one on utilization rates. You mentioned that the GaN power were increasing. Could you quantify that at all? And also, I guess, get a sense of what your silicon carbide utilization rates are at kind of Chinese and then Western customers? Felix Grawert: So I understand your question about detailed utilization rates. We don't have those. And we could also not share them if we would have them. But what we can say is that based on spare part orders, based on service orders, we see a trend here, which is a good utilization increase for the GaN power, which leads us to expect some volume expansion orders in '26 at a moderate level as we have indicated. At the same time, in silicon carbide for the overall market, I think towards the beginning of the year, we have seen very low utilizations with very low -- I mean, clearly far below 50% means far more than 50% of the capacity installed in the market was standing idle early in the market. And maybe we are now approaching a 50%, 60%, 70% utilization in silicon carbide. So we do see it increasing, but we are still far from a level on a market level where customers are really going into reorders and expansion orders. I think that's not yet on the agenda. Madeleine Jenkins: Then I guess all your kind of new orders in silicon carbide specifically, are those kind of new customers in China? Is that the right way to look at it? Felix Grawert: Yes. We did have significant orders and shipments in '25 in silicon carbide into China, quite a diverse set of customers, highlighting the success of our G10 silicon carbide platform. So I think we've managed to establish that platform very well in the China market. That was all relating to the earlier question by Janardan. That was all for 8-inch or having 8-inch in mind. However, we are all aware of the large overcapacity in silicon carbide in China. Also the China silicon carbide business at this point in time has slowed down. I think the market overall is digesting the existing overcapacity. However, I think we all see the very nice success of Chinese electric vehicles. At some point, the overcapacity will be digested and there will also be new orders. Madeleine Jenkins: Then just a quick final question. Do you have a sense of kind of how much of your current gallium nitride revenues this year, let's say, are for data center applications? Felix Grawert: That's honestly very difficult to predict. Sorry for having only a vague answer, because our gallium nitride customers, I think we all have a couple of very big names, leading power electronics makers in mind, right? They use our platform essentially our tools, essentially for all the applications across the board. On our tool in the same configuration, you can produce a 20-volt, 100 volt, a 650 volt and even if you want a 1,200-volt device without any change in configuration. And therefore, we, as a maker, just send the tool as it is and the customer can do whatever the customer wants with it without a modification in those power ranges. Therefore, it's for us very difficult to predict. If there would be a different configuration by voltage range, then at least we would have an indication. But therefore, it's difficult for us to say. Sorry for that one. Silicon carbide is different, right? 6- to 8-inch, right? It's always the customer needs a configuration and we see spare parts orders or parts orders, and we can at least give you here in the call a qualitative indication for the GaN, it's really one size fits all. And yes, customer takes it and then we don't know. Operator: Next up is Ruben Devos from Kepler Cheuvreux. Ruben Devos: I just had a follow-up on silicon carbide. I think you touched upon it already, but it was around your comments on benefiting over proportionally when the cycle would return. I think you talked about a more diverse set of customers. So that might be an explanation, right? But just curious around what degree of confidence you have, right, to make that statement of outgrowing the market. And even outside like automotive, how does the pipeline shape up thinking about industrial as well in silicon carbide? Felix Grawert: Thanks a lot. I think your question hints very well towards the future direction of silicon carbide. Let me go a little deeper to expand on it, maybe some of the backgrounds, the technical backgrounds are interesting. So the first generation of silicon carbide devices, which we have seen, I would say, in the last 5 years with a very simple MOSFET consisting essentially of just one thick layer, one thick epi layer. Now what I mentioned, the next generation of devices, which to the expectation of all market participants will be the main volume in the next wave. Everybody expects the next wave of growth, '27, '28, exact timing to be TDD to be super junction MOSFETs. So this is a device where this thick layer is split into 3 or 4 thinner layers. So each of them about 1/5 or 1/4 thick of the initial one. And it's not just one big epi, but the wafer would be put into a tool 4 times. So you make 1 thin layer, then you do some device processing and then the wafer returns to the silicon carbide epi tool comes the next thin layer and so on multiple times. And this super junction technology shifts the operating point from one thick layer, which, let's say, has in the past been deposited, let's say, in about 1 hour to 2 hour processing time, now into multiple thinner layers and depending on which type of equipment, let's say, it now takes 15, 20, 30 minutes instead of 1 or 2 hours. So the wafer gets into the equipment multiple times. And with that, the complete dynamics about the productivity of the tool, the key KPIs and so on is shifting because essentially, it's a very different operating point. You can buy -- in an analogy, you can buy a car which is perfect as a city car, small and nice and fits into parking lots, but doesn't drive very fast, you don't care. And a perfect travel car for long-distance travel or a nice sports car for going up the mountain pathways or driving races, right? And each of the operating points has a different optimum. And this new operating point about thin layers to our calculations and also to the feedback we receive from customers is very beneficial for the batch tool which we are offering. This is the reason why we've made these positive earlier statements. With that, let me come to the second part of your question. The other part of the market, which may provide further growth, I think it's still a little further out than '27, '28 is the market for industrial applications. That market could probably towards the end of the decade grow very big. What we are talking here is about the following. Today, we use the silicon carbide devices mainly in switch mode power supplies or like power devices for the car in the main inverter and in voltages, 650 to 1,200 volts. We can also make silicon carbide devices, which have 3,000 volt or 6,000 volt or 10,000 volts, much, much higher voltage classes. And the industry is working on. That was, for example, one of the elements in the NVIDIA power architecture. I think everybody here in this call has the chart of the architecture. If you look at the chart of NVIDIA, on the very front end, you come from the grid and you enter the grid into the data center at voltages around 14 kilovolts, and that's 14,000 volts. And this down conversion from over 10,000 volts eventually down to 1,000, this is done by silicon carbide and then from 1,000 to 1 is done by gallium nitride. Now you cannot only use the silicon carbide in the data center for these high voltages, but in the entire grid. And we all know as more and more renewables are being used worldwide, I think China leads the pack with driving down the cost of solar and wind, but the whole world is following. And we need much more active grid stabilization, load management, active management and so on and so forth. So the grid, the worldwide power grid will experience over the next 2 decades, massive investments into switching infrastructure. Today, this is all being done by transformers. I think everybody knows next to the highway like these transformer stations standing. In the future, many of those will be done by active switching, and this will all be done by silicon carbide power devices. So all the leading grid suppliers, whether this is Siemens and ABB, Schneider Electric, General Electric in the U.S. are working on such devices. And it's a nice end segment for silicon carbide to come. However, I think this is a longer-term trend. I would not put the years '27, '28 on it. I would rather put '29 onwards as a nice trend for the turning of the decades on this trend. Ruben Devos: Just my second question related to optoelectronics, basically. I think you've called co-packaged optics as a key driver for indium phosphide adoption. How quickly would you expect the market to move there from pilot into volume co-packaged optic deployment? And you've very helpfully framed the tool market size for silicon carbide and gallium nitride in your slide deck. So may I opportunistically ask whether you've done a similar exercise for the G10 arsenide phosphide platform. Felix Grawert: Thanks a lot. I take the suggestion. It's a good one. Let's take that on our action item list that he smiles around me here in the room, yes. It's a good one. We don't have it yet for today, so I cannot give it to you maybe in the next earnings call. Now to your question about the sizing and what we see. For the optoelectronics market, unfortunately, it is much more difficult to predict than for the GaN and for the silicon carbide market. Let me try to illustrate to you why. In GaN and SiC, we talk at least for the low volume segment for pretty standardized segments and types of devices, right? For GaN, we talk 20 volt, 100 volt, 650 and then exotic 1,200. Silicon carbide, 650, 1,200 and now I was talking a bit about the very high voltages. So you can put it into 2 or 3 classes. Unfortunately, the optoelectronic market is extremely fragmented. We both see that in the number of players. I don't know there may be a couple of hundred optoelectronics producers and companies, while in power electronics, we talk probably about like maybe a dozen or 2 dozen, 3 dozen maybe at most, yes. So it's extremely fragmented. And such are the different technologies, which is competing with each other. The good thing is this is physics. They all have in common. As of today, they need a wide band gap semiconductor, gallium arsenide or indium phosphide for generating the light. But then the way the light is being processed, whether this is on an indium phosphide or gallium arsenide-based photonic integrated circuit or whether the light coming on is put into a silicon photonics. You can use silicon -- silicon dioxide waveguides and switching devices. This is extremely diverse and therefore, very difficult to predict. I wouldn't dare at this point to make a prediction where it goes. We are aware that all the guys who are working on the leading-edge CMOS nodes and also doing heterogeneous integration, all of them work on multiple technologies because even for the big guys in the industry, things at TSMC, it's difficult to really say, well, this technology is winning out against the others. Operator: Next up is Andrew Gardiner from Citi. Andrew Gardiner: I just had one on the margin outlook into next year that you provided us, Felix, saying that you thought EBIT margin next year would be in line, perhaps better year-on-year. Can you just sort of give us some of the drivers there in terms of gross margin? I mean, obviously, you've given us the mix in terms of Opto and GaN up and SiC down. How would you sort of quantify that in terms of magnitude of gross margin change next year? And also, you've done a sort of a workforce reduction earlier this year. Given the still slow market in SiC, do you see any need to continue to reduce OpEx? Or are we far enough through this down cycle now where you just sort of have to -- you weather it because you can see the long-term opportunity. So really there's not much change -- incremental change in terms of OpEx into next year? Felix Grawert: Yes. Thanks a lot for the question. I think part of the answer you've given, let me try to give an end-to-end consistent picture. So we were referring to EBIT margins really to bottom line. I have not given indication on the gross margin, no quantitative, right? So I was really mean EBIT margin. And I think there's three drivers behind our indication towards. So we wanted to give you a very clear indication that the margins is not getting worse despite the top line suffering probably a bit. And I think there's three drivers behind it. On the one hand, we see margin-wise, a bit stronger product mix. I indicated the gain of Opto, that helps a lot. And secondly, we will see the full year effects of the headcount reduction, which we conducted early in '25. '25, there's also cost and restructuring costs. In '26, we get the benefits of that. And the third topic is we use the slow period of the cycle right now for some operational improvements, be it working on our storage topics, be it working on logistics topics, be it currently working on our operational efficiency. So we have quite a bunch of these things ongoing, which are just making our operations more fluent, which reduce the external spend that's going out the door all the time. And we expect some of those effects to kick in. And based on those 3 effects altogether, we expect, yes, in terms of absolute terms and a stable bottom line or percentage-wise, stable or even improved bottom line despite the probably slightly weaker top line. But I think that's important in the end for you guys also then to everybody here in this call to give an indication where does it lead on the profitability. Operator: The next question comes from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could give us some clarity on what drove the push out this year, which end market drove the reduction in outlook for the year? Felix Grawert: Sorry, I didn't -- acoustically, the line was very bad. I didn't get the question. Could you repeat it, please? Adithya Metuku: Sorry, apologies. I was just wondering if you could give us any color on what drove the reduction in guide in 2025? Where did you see this push out, which end market? Felix Grawert: Okay. Sorry, I get it. Honestly, this was all across the board, except for the laser market. I think the laser market we've indicated is strong and continues to be strong and this is growing into next year, as we have just discussed. We have seen a weaker-than-expected GaN in silicon carbide. Initially, as we started into the year, it's always very difficult, right, to predict the full range. And we have put the full guidance range accounting early in February '25. So looking now 7 months back. In our full guidance range, we have accounted for both a slow market scenario, which now is unfolding. So therefore, we now look at the lower half of the guidance. And early in '25 with the upper end of the guidance, we have also taken into account a more positive market environment. As we all see, the more positive market environment for power semis for electric vehicles is not yet unfolding. So the upper half, therefore, had to be corrected now down to the lower half. We are narrowing down at the lower half of the guidance. Adithya Metuku: Then just on the LED and the micro LED market, you talked about seeing signals of improvement. I just wondered if you could give us a bit more color on what exactly you're seeing, especially on the LED side? Is it driven by China? Is it anything construction related? Just any color you can give us on these two end markets in terms of the signals of improvement. Felix Grawert: Yes. Thanks a lot. So on the LED market, this is typically almost exclusively China-only market. I think we can say, because of cost and volume effects. We all know, right, China is very, very strong these days on the display making. It used to be, as you have indicated in your question, historically, there used to be a lot of the LEDs going into construction, right? In China, they put these big, big walls on the skyscrapers. But as we all know, the China housing bubble has collapsed, right? That was also the reason why the segment was bad for us for 2 years. Now we are seeing the classical LED market coming back with, we call it fine pitch displays means and especially display backlighting. Local dimming, local backlighting of display, you can achieve magnificent effect by either having white LEDs behind your LED display, you can create a beautiful black or you can produce quite some nice bright colors on it with that one, and that's even going now into -- turning into RGB. The good news is it is revenue already today. The bad news is it makes it much more difficult for micro LED to gain ground in the televisions because the normal displays are already getting much improved quality. So let's see what it means for the micro LEDs. The other point, which I was indicating, we still see that on micro LED, research work is ongoing. We've seen some first devices. I was relating in my prepared notes to the Garmin watches, which is the first micro LED watch coming out at quite high prices and unfortunately, with low battery lifetime. So we are seeing that coming. And we see a lot of companies currently doing work on AR glasses and VR glasses. You may have seen the glasses launched by Meta. There's much more stuff in the preparation. I think this is a new device category, which will really come into the market quite soon. And yes, we see some moderate demand for that also next year, as I've indicated in my prepared notes. But again, it's far away, to be clear, it's far away from the micro LED massive investment wave that all of us 2, 3 years we were expecting where we would expect that micro LEDs are penetrating everything from smart watches to notebook displays and televisions, right? That one we are not seeing yet. We still see the research ongoing. So some -- many companies are still working on it, but we don't have a clear in our view when exactly that's coming. Adithya Metuku: Just one last question. With TSMC getting out of the GaN market, I just wondered, do you see a market for secondhand tools for your GaN epitaxy tools? And would that affect demand maybe next year or the year after? How do you see the implications of TSMC getting out of the GaN market? Felix Grawert: Honestly, I see it as a bit of a reshuffle, which happens normally in all the markets where there's a bit of a slowdown in the market. I think we see the same in silicon carbide, some players are exiting, some others use the opportunity to buy some used tools to get a hold of in or to get used tool and then newly to enter the market, I think it's a normal play that happens in a softer market environment. For the overall market and for us, this has essentially no implication because whether a used tool is installed or whether a tool is installed at company A or changes the ownership and is later on installed within the factory of company B, it doesn't change the overall installed capacity in the market or doesn't change the market dynamics. So for us as an equipment maker, we are -- we support customers when they need help in either way, sometimes for moving tools, for reinstalling tools, but it doesn't change or doesn't impact the market. Operator: The next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the usual update on 300-millimeter GaN. I think it's quite well known that Infineon is quite advanced in that context. And obviously, no big surprise there, cooperating closely with you in that regard. So when should we expect tool orders to arrive and, let's say, outside Infineon, what's your view? How many companies are currently working on the transition and preparing orders? Felix Grawert: So I think with 300-millimeter GaN, the market unfolds pretty much as we have expected. If you recall, we stated earlier that we see the 300-millimeter GaN as a subsegment of the overall GaN market, initially targeting the lower voltage classes means 100 volt, 20 volt, maybe 200 volt. Maybe at a later time, also 650, but really starting at the lower voltage classes. And we get confirmation from many customers what we had expected early on that customers are really targeting to switch and to reuse existing silicon MOSFET or silicon IGBT capacities and to rededicate existing fabs for gallium nitride. Of course, customers need to buy new epi tool because the silicon epi tool is a completely different tool from a gallium nitride epi tool. So in any case, there's a new tool demand for gallium nitride tools. However, the market adoption and the customer decision to the largest part depends on the installed base of factories. So customers who have today their silicon MOSFETs running in a 200-millimeter silicon fab are likely to switch to a 200-millimeter GaN tool. Customers who today are running their silicon MOSFETs in a 300-millimeter fab will want to switch and rededicate their 300-millimeter fab to a 300-millimeter GaN fab. So that is the market dynamic. And I think based on that dynamic, we never comment on customers unless we have a joint press release with customers. So allow me to describe the trend without names as we always try to do. So we really see customers who have installed 300-millimeter silicon capacity are switching now and starting to switch and have plans. There are many, many, many other customers who have 200-millimeter silicon fabs continue to work on gallium nitride 200-millimeter. And as a result of that, our strategy going forward is that we will support both groups of customers. So GaN 300 is not displacing GaN 200. We have our GaN 300-millimeter road map. We are very happy with the results that the 300-millimeter tool is giving. But at the same time, we also maintain an active 200-millimeter GaN road map where we also work on improvements. We have multiple very close customer collaborations on 200-millimeter tool improvements or even next-generation tools for 200 millimeters. Michael Kuhn: Then on cash flow and working capital, given that you don't expect top line growth next year, how much more would you think you can further optimize working capital? Because I think you mentioned you see further potential also into 2026. Christian Danninger: Let's focus maybe on the inventories because the rest of the working capital is always a little bit arbitrary, the receivables and the down payments. But on the inventories, our key ambition is to drive them down further. It's a little bit difficult yet to predict, not knowing the exact product mix and so on, but like at first, like high level expectation would be another 20% down. Felix Grawert: I would be more ambitious. Let's check. So I would say by the end of this year, I would expect inventory EUR 275 million, plus/minus EUR 15 million. To give you a number, let's see how close we come. Maybe next year, EUR 200 million. Let's see, something like this. Christian Danninger: Let's see. Michael Kuhn: Looking forward to it. Maybe you can do a little bet between the 2 of you who comes closer. Operator: There are no further questions. Felix Grawert: Good. Perfect. And I think we had a lively discussion. We very much appreciate as you see. And yes, stay tuned. I think this is a good exchange. And I think we all see each other latest in the February call for the full year results. Christian Danninger: Exactly. We will be on the road at various conferences. So I guess a lot of you at one of the conferences. And for those we don't catch before end of the year already in Merry Christmas. Felix Grawert: In October. Okay. Cheers, guys. Christian Danninger: Thank you. Bye-bye.
Operator: Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the AlzChem Group AG following the publication of the Q3 figures of 2025. I'm delighted to welcome the CEO, Andreas Niedermaier; CFO, Andreas Losler; as well as CSO, Dr. Georg Weichselbaumer, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session in which you will be allowed to place your questions directly to the management. And having said this, I hand over to Mr. Niedermaier. Andreas Niedermaier: Yes. Thank you for the warm welcome, and good morning together. Thank you for joining us today, and welcome to the quarter 3 call. As usual, we open with an executive summary, go forward with the figure analyzes and then move on to the new outlook. As always, we will go through the presentation first, and then be available for the questions at the end. So, let's skip the disclaimer and go directly to the Page 5. So, I have to do that as well. Let's check Page 5. So, now Page 5, you should see that. So, in a summary, it can be said that we are on a real good growth core, especially in the Specialty Chemicals product segment. So, from that point of view, it was an additional successful quarter 3 for us. For the third quarter, we recorded growth, which means that the group sales increased by additional 6% for the 9 months period by 2%. Once again, our Specialties were the main driver of the growth with a 9% increase in sales here, which more than compensated or overcompensated for the decline in sales in the other businesses. We will then hear more details about analysis later on, but that information is a teaser here. EBITDA also grew by 12% to EUR 86 million, approximately mainly due to the positive volume development of Specialty Chemicals. The EBITDA margin across the group increased from 18.5% to 20.3% now. So, based on the real good development on the figures for the first 9 months, we can -- and we are able to confirm the outlook for the sales more at a lower threshold, but we will be able to increase earnings from the today's point of view and the reported figure is more the lower end than we can see today. So, our CapEx activity is in full swing. The construction of the two new plants, including infrastructure is on schedule and on budget here. The roofs are currently being built and will also be closed soon. The first installations inside the plant have already begun. In the U.S., we are in the process of talking about specific project situations with several locations. And teams are evaluating the individual locations so that the basis for a decision can be laid in the coming months here. And engineering has already started with the adoption and the translation of the layout to the U.S. standard. The demand for creatine products remains really high in order to be able to benefit from market growth and incremental creatine expansion was successfully commissioned in quarter 3. In addition to the urgently required capacity increases, this investment also leads to greater efficiencies with an automatic packaging system. This shows the strength of Alzchem as I see that when sales potential on the market opens up, we size the possibility of growth and efficiency investments that are implemented quickly and consistently. And we can report the cooperation with Ehrmann and a high protein creatine products with Creavitalis in stores since October. Let's discuss that in more detail on the next page. So, Ehrmann in cooperation with AlzChem launched in expansion of its high-protein product line, which takes functional nutrition to the next level. The focus is on Creavitalis, the high-quality creatine made in Germany from us. The Ehrmann High Protein Creatine range makes the proven ingredient available for the first time in the form of delicious everyday products for a broad target group. The new product line comprises three categories: puddings, drinks and bars. And delivers per portion approximately 1.5 gram of Creavitalis each. Since October, the Ehrmann High Protein Creatine puddings and drinks have become gradually available in German retailer stores. And in the Ehrmann online shop, the bars will be added to the range starting now in November. Creavitalis stands for the highest purity and quality and therefore, also has convinced the customer Ehrmann to enrich its products with high-purity creatine and to provide it with a broad range of products for the first time for a broader market here. The first creatine project in the Ehrmann products underlines a variety of applications of creatine also outside the fitness sector and confirms our strategy of investigating the further applications of creatine and thus opening up further market potential. And we believe in further growth here. However, let's now move on to more figure analysis of how the business performed in the quarter and for the first 9 months. And for that, I hand over to Georg Weichselbaumer. Georg Weichselbaumer: Thank you, Andreas. As always, let's start with the development in our Basics & Intermediates segment, which managed to slightly reverse the downward trend observed in the first half of the year. The segment concluded the reporting period with sales amounting to approximately EUR 122 million. This represents a decrease of EUR 11 million or 8% compared to the previous year. Only looking at Q3 standalone, sales showed a positive development and were 6% above Q3 last year as was EBITDA. Again, this development was not a surprise to us and part of our guidance. For the 9-month period, and as outlined throughout the year already the decline in sales driven by volumes effects. The European steel industry remains in a difficult economic situation and is continuously producing lower volumes than in the previous year. Accordingly, our customers to ask for less quantities. In contrast and on a positive note, the development in the fertilizer segment, particularly with our calcium cyanamide fertilizer, Perlka, was encouraging. Q3 sales were further supported by a new product in our midsized business, which was successfully placed with the customer for the first time. This product contributed positively to the sales and EBITDA development within this segment. We are now in negotiations with the customer regarding an additional production campaign, which could contribute to a further positive development of our Basics & Intermediates segment. This sales development within the third quarter of 2025 led also to an increased EBITDA for the same period. Nevertheless, this development did not contribute to an increase in EBITDA in the 9-month period compared with the previous year. Even if we managed to pass on some portion of high electricity costs, we could not compensate to reduce quantities and tend to accept the decline in EBITDA, which also led to a decline in the EBITDA margin compared to the previous year. On the production side, the facilities within our Basics & Intermediates segment could steadily and reliably produce all raw materials required for the growth of our Specialty Chemicals segment. This brings me to the next page, where we analyzed the situation in our Specialty Chemicals segment. Specialty Chemicals is still on a very promising growth path supported by the recent development within our Creatine business, which Andreas described already. For the 9-month period as well as for Q3 stand-alone, all major KPIs could be increased compared to the comparative periods. On a cumulative basis, we can report a sales increase of EUR 22 million or 9% and EBITDA increase of EUR 11 million or even 16% and an increased EBITDA margin of almost 28%. Only looking at Q3 stand-alone, we can report a sales increase of EUR 7 million or 8% and EBITDA increase of EUR 2.4 million or 11% and an increased EBITDA margin of almost 28%. Main support for this development clearly came from the increased quantities supported by slightly increased prices for the 9-month period. It must be noted that this performance is very much in line with our guidance as set during the year. Let me outline the development within three business areas: Human Nutrition with our outstanding high-quality creatine products, Creapure and Creavitalis, custom manufacturing with very specialized products and production facilities and defense with our propellent nitroguanidine. While the latter can only grow this year to the extent that our customers are able to purchase before completing their own capacity extensions. The other two businesses made a significant contribution to growth. The demand for our creatine products made in Germany was much higher than last year, and we could especially grow in the U.S. but also in other regions. Andreas already mentioned the cooperation with Ehrmann brings creatine into the functional food market for the first time. The most current successful commissioning of our expanded creatine capacity will support our growth and the satisfaction of steady and increased market demand. As already mentioned during our information in Q1 and Q2 of this year, the comeback of our custom synthesis area continues. We have seen increased and steady demand, and this development supports our belief that the volume declines over recent years were only a temporary phase and that the Traditional Chemical segment with its highly specialized products continues to offer further growth opportunities with a corresponding contribution to earnings, even in Europe. EBITDA grew in line with sales, but a very good plant utilization led to an improved EBITDA margin. Again, we are mostly satisfied with this development within this group and confirm our growth perspective. Let us now move on to our third segment, Other & Holding. As seen throughout the year, sales for the Other & Holding segment were below the previous year's level. This decrease is primarily due to reduced electricity grid fields for the chemical park customers, which AlzChem is allowed to charge the customers under electricity regulations. All other services provided to our chemical park customers are broadly stable. The segment's EBITDA followed the sales and the decline was mainly due to the reduction of grid fees. That was all for our detailed view on the segment development. Let's now hand over to Andreas Losler and take a look at the overall group figures. Andreas Losle: Yes. Also good morning from my side, and thank you, Georg, for the insight in our segment development in the first 9 months of '25. As always, I will start with a detailed look at our group P&L figures first. In terms of sales, we finished the first 9 months of the year with total sales of almost EUR 425 million, which represents an increase of 2% or almost EUR 10 million compared to the previous year. A closer look shows that this increase was mainly supported by the development in the third quarter of '25, in which we managed to grow by 6.5% or EUR 8 million. Over the whole group and adding all segments together, the sales increase of over 9 months was driven by volume and price increases almost at the same level. As my colleague, Georg explained already, both operating segments contributed to this development completely differently that the quantities sold in our Specialty Chemicals segment could more than overcompensate the volume loss in our Basic & Intermediate segment. On a regional basis, the major sales increase could be achieved in the U.S. and Europe. As already mentioned in previous calls, the ongoing discussions about U.S. tariffs did not affect our business that much. Our sales split for this reporting period shows 66% sales coming from the Specialty Chemicals segment, while this relationship was only 62% on the comparative period. This development underpins our strategy to grow within our Specialty Chemicals products in niche markets and finally, support and explained our ongoing good EBITDA development. EBITDA is a good point. Let's talk about its development within the first 9 months of '25. Over the whole group, our EBITDA grew more than our sales debt and ended up at EUR 9 million or even 12% over the last year's reporting period. As seen over the last reporting period and in line with our strategy, this development was mainly driven by our Specialty Chemicals segment, supported by a steady and reliable raw material supply from the production plans in our Basic & Intermediate segment. Also, electricity prices are still higher than last year. A good utilization of our production facilities compared with stable sales prices led to an improvement in our extended material cost ratio showing an improvement from 36% to 33% this period. Cost wise, we have to report increased personnel expenses based on increased union tariffs and slightly increased number of employees, which support our growth. Our operating costs increased mainly resulting from much higher FX losses due to the weak U.S. dollar development. All put together, we managed to increase our EBITDA margin to impressive 20.3% after showing 18.5% last year after 9 months. With stable depreciations and supported by an improved financial result, we ended up on a group net result of EUR 45 million, which represents an increase of 20% compared to last year. Accordingly, earnings per share have increased by the same rate up to EUR 4.62 per share. That was the big picture of our profit and loss. Now let's move on to the balance sheet and cash flow figures. Our balance sheet and cash flows are still very healthy, but further influenced by some special impacts, which we have seen and reported throughout the year '25 already. The increase of EUR 105 million in our balance sheet, total can simply be explained by two major impacts: increased CapEx spending for our nitroguanidine expansion in Germany and customer grants received for this CapEx program. Non-current assets increased by EUR 57 million, primarily due to the investments aimed at expanding production capacity for nitroguanidine as well as customer grants capitalized in this context as non-current receivables. Approximately 67% of our investing cash flow within the first 9 months of the year was dedicated to this CapEx program in Germany. In total, we received almost EUR 56 million of customer grants already related to our nitroguanidine expansion. These are based on milestones or monthly payments. As such payments increase our cash balance, they also do increase our contract liabilities on the other hand. As of September 30, '25, we showed contract liabilities amounting to EUR 85 million. Those will be released beginning in '27 as revenue when the products are delivered out of the new plant. During our Q1 call in April this year, we gave a detailed explanation of the accounting treatment, and we refer to this presentation. Apart from this, we saw an increase in our inventory level in preparation for a scheduled extended maintenance shutdown of one of our carbide furnaces at the beginning of '26. Equity total could be increased by EUR 28 million. This development was supported by our positive group's net result and the recognition of increased interest rates for pension valuation and reduced by the dividend payment of EUR 18 million in May '25. However, as the balance sheet total increased materially, our equity ratio decreased from 42% to 40% but could be increased since our half year reporting date. This development was already outlined within our guidance and shows the expected ratio. Based on the increased interest rates mentioned, our pension liabilities were reduced by approximately EUR 5 million, while real pension payments amount to only EUR 2 million. As of our reporting date end of September '25, we can again report a positive net cash position of EUR 37 million. And again, we were able to shortly invest our liquidity surplus in order to earn interest, also a reason for our improved financial result. Our operating cash flow is still significantly influenced by the customer grant received for our CapEx program. As mentioned already, we received EUR 55 million in total. On the other hand, we slightly increased our working capital in preparation for the extended maintenance of one carbide furnace with a corresponding impact in our operating cash flow. We have already mentioned our materially increased CapEx activities compared to last year. Apart from the nitroguanidine expansion, we invested in expanding our creatine production capacities, the development of network operations and infrastructure matters. Anyhow, we can still report a positive free cash flow, which almost equals the amount from last year. Our increased dividend payment in May '25 and approximately EUR 4 million cash out for the current share buyback program explains the increase in financing cash outflows. As you can see, AlzChem is in a very healthy cash position and ready for future growth. At the end of this call, I will now give you some updates on our guidance for the remaining 3 months of the year. From today's perspective, we can confirm the outlook given in our last financial statements and the developments within the first half of '25 have confirmed our estimate. Sales are expected to grow to approximately EUR 580 million, while we expect them to settle at the lower end of our range, as Andreas already mentioned. EBITDA is still expected to grow at least to approximately EUR 130 million. Our outlook is still based on the same assumptions as given at the beginning of the year. The fundamental growth drivers will be volume effect within segment Specialty Chemicals, which will overcompensate the sales decline in segment Basics & Intermediates. Sales are supported by further increased demand in the area of human nutrition, custom manufacturing and possible positive developments within the metallurgy product area. As mentioned already, we still do not expect a material negative impact from the volatile tariff politics of the U.S. administration right now, but the further weakening of the U.S. dollar could have a negative sales and cost impact on our result. So, that's it from our side with the information for the first 9 months of the year and the outlook for the remaining 3 months of' '25. At this point, we would like to thank you for your appreciated attention and are now at your disposal for possible questions. Operator: Yes. Thank you very much for the presentation, and we now move on to the Q&A session. [Operator Instructions] And we already have some participants raising their hands. Mr. Faitz, you should be able to speak now and place your questions. Christian Faitz: Yes. Good morning, everyone. Thanks. Hope you can hear me. Congratulations on the results. I have a couple of questions, please. So first, can you please talk a bit about the inventory development into the end of this year in preparation of the refurbishment of the calcium carbide furnace in heart. Should we expect inventories in your Basics & Intermediates to approach, let's say, a EUR 60 million level or even above and on the shutdown for refurbishment? We are talking about the bigger furnace being out for how long and in which time frame? Thanks very much. Andreas Losle: Maybe I can answer the first question about the inventory development. Right now, we do expect to be on the level where we expect it to be at the end of the year. Also -- so, we have seen an increase over the year. But at this point in time, we should have reached the topline and inventory should not change that much until the end of the year. Andreas Niedermaier: And for the maintenance shutdown, it will take approximately 6 months. Christian Faitz: Okay. Perfect. If I may, I have one more question for now. Can you please give us an update on the scouting for the location for nitroguanidine in the U.S.? Is there any recent updates? Maybe you can share some thoughts there. Georg Weichselbaumer: I mean, as we said in the presentation, we have narrowed it down to a few locations. We have visited those locations, and we're currently also building P&L for all of those locations to make a very good decision based on figures by the end of the year. Operator: Well, thank you for your questions. And we move on to the next participant, Mr. Schwarz, you should be able to speak now and place your questions. Andreas Niedermaier: Oliver, it seems to be that you are muted. Oliver Schwarz: Yes. I just realized, sorry for that. The obvious mistake I'm making every time. Hopefully, it works now. Andreas Niedermaier: No problem. We can hear you. Oliver Schwarz: Wonderful. Thank you very much. So without further ado, I also got some questions for you. Firstly, regarding the Q3 development in the Basic & Intermediate segment, obviously, what we saw in Q3 is a reversal of the trends we saw, especially in H1, but also in previous years, that we saw volume and price declines. And you said -- stated that this was mostly due to a new contract with a customer, I don't know whether it's an existing one or a new one that enabled you to break that trend in Q3, which would imply to me that the contract size of that customer regarding their product might be in the vicinity of EUR 5 million to EUR 10 million, probably. Could you just confirm that the underlying trend of lower prices and volumes is still ongoing and is just offset or more than offset by this new product and the respective contract? And could you elaborate a bit how sustainable that is? So what kind of market potential you see for that product? And in general, how you see things going forward in that regard? That would be my first question. The second one is for Specialty Chemicals. It's basically the same thing. We saw a bit of a trend reversal also in Specialty Chemicals. Given that at the half year stage, there was a flat pricing in Q3, there was a price increase of 7%. But on the other hand, you had strong volume growth in H1, and it declined a tad in Q3. Could you elaborate a bit, especially on the, let's say, less strong increase or the, let's say, the drop in momentum in volumes in Q3? I guess that might be a mix effect that we see strong creatine sales, which is a highly profitable product, but other products might have had a harder time. Could you especially talk about Creamino in this context, please? And last but not least, congratulations on your cooperation with Ehrmann, which is quite a sizable diary operation in Europe. Could you give, let's say, your estimates or your feelings about what the market potential in the midterm of this cooperation and the resulting products could be, given that we are just at the very beginning of the rollout here in Germany and Europe will probably come, I don't know, next year or the year after, how is that timing planned in that regard? That will be my third and final question. Thank you very much. Andreas Niedermaier: So, Georg will you take the opportunity to answer the Basic & Intermediate question first, I think. Georg Weichselbaumer: Yes. I'm not surprised about that question. To get some more information about the background of that as we think a turnaround, particularly in the nitriles portfolio, we are in cooperation with a blue-chip customer. And the first campaign, which we made was just a start to confirm when we did that in a very positive way that the synthesis works. And there will be quite some significant ramp up. However, we are not privy to the information to which level it will grow, but the numbers which you mentioned were not completely wrong. It does not indicate that this is a reversal for the Basic & Intermediate segment. It is a good starting point, as I said, for the nitriles portfolio. But the underlying economics, in particular for the steel industry are still unchanged and will remain unchanged. We are positively surprised. I think we can say that for the Perlka development, because we could increase both volumes and prices. Andreas Niedermaier: Yes. So thank you, Georg for that analysis, some words to specialties. So, please don't overestimate the single quarters. So, you have to look more on the accumulated figures from my point of view. Because sometimes there is a little more quantity of that product in the last months of the, let's say, second quarter and then it's moved to the first month of the next quarter. And from that point of view, the underlying trend is really healthy for the already mentioned products like Creapure, Creavitalis, and the Specialty products here as Georg already reported. So, NQ is stable and on stable growth underway. And you will see next year a big increase when the new plant will be ramped up and will be started. So from that point of view, we will see really a healthy and a good underlying trend for our Specialty Chemicals here. So, the last question from you, Oliver was some words about Ehrmann. So, Ehrmann is very important from my point of view because it's the first step into the daily market and that interesting is quite big from other daily customers as well. And from that point of view, I think that's a trendsetting product actually. And that will help the creatine growth a lot. But that's not the only and single underlying trend for the creatine growth. So, we see a good growth trend in healthy aging, in fitness sector as well. And from that point of view, we really think about adding additional capacities. We think about that actually. And hopefully, we can report in a few, let's say, months that we will increase the capacities again here. Yes. So, that's in a nutshell, hopefully, answered your question here. Oliver Schwarz: Yes. Thank you very much for that. Just perhaps a clarification on the Ehrmann project that you did. I was just wondering, I mean, at the very beginning, when Ehrmann rolls out a product in Germany, obviously, due to the landscape of the German supermarket chains, the uptake will be choppy. That's normal because the products have to be listed and the respective supermarkets have then to display them in their shelves and so on. And that is very different, how REWE does it compared to EDEKA and so on and so forth. And then, we have the rollout in other European markets because Ehrmann is not only strong in Germany. It's also very strong in other parts of Europe when it comes to their sales composition. So, I'm just wondering is that this Ehrmann cooperation has that -- is that basically just a tip of the iceberg, what we are just, let's say, seen and how big might that become just that cooperation. I'm not negating other growth -- pockets of growth in other parts of your business. I just want a better understanding about how -- what kind of lever on sales and earnings that might grow into when it's, let's say, fully fledged rolled out, roll it over Europe, how much of that would basically be reflected in your future earnings and sales? Andreas Niedermaier: Oliver, as you know, we can't display and can't get this detail, and talking about earnings and sales on a customer base. But let turn it that way around. So, from my point of view, you're right, that's only that the first small introduction into the daily business of creatine. Creatine will be, from my point of view, a standard product. But Ehrmann was very fast to introduce that. And from my point of view, we will see many products out there in the future, but it could take time, let's say, from my point of view, 1 or 2 years, to introduce other customers as well, because you have to do your tests. It's not so easy to stabilize creatine in puddings and in milk products or in their products at the end of the day. And Ehrmann did it in a very fast and in a very, let's say, positive way from my point of view. And at the end of the day, we will see here a good growth path and a good growth segment, which will support our growth for creatine much, let's say. But that's not only the one thing, as I already said. So, healthy aging, fitness trend, women health that will support the creatine as well. And from that point of view, I have seen another question here written down, if the additional quantities are already sold out of the creatine plant? Yes. We have already sold out all the quantities, and that's the reason why we are thinking about additional quantities here as already mentioned. Operator: Yes. Thank you very much. And we indeed have questions in our chat box. I will read one out so that you know how to answer it. Could you please elaborate on CSG's strategic rationale for acquiring such a significant stake in AlzChem? Do you believe they intend to build a more substantial position over time? Andreas Niedermaier: So, interesting question. We know CSG as an investor. We do have contacts. But to be honest, I do not know the strategy of them. They are an investor as all investors, and we maintain the contact quite well, and they support from today's point of view, the strategy, and we will see what happens in the future. So, from that point of view, I can't disclose more because I don't know more about the strategy. Actually, from that point of view, I think you could go to them directly and ask them what's the strategy, because we don't know more about that. Operator: Well, thank you. And I'll read out one more question from the chat box. Could you comment on the latest competitive landscape for nitroguanidine. Rheinmetall has publicly stated in recent earnings calls that it aims to build a vertical integrated supply chain for propellant powders, including NQ, how might AlzChem be impacted by such efforts? Georg Weichselbaumer: That's a really very simple answer to that question, positively. I mean, just imagine Rheinmetall and in particular, our contacts are approximately 20 kilometers away from here, and we have a very, very good communication and we develop things jointly. Andreas Niedermaier: Yes. And as you know, Rheinmetall has an own nitroguanidine plant in South Africa. Yes, that is the case. But if you want to be backward integrated, you need guanidine nitride, you need dicyandiamide, you need the fertilizer business and at least you need to have the carbide business there. If you want to -- if you don't want to be dependent on Chinese material, then you have to build up all that chain. So, you can ask Rheinmetall if they will build up carbide furnace or if they purchase a carbine furnace. I haven't heard about that. Operator: Well, there was a follow-up concerning this from [ Mr. List ] separately, what is management views on synthetically produced guanidine and NQ, since their ongoing efforts in the United States, do you have a perspective on those developments? Andreas Niedermaier: So, that brings question marks to our eyes and to our ears. So, we haven't heard about that actually. So, if you can give us that information and hand in that information, then you can do analysis on it, and we can probably answer that question afterwards. Operator: Okay. Perfect. And we move on to -- well, there is a follow-up on this from [ Mr. List ] in the context of the U.S. expansion, are you engaged in discussions with particular states regarding potential subsidy packages, grants or tax incentives to support site selection? Georg Weichselbaumer: Yes, we are. Operator: That was pretty clear. Andreas Niedermaier: That's pretty clear. That is what we are used to receive from Georg. Yes, that was pretty clear. Operator: Okay. Thank you. And if we move on to one participant raising his hand. Mr. Hasler, you should be able to speak now and place your question. Peter-Thilo Hasler: Of course, I have also questions on Ehrmann. You mentioned that Ehrmann was very fast on the chart on Page 6. There's only the end of the timeline mentioned was October '25, the market launch. Could you tell us when was -- when the beginning was and what fast is in that industry? And the second question would be if you expect -- so I expect that you will not expect that the mass market entry will lead to a dilution of your premium positioning. But do you expect that this will increase the pricing power in your industry business? And the third question is I haven't seen the yogurts and bars. And so yet in the supermarket. Could you tell us something about the pricing of the Ehrmann products? And if I may ask a fourth question on that. You said that you will not comment on an individual client. But if it were Christmas today, how would you do such a partnership, as you call it, in your dreams? Would it be a true sale? Or would you get percentage of revenues of the products? Andreas Niedermaier: Yes, let's start with the last question. It's a true sale and it's not the percentage. From that point of view, we have been very quick in developing that. So, developing times or sometimes more than 5 years. But here, we have been much quicker. So let's say, between 20 months and a little more. We are talking here about the time framing. So unfortunately, you haven't seen the product in the supermarket, but come over to Trostberg, then we can display you that, no doubt about that. And what the very positive thing is that you will see television spots in the near future. Here, I think it has been already started. And you see advertising in all multichannels already about that product. And so, from that point of view, that was only a setup of the logistics lines. They filled all the logistics and now are promoting the product in all channels, what you can see. So, I think the next quarter we can talk about that everybody should have seen the product in the supermarket and should have heard about the product, I think. Yes. The pricing, I'm not really sure. I think it's approximately EUR 250 , but it differs from some offers and from some supermarkets. So, from that point of view, we don't really have a clear view about that. Georg Weichselbaumer: If I may add, it is very rare from Ehrmann that they actually display logos of other products, on their products. And since there is such a good synergy between proteins and also creatine, which actually is symbiotic, not 1.1 is 2, but more than 2, because creatine can activate the metabolism of proteins, they actually agreed that the Creavitalis logo is also on their sales products and it was a joint development because, as I said, creatine and then Ehrmann really fits. Andreas Niedermaier: So, let's grab the next question. What's the development of Eminex. So actually, we are in the process of incorporating Eminex into the climate calculators. That's a very important that you are a piece of the climate calculator. We are not in there, but there are positive signs from our point of view. We have good contacts and hopefully, we will make it next year that we are a part of the calculator. And then from my point of view, it will much supported to take Eminex at the end of the day. But please be remind the farmers don't have to pay actually for their methane emission that will change in the future. And if that two things have been changed, then Eminex will go like a rocket. Operator: Well, thank you very much. That was the last question from the chat box. No, there is one final question from [ Mr. List. ] I'll read it out. Amid the positive sales developments within the need trials product line, have you given further thought to potential portfolio rationalization given the new trials is not part of the integrated Verbund model. Thank you. Georg Weichselbaumer: It is not part of the integrated Verbund model, but it strengthens our site. Also, nitriles operates our air purification or our exhaust purification plant. So, it would not be easy to shut it down. That's the more defensive answer, but the more offensive is, I think we can develop nitriles into a business which looks cook completely different from what it used to be. But with products were not so much making nitriles, but gas phase reactions can really make a difference. And the project, which is currently implemented is the first one, which we have and there are more to follow. Operator: Thank you very much. And there is one participant raising his hands. Mr. Piontke, you should be able to speak now and place your questions. Yes, Mr. Piontke, you unmute yourself? You should be able to speak. Manfred Piontke: One question regarding the bird flu. We got a lot of information the last couple of days. Do you feel that here, this could bring problems for your product which is going to the feeding of these animals that if I remember 10 years ago, we -- in the last bird flu, Evonik had lots of problems and in sales and earnings. Do you have first impression what has happened to your clients? And how big is this business in the creatine business? Andreas Niedermaier: Yes. So it's a decent stack of our business, no doubt about that. So it's very important for us, the Creamino business we are talking about. But actually, I haven't heard that any of our customer had a problem with the bird flu now. So at least in the U.S., I haven't heard about some problems of our customers with the bird flu. So it's, from my point of view, more a German thing actually, and Germany is not that big for our Creamino business here. So, from that point of view, I don't see really a big danger, but you're right. That's always a topic. So, if the birds are slaughtered down and brought away then we have a heavy impact or it could have been seen a heavy impact on Creamino business. But up from now, we don't see that. Operator: Well, thank you very much. And there are no more questions by now. I'll wait a few moments. But no. So, ladies and gentlemen, we now come to the end of today's earnings call. You will find the presentation on the website of AlzChem Group AG and also on the Airtime platform by clicking into today's event. Dear participants. Thank you for joining and you've shown interest in the AlzChem Group. Should further questions arise at a later time, please feel free to contact Investor Relations. A big thank you to Mr. Niedermaier, Dr. Weichselbaumer, and Mr. Losler for your presentation and the time you took to answer the questions. I wish you all a lovely remaining week. And with this, I hand over to Mr. Niedermaier for some final remarks. Andreas Niedermaier: We'll thank you very much for your questions. Thank you for being here now. A message on our own behalf. So, because this was the last joint publication together with Georg Weichselbaumer here. As you already know, this is his last term as a Board member and his successor is already in the starting blocks. I would like to thank you, Georg, very much for the excellent cooperation on behalf of the Board and the employees. You were certainly a significant stable success factor with your know-how and your market knowledge here. Thank you for that. So, our corporation will not be completely away yet. You will still take care of the success of the USA project for a while. But in this format, it was certainly the last appearance, and you can pass on your responsibilities now. Thank you very much, Georg. So, let's now come to an end. We can now offer you the opportunity to visit us again virtually or in person at the conferences, as shown above. We will be available in Frankfurt. We will be available in London. Otherwise, we will be back with our full year reporting on February '27. Stay safe and sound, stay in our good graces, and goodbye. Thank you.
