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Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Cloudflare Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Phil Winslow. Phil? Philip Winslow: Thank you for joining us today to discuss Cloudflare's financial results for the third quarter of 2025. With me on the call, we have Matthew Prince, Co-Founder and CEO; Michelle Zatlyn, Co-Founder and President; and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement as well as our supplemental financial information may be found on our Investor Relations website. As a reminder, we will be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors and partners, operations and future financial performance, our anticipated product launches and the timing and market potential of those products, our anticipated future financial and operating performance and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance and are subject to risks and uncertainties, much of which is beyond our control. Our actual results may differ significantly from those projected or suggested in any of our forward-looking statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings with the SEC as well as in today's earnings press release. Unless otherwise noted, all numbers we talk about today, other than revenue, will be on an adjusted non-GAAP basis. You may find a reconciliation of GAAP to non-GAAP financial measures that are included in our earnings release on our Investor Relations website. For historical periods, a GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few moments ago. We would also like to inform you that we will be participating in RBC's Global Technology, Internet, Media and Telecommunications Conference on November 18 and Needham's 6th Annual Tech Week on November 24. Now with that, I'd like to turn the call over to Matthew. Matthew Prince: Thank you, Phil. We had an extremely strong Q3. We achieved revenue of $562 million, up 30.7% year-over-year. Great companies innovate and execute, and I think we owe our reacceleration of revenue growth to doing both of these things very well. We now have 4,009 large customers, those that pay us more than $100,000 per year, a 23% increase year-over-year. Revenue contribution from large customers grew 42% year-over-year, contributing in total 73% of our revenue during the quarter, up from 67% in the third quarter last year. Our dollar-based net retention was 119%, up 5 percentage points quarter-over-quarter. Our gross margin was 75.3%, within our long-term target range of 75% to 77%. We delivered an operating profit of $85.9 million, representing an operating margin of 15.3%, and we generated strong free cash flow of $75 million during the quarter, again exceeding expectations. Our go-to-market transformation, evolving from purely product-led growth to true enterprise sales continue to track along. Growth in net capacity of our sales force grew at its fastest pace year-over-year in more than 2 years. Sales productivity increased year-over-year for the seventh consecutive quarter. Close rates ticked up notably both year-over-year and quarter-to-quarter. Bookings from partner-initiated opportunities doubled year-over-year. Gross retention levels increased year-over-year and quarter-to-quarter. And new pipeline attainment again exceeded our expectations. Across the company, the team is firing on all cylinders. One bit of disappointing news is that CJ Desai is going to be leaving Cloudflare. CJ called me some time ago to talk about an opportunity he's been approached to be the CEO of an exceptional public technology company. He was torn because he loved his team, the work and the mission at Cloudflare. But since his first job in technology over 25 years ago, he dreamed one day of being the CEO of a great public company. We talked through the opportunity, his career goals and what's great and not so great about being a public company CEO. In the end, while I'm sad to see him go, I'm excited for him to get to helm his own ship. I want to give CJ an opportunity to say something on this call, in some ways, as practice for his many earnings calls to come. CJ? Chirantan Desai: Thank you, Matthew. This was an extremely hard decision for me as I love the team and mission of Cloudflare, and I see incredible opportunities ahead. I really appreciate the support as I figured out what was right for me. This job at Cloudflare is the coolest Product & Engineering job in tech today. And I will help ensure whoever feels the seat next will be world-class. I'm incredibly bullish, as you know, on Cloudflare's future. I'll miss you all, but will always be among your biggest fans. Matthew Prince: Thanks, CJ. I appreciate how you brought a customer-first focus to Cloudflare's already powerful innovation engine. That's made us a better company able to win bigger deals. It's now part of our DNA that you deserve credit for having helped shape. And while I'm bummed you're leaving, I'm proud that Cloudflare is a place that has trained the leaders of other great technology companies. You're our second product leader in a row to be recruited away to be CEO somewhere awesome. We can't say yet where you're going, but they're lucky to have you, and I have no doubt you'll bring some of Cloudflare's relentless culture of innovation to them. With that out of the way, let's talk about some of our wins in the quarter. A Global 2000 digital media platform expanded its relationship with Cloudflare, signing a 3-year $22.8 million pool of funds contract for application services and workers. This contract marks the culmination of a powerful comeback story. We actually lost this customer to a competitor in 2016, but the Internet and Cloudflare evolved. We earned their trust back in 2023, starting with our Zero Trust portfolio. During 8 months of testing before signing this deal, our world-class security, unmatched product breadth and powerful Workers platform ran circles around the incumbent. But that's not the whole story. The decisive factor of the win was AI. This customer looked at the landscape and correctly identified Cloudflare is the only company building the essential platform to protect and manage content for the emerging AI-driven web. This strategic win established us as the customer's clear forward-looking partner and creates a direct on-ramp for Pay Per Crawl, which could transform Cloudflare from a vendor they pay for services into a powerful revenue generator for their business. We and they believe that this is what the future looks like. A leading European technology company expanded its relationship with Cloudflare, signing a 5-year $34.3 million contract, representing an upsell of $6.8 million for Workers platform and application services. This customer is fully redesigning their architecture to move their front end on to Workers and Durable Objects. The decision to commit to a 5-year term underscores the customer's view of Cloudflare as a critical long-term strategic partner. A rapidly growing media platform expanded its relationship with Cloudflare, signing a 3-year $15 million contract for Workers and Application Performance. This customer was experiencing significant egress fees, high latency for its global customer base and vendor lock-in with a hyperscale public cloud provider. Moving to Cloudflare will enable data to be processed and served closer to their end users, delivering superior performance and eliminating egress fees. With our unified platform, this customer will be able to drive down their total cost of ownership by more than 30%. A Fortune 500 financial technology company expanded its relationship with Cloudflare, signing a 2-year $16.1 million pool of funds contract with an upsell of $4.6 million for application services and workers. As a textbook land-and-expand journey across 3 apps, this customer started with Cloudflare's application services in 2022, expanded with our Zero Trust platform in 2023 and has been adding a number of products from our Workers platform over the last 2 years. Another Workers deal is already underway for AI use cases. A Global 2000 European pharmaceutical company expanded its relationship with Cloudflare, signing a 3-year $12.4 million contract with an upsell of $4.5 million. This is a great example of platform adoption as the customer is utilizing products from our first 3 apps, application services, SASE and Developer. This customer views Cloudflare as a critical strategic partner choosing to displace services from 2 hyperscale public clouds and multiple-point solution providers because according to them, "It's so much easier to build on Cloudflare." A U.S. cabinet-level agency expanded its relationship with Cloudflare, signing a 2-year contract exceeding $20 million for our complete FedRAMP portfolio. The agency is standardizing its network and security platform on Cloudflare, displacing over a dozen legacy point solutions and generating more than $10 million in annual cost savings. We are seeing more traction than ever before across U.S. government as it looks to modernize its digital infrastructure. A Fortune 100 financial services company signed a 3-year $4 million contract for Magic Transit and Advanced Magic Firewall. Recent outages, capacity limitations and a lack of automation features with 2 legacy incumbents left this customer with DDoS vulnerabilities at their network layer in a time when we're seeing new record-breaking DDoS attacks every few weeks, like the nearly 30-terabit per second attack we mitigated earlier this month. Cloudflare won because our fundamental architecture advantage gives us literally 4x the capacity of all our scrubbing center-based competition combined. As the Internet gets scary and scarier, customers are realizing Cloudflare is the only network engineered to survive. A global industrial company signed a 3-year $2.2 million contract for a complete SASE portfolio, including Access, Gateway, Browser Isolation, CASB, DLP, Magic WAN and Magic Firewall to consolidate and modernize their security stack. We're displacing a first-generation Zero Trust vendor as well as a legacy on-premise VPN provider, which were expensive and difficult to maintain across their global operations. This customer chose Cloudflare for the operational simplicity of our unified platform that delivers both superior performance and significant cost reduction. A global web infrastructure platform expanded its relationship with Cloudflare, signing a 14-month $1.2 million contract for AI Crawl Control and Bot Management. This customer is experiencing a massive surge in AI scrapers and malicious bots hitting their origin servers, inflating costs without revenue conversion and obscuring visibility into legitimate traffic. They selected Cloudflare for our innovative best-of-class bot blocking capabilities in addition to seamless expedited deployment by our deep platform integration. We're already exploring a much larger opportunity with this customer for Pay Per Crawl. We talked last quarter about how the rise of AI would impact media companies. Cloudflare has emerged as a strategic partner to these firms as they work through what the new business model of the Internet will be. But it goes beyond just media. Businesses of all shapes will be transformed by the rise of AI. I don't think people yet appreciate how AI is another massive information consumption platform shift, just as we move from consuming information via a browser on a desktop to social media and then to apps on mobile devices, AI is another information consumption platform shift. It changes where and how we will consume and interact with information. With the last 3 platform shifts, the business model of the Internet remains the same: create content, generate traffic and then sell things, subscriptions or ads. With AI, for the first time in a long time, the fundamental business model is going to change. Human eyeball traffic is unlikely to be the currency of the Internet's future. We already can see glimpses of that future. It's represented in SciFi. When George Jetson asks his helpful robot Rosie for a recipe for cookies, the response isn't 10 blue links to hunt through. It's a recipe for cookies. Most of us are increasingly living in some version of that future now with tools like ChatGPT, and it seems inevitable that more and more commerce will be facilitated by AI-powered agents working on our behalf. As that happens, new questions will arise. What happens to small businesses? What happens to brands? Brands, of course, are just shortcuts for humans to be able to assess quality and value. What do they mean in the world of agentic commerce? I don't know what the future business model of the Internet will look like, who the winners and losers will be, but I do believe Cloudflare will help shape it. We estimate 80% of the leading AI companies already rely on us. A huge percentage of the Internet sits behind us. The agents of the future will inherently have to pass through our network and abide by its rules. And as they do, we will help set the protocols, guardrails and business rules for the Agentic Internet of the future. And we'll make sure the tools to participate in that future are available to all businesses, large and small. It's what we've always done. Again, we don't know exactly what the future will look like, but I believe Cloudflare will be one of the key players helping shape it. What we are playing for is a world with as many AI companies, media companies and businesses, large and small, competing fairly to best serve customers anywhere and everywhere they and their agents transact. I'm really excited for that future, and I'm optimistic about it. But to bring it back to the present, let me hand it off to Thomas to walk through this quarter's financials. Thomas, take it away. Thomas Seifert: Thank you, Matthew, and thank you to everyone for joining us. We are pleased with our strong third quarter results that underscore how our strategy for delivering continued innovation and accelerating growth while also maintaining a relentless focus on operational excellence is working. Revenue growth accelerated for the second consecutive quarter to 31% year-over-year, providing clear evidence of the momentum building in our business. We complemented this robust growth with a highly balanced operating plan, investing significantly in our innovation pipeline and expanding our go-to-market capacity while simultaneously remaining committed to the strong unit economics of our business to drive operating leverage and deliver compounding shareholder value. Turning to revenue. Total revenue for the third quarter increased 31% year-over-year to $562 million. From a geographic perspective, the U.S. represented 50% of revenue and increased 31% year-over-year, which is up nearly 10 percentage points sequentially. Growth in the U.S. region was primarily driven by strength with partners, our workers developer platform and large customers, including pool of funds. EMEA represented 27% of revenue and increased 26% year-over-year. APAC represented 15% of revenue and increased 43% year-over-year. Turning to our customer metrics. In the third quarter, we had approximately 296,000 paying customers, representing a record net addition of nearly 30,000 paying customers sequentially and an increase of 33% year-over-year, driven by an uptick in customers, including those graduating from the free tier to small paid accounts for developer platform products around our AI Week and birthday week. We ended the quarter with more than 4,000 large customers, representing an increase of 23% year-over-year. Revenue contribution from large customers increased to 73% of revenue during the quarter, up from 67% in the third quarter last year. We again saw particular strength in our largest customer cohorts. For the fourth consecutive quarter, we added a record number of our largest customers year-over-year, those that spend over $1 million and $5 million with Cloudflare annually. Accelerating sequential and year-over-year revenue growth from both of these cohorts served as a significant tailwind to our expansion business. As a result, our dollar-based net retention rate accelerated to 119% during the third quarter, up 5% sequentially and 9% year-over-year. Moving to gross margin. Third quarter gross margin was 75.3%, remaining within our long-term target range of 75% to 77% and representing a decrease of 100 basis points sequentially and a decrease of 350 basis points year-over-year. During the third quarter, paid versus free customer traffic again increased both year-over-year and quarter-to-quarter, resulting in a higher allocation of expenses to cost of goods sold from sales and marketing. Our Workers developer platform continues to deliver outsized growth with the world's most innovative companies increasingly adopting Workers for running AI inference tasks as well as building AI agents and full stack applications. While the relative revenue contribution across our 4 Acts can impact near-term gross margin, the unit economic margin of our business remains very consistent. Network CapEx represented 14% of revenue in the third quarter. We expect network CapEx to be approximately 13% of revenue for full year 2025. Turning to operating expenses. Third quarter operating expenses as a percentage of revenue decreased by 4% year-over-year to 16%. Our total number of employees increased 16% year-over-year, bringing our total headcount to roughly 4,800 at the end of the quarter. Sales and marketing expenses were $201.2 million for the quarter. Sales and marketing as a percentage of revenue decreased to 36% from 37% in the same quarter last year. Research and development expenses were $82.5 million in the quarter. R&D as a percentage of revenue decreased to 15% from 16% in the same quarter last year. General and administrative expenses were $53.5 million for the quarter. G&A as a percentage of revenue remained consistent at 10% compared to the same quarter last year. Operating income was $85.9 million, an increase of 35% year-over-year compared to $63.5 million in the same period last year. Third quarter operating margin was 15.3%, an increase of 50 basis points year-over-year. Turning to net income and the balance sheet. Our net income in the quarter was $102.6 million or diluted net income per share of $0.27. Free cash flow was $75 million in the quarter or 13% of revenue compared to $45.3 million or 11% of revenue in the same period last year. We are comfortable with consensus free cash flow estimates for the fourth quarter of fiscal 2025. We ended the third quarter with $4 billion in cash, cash equivalents and available-for-sale securities. Remaining performance obligations, or RPO, came in at $2.143 billion, representing an increase of 8% sequentially and 43% year-over-year. Current RPO was 64% of total RPO. Moving to guidance for the fourth quarter and full year 2025. For the fourth quarter, we expect revenue in the range of $588.5 million to $589.5 million, representing an increase of 28% year-over-year. We expect operating income in the range of $83 million to $84 million, and we expect an effective tax rate of 20%. We expect diluted net income per share of $0.27, assuming approximately 377 million shares outstanding. For the full year 2025, we expect revenue in the range of $2.142 billion to $2.143 billion, representing an increase of 28% year-over-year. We expect operating income for the full year in the range of $297 million to $298 million, and we expect an effective tax rate of 20%. We expect diluted net income per share over that period to be $0.91, assuming approximately 370 million shares outstanding. In closing, the strength of our third quarter results confirms that our strategy to deliver continued innovation with accelerating growth and strong unit economics is driving significant and measurable value. At the beginning of the year, we committed to reaccelerating revenue growth over the course of 2025 on the way to our goal of achieving $5 billion in annualized revenue by the fourth quarter of 2028. Our performance over the last 2 quarters demonstrates that we are effectively executing against both of these objectives. In fact, we expect to reach a $3 billion annualized revenue run rate in the fourth quarter of 2026 on our journey to $5 billion and beyond. This trajectory reinforces our conviction in our strategy and our ability to deliver exceptional long-term value for our shareholders and customers. Before opening it up for questions, I would also like to extend my personal thanks and congratulations to CJ. The processes, discipline and leadership bench she established at Cloudflare will enable our innovation engine to continue to scale well beyond his tenure. All of us at Cloudflare with CJ continued success in his next chapter. And with that, operator, please poll for questions. Operator: [Operator Instructions] And our first question today comes from the line of Matt Hedberg with RBC Capital Markets. Matthew Hedberg: Congrats on the results. And CJ, we look forward to hearing about your future role. Matthew, there were a lot of strong metrics this quarter, but 43% RPO growth that accelerated. I think that was the highest RPO growth that you guys have reported since 2022, certainly stood out. I'm wondering if you could provide a bit deeper dive into what drove that acceleration this quarter. Matthew Prince: Yes. I'll start, and I think Thomas can probably add to it as well. I think we try to be a place that says what we do and do what we say. And so I think the real thing that's happening is we are transforming from being a product-led growth company to being a true enterprise sales company. So you're seeing the average tickets tick up. You're seeing the large deals tick up. And that's driving just success in taking what have always been exceptional products and getting them in the hands of customers. And so I think our sales team deserves a lot of credit for really just driving great execution. Thomas Seifert: What I would add is we are -- I think the RPO growth points to primarily 2 drivers, the customer quality and the platform expansion. We are seeing exceptional strength with our large customer cohorts, specifically those that spend more than $1 million or $5 million with us, both delivered record growth this quarter. And in addition to that strength is increased consumption of our large pool of fund customers, demonstrating I think, the increasing strategic importance of our platform for those large enterprises globally. And in addition to that, our Workers platform, the developed platform, including Workers AI is just providing to be a significant new vector for long-term commitment and with that growth. Matthew Hedberg: That's great. Actually, could I double-click just Thomas, you mentioned the pool of funds, and I know you mentioned in your prepared remarks. But specifically, like how is that showing up in the results? You introduced that several, I think, years ago at this point now. But how is that driving some of this as well? Thomas Seifert: The share of pool of funds deal this quarter was again up. It's