Operator: Good morning. My name is Rob, and I will be your conference operator today. I would like to welcome everyone to the call. [Operator Instructions] I'd like to introduce Beth DelGiacco, Vice President, Corporate Communications and Investor Relations. You may begin your call. Beth DelGiacco: Thank you. A press release was issued earlier today with our third quarter 2025 financial results and business update. This can be found on our website, along with the presentation for today's webcast. Before we begin on Slide 2, I'd like to remind you that forward-looking statements may be presented during this call. These may include statements about our future expectations, clinical developments, regulatory timelines, the potential success of our product candidates, financial projections and upcoming milestones. Actual results may differ materially from those indicated by these statements. Argenx is not under any obligation to update statements regarding the future or to conform those statements in relation to actual results unless required by law. I'm joined on the call today by Tim Van Hauwermeiren, Chief Executive Officer; Karl Gubitz, Chief Financial Officer; and Karen Massey, Chief Operating Officer. Luc Truyen, our Chief Medical Officer, will be available during Q&A. I'll now turn the call to Tim. Tim Van Hauwermeiren: Thank you, Beth, and welcome, everyone. I'll begin on Slide #3. At the start of the year, we set a bold growth agenda anchored in our long-term road map for value creation, Vision 2030. Today, VYVGART is delivering meaningful impact in 2 blockbuster indications with MG and CIDP. Our prefilled syringe is now approved in most major markets, fueling new patient and prescriber adoption. We've also made significant pipeline progress and will enter 2026 with 3 Phase III assets. At the same time, we are investing in our next wave of growth with 4 new molecules in Phase I development by year-end and a vibrant immunology innovation program driving future opportunities. Slide 4. Today, I'm joining you from AANEM in San Francisco, where we are engaging with the neurology community and sharing new data that reinforce our commitment to continuous innovation in rare neuromuscular diseases. I would like to briefly highlight several key data sets presented this week that underscore our leadership in gMG. VYVGART has set a high bar in gMG, driving rapid, deep and sustained responses. Our gold standard for patient impact is for patients to achieve minimum symptom expression or MSE. New data from the ADAPT subcu study showed that up to 60% of patients reached MSE with 83% maintaining it for at least 8 weeks, highlighting the durability of VYVGART responses. We also know that steroid reduction is recognized as a critical outcome for both patients and prescribers. Building on earlier data showing meaningful steroid reductions with VYVGART at 6 months, we now see this sustained through 18 months with over 55% of VYVGART patients reducing steroids to below 5 milligram per day. We also presented data from the ADAPT SERON study, which met its primary endpoint, showing significant improvement in MG-ADL at week 4 compared to placebo. Importantly, we observed increasingly pronounced and clinically meaningful improvements in both MG-ADL and QMG scores across subsequent treatment cycles in the overall population and across all patient subgroups. These positive results support our plan to file for a label expansion that includes all 3 seronegative subgroups, MuSK-positive, LRP4 positive and triple seronegative. This is a landmark moment in advancing our scientific understanding of MG as the results indicate that pathogenic IgG autoantibodies drive disease regardless of antibody status. Additionally, we continue to showcase the strength of our ADHERE data in CIDP, while introducing new HEOR insights that highlight the severe disease burden, long diagnostic journey and the urgent need for innovation for these patients. Slide 5. We now have 3 first-in-class molecules in Phase III development, efgartigimod, empasiprubart and ARGX-119, each representing a true pipeline in a product opportunity. We continue to maximize the FcRn opportunity by advancing efgartigimod in severe IgG-mediated autoimmune diseases while building the future of this target with the next generation of molecules. As we grow our understanding of FcRn biology, we're building out our capabilities to address patient needs in therapeutic areas beyond neurology. We're also reinforcing our leadership in neurology with empasiprubart, now in Phase III development for MMN and CIDP. With its selective approach, blocking C2 at the intersection of the classical and lectin pathways, empasiprubart is uniquely positioned to address a broad range of autoimmune diseases. Lastly, ARGX-119, our MuSK agonist, has now advanced to Phase III in CMS. It is designed to restore neuromuscular junction function, opening the door to indications like ALS and SMA and underscoring our commitment to pioneering new biology in high unmet need indications. Pipeline and the product molecules are designed with built-in optionality, giving us the flexibility to prioritize indications and allocate resources to programs where we can deliver the greatest patient impact. In line with this strategy, we've made three disciplined development decisions. First, we stopped development of empasiprubart in dermatomyositis due to operational challenges with study enrollment. That said, DM remains an area of commitment for us. This is a population that has seen little innovation and unmet need further validated by the strong pace of DM enrollment in our ALKIVIA study with efgartigimod. Second, we decided not to advance efgartigimod into a registrational study in lupus nephritis based on the results of the Phase II data. Efgartigimod was well tolerated and safety in line with established profile. Third, we are rolling out our next efgartigimod indication, which is Graves' disease. This expands our reach into thyroid-driven autoimmunity and allows us to move directly into Phase III in a disease where there is a high need for a new treatment option. We expect to initiate the registrational studies early next year. These are well-informed decisions to ensure we focus our time and capital on indications where we can deliver the most value. We're also thinking in terms of long-term growth horizons for our core assets, which means that even though we are moving forward in certain indications today, we are a data-based company and we will be ready to revisit our decisions as new evidence emerges. Slide 6. The progress we have made positions us for 5 registrational readouts next year. Each reflects our disciplined approach to indication selection, a clear biology rationale, trial designs anchored in robust clinical endpoints and strong commercial potential to address an unmet patient need. Ocular MG will be the first of these in 2026. We have established a strong biologic rationale, supported by encouraging ocular domain data from the ADAPT study and real-world case reports. The Ocular study will assess the MGII ocular score and if successful, could expand our label to include MGFA Class I patients. Myositis and TED studies extend our reach into rheumatology and endocrinology. With myositis, the Phase II portion of the registrational ALKIVIA study demonstrated meaningful improvement in muscle strength and physical function using TIS, which we will evaluate over 52 weeks in the Phase III. In TED, we're stimulating TSHR autoantibodies drive disease, we leveraged peer data to advance directly into Phase III. Across both indications, we see a clear opportunity for VYVGART to deliver differentiated efficacy and safety. MMN will be our first registrational readout for empasiprubart. With IVIg as the only available therapy today, there is a significant opportunity to disrupt this market with a novel treatment. In consultation with the regulatory agencies, we've changed the primary endpoint to grip strength, which should capture meaningful functional improvement for patients. Lastly, in ITP, which is already approved in Japan, we designed an efficient confirmatory trial to enable regulatory submission in the U.S. and EU. Translational data continue to show that efgartigimod reduces platelet destruction and supports platelet production and maturation. Slide 7. As part of Vision 2030 and in support of our ambitious goals, we're making investments across our business to ensure long-term sustainable growth. We're actively scaling our operations in the U.S., including an expanded collaboration with FUJIFILM through a new manufacturing facility in North Carolina. This move strengthens our global supply chain and supports our manufactured in a region for the region strategy, ensuring we can meet growing demand for VYVGART and future pipeline therapies. At the same time, we are investing our pipeline innovation engine, doubling down on our pursuit of novel biology because this playbook is working. We remain on track to have 4 new pipeline assets in Phase I by year-end with more expected to advance from our 20 active IIP programs, each representing a potential breakthrough in immunology. With that, I will now turn the call over to Karl. Karl Gubitz: Thank you, Tim. Slide 8. The third quarter 2025 financial results are detailed in this morning's press release. We are proud to report an outstanding quarter, reflecting exceptional execution and sustained momentum in our business. In the third quarter, we reported total product net sales of $1.13 billion, marking a historic milestone for argenx as we surpassed for the first time $1 billion in VYVGART sales in a single quarter. We achieved growth of 19% or $178 million in product net sales when comparing to the previous quarter of this year and 96% or $554 million in growth when comparing 3Q on a year-over-year basis. If you look at the breakdown by region, product net sales were $964 million in the U.S., $60 million in Japan, $94 million across our rest of the world markets, including our partner markets and $9 million for product supply to Zai Lab in China. The product net sales in the U.S. specifically grew by 20% quarter-over-quarter, reflecting the impact of our investments in the PFS launch earlier this year. PFS is now firmly established as a growth driver in our markets, supporting our continued momentum in gMG and CIDP. The gross to net adjustments in Q3 and the net pricing in the U.S. are in line with the prior quarter. Next slide. Total operating expenses in the third quarter are $805 million, representing a 5% increase compared to the second quarter. Our R&D expenses increased by 9% or $28 million and our SG&A expenses by 4% or $11 million. Building on our solid revenue performance, we continue to invest in our growth opportunities. Therefore, expect our expenses to continue to grow in the single digits for the rest of the year. This will result in our combined R&D and SG&A expenses to land just north of $2.5 billion at between $2.6 billion and $2.7 billion. Cost of sales for the quarter is $109 million. Our year-to-date gross margin remains consistent at 11%. Our operating profit for the quarter is $346 million, and the quarterly financial income is $43 million, which results in profit before tax of $386 million. The year-to-date effective tax rate is 13%. After tax, the profit for the quarter is $344 million and $759 million on a year-to-date basis. Our cash balance at the end of the quarter, represented by cash, cash equivalents and current financial assets is $4.3 billion, which represents a nearly $1 billion increase in cash since the beginning of the year. I will now turn the call over to Karen, who will provide details on the commercial front. Karen Massey: Thanks, Karl. Let's go to Slide 10. As we close the year, it's inspiring to reflect on how far we've come since VYVGART's first approval 4 years ago, reaching more than 15,000 patients globally across 3 indications and 3 product presentations. We're transforming patient outcomes, redefining what patients can demand from their treatments and pioneering an entirely new class of medicine with our first-in-class FcRn blocker. This quarter is a continuation of delivering that transformative impact. Today, I'm excited to share how our commercial strategy continues to turn innovation into access and impact for patients and how we plan to sustain our growth momentum into 2026. Slide 11. Once again, the team has delivered an outstanding quarter, reflecting growth in all indications across all markets. The prefilled syringe is performing exactly as expected, driving increased VYVGART demand among patients and prescribers who embrace a more flexible treatment option. More than half of patients starting on PFS are new to VYVGART with the rest switching from Hytrulo vial or IV. Since the launch of PFS for self-injection, over 260 prescribers have written their first ever VYVGART prescription, expanding our prescriber base and setting the stage for continued patient growth. We've also strengthened payer access, securing additional policies to enable more patients to initiate treatment. Growth outside the U.S. is strong with the PFS approved in most major markets. I'm excited to now share how we're executing on our strategy to strengthen our MG leadership and build the momentum to establish an equally strong foothold in the CIDP treatment landscape. Slide 12. In MG, we have consistently delivered new patient growth for 15 quarters while executing on our strategy to unlock the full 60,000 patient opportunity, advancing 2 label expansion studies in seronegative and ocular MG and driving earlier adoption of VYVGART to expand the biologics market by an additional 25,000 patients. Today, we're the #1 prescribed and fastest-growing biologic in MG. Where we see the biggest opportunity to maintain this leadership is to reach patients earlier in the treatment paradigm. We're already seeing this shift take place with the percentage of patients coming from oral therapies increasing year-over-year now at 70%. The PFS is fueling this momentum, opening doors to new segments of younger, more active patients and our strong safety and efficacy remain the foundation of physician confidence, driving earlier prescribing decisions. As Tim highlighted, we're excited to be moving closer to potentially expanding our label to include seronegative gMG patients following positive top line results. The unmet need here is significant, especially for triple seronegative negative patients who experience diagnostic challenges and currently have no approved therapies. Ocular MG is next. Patients often struggle with symptoms that make everyday activities like working or driving nearly impossible. Many are heavily reliant on steroids in the absence of treatment options. These programs reflect our commitment to address underserved populations and redefine care in MG, setting a higher bar for what patients can expect from treatment. Slide 13. In CIDP, we continue to deliver innovation that translates into patient impact. We're seeing consistent growth in both patient starts and prescriber engagement, driven by physician trust in the safety profile of VYVGART Hytrulo and its ability to deliver meaningful functional improvement. We're on track to grow towards our 12,000 addressable market of patients not well controlled on current therapy. We continue to hear stories from patients about their positive experience to date. The prefilled syringe is driving additional demand as patients opt for the convenience of self-injection, and our activation efforts are empowering patients to ask their neurologists about VYVGART Hytrulo. Here's the story of one of those patients. Sasha is a mother of 4 in her 30s. She was hospitalized for over 3 months earlier this year given her symptom progression. She shared the frustration that came with CIDP, completely dependent on her spouse for even the simplest daily activities. After starting VYVGART Hytrulo and later switching to the prefilled syringe, she said, "I can live my life." She's walking her children to the school bus, something she deeply missed. And thanks to the flexibility of the PFS, she's thrilled to plan a 10-day cruise without worrying about having to be home for an injection. While this is just one patient experience, these stories give us confidence to expand our reach and serve more patients over time. We're now gearing up for 5 Phase III readouts next year, actively engaging with patients and physicians to ensure that if the data are positive and approved, we'll be ready to expand into these markets and deliver broader patient impact. As an example, we're strengthening our rheumatology presence through deeper engagement and increased visibility at major medical conferences with our clinical data. Our focus remains on finishing this year strongly while laying the foundation for multiple future launches. With that, I will now turn the call back to Tim. Tim Van Hauwermeiren: As the heart of our success is our commitment to transforming patient outcomes, with multiple pathways to realize Vision 2030, we're not just positioned for sustained growth, we are building a legacy of long-term value for patients and shareholders. We have the strategy, the signs and the momentum behind us. But most importantly, we have the passion and purpose to redefine what's possible in immunology. With that, operator, we'll open the call up to questions. Operator: [Operator Instructions] Your first question comes from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: Just one clarification actually just on the formulation mix. It obviously seems that the PFS is driving the growth. But could you just confirm that all of the other -- or the other 2 formulations are still growing underlying in both CIDP and MG? And then just on the pipeline, I know it's a little bit further out for you at the minute, but I'd be interested to get your perspectives on Sjogren's disease. We saw some Phase III data from Novartis ianalumab yesterday. I'd be keen to get your thoughts on that and how you think VYVGART could potentially differentiate and what represents a clinically meaningful signal? Karen Massey: Yes. Thanks for the question. Maybe I can take the first one on the PFS and Tim, if you want to comment on Sjogren's. So you're right, prefilled syringe is the major driver of growth this quarter, and that actually continues the trend that we've seen over time since Hytrulo launched or since we launched the subcutaneous version. Having said that, the IV does continue to be an important contributor to the business and to the results that we saw this quarter. There is definitely a segment of patients and physicians that prefer the IV option. So the fact that VYVGART has all 3 presentations, and they're all contributing to our performance is important for both -- for obviously, for MG, whereas for CIDP, the focus is on Hytrulo as approved in presentation. Tim, do you want to comment on Sjogren? Tim Van Hauwermeiren: No. Thank you, Karen, and thank you for the question. So I think it's important and great news for patients, Sjogren's patients to see the Novartis data, which clearly showed a statistically significant win in Sjogren's. When we look at the efficacy, we believe a 2-point improvement is considered clinically meaningful, so there's definitely room for improvement. We have strong conviction, of course, in efgartigimod based on our own Phase II data and peer data in Phase II. This is a precision tool, which we believe is going straight after the circulating immune complexes instead of a more broad general B-cell suppression. So the data need to speak and the trial is well underway. Thank you for the question. Operator: Your next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: I wanted to get some color about how you're thinking about the CIDP launch. Specifically, our survey work indicates a high level of excitement from physicians to want to move efgart into frontline therapy ahead of IVIg. I wanted to hear what your feedback from the sales force is and what efforts would be needed in addition to what you are already detailing in order to make efgart the first-line option for patients in CIDP. Karen Massey: Yes. Thanks for the question, Tazeen. And we're hearing very positive feedback from prescribers about the CIDP launch as well. And what -- the feedback that we're hearing is that the real-world experience for CIDP patients reflects what we see in the clinical trials and importantly, around efficacy and safety. And then obviously, we have the convenience. You'll recall that in our clinical trial and in our label, we have the approved indication for all patients. And so what we're seeing at the moment is that the early experience is from IVIg switch patients, so 85% of our patients are coming from IVIg switch. But we are seeing some of the patients that are starting naive where they haven't started with IVIg, they're not switching and we're having -- just like in the clinical trials, we're seeing good real-world experience with that. So we see that we're at the beginning of the growth curve for CIDP. We see continued momentum. We see continued expansion of the prescriber base. And I think that over time, we'll start to see more penetration in the market across all patient segments. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: Congrats on the progress. Just as the narrative shifts to VYVGART pivotal readouts in '26, I mean, can you give us a sense of the revenue potential for those indications and how they may compare to MG and CIDP? And I can sneak in a second, I guess, what diligence got you excited about pursuing Graves with VYVGART. I know there's been some debate about the unmet need there. Tim Van Hauwermeiren: Yes. Thank you, Derek, and thank you for the question. What we have been saying publicly is that revenue potential-wise, each of these Phase III indications roughly represent an MG-like opportunity, and we will be giving more detailed information when we come closer to the market. You know that Graves has always been on our indication list. I think there's a clear biology rationale. It's established how you do the clinical trials, and we have been digging deeper into the unmet medical needs. So whilst it is true that it is a subset of patients doing well on the cheap available medication, there's a substantial subset of patients which are not doing well. And again, from that point of view, it may resemble MG, but a subset of patients is in bad need of an alternative medication because there's not much left once you feel the cheap available medication today. Thanks for the question. Operator: Your next question comes from the line of Alex Thompson from Stifel. Alexander Thompson: Congrats on the quarter. I guess on the empasiprubart discontinuation in DM, I wonder if you could speak about sort of the trial issues, the enrollment issues you had there. Was that due to the IV presentation and how that compared to the myositis trial with efgartigimod? And maybe you could also comment on the CIDP, empasiprubart enrollment as well and if that's being affected? Tim Van Hauwermeiren: Alex, thank you for the question. We have the benefit of having Luc with us, our colleague and Chief Medical Officer. So Luc, why don't you take the question on the discontinuation of DM and the excitement which we have about ALKIVIA. Luc Truyen: Yes. Thanks, Tim, and thanks for the question. Yes. So most of the -- this is also a POC trial, Phase II trial that we were running, of course, in a highly competitive enrollment environment. And of course, it didn't help that C5 read out negatively. And we set the bar high for what we want to see, so our inclusion criteria are pretty robust to make sure that we can have a readout that would be predictable for Phase III. And the enrollment just stumbled on that. And then we, of course, have to make decisions within our portfolio with all the work we have, what we keep trying or what we say, okay, DM is an important indication and ALKIVIA during which DM enrolled pretty well. But right now, for the C2, we felt we had to reprioritize. Beth DelGiacco: And then on your question on CIDP enrollment, we just started those empasiprubart trials, so are still too early to say on how our enrollment is projecting there. Operator: Your next question comes from the line of Yatin Suneja from Guggenheim. Yatin Suneja: Just a quick one from me. With regard to the thyroid eye disease studies, could you just talk about the expectation in this indication, how you're thinking about the potential positioning? And then I think also just talk about -- is there a way to capture some of the TED patient population with Graves' study that you might be running now? Tim Van Hauwermeiren: Yes. Thank you, Yatin. For TED, we decided not to disclose too much about positioning. I think we first need to wait for the data to speak. We think there is a convincing proof of concept out there from a peer molecule. And the jury is out to know how this mechanism of action is going to differentiate itself from the available mechanisms of action. And it's fundamentally different biology, fundamentally different mode of action, but the data need to speak for themselves. I think there is ample of room for improvement, both on the efficacy side and the safety side. And you know we're running this trial as well with the prefilled syringe. TED and Graves are basically presentations of the same spectrum, the same disease biology, underlying disease biology. And so with venturing into Graves, which we announced today, we are actually increasing our efforts in the thyroid space. Thank you for the question. Operator: Your next question comes from the line of Yaron Werber from TD Cowen. Yaron Werber: Congrats all. Really nice quarter. I have a couple of questions. Maybe the first one, can we -- any chance to get an update on 121, the IgA sweeping platform and then 213, the long-acting VHH of efgartigimod? And then secondly, maybe when we look at sales, sales essentially have now quarterly sales more or less doubled since about a year ago, as you noted, when you launched also CIDP and obviously, PFS is now launched. I'm just trying to get a sense, can you -- how much of the growth is driven by CIDP versus gMG? Tim Van Hauwermeiren: Yes. Karen, why don't you start with the commercial question on the relative growth drivers that impact? And I will take the pipeline question. Karen Massey: Yes, absolutely, happy to. Yes, so you're right, we saw when you zoom out, nearly 100% growth year-over-year, as you said. And what we see in the underlying fundamentals of the business is strong growth across both MG and CIDP, both contributing to the growth that we're seeing for the quarter and over the long term. So if you look at MG, in particular, I think it's important to note, we're the #1 brand of biologic at this point, and we're growing faster than the market. And that market is expanding quickly with biologics being used earlier in the treatment paradigm. And then, of course, in CIDP, just a year out from launch, we're seeing expansion in our market share there as well. And I spoke earlier about the increased penetration into that market. So I would see -- I would say what you can expect moving forward is continued growth in both MG and CIDP, and contribution from across the different markets and geographies as well. Tim Van Hauwermeiren: Thank you, Karen. And then, Yaron, on your question on the pipeline, which I really appreciate, both ARGX-121 and 213 are swiftly progressing through the Phase I studies. Remember, in the dose escalation, single dose, multiple dose, we are, of course, first and foremost, interested in safety and tolerability, but these are also molecules which are going to unveil their potential to the PD effect. So you know that the ambition level for ARGX-213 is to move to monthly dosing with an equivalent PD effect as VYVGART and no compromise on safety. And for ARGX-121, the IgA removal sweeper, the objective is to have a very fast and very deep IgA reduction. So these Phase I trials will disclose a lot about the potential of these molecules, they're on track, and I would say stay tuned for the first data disclosure soon. Thank you. Operator: [Operator Instructions] Your first -- your next question, sorry, comes from the line of Danielle Brill from Truist Securities. Danielle Brill Bongero: Congrats on the quarter. Maybe I'll ask a question about the seronegative opportunity based on our conversation yesterday. Can you talk about your confidence in the opportunity from a commercial standpoint and the approval based on the subgroup data that you presented? And I'm also curious if you could share any MSE data findings given the importance of that endpoint to prescribers? Tim Van Hauwermeiren: Thank you, Danielle, and we have the benefit of having Luc on the phone. So look, maybe you show some color, you share some color on the path into submission and then how -- from where you sit, the likelihood for an approval? And then maybe, Karen, you comment on the importance from a commercial point of view. Luc Truyen: Yes. And Danielle, thanks for the question. So we are very excited by the outcome of the SELON study because we invested a lot in running the biggest trial in seronegatives with a rather innovative design, including diagnostic adjudication. And they really -- the overall results really enforces VYVGART's potential to really move the dial in this underserved population, as Karen already said. So we met the primary endpoint, which by design was on the overall population with a clinically meaningful and highly robust statistical significant reduction in MG-ADL score. And we also, as we showed at AANEM with James Howard presenting, showed that over consecutive cycles, this impact with benefit accrued deeper and deeper. Now this was seen across the 3 subgroups. So the MuSK, which -- coincidentally, we have one of the biggest MuSK data sets here, triple seronegatives and then LRP4. And across these 3, the benefit moved towards the same direction. And that for us is the basis that we have quite some conviction in the benefit we are providing to these patients. But of course, ultimately, it's going to be a review decision by the agency. But we feel pretty confident that we can have a great discussion on the real benefit that we're bringing to this underserved population. Tim Van Hauwermeiren: Thank you, Luc. And Danielle, on your MSE question, there's a ton of data to unpack. So the long-term follow-up, the deep dive into these patients, there will be much more data sets disclosed going forward into the future. So please stay tuned. And Karen, why don't you comment on this significance from a commercial point of view? Karen Massey: Yes, happy to. And I think this is a significant opportunity from a commercial perspective, and we're certainly very pleased to see such strong data from the SERON study. So as you know, we're the leaders in the MG market, and our strategy is to expand that leadership with the broadest label possible. So SERON or seronegative opportunity is one angle for that. The other is ocular MG, and we know that we have the data readouts coming next year for that. So we're well on our path of executing our strategy of expanding our market leadership. And the opportunity that we see in seronegative with the 11,000 patients is very high. One of the indicators that we think is important is how fast this clinical trial enrolls across all 3 of the subtypes. And I think that really demonstrates the unmet need and the enthusiasm about VYVGART in these subtypes. So I'm looking forward to the approval, if we get the approval, and I know the team is looking forward to being able to bring transformative impact to patients -- in seronegative patients as well. Operator: Your next question comes from the line of Akash Tewari from Jefferies. Amy Li: This is Amy on for Akash. Congrats on the quarter. Just a quick question on myositis. Curious to see what your bar for success is across the 3 subsets and how you are thinking about integrating the new steroid tapering protocol while still mitigating placebo risk? Tim Van Hauwermeiren: Thank you, Amy, and thank you for joining us on the call today. So of course, the first thing we want to achieve in this basket trial is to achieve statistically significant separation from placebo. It is generally understood in the community that a total improvement score of 20 represents a clinically meaningful benefit. You may recall the Phase II data, which we presented where we did a sensitivity analysis looking at TIS of 20, but also TIS of 40 and even 60, where you just see an increasing effect of VYVGART, which is very exciting. So that's how you should frame or look at success in the clinical trial. Thank you for your question. Operator: Your next question comes from the line of Richard Vosser from JPMorgan. Richard Vosser: Maybe you could talk a little bit more around the rationale for the change in endpoint for the EMPASSION trial for empa and MMN, and give us an idea of what you're looking for around the group strength endpoint. Tim Van Hauwermeiren: Thank you, Richard. Thank you for joining us and great question. Luc, this is a great question for you, right? Luc Truyen: Yes. Thanks for that question. So we made that change in close consultation with the agencies. On that endpoint had a precedent and felt that this could indeed be an indicator of a meaningful outcome. And so that's why we made that switch. We had strong data on this endpoint, by the way, from our Phase II trial where there was accruing benefit over time on this measure. So we feel pretty confident that with this switch, our probability to show the benefit of empa is more or less unchanged from the prior endpoint, the MMN routes, on which we also keep doing the work, which is going to be a key secondary, which will provide further insights in the dimensions of benefit. Tim Van Hauwermeiren: Thank you, Richard [indiscernible], I think this is a great advantage for us because the alternative was MMN routes, which was still going through an important validation step. But now we see CBUR and CDUR using the same endpoints in a specific indication for IVIg in the past and now VYVGART going forward. So we're welcoming that harmonization. Thanks for the question. Operator: Your next question comes from the line of Samantha Semenkow from Citi. Samantha Semenkow: I wonder following the lupus nephritis data that you've seen, is there anything you can take from that data set to help inform additional indication selection for efgartigimod or even 213 going forward? And then just relatedly, how are you thinking about additional indication expansion for empa? And do you have any plans for subcutaneous formulation development there similar to your playbook that you have for VYVGART? Tim Van Hauwermeiren: Yes, Samantha, thank you for the question. From a playbook point of view, it is indeed the intention to leverage our subcu platform across all indications. But maybe, Luc, you want to comment on the lupus nephritis data? Luc Truyen: Yes, yes. And thanks for that question. So we're still fully digesting it. But just from the top line evaluation, it was clear that right now, there isn't a path forward to a registrational study. And given that we want to be transparent about these things, we put it in here, but we're still trying to fully understand the data, which, to your point, may inform further decisions on a path forward potentially with another asset in the portfolio. Operator: Your next question comes from the line of Myles Minter from William Blair. Myles Minter: Congrats on the quarter. My question is back on the ianalumab data that we just saw and placebo responses in Sjogren's disease. I'm just wondering whether that 5.5, 5-point change from baseline in ESSDAI, is that within your expectations for your ongoing UNITY study? Or just saying that data change your expectations and potentially powering assumptions for that trial? Tim Van Hauwermeiren: Thank you, Myles, and that's a great question. In Sjogren's, I think we badly need better endpoints. That's why in the Phase II proof-of-concept study, we explored the effect of the drug across an entire spectrum of endpoints, also some of the new endpoints which are coming. But unfortunately, today, the regulator still forced to use ClinESSDAI because the CRESS and STAR endpoints haven't been fully validated yet. I think the placebo effect which you see in this study is actually quite consistent with the placebo effects, which we have seen in historical trials. So it's the ballpark which we expected when we were designing the clinical trial and powering the clinical trial. Thank you for the question. Operator: Your next question comes from the line of Sean Laaman from Morgan Stanley. Unknown Analyst: Congrats on the quarter. This is Morgan on for Sean. We have 2 questions. So first, just wanted to get your thoughts on J&J announcing the head-to-head for Imaavy versus VYVGART in gMG.? And then second, I know you provided guidance on OpEx for the rest of the year. But given all the pipeline indications and trials you have going on, I wanted to know if you could provide any guidance on OpEx and the potential lift over the next 12 months or so? Tim Van Hauwermeiren: Luc, do you want to first comment on that study from J&J, please? Luc Truyen: Yes. Thanks, Tim. Thanks for the question. So I want to start by saying at argenx, our goal is always to prioritize evidence generation that will really add significant value to the patient and the community. And if we look at this design of this head-to-head trial, I'm afraid it will not provide that much new information that benefits patients because of the primary endpoints chosen and the timing of the readouts, we already know that when you stop dosing VYVGART or [indiscernible] for that matter, that IgG's will return to baseline. That is not novel. So this study will just prove different PD effect of 4 doses of VYVGART versus continuous dosing. And I don't think that, that really adds. And it's also not in line with how VYVGART is actually used in the real world today. And at AANEM, for example, we have poster # 12 for those who are interested to show the long-term data on subcus that shows that with a regimen that really triggers new treatment when the start of deterioration happens that you can keep people well below the significant difference of minus 2 points. So to me, that, therefore, creates this question how much added value will this study bring and understanding, and overall, our perspective on competitive landscape hasn't really changed with this. We welcome competition because it's good for patients, and we get to better outcomes ultimately for that patient community, but we have not seen really meaningful differentiation being offered here. And so we continue to be confident in the bar we have set. The accumulated data shown at AANEM with all the data out there across both pediatrics, long-term data, the seronegatives are really in line with our mission to present data that really add value. Tim Van Hauwermeiren: Yes. Thank you, Luc. And I want to remind the audience that for the long-term follow-up in the subcu study, we now reached 60% MSE in our patients, 85% of these patients have sustained MSE of 8 weeks or longer. I think that's what matters to patients most. Thank you for the question. Karl Gubitz: Morgan, thank you for your question on operating expenses. Just to repeat what I said earlier, this year, we will end between $2.6 billion and $2.7 billion. Our capital allocation priorities is clear. We're investing in growth. We're not going to talk about the operating expenses and guidance for next year now. But what we will say is that the increases you saw in Q3, you can expect that to continue going forward. Thank you for the question. Operator: Your next question comes from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: With $4.3 billion on your balance sheet, how are you thinking about external innovation in the future? I believe you did an early-stage deal earlier this year, but should we expect more of those going forward? And are there any technologies that you think would be a good fit with your internal efforts? Tim Van Hauwermeiren: Yes, Jacob, and thank you for the question, and thanks for joining us today. Just as a quick reminder, all innovation at argenx starts with the collaboration with external world. So at the core of each pipeline asset is a very strong fabric of collaborators. It is true that with the increasing cash balance, our aperture for novel biology, which we're hunting for is opening up. We are no longer just looking in academic labs, but we're also involved in a number of constructive discussions with young biotech companies, typically not a place where you find exciting biology. So we're looking for the same biology. The hunting ground just increased, thanks to the balance sheet. So stay tuned. In our innovation mission, more of that biology will be coming in. Operator: Your next question comes from the line of Luca Issi from RBC Capital Markets. Unknown Analyst: This is Cathy on for Luca. Congrats on a robust quarter. And we have a question on VYVGART for gMG. We've been hearing from a few KOLs that patients are receiving the drug using shorter off cycles compared to the label. And that is because these physicians are worried that these patients relapse towards the end of the off cycle, so they prefer to restart the next cycle sooner rather than later. Is that consistent with your understanding? And if so, this is an important tailwind that is partially offsetting your gross to net headwind? Any color there much appreciated. And if it's okay, we have a quick follow-up on seronegative MG for Luc. Any rationalization around why triple seronegative patients are not as responsive? Tim Van Hauwermeiren: Cathy, thank you for the questions. So first of all, in the ADAPT trial, we adapted the cyclical dosing of the drug to the individual need of the patient. And that's also what the label says. So the label is not prescriptive in how you use the cycles, you redose based on clinical judgment. So it is possible that there is a subset of patients which needs the drug more frequently. There's also a tail of patients which needs to dose much less frequently and there's the whole individualization concept behind VYVGART. So your information is correct. Actually, we presented these data in the poster where you see the total distribution of patients with an average cycle of 5.2 per year, with a number of patients needing it more frequently and a long tail of patients needing it less frequently. The seronegative question is intriguing, right? Luc, why don't you pick up this one? Luc Truyen: Yes, yes. And it's important to realize that triple seronegatives often have a longer diagnostic course and therefore, present often also with a more severe disease, which is actually what we have observed in ADAPT SEROM. And therefore, and talking through, of course, experts in the field, our hypothesis is that the initial signal may be lower because repair mechanisms need to kick in and so forth. But what is really encouraging for us is that in the subsequent cycles, they really get to meaningful benefits. And in that sense, that story is not too much different from what we've seen in non-seronegatives. And so we find that encouraging. We -- of course, we'll continue to look into the data, as was already said, around can we get to MSE also in these patients given their longer disease journey. But overall, we feel the totality of the data fully supports a robust benefit here. Operator: Your next question comes from the line of Thomas Smith from Leerink Partners. Thomas Smith: Let me add my congrats on the strong quarter. Just on Graves, we recently saw some long-term follow-up data from a competitor FcRn suggesting a potential to drive long-term disease remission in this disease. I was just wondering if you could comment specifically on that data set and how important the potential disease modification was in your decision here to pursue Graves with VYVGART. And then you mentioned some excitement around the market potential. I was just wondering if you could maybe expand on that and share some of your initial assessment around the potentially addressable market here? Tim Van Hauwermeiren: Yes. I will start with taking the answer and maybe, Karen, you can shed some qualitative color on our excitement around the size of this opportunity. It is correct that there are data out there from a peer in the FcRn space. We shared the passion for FcRn with our peer group. Whilst it is interesting, we have to be very careful because this was a very small sample. So I think it warrants further investigation in a large properly controlled clinical trial. So stay tuned for more data coming out of more advanced clinical trial work. And maybe, Karen, a few words on excitement around Graves. Karen Massey: Yes, happy to. I mean whenever we select an indication, we look through 3 lenses: the biology, can we develop the indication, and we always look at the commercial opportunity through the lens of what is the real unmet patient need in this indication? And can we bring transformative outcomes in the patients. And so when we looked at the Graves indication, what we saw was that there's a large prevalence of the disease, and there is a subset of patients that has a clear unmet need that we think they've got based on the proof of biology study, based on the convenience of our subcutaneous dosing that we think we could fulfill that need. It also creates that franchise, if you will, opportunity given the connection to TED that Tim talked about earlier. So we see that there's a significant commercial opportunity here and look forward to seeing the clinical data readout. Thanks for the question. Operator: Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Just maybe sticking to the subject of Graves' disease. I'm just curious just -- obviously, it is a spectrum along with TED. And so just given the start of the study, I mean, are you thinking about targeting a particular time point in that progression? And do you think it's realistic or possible to potentially show that you're able to sort of modify the course of disease in terms of progression to TED? Tim Van Hauwermeiren: Yes. Thank you for the question. We're not going to comment in this call specifically about the trial design. The trial will come live relatively soon, and we will be presenting trial design, inclusion/exclusion criteria, et cetera, in the appropriate conferences, so stay tuned. On the potential disease modification, it's an interesting hypothesis. I think we need more data to come to a firm conclusion there. But thank you for the question. Operator: Your next question comes from the line of Victor Floch from BNP Paribas. Victor Floch: Actually, a quick follow-up on the peer assets that one of the analysts was mentioning before. That's exactly the one you've actually used to leverage their Phase II data to go straight to TED a few years ago. So I was wondering that is that asset is going to report some Phase III data in the not-so-distant future. So I was just wondering whether these data sets was a relevant proxy for [indiscernible] out of success in TED or if you have any comments to be made? Tim Van Hauwermeiren: Yes. Thank you. It's hard for us, Victor, to comment on the time line of clinical trials of third parties. I think we're best off asking the question to them. The way we look at this type of Phase II work is it is a proof of biology. I mean it is an FcRn antagonist. It is firmly establishing the role of FcRn and autoantibodies in the disease. And we know these diseases are autoantibody-driven. I would be very careful jumping to conclusions because as we know, in the FcRn class, not all FcRns are made equal. I think VYVGART is a unique Fc fragment. It's uniquely engineered based on a unique understanding of the biology. So I would not just cross-compare between molecules in the same class. We have already seen in other indications that actually it is just not appropriate to do. So strong proof of biology, stay tuned for the argenx data, I would say. Operator: Your next question comes from the line of Xian Deng from UBS. Xian Deng: So I have a question on VYVGART Phase II data in myositis, please. So just wondering for the Phase II data, there were about 23% injection site erythema. So just wondering if you could share any comments on that and any strategies to mitigate that. And so in general, just wondering how serious do you think that is? And in terms of physician feedback, given in a small subset of patients, they might have interstitial lung disease. So just wondering what's your mitigation strategy there? And if I may also squeeze in very quickly, Roivant recently announced a positive Phase III data for their JAK/TYK2 inhibitor, brepocitinib in dermatomyositis. I mean, of course, you are running the trial in a much broader general myositis overall, so just wondering what's your comment on the competitive landscape, please? Tim Van Hauwermeiren: Yes. There's 2 questions in one, right, but that's not a problem. Luc, yes, we have seen the data in DM. This is, I think, a large market, huge unmet medical need. There will be multiple molecules which will be playing in this marketplace, and we are welcoming this molecule. It's going to help us shape and build that market. It will not be the solution for each patient. I think you will need a portfolio of therapies to adequately deal with these patients. They're very complex patients. Back to the erythema, it's much to do about nothing I would say. These are very mild erythema. It's typically your first administration where it can happen and then it disappears. This is nothing new. We have reported that as well in our MG and CIDP patients. So we know the phenomenon. It's not unusual, atypical. And I think it's mild, it's transient, and it's certainly not stopping us in commercialization of this product in other indications to the contrary. Thank you for the questions. Operator: Your next question comes from the line of Charles Pitman-King from Barclays. Charles Pitman: I've got one just on the patient numbers. I know you've not provided us with an update today on kind of the total number of patients tried on therapy. But I'm just wondering kind of what the next milestones are that you could be announcing? I mean, can we assume from today that you've not kind of hit 20,000 across all indications or, say, 5,000 for CIDP, just given the kind of prior 15,000 total ex-China and 2,500 guidance that you gave us at 2Q? And also just related to that, I wonder if you could give us some commentary on just the quarterly patient add dynamics, given you now got MG, CIDP and PFS launched, when should we expect kind of patient adds to peak ahead of the next indication approval? Beth DelGiacco: Thanks, Charles. Yes, we did not provide a patient number this quarter. The last one we provided still stands, which was from 2Q. We did a similar communication rhythm with MG and that we provide patient numbers as we cross certain thresholds. We're not going to share what those thresholds are, but I think it's important to know that we have seen consistent growth and that the revenue in this situation really speaks for itself. And Karen, do you want to talk about the patient growth? Karen Massey: Yes, absolutely. Happy to talk about the patient growth. I'm pleased for the question because I'm really excited about the continued momentum that we see across all indications in terms of patient growth this quarter. And I think when you zoom out, I mean, certainly for MG, it's been 15 quarters of consistent momentum in terms of patient growth as we bring more innovation to patients. And most recently, obviously, the PFS has contributed to accelerating that growth. I think what's really important to note is that with prefilled syringe, 50% of the patients are new to VYVGART, and that's across both indications. And don't forget the 260 prescribers since prefilled syringe launch 2 quarters ago are new to VYVGART. They had never -- these prescribers had never written before prefilled syringe launch. So what you can see is both patient growth very consistently across the quarter with momentum as well as prescriber growth consistently. And that prescriber growth is important because it opens up new pockets of patients in both MG and CIDP and indicates that we're at the beginning of the growth curve for both indications. Thanks for the question. Operator: And your final question today comes from the line of Colleen Kusy from Baird. Unknown Analyst: This is Nick on for Colleen. Congrats on the quarter. If you could comment on the progress you made in the ex-U.S. launches, whether you think that could be a meaningful top line growth driver for the next year? Or whether you think focus will be more so on deepening penetration in the U.S. and what you view as the eventual market opportunity for ex-U.S. relative to the opportunity in the U.S.? Karen Massey: Yes. Thanks for the question. What you will see is that we have growth across all geographies or all markets. And what we're pleased to see, certainly, if I go through those markets, in Japan, we've launched CIDP. We recently got the PFS approval, and we're pleased to see continued demand growth for both MG and CIDP. So Japan is a very important growth driver for us, and we see that continuing in the future with the PFS launch. If we turn our attention to the other major markets in Europe, in Canada, what we see is that in MG, as you'd expect, it takes a little more time for those markets to come online as we negotiate pricing and reimbursement agreements. We have a narrow price band, and we have good pricing and reimbursement agreements in place. And what we are starting to see is those revenue contributions for those HTA markets increasing. We recently received the approval for CIDP, that's launched in Germany, and we expect that there'll be further launches for CIDP in additional markets in the upcoming months and years. So we expect that there will continue to be growth ex-U.S. But of course, the U.S. will continue to be a strong growth driver for us as well. Thanks for the question. Operator: And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the WTW Third Quarter 2025 Earnings Call. Please refer to the wtwco.com for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next 3 months on WTW's website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning as well as in the most recent Form 10-K and other subsequent WTW securities filings, SEC filings. During the call, certain non-GAAP financial measures may be discussed to provide direct comparability with period -- prior periods all complement regarding the company's revenue growth results will be on a non-GAAP organic basis, unless specifically stated otherwise. For reconciliations of the non-GAAP measures as well as other information regarding these measures please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. I'll now turn the call over to Carl Hess, WTW Executive Officer. Please go ahead, sir. Carl Hess, you may begin. Carl A. Hess: Good morning, everyone, and thank you for joining us for WTW's Third Quarter 2025 Earnings Call. Joining me today is Andrew Krasner, our Chief Financial Officer; Julie Gebauer, our President of Health, Wealth & Career; and Lucy Clarke, our President of Risk & Broking, are also joining us for our Q&A session. We delivered another quarter of solid results, driven by consistent and strong execution of our strategy. In the third quarter, we generated 5% organic growth, 230 basis points of adjusted operating margin expansion and adjusted EPS of $3.07, up 11% year-over-year. We've sustained our momentum in the market and remain on track to deliver our full year financial objectives. I want to thank all my WTW colleagues for their hard work and dedication to achieving our strategic and financial goals. As these results show, the strategy we laid out nearly 1 year ago to accelerate performance, enhance efficiency and optimize our portfolio continues to drive value for all our stakeholders despite the volatile macroeconomic environment. Against that backdrop, I'd like to provide some observations on current market conditions. Concerns about global trade, inflation and geopolitical conditions remain, creating both opportunities and challenges. On one hand, some clients are looking for support to manage the related people and risk issues, and on the other, some companies are continuing to limit discretionary spending. We continue to monitor relevant economic indicators such as employment levels, which may affect our business prospects over the short term. In addition, we're facing headwinds from declining rates in certain segments of the commercial insurance market across various geographies. In the face of this dynamic environment, our businesses continue to be resilient as we remain intensely focused on providing relevant services that deliver value to our clients. Health, Wealth & Career career delivered steady 4% organic growth or 5% when excluding book of business settlement activity and interest income with strong margin expansion. These results reflect our diversified and recurring revenue base and disciplined cost management. Like last quarter, we saw robust demand for our solutions that help clients manage their health care costs, derisk their defined benefit pension plans and adapt to new legislative and regulatory requirements such as the EU pay transparency directive. We also experienced an increase in M&A due diligence and integration work as well as in workforce management support. Our suite of technology tools continues to be a prominent factor in our success. For example, our talent flow analysis utilizes web crawling and data mining to identify clients' real competition for talent, which is essential for meaningful benchmarking. And our Health and Benefit scout tool informs health plan design through an in-depth evaluation of health care access, quality and cost based on a client's workforce location, demographics, claim experience and more. Through predictive analytics, we help forecast benefits cost and attrition risks, identify skills gap and detect pay equity issues. We're also using AI tools to improve the employee experience. In Risk & Broking, we generated 6% organic growth in the quarter and expanded adjusted operating margins by 70 basis points. This marks the 11th consecutive quarter that our Corporate Risk & Broking business recorded high single-digit growth, excluding the impacts of book of business activity and interest income. I'm pleased with the strong returns on our investments in talent and innovation, and we continue to look for opportunities to invest further. In particular, our investments in digital tools, AI and automation have helped R&B capture growth opportunities and create efficiencies. As declining rates continue to pressure certain areas of the market, the impact of these investments has been increasingly valuable in driving meaningful efficiency gains and advancing our progress on delivering 100 basis points of annual average adjusted operating margin expansion in R&D over the medium term. We continue to launch a steady cadence of new tools and products that support our growth and margin objectives. For example, we recently launched the newest version of Radar, an end-to-end rating and analytics software widely used by insurers. Radar 5 brings advanced capabilities, including GenAI techniques, to provide greater speed and agility for pricing, portfolio management, claims and underwriting, enabling insurers to unlock smarter data-driven decision-making at scale. We also launched Gemini, our global digital placement facility in the quarter. This innovative solution provides efficient access to additional insurance capacity, addresses the increasing complexity of risk and market volatility, offers competitive pricing declines at a guaranteed discount and is backed by A+ rated void syndicates. Now I'll turn to some of our new business wins in the quarter. In Health, Wealth & Career are customer-centric solutions, differentiated technology and focus on making smart connections continue to drive growth across all our businesses. In a notable example, we unseated the long-time incumbent providing global actuarial work for our Fortune 250 engineering company, not only because of consistent actuarial expertise and tools across our global network, but also because of the innovative ideas we brought them to better manage pension risks around the world and to address retirement readiness for their workforce. In a win featuring smart connections across HWC we were selected to support the planned spin-off of a global Fortune 50 company with overall program management, communication and change management and the implementation and administration of a new U.S. health plan. We won this business, which encompasses 40,000 employees after building a strong reputation as a trusted partner to the parent organization. Another innovative HWC win involves the extension of our Embark Employee Experience portal to potential new hires of a health system to showcase their total rewards and culture with the aim of boosting new higher acceptance rates. In Risk and Broking, our specialization strategy and our ability to offer differentiated value through our technical expertise, global collaboration and client-centric solutions continue to be key factors in bringing in new business. For example, in CRB, despite a challenging risk environment, we covered property damage, business interruption and liability insurance for an energy portfolio in Eastern Europe. The client reached out to us directly as our technical knowledge of these types of assets and our global industry relationships are well known in the marketplace, highlighting the value of our specialization strategy. We also secured a significant new mandate in Europe covering property damage and business interruption for a leader in the electric vehicle sector. Teams from different regions coordinated to identify and address gaps in the clients' coverage while achieving a premium reduction all in just 3 weeks. This win underscores our ability to deliver cost-efficient solutions to support high-growth, innovation-driven clients with complex coverage needs. Before turning it over to Andrew, I want to provide an update on WE DO, our enterprise delivery organization. We were especially pleased with the margin expansion we delivered this quarter across the business. Over the past quarter and as we look ahead, WE DO is helping us continue to improve how we operate, leveraging automation and AI to enhance efficiency and deliver savings. Our approach combines generative and analytical technologies to identify opportunities, design more efficient solutions and automate processes. With WE DO-backed automation projects, we've streamlined billing, collections and payments to drive stronger margins and free cash flow, which were reflected in our results this quarter. Overall, I'm pleased with how we performed this quarter. We delivered solid financial results in line with our expectations with mid-single-digit organic growth and meaningful margin expansion across both segments. We have good momentum across the business, giving us added confidence in our ability to deliver on our 2025 targets. And now I'll pass it on to Andrew for a more detailed discussion of the financials. Andrew Krasner: Thanks, Carl. Good morning, and thanks, everyone, for joining us today. In the third quarter, we delivered solid organic revenue growth of 5% and expanded adjusted operating margin by 230 basis points year-over-year to 20.4% or 120 basis points of year-over-year improvement when excluding TRANZACT. Adjusted diluted earnings per share were $3.07, which is an increase of approximately 11% over the prior year. As a reminder, we completed the divestiture of TRANZACT on December 31, 2024. And for the full year 2025, this will create a headwind to adjusted diluted earnings per share of $1.14. As Carl discussed, our solid third quarter results reflect the strong foundation we've built and the benefits of our investments in talent and technology. Our strategy is resonating with clients and colleagues and our businesses remain highly resilient despite the macro uncertainty. We remain firmly focused on our strategic objectives and the financial framework outlined at Investor Day to create long-term shareholder value. Turning to our segment results. Health, Wealth & Career revenue grew 4% compared to the third quarter of last year. Excluding the impact of book of business settlement activity and interest income growth was 5%. Our results for the third quarter are in line with our expectations, and we remain on track to deliver mid-single-digit growth and margin expansion for HWC in 2025. As a reminder, the vast majority of HWC's business is recurring, with only a small portion being more economically sensitive and discretionary. Our Health business achieved strong growth of 7% this quarter or 8% growth, excluding the impact of book of business settlement activity and interest income. This growth was primarily driven by double-digit increases in International and solid performance in North America. Results in International were driven by new global benefit management and local appointments, successful renewals, health care inflation and market expansion. In North America, focused sales efforts generated growth across all market segments. In Europe, growth was offset by a significant book of business sale in the prior year third quarter. Excluding the impact of interest income and book of business settlement activity, Health has grown 8% year-to-date. We continue to expect strong demand across the global business driven by health care inflation and employers' continued focus on managing costs while maintaining competitive employee benefits. With a healthy pipeline for the remainder of the year, we continue to expect high single-digit growth for the full year, even with a high double-digit growth rate in the fourth quarter of last year. Wealth had revenue growth 5% in the third quarter primarily from strong levels of retirement work in Great Britain and North America. Demand for our core defined benefit work, including financial forecasting, compliance support and data projects remain strong. We also saw growth in project work to support pension derisking, surplus utilization and workforce restructuring. Our investments business delivered growth primarily from new products and client wins. We continue to expect low single-digit growth in the Wealth business for the year. Career growth was 2% in the third quarter, with solid growth in Europe, driven by strong demand for EU pay transparency support and employee communication projects. While compensation benchmarking survey work increased across all regions, a change in the survey delivery pattern limited growth this quarter when compared to the same period last year. We are confident revenue growth will increase meaningfully in the fourth quarter due to this change in the pattern combined with the continued demand for advisory work related to the EU pay transparency directive that goes into effect mid-2026. We continue to expect Career to grow low to mid-single digits in 2025. Over the long term, we expect mid-single-digit growth based on our track record and continued focus on product and technology offerings alongside recurring services. Benefits, Delivery & Outsourcing, or BD&O, grew 2% versus last year's third quarter, driven by growth in outsourcing due to increased project and core administration work in Europe which was partially offset by lower commission revenue in the individual marketplace, our B2B2C Medicare Exchange business. Keep in mind that our Medicare Exchange generates about 80% of its revenue in the fourth quarter due to the timing of the Medicare enrollment period. In combination with the timing of new business, BD&O overall generates nearly half of its revenue in the fourth quarter. Accordingly, we forecast BD&O growth to be strongest in the fourth quarter of the year, reflecting the expected timing of commissions, new client implementations and new projects to support regulatory changes. We continue to expect BD&O to grow at mid-single digits for the year. HWC's operating margin in the third quarter was 28.6%, an increase of 390 basis points compared to the prior year or an increase of 100 basis points, excluding the impact of the TRANZACT divestiture. This result demonstrates our ability to consistently deliver incremental margin expansion regardless of cyclical macro conditions and supports our strong track record of margin expansion in HWC. Let me move on to Risk & Broking, which had revenue growth of 6%, underscoring the continued momentum in the business. Our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Corporate Risk & Broking grew 6% or 7% when excluding both book of business activity and interest income. This was on top of the 10% growth rate achieved in the prior year comparable quarter. As Carl mentioned, this is the 11th consecutive quarter of high single-digit growth when excluding both book of business activity and interest income. CRB's growth this quarter was primarily driven by our global specialization strategy which continued to support expansion amid the more challenging rate environment. Of note, we generated significant new business across a number of markets this quarter as well as project revenue recognized in our Global Specialty businesses, with notable contributions from construction, surety and credit risk solutions. This illustrates that our commitment to global specialization continues to generate value for clients and drive growth. From a macro perspective, and relative to last quarter, we are seeing a more challenging growth environment as market rates continue to soften across various lines. Nonetheless, our specialization strategy is resonating in the market and we are pleased by the results we are seeing from our Global Specialty businesses. We continue to expect mid- to high single-digit growth in CRB for 2025. While industry-wide pricing pressure is making high single-digit growth harder, we believe it is still attainable. In our Insurance, Consulting & Technology business, revenue was flat versus last year's third quarter when ICT delivered 7% growth. Our combined approach of Consulting & Technology continues to add value. However, trends we highlighted last quarter persist as the consulting environment has remained weak and clients continue to demonstrate caution for making large multiyear technology implementation decisions. While we are encouraged by our pipeline on the technology sales side, we do not expect to see a meaningful pickup in consulting activity in the fourth quarter. For the full year, we continue to expect low to mid-single-digit growth. Turning back to R&B's results overall. We are pleased with our momentum year-to-date, which gives us confidence in our ability to deliver mid- to high single-digit growth for the full year. As I mentioned a moment ago, although the path to achieving high single-digit growth is more challenging given the current pricing environment, we believe it is still possible. R&B's operating margin was 18.8% for the third quarter, a 70 basis point improvement over the prior year or a 100 basis point improvement when excluding the impact of foreign exchange rates. This was primarily driven by operating leverage from strong organic growth performance, coupled with continued expense discipline. Foreign exchange rates were a headwind of 30 basis points to R&B's operating margin in the third quarter due to weakening U.S. dollar, but we expect the full year foreign exchange impact to be slightly more modest. So far this year, we achieved 90 basis points of operating margin improvement in R&B or 120 basis points, excluding the impact of foreign currency and we are committed to delivering 100 basis points of average annual adjusted operating margin expansion over the next 3 years. As Carl highlighted earlier, investments we've made in our technology capabilities continue to provide value and provide a strong platform for us to deliver ongoing operating leverage and efficiencies across the business. Finally, I will give some additional color on our enterprise level results. Adjusted operating margin for the third quarter was 20.4%, a 230 basis point improvement over the prior year, reflecting strong margin expansion in the segments and prudent business expense management supported in part by our WE DO initiative. This result includes a 110 basis point tailwind from the TRANZACT divestiture. As we enter Q4, our seasonally strongest quarter of the year, all our businesses are operating with continued discipline and rigor, giving us confident in our ability to continue to expand margins. Foreign currency was a $0.04 tailwind to adjusted EPS for the quarter and a $0.05 headwind year-to-date in 2025. The U.S. dollar has been weakening during the quarter. So I want to give you some additional color on foreign exchange. At the current spot rates, we expect a foreign currency tailwind to adjusted EPS of approximately $0.15 in the fourth quarter and approximately $0.10 for the full year. Of course, the impact may fluctuate throughout the remainder of the year. Our U.S. GAAP tax rate for the quarter was 19.7% versus 16.1% in the prior year. Our adjusted tax rate for the quarter was 22.4% compared to 19.7% for the third quarter of 2024. We expect our full year 2025 tax rate to be relatively consistent with the prior full year rate. We generated free cash flow of $838 million for the 9 months ending September 30, 2025, an increase of $114 million from the prior year. This was driven by operating margin expansion and reduced transformation program cash costs. The favorable second half setup we anticipated began to play out this quarter. As we previously noted, the remaining transformation costs continue to abate and the divestiture of TRANZACT will act as a tailwind to free cash flow as we lap the prior year fourth quarter in which that business recorded net cash outflows. We remain on track to deliver our objective of annual free cash flow margin expansion. During the quarter, we returned $690 million to our shareholders via share repurchases of $600 million and dividends of $90 million. We continue to view share repurchases as one of our primary methods of capital return and an attractive use of capital to efficiently deliver value to WTW shareholders. We continue to expect share repurchases to total approximately $1.5 billion in 2025, subject to market conditions and potential capital allocation to inorganic investment opportunities. Looking ahead, we're confident our balanced and disciplined capital allocation approach will generate long-term shareholder value. We'll continue to be selective as we invest in talent and in our platform to ensure we're driving sustainable growth and margin expansion. In closing, we are pleased by our performance year-to-date in 2025. We are increasingly seeing the execution of our strategy manifest in our results, giving us solid momentum as we enter the fourth quarter. We remain confident in delivering on our 2025 financial objectives of mid-single-digit organic growth, adjusted operating margin expansion, adjusted EPS growth and ongoing improvement in free cash flow margin. With that, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Gregory Peters from Raymond James. Charles Peters: So for the first question, I'm going to focusing in on the Risk & Broking organic revenue results. I appreciate the color, both you made, both you, Carl and Andrew made specifically on the new business. And I guess what I'm getting at is how much of the third quarter result reflected sort of unusual wins that won't recur or come at it a different way. You mentioned project-based placements. Were those unusual relative to other quarters? And maybe you can just build on that by line of business? Is there something nuanced or geographies that's driving what I would characterize as a better-than-market result? Carl A. Hess: Thanks for the question. We were really pleased with the 6% growth we achieved for the R&B segment. That was on top of, right, a 10% for a solid growth result in Q3 '24. CRB delivered 6% organic or 7% when you exclude both book of business activity and fiduciary income. I think our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Lucy, can you give us some color commentary on that? Lucy Clarke: Yes. Sure, Carl. Hi, Greg. Yes, let me just start by reiterating we had another good quarter overall. Within CRB, we've generated strong new business in all of our global markets and across almost every single specialty line. We saw particularly meaningful contributions from construction, M&A, surety, credit risk solutions and remain committed to delivering mid-single-digit to high single-digit growth in R&B for the year. As you know, of course, our clients are benefiting from an improving rate environment, which can translate to a revenue headwind for us. Naturally, this industry-wide dynamic will make the path to high single-digit growth for the year more challenging but not out of reach. In terms of the project-based placements, it's just important to keep in mind that the nature of our work in specialty is always a combination of recurring and one-off work. So as we noted in those prepared remarks, we did see increased contributions from placements for multiyear projects undertaken by some of our clients. Normal part of growth in our specialty businesses, particularly in construction, M&A, surety and natural resources. That specialization approach has been a key driver of growth for us in R&B, and we expect that to continue. Thanks, Greg. Charles Peters: I'm going to follow up just because it's important. I know part of your expectation going forward is to expand your margins in Risk & Broking each year and both Andrew and Lucy now have previewed that it's becoming more difficult to get to the higher end of your organic revenue results in Risk & Broking. Should we be worried that if we go from mid-single digit to high single digit, just to mid-single digit, that there might be some pressure on your ability to generate that 100 basis points of margin improvement in the next 2 years? Andrew Krasner: Greg, it's Andrew. I'll take that one. So we did see a strong margin improvement in the R&B segment of 70 basis points or 100 basis points, excluding the impact of foreign currency. So year-to-date, 90 basis points of operating improvement or 120 basis points, excluding the impact of foreign currency. We're not going to sort of guide to a specific number for the full year, but we do remain absolutely committed to what we laid out in Investor Day of the 100 basis points on average over the next 3 years per year. And we feel like we're on track to achieve that. It's really driven by some of the investments in technology that we've made really looking at process improvement, things of that nature, that's really going to help drive those efficiencies. So I think despite the top line, we feel like we have the appropriate tools and levers to be able to get there. Operator: Our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question was on free cash flow. If you can just provide more expectations for the year and the fourth quarter. I think in your prepared remarks, you commented about how the favorable second half began to play out this quarter. I just was hoping to get more comments there. Andrew Krasner: Yes. Perfect. Thanks, Elyse. Our view has not changed from what we shared last quarter. The favorable second half setup that we flagged continues to play out. Through the third quarter year-to-date, we had $838 million in free cash flow, which is $114 million year-over-year increase, that was driven by operating margin expansion and reduced transformation cash costs. Looking at the fourth quarter, the remaining transformation cash cost will continue to abate and the divestiture of TRANZACT will act as a tailwind as we lap the prior year fourth quarter. So taken together, we remain confident in our ability to deliver free cash flow margin expansion, not just in 2025, but beyond as well and just continue to build on that momentum. Elyse Greenspan: And then my second question, I was just hoping you guys could provide what the insurance pricing headwind was in the third quarter? And also, was that similar to the second quarter or worse? Lucy Clarke: Elyse, it's Lucy. Thanks for the question. So sure, pricing pressure has continued in certain areas of the market, and it's becoming more meaningful as we make progress through the year. From our perspective, property is the most impacted class, particularly in the large and complex segments but most lines are showing softening other than, of course, North American casualty where pricing continues to rise. Important to remember that these pricing improvements follow 5 years of pricing increases. So many of the markets still see these levels as rate adequate, and it's a welcome relief for our clients. So we're still expecting mid- to high single-digit organic revenue growth in Risk & Broking for the year in spite of any of the pricing developments. Operator: And our next question comes from the line of Rob Cox from Goldman Sachs. Robert Cox: First question on HWC margins. I think if we exclude the impact of TRANZACT, the margins improved 100 basis points, as you all mentioned. If we do that in the first half of 2025, I think the margins contracted. So I was just curious sort of what changed in the quarter and how you guys are thinking about margin expansion, excluding TRANZACT in the fourth quarter and beyond? Andrew Krasner: Yes, sure. I mean, as we laid out in Investor Day, we're committed to incremental margin improvement across that sector over the long term. Over the full year here, we'll have some tailwinds, right, from the divestiture of TRANZACT, but everything is playing out exactly as we expected. And maybe, Julie, you want to comment on some of the drivers of sort of how we're going to sustain that performance going forward. Julie Gebauer: I would, Andrew. But first, I want to highlight that so far this year, excluding the TRANZACT divestiture, we added 40 basis points of margin in Q1, 20 basis points in Q2 and now 100 basis points in Q3, as you mentioned, in line with our commitment to build on our strong track record. We've been able to do this consistently over a lot of years for a few reasons, and that the foundation of this performance is the way that we focused our portfolio. We got businesses where we can not only differentiate but also scale and generate leverage. And then on top of that, we have a really clear view of our top line and a firm command of our cost structure. We take a very disciplined approach to resource management. And then finally, we still see opportunities with process optimization, automation and right shoring to add to margin. So while we take pride in what we like to say are industry-leading margins in HWC, we are very confident in our ability to build on that. Robert Cox: Great. And then I just want to follow up on the BD&O business. It sounds like the guidance is being maintained for mid-single-digit organic growth for the full year. Just looking at what you guys have done year-to-date, it looks like you might need something like high single digits organic in the fourth quarter. Could you tell us what gives you confidence on the improvement there? Julie Gebauer: Yes, Rob, I'll take that. I'm going to start with a reminder that BD&O overall generates nearly half of its revenue in the fourth quarter. And in addition to typically our outsourcing clients going -- new outsourcing clients going live in that quarter. About 1/3 of our revenue in this business comes from our individual marketplace business, and in that business, we generate about 80% of our revenue in the fourth quarter, as Andrew mentioned, during open enrollment that happens from October until early December. And given the new clients that we've added, our expectations for Medicare retirees to review and switch coverage during that enrollment period, we expect to see increases in commissions and fees and solid growth in the quarter ahead. So overall, we expect mid-single-digit growth for the full year and over the longer term. Operator: And our next question comes from the line of Michael Zaremski from BMO. Michael Zaremski: Looking at the interest income levels, very healthy, better than expected. Is that the run rate or any one-timers we should be considering? Andrew Krasner: No specific one-timers, but I just -- it's important to keep in mind that some of the investment income is driven by sort of where the cash balances are held across jurisdictions and interest rates vary by geography. So sometimes geographic mix of business can have an impact there. So I think that's the only nuance I'd call out there. Michael Zaremski: Okay. So we'll -- I guess I'll take it as a kind of use it as directionally at the run rate. A follow-up to Greg Peter's question earlier and just not trying to split hairs and we love when you give extra color. But in the R&B segment, when you mentioned the project based placements in specialty, which is great color. It just leads to the question, is project-based mean like more nonrecurring or onetime that we should kind of be considering in our run rate on a go forward? So just wanted to try to ask that one last time to make sure we're not -- new wording. Lucy Clarke: It's just one last time. It's Lucy. Thanks for the question. Yes, you're right, it does mean onetime revenue. But we always have onetime revenue. The nature of our work in specialty is a combination of recurring and onetime revenue. We just saw increased contributions from the placement of multiyear projects in the quarter, so we hold it out. It's a normal part of the growth in Specialty business. Operator: And our next question comes from the line of Paul Newsome from Piper. Jon Paul Newsome: I was hoping you could talk a little bit about the war for talent. We see a lot of headlines, particularly on the property casualty side of the house about books getting hired back and forth. And where do you think Willis fits within that? And do you think we're seeing a heightened level of poaching back and forth? Carl A. Hess: Yes. Thanks for the question. We are really happy with our ability to attract and retain top talent. As Lucy shared after she joined last year, right, the success of our strategy over the last 4 years and the world-class resources we've developed to serve clients, they're highly attractive to prospective employees. We continue to hire strategically with a focus on bringing in accretive talent, especially within our Specialty lines and geographies. More broadly, we continue to make investments in the fastest-growing and most profitable areas of our business. And so we remain very excited about the innovation fostered by both these investments and the new talent in the organization. It's helping us realize significant opportunities to accelerate profitable growth and to enhance our margins. Jon Paul Newsome: So do you think you're getting kind of more than a fair share at this point? Or do you think you've sort of reached a point where you're kind of at your steady state of continued growth? Lucy Clarke: I'll just pick up on that. Thanks. So of course, our people are it for us, and our business is built around talent. Incredibly proud of the people who work here and how they look after our clients. That really strong focus on talent has been the key driver of our organic growth and, of course, particularly for new business growth over the last few years. We will continue to complement our existing talent by making strategic hires in the areas we think that they'll be most impactful both in terms of geography and specialty. It's proven to be a real successful strategy for us, and we'll continue to execute on that. Operator: And our next question comes from the line of David Motemaden from Evercore ISI. David Motemaden: I had a question just on some of the R&B commentary just around the path to achieving the high single-digit growth, just getting more challenging, given the current pricing environment. And I'm not so much focused on fourth quarter, but just thinking bigger picture about the mid-single-digit to high single-digit growth targets you guys had laid out at your Investor Day about a year ago within R&B. Just given the current environment and the direction of travel, I guess, how are you thinking about that target? Is it still that mid-single to high single, mid-single, is low single digit on the table? Just interested in your thoughts on that. Carl A. Hess: Yes. I mean, stepping back, right, our solid performance this year reflects the success of the specialization strategy and demonstrated by 6%, the solid 6% we got out of CRB, that 7% we do exclude book of business and fiduciary income for the quarter. Given our performance year-to-date, we remain committed to mid- to high single-digit growth in R&B for the year. But as we've said, right, we acknowledge that high single digits, a bit more challenging now with the current environment. Lucy Clarke: Yes. Let me just add to that. Thanks, Carl. Yes, so we've made the comments about where we expect '25 to end up. And obviously, we're not going to comment on '26 until next quarter. But we still have plenty of room to grow across Risk & Broking. We expect client demand and the attractiveness of the specialty structure to continue to generate growth rates that continue to lead the market. So we see a lot to be optimistic about, but we'll talk about '26 next quarter. David Motemaden: Got it. Okay. And then just following up, just seeing an economy that looks like capital spending and spending is still solid, but then employment growth, which Carl, you mentioned that's slowed a bit. And I hear you loud and clear that HWC is vastly recurring in nature, if I think about their revenues. But could you just help me think about just general employment levels and how that might impact some of the contracts that you have, particularly in BD&O even if it is recurring. Are there different bands there that can tweak up and down based on your client employment levels? Or could you just help me think through the sensitivity of your businesses to that? Julie Gebauer: David, I'll pick up on that one. Look, overall, we haven't seen softening employment impact our revenue overall. And I can tell you that even with a softening employment landscape, we expect to deliver mid-single-digit revenue growth in HWC this year. And while it's worth noting that employee turnover has dropped across industry, there is still high competition for certain jobs and skills. We've got -- we do these talent intelligence reports that found that organizations are investing heavily in technology, talent, data roles, customer service jobs. And then balancing that alongside other external factors like things I've mentioned before have been mentioned before, health care inflation, healthy pension-funded status new legislation where our clients need support, we believe that overall environment is generally favorable for our HWC services, and that includes BD&O that you specifically mentioned. Operator: And our next question comes from the line of Mark Hughes from Truist. Mark Hughes: In the Health business, I talked about the strong pipeline. How much of that do you think is you're taking share versus there's just a lot of movement, a lot of folks looking for solutions given health care inflation. Carl A. Hess: Thanks for the question. Just to take this one step back, right? The Health business at 7% for the quarter, and that's 8% before when you exclude book settlement and really reflecting broad-based growth across all regions. We think our strategy is continuing to yield meaningful results. This is the sixth consecutive quarter of growth in the high single digits range. Our expectation is that demand is going to remain solid for the rest of the year driven by a very solid pipeline and supportive external trends. And though we do recognize we have a strong comp in Q4. We continue to expect to deliver high single-digit growth for the full year. But maybe if Julie could give a bit more commentary about what we're seeing in Health. Julie Gebauer: Yes. Sure, Carl. And Mark, to pick up on your point, I'll start with the external environment. Health care inflation is still front and center for a lot of organizations due to the higher cost driven by things like increased utilization, technological advances, prescription drug cost increases and the list goes on. In fact, we've done some recent research that shows that 73% of company, 73% are feeling more cost pressure in this area than at any point in the last 10 years. So it isn't a surprise that they're turning to us for help in managing these costs, whether that's to take health plans out for competitive bids or considering more significant changes. So this environment has been favorable. And we've been successful with focused sales efforts and a strong service and that has generated strong retention new business and good results for some of our solutions like global benefits management and our middle market offerings. And so our pipeline is strong. And to repeat what Carl said, we are confident in delivering high single-digit growth for the full year. Mark Hughes: Very good. And then on the -- in the retirement business, what is the prospects for continued project work if interest rates are going to be declining here? Presumably, most pension funds are pretty -- doing pretty well. But what is -- how does 2026 shape up relative to 2025 on that front? Carl A. Hess: Yes. And again, let's ground this where we're starting from. Wealth generated 5% organic for the quarter, driven by strength in retirement. New clients and core DB services and LifeSight to your point, expanded project work for existing clients, right? Our investments business is delivering growth from new products and client wins. We continue to expect low single-digit growth for the year and over the long term. And Julie, what are we seeing on the ground and what do we think about the future? Julie Gebauer: Yes. Yes. I'd like to actually break this into 3 pieces. The core defined benefit work emerging work in the defined contribution area and then developing product solutions in the investments area. So starting with core defined benefit, we have added more clients in our target market. And to the point that's been made already conducted more project work. That includes not only derisking, which is interest rate dependent, but derisking readiness for the future, doing things like data cleanup, helping clients with workforce management projects and doing work to support the adoption of new legislation. We have very good momentum going in this area, and we expect these trends to continue. Now in defined contribution, we are live with our LifeSight Solution in 12 countries now, and we continue to add clients and assets under management. At the end of the quarter, last quarter, our assets under management across our Master Trust type arrangement with over $42 billion. And then we've seen strong performance in our new product launches in our Investments business. I want to highlight what I think is a really exciting example where we launched funds in collaboration with BlackRock for our clients' international defined contribution pension plans. And that has been seeded with over $1 billion in assets from a client headquartered in the Middle East. So with developments like this, we expect our Wealth businesses to grow revenue steadily in the short to medium term. Growth is expected to accelerate over the medium to long term as we build in some of these faster-growing areas that I've mentioned. And I'll just close with the momentum that we have this year, we're expecting results to be at the top end of the low single-digit range. Operator: Our next question comes from the line of Ryan Tunis from Cantor. Ryan Tunis: Just one for me. So in Risk & Broking, the 7% organic. Can you give us some idea of geographically, how the U.S. fits in there versus International? Andrew Krasner: Yes. So we saw growth across all of our geographies. We're happy with how all of the businesses performed but don't get into the detail on geography by geography basis. The U.S. is about less than half of the total portfolio that we have within that business. So again, well diversified across geographies, lines of business markets and property casualty splits, and that's served us well. Ryan Tunis: Sorry. But like seems like broadly, that's where we're seeing some pressure on brokerage, organic just on the U.S. side. So you're saying that we should assume that U.S. is running somewhere in your 7% organic? Lucy Clarke: No, that's not what we're saying. We saw particularly good performances from the U.K. and our GB and International, and we had some outperformance there. Operator: And our next question comes from the line of Mark Marcon from Robert W. Baird. Mark Marcon: One for Julie and one for Lucy. Julie, just with regards to the health insurance pressures that employers are facing. Typically, when we go through these time periods, how long do you see elevated levels of continued requirements for help from your clients? It seems to me like it would be a multiyear process to try to optimize benefit plans and things of that nature. But I'm wondering what your perspective is on that. And then for Lucy, obviously, we all know that we're going into a softer cycle, how would you characterize this softer cycle relative to others? And to what extent does that impact your ability to gain new clients from competitors? Julie Gebauer: Mark, thank you. On the health care front, you're right that this is typically a multiyear phenomenon where we have higher health care inflation around the world. We're already looking out at estimates for 2026, and it is still expected to be high. Lucy, you want to comment on... Lucy Clarke: I would love to Julie. Thank you. Yes, thanks Mark, for the question. So how would I characterize this soft cycle compared to other soft cycles? I guess I would just make the note that we are talking about it being a softer cycle, but it's important to remember where we've come from. We had 5 years of rating increase. And so where we are is softer, but it is still considered rate adequate in most -- by most carriers. And in terms of how does it affect our ability to attract clients. Well, I mean, clients aren't only looking for the lowest price. They will get better pricing from brokers across the board. But we think that the biggest thing we have to offer clients is the differentiation in our specialization strategy. Operator: Our next question comes from the line of Meyer Shields from KBW. Meyer Shields: Two quick ones, hopefully. And I apologize if this has been covered before. But given the fact that you've done $1.3 billion of repurchases year-to-date and fourth quarter is the strongest free cash flow quarter. Why is $1.5 billion the right number for 2025? [indiscernible] Shouldn't it be higher? Andrew Krasner: Yes, sure. So as we mentioned in the prepared remarks, we're still targeting $1.5 billion in subject to market conditions and, of course, potential capital allocation to organic or inorganic investment opportunities. In terms of timing and potential upside, we continuously monitor our cash levels and market conditions to take advantage of opportunities to accelerate repurchases. And will lean in if the opportunity presents itself, and we think it's a prudent thing to do. As we always have, we evaluate all of our options for capital allocation, which does include share buybacks, internal investment and carefully consider strategic M&A to make sure that we're maximizing value creation for our shareholders. Meyer Shields: Okay. That's fair. Second question, with the survey-related results or revenues that are being deferred to the fourth quarter, were the associated expenses still booked in the third quarter? Andrew Krasner: Yes. The simple answer to that question. So we expect some revenue to bleed over into Q4 related to that sort of temporary shift in timing. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Carl Hess for any further remarks. Carl A. Hess: Thanks, everyone, for participating today. Before we wrap up, I'd like to acknowledge the destruction caused by Hurricane Melissa and express our deepest sympathy to all of those affected. For our clients and business partners in the areas impacted our thoughts are with you, and we'll continue to lend our support through this difficult time. Thank you all for joining us this morning. I do want to thank once again all our WTW colleagues again for their hard work and dedication, and thank you to our shareholders for their continued support of our efforts. Have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Greetings, and welcome to the Terex and REV Group merger call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President of Investor Relations. Please go ahead. Derek Everitt: Good morning, and thank you for joining us to discuss the planned merger of Terex Corporation and REV Group and Terex's intention to exit its Aerial segment. A copy of the related press release and presentation slides are posted at investors.terex.com and investors.revgroup.com. The replay and slide presentation will also be available on those websites. This morning, Terex also announced its third quarter 2025 earnings. The corresponding presentation and press release are posted at investors.terex.com. Please turn to Slide 2 of the merger presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the presentation and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information we believe is useful in evaluating operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. References to year is [indiscernible] unless otherwise stated. Terex's fiscal year-end is December 31 and REV's fiscal year-end is October 31. References to the merged company's financial year on a pro forma basis reflect these different fiscal years. On Slide 3, we provide additional information and links to related documentation. Continuing to Slide 4. Today's presenters will be Terex's President and Chief Executive Officer, Simon Meester; and REV Group President and Chief Executive Officer, Mark Skonieczny; Jennifer Kong-Picarello, Terex Senior Vice President and Chief Financial Officer; and Amy Campbell, Chief Financial Officer of REV Group, will also be participating in the Q&A session that will follow the prepared remarks. Please turn to Slide 5, and I'll turn it over to Simon. Simon Meester: Thanks, Derek. Good morning, everyone, and thank you for joining us today as we launch a transformative new chapter for Terex and REV Group. Before we discuss this exciting new step, I want to take a brief moment to thank the Terex team for another solid quarter. We delivered $1.50 of EPS on sales of $1.4 billion with a cash conversion of 200% and are maintaining our full year outlook. The team continues to execute really well. We successfully completed the ESG integration, and we're very excited about what's next. Today, we are announcing the merger of 2 great companies to create a U.S.-centric large-scale specialty equipment manufacturer with iconic leading brands serving highly resilient and growing end markets. The new combined company will be truly transformational in makeup and markets served. With complementary operations, management systems and channels, we have created the opportunity to unlock significant readily achievable synergies, making the combined company stronger and more competitive, a win-win for our customers, our team members and our shareholders. We believe the financial profile, growth potential and leverage is highly attractive and will deliver significant value to Terex and REV Group shareholders. In addition to stronger, more predictable earnings and associated free cash flow, the combined company will have a low capital intensity profile, providing a solid foundation for future profit enhancing and growth investments. Let's move to Slide 6 to review the transaction in more detail. Terex and REV have entered into a definitive agreement to merge in a stock and cash transaction that will result in Terex shareholders owning 58% and REV shareholders 42% of the combined company. This allows both Terex and REV shareholders to participate in the potential upside of the combined company. REV shareholders will also receive $425 million in cash consideration. The combined company will trade on the New York Stock Exchange under the current Terex stock ticker, TEX, and I will serve as CEO of the combined company, supported by a proven management team that reflects the strengths and capabilities of both organizations. At closing, the Board will be comprised of 7 directors from Terex and 5 from REV. We expect to complete the merger in the first half of 2026, subject to customary closing conditions. Our teams have developed a detailed plan to deliver at least $75 million in annual synergies, contributing to the highly attractive financial profile of the new company. We're also announcing that we plan to exit our Aerial segment and are evaluating a potential sale or spin-off. This exit will significantly reduce our exposure to cyclical end markets. Considering the achievement of synergies and the exit of Aerial segment, the merged company is expected to provide a mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, near the top end of the specialty equipment peer group. At closing, the combined company is expected to have a strong balance sheet and liquidity position with approximately 2.5x leverage on a pro forma basis with the opportunity to delever further upon the exit of the Aerial business. Turn to Slide 7, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon, and good morning, everyone. Speaking on behalf of the REV team, I'm excited about joining forces with Terex and embarking on the next chapter of our transformation, becoming an even stronger company with new opportunities to leverage our combined scale and operating systems to drive product innovation and even greater efficiency. Both our teams have done a lot to transform our businesses over the past several years. We have taken steps to strengthen our respective portfolios by acquiring highly regarded businesses and making them even better while driving greater focus by divesting businesses that don't align with our strategic direction or financial thresholds. Over the past few years, the REV team has deployed its operating system to drive broad-based improvements within the business. We executed simplification and process flow improvements across our manufacturing footprint, worked diligently to improve safety and invested in onboarding and training for our employees. Our sourcing team fortified the supply chain through multi-sourcing initiatives that lowered costs and made material flow more dependable and less exposed to market disruptions. And we are now in the early stages of product simplification and commonization that we believe are the next steps in maximizing our operational potential. I am proud of the hard work and improvements delivered by our team over the past 3 years and believe the company has reached a level of performance that provides a foundation for even greater momentum. Combining with Terex is a unique opportunity that we believe will create meaningful value for our shareholders. Simon Meester: I agree, Mark. Terex went through a similar rationalization exercise in recent years. And when Terex acquired ESG last year, we took a significant step to strengthen our portfolio, improve our margin profile with higher and more predictable earnings and associated cash flow. The recently announced divestiture of our Italian crane business that we expect to close very soon was another step in that direction. And clearly, merging with REV and exiting the Aerial segment will take our performance to another level. All that said, we are still in the early innings of our strategic transformation with significant synergies to deliver and growth opportunities across each of our end market verticals to continue to create shareholder value beyond this merger. Let's turn to Slide 8. We are merging 2 strong companies to produce a combination that will clearly be greater than the sum of the parts. After completing the Aerials exit and adding $75 million in synergy value, the pro forma company is expected to deliver EBITDA margins of about 14% with a cash conversion of approximately 85%. At $5.8 billion in revenue, we will have meaningful scale with a strong balance sheet, well positioned to continue to invest and create additional value for our shareholders. Moving to Page 9. The combined company will be U.S.-centric, competing in a diverse and balanced set of attractive end markets. Approximately 85% of the combined revenue will be generated in North America with the vast majority from products that are made in our combined U.S. manufacturing network. The portfolio will be well balanced with about 40% of sales related to Specialty Vehicles with the remainder split between Environmental Solutions and Materials Processing. Each business has a demonstrated track record of delivering resilient and predictable operating results to a large degree because of the resilient end markets they serve. From a Terex perspective, the pro forma end market profile will be less cyclical than ever before in our history. And by design, with nearly 60% of revenue associated with emergency vehicles and waste collection, a significant share of our volume is tied to essential services that are not subject to economic ebbs and flows like other markets. On the utility side, we expect accelerated growth for years ahead stemming from AI, data centers and the need to significantly upgrade the U.S. power grid. We also continue to see growth for infrastructure spending in the United States, Europe and around the world, which will benefit our Materials Processing business. Turn to Slide 10, and you will see a snapshot of some of our great products and brands. We are a leading player in each of these markets. As I mentioned earlier, with combined pro forma sales of $5.8 billion, the total addressable end market for our products provides significant opportunity for additional penetration and growth. Terex Utilities manufactures bucket trucks, digger derricks and related products that enable linemen to work safely on light electrical transmission and distribution lines across North America, a key advantage to maximize grid uptime with emerging opportunities overseas. As a leading player in this space, we are increasing capacity and throughput within our current manufacturing footprint as we see share gain opportunities in this expanding market. Our ESG business is a leader in refuse collection vehicles, compactors and related digital products. The HAL brand is regarded as a technology leader with a full range of automated side loaders, front loaders and multiple digital products. Our 3rd Eye digital platform is a meaningful and growing revenue stream on the refuse side of environmental solutions with extension opportunities across every vertical. In the center, you will see examples of our extensive materials processing product range. Our Powerscreen and Finlay brands are global leaders in mobile crushing and screening within the broad aggregates industry and relatively new brands such as Ecotec are leveraging core MP technology to expand into environmental and other adjacent markets. Examples of our industrial vehicles range include Advance, a market leader in front discharge cement mixers and Fuchs material handlers sold to scrap, recycling and port customers around the world. Turning to Specialty Vehicles. REV has developed an extensive line of fire trucks and ambulances all under brands such as E-ONE, Spartan, AEV and Wheeled Coach that are recognized as market leaders in quality and reliability by the first responder community. REV's nationwide customer base is supported by an expansive dealer network to ensure their vehicles are available to execute their life-saving duties. In addition, REV's niche portfolio of motorized recreational vehicles includes such leading brands as Fleetwood and Renegade. Turning to Slide 11. Common characteristics across many of our end markets include economic cycle resiliency through reliable replacement demand and aftermarket service, market growth supported by secular tailwinds and the ability to differentiate through quality technology and life cycle support. The emergency response fleet with the support of its dealer network serves the nation's first responders from volunteers in small towns to the largest cities that own fleets of hundreds of fire trucks and ambulances and everything in between. We continue to see demographic trends, including outward suburban expansion that leads to municipalities growing their fleets. REV has done an excellent job customizing its product offerings to align with the needs of its diverse customer base and vastly different infrastructure requirements. Its end customers have stable budgets supported by municipal tax receipts and departments that prioritize emergency vehicle replacement and fleet growth to maintain coverage requirements. There are similar dynamics in waste and recycling, where growth is fueled by 4 main drivers, starting with population and economic growth, more consumption generating more trash; and second, disciplined vehicle replacement, particularly with the national fleets and large municipalities. Third, accelerated replacement demand driven by innovation leading to lower total cost of collections from products such as automated side loaders that replace manual rear loaders and reduced emissions delivered by our CNG offerings. And finally, growth in digital solutions where we are the clear leader in this space. Within infrastructure, there is plenty of runway ahead with the allocated government spending with a clear need for more investments ahead. In the U.S. alone, the backlog of mega projects continues to grow, providing a tailwind through 2030 at least. Looking abroad, we are seeing infrastructure spending momentum across Europe, while the Middle East and India, where MP already has a strong presence also continue to grow. And finally, the utilities market is also poised for significant market growth. Demand on the U.S. electrical grid is increasing with the majority of data center-related growth still yet to come. Industry forecasts anticipate public power and independently owned utilities CapEx to grow between 8% and 15% per year through 2030. So with this portfolio of leading businesses, we think we're very well positioned for growth for years to come. Let's turn to Page 12, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon. I agree the combined company is well positioned for sustained growth. The investments we have made in our respective operating systems will help ensure we capitalize on those growth opportunities and deliver the synergy value that we have defined here today. Through our operating systems, our companies have provided a framework designed to drive excellence across all aspects of our organization from operational efficiency and innovation to customer satisfaction and employee development. By leveraging a structured set of tools, processes and performance metrics, these programs ensure consistent execution of our strategic priorities, fostering sustainable growth and profitability. They empower teams at all levels to focus on continuous improvement, problem-solving and value delivery, creating measurable benefits for customers, employees, shareholders and communities alike. This disciplined approach will align the combined company towards achieving world-class results while reinforcing our commitment to being trusted leaders in the industries we serve while delivering value to our shareholders. Simon Meester: And at Terex, we launched the Terex operating system, which is very well aligned in its design and purpose with the REV system to accelerate continuous improvement and leverage our growing scale. We also refined the integration excellence playbook component of our operating system as we integrated ESG. Terex has muscle memory from its past and got it back in shape recently, setting us up well to execute this integration. Our organizations also share a performance-based culture. The combined team will be energized and fully capable of capitalizing on the many opportunities that lie ahead. Let's move to Slide 13 to talk more about the $75 million in synergies. Our teams have already started to lay the groundwork for synergy realization. We have a detailed project plan and will hit the ground running the day we close. We expect to achieve about half the $75 million run rate within the first 12 months as we consolidate corporate activities and eliminate duplication. Sourcing savings will ramp up starting with simpler categories like MRO, hardware, steel and more standard material before moving into more customized engineered components. Ultimately, every category will be addressed by the team, resulting in a more resilient and cost-efficient supply base. On the operational side, we will build on the best practice sharing that has been done within both organizations and extend them across the company. The extensive U.S. footprint will provide greater optionality to increase domestic capacity, leveraging our combined capabilities. We expect go-to-market synergies over time as we optimize distribution channels and customer relationships, and we see meaningful opportunities to extend our 3rd Eye digital platform in the fire and ambulance verticals in the future, building on the technology developed in refuse, which we have started to extend into our utilities and concrete businesses. The mission-critical status and intense conditions faced by first responders creates a natural use case for enhanced situational awareness for better maneuverability and safety provided by the 3rd Eye digital platform. We have a lot of exciting value creation opportunities and a track record of delivering. Turning to Slide 14. With this transaction, we are essentially rebaselining the new company with much more resiliency and predictability in both top and bottom line performance in different end market mix and an overall enhanced margin profile. As an example, we are significantly reducing our exposure to the cyclical construction markets. We believe that equity markets value resilient, predictable earnings and reward growth. The transformational actions we announced today hit both notes. The exit of the Aerial segment further enhances that profile by removing cyclicality in the combined business. With pro forma 2025 estimated EBITDA margin of 14%, we are creating a company with greater revenue growth potential and reduced earnings cyclicality that we believe is highly sought after by market participants. Moreover, our combined balance sheet provides optionality to take additional strategic steps over time to grow and further improve this attractive financial profile. Let's wrap up our prepared remarks on Slide 15. Merging Terex and REV creates a large-scale specialty equipment manufacturer with a highly synergistic portfolio of leading businesses across a diverse set of attractive, growing, resilient markets. We see a strong fit between our cultures and our management systems. We have the playbook, the muscle memory and the team in place to execute our integration plan and unlock at least $75 million in annual synergy value. We will leverage our shared capabilities to outperform in our end markets and generate strong earnings and free cash flow. We purposely structured the transaction to result in a strong balance sheet and flexible capital structure to enable future organic and inorganic investments. I want to close by thanking the REV and Terex team members for their tireless efforts getting us to this point. I look forward to the exciting future ahead for our combined company. And with that, I would like to open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stephen Volkmann from Jefferies. Stephen Volkmann: Congratulations. I don't usually say that, but this seems like a lot of work in a big transaction. So best of luck on all that. I guess I'm curious maybe as a starting point, Simon, you talked about the sort of more stable profile and the cost synergies, which all kind of makes sense. But what are you thinking strategically relative to growth going forward? I know you listed some specific growth things, but there were mostly kind of stuff that I think we already thought Terex had. So how does this kind of jump-start growth for you over the next sort of 5 years or so? Simon Meester: Yes, Steve, thanks for the question. And yes, thank you. We are obviously very excited announcing the merger this morning. We think it checks all the right boxes. And to your point, it creates a new significantly less cyclical combined portfolio with attractive and growing addressable markets. And yes, besides the synergies that this brings and the more predictable profile, we do see a lot of growth potential, as I mentioned in our prepared remarks, across all of our verticals. And a lot of that is tied to just urban expansion, population growth, electrical grid upgrades, infrastructure investments, but also more waste and recycling. And that's just the addressable markets as they grow. But then as this group comes together, we also see a lot of opportunities in customers that we both cover in products that we can develop together. I'm thinking about the digital use cases that we referenced in our prepared remarks that we see use cases, for example, in some of the REV applications with our 3rd Eye products. So we see a lot of growth upside in both purely addressable market and in terms of revenue synergies. Stephen Volkmann: Okay. Great. And then maybe just a follow-up relative to the AWP sale or spin. That's interesting from a timing perspective because I guess one might argue that things are sort of bumping along a bottom there. Why not sort of hold on to that until it's a better business and sell it at some other point? Simon Meester: Yes. Great question. We think that the Aerial's journey is very well documented on how it performs through the cycle. Our Aerial's business has a strong brand, strong team, strong footprint, strong legacy. We are excited about the product portfolio and its pipeline. And obviously, the level playing field now that we have these 2 favorable antidumping rulings in both North America and in Europe. And we are convinced that there will be plenty of suitors out there who will recognize the through-cycle value that we believe the Aerial's business will bring to their portfolio. So we think that, that is transparent enough. Operator: Our next question comes from the line of Mircea Dobre from Baird. Mircea Dobre: I guess I would have a question for Mark, and this is a REV Group perspective here. I'm just sort of curious, Mark, to get your thoughts in terms of how this transaction came to be and how you evaluated value creation from the standpoint of the REV Group shareholders. Your Specialty Vehicles business has done well, and you're clearly on a path to expand margins with a lot more to come as we look at the next couple of years, right? So that opportunity is still ahead. So as you think about this business now being part of Terex, why does it make sense to enact this merger at this point? And from a valuation standpoint, I don't know if I'm doing the math correctly, but it looks to me like the transaction implies about 11x EBITDA on 2026. If that's correct, how did you think about the right valuation framework to apply in this transaction? Mark Skonieczny: Yes, sure. So obviously, from how it came about just through the normal course of banker discussions and the opportunity that was presented was really compelling, as we've said in our prepared remarks. But as we also talked about, it's just a natural step in the transformation journey. I think, Mig, in the past, we've talked about what kind of products that we'd be looking for, what kind of companies we'd be looking for. And obviously, we've stressed something in the refu or utility space was always on our radar. When you look at the leading brands that come together in this portfolio, it was just a natural fit for us, especially with the exit of the Aerial's business when you put these 2 companies together. And from a valuation perspective, when you look at the mix of the consideration, it treats both shareholders very well and it provides the ability to participate in future upside of the company, the combined company. And the $425 million of cash consideration still leaves a strong balance sheet for the new company. So if you look at our shareholders specifically, they continue to participate in the upside that you are quoting there, but also get to participate in the synergy realization, the $75 million and to participate in the value unlock associated with the Aerial exit, which we've included in that -- in the deck. So I think that really was the construct and how we came about it and how I looked at it, both from an operational good tangential products and ultimately, the value creation that it gives our shareholders. Mircea Dobre: Okay. And then my follow-up, $75 million of synergies, certainly not a bad number, but as a percentage of sales for the combined entity, it doesn't seem like a big hurdle. So I'm kind of curious to what degree this number might prove conservative over time. And we haven't really talked about RV. I know this has been part of the REV portfolio a smaller business, but perhaps less of a focus? Is RV considered for potential sales divestiture in the near term as well? Simon Meester: Yes. Thanks, Mig. So yes, $75 million run rate going into 2028. We think 50% is -- will be achieved within 12 months after closing. We have very similar operating systems, very similar culture. So we do think we will hit the ground running, and we have a good pipeline. We just want to walk before we run. And I think similarly to when we announced the ESG synergies, we just want to make sure that we manage the pipeline accordingly. And then obviously, we're going to try to overdrive the number, but that is the number that we're currently communicating, and we're going to do our best to exceed that expectation. And when it comes to the RV business, first and foremost, we're going to focus on the things that we are announcing today, the integration of the 2 companies, the execution on the synergies and then the Aerial's exit. But going forward, we will continue to assess the effectiveness of our portfolio as both companies have done and will continue to do and just -- and make the right decisions for our shareholders. Operator: Our next question comes from the line of Jamie Cook from Truist. Jamie Cook: Congratulations on the transaction. I guess my first question, Simon, back to the unlocking of shareholder value. Key to that, obviously, is you guys either selling or spinning the Access business. So I'm just wondering your confidence level in sale versus spin and potential timing because if it's a spin, I guess I'd be probably more concerned with the market would value the Access business. So first that. And then I guess my second question, wondering if you could talk a little more about the opportunity with 3rd Eye. You mentioned it a little in your prepared remarks and whether with the 2 combined companies, what the aftermarket is as a percent of sales? And is there a bigger aftermarket story here, the ability to grow aftermarket and increase it as a percent of the total to again reduce cyclicality and potentially improve margins further? Simon Meester: Yes. Maybe I'll talk about Aerial's and then maybe, Mark, you can share a little bit your thoughts on digital in the applications that your business addresses. So on Aerials, yes, as I mentioned earlier, the Aerial's business is a great business. There's a lot of equity in the brands. There's obviously 60 years of history, part of the founders of that industry. And it's been a public reporting segment for almost 20-some years or so. So we think it is very well known what the Aerial business does and can do through the cycle. It is a cyclical business, but there are suitors out there that like that kind of profile. So we are not concerned that there won't be any suitors. Quite the opposite, we think there will be quite a few. So for the simple matter is that it's a very recognized business on how it performs through the cycle. Mark, do you want to take the digital question? Mark Skonieczny: Yes. I think, Jamie, I won't address the aftermarket side. But obviously, as I visited the facilities and look at the products, and there's just a plug-and-play replacement for some of the cameras that we use, but also the back-end software capabilities. We are in the beginning stages of looking at telematics and other things that, that product offers. So it's really an advancement of some of the things that we are doing from an innovation side. So it really gives us an upper hand in advancing that. So I would say the aftermarket part of that comes afterwards, obviously, but the initial install will be very favorable to the combined company, which is what we referred to. So I think that we're excited about that and the opportunity and the advancement that this gives us on the innovation side of the -- especially on the municipal-based businesses like we've talked about. Operator: Next question comes from the line of David Raso from Evercore. David Raso: I was curious, Simon, the decision to exit Aerial's, when was that strategic decision made? Was that something you thought about when you became CEO about 2 years ago? Was that already on the agenda? Or would you say it was more related to the potential swap here in businesses? Simon Meester: Yes. We have always had the intent to make our portfolio less cyclical. And the first step, we kind of diluted the cyclical part of our portfolio by means of the ESG integration. And I think that's exactly what happened, and our stock has shown more resiliency as a result of it in the last 12 months. And it's been a very successful integration. And then as this deal was -- or this opportunity was presented to us, we just started to analyze and we saw the merit and we saw the clear value that it would bring to our shareholders and that it would be that next step in terms of making the portfolio less cyclical. So no, it's just something that's kind of evolved organically over the last couple of months. And then we felt that it was a really compelling case and hence the reason we pushed forward with it. David Raso: Yes. I'm just trying to get a sense of how far along are we already in you understanding who the potential buyers are? Are books out already? Just trying to get a sense of the timing, if it's something you've thought of for a while. And as you discussed, you feel like the earnings over the cycle are well understood enough. The timing of the sale, maybe you're a little less sensitive to than others could believe. But just curious, how far along are you in this process knowing who the potential buyers are? And are the books already out? Simon Meester: Yes. No, they're not out. But yes, obviously, we talk to a lot of people just as you do. As I said, I think it's -- the business is well understood. And I think it's also, as I mentioned a couple of times, very well documented on how it performs through the cycle. And I don't want to get into too much detail on who we're talking to and what's going on. But we're starting the process formally today. And we will -- we feel confident that there will be plenty of suitors that will reach out to us over the next couple of days, weeks. David Raso: Okay. But safe to say this is not ground zero starting the process. It's been something that's been in the works at least in that, okay. Simon Meester: No. Operator: Our next question comes from the line of Tim Thein from Raymond James. Timothy Thein: The question I had was on distribution, specifically as it relates to Terex's ES segment and the Specialty Vehicles group of REV Group. I'm just curious if there is any overlap there. I'm thinking -- I know there's some mix of direct sales as well as what goes through dealers. And so again, I'm just thinking to the extent there's overlap or any potential kind of channel conflict just given that a lot of these specialty dealers will carry multiple lines and multiple brands. And so I'm just thinking if that's any issue that has to be thought through. Mark Skonieczny: Tim, this is Mark. And from our perspective, and we've looked at that, there is no overlap across these channels, which sort of is again, the beauty of this transaction, bringing these complementary products together. So there is no overlap that we're aware of that will cause an issue. Timothy Thein: Got it. Okay. And then just on the -- I apologize if I missed it, but was there a time line in terms of -- for the AWP sale or spin? And then anything you can help us with respect to the tax basis of that business as we think about those 2 potential options? Simon Meester: Yes, we have not communicated an explicit time line. And yes, we will keep you updated as material developments occur, but nothing else to share on that at this point. Operator: Our next question comes from the line of Michael Shlisky from D.A. Davidson. Michael Shlisky: Congratulations. I wanted to circle back to Mig's question and just kind of follow up there. Looking at the 2026 EBITDA for REV Group Mark, it is looking like around 11x, but you had some pretty sharp increases in your 2027, 2028 outlook where have much higher than that, 25%, 35% higher by that point, roughly $75 million worth. So I guess, one, I want to make sure that you're not double counting. You're still on track to get that 2027, 2028 EBITDA goal that you've already stated. And then secondly -- and this is all new synergies beyond that. And then secondly, I think the multiple is a lot lower or a bit lower when you consider that most of that number in 2027, 2028 is I don't want to say in the bag, but largely booked because it's a lot of fire trucks. So I'm just curious how you engage in discussions, given what you know about where you think that is going as opposed to where it's been and the trailing EBITDA. Mark Skonieczny: Yes. Again, I think this transaction allows our shareholders to continue to participate in that as you've seen in our quarterly results and the fact that we've been ahead of the targets for 2027. So from the progression to those targets. So we feel very good about the accomplishments that we've had so far to date with the throughput increases and the margin realization that you're pointing out. So this is not a reflection at all of our ability to hit those. We are very confident in those numbers that those, and they were obviously supported the deal when we looked at valuations for both sides of the shareholder base. So I would say that. And then obviously, the synergies on top, as you pointed out, gives us value creation as well as the ability to participate in the unlock, like I said, to Mig on the Aerial exit on the side of the Terex house. So ultimately, I think all that was taken into consideration when we did the deal. Michael Shlisky: Okay. And then secondly, I wanted to ask the synergy outlook for the combined company. is that combined with Aerial's or without? I guess I'm kind of curious, you'll get some synergies on purchasing steel and so forth post the merger, but are there dissynergies if and when you spin off the Aerial's and you'll have the opposite. We'll have a little bit less scale on buying steel and other components. I guess I just want to know, is it net or is it gross, the current synergy expectation? Jennifer Kong-Picarello: This is Jen. That's a net amount. So we have taken into account the dissynergies. Operator: Our next question comes from the line of Kyle Menges from Citigroup. Kyle Menges: Congratulations on the deal. I am curious how you're thinking about integration of these 2 entities over time. It looks like there's some operational cost revenue synergies, especially between the ES segment and REV Group's businesses, but also looks like these 2 will kind of run as individual segments. So any thoughts there would be helpful. Simon Meester: Yes. Thanks for the question. Yes, first of all, in terms of integration, the plumbing, so to speak, will follow the same playbook that we used for the ESG integration. And we think we have a strong process there and a strong track record on doing these kind of integrations. And then the way we will complete the segments makeup, so to speak, is that the REV segment will become a dedicated third segment to the Terex portfolio. Kyle Menges: Got it. And then on synergies, it feels like the bulk of cost and revenue synergy would be between the ES segment and REV Group. So curious what the synergy is between REV Group and Materials Processing and just now how you think Materials Processing, how that segment fits in the portfolio? Simon Meester: Yes. The big swings are the -- obviously, the corporate cost synergies because we're merging 2 public companies. And then there is multiple efficiencies in SG&A and supply chain and logistics. Also in terms of our shared services footprint, there are synergies there and then a big one in terms of manufacturing best practices. And one of the examples I'd like to call out is if you look at what -- how our utilities margins, for example, have improved over the last 12 months just by the virtue of now reporting into the ES segment, you can see that how those manufacturing best practices can really drive margins up. So those are the big swings in terms of synergies between the 2 companies. Operator: Our last question comes from the line of Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Congrats on the deal announcement. Simon, just wanted to go back to the point on cyclicality on Aerial's, I understand, and I think this has been asked in a number of different ways, but I just wanted to touch on it a little bit more. Just given you don't need the proceeds to kind of delever to a reasonable range here, why not keep Aerial's as a means of kind of maintaining some diversification in terms of kind of end market exposure near term? And maybe just kind of -- that's just kind of a different way of asking basically, if you don't mind kind of expanding on some of the implications of the intention to sell Aerial's on kind of your view of either the near-term upside opportunity associated with the U.S. rate cycle or kind of improvement there and also the longer-term views of the ability of Aerial's to kind of achieve mid-teens margins kind of through the cycle, I believe that I think that was kind of the longer-term target. So if you could just talk about -- are these positives getting pushed out to the right? Any structural changes to kind of how you look at that business would be helpful. Simon Meester: Yes. Thanks for the question. So yes, we're basically -- with this merger, we wanted to rebaseline the company. That's what we wanted to do. So with these -- with the REV Group and our Materials Processing segment and our Environmental Solutions segment, we're basically becoming a new company. And what we want to pursue is a more predictable, much less cyclical kind of earnings profile. That's what we want to do with the company going forward. And we believe that Aerial's is a proven business. It's a strong business. There is a lot of upside coming from the mega projects alone in the United States. And then obviously, we see now Europe starting to invest in infrastructure, public construction as well, which will fuel further demand. We're not going to get into guiding, obviously, for 2026 here on this call today, but we think there is a lot of upside for the Aerial's business for years to come. And then combine it with, I think, a well-documented proven track record on how it performs through the cycle, we think it's a very nice business for anyone. Angel Castillo Malpica: That's very helpful. And maybe just could you touch on -- I guess, comment on what you kind of perceive would be kind of the fair value for this business given the current demand backdrop and everything you just discussed? And importantly, as it pertains to potentially different avenues to divest any concerns over the current geopolitical kind of environment and whether that limits the potential range of interested parties in these assets? I guess we're asking -- I'm asking because there's been other construction OEMs who kind of put on pause some intentions to sell assets due to kind of geopolitical challenges, maybe limiting international parties from moving forward. So just curious if you could comment on that. Simon Meester: Yes, I'm not going to comment on any kind of valuation. I think that, that would be too premature on this call. And in terms of its appeal, I mean, it's one of the -- it's a leading brand in its space. It's a very strong business with a strong brand. We have a level playing field in its addressable market, which means that there is no immediate risk for any kind of dumping activities in North America and Europe. So an attractive end market. And it has a pretty strong U.S. base. So quite honestly, I see it as the exact opposite. I see it as a very interesting asset that could give any owner a meaningful footprint in a very attractive end market and a big part of that being the United States and Europe, which are -- which is probably 90% of it anyway, if not more. So I see it completely opposite. I think it's a very attractive asset. Operator: We have a question from Steve Barger from KeyBanc. Steve Barger: And sorry, I didn't have time to look this up, but can you tell me the dollar amount and duration in years of REV Group's backlog and maybe the concentration of it by product category, if you report that? Mark Skonieczny: We don't report it by product category, but maybe, Amy, you want to take that. But it's about $4.5 billion all in and 2- to 2.5-year backlog. I don't know if you want to comment on. Amy Campbell: You answered the question pretty well there, Mark. No, that's correct. We have a $4.5 billion backlog. We do break that out, $4.2 billion of that is in what we consider our Specialty Vehicle segment and about $300 million is in our Recreational Vehicle segment. And that 2- to 2.5-year backlog is strictly for those fire trucks and ambulances. Steve Barger: Got it. And there are other fire truck and municipally oriented companies out there that, in some cases, have higher than current margins embedded in backlog due to strong pricing. Is that the case with REV Group as well? Amy Campbell: Yes. We have the same. During the pandemic, we saw backlogs for emerged fire and emergency equipment manufacturers increase across really all brands. And all of the providers of that equipment have been working through those backlogs and continue to work through those backlogs. Operator: That concludes our question-and-answer session. I'd now like to turn the call over back to Mr. Simon Meester for closing remarks. Simon Meester: All right. Thank you. So thank you for your questions today. I want to just reemphasize how excited we are by today's announcement. We are merging 2 great companies, creating a low cyclical portfolio with strong synergies, a better margin profile, a U.S.-centric footprint, leading brands and last but not least, a low capital intense kind of structure. So we're very excited on how this sets up and the value that it brings to our shareholders. So with that, I want to thank you. If you have any additional questions, please follow up with the respective Investor Relations leads. Operator, please disconnect the call. Operator: This concludes today's session. You may now disconnect.