now low double digits of total ACV. And we are seeing now across our pool of Funds contracts an extremely balanced consumption of these contracts. On average, we're slightly ahead and that delivered to the strong performance in the quarter. So if you have a platform like ours with more than 55 revenue-contributing products now, you need a vehicle that allows frictionless adoption and consumption of these products. And I think the sales team and the organization at Cloudflare has become quite good at deploying these contracts and driving consumptions with customers. Matthew Prince: The other thing that I'd add is I think where we saw downward pressure on things like dollar-based net retention as we rolled out pool of funds. As those pools are now getting consumed, you can see our dollar-based net retention is ticking back up. And so I think pool funds will show up in RPO, pool of funds as it initially puts downward pressure on things like dollar-based net retention, but you can see that, that's now ticking up again. And so just to reiterate what Thomas said, these are an indication of customers trusting us as a strategic vendor, making larger, bigger bets on us, and it is an undoubtedly positive sign for us as a strategic vendor to more and more large customers. Operator: And our next question comes from the line of Adam Borg with Stifel. Adam Borg: Maybe for Matthew, on the sales productivity gains, it's been great to see that continue. Are we at a point now where these gains are beginning to flatten out? Or is there still room for this to continue to trend higher in the coming quarters? Matthew Prince: I think that we think that these will continue -- that the productivity will continue to tick up in coming quarters. I think that the caliber of the team that we're bringing on, their ability to sell much larger deals, all of which contribute to having a much higher productivity from the sales team. And so we think that there is still headroom there. And then I think importantly, in addition to that headroom, we've turned the corner starting last quarter on having the ramped rep capacity also ticking up again. So I think we've gotten through what was a period of time where we really needed to revamp the sales team, and we're -- and now we're seeing the benefits of that coming out the other side. Adam Borg: That's great to hear. And maybe just as my follow-up, it was really interesting to see a few weeks back the integration with Oracle OCI that was announced. Maybe talk a little bit about what advantages does it provide to those OCI customers? Matthew Prince: Yes. So we're really excited to work with Oracle. They've been a terrific partner for us over the years. They evaluated Cloudflare's products and realized that we were really the best of breed for what they could offer to their customers. And so Cloudflare will be natively available within Oracle's OCI platform, including across hybrid, multi-cloud and OCI hosted workloads, which gives us access to a large pool of customers and gives Oracle's customers access to Cloudflare's world-class tools. I think one of the things that we're particularly aligned on is that we and Oracle both see the future as a multi-cloud future, where customers are going to have many different cloud providers. And what they need is one consistent interface where they can apply security rules, have consistent network performance. And Cloudflare is the best in the world at doing that. And so I think the fact that we have been able to work with Oracle, integrate our products directly into Oracle and Oracle's customers are going to be able to enjoy the benefits of that. That's great for us, but it's also great for Oracle, and we're excited to have them as an even more deeply integrated partner. Operator: And our next question comes from the line of Gabriela Borges with Goldman Sachs. Gabriela Borges: Congrats on the quarter. Matthew and Thomas, I wanted to revisit your comment from earlier in the year about doubling your network capacity this year. So my question is, do you think that you're capacity constrained in Workers? To what extent are the capacity decisions that you're making this year essentially dictating a range of outcomes on what Workers revenue could be next year? And I know you have some really interesting thoughts on fungibility of workloads between CPUs, older gen GPUs and newer gen GPUs. So I would love to hear your comments there as well. Matthew Prince: Sure. I don't think we're capacity constrained because of somewhat the nature of how we've architected Cloudflare and the philosophy of how we make CapEx and network investments. We always have tried to invest behind demand, not ahead of demand. And the thing that allows us to do that is that what we are selling is not a particular box in a particular place or a fraction of a particular box in a particular place. What we're selling is the ability to get work done across our network. And so Cloudflare itself is effectively a giant scheduler where we can move workloads to wherever we have capacity anywhere in the world. And the nature of the network is that it's always somewhere it's the middle of the night, and there's always excess capacity there. Now that's not ideal, but the good news is that for some of our smaller customers or low-end customers or free customers, we can move them to places across the network that has that free capacity, still gives them a great performance. but then reserve the capacity that we have as close as possible to our largest customers. As we see that growth, that then means that we can invest behind it and be able to just make sure that we're getting the most utilization possible. The other thing that I think is unique about us is that certainly versus the hyperscalers, the primary business of the hyperscaler is to essentially rent you a server or a fraction of a server, and they try to effectively get whatever they pay for the server back 5x over the life of the server. That's their business. Whereas we're about, again, getting work done for our customers. We're selling something different, which is a sort of level of abstraction up from that. What that means is that we believe it's our job, not our customers' job to make the utilization rates as high as possible, make our systems as efficient as possible. And so it's been remarkable to see over the last 15 years, how our team has been able to squeeze as much as possible out of the CPU capacity that we have, where we can run that CPU capacity at 70% to 80% utilization and get more out of every CapEx dollar we spend. But what's fascinating is we're sort of speed running the last 15 years now with GPUs, where we're figuring out how to make GPUs multi-tenant, how to make them load and unload models more quickly and driving the utilization of GPUs up substantially. And so that is still well below what we have with CPUs, but we see no reason that we can't get GPUs also up to that 70%, 80% utilization. And that, again, just means that every CapEx dollar that we spend, both can be behind the demand that we see. And then secondly, that we'll get more out of it, more effective value out of it for the services that we're delivering our customers versus some of the legacy hyperscaler models. Thomas Seifert: The additional point I would make is in addition to what Matthew said is that the supply chain within Cloudflare is so optimized to a large degree because we use off-the-shelf equipment and parts that we can deploy hardware, especially in Tier 1 cities and generate revenue even before we start to pay for the equipment. So not only do we have the flexibility that Matthew described really well at length, our reaction time to deploy hardware where we need it is really, really fast. Gabriela Borges: That makes sense. The follow-up is on competition for Cloudflare in the enterprise for securing those inference workloads and winning those inference workloads in particular. Matthew, I would love to hear you comment how do you think competition is evolving in the enterprise as you build out some of the breadth and depth of your functionality? And on the flip side, are you seeing anything new from newer platforms, newer cloud platforms that are AI native or inference focused? Matthew Prince: I think that the primary competition for inference workloads continues to be the hyperscalers. And it continues to be the model of do you want to do this work yourself and have to optimize yourself or do you want to hand it off to Cloudflare. And I think in the cases where we're in the conversation, we're able to show that there's just a much better TCO, total cost of ownership, a much lower cost, much better performance when we manage that for you. And so there's kind of a standard way people do things, which is the hyperscaler way. We're having to teach them that there is a different way that's out there. But the primary competition still comes from the hyperscalers. And I think that we are finding, though, that once somebody learns that there's a better way that Cloudflare is very, very sticky, and we keep those customers over the long term. Operator: And our next question comes from the line of Shaul Eyal with TD Cowen. Shaul Eyal: Congrats on the quarterly results. So many new product announcements in recent weeks during Cloudflare Connect and Birthday Week. Specifically, Matthew, I wanted to ask about NET Dollar. We have received many questions about this product. It could become a meaningful long-term growth driver. How should we think about the regulatory framework around it? And what has been maybe the early reception kind of out there? And maybe along these lines, my follow-up will be maybe a word about AI gatekeeper. I know you started discussing it more vocally last quarter. Lots has changed over the past few months. You've indicated some initial activity, some contract wins around the guardrails from publishers and AI companies. So can you talk to us about what has changed in recent months? And is there anyone else out there emerging with a similar offering? Matthew Prince: So let's start with NET Dollar. So as we have really interacted with AI companies, but also the merchants and media companies and the real long tail of the Internet, much of which sits behind us. What we realized was that as we move into a world of agentic commerce, we're going to need a currency to pay for the commerce that is done between agents that is really designed specifically for that task. And that's the spirit with which we started the NET Dollar project. Now we're not -- we're unlikely to do it entirely ourselves for some of the regulatory reasons that you're familiar with, but there are lots of opportunities. And if you think about someone like Stephanie Cohen on our team, who is very familiar with the challenges of working in the financial services space, I think we're approaching it in a thoughtful way and are confident that we can execute in a way that is both going to help facilitate agent-to-agent commerce and be something that it fits well within any of the regulatory regimes that we have both in the U.S. and around the rest of the world. At the same time, that is only one of our bets in this area. And I think a little bit the way that we're thinking about this is that we want to be the Babel fish of AI, sort of the universal translator, whether you're using MCP, the Anthropic protocol or Google's version of it or Microsoft's version of it, Cloudflare supports all of those. And so I think in addition to the excitement that we've seen around NET Dollar, I am equally excited about the partnerships that we're doing with Coinbase around X402, with Visa, Mastercard, American Express, around how you can create agent-to-agent payments. And I think that Cloudflare is a network, and what you want networks to be able to do is facilitate the ability for connection to happen and do it regardless of what makes sense. So we think there are potentially some advantages to what we're building with NET Dollar, but we're not all in on any one of these things. We want to make sure that we support everything, and we can meet both customers and merchants and media companies, small, large, everything in between, wherever it is that they exist. And I think that's something that is unique about our approach. It's actually very similar to the answer to the previous question. We really do believe in multi-cloud and that we can be the facilitator of that. We also believe that there are going to be multiple different ways to pay. There are going to be multiple different agentic protocols, and they are going to be hopefully many, many, many AI companies interacting with many media and businesses to create a more frictionless and AI-powered future of commerce. And I think that we see ourselves in the center of that. In terms of sort of gatekeeper, so we have a product that's called AI Gateway. I don't think that's what you're asking about. I think you're asking about the product around us thinking about how do we help media companies figure out a new business model for the future. I think that, yes, I think that's going just extremely well. Like the number of media companies that are signed up and engaged is powerful. We're hearing from them about how the deals that they are able to do with AI companies have gotten markedly better, and we are getting a lot of praise for that. There will be others that compete with us in this space. But I think one of the things that has really set us apart is -- and this is thanks to our over time, just significant investment in public policy and the side of the house that maybe doesn't always get as much attention. But I think we have been thought leaders in thinking about what does the future business model of the Internet look like. And that is getting us into a number of different conversations. And as we have done that, it's been clear that it's not just traditional media companies. But frankly, at banks, the research departments they're a little nervous because they're seeing ticks down in the amount of research that people are paying for because the AI companies are slowing that up. So that's open conversations with financial services companies. We're seeing challenges with brands that are worried about what does a brand mean in the future of Agenta commerce. We're seeing challenges from small businesses. And I think one of the things that I am passionate about is how do we make sure that as this new paradigm, as this new platform emerges, how do we make sure that everybody has a fair shot to be able to participate in it. And so we will continue to do what we always have done, which is make our tools available to everyone, large and small. Operator: And our next question comes from the line of Fatima Boolani. Fatima Boolani: Matthew, I wanted to ask you about the AI native ecosystem. It is embryonic, but on an absolute tear, there's so much capital flowing into the space, and you have taken a very active interest in bringing these AI natives on to the Workers and Workers AI platform. So what I wanted to ask you specifically was, can you help us think about the AI native exposure that you have today in the business? Anything that we should worry about from a concentration standpoint at this present time? And then maybe at a higher level, some of the engagement that you are seeing from a pool of funds perspective, how much of that is drawing in more AI-native eyeballs specifically because of the differentiation that you provide from an architectural standpoint at the edge for AI inferencing? Matthew Prince: Yes. So I think that even though we're excited about AI and AI inference, it is still a relatively de minimis portion of our overall revenue, growing fast, but not -- I don't see any current concentration risk that's there. And what we're seeing is actually sometimes it's not the inference products that initially get interest from the AI native companies. It's actually the security products. And the reason why is the cost of AI, every query can be so high that making sure that you don't have fraudulent queries running through your system is critical in order to make sure that you can continue to operate cost effectively. And so many of the AI companies, we estimate that about 80% of AI companies use us in one way or another. But a lot of the times, that's using us for actually securing some of our -- really our Act 1 products. And then we are working on getting more and more of them to use the inference products as well. In terms of what we can do that others can't do, I think you're absolutely right that being able to be close to users is important for a latency perspective. And that's -- and when you have human computer interaction, especially with something that is seems almost alive when you're interacting with it. Every millisecond counts because it breaks that illusion if things slow down, especially as you get to things like voice communication and other things that need to have kind of a natural rhythm to them. And so I think we're well positioned for that. But in addition to that, because of the fact that we are taking the responsibility for driving utilization, and we're better at that than most customers are on their own, we can often, in addition to giving better performance, also give a lower cost of functioning. And again, I think that, that keeps us in a pretty healthy space. And so I have no doubt that there's going to be kind of ups and downs in AI over the coming months and years. But it's clear to me that there is something very, very real here that it is going to be transformative that a lot of inference will run on your handset or your driverless car directly there, but that if it can't run there, it needs to run somewhere else, the next best place for it to run is in the network. And Cloudflare is the only network that gives you that capability on a global basis today. And I think that, that's going to continue to allow us to win workloads regardless of what happens to AI generally. Thomas Seifert: One comment I want to make, just to make sure we have no misunderstanding. When we say de minimis, we mean that no customer is bigger than 2% of revenue. Operator: And our next question comes from the line of Mark Murphy with JPMorgan. Mark Murphy: So Matthew, we noticed that Cloudflare is upgrading its security to be quantum safe so that data stays protected even when quantum computers eventually arrive, whenever that's going to be. I'm wondering if you can just describe the work you're doing? And do you think this is more of a long-term science project that won't matter for, say, 5 to 10 years? Or do you think it's something that could have some implications in the medium term? And then I have a quick follow-up. Matthew Prince: Yes. I have sort of mixed feelings on quantum, where I think there's a sort of a lot of fear, uncertainty and doubt in the marketplace where people are going to say on quantum changes everything and it's going to be apocalyptic. That is not my opinion. I think quantum changes some interesting things. I think it's likely that you'll have more efficient package delivery that you'll be less likely to be delayed on your flight. And it does -- it will cause problems for some of the older generations of cryptography. But that's a very solvable problem. And I think the thing that is unique about Cloudflare is that we have the scale on the content side to help figure out what the right solution is. And so we have partnered in the past and are continuing to partner with Google, who has scale on the eyeball side with Chrome browsers to be able to figure out what is a future-proof version of cryptography that will stand up even as we eventually have powerful quantum computers. And so we've worked together. We helped submit the data that went back to the Internet Engineering Task Force, the IETF and to NIST to standardize some of the new protocols that have been released. We have rolled that out across our entire network for every customer, whether they pay us or not, because we believe that everybody should have the foundational levels of the best of security at no cost. And as you all upgrade your browsers on your phones and your laptops, all of them now are supporting post-quantum cryptography. The reason it's important to do now, even if we don't think that there are going to be quantum computers that can factor giant numbers, which is what you need to do in order for it to affect cryptography is the risk of storing the data. So if you just hoovered up a bunch of Internet data and then held on to it, you could, in the future, replay that and decrypt it. And so for most of our customers, like it's no big deal. Like if your credit card number today gets compromised 10 years from now, it doesn't really matter because your credit card number has probably changed several times in that period of time. But for some of our customers, including the U.S. government cabinet level agency that we did a renewal with, this is incredibly important. And the reason it's important to do it broadly is you need to make sure that you're doing it in a way which is still fast, isn't burning a ton of battery life on phones. And what we can do in partnership with organizations like Google is actually roll out real-world tests and prove that it's possible and cost effective to do it. So I think -- I don't think science project is the right thing. I do think forward leaning is the right thing. And I think it is an example of how Cloudflare is always trying to live up to our mission of helping build a better Internet. Mark Murphy: Yes, that is pretty fascinating. Just as a very quick follow-up. You mentioned egress fees I think last call and again, this call, I should say, the elimination of egress fees. It feels like you're winning some real business that's partly tied to that. Can you just touch on the economics that, that would unlock for the customer by removing those fees? Matthew Prince: Yes. I mean, so egress fees are the cost that -- when we talk about them, the cost that hyperscalers charge you every time your data leaves their system. And hyperscalers have been notorious at keeping egress fees high. And it's actually one of the places where there's the most leverage because at scale, bandwidth becomes extremely inexpensive and really gets close to being free. And that's a longer conversation than we probably have time for but that's just the fact. And yet, even as the hyperscalers bandwidth costs have dropped and dropped and dropped, they've not passed those savings on to customers. The reason they don't pass those savings on to customers is because they don't want the data to leave. They like to hoard all of a customer's data. And so what we believe is that it's the right thing to let customers take their data wherever. We believe that a multi-cloud universe is the right universe. And so products like R2, which is our object store, allow customers to take their data, their heavy object data that they usually have to pay a lot for if they have to move it around and move it onto our network where they can move it anywhere they need and be able to access it. And so I think that what we're trying to do is say customers should be able to use whatever combination of clouds makes sense for them and that Cloudflare is the network that connects them all together and gives them the controls they need in order to do so safely, securely, efficiently, reliably and quickly. Operator: And our next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Jackson Ader: The first one, Matthew, certainly losing CJ is a real loss, even if it is a great opportunity. And I'm just curious, whether you feel comfortable with the bench that he leaves behind and how you kind of ensure maybe that he either is or will be replaceable? Matthew Prince: Yes. So first of all, I mean, CJ is terrific. And we can't talk about where he's going, obviously, but they are lucky to have him. And while we are bummed that he's leaving, I'm also really proud and excited for him. And this has definitely been a career goal of his for a long time. And so I'm glad that he's found his way to what I think is an outstanding technology company that he'll be leaving. What's the good news for us is that when CJ came in, he actually didn't make many changes or even hire all that many people to Cloudflare. He looked around our engineering team and said, these are exceptional engineers. These are exceptional product leaders. What they need is someone who can come in and really focus them on being customer obsessed. And CJ has done a great job of implicating that customer obsession into our product and engineering team. And that's something that we're not going to forget. But there isn't -- I don't think that there's a significant flight risk of people fleeing because they came for CJ and now CJ has gone. They came for Cloudflare. CJ was great as a member of Cloudflare. And I think that, that bench continues to be strong. And then both CJ as well as our team, now that we've got the news out of the way, I think that this is the most exciting job if you're a product or engineering leader anywhere in the world working in tech, you get to help build the future. You get to help invent what the business model of the future of the Internet is going to be. There is nothing that is more exciting than that. And so I think we'll have -- CJ is one of a kind, but we will have no trouble finding someone else who is world-class. And I think the thing that will be the real legacy of CJ is that you will have taught us how important in product and engineering being customer-obsessed is and whoever comes next, I bet that's going to be something that you'll say, wow, that person has that quality as well. Jackson Ader: Okay. That makes sense. And then a real quick follow-up. Matthew, you mentioned earlier the move from a product-led growth company to more of an enterprise company. The other side of that coin is now seasonality matters, right? We're heading into a fourth quarter. If you're selling more enterprises, that makes December all that much more important than prior December. So I'm curious about how the pipeline has built through the year and what you're kind of expecting as you're going into a more enterprise-ready fourth quarter than is typical for Cloudflare. Thomas Seifert: Let me get started, and Matthew can jump in. We gave the guidance we gave for the fourth quarter in light of what we are seeing. So we are very encouraged by the pipeline buildup for the fourth quarter, but guidance and foreshadowing what is going to come is more than just pipeline. We look at sales productivity. We look at the net sales capacity we add. We look at the motion and velocity in the developer business and all the indicators that we are currently seeing are reflected in how we guide for the quarter. So pipeline is encouraging, but there are more factors contributing to the picture we have of what is in front of us. And you heard from both of us that we are quite optimistic in how we look at the future. Matthew Prince: Yes. And we've had -- we have lived with some level of seasonality for quite some time. You can see that historically, Q4 performs more than earlier quarters. But having gotten pipeline review meetings, I think we feel very good about where the coverage is for what we have in Q4. And again, it's just part of the journey of being more and more of a true enterprise sales company. Operator: And our final question today comes from the line of Mike Cikos with Needham. Michael Cikos: Matthew, first for you. I just wanted to see, can you please provide an update on the trends you're seeing in the SASE market specifically? Would just love to get an update on traction you're seeing out there as well as how the competitive landscape is changing, if at all, from where we were a couple of months ago. Matthew Prince: Yes. I mean I think our SASE product when we're in consideration is performing extremely well. We don't see significant changes in the competitive landscape. We think we are very competitive. I think the biggest change for us has been just a kind of the proverbial forehead slapping moment of just looking at Netskope's S1 seeing that 95% of their sales are through channel, seeing the same thing for a while, we thought that, that was sort of an aberration for Zscaler and realizing the way that you sell these products is through partners. And so we are doubling down on that. You see that we're seeing a significant uptick in the partner-led opportunities. We have always, I think, had good kind of willingness to partner, but we haven't always made it as easy as possible to partner with us. I think we're cleaning that up and doing a good job getting that in shape. And that, I think, will be the big unlock for those products to be able to be sold. And those are critically important products for us because their gross margins are so high. And so as we're seeing strength in parts of our business like Workers, the best way to balance that out is also sell SASE as well because, again, it's something that has just extraordinarily high gross margins to it. Whereas products like Workers, the gross margins are good and will get better and better over time. But because they are newer products, they're not as optimized in that space. So I think this is a really opportune time, and I'm excited about sort of the partner-first strategy, especially with our SASE products. Operator: And with that, I will now turn the call back over to CEO and Co-Founder, Matthew Prince, for closing comments. Matthew? Matthew Prince: I just want to thank our entire team for an incredible quarter. It takes a ton of effort of people executing, of people innovating and us being able to deliver results like this. Thank you so much and we'll see you back here again next quarter. Operator: Thanks, Matthew. And that concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Welcome to the Flushing Financial Corporation's Third Quarter 2025 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer; and Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Treasurer. Today's call is being recorded. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its Investor Relations website at flushingbank.com. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and/or the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. John Buran: Thank you, operator. Good morning, and thank you all for joining us on our third quarter 2025 earnings conference call. We're pleased to report strong third quarter results, continuing on the momentum we achieved in the first half of the year despite macroeconomic uncertainty and reflecting the considerable progress we've made on our 3 key focus areas: to improve profitability, maintain credit discipline and preserve strong liquidity and capital. Our team has remained focused, consistently executing on these objectives. For the third quarter, the company reported GAAP earnings per share of $0.30 and core earnings per share of $0.35. Core earnings improved 55% from a year ago. Turning to our financial highlights on Slide 3. We showed improved results throughout our business. Net interest margin expanded 10 basis points quarter-over-quarter with GAAP net interest margin increasing to 2.64%, while core net interest margin expanded to 2.62%. We saw improvement from the first quarter of this year and 55 basis point growth from last year's third quarter core net interest margin. We also demonstrated stable to improving credit metrics this quarter, reflecting the strength of our conservative underwriting approach. Net charge-offs totaled 7 basis points for the third quarter, improving 15 basis points from the second quarter of this year. Nonperforming assets as a percentage of total assets were at 70 basis points compared to 75 basis points in the second quarter of this year. During the third quarter, we also continued to see noninterest-bearing deposit growth, which increased 7.2% sequentially. Average noninterest-bearing deposits increased 2.1% quarter-over-quarter and 5.7% year-over-year. This strong operating performance also strengthened our balance sheet. Our tangible common equity ratio remained stable in the quarter at 8.01%, increasing 101 basis points from the third quarter of 2024. Our liquidity remains strong with $3.9 billion of undrawn lines and resources as of September 30, 2025. While there's more work to be done, we're pleased with our execution to date, while the real opportunity lies ahead as our loan portfolio reprices upward in 2026 and 2027. I will now turn it over to Susan to discuss this and other news. Susan? Susan Cullen: Thank you, John. We continue to focus on improving profitability, the first key focus area in our strategy. As John mentioned, both GAAP and core NIM expanded 10 basis points quarter-over-quarter, demonstrating the benefit of our asset repricing strategy. Real estate loans are expected to reprice approximately 147 basis points higher throughout 2027, which should drive further net interest margin expansion. We continue to see additional growth in our noninterest-bearing deposit base, which is a key focus area with our revised incentive plans emphasizing this important funding source. We are also continuing to invest in the business, both in our people and our branches in order to keep driving core business improvements. Given this, we expect capital to grow as profitability improves. On Slide 5, we provide further details on our net interest margin expansion. Core net interest income increased by $8.6 million or a little over 19% year-over-year, demonstrating our increased earnings power. Key drivers of the NIM quarter-over-quarter include loan and security yields increasing 8 basis points and 15 basis points, respectively, which was partially offset by a 4 basis point increase in interest-bearing liabilities, which was driven by swap maturities. Episodic items, which include prepayment penalties, net reversals and recovered interest from nonaccrual delinquent loans, fair value adjustments on hedges and purchase accounting adjustments were higher in the third quarter compared to the second. We remain confident that in the long term, loan pricing should drive NIM expansion, assuming no change in the current flat yield curve. A positively sloped yield curve will aid net interest margin expansion, while negatively sloped curve will make margin expansion more challenging. Slide 6 illustrates one of our most significant embedded earnings drivers, the contractual repricing of our real estate loan portfolio. For the remainder of 2025, approximately $175 million of loans are scheduled to reprice at rates 128 basis points higher than their current coupon. Through the end of 2027, approximately $2 billion of loans or about 1/3 of all of our loans are scheduled to reprice at significantly higher rates, providing substantial predictable tailwind for our net interest income. Contractually and on an annualized basis, net interest income will increase $2 million from the fourth quarter of 2025 repricing, $11 million from the 2026 repricings and $15 million from 2027 repricings. To demonstrate this point, as of June 30, 2025, $96 million of loans were due to reprice in the third quarter. We successfully retained 80% of these loans at a weighted average rate of 6.65%, 222 basis points higher than the prior rate, and there aren't any loans in this bucket that are nonaccrual. This clearly speaks to our strong client relationships and our disciplined pricing and confirms the earnings power embedded in our loan book. Our deposit franchise remains a key pillar of our funding profile. As seen on Slide 7, average total deposits were $7.3 billion. Our strategic initiative to grow core relationships are continuing to pay off. The revamped incentive plans we've previously discussed, which emphasize noninterest-bearing deposit accounts, are delivering tangible results. Average noninterest-bearing deposits increased approximately 6% year-over-year. We continue to closely watch our funding costs as the overall cost of deposits increased slightly quarter-over-quarter to 3.11%. In late September, we reduced the rate on approximately $1.8 billion of deposits 20 to 25 basis points with the full benefit expected to be recognized in the fourth quarter. We continue to see opportunities to lower deposit costs over time as the Fed reduces rates. Total CDs are $2.4 billion or 33% of total deposits at quarter end. Approximately $770 million of CDs with a weighted average rate of 3.98% will mature in the fourth quarter, and our current CD rates are 3.40% to 3.75%. Our second area of focus, as shown on Slide 8, is to maintain credit discipline. We continue to operate with a low-risk profile built on conservative loan underwriting standards and our long history of low credit losses. We have enhanced our focus on relationship pricing and are seeing positive results from these efforts. As Slide 9 illustrates, we have a long proven history of net charge-offs significantly better than the industry, characterized by strong debt coverage ratios. Our conservative underwriting standards and credit culture has been proven through multiple rate and economic cycles, and we are committed to having a low-risk credit profile. Our multifamily and investor commercial real estate portfolios maintain strong debt coverage ratios at 1.7x. Even when we stress test these ratios for higher rates and increased operating expenses, the debt coverage ratio remains strong. In a stress scenario with both a 200 basis point increase and a 10% increase in operating expenses, the weighted average debt coverage ratio is approximately 1.36x. In all scenarios, the weighted average current loan-to-value is less than 50%. Slide 10 shows how our noncurrent loans have been outperforming the industry for well over 2 decades and throughout numerous credit cycles. Flushing Financial has a proven track record of industry-leading credit quality. Our borrowers maintained low leverage with the average loan-to-values in our real estate portfolio of less than 35%. We have only $67 million of real estate loans with a loan-to-value greater than 75% and about $18.5 million of those have loans with mortgage insurance as of September 30, 2025. Our strength rests in the quality of our loan portfolios. There's a growing need for affordable housing in the New York City area. As detailed on Slide 11, in our $2.4 billion multifamily portfolio, nonperforming loans were just 53 basis points. Criticized and classified loans in this segment improved to 66 basis points compared to 73 basis points in the prior quarter and are 16 basis points in the first quarter. The portfolio maintains a very strong weighted average debt coverage ratio of 1.7x based on the most recent financial data from our loan portfolio review group for the rent-stabilized multifamily loan portfolio. Further details are included in the appendix. Slide 12 provides perspective on the positioning of our rent-stabilized portfolio compared to recent market data. Ariel Property Advisors published a report for the third quarter sales, which provides great insight into the strength of our rent-stabilized multifamily portfolio. This slide details the facts supporting our level of confidence in concluding that there is a minimal risk in the rent-stabilized multifamily portfolio. This slide shows the average sales price in each of the [ neighborhoods ] for the third quarter actual sales of rent-stabilized multifamily units, including sales under duress, providing an accurate reflection of true market value. For example, in the Bronx, the average sale price for each individual apartment was approximately $98,000, while our carrying value is approximately $60,000, implying equity of $38,000 per individual apartment. This conservative positioning provides substantial equity cushion and validates our disciplined underwriting in this portfolio segment. Slide 13 provides peer comparison data and our current multifamily credit quality statistics. Our criticized and classified multifamily loans to total multifamily loans are 66 basis points, which compares favorably to our peer group. 30 to 89 days past dues are 71 basis points. Nonperforming loans are 53 basis points of total multifamily loans. Our multifamily allowance for credit losses to criticized and classified multifamily loans improved to 74 basis points, demonstrating appropriate reserve levels. During the third quarter, $49.4 million of multifamily loans were scheduled to reprice or mature. Approximately 71% of these loans remained with the bank and repriced 250 basis points higher to a weighted average rate of 6.5%. With these credit metrics, we see limited potential risk and loss content. Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans. The investor commercial real estate portfolio has 111 basis points of nonperforming loans and 155 basis points of criticized and classified loans. These metrics provide a clear representation of our conservative investor commercial real estate portfolio. Finally, on Slide 15, our third area of focus is preserving our strong liquidity and capital. We maintain an ample liquidity position with $3.9 billion in undrawn lines and resources at quarter end. In the third quarter, average noninterest-bearing deposits increased 5.7% year-over-year and 2.1% sequentially. Our reliance on wholesale funding remains limited due to our strong deposit levels. Uninsured and uncollateralized deposits represent only 17% of total deposits, providing a stable and reliable funding base. Our tangible common equity to tangible assets ratio was 8.01% at September 30, 2025. In summary, the company and the bank remain well capitalized, and our strong balance sheet and resources give us the financial flexibility to invest in our strategic initiatives designed to support our continued growth. With that, I'll now turn it back over to John. John? John Buran: Thanks, Susan. Our strong financial results that Susan just went through are the result of our continued strategic execution throughout the course of the year. A key driver of our franchise growth is our focus and commitment to the Asian banking communities we serve. Here on Slide 16, you can see that due to our targeted efforts, we have grown these deposits to $1.4 billion. This represents an 11.3% compound annual growth rate since the third quarter of 2022. Currently, about 1/3 of our branches are in Asian communities with more to come in the future. With only a 3% market share in this $47 billion market, we continue to see tremendous opportunity to grow. Our growth in this market segment is aided by our multilingual staff, serving our customer base, our Asian Advisory Board and our active sponsorship of cultural activities within this vibrant community. Now let's turn to our outlook for the remainder of the year on Slide 17. We expect total assets to remain stable for the remainder of 2025 with loan growth being market dependent as we stay focused on improving our overall asset and funding mix. We expect to see normal historical funding patterns during this time. There are a number of factors related to our outlook for net interest margin. First, we have $770 million of retail CDs at a weighted average rate of 3.98% to mature in the fourth quarter. The rate on September CDs that were retained was 3.54%. There's an opportunity to continue to reprice nonmaturing deposits lower. Second, we have $175 million of loans scheduled to mature or reprice upwards of 128 basis points in the fourth quarter. Lastly, we have no swap maturities for the remainder of the year. Noninterest income should continue to benefit from our healthy pipeline of approximately $59 million in back-to-back swap loans scheduled to close by the end of the year. We expect banking services fee income to benefit in the quarter as these loans close. BOLI income is expected to total $2 million per quarter. We are maintaining our disciplined approach to expenses and continue to expect core noninterest expense growth 4.5% to 5.5% for 2025 compared to the 2024 base of $160 million as we continue to invest in the company. Lastly, we are expecting an effective tax rate of 24.5% to 26.5% for the remainder of 2025. In summary, on Slide 18, our key takeaways for the quarter reinforce the meaningful progress we made in all areas of our strategy. First, we continue to improve profitability with another quarter of both GAAP and core NIM expansion, each growing 10 basis points. Other factors supporting this are real estate loans, which are expected to reprice approximately 147 basis points higher through 2027. Additionally, there are opportunities to lower deposit costs. We are continuing to invest in our people and branches to drive core business improvements. At the same time, we remain focused on improving ROAE over time. We expect capital to grow as our profitability improves. Second, we are maintaining our credit discipline. Our portfolio is 91% collateralized by real estate with an average LTV less than 35% Further, our weighted average debt service coverage ratio is 1.7x for multifamily and investor commercial real estate loans, while criticized and classified loans are 111 basis points of gross loans. Our Manhattan office buildings exposure is also minimal at 0.48% of gross loans. Lastly, we're preserving our strong liquidity even as we grow capital. As of September 30, 2025, we have $3.9 billion of undrawn lines and resources. At quarter end, uninsured and uncollateralized deposits were 17% of total deposits. At the same time, average noninterest-bearing total deposits increased 5.7% year-over-year, and our tangible common equity ratio stood at 8.01%. Our third quarter results clearly show that we've executed on our 2025 plan in all areas of focus. Our profitability is improving even as we maintained exceptional credit discipline and preserve strong liquidity and capital. We intend to keep executing on these priorities as we move forward and build even greater long-term value for our shareholders. Operator, I'll turn it over to you to open the line for questions. Operator: [Operator Instructions] The first question comes from David Konrad with KBW. David Konrad: Just want to talk a little bit