Operator: Greetings, and welcome to Public Storage Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Burke. Thank you. You may begin. Ryan Burke: Thank you, Rob. Hello, everyone. Thank you for joining us for our third quarter 2025 earnings call. I'm here with Joe Russell; and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 30, 2025, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourself to 2 questions. Of course, if you have more after that, please feel free to jump in queue. With that, I'll turn the call over to Joe. Joseph Russell: Thank you, Ryan, and thank you all for joining us today. Public Storage's third quarter results reflect differentiated strategies that continue to drive our outperformance in addition to encouraging industry trends, including operational stabilization, lower competition from new supply and increasing acquisition activity. We are raising our 2025 outlook for the second consecutive quarter based on outperformance in same-store and nonsame-store NOI growth, acquisition volume and core FFO growth per share. Public Storage's industry leadership is proven by, among other things, the highest revenue generation per square foot with the most profitable operating platform, the strongest portfolio expansion through our best-in-class teams and backed by our growth-oriented balance sheet, the highest retained cash flow generation, which we utilized to invest back into our business to drive earnings, and FFO growth in excess of stabilized same-store growth driven by our compounding returns platform. We have been actively advancing the pillars of this platform, which include our leading operations, capital allocation and capital access. Just a few of many examples in terms of our operating innovation include: first, we have the industry's leading omnichannel customer experience through which we offer digital options across their entire journey. The success is evident with customers now choosing digital path and 85% of their interactions and transactions with us. Second, with the shift to digital, we are modernizing our field operations by utilizing AI to directly provide customer service and staff our properties more appropriately. The days of needing a property manager on site all day, every day are behind us. Instead, we now have people on site, when and where customers need help. To date, this has reduced labor hours by more than 30%, while also increasing employee engagement and lowering turnover. And third, we are deploying new technology-based strategies across the entire organization, including customer search and generative engine optimization, unit pricing and revenue management, asset management including security, vendors and maintenance, identifying and executing development opportunities and putting the right tools in our field and corporate teams hands to even more effectively drive revenues and control expenses. Collectively, these initiatives are driving higher revenues, margins and core FFO per share growth. Now I'll turn the call over to Tom. H. Boyle: Thanks, Joe. We are leaning into our platform strength. Joe spoke to our industry-leading operations and technology initiatives. I'll now touch on capital allocation, capital access and performance specifics. On capital allocation, we have accelerated portfolio growth with more than $1.3 billion in wholly owned acquisitions and developments already announced this year. The acquisition opportunities are relatively broad-based across size, geography as well as seller type. We will continue expanding the non-same-store pool through additional acquisitions and our $650 million development pipeline to be delivered over the next 2 years. We are built to execute on this activity based on our industry relationships, data-driven underwriting and strong capital position. With leverage at 4.2x net debt and preferred to EBITDA and retained cash flow reaching about $650 million this year, we will continue using our advantageous cost of capital to fund portfolio expansion and drive core FFO per share growth. Now shifting to financial performance for the quarter and our improved outlook. Revenue growth in the same-store pool came in ahead of our expectations, primarily due to strong in-place customer behavior. Overall, in-place rents were up 0.6%, offset by lower occupancy. From a market perspective, Chicago, Minneapolis, Tampa, Honolulu and the West Coast are standouts with revenue growth in the 2% to 4% same-store revenue range. Speaking specifically to the West Coast, our strong presence top to bottom from Seattle down to San Diego, representing 1/3 of our NOI, serves us well with good demand trends and more limited new supply. Los Angeles will return to strong growth when the state of emergency price restrictions expire. Our expense control across the same-store pool continues to be strong as well, held flat for the quarter and driven by reductions across most line items. Continuing declines in property payroll and utilities are direct results of the differentiated initiatives that Joe spoke to. Accordingly, same-store NOI growth came in better than we anticipated. Outside of the same-store pool, outperformance in our high-growth non-same-store pool helped drive core FFO per share higher by 2.6%. This is a 560 basis point acceleration from the growth level achieved in the third quarter of last year. As Joe mentioned, our strategic focus continues to drive core FFO per share growth well in excess of our stabilized same-store growth. We adjusted our full year guidance to reflect the positive trends I just spoke to with increased outlooks for same-store revenue, same-store NOI and nonsame-store NOI. All in, we increased core FFO per share growth by nearly 1% with 1 quarter left in the year. Looking forward, we are very well positioned to continue driving performance with differentiated strategies that will further enhance our compounding returns platform. With that, Rob, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Eric Wolfe with Citi. Eric Wolfe: As we get closer to year-end, could you maybe just talk about the process you go through in setting your budgets for 2026? And sort of how you go about determining things like where move-in rents to go, occupancy and sort of all the main variables that are going to make up growth for next year? H. Boyle: Yes, sure. We can talk about that. I mean, we're continuously forecasting and updating our forecast for the business as we move through any given year, obviously, starting with 2026 process, something we started several months ago, and people are forecasting their businesses. In terms of some of the line items you spoke to we're using data-driven processes and historical trends as well as predictive analytics to drive those forecasts. We certainly challenge our teams to come up with new initiatives to drive the business going forward into the new year, and that process is well underway. Joseph Russell: And Eric, I'd add that it's a robust process across literally every function within the company. It's fluid. It doesn't end and begin even as we speak, it builds, and we have a lot of analytics relative to the things that we're doing from a deployment standpoint as we've spoken to, we have a whole host of efficiency efforts that are tied to investments in digital and otherwise, it continues to drive our margins to the level that we attain. And then to Tom's point, the whole host of things that we do tied to revenue optimization across the entire portfolio with not only our same-store but our non-same-store portfolio. Eric Wolfe: Got it. That's helpful. And I think in the press release, you characterized things as sort of stabilizing. I don't know if you feel like maybe there's a path of things getting back to more sort of a normal run rate growth or what it would take to get there. But just sort of curious how you're thinking about sort of the trends that you've seen recently in October, over the last couple of months. If you're starting to get a little bit closer back to normal, if it's more of a just kind of like a stabilization and sort of a little bit more of a muted rebound? H. Boyle: Yes, a good question. I think as we look ahead, we do see steady stabilization. And as we've moved through 2025, we've seen demand bouncing off the bottoms of '24. We see new supply continuing to be coming down just given the challenges associated with new development in many of the markets we operate. But I'd probably point you most notably to the fact that what I commented on earlier around some of our stronger markets where we're stable, but we're growing at a healthy clip as well. And just highlighting the West Coast again, with growth in the 2% to 4% same-store revenue growth range and good fundamentals. So some of the markets aren't quite there yet, but we're seeing a good and healthy customer and overall operational performance in many of the markets we operate today. Operator: Our next question comes from Michael Griffin with Evercore. Michael Griffin: I'm curious if you can give us any insight into whether new customer behavior has changed at all. It seems like the revenue this quarter was mainly driven by that existing customer, which seems to remain sticky. But as these move-in rents decline on a year-over-year basis, do you feel like we're starting to hit a trough there? Or do you think there's potentially further to go in terms of new move-in rents? H. Boyle: Yes. I'd say taking a step back, I think there's too much focus related to move-in rents is one particular element of revenue, right? Overall, across the organization, we are focused on revenue as the most important metric. And that is a combination of what you're highlighting, yes move-in rents but also move-in volumes, move-out activity existing customer behavior and rent increases. And it continues to be a competitive operating environment for new customer move-ins and you could see that through the quarter. But the focus here is certainly around revenue is the most important metric and that goes throughout the organization from the property managers and property staff, all the way through the home office organization. So we continue to make investments through our platform to drive revenue in a competitive environment. And I would point you not to one particular metric. Michael Griffin: Tom, I appreciate the context there. And then maybe just on the revised guidance, it seems like you're trending in the more favorable range, both on expenses being towards the low end and NOI being toward the high end, at least on a year-to-date basis. So maybe are there any puts and takes we should think about when looking at the fourth quarter sort of implied guidance? Maybe tougher comps in certain line items? Or any clarification there would be helpful. H. Boyle: Yes, sure. Every quarter has got its own set of comps. I do think the fourth quarter specifically Property tax is a tough comp. We had a number of healthy refunds last year. We'll see whether the team can execute on similar amounts this year, but that's a pretty tough comp. And then as we think about same-store revenue, we've been consistent highlighting that the impact on Los Angeles will grow as the year progresses. And so we do anticipate that to occur in the fourth quarter. Otherwise, those would be the 2 items I'd highlight for you. Operator: Our next question comes from Samir Khanal with Bank of America. Samir Khanal: I guess just sticking to that topic about L.A. and the impact. I mean, kind of what are you hearing on the ground given the pricing restrictions and the burn-off in Jan? I mean, what are your channel checks kind of telling you at this point? Joseph Russell: Yes, Samir, not probably anything deterently than you're hearing, which it's completely in the hands of the Governor. And the decision time frame, he's looking to come back to announce whatever next set of decisions would be very early January. So no additional color or context beyond it could result in a whole range of outcomes, but nothing specific at this point. Samir Khanal: Got it. And then I guess, Tom, on the expense side, when you look at expense growth, kind of that 3% range, you guys have done a great job in terms of controlling expenses. I mean how much room do you have there to kind of still kind of grow at that sort of 2% into next year, at least the next 12 to 24 months? H. Boyle: Yes, sure. And I appreciate the comments. The team is focused around a number of different initiatives to drive operating expense performance while also driving revenue in the overall business. And the couple that we continuously highlight and we're seeing bear fruit again this year, continue to be the digital investments that we've been making. One of the side effects of those digital investments is the ability to think holistically differently about our property staffing and customer interaction, so we saw some fruit borne from that this year, more to come there as the team continues to drive evolution in our operating model. And then I think the other one clearly to highlight is our solar power initiatives, which we'll have solar on over 1,100 -- or we have solar on over 1,100 of our properties today and continue to drive forward with that initiative. And we'll continue to see the benefits from that. But in this environment, we're looking for all those ways to invest in the platform and drive better OpEx performance. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I was wondering if you could talk through your current expectations for supply and maybe how you expect the next 12 months will compare to the last 12 months and what's driving that? Joseph Russell: Yes. Sure, Caitlin. The trajectory continues to be the same, meaning on a year-by-year basis, we see the pressure creating fewer and fewer developments as a whole industry-wide. There are here and there are certain markets that have a number of additional assets coming to market. But clearly and nationally in a very positive context that supply delivery momentum continues to go down. And we've seen it throughout 2025, we're going to see it into '26. And I would even say we're continuing to '27. The basis for that outlook continues to be first and foremost, we're in that business nationally. We see the complexity and the friction that comes from any kind of a development. It's tied to the things that you have to do from an entitlement standpoint, becoming more and more complicated, the cost structure of assets themselves and then, again, formulating and understanding the risk that would be tied to going into the development process that in and of itself could take anywhere from 2 to 3 years if not longer. And then going to a stabilized asset that could take another 2, 3 or 4 years. So the risk factors for any kind of developer out there are much higher today and they continue to go a direction that's actually very good for the industry as a whole. Meaning there are going to be fewer and fewer deliveries even going in the next couple of years. Caitlin Burrows: Got it. And then so I guess then leading into PSA's on development activity. It does sound though like you guys want to kind of maintain or backfill your pipeline of activity. So other than, I guess, size, what do you think differentiates your strategy and ability to kind of get past all of those issues? And how is your kind of stabilization over the past few years been going versus underwriting? Joseph Russell: Sure. I'll take the first part and I'll have Tom talk to the stabilization, which is quite good as well. So no question, we have very different capabilities. It starts with inherent and deep-seated knowledge, market-to-market, with the amount of inherent operational data that we get, we have an ability to underwrite assets from a development and risk standpoint far differently than others do. We have the data set that guides us to optimize not only property size but also configuration within properties, unit, size, mix, et cetera. We can find pockets of assets quite effectively or pockets of asset development very differently than most developers. We've got a good national team working aggressively out finding in developing assets in a window that I just spoke to, that is far more difficult. So in a reverse way for us uniquely, it's providing the opportunity to go in and find very powerful development opportunities in a whole host of markets nationally. So our confidence and our commitment to the business has never been higher, but at the same time, it's never been a more difficult business. So it is a very good and unique window for us to continue to deploy capital, and it continues to lead to substantial and the highest returns that we see from any capital allocation effort. Tom, you can go ahead and talk about some of the metrics cited out, which continue to be quite good. H. Boyle: Yes. Our lease-up of our developments that have been recently delivered continues to do well, actually pacing a little bit ahead of expectations year-to-date. And you can see in the sub the yields produced by those vintages to Joe's point earlier, it does take 2 to 4 years for those vintages to stabilize, but we're seeing good trajectory across those vintages today and achieving those strong risk-adjusted returns that Joe spoke to. Operator: Next question comes from Ron Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. The guide -- I think this came up earlier, but the guidance sort of assumes a little bit of decel as you get into sort of 4Q. And I guess the obvious question is just as you're thinking about top of the funnel demand, whether it's some of the web search data or anything like that, are you seeing anything from that standpoint that's showing that demand may be slowing? Or how do you sort of think about that? H. Boyle: Yes. Thanks, Ron. Nothing implied there as it relates to demand overall. We continue to see a healthy customer activity to date. I think the item that I would highlight as it relates to same-store revenue, if that's where your focus is what I highlighted to Michael Griffin earlier around, the cumulative impact of the rental rate restrictions on Los Angeles, which will be holding us back a little bit more in the fourth quarter compared to the third quarter. And then that property tax, tough comps as well. But otherwise, the non-same-store pool is set to continue to accelerate given the activities to date and the capital allocation that we've been putting for forth. Ronald Kamdem: Great. And then, yes, my second question was just on the acquisition pace picking up. Just maybe talk about the product that you're seeing stabilized, nonstabilized and sort of cap rates and returns expectations. Joseph Russell: Sure, Ron. It's a combination of all of those things. So we had an active quarter, obviously, and pleased to see the range of different types of sellers that have come to us either through off-market transactions and/or assets that we've been [trolling] or in dialogue for some period of time. So it's a combination of some larger portfolios that we've curated to match some of our own investment requirements, market to market. It's also been a combination of some smaller portfolios that have resulted from some of our off-market and/or private conversations with them, always a healthy way to do some additional business. And then as we typically do with our national focus and the team that's out working nationally, relationships and otherwise, we're doing a whole host of one-off or a much smaller transaction. So it's a whole combination. It's, again, a market focus that we have to stay very close to and we're well suited to do so. We have unique capabilities to underwrite these assets with, again, going back to our development processes, knowing and understanding markets very deeply and been very pleased with a whole host of different types of assets that are either on one end of the spectrum stabilized or others that we're very comfortable bringing in the portfolio that are not stabilized, but once we put them on our platform, very comfortable and confident we're going to get the kinds of returns and meet expectations from, again, the invested capital going into those assets as well. So we're seeing a fair amount of good activity based on a lot of hard work that continues to go in that process, but it's bearing some good fruit. Operator: Our next question is from Eric Luebchow with Wells Fargo. Eric Luebchow: Great. Appreciate the question. So maybe could you update us a little bit on operating trends through October in terms of occupancy moving rates? Anything you're seeing as we kind of move into the fourth quarter here? H. Boyle: Yes, sure. Happy to do that. I'll provide a couple of elements. And as I spoke earlier, focus continues to be on revenue overall. But specifically, talking about new customer activity. I'd maybe frame it as if you look at the third quarter and the rate and volume associated with new customer activity is down about 9% year-over-year. And each of the months throughout the quarter a little bit different in terms of volume versus rate, et cetera. October is doing a touch better than that, down 9%. So some improving from that standpoint. Really driven in this particular month, driven by stronger move-in activity, and we're achieving that with less discounts but also lower rates. So better net outcome there. I'd point you to move-in rates that again are driving that volume being in the down 10%, 11% ZIP code, but driving good volume up 3%, 4%. In terms of occupancy, because of that move-in volume, occupancy closed, Eric, is sitting today down about 40 basis points year-over-year. But again, I reiterate the revenue focus versus occupancy or rental rate. And we feel like we're in a very good place from an occupancy standpoint to drive revenue in a steady stabilizing and hopefully improving operating fundamental picture. Eric Luebchow: Great. And maybe just a follow-up. I know you touched on this a little bit, but the LA rent restriction headwinds, you had guided to about 100 basis point headwind. So maybe you could just update us on what you're expecting kind of as we look into Q4 and what you see underlying demand looking like on the West Coast? And I guess a related question. I mean, there has been some recent news about rent restrictions related to immigration activity in LA County with ICE. And so just wondering if you expect that to have any impact in the region. H. Boyle: Yes, sure. So 2 components there. One, related to LA performance for the year, it is trending a little better than what we had expected at the start of the year. And I think last quarter, I provided some perspective around revenue growth expectations for Los Angeles for the year being down close to down 3% for the year. We think based on where we are right now, it's probably going to be down in the 1s, meaning negative 1% and negative 2% for the year. So some better improvements there. In terms of -- and I would point to the drivers there really being what we spoke to earlier around really top to bottom, the West Coast, good customer activity, less new supply in those marketplaces and good trends. So good customer activity there. And then the second part of your question, the more recent state of emergency is going to have a negligible impact on our operating performance in the fourth quarter just as you think about a state of emergency already being in place through the start of January. So no change there, but we're certainly still in an environment with pricing restrictions associated with those state of emergencies. Operator: Our next question comes from Spenser Allaway with Green Street Advisors. Spenser Allaway: Just one for me. Can you talk about the amount of NOI upside you guys are currently underwriting when you're acquiring from mom-and-pop operators today? Maybe just broadly, I know that it varies asset to asset. And then with the increasing prevalence and uses for AI, do you think that, that upside is going to increase meaningfully in the years coming, just particularly as we think about the amount of data PSA has to work with and enter into like algorithms? H. Boyle: Yes. Sure, Spenser. So in terms of cash flow that we can earn from assets that we fold into the portfolio. That's an important component to our capital allocation strategy as we continue to make investments in our operating platform and drive performance there. We can utilize that advantage as we deploy capital. And the most visible thing that I would point to is the margin advantage that we have in and out of the marketplaces that we operate in and that gives you a sense. Generally speaking, that margin advantage for new assets is both the revenue side and the OpEx side driving that margin performance. And so consistently getting towards 10% sort of margin enhancement for lots of the assets that we acquire. In terms of going forward, I noted earlier, we continue to make investments in the platform, both from a revenue and OpEx side. And so we do anticipate that we'll continue to drive performance within our operating platform and that will then immediately have the same impact on the assets that we're putting into the pool, both for our wholly-owned assets as well as for the benefit of our third-party management customers, we drive our operating platform. Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: First, 2 quick follow-ups on acquisitions. Your volume is approaching $1 billion for the year, so a fairly active year. First, what's the outlook for that pace to continue into 2026? And then second, you've had very active years in the past, you did more than $5 billion in '21 and nearly $3 billion in '23. Is now a good time to lean in ahead of a recovery? I'm just curious what the appetite is like today to do something more sizable or strategic? H. Boyle: Yes. So a number of components to that question. So Joe and I will probably tag team this one. But I think we have seen an improving transaction market this year, Joe, spoke to that a little earlier. I do think the improving debt market trends set up for more active transaction volumes going forward. And so I think that's an opportunity set. In terms of our appetite continues to be very strong. We look back at 2021 and the $5 billion of acquisitions that we acquired there and would love to do that again. So it's a question of what the opportunity set is ahead of us, but we're built to be able to integrate that level of activity and fold those assets into the operating platform that we're speaking to. So we're excited about the potential for increased activity. We'll have to see what 2026 brings. Joseph Russell: Yes. And Todd, I'd just add, the balance sheet is well positioned to service as we, again, unlock those range of opportunities. To Tom's point, we've proven over the last 5 years in particular, that whether we're in a process where we're taking down one individual very large portfolio or a whole collection of smaller assets. All of our systems and digital investments, et cetera, allow us to integrate these assets incredibly smoothly in many cases, within a 24-hour time frame from one platform to another. So we've got the technique, the scale and now time and again the experience to continue to aggregate these assets, and we are going to continue to look for any and all ways to do just that. Todd Thomas: Okay. That's helpful. And then Joe, just sticking -- your comments around technology. So you mentioned a number of things, employee efficiencies, the rental process, Generative AI search. Clearly, expenses are an area where you've seen technology have a big impact. Is there a lot more room there? Or do you feel you sort of rung out a lot of the efficiencies at this point with maybe more benefits accruing toward acquisitions, mainly going forward? And what do you think might have the biggest impact in the next 3 to 5 years as you look out? Joseph Russell: It's top to bottom, Todd, and continues -- from an investment standpoint, we are making a whole host of priorities around impacts to the business that starts right at revenue, all the things that we can do through our technology and investments tied to revenue and then it's optimization. Clearly, you can see that with the efficiency and continued outperformance on margin achievement. But again, to give you color on where we are on this road map, we're very confident. We have only just begun. I mean there are very meaningful things that the team continues to invest in, literally every part of the company. It's very empowering. It's not easy, but we have the fortitude and we continue to display the ability to use these tools very effectively in many times, a much shorter time frame than we may have originally estimated, as we've spoken to now for some time. 85% of our customers now transact with us digitally, where 4, 5 years ago that number was basically 0. And with, again, the migration to more and more data-driven processes that creates iterative and in some cases, compounding opportunities to drive efficiency much sooner and more effectively than we may have even envisioned at the front end. And we are encouraged by the team-by-team effort that continues to play through. We are no question, a self-storage company, but we have a focus on data optimization that continues to serve us quite well, and we're very committed to that. Todd Thomas: What kind of margin upside do you think is ultimately achievable? Joseph Russell: Well, we'll see how that plays. But confident we're not done. Operator: [Operator Instructions] Our next question comes from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just wanted to follow up on L.A. quickly. You talked about feeling a bit better about the drag that L.A. is going to see for the year. Just curious if you could translate that down 3% to now down 1% to 2% on the overall portfolio? And is there any offsets from the strength in L.A. on the West Coast, the same-store revenues? H. Boyle: Yes. No, and I think giving you the guidepost as it relates to the markets should be helpful. I think the fourth quarter, obviously implied number associated with that, as I've noted a couple of times, will be holding us back a little bit further as it relates to the impact to the overall same-store. The demand associated with new customer as well as one of the things we've seen in Los Angeles is less vacate activity, and we've seen that up and down many of our markets and nationally, less vacate activity also helpful. So occupancy is up a little bit in Los Angeles. And so a lot of the same trends that Joe and I have already spoken to on this call in terms of good customer activity, very challenging new development environment continue to support Los Angeles despite the fact that we can't charge the rents that we otherwise would charge in a competitive marketplace. Juan Sanabria: And then just cap rate wise, how should we think about going in yields and targeted stabilized yields on the investments you're making at around $1 billion year-to-date? H. Boyle: Yes. No, the yields that we've been targeting are pretty consistent with what we highlighted last quarter. So we're likely to achieve going in yields in the kind of 5.25% ZIP code on a mix of stabilized and unstabilized activities year-to-date. And so the points we've been making on this call, we have the opportunity to plug those assets into our operating platform. And as we do that, we'll achieve more cash flow from those assets. And so those will stabilize into the 6s. Operator: Our next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Sticking with the transaction market, can you talk about the opportunity that you see with lease-up properties, you'll be able to operate them better, maybe there's the appetite to purchase that? And then also the increase in the non-same-store NOI guidance was higher by $10 million. Does that reflect improved performance of the previously owned properties? Or does that reflect the newly acquired ones? Joseph Russell: Okay. I'll take the first part, and Tom can take the second, Michael. But no question we have continue to deploy capital into many assets that are far from stabilization from some that literally are vacant to 30%, 50%, 70% occupied and otherwise. And time and again, have proven the ability to lift the performance of those assets very confidently, just like I spoke about earlier, tied to the knowledge that we have from a market standpoint, all of the techniques that we're using from revenue management, operational efficiency, knowledge of customer dynamics, knowledge of the market itself. So no question, we have a high degree of confidence in any range of stabilization from an asset standpoint. So we will continue to entertain all different asset types based on that level of knowledge and skill and that is continuing to produce the kinds of returns that we're very confident will not only continue, but it will give us more running room as we grow the non-same-store portfolio just like we have in 2025. Tom, you can take the second part. H. Boyle: Yes, the second part of your question, just related to nonsame-store performance. Part of that is better performance and lease-up of some of the assets that you're speaking to. And then the other portion is obviously closing on some incremental assets than what we had closed under contracts. So that combination leads to better outlook for nonsame-store for this year. But you also know we included an update to the incremental NOI from after '25 to stabilization, which reflects the future engine of growth associated with this pool of assets as they stabilize and lease up. So that's increased to $130 million for '26 and beyond. Michael Goldsmith: And my follow-up question, your marketing spend is down year-over-year. I believe your promotions given is also down. So can you just walk through kind of like the thought process around using these levers as top or as a top-of-funnel demand driver? And just is there a reason why pulling back on some of these factors, this is the right time to do that versus maybe leaning in at a time with demand being kind of uneven? H. Boyle: Yes. Thanks, Michael. I'd say we consistently use all the tools you highlighted in order to drive the right kind of customer volumes and behavior over time. So we're active in utilizing advertising as well as promotional activity, lowering our rental rates, increasing our rental rates. And as I noted earlier, it all goes into a focus on optimizing and maximizing revenue as the one metric that we're focused on versus individual line items. And that's the focus of the team, and we'll continue to use all those tools in order to focus on that revenue metric. Operator: Our next question is from Mike Mueller with JPMorgan. Michael Mueller: I guess for some of the stronger markets that you talked about in your initial comments, can you talk a little bit about how different were the, I guess, the move-in rent comparisons to the year-over-year comps in those markets compared to the roll-up number we see in the South? H. Boyle: Yes, Michael, I mean, I spoke earlier to the fact that many of those markets I highlighted are performing well, steady, strong growth from many of them. And associated with that, you have better move-in trends, but you also have better trends from existing customers and good behavior amongst the existing customer base. So it's a combination of things as always, but no question, seeing some good strength across many of our markets today. Michael Mueller: Got it. Okay. And as a quick follow-up, and I apologize if I missed this one. The -- any changes in terms of the pushback from customers on ECRI or ECRI levels in general? H. Boyle: No. The existing customer continues to perform quite well. You can see vacates were down in the quarter. Price sensitivity remains consistent with our expectations and our modeling. So no shifts there, and we continue to be encouraged by the storage consumer as they rent with us. Operator: Our next question comes from Brendan Lynch with Barclays Bank. Brendan Lynch: Clearly, you guys are making good progress on the efficiency initiatives, especially on labor. How do you evaluate though, if you cut too much? I'd imagine there's some sort of A/B testing. But any details on your approach to overage or underage of labor would be helpful. Joseph Russell: Yes, Brendan, we're in a now multiyear integration, which has included, to your point, a whole host of testing relative to the efficacy of optimized labor. And we very conscientiously and first and foremost, used customer interaction and customer service as a guidepost to see and understand, to your point, how far to go. The components of that also, though, include on a per market basis, and even a submarket basis, the kind of scale that we have. And with that, the effectiveness of the digital ecosystem that guides us to the predictability factor of this. And the tools that we're using from a predictability standpoint continue to become more and more effective. So those kinds of tools are the tools that we invest in completely from a labor standpoint that does a multitude of things from an output standpoint. One, again, tied to customer service; number two, the effectiveness of the team member themselves, ironically, but intentionally, it's also led to a much higher level of employee satisfaction relative to the way that they're operating their day-in-day environment. It's also and very intentionally provided good expense optimization and we continue to see more and more tools, particularly with the amount of data that we're dealing with, where we're moving in, for instance, north of 100,000 customers a month to guide us to the effectiveness of this. I mentioned earlier that now 85% of our customers are transacting with us digitally, but there are many customers that want to do the opposite and we're servicing them quite well with, again, a whole host of even different tools that they had to conduct business with us 2, 3 or 4 years ago. So more evolution in this entire process, but very good traction, meaning that we've got more to do, and we're excited about it. Brendan Lynch: Great. That's helpful. I also wanted to ask on housing-related demand. Obviously, that's kind of been a missing element for a couple of years now. Are you seeing any signs of improvement yet or any reason to be more optimistic that 2026 would be better than 2025 or 2024? H. Boyle: Yes, sure. I mean I think housing is a component of our demand. It's been relatively stable over the last couple of years as housing transaction volumes have been relatively stable after the step lower several years ago. Clearly, interest rates are a touch lower, mortgage rates are a touch lower, that should be helpful as we think about activity going forward. We haven't seen anything on the ground yet that would dictate that there's any meaningful shifts currently. And our in-house perspective is that it's going to take some time for the housing market to continue to work through it's adjustment with a big shift in mortgage rates over the last couple of years. So I think it's probably a steady as she goes environment in housing, maybe a touch better than that. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Ryan Burke for closing comments. Ryan Burke: Thanks, Rob, and thanks to all of you for joining us today. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, greetings, and welcome to the UDR Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, the Vice President of Investor Relations, Trent Trujillo. Please go ahead. Trent Trujillo: Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, please be respectful of everyone's time and in an attempt to complete our call within 1 hour due to other earnings calls occurring after hours, we will limit questions to 1 per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey. Tom Toomey: Thank you, Trent, and welcome to UDR's Third Quarter 2025 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; and Chief Financial Officer, David Bragg. Senior Officers, Andrew Cantor; and Chris Van Ens will also be available during the Q&A portion of the call. A number of fundamental drivers of our business have been supportive of growth for much of 2025. Coupling this with our core operating advantages, resulting in an attractive same-store revenue, expense and NOI growth and enabled us to raise our full year FFOA per share guidance for the second time this year. As we start the fourth quarter, and as it has been widely reported by various third-party publications, the apartment industry has experienced a broad deceleration in rent growth. Most of our markets face some combination of employment uncertainty, slower household formation, lower consumer confidence and high levels of recently completed supply. Collectively, these factors have contributed to rent growth that has been more measured than what we anticipated as recently as 45 days ago. Even with this backdrop, we are encouraged by various indicators that suggest our residents are resilient and appreciative of the value of renting at UDR. From a long-term perspective, the United States remain structurally under-housed. Affordability of renting an apartment relative to home ownership is nearly at an all-time level of favorability. And the pipeline for future supply has materially decreased. UDR is a cycle tested, having delivered more than 10% average annual total shareholder return over the past 25 years. We will continue to focus on the items that are in our control to manage through the times of uncertainties, make opportunistic and accretive investments and deliver value to our shareholders. Looking towards UDR's next 25 years, I'm excited about our process that harnesses data, measures outcomes, create actions and drives cash flow growth. Points to make around that. Our operating teams have executed a wide range of operating innovation for years with our latest example being our customer experience project. We continue to uncover actionable insight through the millions of daily touch points with existing and prospective residents that enable our teams to measure, map and orchestrate a superior UDR living experience. This influences our operating tactics from the market level all the way down to the individual apartment home. This approach has led to industry-leading improvements in resident retention, which enhances top line revenue, mitigates expense growth and drives margin expansion. Elsewhere, our approach to capital allocation is increasingly data-driven and collaborative. Our sophisticated tools allow us to screen investment attractiveness at the asset level across more than 7 million apartment homes nationwide. We have recently executed on the insight from this platform and our teammates to identify an acquisition that holds both an attractive rent growth profile and comes with operational upside to drive yield expansion. In addition to better informing our buy and sell decisions, we are leveraging our proprietary analytics platform and the wisdom of our teams to influence our NOI enhancing and redevelopment capital expenditures, which we expect will further enhance growth in the future. Collectively, we are enthused about the innovation we continue to deploy that drives resident, associate and shareholder value. The initiatives and the platforms we have built aligned with our long-term strategy, enhancing capital allocation decisions and drive cash flow accretion. When coupled with our investment-grade balance sheet and substantial liquidity, we have positioned ourselves to attractive results for years to come. Moving on, we continue to build on our position as a recognized leader in corporate stewardship. With the release of our seventh annual corporate responsibility report 2 weeks ago, we detailed the efforts that we enabled UDR to become a more sustainable and resilient company, one that has been recognized as a top workplace winner in the real estate industry for the second consecutive year. Our achievements reflect the engaging employee experience we have built, solidifies our stature as an employer of choice and deepens our rich history as a leader in corporate stewardship. I'm proud of all we have accomplished, and I look forward to sharing more success in the years to come. Finally, I and the other members of the Board of Directors are excited to welcome Rick Clark to UDR as our newest Board member. Rick joined us earlier this month, and his appointment is the latest move in the Board's refreshment process that also included the departure of 2 long-tenured directors earlier this year. Rick brings a wealth of real estate investment and capital markets experience, having served Brookfield in various senior leadership roles for over the course of nearly 4 decades, and we look forward to embracing his perspective as we advance our strategic initiatives. In summary, UDR has an established history of innovation, a demonstrated track record of delivering attractive shareholder returns and a collaborative team with a deep bench to execute our strategy. I remain optimistic about the prospects of the apartment industry given favorable long-term fundamentals. And UDR will continue to harness data in an effort to make decisions that drive cash flow, enhance our value proposition and stature within the industry. With that, I'll turn the call over to Mike. Michael Lacy: Thanks, Tom. Today, I'll cover the following topics: our third quarter same-store results, our full year 2025 same-store growth guidance and expectations for operating trends across our regions. To begin, third quarter year-over-year same-store revenue and NOI growth of 2.6% and 2.3%, respectively, exceeded consensus expectations and were driven by: first, 0.8% blended lease rate growth, which was a result of renewal rate growth of 3.3% and new lease rate growth of negative 2.6%. Blends began the quarter ahead of our expectations, but over the last 45 days have decelerated beyond typical seasonality, which we largely attribute to the economic uncertainty. This led to our third quarter blends being below our prior expectations of 2%. Second, and more positively, annualized resident turnover was nearly 300 basis points better than the prior year period. This enabled us to unlock both revenue and expense benefits that resulted in NOI growth above consensus. Third, occupancy averaged 96.6%, which was 30 basis points higher than the prior year period. And fourth, other income growth remained strong at 8.5%, driven by continued innovation along with the delivery of value-add services to our residents. Shifting to expenses. Year-over-year same-store expense growth of 3.1% in the third quarter came in better than expectations. This positive result was driven by favorable real estate tax growth, insurance savings and constrained repair and maintenance expenses. Collectively, expenses across these 3 categories, which account for nearly 2/3 of total expenses, grew a mere 1.9%. Based on our year-to-date results through the third quarter and recognizing the trends we have experienced thus far to begin the fourth quarter, we adjusted our full year 2025 same-store revenue growth guidance midpoint to 2.4% from 2.5% previously. Occupancy, other income and bad debt have outperformed, which largely neutralized the impact of a lower contribution from blended lease rate growth through the end of the year. Positively, more moderate real estate tax and insurance growth led us to enhance our full year same-store expense growth midpoint by 25 basis points to 2.75%. Combined, we have reaffirmed our full year 2025 same-store NOI growth guidance midpoint of 2.25%. While the near-term operating environment presents some challenges, we have taken action to position ourselves well on a relative basis. In our favor is the fact that we have only 15% of our annual leases expiring in the fourth quarter. We strategically shifted approximately 5% of our lease expirations out of the fourth quarter in anticipation of a more challenging leasing environment due to both seasonality and the sheer volume of units and lease-ups. This approach has benefited us as occupancy remains in the mid-96% range and aligns with our approach to maximize total revenue. Looking ahead, the building blocks for 2026 same-store growth are coming into focus. Based on our revised outlook for blended lease rate growth, we are forecasting a 2026 same-store revenue earn-in that is approximately flat. This compares to our historical average of approximately 150 basis points and our 2025 earn-in of 60 basis points. Actual earn-in will depend on our results through the rest of the year, and we will provide 2026 guidance in February that will address our outlook for drivers of same-store revenue and expense growth. Turning to regional results. Our coastal markets are performing near the high end of our same-store revenue growth expectations, while our Sunbelt markets have lagged. More specifically, the East Coast, which comprises approximately 40% of our NOI, continue to exhibit strength with third quarter weighted average occupancy of 96.7% and blended lease rate growth of 2%. Year-to-date, same-store revenue growth of approximately 4% is at the high end of our expectations for the region. New York has been our strongest market in this region, driven by continued healthy demand and relatively low approximate new supply completions. Boston and Washington, D.C. have had similar success year-to-date, though we have experienced some cautious indicators recently due to a slowdown in job growth among some of the largest employment sectors in these 2 markets. The West Coast, which comprises approximately 35% of our NOI has demonstrated the strongest positive momentum and performed better than expected year-to-date. Third quarter weighted average occupancy for the West Coast was 96.7% and blended lease rate growth led all regions at 3%. Year-to-date, same-store revenue growth of 3% is close to the high end of our full year expectation for the region. We continue to see particularly strong momentum in San Francisco Bay Area, which delivered blended lease rate growth of 7% during the quarter. San Francisco, alongside Seattle are our 2 top-performing markets in terms of year-to-date NOI growth. Annual new supply completions in 2026 are forecasted to be low at only 1% of existing stock on average across our West Coast markets, which we expect will lead to relatively favorable fundamentals in the coming quarters. Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, still lag our coastal markets on an absolute basis due to the lingering effects of elevated levels of new supply combined with economic uncertainty. Positively, much of this supply continues to be met with strong absorption, though it has come with a general lack of pricing power. Third quarter weighted average occupancy for our Sunbelt markets was 96.5%, with blended lease rate growth of approximately negative 3%. Year-to-date same-store revenue growth for our Sunbelt portfolio is slightly negative, which lags the low end of our full year expectations for the region. Among our Sunbelt markets, Tampa continues to perform the best, while Austin, Dallas, Denver and Nashville continue to work through elevated levels of lease-up inventory from recent supply deliveries. To conclude, we delivered attractive third quarter results. Same-store revenue, expense and NOI growth were all better than expectations. Current leasing conditions are not as robust as we previously expected them to be, but we have taken action to position ourselves well on a relative basis. Longer term, the combination of a broad shortage of housing in America, a continued decrease in new supply across most markets and the elevated cost of homeownership should bode well for occupancy and pricing going forward. We will continue to tactically adjust our operating strategy for each market to maximize cash flow and leverage our innovative culture to drive initiatives that enhance our growth profile. My thanks go out to our teams across the country for your hard work and ability to drive results across all market conditions. I will now turn over the call to Dave. David Bragg: Thank you, Mike. The topics I will cover today include my initial firsthand impressions of UDR, our third quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. I'm delighted to be a part of the UDR team after following the company closely from the outside for about 20 years. I'd like to share a few of my initial impressions from the inside. First, I'm honored to lead a high-caliber and experienced finance team that has allowed me to make a smooth transition. My 5 partners who comprise our finance leadership team and report directly to me have been with UDR for an average of 13 years, and they show up to win every day. Second, UDR's culture of innovation has carried over to the investment side of the house, where our analytics effort is increasingly informing our decisions on CapEx, redevelopment, acquisitions, development and dispositions. Our capital allocation process is highly collaborative as it draws on insight from across the organization. The team's priorities are encapsulated in the heat maps for both sources and uses of capital that we publish, and we are aligned on the goal of driving long-term cash flow growth for shareholders. Third, operations. I have long respected the company's operational acumen, which I have witnessed in person on visits to dozens of UDR communities over the years. Now that I'm here, I appreciate the interplay between the corporate team in Denver and our colleagues in the field, and I am impressed by the team's ingenuity and tenacity as we navigate today's fluid operating environment. Overall, I'm inspired by the drive and camaraderie I've seen across the company and how innovation is embedded in our culture. On to third quarter results. FFO as adjusted per share of $0.65 exceeded our previously provided guidance expectations. The $0.02 or 3% FFOA per share beat to our guidance midpoint was primarily driven by NOI and the benefit related to an executive departure. This beat led us to raise our FFOA per share guidance range for the second time this year. Our new full year 2025 FFOA per share guidance range is $2.53 to $2.55 per share. The $2.54 midpoint represents a $0.02 per share or approximately 1% improvement compared to our prior guidance. Looking ahead, our fourth quarter FFOA per share guidance range is $0.63 to $0.65. Next, a transactions and capital markets update. First, we received more than $32 million in proceeds from the successful payoff of our preferred equity investment in a stabilized apartment community located in Los Angeles. Second, as part of recapitalizations, we fully funded a total of approximately $60 million at a 10.5% weighted average contractual rate of return across preferred equity investments in 2 stabilized apartment communities. One is located in Orlando, Florida; and the other in Orange County, California. Positive property level cash flow allows for approximately 2/3 of our contractual return to be paid current in cash. This aligns with our approach to focus on investments with high current pay, lower LTV and that screen favorably within our investment analytics platform. This discipline enhances the safety and performance of these deals. Third, subsequent to quarter end, we entered into an agreement to acquire a 406-apartment home community located in Northern Virginia for $147 million. The multipronged decision to acquire this asset was based on insights from our predictive analytics platform, our assessment of future CapEx needs and the operation team's on-the-ground perspective. In fact, the community is directly adjacent to an existing UDR property, which should drive efficiencies once placed on our operating platform. We are on track to close this deal in the fourth quarter and plan to fund it with dispositions currently in process. As a pair trade, we expect this transaction to enhance the long-term outlook for portfolio level cash flow. As a result, we have increased the midpoints of our full year 2025 acquisition and disposition guidance by approximately $150 million each. Fourth, during the quarter and subsequent to quarter end, we repurchased approximately 930,000 shares at a weighted average share price of $37.70 for a total consideration of $35 million. These buybacks were executed at an average discount to consensus NAV of 20% and an approximate 7% FFO yield. And fifth, during the quarter, we extended the maturity date of our $350 million senior unsecured term loan by 2 years to January 2029 with two 1-year extension options. We executed this extension at a 10 basis point lower effective credit spread compared to terms of the prior agreement. Concurrently, we entered into a swap agreement through October of 2027 for $175 million under the term loan at a fixed rate of 4%. Finally, our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs. Some highlights include: first, we have more than $1 billion of liquidity as of September 30. Second, after we repay $129 million of secured debt at maturity at the beginning of November, we will have $357 million or 6% of total consolidated debt scheduled to mature in 2026. And third, our leverage metrics remain strong. Debt to enterprise value was just 30% at quarter end, while net debt to EBITDA was 5.5x, which is squarely in our target leverage range. In all, it was a highly productive quarter for UDR. Our balance sheet and liquidity remain in excellent shape, and we are focused on capital allocation decisions that drive long-term cash flow per share accretion. With that, I will open it up for Q&A. Operator? Operator: [Operator Instructions] We take the first question from the line of Eric Wolfe from Citi. Nicholas Joseph: It's Nick Joseph here with Eric. I was hoping you could walk through how you're going to the assumption for a flat earn-in for '26 just based off of the rent growth that you've achieved year-to-date and then also what's assumed in the fourth quarter guide? Michael Lacy: Nick, it's Mike. I'll kick it off here. And maybe a couple of points even before I get into earn-in just because we've gotten a few questions regarding deceleration to the back half of the year. So I think first, it's important to talk a little bit about just how well we've done through the first 9 months of the year. And the fact that we're within, call it, 10 or 20 basis points of coastal peers in terms of total revenue growth, and basically beating every peer across our markets on a head-to-head basis as it relates to peer median wins. The team has done an incredible job. And just as a reminder, our focus is always on total revenue growth, and it's playing out as we would have expected. I'd say secondary to that and more specific to what we experienced during the quarter and for the remainder of the year is a little bit lower demand after Labor Day in terms of traffic and a little bit more of a cautious resident was apparent to us. Going forward, we believe that we have a strategically set ourselves up to drive occupancy back into the high 96% range in the fourth quarter. And a lot of that has to do with our strategy to drive down our expirations. That's starting to play out in front of us. In addition to that, we're constantly focused on individual residents at the unit basis as well as the property basis. And so we'll continue to lean into that. Specific to our earn-in, this will be in flux for the next 60 days or so as we navigate through the back part of 4Q. And as I mentioned in my prepared remarks, we do expect a relatively flat earn-in when it's all said and done, and that would assume that our blends are roughly negative 1%, negative 2% in the fourth quarter. And that earn-in of, call it, flat. It's not all across the board, across markets, regions. They're a little bit different. And just to kind of size that for you. The East Coast, my expectation today is probably closer to that 40 to 70 basis point range. The West Coast is a little bit better, maybe in the 50 to 80 basis point range. And then in the Sunbelt today, we're expecting around negative 120 to 150 basis points, just given the supply backdrop and what we're dealing with there. So it gives you a sense for what we're seeing today. But again, that can change based on what happens with market rents. Tom Toomey: Nick, this is Toomey. Just I think it's a great question. And I think Mike gave you a really good set of color points. Backing up and maybe looking at it from a high-level standpoint, I'd say this, we've mentioned a number of times the amount of data we're capturing on individual customers, traffic patterns, renewals, et cetera, literally on a daily basis. And what it's screening to us is a very cautious customer. And you can see that from the time we take -- send out a notice to the length of time it takes them to respond to the traffic patterns, how long they spend on our communities, at what price point our Internet traffic is. And so with that backdrop of a cautious customer, I think you'd say, well, how have we actioned on that data. And you saw and you have -- our strategy is really an occupancy first, and we'll match the market on rate. But we think that sets us up for the future. If this cautious customer remains, then we've already captured our occupancy and then it's focused on renewals and cash flow growth. And if it ticks up, you're going to see our ability to pivot and price because we're full. So I think you have to always look at these things not in a blend per se, what data are you looking at? What decisions are you making, how often and what are they driving towards? And in our case, it's maximize revenue, maximize cash flow. And there's a lot of things that go into that. But what I'm very proud of is how Mike's team has performed over a number of years, a number of cycles and in particularly, how we're set up right now. Operator: We take the next question from the line of Steve Sakwa from Evercore ISI. Sanketkumar Agrawal: This is Sanket, on for Steve. Can you help explain what's driving so much variability within renewal rate growth quarter-on-quarter for you guys compared to your peers? And any specific things impacting that? And should we expect this to more normalize going forward? Or this is more related to seasonality and how you guys are responding to the demand you're seeing on the ground? Michael Lacy: Yes, it's a really good question, and it kind of goes along with some of the prepared remarks and what we were just talking about a little bit is just some of the headwinds we're facing pretty much across the portfolio today, just in terms of consumer sentiment, what's happening with the jobs, immigration policy and then you add in the supply that we're facing down in the Sunbelt, and you have a different dynamic across the different regions. And for us, expectations are that it's going to be a little bit weaker here in the short term. Tom mentioned it, we're driving our occupancy up. And it does take a real focus on that individual resident and looking at property by property to try to maximize both total revenue as well as cash flow. So again, expectations are we're kind of in the thick of it right now. This is that normal period of time where demand starts to fall off. We'll see what happens as we move into next year. Operator: We take the next question from the line of Jamie Feldman from Wells Fargo. James Feldman: I guess just sticking on the theme, I'm sure you've paid attention to what your peers in the sector have done in terms of occupancy change, new lease renewal rate. And it looks like across the board, UDR has had some of the weaker results. Is there something unique to the portfolio? I know you're starting from a higher occupancy level. And Tom, I appreciate your comments on occupancy being king. But is there something else you guys can point to or that we should kind of read from this data or not read from this data? Michael Lacy: Jamie, it's a good question. We've been digging into this as well. And ultimately, the way I started the call was around our total revenue growth and how that performance relates back to some of the peers. You can look market by market and you look as a whole, we think that we've done a pretty tremendous job throughout the year. That being said, when you break it down and look at some of the metrics and specific to blends, during the quarter, we had, call it, 80 bps at the portfolio level. When you break it down and look at coast for Sunbelt, our coast was right around 2.3%. So still seeing relatively strong growth out of the coastal markets. The Sunbelt has been a little bit weaker than we expected. I've been talking about this over the last couple of months. And even in the prepared remarks, we talked about being at the low end of our guidance here. We've just seen a little bit more of an occupancy-first approach through a lot of the lease-ups that are happening in and around our properties that put pressure on our rents. But when you look at that total revenue growth and again, compare us against some of the peers within these markets, we are handily winning on a head-to-head basis. And so it points to things we're doing with other income, how we're diving into the bad debt initiatives, We are driving significant total revenue growth, and I'm proud of the teams for their efforts, and I really think it's playing out. Christopher Van ens: Yes. Jamie, this is Chris. I would say one other thing that potentially clouds the waters a little bit is the definition of what blended lease rate growth is. So when Mike and team put it together, that's all of our leases. If you just did a like-for-like 12-month comparison, you'd obviously get different numbers. So you just got to make sure that as people are really myopically focused on blends that they're comparing apples-to-apples over time. Operator: We take the next question from the line of Rick Hightower from Barclays. Richard Hightower: So obviously, there's been movement in the management team and you hired -- you brought along a pretty high-profile Board member in Rick Clark. So just help us understand some of the bigger questions for the company around future succession, the depth of the bench, what changes might we expect from the outside given what's occurred? Tom Toomey: Rich, I appreciate the question. I guess embedded in that is a number of different ones. First, let me start with the Board. Yes, Rick is a great guy. I look forward to adding his perspective to the boardroom. And clearly, it's part of our overall plan of refreshment of the Board. You saw 2 senior Board members step off earlier this year and bringing on Rick, and we continue that process as a collective group as a Board. And we'll continue to look at refresh candidates and that process. So that's just our normal course