about the NIM, maybe a starting point next quarter, even if you're kind of have to give us some sort of range, but a couple of specific questions would be, I think you had 9 bps in the NIM of kind of miscellaneous fees and things versus 6 last quarter. Should we think about maybe losing the 3 next quarter? What's kind of a, if you will, normal run rate there for those types of benefits to the loan yields? Susan Cullen: I think, David, those have been running a little bit higher than they historically have been as we've seen the loans prepay. Yes, I would think they'd still be a little bit elevated, but maybe not as much as we had at the -- for the third quarter. Let me give you the starting point of the NIM for rolling into September. The NIM -- or at the end of September, the NIM was 2.68%. So it was up a few more basis points from the average for the quarter. David Konrad: Got it. And then maybe on the deposit side, you gave us a lot of good information on the CD. Just wondering what kind of deposit beta you would expect on the nonmaturity deposits? Susan Cullen: Not maturity, we would expect to closely mirror what's been happening with the Fed. So we would expect the beta to be very similar to what we had so far in this down cycle. As a reminder, at the very end of September, we lowered the rates 20 to 25 basis points on a $1.8 billion portfolio of deposits that's not fully captured in that 2.68% number that I gave you. David Konrad: Perfect. And then just last question with the Fed moves, I mean, it seems like your balance sheet is positioned to be liability sensitive. Would that be fair? Susan Cullen: It's a little bit liability sensitive. We've moved it more towards a neutral position, but there is a little bit of liability sensitivity that we hope to -- that we will capture. Operator: Our next question comes from Mark Fitzgibbon with Piper Sandler. Mark Fitzgibbon: First question, I guess, Susan, what was the miscellaneous nonrecurring professional expense for like a little over $1 million this quarter? Susan Cullen: So those are related to some year-end strategic planning we've been doing. Mark Fitzgibbon: Okay. So those will all be gone in 4Q or there's more to follow? Susan Cullen: There's probably -- there's more to follow. Mark Fitzgibbon: Okay. And then secondly, I wondered if you could share with us your thoughts on stock buybacks. The stock is trading at 63% of tangible book value, I think, right now. And the balance sheet growth has been -- you've been sort of controlling that or managing that to flattish. Capital ratios look to be optically sufficient to be able to buy back stock. Why not buy back stock at these levels? John Buran: We're really concentrating on maintaining the dividend over time, and we also want to keep capital ready as the opportunities come up to recommence with growth in the portfolio. Mark Fitzgibbon: But I mean, I assume you think the value of the stock is really attractive. And if the market is not recognizing that, why not even shrink the balance sheet some more and take advantage of the fact that your stock is so deeply discounted relative to book? John Buran: Well, I think we want to -- again, we want to be focused. We want to have the opportunity to utilize any excess capital to grow the portfolio in the coming months. Mark Fitzgibbon: Okay. I guess I was just wondering, is the economics more attractive of a buyback versus growth? And I suspect they are today, and it's obviously a riskless transaction. John Buran: Over the long haul, we prefer to be in a position to grow the portfolio. Mark Fitzgibbon: Okay. And then I guess sort of a bigger strategic question, John. Do you worry if you can't get the ROTCE up into that double-digit range soon? I mean there's been so much activism in the industry. Do you worry that that's a risk for Flushing to become kind of a target for an activist? John Buran: Look, I think there's a possibility of that. We clearly are on a path to improve the earnings of the company. And as we said in our opening remarks, 2026 represents a better opportunity than 2025. And 2027, we have $1 billion worth of repricing loans. So we think we're on a very, very strong path to certainly improve the ROAA and ROAE. Mark Fitzgibbon: I guess I'm curious, is there a line of sight in your strategic plan, whether it's 1-year, 3-year, 5-year, where you can get to a double-digit ROTCE or ROE? John Buran: I think in late 2027, yes. Operator: Our next question comes from Steve Moss with Raymond James. Stephen Moss: Maybe following up on the balance sheet positioning here. I know you have $480 million of swaps. And if I recall correctly, they start to mature next year. I'm just kind of curious about the cadence of that maturity and just kind of how you guys are thinking about that. Susan Cullen: So we've been thinking about those. We think about them a lot. We have the ones that are maturing, we have partially repurchased, and we have forwards coming on board that will help to mitigate some of those that are rolling off. Unfortunately, I think those that are rolling off are at a very low cost. So we're not going to be able to capture that 15 basis points or 75 basis points we had, but we have about $80 million worth that are... John Buran: $180 million. Susan Cullen: $180 million, excuse me, that are forwards coming back on. Stephen Moss: Okay. So the impact on the margin is going to be small, relatively speaking, I guess? Susan Cullen: Yes. In the overall scheme of our financial assets and liabilities, yes. But still beneficial. Stephen Moss: Right. Okay. Got you. And then in terms of the balance sheet positioning here, you guys added it looks like some securities late in the quarter and then the loan pipeline being higher here. Just kind of curious, do we think about -- I heard you on the flattish comments, but was there maybe like some of the loans just didn't close in the third quarter? I'm just kind of curious is that on those dynamics there. Susan Cullen: So what we've seen is that we have a book of CLOs, and those are getting called pretty frequently is probably the right word. So we are prefunding some of those calls that we've seen and also the loan pipeline, yes, we did see some things close that we thought we would. So what we've talked about in the past still holds that as loan growth picks up, we'll start relieving some of the investment book. Stephen Moss: Okay. Perfect. And then I guess the -- just one more thing. I hear you on the deposit beta being similar here in the down cycle. You mentioned the 20 to 25 basis point reduction with the September cut. Are we going to be for the $1.8 billion of deposits, is that going to be similar for yesterday's cut? John Buran: I see a good opportunity to do that as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Buran for any closing remarks. John Buran: I want to thank everybody -- everyone for their attention, and we look forward to continuing to engage with you as we go into the fourth quarter of the year. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to the Polaris Renewable Energy Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alba Ballesteros, CFO at Polaris Renewable Energy. You may begin. Alba Ballesteros: Thanks, Hallie. Good morning, everyone, and welcome to the 2025 Third Quarter Earnings Call for Polaris Renewable Energy, Inc. In addition to our press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR+ and our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I would also like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy Inc. and its subsidiaries. These statements are current expectations and as such, are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2024. At this time, I will walk through our financial highlights. Overall, Q3 2025 was a steady quarter for Polaris. Results reflected solid operational execution, disciplined cost management and the second full quarter of contribution from our Puerto Rican wind operations. Together, these factors supported both year-over-year and year-to-date growth in generation, revenue and also adjusted EBITDA, despite production generally being lower in the third quarter of the year, which coincides with the dry season in those countries where the company has hydroelectric plants, and therefore, there is less resource available for energy generation, as is the case of Peru and Ecuador, as well as the rainy or hurricane season, and therefore, we have less radiation or wind in those countries where the company operates solar plants as it is the case of Dominican Republic and Panama and our wind farm in Puerto Rico. So starting with operations. Third quarter consolidated energy production totaled 181,235 megawatts hour versus 168,639 megawatts hour for the same period last year. Consolidated energy production for the 9 months ended September 30 totaled 613,524 megawatts hour, representing an 8% increase as compared to the same period last year. The strongest performance this quarter was achieved by our hydroelectric project in Peru, where favorable hydrology during what is typically the dry season and an excellent plant availability led to a 44% increase, both in Q3 2025 and year-to-date in hydro output for the Peruvian projects. Our hydroelectric facility in Ecuador also had an exceptional quarter, producing 24% more energy in the 3 months ended September 30 versus the 2024 comparative period, thanks to strong rainfall and an excellent technical performance. In Puerto Rico, the Punta Lima wind farm acquired in March added incremental production that did not exist in 2024, and is now fully integrated in our portfolio. In Panama, solar generation in the quarter was 2% higher than in the 2024 comparative period. These increases offset lower output from Nicaragua, where short-term well instability and natural steam field decline earlier in the quarter reduced generation by about 5% for the 9 months ended September 30 versus same comparative period in 2024. Production at our Dominican Republic Canoa 1 Solar Facility decreased 1% in the quarter when compared to the same period in 2024. While year-to-date, the production increased 5% versus the 2024 comparative period, reflecting efficiency gains from the new panels installed in 2024, which allow offsetting grid-wide curtailments. Overall, our diversified portfolio spanning geothermal, hydro, solar and wind across 6 jurisdictions continues to provide balance and resilience in the face of localized resource variability. So turning to the financial results, starting with revenue. Revenue was $19 million during the 3 months ended September 30, which represents an increase of 8% versus Q3 in 2024. Revenue year-to-date was $60.9 million versus $56.9 million in the 2024 comparative period, reflecting higher generation in Peru and Ecuador, as we have mentioned, and the addition of our project in Puerto Rico, the Punta Lima wind farm. Adjusted EBITDA, adjusted EBITDA of $12.8 million for the quarter compared to $12.4 million for the same period last year. And furthermore, for the 9 months ended September 30, the company realized $43.2 million in adjusted EBITDA compared to $41.4 million in the same period last year, reflecting a 4% increase. Operating margins remained strong despite inflationary pressures and the integration of new assets, supported by disciplined cost control and lower insurance expenses following our debt repayment. Cash generation, net cash from operating activities remained robust, with $29.2 million for the 9 months ended September 30, exceeding the same period in 2024 by $3.3 million. The increase mainly reflects the collection in Q3 2025 of the strong Puerto Rican revenues from Q2, which follow a 47-day collection cycle, and the shift from quarterly interest payments from regional loans in 2024 to semiannual bond interest payments in 2025. Net cash used in investing activities for the 9 months reflects the initial $15 million payment for the acquisition of Punta Lima wind farm, while there was no comparative transaction in 2024. Net cash used in financing activities for the 9 months mainly reflects the early debt repayment of 4 credit facilities totaling $120.6 million. Dividend. Finally, we remain committed to delivering shareholder returns. I would like to highlight that we have already announced that we will be paying a quarterly dividend on November 21 of $0.15 per share to shareholders of record on November 10. With that, I will turn the call over to Marc, who will elaborate on Polaris' third quarter results as well as on current business matters. Thank you. Marc Murnaghan: Thanks, Alba. I'll just take a few, call it, operational comments about where we see sort of the rest of the year looking forward. As Alba mentioned, the hydros were stronger than normal in Q3, which is the dry season in those jurisdictions. But we -- and we do see that, at least October to date, continuing. So hydros, we think, will be somewhat stronger than usual in Q4 here as the rainy season has started somewhat earlier than normal. I would say, what's going to offset that a little bit is that those call it, rainier conditions do seem to be also in the solar jurisdictions, DR and Panama. So they're looking maybe a little bit softer. But I would say, the net effect of those 2 things should still be positive in this current quarter. I see San Jacinto, as I mentioned the last quarter, in the 49 to 51 range, which it did. And then I would just -- I'm saying 50 megawatts current quarter, plus or minus a little bit similar. So that -- when I run our numbers, that would bring the quarter in around 195 to 200 gigawatt hours, it would be the current range that we're looking at right now. And just a reminder that -- and that is because we have moved the major maintenance at San Jacinto into January of next year instead of December of this year, just based on some availability of Fuji staff. So that will land in Q1 next year. In terms of really the growth and the developments, the big focus remains ASAP. The update on that is that the contract was submitted by ourselves in LUMA to PREB, which is the Energy Board, a while ago. It was approved by them, and then it went to PREPA. And just to explain -- I'll give a little bit more detail. There's 3 entities that need to approve it there, which is PREB, which is the Energy Bureau, then PREPA, which is the contracting agent. And then after that, FOMB, which is the Oversight Management Board. Basically, we had received PREB. We have PREB approval as of this past Monday, and I would highlight that on September 22, the governor issued an executive order, which was really focused on the energy, call it, emergency situation. It's an acute need for more energy on the island. And in that order, it was really, I would say, directing government entities, whether it's PREB, PREPA or even Ministry of Environment, to expedite approval processes and permitting processes, such that new generation and including storage can get brought on the system quicker than what has traditionally happened in the past. So we are -- while it did take a bit longer than we expected to get this PREB approval, we are expecting things to move reasonably quickly from here on out. What does that mean, though, in terms of -- we would look at likely a Q4 in-service date next year for that. And in terms of the sizing, it has landed on 71.4 megawatts, which was approved as opposed to 80, and that's really just a technical limitation at the interconnect point. So those metrics, based on what we're seeing from the procurement, and we are, I would say, reasonably far along in the procurement process, it would be gross CapEx of about $70 million. But we do still anticipate being able to achieve an ITC on that, and which would bring the CapEx down to a net CapEx of about $50 million. And at that size of 71.4, you'd be looking at EBITDA around the $13 million to $14 million on net CapEx of $50 million, which is about a 3.5 to 4x sort of CapEx divided by EBITDA build multiple. So still very excited about those numbers and hoping to launch the program in this quarter and the next month. We're also hopeful that this won't be the only storage project in Puerto Rico that we do. We've already been asked by LUMA to formally give our intention to move forward with something called SO2, so we're looking at that. And I would also say, given what I mentioned with the executive order, we are talking to several developers on the island -- or with projects on the island for more traditional solar plus storage projects that have contracts or have been awarded approvals for contracts, but they're looking for sort of larger financial partners or operational companies, and this has really come on the radar screen just in the last, I would say, 2 to 3 months. We like these because of what we're looking at on the island as well as they're reasonably chunky. I would say the small ones are $5 million of EBITDA, but we're seeing things in the $10 million to $20 million range. So but with very good, I would say, capital ratios, probably not quite as good as the ASAP program I mentioned, but in the, call it, 5x, which we're still looking at 20-year USD contract. So that's very good return profiles. So that really is, call it, the brownfield focus right now. And I would say that is the focus for the company. I would mention the DR, which we have continued to push on more in the background. It looks like that will get pushed into next year in terms of potential contracting as the government is now saying that they want to look at doing a tender situation instead of bilateral. We would obviously have the ability to participate in that. And I think we'd be in a good shape for that, but we do need to wait likely 'till next year. So what that means is really pushing the Puerto Rico projects in front of that. Balance sheet is strong with $99 million of cash. We did repurchase another 27,000 shares in the quarter in Q3 and continue to in Q4 here. So I guess the -- it is somewhat slower coming with the ASAP project, but we're very confident it is coming. And with these other projects that we're looking at, I do see a situation quite quickly here where we will be using up that spare capacity on the balance sheet that we have and hopefully then some. So really, I would say, over the next 12, 15 months here, the story would be steady as she goes from an operating perspective, but a big and expected big pickup in what I call development and construction activities and news flow. And I would say, as we as we move forward on ASAP and as we move forward with hopefully 1 or 2 other projects next year, and we will, for sure, I would say, be giving more market updates and press releases as we move forward with these projects. So it will be more sort of -- call it, newsy on the development and construction activities next year. And I think it's important because those will be very material for the company. And then, call it, financial results on the back of those coming in 2027 and 2028. So with that, we can open up for questions. Operator: [Operator Instructions] Your first question for today is from Baltej Sidhu with National Bank of Canada. Baltej Sidhu: Could you -- it's great to see the progress with SO1, but could you just remind us of, one, the comparability of SO1 and SO2 as it pertains to the attractiveness for Polaris that you -- with the infrastructure you may have to leverage with the implication of SO1 that would be in place? Marc Murnaghan: So the technical difference on the island is just SO1 was only for people that have a current operating interconnect agreement in place. And in other words, you had to have some generation facility with an interconnect. SO2 is really open to either the same group, which is some people that have an interconnect or anybody that just has a new development. So you have a new project without an interconnect, you could then participate. So it's really the same terms for us. The only difference is we need to up our transformer capacity, but on a, call it a $60 million, $70 million project, that's only a $2 million or $3 million CapEx item for us. So it's essentially the same type of economics. Baltej Sidhu: And the transmission capacity would be there that you would have, right? Marc Murnaghan: Yes, the transmission capacity on the sort of downstream on the line is about 130, 140 megawatts, and we're sort of -- the first ones really 35.7x2, that's a 71. So we have a fair amount of -- we could probably triple it from here. Baltej Sidhu: Great. Great. And then might be too early, but is there any impact to pricing that we could see you relative on SO2 versus SO1? For PPA, sorry. Marc Murnaghan: Well I think pricing might be higher because the way that they do things on the island, typically for a traditional solar, let's say, is that any interconnect costs and system upgrades that are needed for new project rather than the transmission company or the distribution company paying for that and charging it to the rate base, the developer actually has to finance that. And so it comes into the cost of the PPA, let's say. So for SO2, though, the assumption is that there will be participants that don't have an interconnect yet. So they will have to finance and build that. And so compared to SO1 with existing interconnects. So if anything, the price should be somewhat higher. I don't think it would be -- well, it could be instead of 16,000 megawatt per month, [ 18 to 20 ]. We don't know that yet. I don't think they've landed on it, but I think if anything, it would have to be somewhat higher. And the good news there is the backdrop of still, I'd say, very competitive activities in the actual -- the lithium battery cost curve, that's probably going to continue, right? So still to be determined, I would say, the worst case scenario is it would be the same type of economics. Baltej Sidhu: Very interesting. And then looking forward to hearing those organic updates over the course of next year. And just switching over to, as you noted, the capacity that you have on the balance sheet and the ability to leverage that for organic development. How are you thinking about the inorganic growth and the M&A side? Could you point towards any color that you see on the M&A pipeline and/or valuations in the regions in which you operate? Marc Murnaghan: Yes. And then just to be clear, when I said we're talking to the local developers with brownfield, I wouldn't put that in the M&A bucket, even though it's kind of in between. I would put that still more in the brownfield development side. But in terms of M&A, which I would also just suggest is probably a little bit comes on the back of us actually, I think, putting some runs on the board in terms of ASAP and probably some other development projects, I would say. But multiples, I would say, came down more like 6, 12 months ago to, I think, a reasonably attractive level. I think they've kind of leveled off there. So if I had to put super high-level numbers on things, I would just say if you -- let's say, you take ASAP at 4. Let's say, you take 4x, I'm talking -- this is a build multiple. Probably these other development projects we're looking at are [ 5, 5.5 ], same as the DR. I've seen sort of more actual operational with contracts, running assets in the M&A side in the jurisdictions we're in, anywhere from 6.5x to 8x. Operator: Your next question is from Nick Boychuk with Cormark Securities. Nicholas Boychuk: In Puerto Rico, can you comment a little bit on the competitive dynamics? So you mentioned that there's these local developers with brownfield opportunities. How many other players in the space could potentially be having these conversations to develop these? And I guess, once you have that conversation, how fast do we then move through permitting, construction and getting these things operational? Marc Murnaghan: Yes. I don't know, obviously, with 100% certainty, who else is out there, but it definitely seems like there's the dynamic of you have a few big players on the island with operating assets that wouldn't be interested in the stuff we're looking at. And you have a lot of, I would say, call it, local developers that don't have the financial capacity. For people in the middle that are looking at, I would say, again, projects that once they're up and running have from $5 million to $20 million of EBITDA. We do know of one player that was definitely there and in the game, but they are not anymore. So it does seem like it's really opened up for us from that perspective. Nicholas Boychuk: Okay. Understood. And would it be a similar dynamic in the Dominican? I appreciate that it's been pushed back a little bit by a year, but could you theoretically also have similar activity in that country? Marc Murnaghan: Yes. I would say, I think interestingly, the DR might be a little bit more competitive for us in the midrange than Puerto Rico. So the flip of that is that Puerto Rico does seem to be quite open right now. And I think it's a weird -- the Dominican, you actually -- a bunch of, call it, credit is available because it's a "developing country." So you have a whole bunch of lenders that would maybe fund a smaller developer to get a project off the ground. That doesn't exist in Puerto Rico because it's part of the United States. So that -- it's almost more of a capital issue in Puerto Rico as opposed to how many competitors are there, if you understand what I'm trying to get to, like Puerto Rico, it's just -- there's a big issue with getting capital for these small developers to get a $50 million, $100 million project off the ground, whereas there's a little bit more availability in the DR for that, even though I would say it's not as if there's a bunch of other competitors that are a similar size to us in that market. It's just that the option of them to maybe get it further along to get construction going. There's a little bit of a better chance in the Dominican, which is a little counterintuitive, but that's what we see. Nicholas Boychuk: Okay. Got it. And then I appreciate that the return profiles on the M&A. You said it was 6.5x to 8x versus the [ 5 to 5.5 ] for something that you'd be building brownfield. So better returns if you do brownfield. But just cognizant of your internal resources, your own abilities internally to develop these things simultaneously in given time. Is there a point where you recognize you could leverage more of your balance sheet and acquire something now, add incremental EBITDA and have a meaningful impact on shareholder value in the near term versus trying to maximize the return profile? How are you thinking about the difference between time to getting these built and maximizing the near-term shareholder value? Marc Murnaghan: Good question. I would say, believe it or not, the -- call it, the senior management time to do, let's just say, real due diligence on operating assets, legal side of things, operational side of things on the front end, maybe not the back end. Once the operations are there, I would say, streamlining them into yours isn't a huge deal. There's always issue, but it's not a huge deal for us. I would say, at the front end. So to your point, where there's going to be a bottleneck would be more that we are doing, call it, the late-stage development on ASAP ourselves, right? If we partner with some developers, we're going to be doing -- we're going to be heavily involved in that late-stage development/construction and procurement, which I think is very similar to the M&A side of things. So it might seem it's easier. But I'd say, it's at the front end where there's a potential bottleneck. And we could -- but we can, for sure, do 2. It might get a little bit harder at 3, but believe it or not, like I think we could do all -- like we can for sure do 3, like we could do ASAP, we could do a development, a new development in Puerto Rico now also because we're there. It's not as if it's a new jurisdiction for us. So we -- our conversations with the authorities on some of these other projects that are right after we've talked to with ASAP. So I do think we can handle that. It would be different if it is a new jurisdiction. And some of the M&A stuff, I think at the front end, we could do it as well. So I don't think it's necessarily an either/or. Nicholas Boychuk: Okay. So just to confirm my understanding, you could do ASAP one, develop something else in Puerto Rico and then one or the other of a DR or M&A type project? So theoretically, 3 different things on the go at the same time, call it, $10 million to $15 million in EBITDA for each and all of that could potentially be wrapped up by 2028? Marc Murnaghan: Yes. I think that the -- in our presentation, we sort of show a 5 year, but it's just safe to 2029, that EBITDA by [ $100 million, $100 million plus ]. What we're looking at right now is I think we could, let's just say we're flat for the next 12 months operationally, but we will be doing things since that '28 number, I think, can get very close to that. It's a big step up. So the '28 number is looking very close to the '29 number that we have in the presentation. Operator: Your next question for today is from Theo Genzebu with Raymond James. Theophilos Genzebu: Just a couple of quick questions. So just on the curtailments at Canoa 1 and the expected curtailment now at Canoa 1, the delay of the interconnection for Canoa 2. I guess, is there like -- how are you engaging like with the government to address the -- to address these? Is there anything that can be done on, I guess, by talking to the government there? Marc Murnaghan: Yes. I think I'd say a fair amount of conversation where it just always goes to is that, yes, we're going to -- we need storage. So they very much acknowledge that. And so this is my comment about they're likely -- as opposed to doing a bilateral negotiations, which we were looking to do, which was going to be put panels, but also put a reasonable storage capacity there such that you're switching, call it, a problem challenge into at least an opportunity or at least you hedge yourself off with the storage. And so they see that, but they don't -- they acknowledge it. They're just -- they want to get the regulation set and they're likely to do a tender next year, and that's really how they're planning on dealing with it. Theophilos Genzebu: Got you. And then I guess it's safe to say that it doesn't really impact like, I guess, how you guys think about future development in the Dominican? Marc Murnaghan: Well, I think what it does do is it -- I've probably bumped up the percentage of storage coverage that I think we need, from maybe 25% to 40%. But I think that -- yes, I think it's a "problem" now, but I think it will end up morphing into an opportunity when they're ready, and I think that will be next year at some point. Theophilos Genzebu: Okay. Great. And then I guess just one more for me. And just on the regulatory time line of Puerto Rico for this ASAP storage program. I understand, you expect the approvals within the next 60 days. Just in your opinion, is there any possibility of further delays to that? Or it's pretty much we expect? Marc Murnaghan: Yes. Well, I can't say no to that. I mean, I think that the -- this island is known to have very good projects, but we need to play the patience game, so I think it's possible. But I would say with this September 22 executive order by the governor, the entities do seem to be very responsive right now. So it's probably as good as we can expect in terms of that time line for Puerto Rico. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your lines at this time. Thank you for your participation. Marc Murnaghan: Thank you. Alba Ballesteros: Thank you, everyone.
Operator: Good day, and thank you for standing by. Welcome to the Prosegur Cash Q3 2025 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Javier Hergueta, CFO. Please go ahead. Miguel Ángel Bandrés Gutiérrez: Good morning to everyone, and thank you for joining us today. I'd like to welcome you all to our 2025 Q3 results presentation, led by our CFO, Javier Hergueta, and myself. The presentation should take around 30 minutes, during which we will review key developments affecting our business and its performance. We'll after move on to review our key financials, followed by an update on our transformation strategy, as well as main developments by region. We'll then end up with conclusions before opening a Q&A session. Should we not get to respond to everything today, we'll get back on any open topics on an individual basis. I want to again thank you all for attending, and remind you that this presentation has been prerecorded, and is available via webcast on our corporate web page at www.prosegurcash.com. Before handing over to Javier, as we always do, I would like to share some interesting cash news in different geographies. They range from the use of cash in Latin America, the need for improving cash servicing in the U.K., a major disruption on multiple digital payment systems or the sustained demand for banknotes during major crisis. These aspects covered by the mentioned article show many of the unique attributes of cash that are not replicable and only stress its vibrancy and relevance. First, we can read from electronic payments company, Mastercard. The cash is the most widely used payment method in Latin America, being used by over 60% of respondents. And being some reasons for such a high adoption rate, it's unique convenience and the security it provides to the end user. I would like to highlight from this article 3 elements of relevance to us. First, it underlines unique characteristics cash has as a payment mean, such as its convenience and its security. Second, that it refers to Latin America, our most relevant geography, and where cash has a particularly strong role to play. And third, that it comes from Mastercard, whose business interest is contrary to the use of cash. The second piece of news, we can read from The Guardian in the U.K. referring to some latest surveys that indicate that over 70% of people in the United Kingdom support the use of cash. It underlines that the recent growth it's experiencing is leading to some businesses not having sufficient capacity to serve their end customers' cash requirements. It's particularly important to note 2 aspects. One, new to this presentation, the continuous growth in cash usage in the mature U.K. market; and second, that cash needs a certain minimum infrastructure to be run in an effective manner. To this end, we must remind the developed economies as the U.K. are commencing to actively protect and promote it. In the third piece of news, we can read from CNN about the critical outage at Amazon Web Services that took place early last week. Because of it, for several hours, thousands of services were down, and millions of users were affected across the globe from the U.S. to Spain. Many of the services disrupted, ranged from online banking, electronic payments, shopping or the travel industry. It reminds us of how fragile the internet's backbone critical for multiple digital payment transactions is. It as well sets a clear message on -- to why a solid cash-based infrastructure is fundamental to assure the correct functioning for our economies. Lastly, we can read from the European Central Bank on some important lessons on the unique role that physical notes play across crises. It emphasizes the demand for banknotes has been amplified by sharp increases in public demand during major crises, highlighting the unique role and attributes of physical cash. Again, it's a Central Bank that handles the unique features cash brings to the system when it comes to assuring its reliability and its trustworthiness. These crises have occurred often in the past and seem to become only greater relevance and increased frequency as we advance towards an ever more uncertain future. All of the above news just underline that cash is strong and will become stronger in different regions of the world for its unreplaceable characteristics. After this brief news update, I'll share today's agenda. Firstly, Javier will review the periods highlights, then he will share with us the key financials for the quarter, followed by an update on our transformation initiatives. Then I'll share key developments by region. And finally, Javier will conclude with main takeaways before opening the Q&A session. Please, Javier? Javier Hergueta Vázquez: Thank you, Miguel. Good morning to everyone, and thank you for joining our Q3 review. I want to highlight the key events that have taken place in the period, characterized by despite a strong currency impact a solid underlying performance that continues to allow us to keep deleveraging. Sales in euro terms reflect a 2.3% reduction when compared with the same period a year ago. This is despite the fact that organic growth has been sustained at almost 7% in the period, but such growth has been offset by an over 10% negative currency impact. This impact has been especially negative in LatAm and Asia Pacific, connected to the evolution of the U.S. dollar versus the euro. By regions, it is particularly outstanding to see the growth of our Asia Pacific countries by well over 20%. If we turn to profitability margins, we can observe that EBITDA stands at 11% of sales. It's important to indicate that the efficiency program we announced 3 months ago continues to take place. If we are to isolate these and show up our pro forma profitability, EBITDA margin stands at 11.8%, in line with the one experienced 1 year ago. As we travel down to P&L, we reached a net income of EUR 67 million that implies an improvement of 1.6% versus 2024. This signals that despite the efficiency program I just mentioned, and the effect of currencies in the top part of our P&L, the lower part is able to more than recover both aspects, showing the resilience of our performance. Turning to transformation, it now reaches 35.1% of total sales, this implies a growth in euro terms of 6.8%, at the same time as they accelerate their penetration over total sales by over 300 basis points. This certifies the very positive progression of our innovation strategy in order to have the most solid company into the future, and most importantly, how welcomed it is by our customers. Fourthly, free cash flow for the period totals EUR 76 million, which allows for a total net debt reduction of over EUR 60 million on a last 12 months' basis and enables us to maintain a stable leverage of 2.3x total net debt-to-EBITDA ratio. These figures clearly show the resilience of our business model, our ability to generate cash, and our strong financial discipline. Lastly, I'd like to underline that we have recently issued a EUR 300 million bond maturing in 2030 that contributes to an even more solid and diversified funding capacity into the future. Our offering has been well received by the market, confirming the trust bondholders place on our business model. In this line, and thanks to our prudent and disciplined approach, we can reassure well in advance the availability of financial sources to undertake the repayment of our existing EUR 600 million bond in February 2026. As well in terms of innovation, I'd like to share the launch of Prosegur Digital Gold last month. This is a very innovative solution that allows end customers to invest in tokenized gold with Prosegur assuring every single step of the process and that allows end customers to benefit from a 25% more efficient price than investing in physical gold. I will now turn to our key financials. First, I will review our profit and loss account. Revenue in this first 9 months of the year total EUR 1,488 million, a 2.3% reduction over the one achieved in 2024. As earlier shared, if we look at the top right-hand side of the page, we can see this decrease is driven by a negative foreign exchange impact of 10.5%, whilst organic growth has been positive of 6.9%, showing the health of the underlying business and inorganic growth contributes an additional 1.3% impact. EBITDA for the period reached EUR 251 million or 16.9% of sales, which is an 8.6% reduction over the one experienced 1 year ago, while EBITDA reaches EUR 164 million, 11% of sales or an 8.5% decrease over the one observed a year ago. Looking at the bottom right-hand side of the page, we can see that this profitability is impacted by EUR 12 million derived from the extraordinary efficiency program, which started in the second quarter of the year. Factoring this effect, the pro forma 9-month figure would reach EUR 176 million, which in relative terms represents 11.8% of sales, in line with 1 year ago. Financial results accounts for EUR 28 million, a substantial EUR 15 million reduction over the amount experienced 1 year ago, this reduction being a constant throughout the year. With this, we reached an earning before taxes of EUR 120 million being 8.1% of sales or 40 basis points better than the one achieved 1 year ago. This all, despite the already mentioned negative currency impact at operating level as well as absorbing the extraordinary efficiency program in place. Taxes totaled EUR 53 million, implying a 44.5% tax rate, which we aim to lower versus last year in the next quarter. With this, net profit reaches EUR 67 million, that is 4.5% of total sales, and a 1.6% improvement over the same period a year ago. I will review our cash flow as well as our debt. Starting from our EUR 251 million EBITDA affected by the already mentioned foreign exchange impact as well as the extraordinary efficiency program, provisions and other items deduct EUR 20 million, which is a EUR 5 million increase from the same period 1 year ago. Income tax outflow accounts for EUR 67 million, EUR 20 million over the first 9 months of 2024, which was particularly low. Investment in CapEx, in the first 9 months of the year totals EUR 51 million, which is a substantial EUR 16 million decrease versus 2024. This has been possible, thanks to lower openings in the ForEx business, as well as an active management of customer CapEx inventory. Investment in working capital to finance the close to 7% organic growth totals EUR 37 million. With this, we reached a free cash flow of EUR 76 million, which implies an improved conversion rate over EBITDA of 80%. Interest payments totaled EUR 18 million and M&A payments accounted for EUR 8 million in the period, a EUR 24 million reduction versus the previous year. Dividends and treasury stock reached EUR 8 million, EUR 22 million less than a year ago. Let me remind the dividend payment in 2025 will take place in the fourth quarter. The others line totals EUR 24 million, which is a EUR 5 million improvement over a year ago. With all these, total net cash flow is positive EUR 18 million, reflecting our strong CapEx discipline and our effective working capital control. When we add our free cash flow to the net financial position at the beginning of the period of EUR 643 million and deduct the negative impact of foreign exchange of EUR 9 million, it results in an end-of-period net financial position of EUR 634 million. Now looking at the top right-hand side of the page to the above net financial position, we have to add EUR 106 million of IFRS 16 related debt, EUR 14 million less than 1 year ago and EUR 113 million deferred payments, EUR 16 million less than in 2024. Taking into account, the treasury stock of EUR 16 million, EUR 10 million more than in the first 9 months of 2024, total net debt reaches EUR 836 million. This implies a very relevant total net debt reduction of EUR 62 million year-on-year. If we look at the leverage ratio, it is 2.3x over EBITDA, in line with the one we saw in Q2 2025, and continuing a very substantial improvement of 0.6x versus the one we had at the close of the third quarter in 2024. Our Transformation Products continue to grow in relevance and reached over 35% of sales at the end of the third quarter. Total sales derived from these products amount to EUR 522 million, a 6.8% increase over last year or EUR 33 million more if we talk in absolute euro terms. Penetration over total sales, as mentioned reached 35.1%, which is a 300 basis points improvement over only 1 year ago. And Cash Today and ForEx continue to be the key levers in our transformation growth. The fact that these products continue to grow only confirms how well they are received by our customers, how strongly they support them, and how relevant they are not only today, but especially to best position us into the future. With this, I would like to hand over to Miguel, so he can share our evolution from a geographical standpoint. Miguel Ángel Bandrés Gutiérrez: Thank you, Javier. I'll now move on to reviewing the key highlights of our performance by region. Turning to Page 7, Latin America accounts now for 58% of total group sales. Sales in the region reached to EUR 855 million, an 8.2% decrease over the same period a year ago. It's important to note 2 very different effects that take place over sales here. On one side, we can see a very positive contribution of organic growth of plus 8%. This despite the evolution of the Argentinian economy that has been impacted in order to control hyperinflationary trends. As well the results of last week's -- weekend's midterm elections backed the macro initiatives of the governing President as we continue the above-mentioned measures to keep stabilizing the country. On the other side, this is more than offset by a negative impact of foreign exchange of over 16%, reflecting the evolution of currencies in the region linked to U.S. dollar, particularly effect has the Argentinian peso as well as and its effect on hyperinflationary accounting. The above-mentioned reforms should reflect in a more stable behavior of the Argentinian currency into the future. Despite the foreign exchange effect, it's noteworthy to underline the healthy growth of Transformation Products by EUR 12 million in the period or 3.8%, reaching EUR 323 million. The penetration of our total sales is of 37.7%, a very substantial 440 basis points improvement over the one observed only 1 year ago. As we already mentioned, it's important to remind that we've continued with our efficiency programs in the region throughout this third