of business, and we're delighted to have Rick. With respect to the second part, management and succession, you look at it and both Dave in his prepared remarks commenting on the seniority experience level and knowledge in the finance team, he's inherited a very strong capable group, and he stepped right into that and that has gone off just as planned, if not better than planned. And with respect to the rest of the organization, succession obviously, at my level, a Board-level topic. We continue to have that on an ongoing basis and feel comfortable that we have a plan both in a range of outcomes and time frames, and we'll continue to refresh that as time evolves. The rest of the team, very experienced group. You can see the number of people we've brought through the company that remain here, but also the success of those who have left and gone on to run other companies. So I tend to think of us as a talent producer, grower. And sometimes you can harvest that internally and sometimes it grows outside the envelope, but I'm very proud of both the depth the capability of the group and the cycle testing of this group. And we're currently in one of those cycles where it will test the group, and they've performed very well. Operator: We take the next question from the line of Jana Galan from Bank of America. Jana Galan: Question on the capital allocation priorities. Recently, you've been doing a little bit of everything between the acquisitions, share buybacks and debt and PE investments. Can you maybe speak to where you're seeing kind of more compelling opportunities as you look forward? David Bragg: Jana, this is Dave. Thanks for the question. And I'll start by talking about the capital allocation process itself because it is increasingly collaborative and data-driven. Our capital committee assesses each opportunity in a collaborative fashion, and these are our goals: match funding to remain leverage neutral, and that's one; and two is improving the portfolio's long-term cash flow growth prospects. Therefore, when we think about the primary sources of capital, they tend to be 1 of 3 things: DPE paybacks; contribution of assets into JVs; or disposition of assets for which the capital committee has deemed that we have relatively low go-forward IRR potential. And then from there, we look at a menu of redeployment opportunities that we also show on our capital allocation heat map. Top priorities are consistently investing in the operations platform, NOI-enhancing CapEx and redevelopment. What's recently moved up in terms of a priority and we executed on it would be share buybacks. And we find that to remain a compelling opportunity for us. And then at times, where opportunities present itself, as we've improved our disposition process, you may see us do some asset recycling into acquisitions or activate some of our land bank. Operator: We take the next question from the line of Austin Wurschmidt from KeyBanc Capital Markets. Austin Wurschmidt: Mike, I was wondering if you could just speak a little more to the inflection that you've seen in some markets like D.C. and Boston, given it is about 1/4 of the portfolio. And I'm just wondering whether you think that the softening is a temporary phenomenon and seasonal or if you think these trends could continue to persist into 2026, given some of the indicators like job growth that you had referenced in your prepared remarks? Michael Lacy: Sure. Austin. I think first, maybe specific to D.C., just to give a little bit of color here, 15% of our NOI, we are 40% urban, 60% suburban. So we do have a very diversified portfolio in D.C., and that's helped us produce the #1 total revenue growth against the peers year-to-date. And so I'm proud of the teams for their efforts there. I think as you go out further from kind of D.C. Central, we've seen a little bit more growth. I mean, specific to places like Manassas, Woodbridge, even as you go out to Alexandria and Reston, we've seen upwards of 4.5% to 6% growth out in the suburban areas. You get down to that central D.C. area, we are still seeing about 2% to 3% growth. So still pretty strong, but a little bit weaker than the suburbs. Overall, D.C., we have seen a little bit of a deceleration over the last 60 days or so just in terms of traffic, how that's translated into blends, a little bit more on the concession front, but we're still running about 96.5% occupancy. And we continue to assess and understand what's going on with our residents. And I'll give you an example. We have about 10,000 units in D.C., and we've had probably 70 to 80 residents that we are in open communication with right now just regarding the impact of the environment out there, how it's impacting them from a furlough standpoint and getting paid. And so we're going to continue to have those open and active conversations with them to make sure that we're working with them going forward. Specific to Boston, to your point, it is another rather large market for us. It's about 11.5% of our NOI. We are more 30% urban, 70% suburban here, still seeing occupancy in that 96% to 96.5% range. A little bit more pressure in the North Shore for us because we've had more of a supply impact than a demand impact, seeing a little bit more strength coming out of places like the South Shore as well as downtown in Boston. Operator: We take the next question from the line of Michael Goldsmith from UBS. Ami Probandt: This is Ami, on with Michael. We were wondering why did you make the decision to realign the fourth quarter leases? We've now seen 2, 3 years of market rents peaking early and pretty soft pricing power in the fourth quarter. But is there anything in the analytics that's pointing to indicate that this is going to remain the case, and we won't shift back to a more pre-COVID demand trend? Michael Lacy: Yes. For us, originally, it stemmed back to supply. And so when you think about the impact of supply and the peak of it coming in the middle of the year, our expectation was you're still going to have to lease up during the fourth quarter where demand typically falls off, and so we are trying to get in front of that. And so when you think about that 15% of our leases expiring in the fourth quarter, specific to the Sunbelt, it's probably closer to about 7% to 8% that we moved out of the fourth quarter into next year, where we do feel like once we get through this supply, we will be in a better place to start pushing rents again. And so originally, it was positioning ourselves based on supply, and it just so happens to help us out given the fact that demand has fallen off a little bit more than we expected as well. Operator: The next question from the line of Adam Kramer from Morgan Stanley. Adam Kramer: I just wanted to ask about concessions in markets. And I guess both what you guys are offering maybe on average across the portfolio and then specifically in maybe some of the Sunbelt markets and then also what you're sort of seeing more broadly in these markets outside of your portfolio in terms of concessions? Michael Lacy: Sure. I'll provide a little color there, Adam. I think for us, portfolio-wide, what we're seeing today is about 1.5 week concession. That compares to about, call it, 0.07 to 1 week about 3 months ago. And so it has ticked up a little specific to some of our markets and regions, where I'm seeing a little positive activity is where it's less than 1 week. That's in markets like Baltimore, Boston, Nashville, Orange County and definitely San Francisco. Where I've seen a little bit more pressure over the last probably 2 months or so, it's in Texas, Florida, D.C., L.A. and even parts of Seattle today. Operator: We take the next question from the line of John Pawlowski from Green Street. John Pawlowski: Dave, could you share the underwritten year 1 NOI yield on the Northern Virginia acquisition? And then Dave or Mike, could you give us a sense how much margin lift you will get at the 2 adjacent or close to adjacent properties from potting operations versus if you just own 2 assets far apart in that market? David Bragg: JP, thanks for the question. Happy to talk about The Enclave acquisition. And it really is an output of this collaborative and data-driven investment process. And so we'll tackle it as a team. I'll start with a few high-level thoughts. Chris, who has built an impressive investment analytics platform, he can speak to that, and then Mike can clean up with the operations perspective. About your question directly, the year 1 yield that we're underwriting is about mid-5%. That's consistent with the opportunities that we observed in that market. In D.C., there are some questions about that market given the government shutdown. It's a serious situation, but we believe it will prove to be temporary as has been the case in the past. And our investment decisions are made with a long-term perspective in mind. D.C.'s economy has been and will continue to be partly reliant on the federal government, but the share of jobs tied to the federal government has declined in recent decades as the local economy has diversified around other sectors, including tech, and we expect this to continue. And we're increasingly playing not a market level game, but an asset level game when we select assets, and Chris will get into that. Before I hand it off to him, I just wanted to talk about the funding source, which is dispositions. As we assess dispositions, we consider several factors, including rent growth outlook, CapEx outlook per our team's intimate familiarity with our assets and then the operation team's perspective. And importantly, on this one, we're utilizing a reverse 1031 exchange to preserve tax capacity for buyback activity. Go ahead, Chris. Christopher Van ens: Yes, sure, Dave. Thanks. And before I get into the specific analytics around Enclave, maybe I'll take a quick step back just because I want to make sure everyone on the call knows what we're referring to when we speak to our investment analytics platform. So we've really been working on our investment analytics platform for a number of years now. I would tell you, over the last year, 1.5 years, though, I think we've really supercharged our progress. That's through some investments in technology solutions, software solutions, dedicated headcount that are expanding and improving the platform. I'd tell you the first thing to probably know about the platform is that it is expansive. It covers 35 markets currently, including all of our markets. That's about 7 million apartment homes, utilizes a large amount of proprietary UDR data. Obviously, UDR has been around for a long time. We do have a lot of data use, which is great. But we also use a significant amount of third-party data often in quite unique ways, I think. The second thing to know, I would say, is that it's highly predictive of future relative rent growth at the market, the micro market and the asset levels. But by no means, and I'd be the first one to tell everyone this, it's perfect. It's an important tool in our process, but it's definitely not the only tool, a lot of things like operational upside, which Mike can cover in a second CapEx opportunities, et cetera. Specific to Enclave, I would tell you, as we look at the analytics, first off, D.C. is a neutral weighted market for us. That means we don't think it's going to necessarily outperform the portfolio or underperform the portfolio from a forward rent growth perspective over the next 6-plus years. Micro market around Enclave, somewhat similar, a little bit better than neutral, so maybe a little bit above average. But where the analytics really like the transaction is at the asset level. And that's very important to us because I kind of remind everyone, in case you've heard this before, but being right on the asset is about 2x more impactful to forward rent growth than being right on the market at the end of the day. So the analytics, what do they like about Enclave? Well, they like things like unit size, they like things like unit mix, the rent level, the supply dynamic around that property, et cetera. So we feel good about it from an analytical perspective, and then Mike can fill in on what the operational upside is. Michael Lacy: Yes. Thanks, Chris. A few things for me. I think, obviously, the first thing is the proximity. The fact that it's across the street from one of our assets today and arguably one of our better teams that we have out there. And so we're excited about that. When we think about margin, when we look at a trailing 12 to where it could go over, call it, a 3-, 4-year period of time, we see about 500 basis points in expansion. And so we think we can get it up to about 85%, which is close to our D.C. average today. And we're going to do it through things like headcount reduction, parking initiatives, adding package lockers, doing some flooring ROIs, things of that nature. And I'd tell you, even in addition to that, we see low supply out there, average income of about $130,000. It's located just off of I-95, and this is the best-performing submarket in D.C. for us today. Operator: We take the next question from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: A question on retention. It's been the saving grace of apartments this year in terms of healthy renewal spreads and record low turnover. But I guess at some point, that probably stops or slows down and reverses. So are you guys concerned just with how jobs are looking, layoffs, all the sort of nervousness that you and other apartment REITs have talked about? Are you guys nervous that retention may start to slip and what has been the saver may start to be a headwind? Michael Lacy: Alex, it's Mike. I'll kick it off and everybody else can jump in. I think for us, you point to some of the facts. And so you go from when we started really rolling out our customer experience project back in 1Q of '23, we have had the most improvement over the peer group since that period of time. We've been able to reduce our turnover by about 600 basis points since that period of time. We continue to see quarter-over-quarter declines in turnover. I can point to what we see today for October as well as the rest of the fourth quarter. My expectation is that's going to continue to be down on a year-over-year basis. And a lot of that has to do with focusing on the process, focusing on the initiatives and really diving into the data to understand how we can change that trajectory. And it's truly going from that transactional to more of a transformational shift and focusing on the lifetime value of our customers. So I think there's still room here. I think some of the things that we're working on right now that's going to allow us to continue to push our turnover down is just the touch points reaching out to our residents. In fact, we've had about 30,000 additional touch points this year to be more proactive versus reactive. That's paying dividends today. We're allocating resources to solve things on the move-in experience, callback tickets, even backlog issues, that's making a difference. We put in place playbooks that's around that move-in experience as well as just throughout their life cycle that works and what doesn't work. That's paying dividends. And I think the biggest thing that we're leaning into right now is just the sheer volume of getting positive reviews. When we look at our website and we look at how people are deciding where to live and how long to stay somewhere, we've really been able to identify that 4- to 5-star review is very impactful. And for us, we've had about 5,000 year-to-date 4- to 5-star reviews. That compares to about 1,500 this time last year. And so we think that's going to continue to help us as we move forward, too. So at the end of the day, we still think there's a lot of room to lean in here and really to drive these results. Tom Toomey: Alex, this is Toomey. Just to add on, certainly, housing policy in America has evolved as long as you've been in this industry in a number of ways. And right now, I'm more interested in seeing what happens in the Fannie, Freddie going public and what happens to mortgage rates because of that. And so there are positive things to look at. You're right, our business is driven on the employment picture and ability for that. Certainly with the current unemployment number, if you take the accuracy of any number out of D.C. right now, bodes well. And we'll just see how this plays out. But I think the housing policy aspect, I don't see much of a major. I see it more of a tailwind than a negative. And on the employment picture, it's going to be played out. And just to cap it off, I think Mike and team are really more responsive to the individual interactions and decisions just as Chris has highlighted the individual asset and the individual performance. And so this is really our overriding theme, which is how do we convert data to actions to increase cash flow at a higher velocity and stop trying to just ride the waves, but how do we get on top of it and stay there and be anticipatory of it. So I think the company is built for a lot of different economic cycles. Management team has been through a lot of different ones. We'll manage the cards as they're dealt, so to speak. Operator: We take the next question from the line of Julien Blouin from Goldman Sachs. Julien Blouin: Dave, I was wondering what you make of the JV with LaSalle given some of the issues with deployments through that channel in recent quarters and whether that falls maybe lower on your list of capital allocation priorities? David Bragg: Julien, thanks for the question. Actually, it's quite high on our list of priorities, the LaSalle JV is. And consistent with last quarter's update, we do continue to work on a contribution of assets from our balance sheet that fits mutual goals shared by them and by us. And this will allow us to earn fees and use proceeds to expand our portfolio with new investments that we find compelling. So I think that you'll see more news from us on that front soon. The incremental buying power in the JV is a bit over $500 million, and we're really excited to both explore these balance sheet contribution opportunities as well as external acquisitions as we grow that JV going forward. Operator: We take the next question from the line of John Kim from BMO Capital Markets. John Kim: Thumbs up on the one question policy. I wanted to ask about your market strategy. So I'm trying to juxtapose increasing your exposure to D.C. at this time, just given the demand headwinds. I know you talked about that acquisition quite a bit. But juxtapose that with your decision recently to lower your exposure to New York. And if you could provide an update on the marketing of Columbus Square that your partner is doing and whether or not you plan to participate in that process? Tom Toomey: Why don't I start off, this is Toomey. I'll ask Andrew to give you an update on Columbus and where that stands and then maybe I'll give some more color on the other aspects. So... H. Andrew Cantor: Thank you, Tom. This is Andrew. As everyone knows, our JV partner is marketing for sale. Its stake in the venture and is currently working through that process is what I would tell you. We are not either a buyer of that stake or changing our ownership position. And we will continue to manage the venture on a go-forward basis after the sales process and that is completed. Tom Toomey: With respect to markets in D.C. and New York, you're going to see us, as Chris has pointed out, recycle individual assets. And so we have a number of assets in the marketplace. You may not follow them, but I think there's a total of 6. D.C. is part of that composition of what we're exposing to the market. And I think you'll see us less targeting markets or balancing the portfolio and looking at individual assets. We've got over 180, and we're trying to say what would that -- the worst one, if you will, or the one with the least amount of prospects in the future trade for versus something that we're excited about as you saw us just trade. So we're looking at them in individual, not in an overall market type of communication, and that will happen both on the buy and the sell side of the equation. Christopher Van ens: Yes, John, I would just follow up real quick on the New York assets because they were a little bit unique as well, and Andrew can jump in with some of his thoughts if he wants to. But One William, it was in our New York bucket, but obviously, it was New Jersey. It was probably 30, 40 minutes outside the city. They had some rent control there that we were looking at the regulatory issues, and that potentially was going to change. So that one was kind of an orphan in the New York. It was inefficient. We decided that the price made a lot of sense, and we were able to offload it at the beginning of '25. As far as the Brooklyn asset, that was 100% rent stabilized. So depending on what you think is going to happen going forward in New York City right now, that was a rather prescient, I would say, sale at the time. We obviously didn't know that this was going to happen either potentially, but we feel very good about that one. And yes, that was less a little bit about market than more about, "Hey, maybe these are not the most efficient assets in the portfolio." Operator: We take the next question from the line of Alex Kim from Zelman & Associates. Alex Kim: I appreciate the time today and applaud the one question policy. Could you talk about your other income growth and provide some more detail on how it contributed to sequential same-store revenue growth? And as part of it, have you seen any realized benefits from funnel? Michael Lacy: Sure. Specific to other income, it's always good to size it. And this typically makes up around 11.5% of our revenue. So roughly $175 million out of $1.5 billion. What we saw during the quarter was right around 8.5% growth across this line item. And some things were higher than others, and I'll give you a few examples. Our parking initiative was up around 11% or $1.3 million. WiFi has been a continuous rollout for us over the last 12 to 18 months. We saw about a 63% or $1.5 million increase during the quarter. And then we saw things like our package lockers, pets, things like that, that were up in that double digit -- low double-digit range as well. On the slight negative, if I had to give you one, we are seeing some less activity on things like short-term furnished rentals, common area rentals, even some of our corporate exposure at this point has come down a little bit. So we've been able to offset that, obviously, still driving very high other income growth and going to continue to lean into those initiatives to drive outperformance into the foreseeable future. Specific to funnel, where we're seeing a little bit more is transparency. So we are able to see what's going on at the property and vice versa with our centralized teams here. Everybody has one view on what's happening with our customers, our prospects. It's allowing us to be a little bit more nimble. It's allowing us to lean into some of those 30,000 touch points I mentioned earlier just because we have more data that's going to the system. It's allowing us to drive more and quicker decisions as it relates to the customer experience project. And so where it's paying dividends is really on that turnover. Operator: There are no further questions in the queue. I'd just like to hand the call back over to the Chairman, President and CEO, Mr. Tom Toomey, for his closing comments. Tom Toomey: I want to thank all of you for your time, interest and support of UDR. We look forward to seeing many of you in the upcoming events. And with that, take care. Operator: Ladies and gentlemen, the conference of UDR, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the Whitestone REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. David Mordy. Please go ahead. David Mordy: Good morning and thank you for joining Whitestone REIT's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and Chief Operating Officer; and Scott Hogan, Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, October 30, 2025. The company undertakes no obligation to update this information. Whitestone's earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published third quarter 2025 slides on our website yesterday afternoon, which highlight topics to be discussed today. I will now turn the call over to Dave Holeman, our Chief Executive Officer. David Holeman: Thanks, David. Good morning, and thanks again for joining our call. We've got a number of great things to discuss this quarter, so I'll start in with some highlights for the quarter and our overall achievements. We hit 94.2% occupancy this quarter, up 30 basis points from Q2. This is near record occupancy and given that the fourth quarter is typically our strongest leasing quarter, we're set up for a very strong finish to the year. We delivered 4.8% same-store net operating income growth for the quarter, again, fueled by increases across the spectrum of shop space leases, various tenant types in both Texas and Arizona. The quality of our portfolio continues to be recognized by third parties as Green Street has now increased our TAP score by 5 points since Green Street started scoring our portfolio 2.5 years ago. In that time, the 5-point increase leads the peer group and is a testament to the strength of our acquisitions, our operations and our recycling efforts, as well as the demographic trajectory of the area surrounding our properties. We extended and improved the terms of our credit facility, locking down one of the key variables for us to achieve our long-term 5% to 7% core FFO per share growth target. Scott will provide greater detail on our debt metrics in his remarks. We're near completion on redevelopment for La Mirada in Scottsdale. We're in full swing on our work at Lion Square in Houston, and we've kicked off redevelopment at Terravita in Scottsdale. We forecasted that redevelopment will add up to 1% to Whitestone's same-store NOI growth with a $20 million to $30 million capital spend over the next couple of years, and we're on track to have this initiative deliver in 2026. And our average base rent is now $25.59, an 8.2% increase over the third quarter last year and a 26% increase versus this quarter 4 years ago, translating to a 5.9% compound annual growth rate. Specific to this quarter, we delivered $0.26 in core FFO per share. As a reminder, we typically have a lift of a couple of cents in the fourth quarter versus the third quarter as a result of new lease commencements and percent of sales clauses that trigger as we close out the year. Straight-line leasing spreads were 19.3% for the quarter, our 14th consecutive quarter above 17% on leasing spreads. So those are the recent highlights. Let me go on now to talk a little about what we have planned ahead. Our path forward is clear: deliver on consistent earnings growth, deliver on the targets we've put in front of our investors and if you have any doubts about our ability to deliver these results and don't see the value of our differentiated business model, come talk to us, dig into our great results and come see our properties. We know many investors have asked themselves, why not Whitestone? How is this small cap delivering growth that's larger than many of our peers? Don't accept a quick inaccurate answer. We'll help you understand the building blocks underpinning our 5% to 7% core FFO growth target and we'll help you understand why our cash flows are very durable. Because our success is rooted in operations, we believe investors gain a tremendous amount by seeing our operations. We'll be at REIT World in Dallas this December, we'll be showing investors properties on Monday, December 8, and we'll have one-on-ones on Tuesday. We hope you'll be able to join us at this conference. As part of our ongoing asset recycling efforts, we disposed of one property this quarter, Sugar Park Plaza in Houston. Over the last 3 years, we have increased the NOI in this property by 22% by transforming the center into a grocery-anchored center and remerchandising the shop space and the time was right to sell and deploy the proceeds where we can create greater value over the coming years. This disposition brings our total acquisitions and dispositions over the past 3 years to approximately $150 million. I anticipate we'll have a couple more acquisitions very shortly and should have 1 to 2 dispositions to finish out the year. Our markets are continuing to show significant strength as Texas and Arizona's business-friendly environments and strong demographic trends continue to support demand. Our acquisition team continues to identify neighborhoods with upwardly mobile consumers where our leasing team can have the greatest impact applying our business model. And in closing, we remain steadfast in our belief that a company with a well-aligned forward-thinking team, a well-located portfolio with a concentration of high-value shop space properly anchored to the community can outperform the herd. I look forward to connecting with investors in the months ahead, and I look forward to being able to lay out our 2026 plan on the fourth quarter call. Christine? Christine C. Mastandrea: Good morning, everyone. On the leasing front, we had a strong quarter, and we're accelerating as we close in on year-end. We signed $29.1 million in total lease value with spreads on new leases at 22.5% and renewals at 18.6% for a combined 19.3% on a straight-line leasing spreads. Same-store NOI growth was 4.8% for the quarter, allowing us to raise the lower end of the same-store NOI growth target by 50 basis points. Foot traffic across the portfolio was up 4% versus the third quarter of 2024. That's a good indicator we've got in terms of the health of the consumer specific to our footprint and our locations. What we're seeing in terms of successful tenants right now are those that are successfully expanding on their offerings. For restaurants, delivery services have gone from a nice add to a critical component of the business. In addition, we continue to see an expansion of beauty, health, wellness, fitness and see the spend on overall health and mental wellness continues to increase. Understanding these avenues for the tenant success is critical for Whitestone to stand top as we curate our centers to the neighborhood needs. On the redevelopment front, we've completed the facade renovation at La Mirada, which puts us on track to finish this by year-end. And at Lion Square, the transformation of striking is about 75% complete. With the redevelopment at Lion Square, the grocery we brought in last year at Sun Wing will expand, creating value by making this grocery-anchored center the heart of Houston's Asia town. Now we're kicking off the facade work at Terravita, which we talked about on the second earnings call, bringing in the Pickler and ACE hardware. This will further accelerate the transformation of the center, which is experiencing dynamic growth as a result of TSMC's nearby semiconductor fabrication facility. We also generally move a couple of pads into action each year. This year, we created a pad at Lakeside in Dallas and brought in Central National Bank on that pad. We also signed a tenant for a pad at Scottsdale Commons. As a reminder, we purchased Scottsdale Commons in 2024, so the creation of the new pad represents a significant value creation pretty rapidly post acquisition. We anticipate bringing a couple of pads -- additional pads online in 2026 as well. We continue to see pickleball succeed as the demand with the younger demographic accelerates. We're looking at bringing pickleball on the roof of Boulevard, which is adding value to where we had no income stream for that square footage previously and welcome this as an opportunity to add value also for the office community in the area. On the last several calls, we've talked about the intentional design of our business model to benefit from change, both in terms of change allowing us to enhance our growth trajectory and change enabling us to ensure more durable cash flows, a key component of what we do proactively tracking and understanding consumer behavior and capitalizing on that knowledge, we will see change as the result of 3 primary forces. First, change is a result of generational shifts as the younger generations step up into new roles, both as consumers and business owners. Two, migratory change as consumers move to more business-friendly areas and take advantage of opportunities there, such as our markets and what we've seen over the last number of years. And number three, technological change as both consumers and businesses become more sophisticated in utilizing technology and as spending patterns shift accordingly. Both generational change and migratory change show up in the Esri data, heavily used by our acquisitions team and our leasing team. Migratory change is a bit slower moving, but also critically component for acquisition team to get it right. The Houston metro area has added nearly 2 million people over the last 15 years, while the Phoenix Metro area has added 1 million residents during that time as well. Ensuring we benefit from that phenomenal growth is very important in terms of Whitestone's success. All 3 types of change also impact the consumer data that we -- and traffic data that we follow and Pacer AI. This is critical for leasing, but is key in our underwriting process. Our assessment of the business' ability to meet the future consumer demands weighs heavily into our decisions to move forward on any lease we sign. For all of our leasing agents, our weekly leasing meetings provide an opportunity to discuss what changes we're seeing as they interact with their neighborhoods and the tools they're using to evaluate those changes around our centers. The biggest takeaway for investors here is that our ability to translate change into a higher same-store NOI growth starts with our assets and our business model, but also relies heavily on technology, but ultimately needs to be embedded in our culture and our processes to which Whitestone delivers our results. We delivered strong finishes in both 2023 and 2024, and the team here is pushing hard to take advantage of the year-end dynamics and close leases. And with that, I turn it over to Scott to cover the financials. J. Scott Hogan: Thank you, Christine. This morning, we reiterated our 2025 $1.03 to $1.07 core FFO per share guidance, improved our same-store NOI growth range to 3.5% to 4.5% and reiterated our long-term growth rates. On our leverage metrics, we're making steady progress, and I anticipate our fourth quarter annualized debt-to-EBITDAre ratio will be in the mid to high 6s. The most significant development this quarter on the financial side was our amended and extended credit facility. We accomplished everything we wanted to accomplish here in large part because of the actions we've taken over the last 3 years. We were able to expand our bank group and improve Whitestone's valuation cap rate to 6.75% because there was wide recognition that we are consistently delivering and we have steadily increased the value of our properties through our focused strategy and strong execution. We increased the size of the facility to put Whitestone on par with our size-based peers in terms of available revolver credit capacity, and we expect to continue our debt leverage improvement initiative over the coming quarters and years. We fixed an increased percentage of our overall debt, bringing the weighted average term on all of our debt to 4.3 years and the weighted average rate on our fixed debt to 4.8%. Most importantly, locking down our debt clears the runway for us to focus on executing our plan and delivering core FFO per share growth for shareholders. I will note that included in the quarter is approximately $800,000 of debt extinguishment costs related to our refinancing. We have adjusted for this amount in our core FFO. Our revenue for the quarter was up 6% and most importantly, the quality of revenue continues to strengthen as evidenced by our improvement in uncollectible accounts and downward revision to our full year bad debt guidance. Our total headcount is down 6% from a year ago, and we continue to focus on lowering G&A cost as we scale. As a reminder, our dividend is well covered with a healthy payout ratio, and we expect to grow the dividend in sync with earnings growth. And with that, I'll conclude my comments and open the line for questions. Operator: [Operator Instructions] And our first question will come from Mitch Garman with JMP Securities. Unknown Analyst: This is Jody on for Mitch. Just a few questions here. The first one being, so the rent expirations in 2026, the average rent is higher than average there. Should we expect similar leasing spreads as in recent quarter? I think it was 17% for the next year or so? David Holeman: Thanks, Jody. This is Dave. I'll start out, and Christine may want to add some granularity. But there's always mix when you look at the -- one of the things about our tenants are we have a highly diversified tenant base with 1,500 tenants. So, in any particular year, you do have some mix, but there's nothing unique about next year's rental rates. We continue to see really strong leasing demand, and there's no sign of any weakening in our leasing spreads. So great quarter this quarter. I think our -- I can't remember the number, but we've had many quarters over 17%. I think it's been about 3 years. And so I'll let Christine add anything she wants to add. Christine C. Mastandrea: We don't see anything distinguishing next year any different than this past year. We see -- we expect that we're going to continue to see the same rate of leasing spreads, if not more, continue because there's just such a demand for retail space. Unknown Analyst: Okay. That's very helpful. Secondly, could you give any more information on the change in occupancy? I think the larger centers increase in occupancy and the smaller ones, occupancy went down. So any more details there? David Holeman: It's the same thing that we've been doing in the past couple of years where we're taking some space back. And the purpose for that on the smaller spaces is we see the opportunity for higher revenue and stronger quality tenants that we want to bring in. We have been doing that for the last couple of years, and we continue to do so going forward. So there's been a number of small spaces that we've taken back, and we expect to put to work with a higher income stream based off of our leasing efforts. And then we did fill a couple of larger spaces this year. And much of that timing has to do with just city approvals and the timing that we can bring that revenue online. J. Scott Hogan: Hey, Jody, I might also just remind everyone that we report fully commenced occupancy. So I know many of our peers report leased and commenced Whitestone's 94.2% is tenants are in the space. And so continuing to see good trends in occupancy. I think we were up 30 basis points just over the second quarter. And I think as we said in our remarks, fourth quarter tends to be a very good time period for us. And so we're excited about finishing out the year strong. Unknown Analyst: Okay. And the last one for me here is if you all have any update on the Pillarstone JV? David Holeman: I'm glad to give an update, Jody. I will encourage everyone to we'll file our 10-Q shortly, and it has a very detailed description of the activities that have gone on. What I will say is, we're nearing the end. We've talked about -- we're in the collection phase of just collecting our funds from the partnership. The court recently -- there was recently a settlement agreement filed with the court, and we expect that to be approved. And with that, there would be a distribution of proceeds. But I encourage you -- very shortly, I encourage you to read the 10-Q because it gives all of the details. But the short answer is we have reached a settlement with the court. The court has to approve that settlement. And if it is done, then the proceeds are expected to be distributed by -- in December. Unknown Analyst: I'm looking forward to that and good luck the next quarter. Operator: Our next question comes from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask you on your leverage comments, mid to high 6s in 4Q. It seems like it was 7.2% as of 3Q. So, just want to get some more color on assumptions driving leverage lower in this quarter. J. Scott Hogan: I'm sorry, Gaurav, it's Scott here. I didn't catch the whole question. Are you asking about the leverage ratios? Gaurav Mehta: Yes. I think you mentioned mid to high 6s expected in 4Q from 7.2% as of 3Q. So I just want to get some more color on the assumptions driving leverage lower. J. Scott Hogan: Sure. So, I think there's 2 pieces to the puzzle. We continue to improve the balance sheet, and we're focused on that and then operations continue to improve. The fourth quarter is, as Dave mentioned before, usually one of our -- is our strongest quarter normally. We have percent sales breakpoints that are hitting the fourth quarter. And so on an annualized basis, we do expect the fourth quarter to be in the mid to high 6% range on debt-to-EBITDAre. And then we think we'll continue to improve our balance sheet as we move forward. This year, there's been a little bit of timing in our recycling efforts. The acquisitions have gotten ahead of the dispositions, but we think we'll balance those out as we move forward. Gaurav Mehta: Okay. A follow-up on acquisitions and dispositions. I think in the prepared remarks, you said you're expecting some acquisitions shortly. And then you also mentioned a few more dispositions. So just in terms of timing, is that expected this quarter? J. Scott Hogan: Yes. We expect -- I think I said in my remarks, Gaurav, that we've got -- what we expect is a couple more acquisitions and 1 to 2 dispositions to finish out the year. So that would be expected to occur in the fourth quarter. I think what you'll see is consistent with what we've done in the past, looking at properties that fit Whitestone's model, continuing to upgrade the portfolio. I think we've got a chart in our investor deck that lays out what we've done where we've bought properties that have what we believe is much more upside in better areas and sold properties that we see less growth in the future. So just continuing what we're doing with a couple of those for the balance of the year. And as we've said, we're fairly well balancing the assets, acquisitions and dispositions at this point. Operator: [Operator Instructions] We'll go next to Craig Kucera with Lucid Capital Markets. Craig Kucera: Scott, you had a fairly large pickup in real estate tax accruals this quarter. Can you talk about your expectations for the year in regard to real estate tax? J. Scott Hogan: Sure. Yes. So, it's mainly Texas. Texas has a choppy real estate valuation process that we go through. So, we really go through a 3 or 4-step process to ultimately settle on what we're going to pay. And what we typically see is around July, what's called the ARB process happens, and we usually settle in on a little higher valuation, and then we continue to protest those, and we continue to litigate those. And ultimately, I think we feel confident that those will come down. We do pass through most of those costs to our tenants, but we work very hard to keep those low because it's a burden on the tenants. And some of those can take 2 to 3 years to get through the full litigation process. So, I think it's just a normal increase that you'd see in the third quarter, particularly in Texas. Craig Kucera: Okay. That's helpful. Just circling back to your commentary, Dave, on the acquisitions and dispositions. I think earlier this year, you were talking about maybe $40 million for the year. Has that number changed at all? Or is that still sort of the expectation of having $40 million of acquisitions and maybe $40 million on the disposition side? David Holeman: Craig, yes, I don't -- I think we -- like I said, in Page 10 of our deck, we've laid out, we've done 2 acquisitions this year. And as I said, I have a couple more. So, I would say probably we're going to be a little higher than those numbers on the acquisition and disposition side. So not significantly different. If you look back so far, we've done basically $150 million over the last 2.5, 3 years. I think that run rate is consistent with where we are today. But we are seeing some nice opportunities. I'm very pleased with the acquisition of San Clemente in Austin earlier this year, which is across from our Davenport property and provides us some really nice synergies between those 2 properties. We acquired Hulen in Fort Worth market earlier this year. I think a great acquisition for us and excited about a couple more that we should announce shortly. But no huge change here, just continuing to make sure we're working the portfolio. We're taking the steps we need to do to achieve our 5% to 7% long-term FFO growth. And so probably just a little bit more than the $40 million, but kind of a consistent pattern with what we've done over the last 3 years. Craig Kucera: Got it. And kind of changing gears here in the fourth quarter, I think you've got about 4% of your ABR expiring. Is that really just because you have a concentration of month-to-month leases or anything other going on there? David Holeman: Well, I think if you're looking at the number of leases, mostly just on the lease count, most of that is in our -- what we call the CUBEXEC product, which is a very small percentage of the portfolio, but it's a shared office space concept. And so it's a high number of leases that just tend to be either month-to-month or very short terms, and that's normal. I think if we looked at just what we'd consider to be in our wheelhouse of leases, the number is closer to 50 to 75 that are expiring in the fourth quarter, something like that, probably closer to 50%. So I think it's mainly just CUBEXEC leases expiring. J. Scott Hogan: It's actually very consistent with what we've always had. I mean if you look back to last fourth quarter, I think we're a little smaller. So super pleased with the opportunity to continue to have roll. One of the things that I think is a benefit for Whitestone is in this environment, we're rolling a greater percent of our leases than some of our peers. So obviously, with the positive marks we're having, we're pleased with that. But consistent with what we've had is about 20% of our leases rolling. If you look at the 4% of revenue, that translates very closely. David Holeman: I think on a square footage and ABR basis, it's actually lower than we were in this position last year, Craig. So... Craig Kucera: Okay. That's helpful. One more, just on Slide 10 on the investor presentation, appreciate the color, first of all, that's helpful. But just looking at it optically, it looks like you're acquiring properties with higher rents at higher cap rates and selling assets with lower rents and lower cap rates. So obviously, you're getting that positive cap rate arbitrage, which you've reported over the past few years. Is that just you executing your strategy? Or is that a focus more on more small shop space where you can charge higher rents? I just would be interested in your color on how you're doing that. J. Scott Hogan: I think it's largely our strategy and as I think if you look at the fundamental aspect of what we do, it's capital allocation. So just continuing to look at our portfolio. We do believe that right now, it's the right time to continue to upgrade a number of things, upgrading the tenant base, upgrading the properties to higher income levels to potentially higher ABRs. So, it is a focused strategy to ultimately buy properties that we think have greater growth going forward. And we're doing that probably in a little better areas and upgrading the portfolio. You've seen us move the ABR, you've seen us move kind of our consolidated TAP score. And then most importantly, if you look at the chart on 10, not only are we buying these properties at good rates, but Christine and her team are doing a fabulous job of stepping in day 1, looking at the merchandising mix, looking at ways we can drive NOI. So, we're buying it at more attractive cap rates, and then we're making very quick return increases as we move forward. Operator: We'll go next to Bill Chen with [ Rhizome Partners ]. Unknown Analyst: I was wondering if you have a update on Pillarstone in terms of timing and then if the dollar figures are still in that same range of, I believe, $50 to $70 that you have previously guided? David Holeman: Hey, Bill, Dave Holeman. Thanks for your question. I think I said earlier, and I'll remind folks, we're going to file our 10-Q very shortly, and there is a very detailed explanation in the 10-Q that goes through all the activities that have happened on Pillarstone. But just briefly, during the quarter, we received $13.6 million that was a payment of part of our proceeds due from Pillarstone. We have -- there has been a settlement reached with the court, the plan agent that would result in about another $40 million coming to Whitestone. That settlement needs to be approved by the court. There will be a hearing to do so in November. And then if all of that's approved is expected the distribution of approximately $40 million would be made in mid-December. There are -- obviously, there are -- we expect that to happen, but there are a number of steps to get there. So that's the update. We're very close to receiving what we believe is kind of the end of the joint venture, $13.6 million received in the quarter. And right now, we estimate another $40 million to come in, in December. Unknown Analyst: Got you. I appreciate that. And does your leverage ratios factor into those payments that you previously just -- that you mentioned on the call earlier today? J. Scott Hogan: Right now, the guidance for the fourth quarter does not include the impact of any gains or losses or the Pillarstone proceeds. So $40 million – if the $40 million Dave mentioned would probably be right around a half turn. Unknown Analyst: Okay. I appreciate that. And one last question, if I may. On the pass site developments, is the strategy going forward to hold them or to kind of sell them for the gain and redeploy the capital? David Holeman: Great question. I think that's an individual-by-individual pass site kind of that we go through. Obviously, we do think there's value in having an aggregation of the properties that all go together. But as you can see from what we've done in the last couple of years, we selectively sold a couple of pad sites that we thought the value was very attractive. So as we do these pad sites, one of the things we look at is structuring them in a way with a lease that is attractive to a buyer. And then so keeping that opportunity open to us. But it's really -- it's an individual kind of decision we go through. We look at the pad site. We look at where it is in the center. We look at potentially the pricing in the market. So, we're looking at a number of ways to do things that add value to shareholders. Operator: Moving on to John Massocca with B. Riley Securities. John Massocca: Apology, if I missed it earlier in the call. I know it's not really how you tend to think about the portfolio. But as we think about 4Q rents and maybe even beyond that, I mean, do you have a signed not open pipeline or a pipeline of things that are on, call it, a free rent period that could be kicking in here in the next 3 to 6 months? And if so, kind of what's the broad parameters of how big that number is? David Holeman: Yes. So, hey, John, Dave. So, as I mentioned earlier, we report occupancy as commenced occupancy. So the tenants have taken possession of the space. Some of our peers report, I think, a leased occupancy and then a signed not open. One of the fundamental aspects of our business model is smaller tenants, shorter leases, much more quick and nimble. So, we just don't have a substantial amount of leases that aren't commenced because we move quickly, we get those tenants in very quickly. So, I also think when people report signed not open, they're not reporting potential tenants that move out. So there's -- that signed not open gap always sits there. But Whitestone is at a solid 94%, over 94% fourth quarter moving forward. And we sign leases and we get them commenced very quickly. I think I answered your question, maybe… J. Scott Hogan: John, just the 3.5% to 4.5% same-store guidance that we've given for the year includes any kind of free rent or anything of that nature in it as well. John Massocca: So, I guess maybe just as we think about 4Q, which is historically a big leasing quarter, I mean, is that stuff that's in negotiation today? Or is that things that have been negotiated in 3Q, 2Q that are essentially just formalities to close in the quarter? David Holeman: It's both, John. I mean, leasing, there's complicated leases can take 6 months to negotiate to put in place and some are different. I mean it's across the board. So -- but traditionally, we've always tried to take back some space at the beginning of the year and which always kind of dips our occupancy a bit. And in that, we're moving towards either leasing activity well into the second and third that delivers on the fourth. And then sometimes the fourth, for whatever reason, people wanting to start their businesses up at the beginning of the year, just seems to always been a very productive quarter for us in the beginning -- and I think, again, you kind of see the trend has been the same in the last couple of years. We just expect it to keep being that way. J. Scott Hogan: Yes. And I think obviously, we're not just saying because it's been that way. We've got great visibility into the leases. We -- Christine and her team, every week, we look at the activity, we look at leases in place. So we feel good about where we are on the leasing side. And at this point in the year, there's substantial activity, we believe, to finish out in Q4. David Holeman: Yes. I haven't seen a downtick in leasing activity this year. Surprisingly, I thought there'd be a little bit of pullback, and it really has not been. John Massocca: Okay. And then on the kind of redevelopment or center enhancement CapEx you're putting in, is all of the kind of tailwind to same-store NOI or NOI you're expecting to see from that kind of hit in 2026? Or is there projects in place that are really more of a 2027 impact? And I guess, how big could that be compared to what you're going to complete this year or early next and therefore, have it be impacting the '26 numbers? David Holeman: It's -- boy, we've been stacking this evenly across the board over the number of the years just because the timing of lease rolls when we're able to put production into place. But I think we may see some of our larger projects come online on '27, but '26 is going to be similar to this past year as far as what we're able to achieve as far as putting pads into production, et cetera. And the same thing, we have a couple of projects that we expect to see an uplift from, I think as we talked about, Lion Square, Terravita, a number of these that they take about 6 months to 9 months to put in production and then you see the results the following year. So we continue -- that is part of the value add of our business that we find to be as far as whenever we purchase an asset, we look at doing that. Garden Oaks will probably be the next one to start up. And that's just how we do business, and that's how we're able to keep increasing and improving the value of the portfolio, the quality of the revenue and deliver to the bottom line. John Massocca: Okay. And then maybe kind of on a very short-term basis, as I think about the acquisitions and dispositions that are in the pipeline for the remainder of the year, should we expect kind of cap rates to roughly be aligned with what you've done historically on kind of both ends of those transactions? David Holeman: The general answer is yes. Nothing -- no substantial changes. I mean, we're working a program. The specific cap rates may be slightly different. But generally, we're seeing cap rates consistent with what we show on Slide 10 as far as the acquisition side. Most importantly to us is, obviously, the day 1 cap rate is important, but we're equally focused on the day 300 cap rate. What can we do, how can we move the rents. So it should be no substantial change in doing similar to what we've been doing. I think I said in my remarks, what we plan to do is execute and deliver, share with investors where we think we can add value and then do that. So you should see that on the acquisition disposition side throughout the rest of the year. Operator: This now concludes our question-and-answer session. I would like to turn the floor back to Dave Holeman for closing comments. David Holeman: Thank you. Thanks to everyone for joining our call. We're very pleased with the progress we're making. I think we've laid down another solid quarter and are excited about finishing out the year with a very strong year. I would love to interact with anyone that was going to be at REIT World in Dallas in December. We're going to be having a property tour and then obviously meeting one-on-one with investors. So if you'd like to do that, reach out to us. And thanks again for joining, and have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Q3 2025 Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead. Johann Strobl: Thank you very much. Good afternoon, ladies and gentlemen. Thank you for being with us this afternoon. We are pleased to report a good set of results this morning and in particular growth across the region, which continued the pace in the third quarter. We can report a consolidated profit of EUR 1.027 billion for the first 9 months of the year, excluding Russia, equal to a return on equity of 10%, in line with our guidance for 2025. When we think about the future of RBI and exclude both Russia and Poland, we have achieved a 13.5% ROE in the first 9 months. We can confirm our ambition to earn around 13% on this basis in 2025 and beyond. We will discuss this again on the outlook slide. Finally, our CET1 ratio remained stable at 15.7%. On Slide 5, we can report 3% loan growth in the first 9 months of this year and the positive momentum that we have seen across our network in Q3 leads us to confirming our 6% to 7% loan growth guidance for 2025. NII and NFCI have performed well, and the guidance is unchanged here as well. OpEx have increased 7% year-on-year to September 2025, which combined to some headwinds in trading income mainly from the moves in our own credit spreads lead to a slight deterioration of our cost income ratio target to 53%. Let's now move to our slide on the rundown in Russia. First of all, I can confirm that we are ahead of schedule when measured against the milestones agreed with our supervisor. It is worth taking a step back to see how significantly we have shrunk our business in Russia. Since the start of the war, the loan book in ruble terms is down nearly 60% and deposits from customers are down almost 40%. Our payments business out of Russia is merely a fraction of what it was, and this is entirely reported to our supervisor. The balance sheet of our Russia business now carries more equity than loans to customers. Our corporate loan book specifically is down nearly 85% in ruble terms since the start of the war and is now under EUR 1 billion. There's a little I can share with you by way of an update on our claim against Rasperia in Austria to be precise, on our right to file a claim in Austria to seek compensation for the damages that our Russian subsidiary has suffered there. I hope you will understand that we cannot discuss our litigation strategy here, but I would also like to reconfirm our belief in the strength of our claim and our intention to file it at the appropriate moment. Thank you for your understanding. Moving to Slide 7. I'm happy to report a decent NII result in the third quarter, largely driven by better volumes on both the asset and liability side, and we are seeing less headwinds from rate cuts across our markets. As mentioned, I can confirm our guidance for NII in 2025 at around EUR 4.15 billion. Fee income was stable in the quarter, driven by good FX volumes in the third quarter, good inflows in asset management and encouragingly, fees from loan commitments and guarantees in the group corporates and markets. On the next slide, let's take a closer look at loan growth in the quarter with 3% to 5% loan growth in our key CEE and SEE markets, a positive momentum, which we observed early in the year is confirmed. Notably, retail lending in Czech and Slovakia was strong and across most of our markets, we could grow above market average. Corporate activity is improving across most markets, while group GCM remained sluggish, impacted by some repayments in the quarter as well as lower repo volumes. On the bright side, we are starting to see a healthy pipeline in our GC&M segment, which will help us to meet our 6% or so guidance for 2025. On the liability side, we're seeing strong retail deposit inflow, which further strengthens liquidity, but also will support NII. Speaking of liquidity, let's flip to Slide 9. where our ratios are all very stable, both on group level, but also for each major unit, including head office. I won't spend much time on Slide 10 and 11, showing stable CET1 development for the group, excluding Russia and our price book zero scenario, where we assume a worst case out of Russia and what is -- what this would mean for CET1 and our full capital stack, including AT1 and Tier 2. On Slide 12, our CET1 ratio outlook, excluding Russia is unchanged with the strong credit growth explaining most of the RWA increases expected in Q4. Let's jump to Slide 14 with our MREL ratios above target in all countries. On the funding side, 2025 plan is complete and 2026 has started. I should mention that we still may consider issuing a senior preferred bond still in Q4 to get a head start on 2026. Moving to our macro outlook on Slides 15 and 16, we are generally encouraged by the growth trends ahead. Of course, the environment remains uncertain, not least from trade policy and geopolitics. Finally, our outlook is broadly unchanged with slightly better risk costs expected, but the cost/income ratio at [indiscernible]. Overall, we can confirm our ROE for the group, excluding Russia, 10%. And looking through the future -- into the future of about 13%, excluding Russia and Poland. And with this, I turn to Hannes, please. Hannes Mosenbacher: Thank you, Johann. Good afternoon, ladies and gentlemen. Thank you for joining us today. Allow me to briefly run you through a few risk items before we open up the call for Q&A. Johann has just mentioned the positive trends in the new business generation, both in retail and in corporate. And I'm also encouraged by these dynamics. Growth in the region appears to be well established, and I'm glad to see that we are capturing our share, and I'm satisfied that the new business that we are underwriting is comfortable within our risk appetite. At the same time, the risks from trade restrictions and, of course, geopolitical developments have not disappeared. On de-risk specifically, we continue to review our portfolio and besides minor rating adjustments, there has been no deterioration in our assessment. We booked overlays earlier in the year. These remain available to us, and we do not see the need to add to them. Risk costs were again very low this quarter. Defaults and insolvency remain very low, leading to a very few Stage 3 provisions. Furthermore, we made minor changes to our models and benefited from some of our securitizations. After 9 months this year, our provisioning ratio for the year stands at 14 basis points. We currently do not foresee the need to aid overlays in the fourth quarter, and we can, therefore, bring our risk cost guidance down to around 30 basis points. Asset quality continues to improve and our NPE ratio has reached a new low for us at 1.7% with a Stage 3 coverage ratio stable around 50%. In Poland, we have booked a further EUR 66 million of provision for litigation on FX mortgages, bringing us to a EUR 295 million year-to-date. In the fourth quarter, we do not expect significant model changes. And on the positive side, we expect to be able to release some of the provisions for penalty interest. Accordingly, we can confirm our guidance of around EUR 300 million for 2025 or perhaps a touch above. Well, ladies and gentlemen, this was my very brief update, and we are now more than happy to take your questions. Operator: Our first question comes from Benoit Petrarque with Kepler Cheuvreux. Benoit Petrarque: So a few questions on my side. The first one will be maybe just to get an update on this European Commission process to size Russian assets, especially the STRABAG shares. I think behind the screen, there have been a lot of political negotiations. I just wanted to get the latest on that. What is the intention from, let's say, Europe vis-a-vis the STRABAG shares. So that's the first question. And I will not ask any questions on Rasperia. On the second question will be on Poland. If you think the EUR 300 million will be kind of enough? Or do you expect still some remaining losses or litigation provisions in '26? So that's the second question. The third one is actually on the CET1 ratio expected at 15.2% by year-end. That suggests very important growth and loan growth in the fourth quarter. So just trying to understand the moving parts between the 15.7% to 15.2%. And then just lastly, just on the NII, a few questions on Czech Republic, which was very strong. Just wondering here if it's just a very strong loan growth in Czech Republic or are there other items? And on the contrary, the Corporate and Market division on NII was a bit weak. We were down EUR 20 million quarter-on-quarter. I just wanted to understand what happened there. Johann Strobl: Thank you. So I agreed with Hannes that we share the questions and, of course, the answers. And I start with the Rasperia, STRABAG and the sanction package. I assume you're referring to the 19th sanctioned package. Our way of viewing it is that yes, sanctions follow several goals, and we had assumed that within these goals, it would be reasonable to suggest and promote the idea to unfreeze the sanctioned STRABAG shares. So if this would have happened, and I have to say, then we would very quickly could recover a big part of the damages depending then on some results. We have to -- I understand that the whole -- our whole topic is viewed on a large broader scale than we have thought. So with as many, many discussions in general about sanctioned assets. Again, I see the connects, but it has happened during that discussion. We will see if we can make progress maybe in the future, potentially around 20 sanctioned package if it would come. But I don't give here any guidance or probability of whatsoever. I can only confirm what I said in my introduction. We believe we have a very good case here in the Austrian court being aware that it would take much longer and it's with some -- yes, with some challenges, of course, in moving along the procedures what we have. So that would be my view on your first question. I hand over to Hannes for your Poland question. Hannes Mosenbacher: Well, Poland, just to reconfirm the guidance for 2025, it's, as I said, this round about EUR 300 million, maybe a touch above. When thinking about 2026, I think you have to keep in mind that we now see also a little bit more dynamic when it comes to inflows towards euro. So we believe that 2026 guidance should be lower than the EUR 300 million, which were needed for the year 2025. At the same time, usually, we give detailed guidance on the Q4 call. But at this moment, I think you could think a bit lower than the EUR 300 million, could be in the range of EUR 220 million, EUR 250 million, somewhere around these numbers. This is our current thinking. We will be more precise or confirming this range by the Q4 call. Thanks for the question, Johann. Johann Strobl: Yes. Thank you. Coming to your next question, which is the explanation where is the loan growth indeed. Why is the CET1 where comes the RWA growth and therefore, the