quarter. Turning on to Europe, which accounts for 1/3 of total group sales. Revenue in the period reached EUR 497 million, which is almost a 1% improvement over the one experienced in 2024. All of this growth in organic shows a slight acceleration of activity in Q3, which we estimate will continue into the fourth quarter. The evolutions of the business in the region has performed in line with the macroenvironment. As well, we must signal the Transformation Products continue to show a very strong delivery, achieving sales of EUR 165 million in the period, that is a 3.5% increase over the one reached a year ago, and with the penetration of our total sales reaching 33.1%, an 80 basis point improvement over 2024. And now turning on to Page 9, we can observe the behavior of our Asia Pacific operation, which accounts for 9% of group sales. The countries in the region continue to provide strong growth. Sales have totaled EUR 136 million in this first 9 months of the year, a 37.3% improvement over only 1 year ago. We should highlight that inorganic accounts for 19.4%. Foreign exchange has a negative impact of 6.2%. And most importantly, organic growth continues to be very strong in this case, 24.1% over the one experienced in 2024. As well, the performance in the region of Transformation Products has been very good, totaling EUR 35 million in the period, which is an 82.2% growth over 2024. The growth of Transformation Products has been fundamentally backed by a very good performance of both Cash Today solutions and the ForEx business. The region is quickly converging towards the group's average and now Transformation Products, despite the strong growth of the core underlying business, accounts for 25.5% of total sales, that is an improvement of 630 basis points. Thank you very much for your attention, and now I hand over for Javier to conclude. Javier Hergueta Vázquez: Thank you, Miguel. As said, I would like to recap the key points to underline in these first 9 months of the year. First, I must flag that our results continue to be affected by the evolution of currencies, particularly the Argentinian peso, as we noted earlier, despite which we continue to deliver on our deleveraging strategy, showing the resilience of our business model. Overall sales have declined by 2.3%, noting a negative currency impact of 10.5%, which more than offsets a positive organic contribution to growth of 6.9%, showing the strong support our customers have for our solutions. In terms of margins, EBITA stands at 11% of total sales. Here, we must remind that we continue with efficiency programs that we started in Q2 to which we have added an additional EUR 7 million in Q3. If we look at margins on a pro forma basis, we can see that they stand at 11.8%, the same level at which we were 1 year ago despite the above mentioned negative foreign exchange impact. Relevantly, we can see that our net income totals EUR 67 million, 1.6% better than 2024 and showing how resilient the bottom part of our P&L is. Transformation, as we have seen, continues to be very strong, showing customers adopting our innovative solutions in a growing manner. Having grown by 6.8% in the period, they now account for 35.1% of total sales, which means a 300 basis points increase in penetration over 1 year ago. In terms of free cash flow, we reached EUR 76 million in the first 9 months of the year, which enables us to reduce our total net debt by EUR 62 million on a last 12-month basis. This cash generation as well enables us to maintain a stable leverage at 2.3x total net debt-to-EBITDA ratio, which is well within our comfort range. The resilience of our business model as well as our commitment to financial discipline, have enabled us to successfully issue a EUR 300 million bond recently, allowing us to finance at a very competitive rate, and giving us ample flexibility towards our future in a very comfortable manner. Lastly, as I said earlier, I wanted to share the launch of Prosegur Digital Gold, a very innovative solution that is a clear example of the many growth venues we have into the future. Thank you very much for your attention. And now I would like to open the floor to any questions you might have. Operator: [Operator Instructions] The first question comes from the line of Enrique Yaguez from Bestinver Securities. Enrique Yáguez Avilés: Most of my questions will be focused on the organic growth deceleration suffered this quarter. First of all, I would like to potentially confirm that the significant deceleration in LatAm is mostly related with Argentina. And if so, I don't know if you could provide how was Argentina performing organically in the third quarter? And also if you could provide feedback about October [ figure ] for this country and for the area? And also I'd like to know if there are any other countries potentially suffering such a strong deceleration in organic growth in LatAm? And finally, I know that Asia Pacific is performing quite strong organically, but we also see some deceleration. Any comments on this regard? And finally, about the restructuring plan in LatAm, just to confirm that it's mostly over? Javier Hergueta Vázquez: We'll take the questions one by one. So in terms of the organic growth in the LatAm region, I mean the figures that you're seeing in the quarter reflect a deceleration in the core figures. But I think that as you pointed out, there are 2 realities here. So we have Argentina, on a special situation, and then the rest of the countries. In that line, if you exclude Argentina out of the picture, the organic growth in the region in Q3 keeps at solid mid-single-digit levels and accelerating in the quarter itself. So we are experiencing a pretty good performance quite across the board in all the regions, in all countries. And in Argentina, we have some special circumstances, as you are may be aware already, the inflation in the country has lower significantly. And on top of that, I mean, to make that happen through severe adjustments by the programs implemented by the government, consumption is also quite low. So putting those 2 together, the activity level is now lower. On top of that, and for some transitory period, there has been a very cautious approach in the behavior of the people pre-elections. So they are pretty much -- or they have been pretty much in a wait-and-see mood. So that has kept the economy quite stopped for a while. And on top of all that, there has been a strong FX devaluation, so much higher than inflation. So in euro terms, it looks even weaker. So that's the kind of situation that we have been seeing in Argentina throughout the quarter. October, I mean it's not very different from that, because the elections just took place last week. So most of the month was on that wait-and-see mood. What we would expect going forward is that, on the one hand, the results of the election will be backing Milei's programs and his views and the reforms to be undertaken. So that should be helping them accelerate the implementation of the reforms. And then you have the U.S. support on the other hand, which should also help from an FX perspective. So we will be expecting a strong rebound in the Argentinian macro for 2026. I mean, partially, we could start seeing part of that in Q4 this year, but mainly in 2026. So that should help improve the performance of our Argentinian business going forward. That's what we will be expecting ahead of us in the near future. With regards to AOA, well, I mean, the region keeps performing very solidly at double-digit growth rates despite the comparison base. If you recall at the earlier part of the year, we mentioned that there were very abnormally high organic growth, because of some of the new airports openings taking place in the second half of 2024. So now the comparison base reflects a more realistic performance, which is still at a strong mid-teens. So, we will expect to see that trend going forward. And then with regards to the restructuring program, it's mostly done already. We are now executing a smaller tail of it. So that will be marginal to what you have seen in the figures that we've posted today. So that will be maybe a couple of million more or so, but marginally lower compared to what we've seen. And as we said last time, so this is a project that will generate paybacks in the next 18 months or 18 months from the date of execution. So we should start seeing gradually the effects of that throughout the coming quarters itself. Operator: [Operator Instructions] The next question comes from the line of Alvaro Bernal from Alantra. Alvaro Bernal: I just have one, since the majority have already been answered already. Regarding the free cash flow, you have posted a year-to-date quite contention regarding CapEx and working capital. I just wanted to know your views for the future in this particular metrics. So CapEx, will we see cuts going into 2026? Or will we go back to the previous ranges we saw in 2024? And the same with working capital? Javier Hergueta Vázquez: In relation to the free cash flow figures that we've seen and more precisely on the CapEx and working capital figures. First, taking the CapEx, I think this 2025, there are 2 things that are explaining the variation in the figures versus historical figures. One is that we have less openings in the ForEx business than what we had last year. So that is one of the 2 levers. And the other one is that we have undertaken a significant efficiency program in the inventory of our current CapEx related assets. So those 2 will not be the rule going forward. So we will expect to have some openings in the ForEx business, maybe not as much as we had in 2024, but there will be some openings in 2026. And this inventory rationalization that we were mentioning will be just something that has taken place this year, but it's not to be extrapolated going forward. So for 2026, we could expect CapEx figures to be more in line with what we've seen in previous years. With regards to working capital, I mean, when you look at the figures that we are posting, you have to take into consideration. First, there's lower organic growth in the period, as we mentioned, especially because of the Argentinian situation with lower inflation quite across the board. And on top of that, we have very strong focus on the DSO management itself. I would say that going forward, I mean, if the FX tends to normalize more, we could see similar mid-single digit growth in euro terms, but with lower working capital consumption, because that is created in local currency terms. So if we have lower inflation across the board, that will typically generate lower consumption in terms of working capital in local currency terms in -- locally in the countries themselves. So I would say that the most realistic view would be some lower working capital consumption in 2026 and going forward, compared to what we've seen in the past, especially from this normalized inflation scenario that we have foreseen. Operator: [Operator Instructions] There seems to be no further questions. I would like to hand back for closing remarks. Miguel Ángel Bandrés Gutiérrez: Well, thank you. Thank you all for taking the time and joining today's conference call. Anyhow, as usual, should there be any further queries you know that our Investor Relations team remains available for you. And otherwise, let's speak again in our full year results presentation in February. So have a nice day all of you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to the CMS Energy 2025 Third Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. [Operator Instructions] Just a reminder that there will be a rebroadcast of this conference call today beginning at 12:00 p.m. Eastern Time running through to November 6. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I'd like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Alex. Good morning, everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer; and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrick. Garrick Rochow: Thank you, Jason, and thank you, everyone, for joining us today. A strong quarter at CMS Energy from an operational, regulatory and financial perspective. I am very pleased with the results and continue to see us well positioned for the full year and in the long term. Our consistent industry-leading performance is rooted in our investment thesis that delivers for customers, coworkers and investors. Speaking of strong performance and consistency, throughout the quarter, we delivered key regulatory outcomes, which highlight the positive and constructive regulatory environment in Michigan. We received a final order in our renewable energy plan that approved an additional 8 gigawatts of solar and 2.8 gigawatts of wind through 2035 and ensures we will meet Michigan's clean energy law. A portion of these investments will be woven into our next 5-year plan. This order also provides further certainty and confidence for our long-term customer investments. And as a reminder, this renewable energy plan is a key input into our Integrated Resource Plan that we will file mid-2026. We also received a constructive order in our gas rate case, approving approximately 75% of the final ask and 95% of infrastructure investments for work like domain and vintage service replacements, which are critical to ensuring a safe, affordable and cleaner natural gas system. Chair Scripps comments from that meeting continue to support thoughtful and deliberate adjustments in ROE and suggested we have reached the floor for ROEs and in his words, driven out any excess. Recently, on the electric side, staff filed their position in our pending rate case, supporting approximately 75% of our revised and approximately 90% of our capital ask. This case includes investments supporting reliability and resiliency, which benefits our customers and are well aligned with our Reliability Roadmap and MPSC direction. Again, one of many proof points in our supportive regulatory environment and a strong starting position for a constructive outcome. As shared in previous quarterly calls, we continue to see strong economic growth in Michigan. As I highlighted in the Q2 call, we have an agreement with a data center and continue to see growth with manufacturing as well as a robust pipeline. Year-to-date, we have connected approximately 450 megawatts of the planned 900 megawatts of industrial growth in our 5-year plan. I'm also pleased to share that we've been successful adding another approximately 100 megawatts of signed contracts year-to-date. This growth is coming from new projects, expansion from existing customers in the areas of food processing, aerospace and defense and advanced manufacturing. These projects bring jobs and supply chains, home starts and commercial opportunities to the state and create further visibility to our 2% to 3% forecasted annual sales growth over the next 5 years. On the slide, we're showing our economic growth pipeline. You'll note we continue to move projects into and along the pipeline, bolstering our confidence in additional growth from data centers and other diverse industries. As I mentioned on our Q2 call, we have an agreement with a data center with up to 1 gigawatt of load planning to come to our service territory beginning in early 2030 and ramping up from there. You'll see that project in the final stage of our process at near final terms and conditions. I expect further progress, specifically contract signature as the large load tariff is finalized in November when we expect an order from the MPSC. You'll also see other large data centers in the final and advanced stages of development, which speaks to the robust nature of our pipeline. I continue to be confident and excited about the growth coming to our service territory. The data center and manufacturing pipeline is robust and advancing, and we are well equipped to serve and meet their needs as they advance. On the left side of the next slide, you see our current 5-year $20 billion customer investment plan. On the right side, you see the robust and diverse additional investment opportunities we have going forward. Over $25 billion of additional customer investments supported by our Electric Reliability Roadmap, renewable energy plan and Integrated Resource Plan. As a result of more load growth, we're focused on resource adequacy and the clean energy law, which means more renewables, battery storage and natural gas generation to meet growing demand. And as I shared earlier, our recently approved renewable energy plan provides visibility and certainty on our plan for future investments. Our Integrated Resource Plan that we will file in mid-2026 will also detail additional capacity needed to replace retired plants and support existing and future growth we are realizing. As we see that full plan come together, we anticipate needing more battery storage and gas capacity. And as a side note, you can expect further growth from capital-light mechanisms like our financial compensation mechanism on PPAs and our energy waste reduction program. On our distribution system, we see a significant need for investment in pole replacement, undergrounding and system hardening as we work to significantly improve customer reliability and resiliency. And again, well aligned with our Reliability Roadmap and MPSC direction. As I shared before, a robust and growing capital plan, which will continue to provide investment opportunities to serve customers and deliver value for investors. Now this long runway of customer investments must be balanced with affordability. We have demonstrated our excellence in reducing cost, and we do this better than most through the CE Way, digital and automation, episodic cost-saving opportunities, low growth and energy waste reduction. This is a significant advantage for us to maintain affordability as we make needed investments in our system. Today, our customers' utility bill remains roughly 3% of their total expenses or what is often referred to as share of wallet. This is down 150 basis points from a decade ago while investing significantly in our system to the tune of $20 billion. Our residential bills are solidly below the national average and continue to be over the 5-year plan period as we continue to make thoughtful customer investments across the system. Affordability is an area where we will continue to focus and deliver cost savings for customers, keeping customer rates at or below inflation and bills below the national average. I am proud of the work we have done to develop excellence in this area. We have built strong cost management muscle across the company, and it continues to benefit customers today and well into the future. As I shared in my opening, a strong quarter. For the first 9 months, we reported adjusted earnings per share of $2.66, up $0.19 versus the same period in 2024, largely driven by the constructive outcomes in our electric and gas rate cases and a return to more normal weather. Given our confidence in the year, we're raising the bottom end of this year's guidance range to $3.56 to $3.60 per share from $3.54 to $3.60 per share with continued confidence toward the high end. We are initiating our full year guidance for 2026 at $3.80 to $3.87 per share, reflecting 6% to 8% growth of the midpoint of this year's revised range, and we are well positioned to be toward the high end of that range. It is important to remember, we always rebase guidance off our actuals on the Q4 call, compounding our growth. And like we've done in previous years, we'll provide a refresh of our 5-year capital and financial plans on the Q4 call. With that, I'll hand the call over to Rejji. Rejji Hayes: Thank you, Garrick, and good morning, everyone. On Slide 9, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the first 9 months of 2025 and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2024, both on a year-to-date and a year-to-go basis. In summary, for the third quarter, we delivered adjusted net income of $797 million or $2.66 per share, which compares favorably to the first 9 months of 2024, largely due to higher rate relief net of investment costs and favorable weather-related sales. With respect to the latter, we experienced a warm summer in Michigan, which in part drove the $0.37 per share of positive variance on a year-to-date basis. Rate relief net of investment costs, resulted in $0.28 per share of positive variance due to constructive outcomes achieved in our electric rate order received in March and the residual benefits of last year's gas rate case settlement. From a cost perspective, you'll notice in the third bar on the left-hand side of the chart, $0.04 per share of negative variance versus the comparable period in 2024. Our year-to-date cost performance was largely driven by increased vegetation management expense due to higher spending levels approved in our March electric rate order and in accordance with our Electric Reliability Roadmap. Before we leave the cost bucket, I'd be remiss if I didn't mention that given our strong financial performance to date, we put several operational pull aheads in motion across the business over the course of the quarter. These discretionary measures provided additional funding for gas system projects, electric reliability and programs catered to our most vulnerable customers. A portion of these costs were incurred during the quarter, while the balance will flow through our forecasted year-to-go operating expenses, delivering incremental value for customers while derisking our financial plan and the product year to the benefit of investors. Rounding out the first 9 months of the year, you'll note the $0.42 per share of negative variance highlighted in the catch-all bucket in the middle of the chart. The primary drivers of the negative variance were related to the planned outage of our Dearborn Industrial Generation or DIG facility earlier in the year and the timing of select renewable projects at NorthStar, which I'll note remain on track, coupled with higher parent financing costs. Looking ahead, as always, we plan for normal weather, which equates to $0.15 per share of positive variance for the remaining 3 months of the year, given the roll-off of mild temperatures experienced in the last 3 months of 2024. From a regulatory perspective, we'll realize $0.03 per share of positive variance, driven in large part by the constructive outcome achieved in our gas rate order in September, which will go into effect on November 1. On the cost side, we anticipate $0.06 per share of negative variance for the remaining 3 months of 2025 due to our ongoing vegetation management efforts as well as the aforementioned supplemental spending on operational and customer initiatives at the utility. Closing out the glide path for the remainder of the year in the penultimate bar on the right-hand side, you'll note an estimated range of $0.05 to $0.09 per share of negative variance, which largely consists of the absence of select onetime countermeasures from last year, partially offset by nonutility performance fueled by achievement of key economic milestones on select renewable projects, among other items. As Garrick highlighted, we are well positioned to deliver on our financial objectives for the year and are establishing a solid foundation for 2026 through prudent contingency deployment as we head into the final 2 months of the year. Moving on to the balance sheet on Slide 10. I'll note our recently reaffirmed credit ratings at the utility from S&P in September, and we anticipate a reaffirmation of the parent's credit ratings in the coming weeks. From a financial planning perspective, we continue to target mid-teens FFO to debt on a consolidated basis to preserve our solid investment-grade credit ratings as per long-standing guidance from the rating agencies. As always, we remain focused on maintaining a strong financial position, which, coupled with a supportive rate construct and predictable cash flow generation minimizes our funding costs to the benefit of our customers and investors. Slide 11 offers an update to our funding needs in 2025 at the utility and at the parent. I am pleased to report that we have completed virtually all of our planned financings for 2025, the latest tranche of which was our settlement of approximately $500 million of forward equity contracts at share price levels favorable to our plan. Given the attractive market conditions, we'll continue to evaluate potential pull-ahead opportunities for some of our 2026 financing needs at the parent. As I've said before, our approach to our financing plan is similar to how we run the business. We plan conservatively and capitalize on opportunities as they arise. This approach has been tried and true year in and year out and has enabled us to deliver on our operational and financial objectives, irrespective of the circumstances to the benefit of our customers and investors, and this year is no different. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session. Garrick Rochow: Thanks, Rejji. At CMS Energy, we deliver a strong first 9 months of the year and well positioned for the full year. Our strong pipeline of new and expanding load bolsters our confidence in our growth and provides us with opportunity to invest in infrastructure across both our gas and electric businesses to serve customers with safe, affordable, reliable and clean energy. It is an exciting time in this industry, and CMS Energy is well positioned. With that, Alex, please open the lines for Q&A. Operator: [Operator Instructions] Our first question for today comes from Julien Dumoulin-Smith of Jefferies. Julien Dumoulin-Smith: Nicely done, continued progress here. If I can, team, can you elaborate a little bit on just what the timing is on the large load tariff? Just again, I suspect that this is more mundane in process than anything else. But just elaborate there. And then more importantly, can you speak to the opportunity that exists behind this, right? Clearly, this is something of a gating item just to deal with process. What are those conversations looking like to the extent to which that something were to manifest itself here in the next couple of months? Garrick Rochow: There are -- Julien, it's great to hear from you. There are 3 large data centers in the final stages. That's up to 2 gigawatts of opportunity there. We've talked in Q2 about one of those. And you can see that at the bottom of that pipeline or at the bottom of that funnel, and we're really at final terms and conditions. It's important to get this gating item done, the tariff, the large load tariff. We expect that November 7. And that will be important. That obviously looks through the terms -- other terms and conditions, the length of the contract and minimum demands and those types of things. And so I would expect that, that one at the bottom of the funnel, the one we talked about in Q2, we will move through that funnel and move through that pipeline in short order after that tariff is in place. The other 2 large ones, I would also expect to move forward within that pipeline. Just to give you some clarity on those projects, they have land, they have zoning. We've worked through the red lines and some of the basic terms and conditions, continue to see good progress there. And they're also -- it's also important, this gating item on the tariffs. And so I would expect them to move forward further in the pipeline. So hopefully, that helps, Julien. It's an exciting pipeline. It's an exciting time in this industry. Julien Dumoulin-Smith: Absolutely. So it sounds like you could potentially see developments on all 3 here shortly after that were resolved here on November 7 or again, focus first on the initial contract shortly thereafter and then in coming months on the others? Garrick Rochow: We like the direction of all 3. And certainly, there's one further in the funnel like we shared at the Q2 call. And so again, plenty of opportunities for data centers here. But I'd also point to the funnel has semiconductors, it has manufacturing, and we continue to land those as well. And those bring with it, as we've talked in the past, a number of benefits. And so a really robust pipeline of opportunity here in Michigan and across our service territory. Julien Dumoulin-Smith: Excellent. And maybe a little bit more of a strategic question, if I can clarify this. I mean, obviously, having this level of confidence potentially gives you more latitude within the plan in the 5 years. When and how do you think about being able to leverage that and reflect it in the plan? And what I'm getting at is potentially maybe there's some upside even within the 6% to 8% or above the 6% to 8%? Or would you be thinking more about, again, doing something that would be more offensive in as much as you guys transacted on EnerBank earlier to improve the overall quality of your earnings. Could you do something similar to that again? Garrick Rochow: We've got a 5 -- if I just step back and look at our capital plans for just a minute, 5 years right now, $20 billion, and we got $25 billion plus knocking at the door, just wanting to get into that plan. And all this data centers would be incremental. So you can imagine that $25 billion growing. And so that's a great opportunity as we land these data centers, incremental to the plan from a capital perspective, incremental from a sales perspective as well. We're delivering. Like CMS Energy, we deliver. And that is this context of for '22 going on 23 years, we've delivered industry-leading financial performance, where others have been at 4% to 6% and 5% to 7%, I'm glad they're finally catching up with us. We've been at 6% to 8%. We've been at the high end of that, and we're compounding off that. That's pretty -- like compounding off actuals, you see that in other industries. That's pretty unique in this industry, and we do that. That's a higher quality of earnings and we get and our investors see that. So we really play the long game here. We have confidence in that in our guidance. But of course, we're competitive. We always look at our capital plan. We always look at affordability. We look at the ability to achieve that capital plan. There's a lot of things that go into that. And certainly, you'll hear more about that capital plan and further data center advancements in our Q4 call. Operator: Our next question comes from Jeremy Tonet of JPMorgan. Jeremy Tonet: I was just wondering if I could pick up with that $20 billion of CapEx knocking on the door. Just wondering how quickly could the door be opened here? Over what type of time line do you think that could be folded in given all these opportunities? Garrick Rochow: Well, first of all, it's $25-plus billion knocking out the door. So it's even better than the $20 billion. And so you'll have like building a little suspense here for the Q4 call. You'll see that in the Q4 call. And here's what I anticipate. You're going to see more in electric reliability. We're already foreshadowing that in our current electric rate case. That's important to improve service for all our customers. We're committed to that. We've shared that. It's lined up with the Liberty audit report. It's lined up with the MPSC direction and our Reliability Roadmap. You'll see more in that plan in the electric distribution space. We have approved renewable energy plan. It is an additional 8 gigawatts of solar and 2.8 gigawatt of wind that's been approved through 2035. And you can imagine we're going to want to take advantage of tax credits and the safe harboring. So that's going to be -- that 5-year plan is going to be healthy with those type of investments. And so that will be evident in Q4. And then we'll file our Integrated Resource Plan in '26, mid-'26. Of course, that will play out over the next 10 months, so an order in '27. But you've got to start stacking that plan to be able to do the capacity -- build the capacity that you need. So I would anticipate battery storage and as well as natural gas capacity will start to filter into that 5-year plan. So really across all 3. So hopefully, that's helpful, Jeremy. Jeremy Tonet: Got it. And just want to pick up, I guess, with the gas plant, as you mentioned there, the potential for that. Would that be simple or combined? Or any other thoughts there, especially with regards to turbine slots? Garrick Rochow: We continue to work through that. I want to be really clear about this. When we look at what we need in this next Integrated Resource Plan, it's both battery capacity and natural gas capacity. And that's for retiring facilities as well as existing load growth. And so the more we add in terms of data centers, that will continue to grow. And we're evaluating what that mix looks like from a simple cycle and combined cycle perspective. But you can expect, like we always do, that we're well planned, well prepared, and we're moving along in that direction. Operator: Our next question comes from Shar Pourreza of Wells Fargo. Garrick Rochow: Oh my, Shar. You're back. You're back, Shar. Shahriar Pourreza: I just start -- just a follow-up on the prior two questions. I guess the $25 billion you have there, does any of that $25 billion plus of upside, does any of that kind of overlap before the '29 time frame? Garrick Rochow: Yes. The short answer to that is yes. You'll see in our next 5-year plan, you're going to see some of that $25 billion move into the next 5 years. Rejji Hayes: This is Rejji. Shar, just if I could add to Garrick's comments, all I would add is I'd be surprised actually in this next vintage of 5-year plan that we'll roll out in our fourth quarter call early next year. I'd be surprised if we're not dipping into each of those 3 components of that $25 billion. We're going to be in a steady march of reliability and resiliency-related work. And so that's part of that $10 billion bucket of electric distribution. We will continue to chip away at the renewable energy targets embedded in the clean energy law. And we have an upcoming milestone of 50% renewables by 2030. And so we will definitely be dipping into that 8 gigawatts of solar that Garrick noted, 2.8 gigawatts of wind that will certainly be incorporated into the plan. And then with respect to the IRP-related opportunities, that $5 billion bucket, remember, as I'm sure you know, the harvesting period for building out, whether it's simple cycle or combined cycle, you really have to do a lot of work upfront. And so we've already done the siting work. We are in the interconnection queue, but you do have to start spending money to really get on the front end of the gas turbine procurement. And so there will be dollars associated there with embedded in this next plan. And so it's a long-winded way of saying we'll be dipping into each of those buckets. And that will -- and those related costs and investments will be incorporated in this next, what I'll call a '26 through 2035-year plan. Shahriar Pourreza: Got it. And then just, Rejji, maybe just help me bridge, I guess, because you're getting a lot of questions around the CAGR this morning and it's just the way the math works given the base plan already grows at the higher end. I guess what is the offsetting factor on this CapEx being put into the plan potentially before '29 and it doesn't move the trajectory or accretive to this trajectory, I guess, what are the offsetting factors we should be thinking about? Rejji Hayes: Yes, it's a great question, as always. So let me just start with just, as you know, how we build the plan. We always talk about the governors of our capital and our financial plan. And so we have to obviously chin the affordability bar and make sure that our rates are growing commensurate with inflation. And so there's a lot of hard work that goes into that. And so we'll lean heavily into the CE Way as we always do. As Garrick noted in his prepared remarks, we've got a lot of continued opportunity in terms of episodic cost reductions. And we also think that this -- the third leg of the affordability stool is now these economic development opportunities, which we will certainly convert on over this 5-year period. And so look forward to having good news on that in the coming months and quarters. And so that's how we'll manage to deliver on the affordability side to, again, appease that governor. From a balance sheet perspective, we'll fund the plan as cost efficiently as possible. So we've really done a nice job reducing or minimizing equity needs to fund the growth. And so we try to fund the plan as efficiently as possible from a balance sheet perspective. And then we're going to be really focused on workforce planning and productivity to make sure that while we're executing the capital plan, we're doing it in a thoughtful way in terms of staffing and things of that nature. And so that just speaks to the confidence of our ability to weave in more capital investment into the plan. And I know the spirit of your question is, well, when will that lead to a higher growth CAGR? And I think the offsets we have to be mindful of is, first and foremost, as Garrick noted in his prepared remarks, we do compound off of actuals. And so we do take that quite seriously in delivering every year when we say 6% to 8% towards the high end, which for all intents and purposes is 7% to 8%. We plan to do that every year. So '26, then '27, then, '28. Think of it 7% to 8% for all intents and purposes toward that high end. And so we do have to take into account just the difficulty in achieving that. And so that is where we add in a little conservatism. The other reality is when you think about the nature of our rate construct, we're not decoupled. We don't have any type of service restoration deferral mechanism, even though we effectively got one put in place this year. And so we do have to bake in a little bit of margin or contingency just given the uncertainty around weather, and that's both from a margin perspective as well as storm activity, which seems to intensify year-over-year. And so that has to be taken into account when we think about the offsets that would potentially prohibit us from growing at a higher clip. That said, if I go down memory lane, remember, we were one of the first utilities to go to 6% to 8% in 2016 when it was a 5% to 7% world. So we're not afraid to grow at a higher clip if we can sustain it, but it has to be sustainable over a 5-year period. And so we have to be mindful of that. And again, we have to take into account some of those natural offsets that impact our business that I just enumerated. Is that helpful? Operator: Our next question comes from Andrew Weisel of Scotiabank. Andrew Weisel: First, I just want to clarify something. The IRP-related spending opportunity of $5 billion, am I right, that won't be included in the February update for CapEx, right? I think that's what you said in the past given the timing of the regulatory approval. But the way you're talking about it this morning, I'm a little unsure. Is that still how you're thinking about it? Garrick Rochow: There has to be -- just like as Rejji enumerated, like when you look at the -- what it takes to put a turbine in the ground and when you look at some of these longer-term items like that in terms of EPC contracts as well as MISO queue, you have to be investing right now to be able to deliver over that 5 years. And so I see a portion of that filtering into this 5-year plan on the IRP and particularly in the tail end of it, too, as you look to put some of this important equipment online. Andrew Weisel: Okay. Great. Good to hear, and that's helpful. Next question on the economic growth. You're still -- you have 450 megawatts out of the 900 megawatts in the plan. That certainly seems conservative. Maybe I'll just leave that as a comment. My question is, how much excess capacity do you currently have to serve that load with a couple of gigawatts potentially coming soon, how much slack do you have in the system versus how much would you need to match megawatt for megawatt. Garrick Rochow: That's connected load. So that's not to be delivered or on the way. And so that's connected. And so we have the capacity to serve that today. And then there's a bit of excess capacity. And I'll just remind everyone, we continue to build out as a result of the clean energy law, additional capacity. So we're upwards of 1 gigawatt of renewables we're building this year. It will be a similar pattern next year. We're -- there's a number of battery storage projects that are underway as well, both self-build as well as purchase or power purchase agreements. And so a number of those things are already underway. So that capacity profile is expanding as we speak. Andrew Weisel: Okay. Very good. Then lastly, if I can, a question on Campbell. I know you haven't made any final decisions, but there have been some conversations about the plant potentially continuing to run maybe as long as the duration of President Trump's administration. So can you just kind of explain what kind of shape is the plant in? What kind of maintenance might be required if it were to run through 2028? And how does the accounting work for the economics? I believe you're booking all the costs on the balance sheet, but maybe just kind of walk us through from a MISO perspective, from a tariff perspective, how does all that work in terms of cash and earnings impact for investors and for customers? Garrick Rochow: Yes, Andrew, great question. I'll start and then certainly hand it over to Rejji too. And so I first want to start from a people perspective. And that team out there has been absolutely amazing. As you might imagine, think about this from -- you're thinking about retirement in the plant in your next role, wherever it might be in the company, some going to retirement. And we just had a very flexible workforce that is committed to the success of that plant and following through with this order through the Department of Energy. So I can't say enough about our people and how they've responded. We're really in a great space from a people perspective. And so we continue to see orders from the Department of Energy through the Federal Power Act. We expect those to continue for the long term, and we're prepared to continue to operate the plant and comply with those orders. And I want to remind everybody that what we proposed was that those costs be shared because the benefits go to MISO and not just to our customers, they go to MISO and the FERC supported that. And so those costs as well as the offsetting revenue are spread across 9 MISO states, the North and Central regions, the MISO appropriately. And that order from the Department of Energy has laid out a clear path to cost recovery. And we're heading down that path and have great confidence in our ability to recover. And so that's the nature of it. We'll continue to invest in the plant thoughtfully. Those costs would be incurred and we've recovered those through that process. But let me hand it over to Rejji to talk a little more about this. Rejji Hayes: Yes. Thank you, Derrick, and thank you, Andrew, for the question. Yes. So we're currently treating all the costs associated with operating the Campbell units as a regulatory asset. And so operating and maintenance expense, there have been minimal capital investment. But if we did incur capital investments, that would all flow through regulatory asset line item, which we've established. And then as it pertains to -- and that would amortize over time as we get recovery. And so it's important to note, too, from a customer bill perspective, first and foremost, once we have started to receive recovery of the investments and of the spend from MISO North and Central customers based on the construct we outlined with FERC, which they approved in our 202 complaint, we would refund Michigan customers for their share that they've already contributed. And so I think it's important to note that we are trying our best to make sure that Michigan customers are held harmless as we continue to operate the plants to the benefit of the region, as Garrick noted. And so again, regulatory asset treatment that would amortize down as we get recovery on the spend, and we would be basically refunding Michigan customers who have already paid for some of those investments and some of that spend. And that refund of Michigan customers would be funded by MISO North and Central customers. Is that helpful? Operator: Our next question comes from Travis Miller of Morningstar. Travis Miller: So now that you have that REP in hand, I was wondering if you could characterize some of how you're thinking about the timing and the mix between the self-build and the PPA. So can you walk me through -- obviously, you've got that $10 billion number out there, but what does that mean in terms of what you plan to build timing and then PPA mix? Garrick Rochow: We're very pleased with the outcome from that renewable energy plan. As I stated, additional 8 gigawatts of solar, 2.8 gigawatts of wind. And just given the safe harbor provisions, we're going to want more of that in the first 5 years, right? That makes sense from a cost to our customers' perspective. And we've got those assets with those projects laid out. So we have safe harbor really out to 2029. And so that will be the plan. And it will be competitively bid. And we've been doing that for a long time. And more often than not, we win the competitive bid because of the projects we're putting together and our familiarity with Michigan. And so there's going to be a good portion of self-build in that mix. But remember, I'm not opposed to a PPA either because I really view that as a capital-light way of earnings, right? We're going to earn roughly 9%. It's capital-light. It's a derisked process. I'll let a developer build an asset, build wind, build solar, it will be a mix. And we'll take the offtake of that. And so again, that's going to -- that's kind of how we see it playing out going forward. And so when I say we're building about a gigawatt now and we'll have a gigawatt next year, we'll be building. It will be a mix of self-build as well as developers. Rejji Hayes: Yes. And Travis, this is Rejji. All I would add to just give you some of the underlying assumptions