drop in the CET1 compared to end of Q3. A bigger part of that, of course, comes from the increasing loan book. I mean, clear, we have said that having now reached year-to-date 3%, and we are aiming for 6 or maybe a little bit more. So this will come with additional RWAs. But you're right, there are some, some elements also from rating migrations in it. So still some corporates are feeling some, some pressure with all these geopolitical and trade developments and whatever you have. So we have built in some migration impact as well. Moving to your fourth question, which is the NII in Czechia indeed, we see in some countries, especially in Czechia, also in the recent quarters, a significant increase in the loan growth, mainly in the retail area. So we had seen picking up the mortgage business, but also what we saw is a good consumer loan growth. So both we are more than happy what we have seen there. And one has to say that also liability, on liability in this normal rate environment, you can earn a little bit. But the average volume, if you compare Q3 with Q2, then it was a nice growth. When talking about the second part of your question, GC&M, so the Austrian business, if I may say so, why is NII down? Yes, it's -- the report here, I agree it's a little bit difficult to read because here, it's not only the entity level, but it's also built on funds transfer pricing and similar. But of course, we have seen also a lower loan book as well. So it's both elements, which needs to be considered. Operator: We'll take our next question from Gabor Kemeny with Autonomous Research. Gabor Kemeny: My first question is on NII, I believe, decent growth in your core NII in Q3, together with loans and you even expanded your net interest margin a bit. Can you share your initial thoughts on the NII outlook going into 2026, shall we model NII growth which is kind of aligned with loan growth, for example. And that's the first one. Second one on the overlay provisions you flagged from Ukraine. I believe the wording is that you increase the risk zone Ukraine. Can you elaborate a little bit further on this? Why this triggered additional -- how this triggered additional provisions? And was the likelihood of recurrence in the coming period? And my final question is on Czechia, New government is being formed with some maybe more populistic measures on its agenda. What do you think is the likelihood of a bank tax maybe a more effective bank tax being introduced in the near future? Johann Strobl: Thank you, Gabor. Coming to your first question. I -- we -- at this point in time, we do not speak too much about the outlook in 2026. So I'm sure, as you're following so long, you are not that much disappointed or surprised. What we can share is that, yes, in all the markets, we see -- we expect loan growth in retail area because the employment rate is good in all the markets, which means in combination with wage increases. This gives a higher potential for customers to also take more loans. So this is the one. And as I indicated before, also incorporates, we see some adjustments. You have seen our assumptions on the -- in the presentation on the rate development, okay, there we see some negative impact on the NII. But we still assume now, I would say, as of today, a slightly improvement and, of course, also in the NFCI. Hannes Mosenbacher: Gabor, I was once sharing with you that when we look at Ukraine, we have -- we look in the -- at Ukraine in sort of 3 regions, green, where there's almost no war-related activity, yellow, where there is war-related activity and red where there is really intense fighting. And since we now see an increase of the FX over the entire Ukraine, we have thought that it's prudent to increase our overlay provisions in Q3 by this EUR 15 million, given that this dividing the country in these 3 zones only is not anymore good enough. So this was a motivation for increasing the overlay bookings by EUR 50 million for the entire Ukraine. Thanks for the question. Yes. And then there is a question which is difficult for me to answer. It's about Czech politics, let us observe the coming weeks and then come to a final comment on that. I would agree with you that -- we are in a situation that every country feels encouraged to increase bank tax. But I hope this is more speak than real action. Operator: We'll take our next question from Riccardo Rovere with Mediobanca. Riccardo Rovere: 2 or 3, if I may. The first one is on -- again, sorry, in loan growth. RBI core, excluding Russia and Belarus year-on-year, the book is up just a little less than in 4% according to your Excel file. And what could bring -- why that should go to kind of 6% to 7% in only 3 months. This is the first question. The second question I had is on deposit growth, which is honestly amazing because it's doubling -- double debt of loan book at the moment, more than 7%, if I'm not mistaken. I was just wondering what is driving that? And if you think this will have to slow down at some point. The other question I have is on NIM. It was 2.31% in Q1. Then fell a little bit to 2.27% in Q2 now is back to 2.3%. So basically, you're not suffering any kind of margin pressure over the past 6 months. And given that rate cuts should be more or less done, not everywhere, but in most of the countries where you operate or affecting most of your loan book. Is it fair to assume that it is hard to believe that severe margin pressure should be visible on the next and medium term. Thank you. Johann Strobl: Riccardo, so to your first question, loan growth, indeed, that's -- given where we are and what is ahead of us, it's -- it's very optimistic. I agree. On the other hand, how do we judge it. We have seen that retail is still doing fine, and so they will contribute their part -- but of course, the bigger volume now has to come from the corporate books and -- we have a strong pipeline. This does not mean that the end of the day, we will get all what we have now in the pipeline as competition is significant in this area as well. . But the best what we can say is it seems to be possible. And this is, of course, a bigger part has to come from head office in absolute to volume for sure. But also we see quite good pipelines in most of the corporate areas of our retail -- of our network banks. Now to the deposit growth. Yes, we see that customers are earning nicely, and they put quite a lot of their wages on their account. So this is the drivers, quite good liquidity in many of the markets. So forward looking, is there some risk that one or the other market, the Central Bank might reduce a little bit the liquidity and thus putting also on the pricing of deposits, some pressure, this can happen. And we also see now an increasing competition even without the special impact, what I have mentioned. So -- to your third question, NIM, very stable. Can there be the way I understood it -- could there be pressure coming from somewhere. Indeed, as I said, competition could be one pressure. The other is, yes, we compare then banks have their model books, have their historic run rates in the book. So probably you always have a combination of all this, but it looks positive as of today. Thank you. Operator: We'll take our next question from Máté Nemes with UBS. Mate Nemes: I have 3 questions, please. The first one would be on overlays. Hannes, you mentioned that you see no reason that overlays presently. Can I ask you about the approach to overlays in 2026? What would drive your decision to either add or potentially to release some of these substantial overlays for the ex-Russia business? That's the first one. The second one would be on corporate loan growth and the pipeline in GC&M. You clearly mentioned that the bulk of the corporate lending growth in Q4 would have to come from there. Can you talk a little bit about the nature of the pipeline? What sort of deals -- what sort of lending do you expect materializing? And the last question is on Poland and the euro mortgages. The numbers I mentioned below the EUR 300 million guidance for this year, so something around EUR 220 million or EUR 250 million, if I'm not mistaken. Can you talk about the assumptions or the expectations for those provisions in 2026? What would drive them? Where do you feel the adequate provisions level would be? Hannes Mosenbacher: Well, Máté, thanks for all the questions. I may start with the question number one, when you're talking about the overlays on 2026. So just to remind the audience, we have some EUR 100 million of overlays for Ukraine. And we have another EUR 100 million of overlays for Russia, which remains for the core group of RBI Group and overlay of around about EUR 300 million. So when would we release and also before I go to the details on when and why we would release or why we would see good motivation for releasing. I'm now referring to the financial stability report, and I think you all have seen that, of course, some leading indicators, PMIs are looking constructive. At the same time, uncertainty index stays elevated. So when would we feel encouraged to release some of these overlays. This would be, of course, if we see materialization on Stage 3, if we see a clear change in the risk perception. And of course, whenever there is a substantial change towards sanctions in war-related risks, we would be more than eager to adjust our overlays in our overlay amounts what we have created. So this is our thinking when it comes to the overlays. Johann, if this is final, I also would immediately take the #3 question, Poland, Euro and our current way of thinking how do we come to this EUR 225 million, EUR 200 million, a little bit up to EUR 225 million, EUR 250 million, maybe. The one is we always we are sharing with you our Swiss franc guidance, and this was always around about EUR 150 million, EUR 170 million. And if I look at how you have modeled this number into your assessment, I think we have been well understood. And what has been now new, Máté, is that we see that the in the local industry, when it comes to litigation provisions, have now moved on also on the euro part of the portfolio. So we see not yet an elevated inflow, but we see a higher inflow of euro litigation, and this was the reason for us not to leave you in the belief that the EUR 150 million is good enough for the next year. But that's the reason why we added this round about EUR 80 million on the euro side, and it could come mainly from the active euro loans outstanding. Of course, here, amounts would be less pronounced than compared to the Swiss franc. First, the portfolio was a smaller one. And second one, the FX-related devaluation part is a smaller one. But this is our way of thinking how we come to this guidance on EUR 220 million to EUR 250 million. So the confirming the previous guided EUR 150 million for the Swiss Franc but being more prudent when talking about euro, hope this helps in understanding our thinking. Thanks for the question, Máté. Johann Strobl: Yes. And to your other question now in GC&M, where should it come from? I would say, broad over all sectors with some larger tickets, of course, as well. So people will be busy, but I cannot in the head office here, pick out a specific industry or so where we would see it. It's rather broadly, and of course, larger tickets than what we have in the network banks but also in the network banks, the corporate part is lining up. And given the size of what they have in some of them significantly, I mean maybe I was not so precise enough that the retail -- we recently have been growing above the market. And I think this, this at least will continue till end of the year. So from all areas positively supported. Operator: We go next to Ben Maher with KBW. Benjamin Maher: I just got 2. I think you mentioned you were growing ahead of the market in particularly retail lending. I was just interested to get your thoughts on why that is, that's around pricing or something else? And then my second question is just on fee growth. That's been very strong, particularly this quarter. Again, I just want to get a better understanding of what's driving that and whether you expect that momentum to continue into the final quarter. And I know you're reluctant to give any numbers for next year, but if there's any color you think you can give for next year, that would be helpful. . Johann Strobl: Yes. I think our -- we got it right in retail. Recently, I would say we had periods where we are holding back with the mortgage business as for a period of time, margins were very, very thin. And as the margins are now in an area where we are fine with it, so we can -- we can get to our market potential or slightly above. So I think what paid off is that we -- usually, when you hold back, then it takes quite some time until the customers perceive you that you are back again in the market. And this, we have achieved in the beginning of this year, and we are building on that. And with the margin in this business, we are fine. The fees, what you're referring in the Q3, indeed, they were good for us. And what can I say? I think -- and I did cut comes to some extent also in Q3 because of the tourism season, which is good in some of our quarters and with this also some as in our region, sorry, and some also from the tourism and therefore, the FX. Yes. And of course, you always have to be aware that part of this is, how shall I say, a little bit higher than the core of it because of part of the transaction tax, what you have in Hungary goes also in this line. But overall, we are very fine with the development. Operator: [Operator Instructions] We'll go next to Riccardo Rovere with Mediobanca. Riccardo Rovere: 2, if I may. The first one is it is on cutting Russian exposure. You mentioned at the beginning of the call that you're running ahead of schedule that you have agreed with your supervisor. Still looks to me that over the last quarter, at least, the decline, especially in the deposit side seems to have come to a sudden stop, if I may say so. So I was wondering what is driving that? This is the first question. The second question is on your capital, the way you see your capital at the end of 2025, what kind of target do you think the bank should have assuming Russia one day will be solved? Johann Strobl: Thank you, Riccardo. To your first question, the development of deposits. I mean, one has to say, of course, this is always driven by opportunity costs, what customer face. And it's more than difficult to -- I mean, if you look at to forecast, if you look at the reduction, 38% is huge. Nevertheless, it could have even been more. So it's -- I think it's less -- for us, it's not a big thing as usually when you think about the runoff of deposits, it's then the question to long-term funding and liquidity. You have seen that there is no need for this. So it's from the income, it's rather opportunistic. It's placed with the Russian Central Bank. So difficult to say what keeps -- this opportunity cost keeps customer with us. I would not make any, any forecast to this, how this develops further. We have done everything to incentivize and now I have to say the rest is in the hand of the customers. When talking about the capital at year-end, so the 15.2%, we are comfortable with this. I think we are -- we are a little bit away from the scenario you outlined about Russia. And then of course, it's also a question of how will then be the operational RWA impact from Russia be treated by the, the Central Bank, but we are around 15% is for this point in time, a good number, I think. Riccardo Rovere: Sorry for follow-up. On both questions, if I may. The first one, your -- are you basically saying that what RBI is measured on is more the reduction of the loan book than on the deposit side when it comes to cutting the Russian exposures because I understand at some point, it's the customer decision to withdraw money from you or not, while maybe you have more control on the loan side. So is this the way the supervisor looks at things? Or do they want also you to bring the deposit down? And the second question is a follow-up, 15.2% is a high number. So I was wondering, do you think this is the target of the bank in normal conditions or could it be lower given the risk profile of RBI excluding Russia? Johann Strobl: Coming to your first question the whole story about Russia is always what is totally in our hands or let's say, in the hands of the Russian bank and what is -- what is done in other hands being it by institutions who give us a framework where we can act in our customers. Now in the loan book, we have the planned run down. So the expected rundown, the quality of the portfolio is very good. Customers are repaying to a large extent as scheduled. And -- but not more. I mean, you might be -- you might remember that in the past, we had quite a lot of fixed rate loans. And whenever the, the rate cycle went down then customers were very quick in refinancing at a lower rate. Now given the rate level where we have, so this is not to be expected also not in the near future. So we had seen in the corporate loan book, some faster repays than were scheduled, but everything else is according to the schedule. So and we don't grant new loans, so this is why this is following that. And as I said, we have to offer in Russia and account and then it's the only thing we can do that we don't pay interest for none of the accounts. And then as I said, it's the decision of the customers how much money they keep with us. And this is communicated analyzed and also shared by the Russian -- by the ECB or supervisor. So this is clear. Now probably it's not the right point in time to think about the different CET1 ratio for the group without Russia as Russia is -- the Russian bank is still with us. And yes, you point us in a direction to adjust it somewhere in the future. And when we feel the point in time we will then speak about it. Thank you. Operator: [Operator Instructions] We'll go next to Simon Nellis with Citibank. Simon Nellis: Just a quick one from me. Can you perhaps share some thoughts on the dividend that you're looking to pay out of this year's earnings and the negotiations or discussions with the regulator, given that your performance is quite nice. I assume that you think you can deliver a nice increase in the dividend. And also, it'd be interesting to know what the dividend accrual for the first 9 months was in your capital that you reported? Johann Strobl: Yes, I'll start with the second part, and this is we accrued EUR 1.20 per share. So in the first 9 months. So as this is a very mechanical thing, you then see also that we just formally will accrue also until the end of the year, another EUR 0.40, so EUR 1.60. This is what we have in our calculation and talks with at least on my level with the supervisor have not started yet. So yes, that's always an interesting discussion -- what is the parameter for this discussion group, core group or all this. So work in progress starting at a later point in time. Operator: [Operator Instructions] As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation. Johann Strobl: Thank you, moderator, and thank you to all participants for showing interest, devoting sometime. I wish you a good afternoon. Thank you. Goodbye. Operator: You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Communities Third Quarter 2025 Earnings Conference Call. At this time, management would like me to inform you that certain statements made during the call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in today's press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligations to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I would like to introduce management with us today: Charles Young, Chief Executive Officer; John McLaren, President; Fernando Castro-Caratini, Chief Financial Officer; and Aaron Weiss, Executive Vice President of Corporate Strategy and Business Development. [Operator Instructions] As a reminder, this call is being recorded. I'll now turn the call over to Charles Young, Chief Executive Officer. Mr. Young, you may now begin. Charles Young: Good afternoon, and thank you for joining us on today's third quarter earnings call. This is my first earnings call as Chief Executive Officer of Sun, and I want to start by saying how excited I am to be a part of this exceptional team. Since stepping into the role on October 1, I spent my first month listening, learning and engaging across the company. I have already visited a large number of our communities, and I look forward to continuing my tours. My first few weeks reaffirmed what drove me to Sun, the strength of our teams, the scale of the platform, the quality of our communities and the opportunity in front of us. It is clear that Sun's success has been built on a strong foundation, underpinned by a deep commitment and dedication to our residents and guests. I'm thrilled to be joining at this pivotal moment in the company's journey, and I look forward to building on Sun's strong legacy. My near-term focus includes 3 key areas: one, deepening my understanding of the MH and RV business, ensuring I'm grounded in every aspect of our company's operations and culture; two, supporting our team as we deliver on our strategy and commitments; and three, assessing opportunities for disciplined long-term growth. I am grateful for the warm welcome I have received from the Sun team. I look forward to working together to continue to drive excellence in all that we do for the benefit of our team members, residents, guests and our stakeholders. With that, I'll turn the call over to John and Fernando to review our third quarter results and outlook in more detail. John? John McLaren: Thank you, Charles. On behalf of the entire team, we are thrilled to welcome you to Sun Communities. Your deep understanding of and experience in the real estate industry and fresh perspectives have already been additive, which will help guide Sun through this next exciting chapter of growth and value creation. Turning to our performance. I'm very pleased with our third quarter results. Sun reported core FFO per share of $2.28, exceeding the high end of our guidance range, driven by strong same-property performance in North America and the U.K. For the third quarter, within our North American same-property portfolio, NOI increased 5.4%, led by manufactured housing, which delivered 10.1% NOI growth and maintained a solid 98% occupancy. Through the end of September, 50% of our MH residents have received their 2026 rent increase notices, averaging approximately 5%, reflecting the continued strength and stability of our portfolio. In our RV business, same-property annual RV revenue was up 8.1%. Transient RV revenue performed in line with expectations, declining by 7.8%, with roughly half of this decline due to our strategy of reducing transient sites as we continue to successfully convert transient guests into RV annuals. As I've shared before, the volume of RV transient annual conversions has returned to a more normalized growth pace following several record conversion years. RV same-property NOI declined 1.1%, and we remain focused on cost controls with same-property RV expenses down year-over-year. For 2026, annual RV rental rates are being set with an estimated average annual increases of approximately 4%. In the U.K., same-property NOI grew 5.4%, supported by 4.8% revenue growth and 4% expense growth. While home sale volumes are lighter given broader macro challenges and when compared against recent record volumes, our team continues to maintain elevated market share by providing differentiated services and amenities at Park Holidays' high-quality communities. Our Park Holidays homeowners have received 2026 rent increase notices averaging approximately 4.1%. Our U.K. team continues to execute exceptionally well as they strategically shift the earnings mix toward recurring real property income while driving operational excellence. I want to take a moment to thank our entire team for the discipline and dedication towards achieving our goals and continuing to position us for a strong future. Their commitment to operational excellence, including expense discipline and top line growth, resident and guest relations and accountability is what enabled us to deliver these great results. With that, I will turn the call over to Fernando to review our financial results and updated 2025 guidance in more detail. Fernando? Fernando Castro-Caratini: Thank you, John. I will start with an update on capital deployment and our balance sheet. Following the initial safe harbor closing on April 30, we completed the disposition of the remaining 9 delayed consent properties for total proceeds of approximately $118 million, with the final closing taking place on August 29. In addition, during the third quarter, we sold a land parcel for $18 million. In October, we acquired 14 communities for approximately $457 million using 1031 exchange proceeds. These properties include 11 manufactured housing and 3 annual RV communities, all located in existing Sun markets, allowing us to leverage our teams, scale and infrastructure. In the U.K., during and subsequent to the quarter, we purchased the titles to 7 properties previously held under long-term ground leases for approximately $124 million. Year-to-date, we have purchased 28 ground leases for approximately $324 million and agreed to purchase 5 additional ground leases for approximately $63 million with closing expected by the end of the first quarter of 2026. These transactions create meaningful financial and strategic flexibility and eliminate significant lease complexity. As of September 30, total debt stood at $4.3 billion with a weighted average interest rate of 3.4% and a weighted average maturity of 7.4 years. Pro forma for the closed transactions and our common distribution in October, our net debt is approximately $3.7 billion, and our net debt to recurring EBITDA on a trailing 12-month basis is approximately 3.6x. Under our $1 billion authorized share repurchase program, we have repurchased approximately 4 million shares for $500 million year-to-date at an average price of $125.74 per share. We continue to view buybacks as a way to enhance long-term shareholder value while maintaining balance sheet flexibility. Turning to our full year 2025 guidance. Based on our strong third quarter results and recent capital actions, we are raising our core FFO per share expectations by $0.04 at the midpoint to a range of $6.59 to $6.67, reflecting continued operational strength and disciplined execution of our strategic priorities. North American same-property NOI growth guidance has been increased to 5.1% at the midpoint, up 40 basis points from the prior quarter, driven by solid performance across both manufactured housing and RV segments. Manufactured housing same-property NOI is now expected to grow by 7.8% at the midpoint, reflecting continued outperformance through the third quarter and steady demand across the portfolio. RV same-property NOI guidance has been raised to a 1% decline at the midpoint, supported by stable third quarter results and improving transient trends relative to prior expectations. U.K. same-property NOI guidance has been increased to approximately 4% at the midpoint, reflecting better-than-expected third quarter performance and continued real property strength in the Park Holidays platform. For additional details regarding our full year guidance, please see our supplemental disclosures. Our guidance reflects all completed acquisitions, dispositions and capital markets activity through October 30. It does not include the impact of potential future transactions or capital markets activity, which may be reflected in research analyst estimates. I will now turn the call back over to Charles for concluding thoughts. Charles? Charles Young: Thank you, Fernando. The team delivered a strong performance in the third quarter, and we are encouraged by the positive momentum. I am incredibly excited to be at Sun, and I look forward to providing updates as we work together to drive consistent growth for years to come. We have concluded our prepared remarks, and we will now open the call for questions. Operator? Operator: [Operator Instructions] Our first question is from Steve Sakwa with Evercore ISI. Steve Sakwa: Charles, I realize you've only been on the job 30 days, but I'm just curious kind of your initial observations and some of the positives and maybe challenges that you've seen? And are there some kind of low-hanging fruit items that maybe you've uncovered given your background at Invitation that you think you can implement at Sun over the next 6 to 12 months? Charles Young: Great. Steve, thanks for the question. Hello to everyone. Let me start with how excited I am to join Sun's outstanding team. And Steve, I appreciate the question as I'm sure many have been thinking it or wanted to ask it. So congrats on getting it out there. As you mentioned, I've been here for all of a month. So please allow me to level set and give you a few of my early thoughts, clarify what I've done and where I want to focus in the near term. Let me start with the quarter. As you can see from this quarter's performance, the team is executing at a high level. So well done to the leaders on the call with me here today and to the entire Sun team. It's great to join such a high-performing team. So my first priority really has been around how do I support the team to finish our commitments and finish the strong -- the year strong 2025. As I mentioned in my earlier remarks, my first 30 days have been on focusing and on engaging with the team and getting up to speed on all aspects of Sun's businesses. Over the past several weeks, I've been on the road visiting our properties. I met with apartment leaders, spending time in the field with our team members. It's incredibly valuable for me to know our business up close and from the ground up. And I've been impressed by the strength of the team at all levels as you ask about what I'm seeing. The scale of the platform feels familiar, which is great to see and the quality and location of our communities really stands out to me, and I plan to build on all of these strengths. So it's been exciting to validate what originally drew me to Sun. Looking forward, so as we look beyond my first 30 days and next 30 and beyond that, my long-term focus is on driving consistent and profitable growth that creates long-term value. And Steve, as you know me and others know me, my background is in residential housing. So operational excellence and resident and guest satisfaction will remain at the heart of everything we do. Internally, I'm a big believer in the value of culture, one that continues to reflect Sun's values while empowering our teams to deliver their best for our residents and guests. And from a financial perspective, I plan to stay disciplined in how we allocate capital. Any future enhancements will be thoughtful, data-driven and focused on creating long-term value for our stakeholders. But as I think about it all, and let me end with this because I know it's kind of early in my time, what really stands out from my experience is that in today's world, affordable living and attainable experiences that Sun provides is needed now more than ever. The value proposition offered by our high-quality communities and team members is unparalleled. And what this quarter performance shows you with our 98% occupancy is that the demand for affordable housing has never been greater. So I'll end here. I'm generally excited to join Sun at such a pivotal time in the company's history and truly believe in the exceptional opportunity ahead of us. Operator: Our next question is from Jamie Feldman with Wells Fargo. James Feldman: Great. I appreciate the thoughtful response there, and congratulations on the new role. I guess as you're thinking about the strategy of the company, what are your thoughts on the U.K. or maybe for the broader group there, what are the latest thoughts on the U.K.? I know you've been buying up some of the ground leases. But is this still a long-term hold for the company? And I know the growth looks pretty good actually, but maybe just share your latest thoughts. Charles Young: This is Charles. Why don't I jump in and just give you my initial kind of what I've done to date on that, and then I'll turn it over to Aaron to get into the ground leases. In my first 30 days, I've had a chance to engage with the Park Holidays team. And as I mentioned, I'm evaluating all aspects of our business, including the U.K. And I'm encouraged from what I've seen. The team's discipline, execution and focus stands out. Performance has been solid, and the team has executed on our strategy to grow recurring real property-based revenue. Again, I'm going to stay high level. I'll spend more time digging in. Aaron, you can fill in a little bit on the ground lease approach. Aaron Weiss: Yes. Thanks, Charles. Year-to-date through October, we've now acquired 28 ground lease properties and have another 5 under contract, which will bring the total purchases to 33. All these transactions are accretive to our earnings, were completed at attractive yields. And as Charles, I think, alluded to, meaningful flexibility to manage the portfolio strategically over time. Most importantly, from a strategic and flexibility perspective, following all of these closings, 49 of our 53 U.K. communities will be owned on a freehold basis. To comment in a way that John and I have commented previously, consistent with what we have said in the past and in light of our continuing strong performance despite those headwinds, we have the best team in the business in the U.K. They are managing the best assets in the market and are focused on executing an operational plan to ensure as with our entire portfolio that we are optimizing our properties and maximizing value for our stakeholders. Operator: Our next question is from Jana Galan with Bank of America. Jana Galan: Congrats and welcome, Charles. A question on the transaction market, given you've been very active this year in both the dispositions and acquisitions. If you can maybe talk to kind of pricing, what's out there and any kind of additional opportunities? Charles Young: Appreciate the question. Thank you. We just want to highlight that the most important part of what we've announced from a transactional perspective is that we've been very disciplined and selective in deploying the capital. These are all high-quality assets. They definitely fit our long-term strategy. Leveraging the long-term industry relationships that we've had. We are seeing an increase in the transactional activity in the market, but the overall opportunity set of properties that meet that acquisition criteria is consistent with what we have seen historically. The transactions we've announced and the transactions we are seeing that meet our criteria are much more likely to be in the single asset or small portfolio opportunities. We are looking thoughtfully and prudently at adding communities in our portfolio to the extent they meet those criteria. What we did see from the transactions we executed on was cap rates in the low 4% area. We would expect that to continue to be the area in which we would continue to transact. And as we noted in our release, we do have another $50 million of potential 1031 transactions in the pipeline. But beyond that, I would suggest that the overall environment is very consistent with what we've been seeing, though we are able to acquire these single assets or small portfolios, we will remain selective, and we aren't seeing significant large portfolios of assets that meet our underwriting criteria, but we'll continue to underwrite and look thoughtfully at these opportunities. Operator: Our next question is from John Kim with BMO Capital Markets. John Kim: I wanted to ask about your transient RV performance, which was better than expected. Have you had an impact from the Canadian customer base this quarter? What is your engagement like with your customers there? And what are you seeing? And can you remind us about the seasonality of the Canadian transient RV customers? Do you have more in the summer or winter months? John McLaren: Yes. Thanks, John. This is John. I'll respond to that. First, I appreciate what you said. I'd like to say again how pleased I am with -- when we talk about RV -- annual RV revenue being up 8% in the quarter. Our RV NOI overall is performing towards the higher end of the guidance range we provided. As you know, I think most people know that our Canadian guests represent less than 5% of total transient and 4% of our RV annual business. And as I've shared, we have experienced softness with Canadian customers coming down to Florida. So back to your question about sort of seasonality. We addressed some of that back last winter as well as some of that slowness in the Northeast this summer. But I will tell you, we are -- we've been sort of hyper focused on the annual RV side on retention in 2025. I think you all have heard me talk about that before. And that has led to overall good net conversion results with converting a net almost 700, okay, so far this year as well as we've been focused on with some of the short-term Canadian softness that we've dealt with just more -- getting more domestic RVs to help fill that Canadian guest gap. And then what we're seeing going out forward is a little bit stronger booking trends on the transient RV side, okay, over recent weeks as well as some really encouraging activity in terms of renewals of RV annuals coming into the next season. So it feels like the work that we're doing where we focused our attention over the course of 2025, and I can't emphasize enough, you can't just flip the switch and do well retention. It takes a year to build that up, okay, which is what we've done. So we've put in that work, which is why we're seeing the trends that we're seeing now. And so I'd like to say that we're a little more positive than we were at this point last year. John Kim: Given your exposure in Michigan and some of the Northeast states, do you have a pretty even seasonality pattern with your Canadian RV customers? John McLaren: I mean it's going to be mostly like -- it's going to be mostly in the first quarter, and it's going to be -- and then some in the third quarter up in the Northeast, but it's not really Michigan. It's more like Maine and places like that. Operator: Our next question is from Eric Wolfe with Citigroup. Eric Wolfe: I was just wondering if you could talk about how you came up with 4% annual RV increase for next year. If there's any reason why it's down from, say, 5.1% the previous year, if you're trying to prioritize occupancy or -- just trying to understand the strategy around that increase. And then also, at what point you have good sort of data on the acceptance of that? So meaning like by the time we get to the end of the fourth quarter or first quarter, do you generally know sort of what your annual RV revenue will be for the year? John McLaren: Yes. Great question, Eric. Thanks for -- this is John again. Specific to RV, our rent increases are intentionally set to continue reinforcing what I was mentioning earlier on retention, okay? Excellent operational execution remains key in retention, ultimately net RV annual conversion, which means the experience that our guests have at the properties, frankly, is far more valuable than anything we can do from an external marketing perspective. This is why I'm so focused on retention. You have heard me say before that the best revenue-producing site that we can gain is the one we never lose, okay? And as I shared, we believe the strategy is paying off, and we are, in fact, running ahead of last year's renewal pace for RV annuals. And this all kind of culminates, which is why we've been prudently tempered, as I would say it, with a 4% RV annual increase for 2026. I mean it is retention really remains one of the most valuable drivers for consistent long-term growth for us, particularly in the RV space. Operator: Our next question is from Adam Kramer with Morgan Stanley. Adam Kramer: Congrats, Charles, on the new role and looking forward to working together. I wanted to ask about just the drivers of the guidance raise for the U.K. business. And I recognize there's some moving parts there with the ground leases, but just maybe fundamentally, like what's happening with that business currently and sort of what's embedded in the new outlook versus the prior? Charles Young: Sure, Adam. The increase in same-property growth for the U.K. portfolio on the real property side is really a reflection of outperformance coming in the third quarter, and that's leading to the almost 180 basis point increase at the midpoint for NOI growth for the year. We saw stronger transient growth in the quarter as well as success from an expense containment perspective across utilities and supplies and repair. Adam Kramer: Great. And maybe if I could just sneak in a quick follow-up here. Just wondering about tax implications. I think you guys have bought about $580 million or so, and I think the gains from the safe harbor sale were to be in the $1.4 billion range. So just wondering maybe high level, is there a tax asset that can offset some of the liability here that you have from those gains? Aaron Weiss: [indiscernible] Thanks for the question. I think that was referring to the safe harbor potential tax liability. To follow on what we've talked about in the past when we announced the transaction and even prior to that, we started implementing a broad tax mitigation strategy. Some of those efforts were the 1031 exchange programs we've talked about. There was the May special distribution. And then throughout the year, beginning in early 2025 as well as through to now, we have been selling nonstrategic assets that have generated losses. We also have the ability to use NOLs. We're continuing to use those strategies. We're continuing to follow through. And as we've talked about before, the tax implications are generally in the year for the year. So we will continue to work through those as we move towards year-end and provide an update as appropriate. We would suggest we are very happy with how we've proceeded over the course of the year, particularly since the initial closing at the end of April this year. Operator: Our next question is from Michael Goldsmith with UBS. Michael Goldsmith: Welcome, Charles. Sticking with the U.K., can we just talk a little bit about the U.K. home sales environment? I noticed NOI from U.K. home sales were down pretty materially in the third quarter, so year-over-year. So is there -- is that a reflection of the environment overall? Or is there some kind of individual events that are weighing on that? John McLaren: Michael, it's John. Appreciate the question. Yes, I mean, as I've said in my prepared remarks, home sales in the U.K. are a little lighter than they were last year. But I have to emphasize, we are really pleased with the overall performance of the U.K. business. U.K. same-property NOI grew by 5.4% in the quarter. We raised our U.K. same-property NOI guidance for the balance of the year. Our team in the U.K. continues to execute exceptionally well. They've done a great job of strategically shifting the earnings mix towards stable recurring real property income while maintaining strong market share and pricing power despite what you're talking about is the challenging macro backdrop. But I do think this is really a tribute to the high quality of the portfolio, the exceptional service that happens on the ground by the team and the skill, performance, mindset inherent in that group of people that are led by Jeff, Richard and Chris. I mean, as you know, 2024 was the highest volume year of home sales for Park Holidays. And while 2025 volumes will be lighter, okay, than they were, I think they remain solid in line with our overall operational strategy in the U.K. One of the things kind of looking forward, we did have, as I think Fernando kind of alluded to, a strong 2025 vacation season in the U.K., and that may ultimately contribute to the pipeline for future home sales going out. Operator: Our next question is from Jason Wayne with Barclays. Jason Wayne: Just you reported $630 million in 1031 escrow at the end of the third quarter, netting this month's deals against that would suggest around $175 million of remaining funds. So just wondering if you turned down any deals this month or what's causing the delta between that and the $50 million remaining today? Aaron Weiss: Yes. So originally, thanks for the question. When we announced it, we originally put $1 billion into 1031 exchange accounts. And then we ultimately, as part of second quarter earnings, reallocated approximately $430 million into unrestricted cash, which left about $565 million earmarked for acquisitions. As part of this closing, it was about $457 million, and we do have some residual capital allocated to 1031s. As naturally part of these transactions, you do tend to over allocate 1031 funds for maximum flexibility. So we did expect a slightly less amount of actual transactions, but we ultimately executed on about 80% of those proceeds. In terms of our approach, I just want to reiterate, we're being incredibly disciplined and selective. The funnel we looked at over the course of 2025 was much larger than what we ultimately executed on, and we did not feel any pressure to move forward with any transactions that did not meet our long-term objectives. We have a lot of long-standing deep relationships across the industry throughout the organization, and we're able to leverage those, and we'll continue to leverage those to find these attractive communities on a one-off or small portfolio basis. So we're very happy with what we've landed on. And you can assume that for every deal we do announce and close, there were many transactions and communities we passed on because they did not meet our quality and underwriting criteria. Operator: Our next question is from Wes Golladay with Baird. Wesley Golladay: I just have a quick question on your land parcel sales. I know in the past, you were looking to be more of a developer and you may have some more inventory. Just wonder if you can quantify how much land you have left to sell -- for potential sale. Aaron Weiss: Thank you for the question. I think overall, we will continue to look to maximize value of unproductive assets. We've been very aggressive in exiting nonstrategic assets over the past 18 months in excess of $600 million of operating assets as well as land parcels. We wanted to highlight that we will continue to do that even as we look to grow the portfolio with high-quality communities and assets that we may acquire in due course. There may be smaller transactions like the one Fernando alluded to in his opening remarks, about $18 million, but we do not have substantial land assets you should be looking for, for sale. To the extent we do have some additional land, it will likely be adjacent to existing assets and may provide some incremental growth through expansion in the future. Operator: Our next question is from Brad Heffern with RBC Capital Markets. Brad Heffern: Welcome, Charles. On the regulatory side, there's clearly been an increased emphasis from this administration on housing affordability. Obviously, that's the main selling point of manufactured housing. I know the main impediment historically to supply has been at the local level, but I'm wondering if there's anything you're tracking at the national level or that could potentially be helpful that might come out of this. John McLaren: Brad, it's John. I appreciate the question. I mean to answer your question directly, the answer is no. I mean there isn't a lot that's really changed. I mean I think you know that we've been an active participant in anything related to affordable housing as it relates to government support. We'll continue to be an active part of that. But in the meantime, we are obviously very skilled, experienced in being able to work at the local level, and we have shared a lot at the local level through some of the things that we've done in the past that we can be -- well, I would just say we're always ready, okay, because we possess the skills, the experience and the know-how if something does get turned up, if you will, to help boost that and accelerate that process. But for right now, we'll just be prepared. Operator: Our next question is from David Segall with Green Street. David Segall: You still have room to run on the buyback authorization, but it seems like you paused the buybacks in October. So I'm just curious how you're weighing -- utilizing the remaining runway on the authorization versus additional acquisitions. Fernando Castro-Caratini: Thank you, David. You can expect us to continue being prudent with -- from a capital allocation perspective. I'd love to remind everyone that since the Safe Harbor sale, we have paid down over $3 billion of debt, meaningfully reducing leverage and removing our floating rate debt exposure, returned over $1 billion of capital to shareholders via special distribution and share buybacks and an over 10% increase to Sun's common distribution, acquired over $450 million of high-quality assets, acquired ground leases in the U.K., significantly improving financial and strategic flexibility for that portfolio. So we'll continue weighing right, all options in front of us from a capital allocation perspective and be thoughtful as it relates to how that next dollar is allocated. David Segall: Great. And just with regard to expenses, can you talk about what's driving the cost savings? You talked about it for the U.K. business in particular, but I'm curious for more broadly. John McLaren: Yes. Thanks, David. This is John. I think more broadly, speaking specifically to like COM expenses within the operations side, we have expanded what we said we're going to do. We're sort of towards the top end of that range and much of that has lie in payroll-related line items, various supply and repair categories, tech-related costs. But one of the bigger pieces is meaningful standardization, expansion and adoption of our procurement platform, which encompasses many different expense-related items centered on property operations. And additionally, I would share that we continue to harness transparency and the power of our technology to drive additional operational efficiencies. So I'm really pleased with how it's going. We will continue to focus on additional expense savings, but we're also very focused on additional revenue growth opportunities, okay? And the results of which are reflected in what you're seeing today in terms of our results, not just for the quarter, but for the whole year and the performance we've had in 2025. And some of that on the top line has come in the form of retention, occupancy gains, rate gains, revenue growth as well as the great job the team has been doing from a collections perspective, which has turned into overall savings within bad debt. So I mean, to really sum it up for you, David, it's fundamentals and execution. They are the focus and what you're seeing happen in real time. You're seeing this happen in real time to our overall bottom line results. Operator: Our next question is from Tayo Okusanya with Deutsche Bank. Omotayo Okusanya: Charles, welcome aboard. The transient RV business, could you just talk a little bit about what trends you're seeing at this point, again, whether you're kind of at the point where we're kind of getting towards the demand normalization everyone is looking for or whether for whatever reason that hasn't come back and kind of what may be delaying the eventual demand normalization of that business? John McLaren: Yes. This is John. I'll start. Great question. It's actually a question we've been asked pretty much all year long. And I think that the best way that I would answer that is, again, we're really happy with our RV same-property NOI performance being at the top end of that range, okay? We've done really well coming off of 3 record years of transient RV conversions and still growing them. On top of that, we've got 23,000 transient sites we can convert in the coming years if we want to, okay? And so when we think about -- I would tell you, what is normalization, what is stabilization, I would just say, well, what is it, okay? Because it's a balance between what we do from both an annual side and the transient RV side. And the goal is to maximize what we can do from an overall RV NOI. And I think what you're seeing happen and what I've shared earlier in the call has been, we are seeing improved trends, not just on the annual RV renewal side, but as well as our current pacing that we're seeing on the transient side. So it's a difficult question to answer. But I think what we're seeing right now is actually pretty positive. Fernando Castro-Caratini: And Tayo, if I could add, we are actually seeing an improvement from a forecast perspective for the full year for just transient RV revenue performance. When we last spoke in July, we were forecasting about a 9.25% decline in revenue. That has improved over the last 3, 4 months by about 30 basis points for full year performance. So we're actually seeing slight improving trends from that standpoint. Operator: Our next question is from Steve Sakwa with Evercore ISI. Steve Sakwa: Just -- and I'm sorry to ask this on kind of the RV business. So I believe the RV business is down 2.8% year-to-date, but the forecast for the full year calls for down 1%, which was a 50 basis point improvement. So that implies a pretty big, I think, acceleration or improvement 4Q to 4Q. Can you just maybe speak to what's driving that, number one? And then secondly, I know you guys have a lot of cash sitting on the balance sheet that's not restricted. How do we just think about that use of cash kind of moving into '26? Fernando Castro-Caratini: So Steve, you're right as it relates to expectations for fourth quarter NOI growth for our same-property RV portfolio. The main driver of that will be -- or one of the drivers for that will be transient growth where we're expecting a smaller decline than what we have seen on a year-to-date basis. That would be the largest driver. Charles Young: And Steve, on the second question on the capital allocation. Again, I'm going to stay high level because of the time that I've been here, but I've been digging in with the teams and my perspective has always been to take a disciplined approach that balances growth, operational needs and shareholder value. And what I've seen so far is the team has executed very effectively across all of those areas. It's been very disciplined. And I expect that balanced and disciplined approach to continue as I dig in and get a deeper understanding with the teams. And we'll continue to review that framework, work closely with the Board and evaluate all options for long-term shareholder value. Operator: Our next question is from John Kim with BMO Capital Markets. John Kim: It's a followup. Charles, I wanted to know what you thought of the rental home business within the MH communities. Is that's something that could be built up within Sun? Charles Young: Yes. Again, this is part of my deep dive into the business. I've obviously, with my background, I have been spending a lot of time with John and Bruce understanding that business and how it works. Obviously, I have history and perspective. It seems to be executing really well, and I'm asking some questions as to kind of where we go from there. I don't have much more to add at this point, but it is something that I am particularly interested in given my background. John, do you want to add anything or? John McLaren: Yes. I would just -- I think you know this, John. I mean, I've been around that program since its inception here at Sun. And one of the things I think is super important, one of the biggest benefits that it brings to the company is a key traffic driver to our communities, okay? Because we have lots of prospects that come to the property, thinking they might want to rent it, ultimately end up purchasing a home and become a homeowner. So that in itself is an important part of that program. And like I said, it drives a lot of traffic to us. So it's something that we will continue to have as one of the tools that's going to drive growth across the portfolio. John Kim: And if I could just follow up on the U.K. ground lease acquisitions. It provides you with some earnings accretion and flexibility. Can you just comment on what that flexibility means? Is that on the financing of the asset? Is it flexibility in how you may spend capital to develop on the asset? Or just does it give you just more value when -- if and when you decide to sell some of these communities? Aaron Weiss: Thanks for the question. It's Aaron again. Yes, to all of those questions. I think fundamentally, we acquired the business with these in place. They were part of our original underwriting. And due to our capital position and the opportunity presented by the current landlords, we're able to acquire them, incredibly helpful for the team on the ground in terms of managing the portfolio and owning them on a freehold basis. And certainly, to the extent we continue to assess the portfolio, just as we've done in the U.S., we've considered certain single asset, noncore asset sales and things like that. We will continue to do that. It provides that flexibility and ultimately, just increases it strategically and certainly remove some incremental lease payments we were making overall. So it does check a lot of boxes, both for the team here as well as for the team in the U.K., simplifying and improving flexibility and strategic optionality. Operator: Our next question is from Brad Heffern with RBC Capital Markets. Brad Heffern: I may have missed this, but did you give the cap rate on the recent acquisitions? And also, can you give a rough yield, I guess, on the ground lease purchases? Aaron Weiss: Aaron, again, thanks for the question. We did comment and said we were acquiring in the low 4% cap rate area, which is consistent with what we've shared with the market over the last few months from an expectations perspective. And in terms of the ground leases in aggregate, roughly in the same range, slightly higher from a yield perspective, low to mid-4%. Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Charles Young for any closing comments. Charles Young: Thank you for joining our call today, and I appreciate the welcome messages from each of you. I look forward to seeing many of you in person at the upcoming conferences over the next few weeks. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to TotalEnergies' Third Quarter 2025 Results Conference Call. I now hand over to Patrick Pouyanne, Chairman and CEO; and Jean-Pierre Sbraire, CFO, who will lead you through this call. Sir, please go ahead. Patrick Pouyanné: Good afternoon, good morning, everyone. Before Jean-Pierre goes through the details of the third quarter results, I would like to make a few opening comments. Almost exactly 1 month ago, we updated you our strategy during our Capital Markets Day in New York, and we had 4 key messages: consistency and resilience of our 2-pillar strategy, strong and secure production growth in our Oil and Gas business, accretive cash flow generation and capital discipline. I believe that this company strong results -- for third quarter results, but again, Jean-Pierre will detail with you, perfectly illustrates these key catalysts and highlights the value proposition of our consistent and profitable growth model. Strategy is clearly in motion and is translating into more cash flow even in a more challenging environment. Indeed, despite oil pricing dropping by more than $10 per barrel year-on-year, the cash flow for the third quarter increased by 4% and adjusted net income for the third quarter held steady. Why? Primarily for 2 reasons. First, the hydrocarbon growth -- production growth is a reality and is highly accretive. The new project barrels coming online, such as Mero Fields in Brazil, deepwater projects in the U.S. offshore, going for oil, Tura and Phoenix for gas have an average cash flow margin, which is roughly twice higher than the base portfolio, and they have contributed 170,000 barrels per day during the first 9 months of 2025 compared to 2024. These new barrels have generated around $400 million of additional cash flow year-on-year. So growth volume around $200 million and higher margin, another $200 million. And so they have contributed to absorb the equivalent of $6 per barrel of decrease in the Brent in terms of cash flow. So that's, I think, a strong demonstration that of disciplined investment framework that includes strict sanctioning criteria, less than $20 per barrel, technical cost of $30 per barrel breakeven for E&P projects is delivering its fruits. And we expect, of course, that this cash flow tailwind from new high-margin barrels will continue as we work our way through our deep project queue. As a reminder, starting from '25, continuing in '26, the company is growing upstream production by 3% per year through 2030. And what is the differentiation factor that the standout of our business model is clearly that more than 95% of this production by 2030 is already either online or under construction and largely under lump sum EPC contracts, which seems to significantly derisks the cost. So our projects are in hand, and we are executing them. And again, this year and this last quarter demonstrate that we are well in the delivery mode. Some people think we are borrowing, but we are borrowing for the good. Cash is growing. The second pillar of these good results have been the recovery of the downstream, which contributed to the company's resiliency with cash flow up by almost $500 million. It is true that the refining margin were better. It's also true that we managed to capture them, thanks to a good availability of our assets. We -- and in particular, there were several turnarounds during the quarter, but they were executed in time, in schedule and in budget, and it allows us to reach our objective. And of course, Marketing and Services continue to deliver consistent results and demonstrated by the priority given to value over volume in this segment is the right approach. In addition to highlighting the strength of our consistent strategy, this third quarter demonstrates as well that we are delivering in the short term, specifically on the second half of 2025 plan that we laid out during the July earnings call, which included 4 key elements. Again, the accretive production growth, giving more cash flows, the downward inflection in our net investments coming back to the capital discipline, which decreased by $3.5 billion quarter-over-quarter, a reversal of the seasonal working capital as we have released this quarter of $1.3 billion. And lastly, of course, all these elements improved the gearing that is now close to 17% compared to next to 18%. So the end result is that during the third quarter at $69 per barrel, the company generated excess free cash flow. With cash flow, including working capital variation, more than covering net investment plus $4.5 billion of shareholder returns in the form of dividends and buyback. It's leading me to shareholder returns. The company, of course, continues its strong track record of dividend growth. The Board of Directors decided to increase the first interim dividend of close to 8% in euro and more than 10% in dollars as compared to 2024. On the buyback side, as announced on September 24, the Board of Directors authorized up to $1.5 billion of share buyback for the fourth quarter of 2025. And therefore, assuming annual cash flow between $27.5 billion and $28 billion, in particular, supported by the better refining margin that we observe currently, the 2025 payout ratio is expected to remain around 56%. Looking forward, we expect to maintain a strong momentum for the fourth quarter. Upstream production is anticipated to grow more than 4% year-on-year like this quarter. The net investments are expected to decrease quarter-over-quarter, in particular, because we will deliver the disposal proceeds, $2 billion are expected. And at the end, the net of acquisition will represent $1.5 billion of inflow -- cash inflow in the balance sheet. And that with another anticipated positive contribution from the seasonal working capital, we anticipate to continue to strengthen the balance sheet with gearing forecasted further decline to 15%, 16% at year-end. Last but not least, we have -- Board of Directors has approved the road map to transform our ADRs into ordinary shares. And we're happy to announce that we ordered today, JPMorgan, to launch the termination process of the ADR program with the objective that ordinary shares are expected to begin trading on the New York Stock Exchange from December 8. This is, of course, an important milestone for the company as it will allow for a single class of TotalEnergies shares to trade with extended hours. It will be essentially a continuous listing from Paris 9:00 a.m. to New York 4 p.m., 10:00 p.m. Paris time. And we hope that this ordinary shares listing will be a clear catalyst for the stock in 2026 in both Paris and New York markets, and we intend to market these ordinary shares on the U.S. market even more actively than today. I will now turn the call over to Jean-Pierre, who will go through the details of the third quarter financials. Jean-Pierre Sbraire: Thank you, Patrick. I will start by commenting on the price environment in the third quarter versus the second quarter. Brent averaged $69 per barrel during the third quarter versus $68 per barrel in the second quarter, up 2%, but down more than $10 per barrel compared to the third quarter of '24. ETF averaged $11.3 per MMBtu versus $11.9 per MMBtu, down 5% and the average LNG price decreased to $8.9 per MMBtu versus $9.1 per MMBtu, down 2%. On the other side, for refining, the European refining margin significantly improved to $63 per ton compared to $35 per ton during the second quarter, up close to 80%. In this price environment, the company reported strong financial results with third quarter '25 cash flow increasing by 7% compared to the second quarter and adjusted net income increasing by 11%, thanks to the continued positive impact of the new attractive upstream barriers and strong downstream results that reflect the company's ability to capture higher refining margins in Europe. Overall, profitability remains strong with return on equity for the 12 months ending September 30 at 14.2% and ROACE close to 12.5%. Moving now to the business segments, starting with hydrocarbons. On a year-on-year basis, third quarter hydrocarbons production exceeded expectations and increased by more than 4%, making it the company's highest growth quarter so far this year. We anticipate that this trend will continue with fourth quarter hydrocarbon production expected to grow more than 4% compared to the fourth quarter of '24, notably benefiting from the restart of Ichthys LNG in Australia. Turning to the quarterly results and starting with Exploration and Production. This segment generated during the third quarter of '25, an adjusted net income of $2.2 billion, up 10% quarter-over-quarter in a similar price environment and outpacing quarter-over-quarter E&P production growth of around 4%. Similarly, cash flow growth was strong at $4 billion, up 6% quarter-over-quarter. Importantly, our project portfolio is delivering new low-cost, low-emission oil and gas production that is accretive with an average upstream CFFO per barrel that is roughly 2x the base portfolio. Regarding the E&P projects, we are progressing on all fronts. On the project side, we achieved first oil at the Begonia and CLOV 3 offshore fields in Angola, and we sanctioned Phase 2 of the redevelopment of the Ratawi oil field in Iraq, which is part of the GGIP project. As we have now launched all phases of GGIP, we are looking forward to the first oil for Phase 1 of the redevelopment early '26. On M&A, the company is consistently high-grading its portfolio. During the last earnings call, we mentioned that we are expecting several E&P divestments in the second half of the year. And during the third quarter, we divested 2 international blocks in Vaca Muerta in Argentina, which closed this quarter and 3 satellite fields in Ekofisk in Norway, out of our strict investment criteria, which is expected to close in the fourth quarter. And lastly, on exploration, we continue to reload the hopper to complement existing opportunities. And this quarter, we announced new license awards in Nigeria, in Republic of the Congo and in Liberia. Moving to integrated LNGs. Third quarter LNG sales of 10.4 million tons were essentially flat quarter-over-quarter as third-party purchases offset lower sales from equity production. Cash flow of $1.1 billion was in line with the second quarter in a stable price environment with an average LNG price of around $9 per MMBtu. Adjusted net operating income of $0.9 billion was down 18% quarter-over-quarter, primarily due to the planned turnarounds at Ichthys LNG in Australia that impacted production by around 50,000 barrels of oil equivalent per day for the quarter. On the price outlook, forward European gas prices continue to be sustained at around $11 per MMBtu for the first quarter of '25 and winter of '25, '26 due to anticipated winter demand. Given the evolution of oil and gas prices in the recent months and the lag effect on pricing formulas, the company anticipates an average LNG selling price of around $8.5 per MMBtu for the first quarter of '25. On the advancement of our LNG strategy, we are pleased to continue to grow our U.S. presence with the recent FID on Rio Grande LNG Train 4 in South Texas, and we enhanced resilience in our LNG and gas to power strategy by acquiring interest in shale gas assets from Continental Resources in the Anadarko Basin in the U.S. Turning to Integrated Power. Net power generation increased 9% quarter-over-quarter to 12.6 terawatt hour due to increased output from flexible generation capacity in Europe. The value of TotalEnergies unique integrated model is illustrated in the third quarter financials. Total cash flow from operations was $0.6 billion, up 9% quarter-over-quarter and in line with annual guidance. To provide more granularity in the Integrated Power financial performance, this quarter, we disclosed the split in cash flow between production assets, renewable and gas-fired power plants on one side and sales activity, B2B, B2C and trading on the other side, showing that each contributed equally this quarter. During Q3, Q4, sorry, sorry, during the third quarter, the company has executed well on the farm-down side of its integrated power business model, which contributes capital recycling and will generate a tailwind for free cash flow in the fourth quarter. The company signed an agreement for the sale of 50% of the 1.4 gigawatt renewable portfolio in North America and closed the sale of 50% of 270 megawatts renewable portfolio in France. These deals have a combined cash impact of around $1.5 billion. And in this deal, TotalEnergies retains a 50% stake in the assets and will continue to be the operator after closing and to offtake 100% of the [indiscernible]. This is in line with our business model. As an important reminder, our attractive upstream growth is not the only contributor to the company's resilience. Integrated Power will take the key role in this too, since it is differentiated and growing cash flow stream that is outside of crude cycles and with strong demand fundamentals. Moving to Downstream. As Patrick mentioned, during the third quarter, Downstream efficiently captured the high refining margins in Europe and contributed to the company's resilient financials. Third quarter adjusted net operating income of $1.1 billion, was up more than 30% quarter-over-quarter. Cash flow of $1.7 billion was up 11% quarter-over-quarter, thanks to good availability of assets that allowed us to successfully capture improved European margins. In terms of free cash flow during the third quarter, downstream cash flow from operating activities exceeded net investment by over $2.5 billion. In Refining, the European Refining Margin Marker strengthened during the third quarter due to the tension on the diesel supply chain in the context of low inventories. Utilization was 84%, which was towards the high end of the guidance range of 80% to 85%, and it reflects efficient operations and planned turnarounds at Port Arthur in the U.S. and HTC in Korea. In Marketing & Services, results remain consistently strong with high-margin activities, offsetting lower volumes. Looking ahead, we anticipate refining utilization of 80% to 84% in the fourth quarter, which accounts for scheduled turnarounds at Antwerp and SATORP. Moving now to the company level and starting with working capital. As expected, we benefited from the working cap release during the third quarter, which was a $1.3 billion positive contribution to cash. Furthermore, for the fourth quarter, we anticipate another positive contribution. On net investments, they meaningfully decreased to $3.1 billion in the third quarter, which includes $0.4 billion of divestments, net of acquisitions. In the fourth quarter, as mentioned by Patrick, disposal are estimated to total $2 billion, including the closing of Nigeria and Norway divestment for exploration and production as well as farm-down of renewable assets in North America and Greece for Integrated Power, and we reiterate full year of '25 net investment guidance of $17 billion to $17.5 billion. Based on anticipated net investments and working cap, we expect gearing to decrease to 15% to 16% at year-end compared to 17.3% at the end of the third quarter. With that, Patrick and I are now available to answer your questions. And the operator, so please open up the line for questions. Operator: [Operator Instructions] The first question is from Lydia Rainforth, Barclays. Lydia Rainforth: Two questions, if I could. The first one, can I just get your clarification on where we are on the tax issues in France. I've seen headlines this morning about tax on share buybacks, what that actually means? And then the second one, I think, Patrick, this comes back to your point around the growth in production is obviously doing quite well, but also the growth in cash flow numbers. So when you're thinking about 2026, can you just -- can you give us an indication as to how much more cash flow might grow than production for next year? And just remind us of that. Patrick Pouyanné: Okay. Good morning, good afternoon, Lydia. Well, first, as you observed, there is quite a huge -- quite a big fiscal creativity in the French parliament these last days. And clearly, the full recipe will not work, and we don't know, and so be careful not to overreact to the night news. There was a super tax on multinationals, which is completely out of the rule of law. France has signed 125 fiscal agreements with many countries. The principle is no double taxation, and this is very anchored, and as the government reminded to the parliament, this is the right rule. So we will not be touched by that. And there is also in the constitution some already decision when you want to tax above what is reasonable, then there is this type of taxations are not approved or canceled. So honestly, the situation -- political situation in France is not very stable. There is a huge debate, making a lot of noise. But I trust that at the end of the day, we will land to a reasonable avenue. And as you all know as well, we -- TotalEnergies does not make a lot of benefit in France, so I would say we'll follow this debate. But again, I'm comfortable with the fact that at the end of the day, government will take the right decisions to maintain, in fact, which is fundamental, what we call the supply policy to you know if you want -- before you redistribute in a country, you need to create wealth. You need to produce. You need to create results, revenues and then you can speak about distribution, and we will come back to that. So I understand that -- and I think, by the way, that this situation in France is weighing on the share price of TotalEnergies, but I remind you as well that we are a global company. And that again, largely 90%, 95%, I think, of our cash flows and our results are not coming from our country where we have the headquarters. So again, I think we -- from this perspective, the profile of TotalEnergies is quite different from other French companies, and that market should integrate it. For 2026, honestly, Lydia, you are asking me a question to which I will answer more precisely in February. As we know, we have a meeting for annual results, and what is the plan for '26. So I mean, my -- as I told you, in New York, we anticipate a growth of 3%, more than 3% for '26 again. For the cash flows, I don't have all figures. Of course, it's related to the new production coming on stream. But part of the, I would say, new production of '25 like the Brazilian production will have the full effect in '26. So I anticipate another accretive effect on our -- accretive effect, the size of it, I mean, you have to be a little patient. But again, clearly, we are in a delivery mode. We delivered the production growth more than 3, then this year, probably it will be next to 4, in fact, at the end of the year 3, 3.5 to 4 for '25, next year, at least 3. And then let's deliver the, okay, the accretive cash. But this is a road map, not only '25, '26 for the next 5 years. And if they miss, we reminded you and we, I think, gave you comfort during the New York presentation that we will deliver this $10 billion of additional free cash from all our segments from -- in the next 5 years. Operator: The next question is Michele Della Vigna, Goldman Sachs. Michele Della Vigna: Congratulations on the strong growth. Two questions, if I may. First, I was wondering if you feel like you're able at the moment to capture the extraordinary refining margins we are seeing, and how the improvements to your Port Arthur and Donges refineries are progressing? And then secondly, I was just wondering what you're seeing in terms of disruptions of the Russian volumes following the latest sanctions and if you start to see an impact on the physical market through your trading and optimization division? Patrick Pouyanné: Thank you for this question, Michele. To be honest, when I read again our press release, I think we are a little bearish on the oil price and the refining margins. The refining margins that we captured since the beginning of October for the last month is around $75 per ton. So when we guided you it's above $50, I think we are a little shy. And in fact, it's fundamentally linked because we begin to see real impact in the market of these last Russian sanctions. I think the market is underestimating what it means when you have U.S. sanctions, 2 large Russian company, which are at the core of trading Russian oil, by the way. And when Europe say that we are targeting countries which are considered, I would say, dangerous like India, Turkey and China. But if you trade oil or products from these countries, you could be under sanction. The reaction today in the market, and I shared some views with some of my colleagues, including in -- I was in Riyadh last 2 days, I can -- clearly today, trading hours as well are more cautious. And we see that everybody is taking this risk very seriously, including secondary sanctions, which might become. And so I see some impact. And I think clearly, the refining margins today instantly is more around $100 per ton than the $75 as an average. And it is linked clearly to, in fact, this sanction will oblige to reroute some volumes and to find a way to bring, I would say, products and crude oil more expensively to the different locations of the planet. So I think this is clear. That also could have an impact, by the way, on the oil price. I mean, the crude oil price. We've seen a reaction whatever announced today, it's still $65, but $65, I think, is a good assumption for this quarter, maybe a little more. So I would say, more bullish, that's what we wrote a few days ago because I begin to realize that these sanctions will have a real impact in this market. And most of the players are becoming -- are taking them seriously, which is good, by the way. TotalEnergies, we stopped trading any Russian oil for -- since end of '22, somewhere we penalized ourselves compared to other practice. But I think it was the right way to comply and to be strict on the Russian sanctions. So capturing the refining margins, for sure, the good news of the third quarter is that we managed to do it. We had a turnaround in Port Arthur, which is done. So it's fully back online now. Donges as well is running. So let's not fully -- not the last equipment we are waiting for by the end of the year, but it's running. So we deliver results. The third quarter -- fourth quarter, we have 2 turnarounds, one in Antwerp, one in SATORP, which are 2 big machines in our results. But I expect -- I would -- I expect that this will be, I would say, compensated again by the other assets and by the fact that the margins are higher. So I'm positive. And when I gave you a guidance of $27.5 billion or $28 billion, I was maybe too bearish by stating $27 billion in New York. It's because as well, I integrate these elements, which again and the duty and all the organization of refining chemicals and rest of Total are dedicated to capture these margins, which are good. So this is where we are, and I'm bullish on that. Operator: The next question is from Doug Leggate of Wolfe. Douglas George Blyth Leggate: I wonder if I could start with your upstream margin. The volume guidance is, again, pretty strong for Q4. But what we're -- I guess what we're observing is that your upstream margin seems to be moving up as well as the volumes. And I'm trying to understand what happens as the mix changes going forward. So for example, Iraq never historically had great margins. So how do you see the margin mix continuing as the growth trajectory sustains over the next several years? That's my first question. And my second question, if I may, is a quick one. Oil appears still to be in a very technical market. So we all see the oversupply, but it seems to keep bouncing around that 60 level. I guess my question is, if you ended up with better cash flow than you thought when you reset the buyback, what would be the first call on cash? Would it go to the balance sheet to continue deleveraging? Or would it go to the higher end of the buybacks? Patrick Pouyanné: The second question is clear. It will go to the balance sheet. So the second answer, I would say, is clear, will go to balance sheet. It will go to the balance sheet because I observed that -- and I have spent quite a lot of time with investors in the last month and clearly, I would say, long-term investor, deleveraging balance sheet is important for all of us. And if you want to be -- the best buyback policy would be to countercyclical. To be countercyclical, you need to have a strong balance sheet. So that's the position I would take and give you. So consider the guidance we gave you, we gave you quite a good guidance, and we told you [ $0.75 billion to $1.5 billion ] between $60 and $70, $2 billion at $80. But -- and I'm answering for '26, to be clear. If we continue and we see the plan to deliver more and more free cash on the road map to $10 billion, then we might revisit this scheme. But today, in '26, if it's coming, in your case, if we are above $60 in '26 or above $70, then we will continue to deleverage. Upstream margins, no, Iraq is a good contract. So I know historically, but it's not at all the case. As we always -- I mean, as I told you, we are far away from the historical service contract. We have -- when we came back in Iraq, it was clear that either we had a good contract, a strong contract, it was a matter of risk and reward and in particular, the Iraqi contract is quite reactive to the oil price. We capture some upside on it, which, of course, is important. We benefit in Iraq from quite low-cost production. So the breakeven is low. And so it will contribute. The Iraqi barrels, don't make a mistake, are contributing to the increase, are accretive. And again, I can give you -- but I think we gave you in New York and in fact, the base barrels at an average around $19, $20 per barrel. And today, these new barrels are more between $30 and $40 per barrel. So it's why we have an excessive growth in upstream. So I think you will continue to see, again, the free cash flow from upstream will move quicker than the growth of production. Operator: The next question is Biraj Borkhataria, RBC. Biraj Borkhataria: Firstly, nice to see that production growth being -- the accretion coming through. That really is a differentiator. Two questions. The first one is on the divestments for the year. I know you mentioned Nigeria in the $2 billion. I believe there was -- there were 2 deals that you're planning to do, one of which wasn't approved. So could you just outline whether the SPDC side, that sale was -- is that in the $2 billion, or is that on top of the $2 billion? And then secondly, recently, you signed a letter with a number of other CEOs around European competitiveness. I was just wondering if you could talk about whether that letter has actually catalyzed any kind of response on the policy front? Any color there would be helpful. Patrick Pouyanné: What is the second question? Sorry, I didn't catch it well. Oh, okay, I understood. I know, I know, I know. Okay, understood. European competitiveness. Okay. First, on divestments, I will be very precise with you. The $2 billion, I will give you where it's coming from. We intend to close, and we have already closed some of them, but we are intending to close. And all I think we have signed, and we are in the process, and it's a matter of closure. The Bonga divestment in Nigeria, Norway, the satellite Ekofisk field, some renewable assets in the U.S., renewable assets, which we announced in Greece and as well, we have another project where we will -- but I cannot yet disclose to you guys, another $300 million, which will be announced soon. So it's a $2 billion. This but does not include to be precise, the SPDC JV divestment, not only because of what was approved, but because we -- in fact, we were not able to close. There were some conditions precedent on our side. And we consider that it was not reasonable to close with, I would say, the supposed buyer. So we have relaunched -- not relaunch, we are discussing today. We have advanced discussions with 2 additional -- 2 new buyers, which are, I think, serious ones. And so -- but we will not be able to be clear to answer your question, to close it before this quarter. So it's for next year. By the way, it's good because it's part of the plan for next year. So from this perspective, what we have observed is that divestments of E&P assets generally takes time. It takes more time even if we have demonstrated with our divestment in Argentina that we were able to sign and to close in the same quarter. So sometimes it's going quicker. But -- so the plan is clear. We will -- and we have some interested buyers and serious buyers on it. So we are working on this one. There are others, like I mentioned to you, other IDs for this year and next year that I mentioned in New York on which we work as well. On the European Competition letter, the answer you probably follow that some tweets are linked in. European leaders are not really -- I mean, are listening to our request. They have been, I would say, we had some calls, we had some discussions with some European commissioners who took the letter seriously from 40 CEOs, to say, look, probably understood. I think we are maybe asking them too much, but I think it's a sort of wake-up call from these 40 CEOs. We, myself and the Siemens CEO, we are the spokesperson. Let's be clear, we were just reflecting what people expressed during our meetings between French and German CEOs. I've seen that on some topics, which are, I would say, more -- giving some more poly mix. There have been some calls that were not only from European CEOs, but from U.S. Energy Secretary and Qatar Energy Minister to call to revisit some of this legislation, which seems to be, in fact, against competitiveness. And again, for some of them putting at stake the security of supply of Europe. So I think this is something which is serious. And we are European CEOs, and we, of course, want to continue to contribute to Europe development and growth. But to do it, I think it's also our job to speak up when we consider that conditions are changing and it might be difficult for us to contribute to European prosperity. So it's a moving -- it's a continuous, I would say, fight, but let's contribute to it. Operator: The next question is from Martijn Rats, Morgan Stanley. Martijn Rats: I've got 2, if I may. First of all, what I thought has been sort of really surprising this year is the strength of new LNG FIDs. Already 1 year, 1.5 years ago, many of us were writing reports about the surplus in the LNG market in the second half of the decade, and yet 2025 has been a near-record year of new LNG capacity to be commissioned. And Total still has a few projects that needs to decide on. I was wondering if you perhaps could share with us your thoughts on despite the outlook, the number of new FIDs being as strong as they are and also how it impacts your own decisions in terms of future LNG FIDs? And the second one I wanted to ask is about the shares and the equivalence between sort of the Paris shares and sort of U.S. shares and so consolidating this into one single class of shares. I was wondering if this could impact the execution of your buyback program in the sense that I was wondering if this is in place from December 8 onwards, as I now understand it, if some of the buyback program could be executed in sort of New York listed shares. And of course, the context behind the question is then also like if that could then be a way to avoid some of the proposals that have creatively been floated as I think you put it in the French parliament over the last couple of days. Patrick Pouyanné: Okay. The second question on ADR. No, it does not impact at all the execution of the buyback program. I remind you that the ADR conversion is about around 9%, 10% of our shares. So obviously, the buyback program will be executed on the Paris Stock Market to be clear and so -- and not on the New York listed because it will be strange for us to buy back from New York where we want on the contrary to give more life to the New York market. So I prefer more activity and finding more -- we will buy back shares in New York when we will see we'll have much more active shares on this side of the Atlantic, I would say, so first point. And honestly, no, it will not -- by the way, it would not avoid in any way tax proposals. And again, the tax proposals are funny proposals. Again, there are some principles. When the President, Aurelien tried to impose -- by the way, he tried to impose a 3% tax -- extra tax on dividend, which was canceled by the European Union and by the French Constitutional Group. And all of us have recouped the money they took during 3, 4 years. So again, there are some principles. We are in a rule of blue continent and a rule of blue country. And this is the reality. So you must make a split between the political debates which are quite vigorous, I would say, and very creative and the reality of the rule of law, and we know that there is some limit. And when I see the figures, and I will tell you what I'm thinking, the higher it is, the better it is because then I'm sure it will not go through the system. So I mean I'm -- that's the reality. And there is -- you can -- in the constitution of -- French constitution, you cannot deprive people unreasonably to their -- rest of their profits and the results. And buybacks are not at all a profit. Buyback, it's just a matter of distribution. And by the way of investment in the company. We invest in the company. So I mean, I'm ready -- again, I think it's a topic on which I'm ready to continue to explain to parliament members with our buybacks. But I think we'll -- again, don't overreact to this type of, I would say, news. And I'm afraid we'll have all the news during the next 30 days coming from the parliament. At the end of the day, I trust the government. Martijn Rats: And on FID? Patrick Pouyanné: First question, FID, sorry, FIDs. Okay. I mean I'm not sure. I mean, there was a lot of announcements. I'm not sure about how many FIDs exactly because between the announcements and you have a flows of news of projects being revived because they get the permitting, or they get the approvals for non-FDA countries export from the U.S. administration. So you have a news flow coming. Then FID, I know Train 4 and 5 in next decade, yes, I know them. I know that 1 or 2 competitors are serious and are progressing because as I said in New York, all these projects, they need to find the financing. To find the financing -- and again, an acceptable -- a good financing, a good financing, not an expensive one. Otherwise, you will destroy the value on Train 4. We managed to put in place a project financing at Rio Grande 6.4% around 6.5%, which was good -- good project financing, which has the leverage on it. Other projects does not have the same good finance, I would say, Rio Grande and Rio Grande LNG. So then, of course, I agree that we need to take that into consideration. We have a strong policy, a clear view. We decided to transfer most of our exposure on the GKM, I would say, LNG spot market to the Brent formulas, and we have been active. I think we are very right to do it. I'm more bullish on the oil price, as I explained that on this one by the end of the decade. So of course, then we need to assess and to take into account that we postponed Cameron '24 because the CapEx were too high. It's not the time to run again on Cameron '24. And the other decision we have, in fact, in our portfolio is Papua and New Guinea. You know that we are working on the CapEx, to lower the CapEx. And it's clear that lowering the CapEx is of utmost importance in a market which could be from this perspective, weaker when we launch the project. So that's a topic on which we will have to work. And we have demonstrated already that we now have to be disciplined in that market, giving priority to, I would say, first and second quartile projects in our portfolio. And that's an element of -- which will have to be taken in consideration. By the way, we have announced that we lifted the force majeure on Mozambique. There is a funny figure, which is in some press news agencies, which speak about $25 billion. We are not at all, and I want to be clear and strong on this news, I don't know people are playing games, which is not acceptable. They have access to -- some people have relinquished a letter that I sent to the President of Mozambique. It's clear, it's written $20 billion in the letter, out of which $4.5 billion came from the -- what we spent in the last 4 years. So the budget in '20, when we left in 2021 was around, it was approved $15 billion, $16 billion. You add $4.5 billion, you are down to $20 billion, $20.5 billion. That's the reality of this budget. And by the way, this cost -- real cost, what we've done is that we spent -- we've done all the detailed engineering and all the procurement has been done. And so today, when we -- as soon as we fully remobilize everybody, we are purely in a construction mode. And that's why we said we are able to deliver the project by 2029. And so I've discovered some people were surprised. But in fact, we spent some money in order to, I would say, recapture part of the time, which was under force majeure. So the budget is not a total $25 billion, and I want to be strong, it's $20 billion, $20.5 billion as we will restart. And again, I can confirm it because we had long discussions, of course, with contractors. And so we have put all these figures together with them. And so -- and including on the delivery in '29, we have strong commitment. So we have realigned the whole system in order to be able to execute properly this project. Operator: Our next question is from Kim Fustier, HSBC. Kim Fustier: A couple of weeks ago at an industry conference, you mentioned that the LNG market is getting more competitive and it's harder to make money in trading. I guess that's not exactly a secret, but I was wondering if you could provide any more color on this. And I was wondering how much of the decline in LNG trading profits would you ascribe to heightened competition versus the more normalized conditions, lower volatility, lower spreads, et cetera? And then I also wanted to come back to the EU sustainability rules. I mean, I suppose let's see if the EU rules could be amended, but if they broadly stick, then how would you ensure compliance with the CSDDD rules in practice? And then hypothetically, what would be your options if some LNG supply is deemed to be noncompliant, would you be able to redirect it? Patrick Pouyanné: Okay. First question. I mean, to be clear, I think we made a demonstration in New York, the message is not that we have a decline of LNG trading. We told you that there were exceptional trading profits in '21, '22, '23 and that we are back to a normal environment with lower volatility. And that by the way, the results of '25 on integrated LNG are in line with '24. So I'm just that we don't benefit from the growth on this part at this stage. Later, we'll have a growth of volume, but this stage is stable. And in fact, they are quite related to the results of 2019 before this crisis. So I cannot -- what is also true is that you have observed, like me, that there are more trading hours, which came to this LNG business because maybe we were considering we were making good money. But today, answering your question, no, it's just -- my view is that today, we have to -- we came back to, I would say, more standard revenues. And I hope, of course, the main growth for LNG trading profits from TotalEnergies will come from the growth of volume of assets. So we have a volume impact on our trading business, which will generate additional profits. And we made a mistake when we were planning 2025 because we were thinking that we could replicate the last quarter '24 in full '25, which is not the case. So I have to -- and again, because that's clear that the volatility in '25 from the gas, the European gas price moved between $11 and $12 MMBtu. So it's not a big volatility. By the way, I'm not unhappy because $11 or $12 per MMBtu from my Norwegian gas and my British gas and my Danish gas, it's a very good price. So I'm maybe -- so I mean, people -- we should not give an overweight to the trading business. Trading business is adding value, but the base business is in fact, our upstream and our production. So I'm happy to -- I prefer to gain $12 per MMBtu of profits on my North Sea gas and maybe a little lower volatility on the trading. So let's be -- we never -- we -- maybe because there was exceptional years, incredible years, '22, '23, again, '21, '23, you consider it was the new normal. We never said it was a new normal. We even told you, be careful. There are exceptional results each time we -- exceptional means exceptional. So that's what I want to comment. And again, I remind you and why I'm linking back to our growth volume is that the trading within TotalEnergies is trading around assets. It's an asset-based trading. It's not -- we don't take casino. No, it's not the case. So that's the base of what we do. There are more competitors. But again, we have more assets than others. So it will help our trading business. And I think this is the idea. This is fundamental idea of integration. It's because we have more assets, more volumes, but we have more medium and long-term contracts with Asia. This -- what we signed in the last year, these brand-related medium- and long-term contracts offer some optionalities to our traders. And the optionalities that we included in these contracts have a value. And this is why I'm linking that to my assets and my business. This is the base of it. And some competitors do not have the same assets and contracts. Then about the competitive sustainability rules, I mean, the question is not to have energy noncompliant has not been -- the CS3D does not define the compliance. The CS3D is a matter of putting in place some rules, but you have to have a duty of vigilance on the way on the supply chain. Some countries have been strong in the letter. I invite you to read the letter of the Secretary, Wright and Minister, Al-Kaabi, if you didn't read it, they sent a letter to the European leaders telling them if you keep that in place, we will not deliver -- we will not take the risk to deliver LNG to Europe. I would say, it's -- if we don't have LNG coming neither from the U.S. nor from Qatar, we have -- my European North Sea assets are taking a lot of value. So I'd say it's not. I mean -- so it's not a matter of compliance, a matter of legal risk because, in fact, while you may be compliant is that in this CS3D if you were found guilty by a judge, your penalty could be up to 5% of your worldwide turnover, which is just crazy. So the sanction size is completely disproportionate to, in fact, a rule which is against, of course, basically, we are all -- we are for human rights, but you can ask efforts to company to control the supply chain, but we don't control everything. But if you transform, supposed not enough vigilance in such penalty risk, then it's completely disproportionate. And this is a call coming from these 2 countries. So for me, so again, we'll -- and I consider to be honest, that what we -- when we produce LNG in the U.S. as we are the largest exporter of U.S. LNG, we are fully compliant with the duty of vigilance law with all what we produce in the U.S., in Qatar as well, by the way. Operator: The next question is from Matt Lofting, JPMorgan. Matthew Lofting: I wanted to follow up on your earlier comments on the refining portfolio, 80% to 84% utilization in the fourth quarter looks towards the lower half of the historical range. Obviously, from a near-term perspective, planned turnarounds and maintenance need to be done and undertaken. But when you look forward into 2026, how do you see the normalized throughput of the business now? And has there been any deterioration in that normalized level versus what you saw and how you saw it, say, 2, 3 years ago? Patrick Pouyanné: Yes. I think -- so maybe we are cautious. Again, we were cautious on the $50 per ton. Maybe the 80%, 84% is just as I told you, we have Antwerp and SATORP, which are 2 big machines we have entered into a large planned turnaround, so they execute. But of course, it has an impact on the global, I would say, delivery from our portfolio. Let's say, you can keep -- if you take 82% this quarter, I think we were at 84%. Maybe the 82% is probably the mid average of the guidance, probably the right one to take into account. But I told you that it will be more than compensated with capturing better margins on all the other assets. For next year, we are more in the range of 84%, 86%, I think, for our budget. But again, I don't -- I didn't begin to look to what our colleagues are planning. So I'm waiting to see, but I think there are less turnarounds next year. So we should have -- from this perspective, it should be a better year. And as well -- and again, as we mentioned to you, there were some, I would say, difficulties before the turnaround on Port Arthur, turnaround is done. So we expect to have a better survivability. And on Donges again, we intend to put into service these new units, which will enhance the margins on Donges by beginning of 2026. So from this perspective, the perspective, if the refining margins remain at quite a good level, we will be able to capture even more than this year. Operator: The next question is from Irene Himona, Bernstein. Irene Himona: My first question is on marketing, if I may, because your unit margins were up this quarter. And I wonder if you can talk around the drivers of that margin improvement, whether it is structural or temporary? And then my second question, I noted this quarter, you signed some partnerships on the deployment of AI and a global data platform. I obviously don't have the context of your ongoing digitalization effort. I wanted to ask whether it is correct to look at these partnerships perhaps as an effort to speed up and widen the digitalization you have been working on for a number of years. Patrick Pouyanné: Yes. I'll take the second question, first. As I told you -- we told you, yes, we have -- and I think it will be a topic on which we could focus more on what we are doing. In fact, since 2020, we put in place a digital factory in a bottom-up approach with 300, I would say, data experts or data scientists and at a very high level, a good team. But what we observed is that if we want to deploy these new technologies, which are speeding up on a worldwide basis, going from a bottom-up to scale up is difficult. So we decided that it's time now to have a broad effort, a worldwide effort on organizing all these data because there are plenty of data on platforms in refineries, but all that is not connected. And if you want to really, for example, enhance your linear program in refineries, it's the best would be to have access to all these data to develop new tools in order to enhance another additional percent of, I would say, use of the refinery and better margins. So we have engaged with 2 large programs, which are quite an investment, an investment on the platform with Emerson, which is called, I don't remember the name now -- with Emerson in order to -- Inmation - in order to connect all these physical data to, I would say, a large database all physically, and it will take 2.5 years, 3 years to deploy because we need to go on all the sites. We know where the data is, but we need to connect them and then they will be available. And we have also engaged in a very large worldwide program on the E&P side with Cognite, which is, in advance, I would say, from digitalization, and we have made some different pilots with them. Now we are all convinced. So another big program to equip, to deploy this Cognite software, which obviously will help us to really accelerate the use of AI. So for me, 2025 will be the year where we have really decided to scale and to go from a scale and to take some large worldwide program to give us the capacity to take the most of these new AI tools. It will take a few years to install all of that. But if we want to be efficient, and I'm sure -- and it's not cost cutting in our case. It's more additional revenues. If we -- if I can with advanced process control tools, thanks to AI, produce 1% more of all my oil fields and my refineries, I can tell you, it's quite a lot of free cash. So it's worth making the investments, and this is where -- what we have done. On marketing, so I think there is different drivers. But again, fundamentally, the strategy which is put in place in marketing is value over volume, which means not chasing the additional growth, even it's difficult for marketers. They love to show you more tons. But what we discovered is that it's quite mature markets. They are mature markets. Whatever in European market, it is mature, the lubricant market is mature. So it's very difficult to gain market share. The only way to do it is to do it at the expense of margins. And what we have decided is to enter into a policy, which is a bit higher margins and not less volumes, but not to sacrifice, I would say, the margins at the expense of the volume. And this is why, by the way, if you observe our results, we have sold our network in Germany and Netherlands and half of Belgium. There is not much impact. In fact, because we have managed to absorb it, I would say -- so it's also because fundamentally, in marketing, we have decided to divest or to stop when -- not divest, but to stop a business, which was very low margin, which was, I would say, sharing some logistics assets with which we were creating a lot of pass-through volumes, but with a minimum margin. So this has been reduced because it was not really adding money. It was quite using a lot of people. So structurally -- so answer to your question is that structurally, we are in a mode to enhance the margin on Marketing and Services. That's where we are. And this will continue. I hope I am clear. Operator: The next question is from Christopher Kuplent, Bank of America. Christopher Kuplent: Patrick, I wonder whether we could talk about another area of French creativity. There is an idea floating around that we should remunerate electricity or wholesale power prices differently. What can you tell us, is current appetite for signing new PPAs? How has that market evolved considering that rather interesting regulatory backdrop? You've recently signed a project deal with RWE in France, but also have some considerable CapEx left to go in Germany on the offshore wind front. So maybe you can put things into context and give us the risk reward behind taking that regulatory risk. And then you've mentioned it already. I just wondered whether you could give us an update on how quickly we should expect news from Mozambique on the ground now that the force majeure has been lifted. Patrick Pouyanné: On Mozambique, as you -- again, we have lifted the force majeure. We are now expecting the government to approve our new plan and budget, and we are remobilizing the contractors in order to be able to execute the project within this schedule with time work -- time table of 2029, and that's where we are. So I think, consider we are moving on. On the first question, it's a complex question because I'm not sure to have fully understood. Let me be clear, I'm not in favor of regulations and regulatory approach. We are more merchant people. We like the market. So for us, that means that signing PPAs is the best way to commercialize, I would say, our assets. And so -- and we know that we need -- in Europe, you need to sign when you develop, I think you were referring to offshore wind. We signed a contract in France at $65 or $66 kilowatt or megawatt hour, which is a contract, by the way, which the price can be adapted if the CapEx are higher. So the price, the CapEx risk is, in fact, covered because we could -- we have -- not only we have given the price, but the CapEx linked to the price. So that's a protection. It's also partly inflated through the OpEx. So -- and at this level, honestly, we can develop an offshore wind project in Europe because it is projects where, in fact, the connection is developed and paid by the TSO, not by us. So we are only in charge of the plant itself. But again, we follow that. I think today, there are many creativity there again in different circles. All that we are in a European market, European market, is a unique European market, which are some -- fundamentally driven by some market rules, in fact, -- and when I discuss with European authorities, I see little appetite from -- in the commission to put into, I would say, even in some countries like Germany, we believe in the market to change the rule of this, I would say, electricity market. So again, that's a debate. But I'm -- and you know, by the way, in France, the same people who were complaining about the famous system of nuclear commercialization, which was called RN 2 years ago, now are complaining of the new system. So people will never be happy. What they want is electricity for free, but that's difficult. At the end, we need to invest. And if everything is too much regulated, it will be against investment and Europe desperately needs to invest more in renewable gas-fired power plants, grids if we want to ensure security of supply, but the reality, so you cannot get both. So I think I would say I trust there again the political leaders, which are spending a lot of time on this energy story to take the right decision and not to be complacent. Operator: The next question is from Lucas Herrmann, BNP. Lucas Herrmann: And another slightly generic question, but I just wanted to ask for your sort of thoughts on the one part of the complex, which is really having a difficult time, chemicals and the extent to which when you talk within -- when you look at the industry, look at where margins are, you're starting to see better signs of movement to try and restructure not necessarily your own business, but business across the industry so that we might actually move to a place where profits start to improve. And as ever, I mean, if you could give us some indication of the extent to which the associates line within -- well, the profit within the Refining and Chemicals business, what proportion of profit actually comes from chemicals now given just how difficult the environment is? Patrick Pouyanné: Okay. I'm not a chemical company. We are refining and petrochemical company, and we make crack ethylene and polyethylene basics of... Lucas Herrmann: Sorry Patrick, that's what I'm referring to. Patrick Pouyanné: No, no. But just to tell you, the truth is that you know the situation. The situation is that, in fact, in terms of cracking capacity, ethylene capacity, China in the last 5 years went from 50 million tons of cracker to 100 million tons of cracker. And so they have, in fact, almost self-sufficient. So if they were moving from a large importing country to almost self-sufficient, even exporting. So of course, that changed the world patterns. By the way, Chinese companies also suffer from the situation, but other places suffer from the situation. For me, I've always been very clear with you. If you want to invest in petrochemicals, you have the fundamental matter or fundamental competitive factor is feedstock. Either you are an ethane, cheap LPGs in the U.S. or in the Middle East, or you will face difficulties. So that's the situation. So we know that our naphtha crackers in Europe are facing competition, which is super difficult, either from the U.S. crackers or from Middle East. By the way, TotalEnergies, since I'm CEO, we have invested in 2 crackers, one in Port Arthur, with [indiscernible] one with Amiral in Saudi Arabia. So consistent with that's what we -- I think fundamentally. And we are shutting down some crackers like the one we have just decided in Hamburg. So that's my view. To come back on the proportion, I don't know, it's not big. It's not good. I have no miracle recipe compared to my competitors on this one. But again, it's not a major part of our downstream results and cash flow. So most is coming from refining and trading rather than -- more than chemicals. But again, it's part of the integration. When the margins are good, we are happy to capture them. But again, the fundamentals, let's invest in the U.S. and in the Middle East. That's all. Operator: The next question is from Peter Low, Rothschild & Co. Redburn. Peter Low: The first was just on integrated power. The ROACE has been below 10% for a few quarters now. How confident are you of hitting your 12% target? And really, what are the steps to get it kind of up to that level over the coming years? And then perhaps just a follow-up on the kind of proposed EU ban on Russian LNG imports from 2027. I think you said in the past, you'd expect, you'd be able to divert your Yamal cargoes to alternative markets outside of the EU. Is that still the base case? And what you expect to happen? Patrick Pouyanné: First question, I think Stephane Michele in New York gave you some answers to that. We never told you we will hit 12% tomorrow, we told you it's a 5-year plan going by the way, from 10% to 11% from 11% to 12%. Part of it, as I told you, is that today, we have a sort of burden on our capital employed because we have, I mean, acquired a large pipeline of projects, which are, of course, nonproductive, I would say, capital employed assets, which will be because we continue to grow. We have a growth of 20% per year, and we will execute, which will, of course, as we don't intend to make large M&A on this part, not which will transform, I would say, nonproductive assets into productive assets. So part of it is that. Then the second part, that's 1%, the other percent will come from, I would say, rationalization, better use of the assets, industrialization, and this is what we are doing. We also, I think, framed, in New York, a clear road map by concentrating most of the investments of Integrated Power on some major markets, the oil and gas countries, which are in E&P. And then the rest, we are clear, but where we don't see potential to contribute above 12%, there is no future for them in the portfolio. I mean, so that's -- I would say, in a way, what we told you, it is a recipe to go to 12%. So honestly, today, we are a little lower than 10%, but we will recover from it. And don't forget that the contribution from farm-downs, they will come in fourth quarter. So all that will give you color. But I would say I'm there for -- we will raise the 10%, and it's a 5-year journey, but I'm happy with the development of this business. The next target is to be for me net cash positive. As soon as we are net cash positive, I'm sure that the valuation of this part of the business will be better because when I will tell you, this business is contributing to your dividend, it's a way to have a better leverage on this business. And we plan 28. If we can do 27, we are working on that. EU ban on Russian LNG, honestly, there have been a new regulation, which needs to have some clarification because there is some language there we need to understand what it means exactly. Like by the way, when EU banned oil in 2022, '23, it was the exact situation. There was a regulation and the LNG regulation is copy-paste of the old one. There was what they call FAQ where you need to have answers to clarify what is the real scope of ban. For sure, the ban is not going any more Russian LNG in Europe, but we want to be sure that the ban is not larger than that. So before to answer your question. And otherwise, yes, in this case, we have a commitment. If there is no further, I would say, ban, I cannot choose a force majeure to cancel the contract. If I don't have force majeure, I am committed to offtake some cargoes. We are looking to that, precisely today, our lawyers are working, to be honest. We have -- which -- because, of course, for us, the rule is to be sanction-compliant to be clear. So our lawyers are working on it. It's a fresh regulation, so I don't have the full clarity. And I don't want to make more answering longer because I could say something which could become wrong if the lawyers -- and again, if we have to be -- we are always at the Executive Committee on the cautiousness side, I would say, from this perspective. And so I'm waiting to see the report and to understand exactly the scope of the new EU regulatory. Operator: The next question is from Paul Cheng of Scotiabank. Paul Cheng: Two questions. I want to go back, Patrick, in your answer to the question of adoption of AI, you think that is fairly sizable investment. Can you quantify how big is the investment over the next couple of years and whether you have sufficient talent within your organization to really adopt or that you need to go out to hire? And at this point, it seems like it's pretty difficult to get the good talent in the AI adoption area. And what is your target in that what you aim to get from AI over the next, say, call it, 5 years? The second question is Yes. The second question is on Iraq. Patrick Pouyanné: Move on with your second question, sorry. Paul Cheng: Okay. Sorry, Patrick. Second question is Iraq. Can you tell us that how is the situation on the ground? I suppose that the security is good enough for you to deploy your people. So what's the bottleneck or the barrier for Iraq to significantly increase their production at this point? You and some of your peers that are rushing in and signing contracts. And if you think that those contracts, the terms are good. Is there a concern that Iraq could turn into a major production growth area, which in turn is going to depress oil prices over the next several years. So just want to hear how you think about that. Patrick Pouyanné: First question, AI is the program I mentioned when I -- represent more or less EUR 300 million, so $350 million, I would say, worldwide. So it's quite an investment in these data platforms at the worldwide level, first comment. Second comment in terms of people, we have some assistance from the Emerson guys, AspenTech or from Cognite. But remember that we have 300 -- digital factory with 300 people. And of course, we are using part of these people to help to deploy the program. They are there, they are available. They know about it. We have built these competencies in the last 5 years, the second answer. The third answer is that there is a nice country in order to get access to good, very high competencies with not so high cost, which is called India. So it's also a way for us to, in fact, grow in the digital. For us, we are looking today to -- we need to grow, I would say, our technical competencies and in terms of people to have more resources in the side of electricity of power and in the area of digital. And today, we are seriously thinking to enhance or to grow our presence there, and we speak about -- we are discussing about competence center in India. It's part, by the way, of our way as well to contribute to the, I would say, cash saving program that we mentioned. So this is the area. So I know it's a point. But in fact, what I've observed is that we have been able to attract people in this field with a reasonable price. We are -- because we offer them some real, I would say, use case. We have very interesting use case. In the field of energy, you can use AI in many areas, so it's good. Iraq on the ground, it's okay. Otherwise, I mean, we just signed the full contract -- EPC contracts. If we were in doubt, we will not have done it. honestly, in the Basra area, the situation is good. I don't -- I can speak only for the areas where we are. And we have deliberately located our teams in the south of the country, in the Basra area because it's a more, I would say, united area, unified area from, I would say, in terms of Iraq. There are other areas that I would be more careful to be clear. But in our area, we are fine and no barrier. But the barrier partly is still security because you cannot -- what I say for Basra is maybe not true for the whole country, to be honest, and it's not true. And second, in fact, you need investment. And investments, you know the issue for Iraq, and again, I'm happy to have been the big company which came back first. But we went there in '21. We finalized the contract in '23. We will FID all the phases in '25, and we'll produce in '28, '29. So the cycle is 8 years. So I think we are maybe a little slow. I'm not sure because I can tell you it's -- all that is, in fact, from my point of view as a CEO, quite a remarkable journey in a new country. So I'm very happy with all the work the teams have done. I contributed myself by supporting them many times there. And I can -- but -- so when people think today that, yes, there is a potential in Iraq, it's clear, but it will not depress oil prices before many years. So it's good for the country. And again, the country -- and I know what will happen if there is more companies to come, the temptation will be to decrease the margins. And then again, it will not work. So that's the history. I hope the country has taken some lessons of what happened from 2010 to 2020. If we don't have the right reward for the risk we take, there is no investment. So that's a question of capital allocation. So yes, and that's why, by the way, to answer to your question, to be clear, if we decided to move to come back in Iraq in 2021, but we see quite a long perspective. And in my plan, in my view, Iraq will be a growth area for TotalEnergies beyond 2030, and we will work on other projects. So that's what I'm thinking. So I don't see an impact on the short term or short medium term. Thus potentially... Operator: The next question is from Henri Patricot, UBS. Henri Patricot: Just 2 on the topic of exploration. I think you have a new Head of Exploration since the start of the month. And I was wondering if we should expect any changes in your approach, exploration? And also on that topic, can you give us an update on the latest plans for exploration in Namibia and South Africa in the next few months? Patrick Pouyanné: Okay. Exploration. I've been consistent since I'm CEO, I think there is one thing which did not change, which is the budget for exploration. It was $800 million to $1 billion. I put it as a sort of rule of the game when I became CEO because strongly, I think it was -- it's not because you spend more but you find more. At a certain point, you need to be efficient and oblige your exploration team to take searching. I'm happy, by the way, that the way Kevin has led this team during the last 10 years. He became Exploration Team Manager and Vice President almost the same time. He has, I would say, developed some ideas. The thing is, it is a long cycle in exploration. So when he told us one year ago that he has tried to do something else, it was fine for us because we thought it was the right time to renew, in fact, having the proper approach because, again, exploration is different business. Again, it's not a matter of dollars, it's a matter of IDs of which to approach. I'm very happy to have welcome in a company, Nicolas Mavilla, which is coming from a successful exploration company. He has, of course, had different -- himself has been educating in different environments of new ideas. He will have -- I told him that he's free to do and to let the team. It's not a one-man show exploration. It's a team building, quite a lot of people. You need to take the risk to explore, you need to build some consensus, but you can drive your people in different, I would say, directions in terms of concepts and being creative. So I think it's very good. I hope and I'm convinced that Nicolas will be able to have the same success that we had with Kevin in the last 10 years. But it's not a matter of money. It's a matter of ideas and then to make choices. And by the way, you noticed that in the last quarter, we have been active on taking some licenses back in Nigeria, which has been unexplored for more than 10 years. It's a pity. It's probably the most potential delta, it's probably the most prolific Delta in Africa. So no license were awarded. We are happy to have the first ones, 2 IOCs. We went as well to a country like Liberia. It's a new one. Congo is more mature, but we managed to get a license on which our explorers were excited. I hope they were fine. We'll have a nice gift for Christmas, we'll see. And again, we'll continue to explore in other countries. And so exploration, I heard during the [indiscernible] that it seems that some companies are rediscovering exploration. For Total, we never give up on exploration. I always consider it as part of the value creation. And again, listen to my colleague, not because you spend more, when you will find more. If you spend more, you actually take more risk. And if you take more risk, you have more disappointing wells. So it's a question of finding the right metrics. And I think it's good for an IOC, a major like us when we can drill 20, 25 wells per year, that's good. That's enough to find some nice wells. Namibia, South Africa; Namibia, that we have some exploration to continue to do, and we look to priorities also to develop business. And South Africa, you follow, like me, the news. There is a legal context, which seems to be more complex than in other countries. Each time we want to drill, we need to go to court. It's a little difficult. So we want -- but I think that the South African government has made some public statements that they want to find a way to go to ease the exploration. So we hope we will manage because, of course, for us, it's important. We cannot explore, we cannot spend money in a geography, if we have to face permanently courts and being -- and the permitting become really too complex. And because it's not only drilling 1 or 2 or 3 exploration wells, when it will be to develop. And we explore to develop. We don't explore just to find oil. So we need honestly, on the South Africa side, I hope the government will take the right decision as soon as possible. Operator: The next question is from Jason Gabelman at TD Cowen. Jason Gabelman: I wanted to ask firstly on CapEx trajectory. And it looks like organic CapEx has been a bit volatile the past few quarters. I'm wondering what's driving that quarter-to-quarter volatility. We've seen some other peers that have more stable CapEx that kind of peaks in 4Q. So wondering, moving forward, is this level that you're at now a better go-forward pace to consider? Or should we expect more volatility quarter-to-quarter? And then my second one is just on the ramp-up in production next year. You've previously guided to a reduction in reinvestment rates in 2027, which I suppose, implies higher cash flow ramping at some point next year along with new production coming online. So how should we think about that production and cash flow ramp next year and into '27? Is it back half weighted? Is it 4Q weighted? Just looking for kind of the arc of that growth. Patrick Pouyanné: Jason, you are very quarterly driven there in your questions. But my commitment to you is the commitment of the company is the annual budget of CapEx. And by the way, it's an annual budget of net CapEx. It's organic CapEx plus acquisition minus sales, minus divestments. I think we have a long strong track record of being complying -- compliant with our budget -- annual budget of CapEx. I think since I've been CEO, I think, 10 years in a row, you don't see that we have not respected the CapEx budget, the annual CapEx budget. And again, what we told you today, and what we said at the beginning of the year, it will be $17 billion, $17.5 billion. And I can tell you, we'll land in $17 billion, $17.5 billion. As we told you that the net acquisition is expected to be at $1.5 billion. You can calculate yourself the organic CapEx for the fourth quarter. I don't follow honestly the stability of the organic CapEx 2 quarters. It depends on some projects when you put into production as we have done this year, all Mero in Brazil, Tura in Denmark, Ballymore in the U.S. Ballymore -- yes, Ballymore. That this means that this quarter, there was a lot of CapEx and then it's decreasing because you have put into production and some of our CapEx, some of our projects are ramping up. So it just -- so I'm not at all -- I have no KPIs to have a stable quarterly organic CapEx, to be honest. At the end of the day, my KPI is to be sure that we are within the annual budget. And if we can be a little lower, I'm happy. But it's -- but not so much I'm not happy because sometimes it means that some projects are late. So I prefer to really be in our budget. So first point. So sorry to disappoint, but it's not a major issue. I'm not in a -- I mean, to be clear, we are not in a company which makes short-cycle CapEx permanently, where you make -- you can maybe make more -- less volatility. The second one, I think the same answer to Lydia, if I remember the first -- beginning of the first question I have. You have to wait for 2026. Let's keep -- you have to be a little patient until February. We'll give you more color. It's clear that, again, we gave you a point, I think, in the chart of 2027 when we speak about reinvestment rate. So we told you that in '27, yes, I remember, the reinvestment rate will go down from 70% to something like 50%. It was a chart which was in the New York package and slide deck, sorry. And that's the reality. So that's -- and it's coming from whom? It's coming from, on one side, higher cash flows because we are delivering along the 3 years. So let's be clear, the figure of '27 means by end of '27. So it's a 3-year decrease. It's not beginning, I don't know which quarter. And it's an annual one. So it's at the end, to be clear. It doesn't mean that all the growth is backloaded. It just means that it's an average of the year '27. And it's coming as well from the discipline of the CapEx because we have your guidance is $16 billion. So it's both, will contribute to this reinvestment rate, which is lower by 20%. So if you have 20% -- if you are lowering reinvestment rate, it's good and it's consistent with the free cash flow per share increase that we have announced. So that's a way to explain why we will be able to increase the free cash flow per share because we have more cash and less CapEx. And that's what we want to -- where we want to embark all our investors who trust TotalEnergies. I think it was the last question. Yes? Operator: There are no more questions registered at this time. Patrick Pouyanné: Okay. So thank you to all of you for your attendance. I hope that all the analysis you've done will be reflected in the stock price. It was not the case this morning. But again, we are delivering. This is the message. We are delivering. We have a consistent strategy. We are just executing in. We deliver. And frankly, Board of Directors and myself as CEO, we are quite pleased with the results of this quarter because that demonstrates and again, that all what we explained you quarter and year after year is on the delivery mode and that free cash flow will increase. Thank you for your attendance. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trane Technologies Q3 2025 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Zac Nagle, Vice President of Investor Relations. Please go ahead. Zac Nagle: Thanks, operator. Good morning, and thank you for joining us for Trane Technologies' Third Quarter 2025 Earnings Conference Call. This call is being webcast on our website at tranetechnologies.com where you will find the accompanying presentation. We are also recording and archiving this call on our website. Please go to Slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are David Regnery, Chair and CEO; and Chris Kuehn, Executive Vice President and CFO. With that, I'll turn the call over to Dave. Dave? David Regnery: Thanks, Zac, and everyone, for joining today's call. Please turn to Slide #3. I'd like to open the call with a few thoughts on our purpose-driven strategy that fuels our strong performance over time. The demand for sustainable resilient infrastructure has never been greater. That's especially true here in the U.S., where the AI revolution and reshoring of industry are transforming how businesses operate at an unprecedented pace. Trane Technologies is at the heart of this evolution, helping customers reimagine their operations for greater performance and sustainability. Our high-efficiency solutions help our customers save energy and reduce operational costs. We're proving that there is no trade-off. What's good for the environment is good for the bottom line. As we look ahead, our innovation and expertise continue to set us apart. With our elevated backlog, robust customer demand and strong financial performance, we are well positioned to continue to deliver long-term value to our employees, customers, shareholders and the planet. Please turn to Slide #4. Q3 was another strong quarter marked by record quarterly bookings of $6 billion, representing organic growth of 13% year-over-year. We delivered 170 basis points of adjusted operating margin expansion, 15% adjusted EPS growth and robust free cash flow. Our global Commercial HVAC businesses delivered outstanding performance. This was particularly true in the Americas where Commercial HVAC bookings reached an all-time high, surging 30% year-over-year, with applied bookings more than doubling. The strength of our Commercial HVAC business is further underscored by our Q3 ending backlog of $7.2 billion. However, this total backlog figure does not tell the whole story. Compared to year-end 2024, our Americas and EMEA Commercial HVAC backlog has grown substantially, increasing by over $800 million or approximately 15%. Excluding Revenue, residential growth remains robust, up approximately 10% in the third quarter. We are well positioned for growth in 2026, given strong execution through our business operating system and our rapidly expanding pipeline of projects in data centers and core verticals. Our leading innovation and direct sales force provide us with distinct competitive advantages. Our Services business, which constitutes approximately 1/3 of our total enterprise revenues remains a durable and consistent growth driver, up low double digits year-to-date and boasting a low-teens compound annual growth rate since 2020. Our guidance reflects the impact discussed during our September update, which Chris will elaborate on shortly. Please turn to Slide #5. As discussed in our Americas segment, Commercial HVAC continues to deliver standout performance. The team achieved its third consecutive quarter of record-breaking bookings with approximately 30% growth. We are winning in both core vertical markets and high-growth verticals such as data centers. In high-growth verticals, customers demand innovative, highly engineered solutions tailored to their specific requirements. They need customer-focused partners with the expertise and capacity to grow alongside them, which plays to our strengths. Our direct sales strategy enables us to capture a significant share of these opportunities and consistently outgrow our end markets. This is demonstrated by our applied solutions bookings growth of over 100% in the third quarter. Commercial HVAC revenue growth was also robust, increasing by low teens in equipment and low double digits in Services. Our consistent market outgrowth compounds revenues year after year for perspective. In the third quarter, our applied revenue growth on a 3-year stack was up more than 125%. Turning to Residential. Bookings and revenues declined approximately 30% and 20%, respectively, consistent with the update we provided in September. In Americas, transport refrigeration, bookings were up low teens, while revenues were flat. Despite end markets being down over 25%, we continue to outperform. Commercial HVAC strength was not limited to the Americas. In EMEA, Commercial HVAC bookings increased by high teens, while revenues grew by mid-single digits, consistent with our expectations. EMEA Transport bookings rose by high single digits, while revenues declined by low single digits, outperforming end markets, which were down mid-single digits. In Asia Pacific, Commercial HVAC bookings were up mid-30s, while revenues grew low teens in the quarter. Growth was strongest in China, rebounding from the anniversary of our credit tightening policy in the prior year. The rest of Asia delivered solid performance. Now I'd like to turn the call over to Chris. Chris? Christopher Kuehn: Thanks, Dave. Please turn to Slide #6. Dave covered many key points from this slide earlier, so I'll keep my comments brief. Our organic revenue growth of 4% aligns with our September update, where we shared our expectations for a $100 million revenue shortfall from our July guidance related to softer residential markets. Despite the challenging residential markets, we achieved strong margin expansion and EPS growth, driven by robust growth in our Commercial HVAC and Services businesses, strong productivity levels, and prudent cost controls implemented early in the third quarter. Please turn to Slide #7. In the Americas, we delivered 4% organic revenue growth, driven by strong volume growth in our Commercial HVAC business and positive price realization, offset by a significant volume decline in our Residential business. Adjusted EBITDA margins rose by 90 basis points to over 23%, supported by strong productivity and prudent cost management. We also sustained high levels of business reinvestment. In EMEA, we delivered 3% organic revenue growth, primarily from volume growth in our Commercial HVAC and Transport businesses. Adjusted EBITDA margins declined by 60 basis points as expected, mainly due to year-1 M&A-related integration costs and improved sequentially from the second quarter. We have intensified channel investments and M&A this year to support growth and future opportunities, which are impacting near-term margins but strengthening our business for the long term. We also maintained high levels of business reinvestment. In Asia Pacific, organic revenue increased 9% due to strong volume growth and price realization. Adjusted EBITDA margins improved by 230 basis points, driven by strong volume growth in China and productivity across the segment. We also sustained high levels of business reinvestment. Now I'd like to turn the call back over to Dave. Dave? David Regnery: Thanks, Chris. Please turn to Slide #8. 2025 is unfolding as expected for most of our businesses with the Residential market slowdown being the most significant change impacting our outlook. Our Commercial HVAC businesses globally are performing well, meeting or exceeding our expectations for the full year. Our Americas Commercial HVAC business is executing at a very high level, significantly outperforming end markets. As mentioned earlier, both bookings and revenues are compounding at a high rate, especially in applied solutions. Our Americas Commercial HVAC results are remarkably consistent with 3-year stack revenue growth of approximately 50% achieved in Q1 through Q3 of 2025 and expected for Q4 as well. Our Residential business outlook remains unchanged from our September update with Q3 and expectations for Q4 revenue to be down approximately 20% each. Compared to our July guidance, the combined revenue impact is a reduction of approximately $250 million, with $100 million in Q3 and $150 million in Q4 as channel inventory continues to normalize. Turning to the Americas Transport market. ACT's forecast for 2025 has softened incrementally with the fourth quarter taking the brunt of the impact now down more than 30%. Despite this, we expect to outperform in Q4, with revenues expected to be down approximately 10%. Our outlooks for EMEA and Asia remain unchanged. Now I'd like to turn the call back over to Chris. Chris? Christopher Kuehn: Thanks, Dave. Please turn to Slide #9. Our revised guidance anticipates approximately 6% organic revenue growth for the year, factoring in headwinds from the Residential and Transport Americas markets, as Dave mentioned earlier. In addition, our Commercial HVAC Americas business saw the timing of some customer desire delivery dates move from Q4 into 2026. Altogether, the total impact of these headwinds is approximately 2 percentage points on 2025 revenue growth. Our 2025 adjusted EPS guidance range is now $12.95 to $13.05, up 15% to 16% year-over-year and incorporates the Q4 revenue headwinds previously discussed. We expect organic leverage of 30% plus in 2025 and believe we're on pace for another year of 100% or greater free cash flow conversion. For the fourth quarter, we expect approximately 3% organic revenue growth, driven by continued strong Commercial HVAC growth. Excluding Residential, organic revenue growth is expected to remain robust at approximately 7%. We're targeting organic leverage of approximately 30% in the fourth quarter which includes strong business reinvestments for future market outgrowth. Consistent with our full year adjusted EPS guidance, we expect Q4 adjusted EPS to be in the range of $2.75 to $2.85. For additional details related to our guidance, please refer to Slide #17. Please turn to Slide #10. We remain committed to our balanced capital allocation strategy focused on deploying excess cash to maximize shareholder returns. First, we strengthened our core business through relentless reinvestment. Second, we maintained a strong balance sheet to ensure optionality as markets evolve. Third, we expect to deploy 100% of excess cash over time. Our approach includes strategic M&A to enhance long-term returns and share repurchases when the stock trades below our calculated intrinsic value. Please turn to Slide #11. Year-to-date through October, we've deployed or committed approximately $2.4 billion through our balanced capital allocation strategy, including approximately $840 million to dividends, $160 million to M&A, $1.25 billion to share repurchases and $150 million to debt retirement. These figures exclude $260 million from M&A and $100 million from share repurchases made early in the year, which were included in our fiscal year 2024 capital deployment targets as discussed during our fourth quarter earnings call. We have approximately $5 billion remaining under our share repurchase authorization, providing us with significant share repurchase optionality. Our M&A pipeline remains active, and we will continue to be disciplined in our approach. Overall, our strong free cash flow, liquidity, balance sheet and substantial share repurchase authorization offer excellent capital allocation optionality as we move forward. Now I'd like to turn the call back over to Dave. Dave? David Regnery: Thanks, Chris. Please turn to Slide #13. The Americas Transport refrigeration markets have been dynamic but the long-term outlook remains strong. ACT projects the trailer market to bottom in the first half of 2026, improve in the second half and grow over 20% for the full year. In 2027, ACT anticipates another significant increase with growth exceeding 40%. We are navigating the down cycle effectively and outperforming end markets. We continue to invest heavily in innovation and look forward to adding another growth driver to our portfolio when the market strengthens. Turning to Slide #14. We expect to provide 2026 guidance during our fourth quarter earnings call, but I'll discuss our early views based on current insights. We expect continued strong growth in our Commercial HVAC businesses, which make up 70% of our total revenues. Our world-class direct sales and service teams give us a competitive edge, allowing us to pivot quickly across vertical markets to capture growth opportunities. With the broadest and most innovative portfolio in the industry, we are relentlessly reinvesting to support a rapidly growing pipeline of opportunities. Our proven track record of compounding bookings and revenue growth, especially in high-growth verticals like data centers, underscores our strength as a leading climate innovator. Our Commercial HVAC backlog is not only elevated but growing, up more than $800 million from year-end 2024, positioning us well for continued strong growth in 2026 and beyond. In Residential, which represents about 15% of our revenues, we believe over the long term that the industry remains fundamentally healthy with a GDP plus framework. We expect 2026 to be a tale of 2 halves. A challenging first half due to tough comps, followed by improvement in the second half against easier comps. In our Americas Transport business, accounting for about 7% of our revenues, we also foresee a tale of 2 halves, with soft markets in the first half and recovery in the second. While the recovery slope may vary, we are aligned with freight markets recovering in the second half of 2026. Our focus on innovation yields healthy pricing opportunities and our business operating system is primed to stay ahead of tariff and inflationary pressures. Our Services business comprising about 1/3 of our enterprise revenues is a key driver underpinning our growth in 2026 and years to come. We have a proven track record of driving strong services growth. We see continued growth opportunities across our portfolio, particularly in Commercial HVAC, where our large and growing installed base and increasing mix of applied solutions carry a strong higher margin services tail. Additionally, our rapidly growing connected services portfolio is seeing increased demand for digital performance optimization and demand side management where our Energy Services business excels. Overall, we are excited about the opportunities for continued growth in 2026. Please turn to Slide #15. In closing, our leading innovation, elevated backlog and strong customer demand position us for strong performance in 2026 and beyond. Our uplift in culture continues to attract the best talent, powering our innovation. Our solutions offer strong returns to customers and also contribute to a sustainable world. This drives our consistent track record of performance and positions us to deliver differentiated value for shareholders over the long term. And now we'd be happy to take your questions. Operator? Operator: [Operator Instructions]. Your first question will come from Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to ask about Americas margins. You guys put up a 40% incremental almost in Q2. Q3 was like 50% despite negative mix away from Resi. So I guess kind of my question is really on the service margins. As the company adds technology and fixed assets to the service or aftermarket business, is there an opportunity for service incremental margins to improve versus history because it feels like we're effectively kind of replacing more variable human costs with more static fixed costs, whether it be technology or something else? Any thoughts there would be helpful. Christopher Kuehn: Chris, this is Chris. I'll go first, and then Dave may jump in. So very happy with the Americas margin performance in the third quarter. Operating income margins were nearly 22%, up 120 basis points on a year-over-year basis. And when you think about service, we've described service margins to be higher than the segment average. They're higher than equipment margins. And we continue to invest strongly in that space across front-end tools, service technicians, sales account managers. And I think we like the path that those margins should be ongoing forward. There's absolutely an opportunity for those margins to expand. David Regnery: Yes. And the only thing I would add, Chris, we're also investing heavily in our training organization. And we just opened a new training center here in North Carolina. And it's just we want to make sure our techs have the best tools in front of them in front of our customers. We want them to be the smartest as they can be. And all of our connected solutions, our training, it all adds up to technicians that are more productive. And by the way, our Service business is growing at a very nice rate as a result of that. Christopher Snyder: I appreciate that. And then maybe going over to orders, applied plus 100%, obviously, a pretty massive number and I know you can't continue to grow orders 100%, obviously. But is there anything in that, that feels onetiming, that's worth calling out? It does seem like the pipeline, I think you referred to it as rapidly growing. So it still feels like there's a lot of opportunity out there. But any kind of comment on that applied number? And anything at the end market level would be helpful. David Regnery: A good question. Obviously, we're very strong in all of our verticals. Data center certainly had a lot of growth. We did see several large orders in the third quarter. You could think of a large order as over $100 million. I guess my framework has changed there. But -- yes, so we have had several large orders. I'll just remind you that data center orders can be more uneven. So you may see them in one quarter, not another. But look, the pipeline of activity, it is what it's really encouraging. And it's -- I had the opportunity -- I was walking to a meeting yesterday on campus, and I ran into one of our chiller portfolio managers and this individual stopped me for what I thought was going to be 2 minutes and it ended up being 15 minutes about -- tell me about all the robust demand that they're seeing in the pipeline, the orders we're receiving, the innovation that's going to be coming out or is out now. So look, there's a lot of momentum out there right now. And I would tell you that Trane Technologies is doing a great job of capturing more than our fair share of that momentum. Operator: Your next question will come from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: David and Chris, you grew revenue low teens in Americas Commercial HVAC equipment and in Q3. But is there any reason why your growth there wouldn't follow the reacceleration in Americas Commercial HVAC bookings that you've seen lately and set you up actually for as good or stronger Commercial HVAC organic revenue growth in '26 versus '25? And the reacceleration in bookings, I mean, you talked about large projects. How are other verticals doing besides data centers? Christopher Kuehn: Andy, I'll start. Look, the Commercial HVAC Americas business has had a great year, and it's going to continue to perform strongly in the future. When you think about our full year guide for that business, we're expecting revenues to be up low double digits this year. Q4 will be up around 10%. And when you think on a 3-year stack for that business, it's consistent every quarter this year, a 3-year stack of 50% revenues for our Commercial HVAC business. So certainly, the backlog and the order rates continue to give us more confidence on growth into the future. And as you know, services really underpins that business as well. It's about 1/3 of the enterprise revenues. It's roughly half of the Commercial HVAC and the Americas revenues and that will -- we see that being a tailwind for many years to come as well. So we'll dial in 2026 when we are on our next earnings call, but we're expecting this business to continue to have strong growth going forward. David Regnery: Yes. And the only thing I would add on the verticals, Andy, certainly very strong in data centers. Health care was also strong. Higher ed was strong, government was strong. We'll see how that goes with the government shutdown. But right now, government was strong. And we also saw some strength in office, which was good to see. So overall, pretty balanced strength that we're seeing out there in our core verticals as well as the high-growth vertical. Andrew Kaplowitz: Great. And then you didn't change your incremental revenue impact on Resi HVAC in Q4 that you told us about in September. But can you give us more color on what you're seeing in your channel? There's obviously a debate out there as to when inventories and Resi will be rightsized. I know you already talked about relatively weak one -- first half of '26, mainly due to tough comps. But do you think inventories could get in balance by the end of the year? How do you think about that? David Regnery: Yes. I mean, we're hopeful it gets rebalanced. I mean, 2025 was such an odd year for Residential really, you had -- it started with a prebuy. You could argue that maybe it was 2 prebuys with maybe a little bit pre-tariffs. But -- and then you had this refrigerant change that didn't go very well because of the canister issue that was well publicized. And then you had a really short summer across the U.S. So those 3 factors are kind of anomalies that we look at in the Resi space. Obviously, that caused a bit of inventory in the channel that needs to be burned down. And our plan is, hopefully, it's burned down by the end of the -- at least by the end of the year. If not, it will certainly be burned down by the first quarter. But we'll give you an update on that, Andy, when we present our fourth quarter earnings. Operator: Your next question will come from Julian Mitchell with Barclays. Julian Mitchell: Maybe I just wanted to understand a little bit the operating leverage guidance change. So you've moved to sort of 30% plus there on the organic front, it's a bit higher than before, and that's even with the revenue organic guide being lowered a touch [indiscernible] overall. So maybe help us understand sort of why is that operating leverage moving up? Does it reflect kind of exceptional cost control that may have to unwind a bit next year? Or is it more to do with something in the sort of shape of the business, particularly in Commercial HVAC, that's giving you that more structural entitlement to higher incrementals? Christopher Kuehn: Julian, it's Chris. Yes, look, I think it's -- first off, we manage all parts of the P&L. And when I step back and I see the volume growth in Commercial HVAC, we're getting strong leverage on that volume growth. You're right. There's headwinds in the business we've described in Residential and Transport, and in the fourth quarter, some revenue shifting out to next year in Commercial HVAC. But we're really offsetting nearly all of these headwinds on an EPS basis really because we're managing all parts of the P&L. Multiple areas there. I mentioned volumes. There is a strong cost management. Think of us as leveraging our scenario plans and our business operating system, where we beginning part of the third quarter, we saw the lower volumes in Residential. We made sure that we were managing all parts of our cost. It's a combination of discretionary cost control as well as some structural cost takeout, and you expect that from [indiscernible] operator. What we didn't do, we haven't cut investments. So we're preserving investments and there's a number of investments we had planned for the fourth quarter, and Dave was very clear, and I, we're not cutting those investments. We're moving forward with those because they set us up for future growth. So I'd look at the cost management, strong volumes in commercial as well as making sure that we're preserving investments. David Regnery: Yes. The only thing I would add is on the scenario planning, what we do really, really [indiscernible] well is it's not just what you -- it's what you will not cut and we spend a lot of time on that. And that's why, as Chris said, we're continuing to reinvest in all of our businesses. And we have projects out there that we know are so important for our future, that those are all ring-fenced. So we make sure that we -- those are things that we will not cut because they're about our future. So we do -- the teams do a great job there of identifying those and making sure that we're going to be not only ready for a particular quarter, but really well into the future. Julian Mitchell: That's great to hear. And then just my follow-up would be around pricing. Maybe just give us any color as to the price contribution to firm-wide revenues in the third quarter? And within those Resi Americas market, specifically, what's your comfort level that price discipline can hold up as this inventory destock plays out? Christopher Kuehn: Julian, price for the quarter was a bit above 3 percentage points. We've been tracking around 3 percentage points in the first half of the year. And from a full year guide perspective, think of the 6% organic revenue growth is roughly 3% price, 3% volume. I'd say we just continue to manage all the inflationary inputs well and ensuring that we've got a positive spread over price versus cost. In Residential, it's really about a volume story there. We're obviously shifting very much this year into 454B with a price/mix contribution. There'll be a little bit of carryover going into next year, but we're also just making sure we're staying ahead of a very dynamic environment in terms of cost inputs and remaining nimble. So we'll continue to do that. David Regnery: Yes. And on Resi, the industry has remained disciplined, Julian. Operator: Your next question will come from Amit Mehrotra with UBS. Amit Mehrotra: Chris I wanted to ask about organic growth between the applied equipment and light commercial. I know together, those grew low teens. Hoping you can give us a little bit more color on just the applied equipment side. And just given where the backlog and orders are for the equipment, obviously, the sustainable growth opportunity in service. Those 2 are kind of 50% of the business. Do you think growth can be maintained at the current levels, accelerate, decelerate because you have large numbers? Like what should be the right expectation prospectively for those growth rates for those 2 particular parts of the business? David Regnery: Yes. Look, applied was very strong, okay, very strong. Unitary was positive. I guess that's a good news, but it was -- it has not been a big contributor this year to our growth. We'll see how it plays out next year. As far as services goes, look, our Service business is very consistent. And we continue to put up nice growth rates there. We have -- if you go back to 2020, our compound annual growth rate, as I said in my prepared remarks, it's in the low teens, which is very, very strong. And by the way, that doesn't happen by accident, okay? We have a very detailed operating system around our Service business that allows us to do that. And if you think about all what's happening with our applied solutions and the installed base continuing to grow, look, the future is very, very bright for our Service business. Amit Mehrotra: Okay. And just as a follow-up, maybe for Chris, the company, you guys have this framework for top quartile revenue earnings growth kind of year in and year out. I interpret that to mean kind of high single-digit revenue growth, maybe low to mid-teens EPS growth. Obviously, you're achieving that this year, which is incredible in the context of what's happening in the Residential market. But just given kind of where the Commercial HVAC business order momentum is, hopefully, Resi is better next year than it is this year, obviously, it should be. Should we see an accelerating revenue and earnings algorithm next year? I would assume that would be the case just given the headwinds you're facing this year. Christopher Kuehn: Yes. I mean, look, I think the future is bright. We'll update investors in about 3 months at our next earnings call. But we do go into each and every year thinking about how we're going to plan for top quartile top line growth, EPS growth. And let's not forget about free cash flow conversion with a 4-year average well over 100%. I think we're one of the leaders in that space of converting that earnings to free cash flow. But with down markets in Residential and Transport, we know the first half of 2026 is going to have some tough comps -- or tough start to the year, okay, and off of tough comps. Let's see how the full year looks like. We'll update you in a few more months. Things are dynamic. But certainly, the growth of Commercial HVAC and over 90% of that backlog is for Commercial HVAC, of which the vast majority of that is applied systems, gives us a lot of confidence that we'll see strong growth in that business next year. Operator: Your next question will come from Scott Davis with Melius Research. Scott Davis: Those applied bookings were big numbers. Is that -- is there any of that, that's leaking into '27? Or is that -- I know the industry standard used to be kind of 1-year max lead time. Is it now leaking out a little longer than 1 year, just given how strong demand is? David Regnery: Not really. I mean, it was -- I think there might be just a little bit in '27. Most of it's going to ship in the next 15 months. So that's subject to change. That's kind of the lead time we're seeing. Christopher Kuehn: Yes. In the backlog, in terms of some of the large orders, customers give us insight on what they're going to place, but we won't put it into the backlog until there's a signed PO. So there are slots, let's say, that we're expecting to be filled for 2027, but that will convert to orders here starting in the fourth quarter into 2026. David Regnery: Yes. And the other thing I would add, the pipeline of activity, I know we had very strong, and I'm proud of what the team was able to do in the third quarter. Our pipeline of activity is extremely, extremely robust right now. Scott Davis: Yes, clearly. So guys, I just wanted to switch gears a little bit. You put out a press release 2 days ago on this thermal management system, the reference design for NVIDIA. What's new in that design? It looked like to me, it almost implied that you guys are making the CDU and kind of doing kind of the A to Z. Just kind of maybe talk about what's new in that design or the importance of it? David Regnery: If I told you, I wouldn't be able to talk to you anymore. We're working with NVIDIA. They're a leader, obviously, in the chip side of things, and we're helping -- basically as a leader in that vertical, and I've been saying for a long time, we're a leader in the data center vertical. We're working with all influencers, whether it be hyperscalers or whether it be great companies like NVIDIA that we're working with. And it's really about our very technical engineers working with their technical engineers and coming up with solutions that, in some cases, we didn't think were possible just a very short period of time ago. So more to come on that. We're excited about working with NVIDIA. We've been working with them for a while, and we think there's a lot of opportunities. And the innovation that we're seeing in the data center vertical is moving very, very fast, and we're there moving with it. I would also tell you that a lot of this innovation as we develop, we're pulling back into our core markets as well. So it's additive. We like being challenged. We like sitting at the table. We like them in our labs, showing them what we can do. And when smart people challenge each other, you usually have great outcomes. Operator: Your next question will come from Tommy Moll with Stephens. Thomas Moll: I wanted to ask about EMEA margins, which we haven't covered in enough detail yet, just given some of the comments you made there about recent investments that have pressured those margin percentages a bit. What's the time line look like there or when assuming continued top line progression, you can start to see some positive margin dynamics? Christopher Kuehn: Yes, Tommy, look, the third quarter for our Commercial HVAC business in EMEA came in really as expected. For our second half guide, we knew that the revenue growth would be stronger in the fourth quarter than the third quarter, really based on the timing of when customers want their products. We also expected sequential margin improvement throughout the year, and we saw that also in the third quarter versus the second quarter. Some of that for the segment is really around some recent M&A that we've completed, both in the Transport channel and in the Commercial HVAC channel that just on day-1 had lower margins on the segment average. So we'll work through that throughout the year. But those M&A transactions are very important to give us more opportunities for growth in the markets that they serve. So we're excited about that. The region has continued to invest on its front end and sales and service portfolio. I think that's largely anniversaried at this point as we go into the fourth quarter, but we would expect those margins to continue to grow and accelerate into 2026. Thomas Moll: And if we zoom out and look at consolidated margins, specifically next year, obviously, you're not going to guide today, but are there any variances to your typical planning cycle around the mid-20s conversion that are worth pointing out? And even if it's just a seasonal comment, obviously, there are a couple of factors that weigh on the first half and then flip to tailwinds in the second half. So perhaps you could give some context around that. Christopher Kuehn: Yes, nothing to call out specifically. I mean you called out our long-term framework of 25% or better incrementals. And we would go into any planning year thinking along that guidance. The pipelines Dave's talked about in terms of orders and bookings, the pipelines for our investments in the company remains very, very strong. So for us, it's always been about how to pull them ahead to drive growth even faster. So we'll manage the 2 of them as we think about 2026. I appreciate your comment on first half. I do think for our Transport market in the Americas and for Residential, those will be tougher first halves in 2026 with expected growth in the second half. And we'll put it all together and the goal would be, let's drive to top quartile financial performance again. But we'll update everyone in a few months. Operator: Your next question will come from Joe Ritchie with Goldman Sachs. Joseph Ritchie: I want to just focus my questions just on the data center opportunity and what you're seeing today. So if you think about kind of like the nature of the projects that you're winning, I'm curious whether that's like the nature of the projects have changed. So what I'm thinking about specifically is like are you starting to see like more modular type data centers getting built by the hyperscalers because the time to market it's really important. Just anything else you can tell us around the opportunities that you're booking would be helpful. David Regnery: Yes. I mean -- but we've seen that for a while, okay? I mean, the amount of stick build that you can reduce on a job site is obviously advantageous because it ensures a smoother build process. So that's been happening in the data center space for a while. And we're obviously -- you could see all of our chillers being installed there. So we're part of that process. So I wouldn't say it's a change. But obviously, I think it's a great question, though, because I know we're talking about data centers here. But if you think about other labor constraints and other verticals, that whole modular or less labor required on a job site is certainly something that will trend in the future. Joseph Ritchie: Yes. That makes sense. Sorry, -- that makes sense. And then I guess, Dave, just kind of thinking going back to Scott's question just around lead times, right? You have certain parts of the value chain that are out, like I think turbines are out like 3 to 4 years in terms of when they can get delivered. And given that your lead times right now are really kind of 12 to 18 months, I mean, it just seems like the opportunity for you, like you've just got a lot of -- like already based on what we're seeing in the value chain, the opportunity for you guys should be really strong really through the end of the decade. I don't want to put the cart before the horse here, but just how are you thinking about this data center opportunity for you guys? David Regnery: End of the decade, I like it. Look, I think 12 to 18 months -- first of all, that may not be our capacity. That may be what the -- when the data centers just given -- the hyperscalers is giving us visibility for planning purposes. We've actually expanded our capacity. I had the team do an analysis since 2023, we've expanded our chiller capacity by 4x. So we've invested a lot there, but we're ready for the growth. And by the way, in some cases, our lead times now have actually contracted to a point where we have quick ship programs again. And that's not for data centers, but that's for core verticals. But it's -- the momentum we're seeing is great to see. The innovation that we have is driving a lot of that momentum, and we are more than ready to make sure that we can meet the demand that's being placed upon us. Operator: Your next question will come from Jeff Sprague with Vertical Research. Jeffrey Sprague: My question maybe is a little bit related to sort of where Joe was at. But just thinking about all these large projects, right, things must be slipping back and forth all the time. I don't recall you calling out project slippage in the last couple of years like you are today with this $100 million. Just wondering, even though your lead times are improving, are we starting to bump up against just the ability for the supply chain, the construction community, whatever to put this stuff in the ground at the pace they would like? Or would you just kind of characterize what you pointed out today is just kind of normal noise in shipment patterns? David Regnery: I think it's normal noise, okay? We haven't seen anything that I would say is a trend. But we certainly had several customers ask us to wait until 2026 to ship product, which that happens in our industry. We're obviously never going to ship a product before it's -- a job site is ready for it. But I think it's just timing and timing, sometimes there's positives and sometimes there's negatives. It's just in the fourth quarter, it's probably more negative for us, and we called out the $100 million that's going to push into 2026. But I wouldn't read too much into that. The demand that we're seeing right now is extremely strong, and you see that by our order rates. So I'm not -- normal activity, not concerned about it. Christopher Kuehn: Yes, Jeff, I would add. I just wanted to be transparent, and we just kind of called it out because it was something we had our internal plans were stronger than that. And so with news from those customers, we just wanted to be transparent in terms of that delta. Jeffrey Sprague: Great. And then, Chris, a follow-up for you. Maybe this was partially addressed in an earlier question. But the improvement in corporate, the pickup in other, do those continue into 2026? Was there anything unusual there that normalizes? And also just a $0.20 kind of deal-related headwind, I think you still have a headwind next year, but a smaller headwind. So effectively, it's a tailwind in the P&L, right? Can you maybe just elaborate on that? Christopher Kuehn: Yes. Starting in reverse, I think it is a $0.20 -- the M&A this year is about a $0.20 headwind. Think of that as really the accounting requirements around amortization expense, and that's typically heavier in those first few years of an acquisition. There's also integration costs that we've got planned to really drive the synergies that we see in those businesses. So should be less of a headwind going into 2026. We'll dial that in, in a few months. You're right, corporate was favorable, items below the line were unfavorable. I'd call out other income, other expense unfavorable year-over-year. Tax was actually a bit unfavorable in the third quarter. Very confident we'll have tax at 20% for the full year. That means it will be a bit favorable in the fourth quarter versus, say, 20%, Jeff. But I think look, lots of investments still that make up our corporate structure. Some of the discretionary cost reductions, reduction of, say, open roles, some of that does impact the corporate line as well. So ultimately -- but we'll start on investments, we'll start generally with corporate and then move into the segments as we see benefits. But I wouldn't read too much into it this year, but we'll dial in, in a few months. Operator: Your next question will come from Andrew Obin with Bank of America. Andrew Obin: Yes. Just a question about institutional business. What's the visibility like into '26? It seems the unit bond market is getting better, and it seems that funding for schools and hospitals is getting better. So does this mean that this business could accelerate into next year? Or where is the base in '25 because we haven't spoken about this business for a while? David Regnery: Yes. I think if you look across our pipelines, like we have a lot of strength in all of our verticals. So I think it's a great question. And right now -- I mean, I've been in this industry a long time. And I would tell you that I've seen pipelines as strong as I see right now probably ever in my career. So we're very bullish on the momentum, especially in our Commercial HVAC team and really in EMEA as well that they have a lot of opportunities in front of them. Andrew Obin: But the question is specifically about institutional. So you haven't seen institutional slowdown this year, right, for you? David Regnery: Health care was very strong. Education remains strong, especially on the higher ed side of things. No, we have not. The only thing that we've seen, at least in the third quarter, maybe a bit slower, and it's always difficult to say a quarter makes a trend, but retail was slow, industrial is slow. Life sciences, I don't like to pick on life sciences, but that continues to be a little bit of a COVID hangover there, I think. And -- but that -- the rest of our markets were pretty strong. Andrew Obin: And just a follow-up question on data centers. Do you need to build extra sort of muscle to service because you do have Fan Wall offerings, you have [indiscernible], you have CDUs. What does it take to be able to service inside the data center gray space versus sort of serving your chillers that are sort of outside the building? Is there a discernible difference in what you need to do to your service workforce? David Regnery: Well, it really depends on the data center. And I guess the short answer is, look, we're skilled at servicing all of our products. But a really good question that you kind of reminded me of was this commissioning capability. And this is, again, one of our strengths with our technicians. We have a lot of resources to make sure that all of these data centers get commissioned on time. And think of commissioning is when the mechanical contractor says, okay, this particular chiller is ready to go, we go in then and make sure that it's going to operate the way it was designed, call that commissioning. And we have a lot of resources that we are able to rifle to any particular data center to make sure that it gets up and running on time. And I can tell you that, that is something that I'm getting asked a lot of questions on about our capacity there, and it's certainly one of our strengths. Operator: Your next question will come from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Could we maybe talk about the step-up that you guys saw in the EMEA bookings this quarter, pretty attractive, up 14%. Are you starting to see the data center orders really come through in a big way yet? Or do you think that's still to come in the pipeline? David Regnery: We certainly have data center orders in all of our regions, okay? EMEA, I'm trying to recall the third quarter, nothing comes to mind. But look, I would tell you that the data center orders in EMEA are a lot smaller from a -- the size of the data center is a lot smaller than what we're seeing in the U.S. So in the U.S., it could be as much as like 1/10 the size. So we have a lot of orders, they're just smaller, okay? Nicole DeBlase: Okay. Got it. That's really helpful color. And then if I could ask one on North America Resi. Could you guys comment on was the price mix versus volume split in line with what you laid out at the Laguna Conference in September? And then thoughts on annual price increase in 2026, if it will be kind of normal? And if you think that customers are willing to accept it since price is up so much over the past few years? Christopher Kuehn: Nicole, yes, the third quarter and our expectations for the fourth quarter are consistent with the September update. Revenue is down about 20%. That would imply volumes down roughly 30% and then the price/mix impact would be favorable around 10 points. And then of the price mix, think of that as roughly 50-50, roughly 5 points plus or minus for each one of those attributes. For 2026, we're prepared to go into the year. We haven't seen any structural changes within the industry. We'll look at all the cost inputs that we have. We'll look at where we're driving for share. And ultimately, what we look for each of our businesses is to drive strong leverage, 25% or better and price versus inflation is one of those levers we'll look at. So typically, our price increases don't come out until late, let's call it, December, January time frame for the year. So we'll update you in a few months on what that standing is for 2026. Operator: Your next question will come from Noah Kaye with Oppenheimer. Noah Kaye: So Services has consistently had an attractive margin profile. And I'm curious and perhaps goes a little bit to some of your earlier comments. As you layer in BrainBox and some of the other software offerings into the toolkit, how do you think about sort of a richer software mix impacting where service margins go? How are you implementing that in some of the project management now? David Regnery: Yes. Great question. Look, we're very -- I'll start with, we're very happy with the BrainBox AI acquisition. Together, think of our Trane Connected business now with BrainBox, we have over 65,000 connected buildings and we're adding about one building every hour, and the momentum is increasing. So yes, you're spot on with your question. This is becoming -- I'm very bullish on the future as far as the connected service opportunities and how you optimize a building using AI. With BrainBox, we're using Agentic AI, okay? So this is where the agent is actually making the decision on how to run the building looking at a vast amount of data. So -- and the margins are obviously very accretive when you're able to deploy this type of software. We had a fast food -- it was a convenience store. So think of thousands of locations, and they gave us a pilot. And we implemented, I think it was 50 of their stores, and we ran the pilot for 90 days and the results were just -- they were amazed by it. We were able to save the customer. It was north of 30% on their energy costs. That was a pilot of 50 stores, but obviously, they're going to now run that through their entire portfolio. So this is going to be a fast grower for us. It's still early innings, but we're excited about the opportunities there. And as you said, when you start doing subscriptions, the margins are accretive. Noah Kaye: It's great color. And on a similar theme, when you think about what you may want to add into the portfolio on an M&A basis next year, obviously, you're continuing to generate strong free cash flow. So there's dry powder there. Should we think about kind of continued sort of software-centric? Are there any parts on the product side that are of particular interest? David Regnery: Yes. I mean, I think we're going to be -- we'll keep our options open. We get a chance to look at everything, as I'm sure you know, being a major HVACR player on a global basis. So we'll be opportunistic, but we'll also be disciplined. So I don't know if you want to add anything, Chris? Christopher Kuehn: No, I think the capital deployment framework has served us well for many years, and we'll continue to balance without leaving any excess cash on the balance sheet, we'll make sure we toggle that between M&A that meets our internal goals and something that we can integrate well into the company as well as toggle between, if not M&A, then share repurchases when it trades below our calculated intrinsic value. And we'll continue, I think, that expectation for many years to come. Operator: Your next question will come from Deane Dray with RBC Capital Markets. Deane Dray: I want to follow up on your exchange with Nicole on the data center demands by geography. If you just look at where the big build-outs are happening now, like the Middle East, I would be surprised if they are smaller orders. But just maybe talk about the visibility by region and expectations from there. David Regnery: No, you're spot on in the Middle East, specifically Saudi Arabia, we're seeing larger data centers there. Specific to Europe, they tend to be smaller. But obviously, in the United States, there's some big data centers that are being built and I would tell you that there's even bigger data centers that are being planned right now. Deane Dray: And how about Asia? David Regnery: Yes. We see in Asia as well. We're seeing some activity for sure in China, but more outside of China, specifically Singapore, Australia had some nice orders there. So there's activity there. It's nothing as to the size of what we're seeing in the United States right now. But as you said, in the Middle East, specifically in Saudi Arabia, there's a lot of activity as well. Deane Dray: Yes. We've been hearing all about that. And then just last one. Can you give any comments or updates, insights into your investments in some of these liquid cooling start-ups? David Regnery: Yes. I mean, as you know, we made an investment in LiquidStack several years ago. It's going well. We continue to work with their team, and they continue to work with us. And we like having partners like that, right? They're innovative and we teach them, they teach us and 1 plus 1 often equals 3 or 4. So we'll continue to work with those types of innovative companies in the future. Operator: Your next question will come from Steve Tusa with JPMorgan. C. Stephen Tusa: Congrats on the execution through a lot of noise out there in these markets, for sure. The backlog for commercial HVAC, you guys gave kind of a bit of a like year-to-date increase. I think from year-end, just requires a little bit of math, but like what would that have been year-over-year for commercial HVAC backlog? Christopher Kuehn: Yes. Year-over-year, enterprise backlog was roughly flattish, but similar to the walk from beginning of this year. Thermo King and Residential backlog down about $300 million. Commercial HVAC Americas backlog up nearly $500 million from -- on a year-over-year basis. So the mix and -- the mix of that backlog continues to shift more towards commercial HVAC. C. Stephen Tusa: Okay. And so that's up like, what, 6%, 7%? Christopher Kuehn: From beginning of the year, it's up 7%. C. Stephen Tusa: No, from year-over-year. Year-over-year. Christopher Kuehn: On Commercial HVAC, yes, it's probably in that range, probably mid- to high single digits, yes. C. Stephen Tusa: Okay. And then just the amount of forward sales kind of in the backlog last year, I think you guys gave an enterprise number of like $4.1 billion or something like that. Where does that stand this year? Christopher Kuehn: Yes. I would just say it's stronger than last year, okay? And obviously, we'll continue to grow that frontlog for 2026 here into the fourth quarter. Lead times continue to -- as we talked earlier, lead times continue to be contracting from last year's time to this year. So Dave mentioned a little bit around quick ship programs as an example, where we have some opportunities. But the absolute dollars of backlog for next year, they're up, and we'll give you more of an update as we approach the Q4 earnings call. We would expect backlog to remain elevated going into 2026. C. Stephen Tusa: Yes. And then just one last one on Resi. Maybe just the difference between your captive distribution and the independent? Christopher Kuehn: For the quarter? C. Stephen Tusa: Yes. Yes. For the quarter. Christopher Kuehn: I mean we had sell-through that was down in the high single digits range. Obviously, our Resi growth was down about 20%. I would say, the sell-in was a little bit north of that than the 20%, a little bit higher than that. Operator: Your final question will come from Nigel Coe with Wolfe Research. Nigel Coe: I appreciate you going further in the game here. [indiscernible] a lot of ground. So you know we're scratching around when we talk about corporate. But maybe just talk about what we should done for 4Q corporate. And then I think the M&A impact went up by $0.05. I think we're now looking at a $0.05 slightly greater impact. I think $0.20 is the number for the year. I mean, how does that look into 2026? Does that $0.20 go to 0? Or are we still dealing with some dilution there? Christopher Kuehn: Yes. I'll answer the second question first. I don't think the $0.20 necessarily goes to 0. Our framework would be we want to make sure we're EPS positive by the end of year 3. And while we're very happy with the start of the BrainBox acquisition, there's an early-stage company, there's a lot of amortization associated with it. So let's see what it is next year. I would expect it to be better, but I wouldn't necessarily think it goes to 0. And then, Nigel, your question on Q4 corporate, the implied number for the quarter is about $80 million. We're making sure we have the dollars reserved for the investments that we want to make in the fourth quarter. So that's how that math works out. Nigel Coe: Okay. And then my follow-on. I know Services has got a fair amount of bad time on the call. The consistent double-digit growth in Services is pretty extraordinary. And I think investors would appreciate it. Maybe just talk about how the service model has changed, Dave? And what kind of confidence do you have that you can maintain, if not 10%, but high single growth going forward? David Regnery: We're very happy with our growth rates. I'll start there. Look, we continue to invest heavily in our Services business. We have a whole business operating system built around it. We track lots of different [indiscernible]. I'm not going to create a road map for our competitors. I would just tell you that it's a big part of our business, it's a competitive advantage that we have, and it doesn't happen by accident, okay? We're investing heavily in it, and you could see the outcomes that we're able to drive. So we're very happy with our Services business. Operator: There are no further questions at this time. I would now like to turn the call back over to Zac for any closing remarks. Zac Nagle: Thanks, operator. I'd like to thank everyone for joining today's call. As always, we'll be available for questions in the coming days and weeks, and we look forward to seeing many of you on the road in the fourth quarter. Have a great day. Thank you. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Greetings, and welcome to the CVR Partners Third Quarter 2025 Conference Call. [Operator Instructions]. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin. Richard Roberts: Thank you, Eric. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 third quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws for this purpose. Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 third quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board. As a result, our distributions, if any, will vary from quarter-to-quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark? Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. The summarized financial highlights for the third quarter of 2025 include net sales of $164 million, net income of $43 million, EBITDA of $71 million, and the Board of Directors declared a third quarter distribution of $4.02 per common unit, which will be paid on November 17 to unitholders of record at the close of the market on November 10. For the third quarter of 2025, our consolidated ammonia plant utilization was 95%, which was impacted by some planned and unplanned downtime at both facilities during the quarter. Combined ammonia production for the third quarter of 2025 was 208,000 gross tons, of which 59,000 net tons were available for sale and UAN production was 337,000 tons. During the quarter, we sold approximately 328,000 tons of UAN at an average price of $348 per ton and approximately 48,000 tons of ammonia at an average price of $531 per ton. Relative to the third quarter of 2024, sales volumes were down slightly primarily as a result of low inventory levels at the end of the second quarter, following the strong demand in the first half of 2025. UAN and ammonia prices increased 52% and 33%, respectively, from the prior year period, driven by tight inventory levels across the system as a result of elevated demand and reduced supply associated with domestic and international production outages. Overall, we had a strong third quarter with UAN pricing above levels we saw in the spring and we believe the setup is favorable for the remainder of the year and into the first half of 2026. Domestic and global inventories of nitrogen fertilizer remain tight, and that has been supportive of higher prices which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results. Dane Neumann: Thank you, Mark. For the third quarter of 2025, we reported net sales of $164 million and operating income of $51 million. Net income for the quarter was $43 million, $4.08 per common unit and EBITDA was $71 million. Relative to the third quarter of 2024, the increase in EBITDA was primarily due to a combination of higher UAN and ammonia sales pricing. Direct operating expenses for the third quarter of 2025 were $58 million. Excluding inventory impacts, direct operating expenses increased by approximately $7 million relative to the third quarter of 2024 primarily due to higher natural gas and electricity costs and some preliminary spending associated with Coffeyville's plant turnaround. During the third quarter of 2025, we spent $13 million on capital projects, of which $7 million was maintenance capital. We estimate total capital spending for 2025 to be approximately $58 million to $65 million, of which $39 million to $42 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2025 will be funded through cash reserves taken over the past two years. We ended the quarter with total liquidity of $206 million, which consisted of $156 million in cash and availability under the ABL facility of $50 million. Within our cash balance of $156 million, we had approximately $28 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of approximately $71 million and net cash needs of $34 million for interest costs, maintenance CapEx and other reserves and had $6 million released from previous reserves. As a result, there was $42 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $4.02 per common unit. Looking ahead to the fourth quarter of 2025, we estimate our ammonia utilization rate to be between 80% and 85%, which will be impacted by the planned turnaround currently underway at the Coffeyville facility. We expect direct operating expenses, excluding inventory and turnaround impacts be between $58 million and $63 million and total capital spending to be between $30 million and $35 million. Turnaround expense is expected to be between $15 million and $20 million. With that, I will turn the call back over to Mark. Mark Pytosh: Thanks, Dane. Harvest is currently on schedule and nearing completion. The USDA is estimating yields of approximately 187 bushels per acre on 98.7 million acres of corn and inventory carryout levels of approximately 13%. Soybean yields are estimated to be 54 bushels per acre on 81 million acres planted with inventory carryout levels of 7%, although the soybean numbers will likely be impacted by ongoing trade friction with China. Both of these carryout estimates are at or below the 10-year averages. Grain prices have remained at the lower end of the last 12-month range, driven primarily by expectations of large crop production in Brazil and North America this year and potential trade disputes where the purchase of grains may be used as a negotiating tool and reaching trade agreements. December corn prices are approximately $4.30 a bushel. In November soybeans are approximately $10.90 per bushel. The Trump administration and congressional leaders have indicated they intend to provide a subsidy program for farmers to help offset lower grain prices and higher input costs. Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry. In the third quarter, Ukraine continued to target nitrogen fertilizer plants and export infrastructure in Russia, after the large planting seasons in the U.S. and Brazil and the loss of production due to geopolitical factors fertilizer inventory levels across the industry have been tight and are taking time to replenish. We expect these conditions to persist into the spring of 2026. The wildcard continues to be the potential for tariffs on Russian fertilizer imports that could have significant impacts on pricing in the near term. Natural gas prices in Europe have been steady since our last earnings call and remained around $11 per MMBtu currently, while U.S. prices continue to range between $3 and $4 per MMBtu. As we near winter, Europe has refilled its natural gas inventories at a lower level than normal and there's a risk of prices moving higher if the winter is cooler than expected. The cost of produced ammonia in Europe has remained durably at the high end of the global cost curve and production remains below historical levels, which has created opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faced structural natural gas supply issues that will likely remain in effect through 2026. We are nearing the completion of the planned turnaround at our Coffeyville facility. In the early phases of the turnaround, we experienced an ammonia release, which we currently anticipate could delay the completion of turnaround work by a few days relative to the original schedule. We expect the facility to resume full production in the next few weeks. As a reminder, we are currently planning for a 35-day turnaround at our East Dubuque facility in the third quarter of 2026. At our Coffeyville facility, we continue to work on a detailed design and construction plan to allow the plant to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third-party pet coke. This project could also expand Coffeyville's ammonia production capacity by up to 8%. We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. These include water quality upgrade projects at both plants and the expansion of our DEF production and load-out capacity. The goal of these projects is to support our target of operating the plants at utilization rates above 95% of nameplate capacity, excluding the impact to turnarounds. The funds needed for these projects are coming from the reserves taken over the last 2 years and the board elected to continue reserving capital in the third quarter. While the Board looks at reserves every quarter, I would expect them to continue to elect to reserve some capital and we anticipate holding higher levels of cash related to these projects in the near term as we ramp up execution and spending, which we will -- we expect will take place over the next 2 to 3 years. The third quarter continued to demonstrate the benefits of focusing on safety and reliability and performance. In the quarter, we executed on all the critical elements of our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for their safe execution during a few brief outages in the quarter, achieving 95% ammonia utilization and the solid delivery on our marketing and logistics plans resulting in a distribution of $4.02 per common unit for the third quarter. With that, we're ready to answer any questions, Eric. Operator: We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rob McGuire with Granite Research. Robert McGuire: Could you, Mark, go back to the Coffeyville natural gas feedstock project? I apologize. But can you just -- I think I missed, when do you anticipate that to start. And are you at a point where you can talk to us about total cost for the project and what you expect in terms of returns? Mark Pytosh: I'm not ready to talk about finalizing the final cost and returns yet. We're in detailed engineering. So we need to kind of confirm some things about that in terms of configuration or reconfiguration and the infrastructure needs, but everything looks like it's kind of penciling out the way we thought it would. And that's -- it's a combination project to be clear. Part of it is taking additional hydrogen from the refinery. The refinery has a reformer unit. So we are talking about taking additional hydrogen from the refinery plus replacing -- potentially replacing pet coke as a feedstock for a portion with natural gas. But the hydrogen component would be an increase in our production capacity. So it's a combination project that includes the ability to replace feedstock plus bring additional hydrogen, which means additional ammonia capacity. That's what I've been referring to in my comments about up to 8% increase in our production capacity. So we have been reserving for that project. And so we will have the capital available set aside for that. And I'm expecting by the next call to be able to talk with more specifics on that project and moving ahead there. But so far, all the engineering work that's coming back in the construction plans look on track with what we thought what the original plan was. Robert McGuire: I appreciate that. And shifting gears, any concerns about drought conditions impacting ammonia runs in this ammonia application season. . Mark Pytosh: Not in the markets where we're placed. We've had some moisture here in the last week, particularly the big ammonia run for us is up in the Northern Plains around East Dubuque, and there was -- there's been moisture. So I actually -- I think conditions are as close to perfect as we could predict because we've had -- the harvest is basically complete there. So we've emptied the fields. The soil temperatures are down and moisture come in, in the last week. And that combination is about perfect conditions. And I'm expecting a big fall ammonia run. The customers are telling us that we have a good book of business already, but people are coming in now with additional cash orders. And so I expect really a good fall ammonia run. So I'm very optimistic. Robert McGuire: Wonderful. And I mean, kind of just moving forward to that question is just how significant of an impact do you think it will be for the acreage to be down this coming season, at least on anticipated acreage? And is it simply that inventories are down, supply is tight, so you're not concerned at all about selling your volume at elevated prices? Or will there be an impact maybe even on imports? Mark Pytosh: I'm -- so there's a couple of different layers to the answer to that. Number one, we've been expecting that we were thinking that the acreage -- corn acreage, this is corn acreage would drop next year. I'm not sure now based on -- I'm still reading what happened this morning over in Korea with Trump and Jae, but the feeling in the marketplace is that the corn acreage won't drop as much, because there's concern about what is the what are the end markets for soybeans. And so maybe there's going to be more corn acres just on a defensive approach to protect against trade, trade war behavior. And so I actually think that the corn acreage might surprise on the upside versus a drop -- a lot of people were talking about drop to below 90s, which is still great. That's a great corn run. But it may not drop as far, because I think farmers are of the belief that maybe the end markets will be restricted for soybean exports. So we may end up with a better answer there. I would tell you that if you look at the inventory balances, we're already -- we're tight and I think lower acreage given where we are from an inventory perspective, probably won't impact us much in '26 as it normally would, because quite frankly, there's a rush to try to replenish what we have -- and you probably saw the announcement that Nutrien has shut down one of the Trinidad plants, which is an importer to the U.S. And so that's going to affect the replenishment time frame. So I'm not terribly concerned about the acreage. We watch it closely. But right now, I think the market is in a position to absorb that. Robert McGuire: That's really interesting. And then with regards to the Trinidad and just looping Russia on imports, are you seeing an impact in the marketplace on those imports at this point in time? Mark Pytosh: We have not seen any impact on Russian imports. In fact, Russia is the -- particularly like in UAN, Russia is the marginal producer in the marketplace, and they've been exporting to the U.S. in size. So there's been no effect. The fear factor in the market is if there's somehow a tariff or sanctioning of fertilizer coming to the market, that could be a big event from affecting supply. And so that's a fair factor. But we haven't seen any signs. But during the course of this year, even with all the geopolitical events, there's been no restriction on the imports of Russian and I'll focus more on UAN, but there's urea, too. But Russian UAN has been a big factor in the U.S. Robert McGuire: Well, that's really helpful. And Mark, last question, and I certainly won't hold you to this, but I'd love to hear what your outlook is for the price of ammonia, UAN and urea heading into fourth quarter. . Mark Pytosh: It's -- we never give out pricing for those products, but it's going to be a solid quarter. And so we've seen a strong market since the UAN fill season and the ammonia prepay. So pricing will be higher in the fourth quarter versus 3Q, which it normally would be. So we'll see that show up in the results. And I'm optimistic. I'm not ready to prognosticate on pricing for spring, but I'm optimistic about the supply-demand balance and what we're going to see there. So I expect this kind of these sorts of market conditions to carry through the first half of '26. Operator: Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments. Mark Pytosh: Well, thanks, everybody, for participating in the call today, and we look forward to reviewing our fourth quarter results with you in February. Have a nice day. Operator: Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.