that support the $10 billion that we have in that sort of CapEx or customer investment opportunity section of the slide. We're assuming just for analytical purposes, about 50-50 owned versus PPA. And so that $10 billion assumes 50% of the solar opportunity. So think about that 8 gigawatts. We're assuming half of that we would own. And for the wind, the 2.8 gigawatts, it's a greater assumption of 50%. I'd say it's closer to 100%, but I don't want to split hairs here. And so that's the working assumption. So clearly, if we end up owning more of that solar opportunity, there could be upward pressure in that $10 billion estimate. If we end up PPA more through a competitive bid structure, then there could be some downward pressure on that. But as Garrick noted, there's just great financial flexibility inherent in the law, and it's nice to have the opportunity to earn in a CapEx-light fashion, and that gives us more balance sheet capacity to deploy potentially to the IRP opportunity, the $5 billion on the page and/or the $10 billion of distribution-related investment opportunities. Travis Miller: Okay. Perfect. You answered my follow-up question. So I appreciate that. I'll throw one more other follow-up question, different subject, but the manufacturing growth, the new customers you're seeing there and the new pipeline customers, can you characterize that, not just industry, but are these expansion of existing? Are these brand-new customers coming from somewhere else? Are they onshoring, reshoring, however you want to say that? Garrick Rochow: Yes, it's all of the above. It's all of the above. And I mentioned like here's a little surprising fact about Michigan. There are over 4,000 businesses in the aerospace and defense industry in Michigan. And so that's an example of where we're seeing new customers and existing customers grow in Michigan and just manufacturing. We're seeing advanced manufacturing. We're seeing a lot of food processing. One of the unique facts about Michigan is the second most diverse state when it comes to an agriculture perspective, and there's been a general trend with food processing to move closer to the fields, to move closer to the farms. And so we're seeing everything from dairy products to baked goods that are continuing to grow in the state, which is a nice business for Michigan and really is a nice path to jobs, supply chains, home starts and the like. Operator: Our next question comes from Michael Sullivan of Wolfe Research. Michael Sullivan: Circling back on the data center or large load customer pipeline. Can we just get more of a feel for the time line of the ramp for some of these? I think you had said on the last call, the 1 gigawatt was like a '29, '30 type time frame, but maybe the rest of that final stage bucket, what sort of ramp time line are we looking at? Garrick Rochow: You're correct in what we shared on the one -- the Q2 one, the one that's the bottom of the funnel at the end of the pipeline there, late 2029, early 2030 for the, I would call it, first electrons and then ramp up thereafter. I will share with you the other 2 that are referenced there are a little earlier in the process in the 5-year window, and we're able to deliver on those from a supply perspective, from an infrastructure perspective as well. So that gives you -- hopefully gives you enough look into the pipeline and final stages, Michael. Michael Sullivan: Okay. Very helpful. And then, Rejji, I know you get asked this all the time, but just how to think about how much incremental equity comes with each dollar of incremental CapEx as you get ready to refresh all that? And is there anything in the low tariff that's pending here that maybe helps with some of that in terms of cash recovery? Rejji Hayes: Yes, Michael, thanks for the question, as always. Yes. So I would say that the historical sensitivity between CapEx and common equity is still, I think, a good working assumption. And so for those who are unfamiliar with it, for every dollar of CapEx that's incremental to our plan, assume about $0.40 of common equity would need to be issued. We always try to put downward pressure on that, and we've been quite effective. Obviously, over the last couple of years after the enactment of the Inflation Reduction Act, we've been monetizing tax credits, which has been a helpful vehicle for financing. We also, just given the nature of our rate construct in a forward-looking test year, we have very strong cash flow generation. And so I tend to not need quite as much equity for CapEx. And with these other mechanisms, and I think it just is always worth repeating that we earn 9% on PPAs, and that's codified in the statute. That also offers an opportunity to put downward pressure on equity needs. But again, the rule of thumb for now should be for every dollar of CapEx, we'll probably have to raise about $0.40 or so of equity and hybrids offering opportunities as well, I'd be remiss if I didn't mention that we don't usually incorporate that into our plan, but it does create an opportunity. And so those are the ways in which we could put downward pressure on that sensitivity. But again, in the absence of any new information, just assume for now $0.40 of equity for every dollar of CapEx. With respect to the data center tariff, while certainly, we have been very focused on making sure that we are minimizing stranded asset risk for an incumbent customers and making sure we have the right protections in place. And there's a little bit more margin given that it's a general primary demand rate versus our most aggressive economic development rates. So you get a little more margin for that. I don't think there's really, at the moment, any working assumptions you should add where we would see significant cash flow generation that would reduce our equity needs if there's additional CapEx. Now who knows over time, based on discussions with select data centers, there may be things that we can incorporate into a potential agreement with the data center. But for now, I would assume, again, most of the provisions in the data center tariff are focused on protecting our incumbent customers. Is that helpful, Michael? Operator: We currently have no further questions. So I'll turn the call back over to Mr. Garrick Rochow for any further remarks. Garrick Rochow: Thanks, Alex. I'd like to thank you for joining us today. I look forward to seeing you at EEI. Take care. Stay safe. Operator: This concludes today's conference. We thank everyone for your participation. You may now disconnect.
Unknown Executive: Good afternoon, ladies and gentlemen. Welcome at the presentation of the financial results of Pekao S.A. Group after 9 months. We have our CEO, Cezary Stypulkowski; Dagmara Wojnar, CFO; Marcin Jablczynski; and our Chief Economist, Ernest Pytlarczyk. Cezary Stypulkowski: Good afternoon, ladies and gentlemen. We will briefly discuss our financial performance. And later, we are standing ready to take your questions. I just want to start with a disclaimer that we ask you to have some understanding about the upcoming transactions. We will have an opportunity to present a short wrap-up during the meeting of the general meeting of the shareholders. It's part of the agenda. Therefore, I do not want to have answers duplicated, but I'm not going to be very dogmatic just saying no. Well, what happened over the past 3 months? It was a good quarter. Our profit was up, and this data was released this morning. I think that the most important changes with our lending activity. It is true for the entire sector, but we do have a feeling that we were able to jump a bit higher in terms of market shares, especially on the corporate side. We uphold a strong capital position. The bank has been stable in this regard for many years. And what is critical for Pekao S.A. is improved digital penetration amongst our customer base, and this is happening as we speak. Perhaps the pace is not one of my dream, but we do see progress. The net profit that we reported is very robust. Now looking at the capital, it is also solid. You may say that it's very decent. And it would be really hard to say that it was excessive. Cost to income, I think that the bank is holding very well. We fully appreciate the fact that the banking sector is under the cost pressure. And this is mainly because of the BFG charges. The cost of risk is below our projections. and the growing loan portfolio. These are the basic metrics for the past quarter, and I may say for the year-to-date. And this is what we are really proud to say that we are growing at the 2-digit rate across all the strategic area. On one hand, this is cash loans where we are underrepresented, and micro financing where the bank was also somewhat standing aside, but wherever we had a strong position, which is like that, mid and SME financing, that's truly decent growth. And this is a nice picture. All the business lines have contributed to this good landscape that emerged after 9 months of the current year. And we are truly happy to see that eventually after years of stagnating fees and commissions, the bank was able to generate the growth of 9% during the current year. From the viewpoint of our prior communication 6 months ago when we presented our strategy, we are definitely scratching the horizon. Perhaps we haven't gone beyond the horizon yet. But the trajectory to target seems to be within reach of our capabilities and the current positioning of the bank. Well, this is not something that I'm going to discuss in great detail because this is probably not the information that is most critical to the analysts here. This is a range of our accomplishments for the past quarter. And I believe that the most important highlight is investment banking advisory and equities. We do want to have stronger positioning in that area. And there are some changes that in our solution to the corporate and sector and small enterprises likewise. And with regard to retail customer, we continue to improve onboarding process and facilitate the documentation processing. And to be honest, I was quite surprised with today's reading of Newsweek that shows that we are really charging ahead in terms of how we are being perceived as the retail bank, both in our real branches and the mobile offering. Mobile offering counts because we are the underdog. So we are catching up with the leaders. And we are acquiring active mobile banking customers, and we are selling more through that channel. We know that it is going to be the key element of our strategy. A number of important deals that we closed during the past year. I need to emphasize that we are the bond house in this market. That's our claim. We are #1. So the deal with European Investment Bank definitely should be highlighted. This is an important and demanding partner that's entering the Polish market with the financing in zlotys, and we were able to raise PLN 1 billion in that deal. So it is definitely a good idea to think about Pekao S.A. as the leader and corporate financing of various [ account ]. And now let me turn the floor to my colleague -- no, first, let me turn the floor to Ernest. Ernest Pytlarczyk: Okay. We would like to make the accounting of our projections for the current year. Well, we were predicting 4% GDP, and it's going to be less most likely. But in terms of the diagnosis of the direction where our economy is heading to, I think that we stand right. We do see the recovery in the investments. As our CEO pointed out, the growing lending volumes are triggered by the investment plans that the corporations started to work on. And the other part of the story is consumption demand. The consumption was a black horse of this year. In Europe, consumption is picking up when the inflation is going down, especially when the cost inflation is going down because it gives more room to consumers. The time of tightening is over. It was 2024 when we had to tighten the belt. Now the consumer started to go shopping. The consumption is up this year. And another thing that is important to note, on the right-hand side, the environment. Macro environment is really doing poorly. Europe is slightly above the 0, and the Germans announced their data today, and they are straight at 0. So they are stagnating with their economy. So historically, our key driving force for the economy is weakened. Export. Export was actually doing less because of the situation of our trading partners and the strong zloty. But nevertheless, the economy is holding strong. It is growing. We expect 4% GDP next year. We expect a major accelerating in investments. It could be even called a boom. It would be, in a sense, the outcome of the recovery plan accumulating, and the interest rate cuts -- we believe that the interest cuts will continue. The inflation will be actually hovering over the target, and the inflation will stop being a problem across Europe. And that should translate into further adjustments by the National Bank of Poland. Consumption. We believe that should stand at 4%, and 2-digit growth of investments in certain quarters of the year, and that should fuel the lending volumes. So next year, we expect 2-digit growth in lending, especially in corporate loans. I believe that this is a fairly conducive environment for our banking business that will help offset and compensate the interest rate cuts. The interest rate probably will go down to 3.5%, perhaps a bit higher, but it's not going to be a zero percent interest rate environment. So in that environment, banks are going to do pretty well. That would be all from me. Thank you. Dagmara Wojnar: Ladies and gentlemen, more details about numbers. Loans were up by 8% in total. And as we heard, all business lines contributed to that growth. Cash loans keep growing, and this is where we are selling mostly through the digital channel, remote channels, over 90%. Small and medium enterprise loans are going up too. And what happened last quarter, and it has continued, is growing loan volumes for large corporate customers, 19% up on a year-to-year basis. And I think that it's worth to note that we are strongly acquiring new customers, especially for mid and SME loans. The customer base growth was approximately 900 during Q3. Now moving on to the deposit side. The total deposit base was up by 6% year-on-year, and this is where we are also acquiring customers. We are acquiring a lot of young customers, under 26 years of age. And because of the attractive sales of our investment products, as you may see from that chart, investment funds were up by 30% year-on-year. And we opened up approximately 130,000 current accounts for young customers. These are retail customers. And 50% of these accounts were for people who are really young. Now looking at the net interest income. The net interest income was up by 8% year-on-year. Let me just say that we are facing the declining rates environment. And to the extent possible, we are trying to offset the interest rate cuts. We are, on one hand, growing the volumes. And at the same time, we are modifying our product mix, and we actively manage our deposit base. The interest margin was up 2 basis points. As I said, the volumes and the product structure and decreased cost of deposits contributed to that. We also mentioned that our NIM, in terms of sensitivity to interest rate cuts, is like 15 to 20 basis points down, so per 100 basis point cuts of interest rates. This slide, we have been showing consistently because it really illustrates our sensitivity to interest rate changes. Well, the actual sensitivity to interest rate cuts will be the end result of our capability to adjust the term deposit rates. Now commissions and fees. We were growing up by 9%. This is the third quarter in line when we were growing our fees and commissions by 2 digits nearly. And the major contribution comes to the capital market commissions. So this is asset management. This is brokerage services. We are also growing our margin on FX transactions, and this is mostly the outcome of the growing volume. And we do see the uptick in the fees and commissions on loans, as loan volumes are growing. Cost-to-income ratio of 34%. Here, we have signaled that taking into account the strategy and the place where the bank is now, we will have to face some expenditures in infrastructure, technological outlays. Hence, depreciation is growing slightly higher than personnel costs. OpEx and depreciation growth, 14.6%, and human resources, costs 4.8%. Cost of risk, maybe Marcin will address this. Marcin Jablczynski: Thank you, Dagmara. As for cost of risk, as has been mentioned, that cost remains at a stable level. For 3 quarters this year, the number is very similar to what we recorded last year, and the level is below what we stated in our strategy. Just to remind you, it was 65 to 75 basis points. And this is the market level. We see in general in the market that cost of risk is relatively low, lower than what we saw before COVID pandemic. In particular, in retail section of the market with individual customers, there is just a small part of clients who faced difficulties in repaying the loans. And also, there are some parameters used for assessing credit losses. With adjustments to these parameters, we have those costs significantly lower. At the same time, in the corporate segment, the results are also below the levels to which we are aspiring, but close to the normalized levels. In previous quarters, they were slightly lower, but still below our assumptions. As for NPL, which on the one hand, shows the risk in our portfolio, but on the other hand, is one of the dividend calculation parameters. We see there has been nothing unusual happening recently. Things are rather dull and boring and quiet. So I will not comment on this further. Back to Dagmara. Dagmara Wojnar: As for capital, we maintain a strong capital position with surplus both in C1 and total capital ratio. As for [ MLER ], we also have a surplus in meeting our requirements. We are going to be an active issuer in the upcoming periods as for [ MLER ]. To recap, increase in recurring net profit, 10% year-on-year. Reported profit, PLN 5.2 billion for 9 months of '25. This growth is achieved on the income side. On the one hand, we have greater volumes of both loans and deposits, 8% and 6%, respectively. We see a growth in interest/income plus fees and commissions. ROE at 21.5%. Cost-to-income ratio, 34.5%. So we are accelerating. We are pleased to see that loan volumes grow in second consecutive quarter. In the third quarter, they grew faster than in Q2. The CEO talked about -- Cezary talked about this. We are consolidating our market position in some parts of the market by increasing our market shares. Commissions, almost 10% for all the third quarter in a row. And all these elements contribute, on the one hand, to improving our credit offer and supporting our customers better and being a partner in the development. But also, on the other hand, we keep in mind -- building the value for our shareholders. Thank you. Unknown Executive: Thank you very much for this presentation. We will open now the Q&A session. Unknown Executive: There are 3 banks reporting the results today. Kamil? Kamil Stolarski: Kamil Stolarski, Santander Bank Polska. Congratulations on cost to income and fees growth. And also congratulations on the growth in corporate loans. Among the banks that have so far reported the results, Santander [ and then bank ] only showed minimum growth here. And today, at the conference, [indiscernible] said while commenting the situation in the bank, said that the margins on corporate loans grew even down to 18 bps on individual deals. So how come Bank Pekao S.A. has this growth that is clearly greater than anywhere else? And is this 18 bps thing driven by Bank Pekao S.A.? Cezary Stypulkowski: We will not comment on the numbers and margins so deeply. But I can say that we announced in our strategy that, first of all, following Ernest's advice, we said that market would become more dynamic. And we prepared for that with greater mobilization of the resources, with deeper penetration of customers. Bank, as you know, for a couple of years, was on standby, if I may call it so. And probably this broader approach to customer acquisition, not focusing on state-owned companies only resulted in a diversification of the range of clients and diversification of risk. Price does play a role. Of course, it is not just margins growth and volumes growth. No, that is not the case. But it seems that all in all, given that we had small downtick in net income quarter-to-quarter, not a major change, but that was affected. Also, margin was affected to some extent. This is not the only element. revaluation of the portfolio of government papers. There are some things happening at the same time. But I wouldn't be so quick to make such generalizations about margins. Colleagues in the market signal changes, but we had some low business cycle, and everybody has some dry powder to use. It's hard to say whether we are on the eve of a major war. It's hard to predict. I was even surprised that the bank, while it had a very strong capital position, and its competitors were under major pressure of loans, we failed, at least from my perspective, to capitalize on this advantage. Now to the extent to which we can expand the spectrum of our corporate penetration in the segment where we are simply good. We have good products. We have good personnel. And now we simply have to utilize those resources better. That is it from me. Maybe you want to add something? Unknown Executive: I would say that, as Cezary highlighted, mobilization and the coordination of our sales, CRM and other activities, very active involvement of senior management, also some process-related changes. All these brought their effects. We see that the price pressure continues to be high. Competition is stiff. And if you look at stand-alone credit products, we can have some doubts. But if you look at the balance sheet of the bank in total, you see still some room for improvement. We try to keep our margins whenever the competitive situation forces us to do so, we react. But we are doing fine, and we look at comprehensively at the entire relationship with the customer. Kamil Stolarski: And I also have a question about financing and mortgage loans. ING said that more than 10% of sales was mortgage financing, and mBank said that many more customers came to them for refinancing than left them to seek financing elsewhere. Is there any acceleration here? And what is the policy of your bank towards refinancing of the portfolio? And what ambitions do you have to collect the debt? Unknown Executive: Indeed, we see that refinancing is becoming increasingly important. And we have seen some dissonance in recent years between sales of mortgage loans and sales of flats and housing. And this resulted from the fact that refinancing became more active in the market. We also see a certain growth here. However, as of now, the growth is not material yet. About half of the portfolio here are safe loans. So there is no motivation to seek refinancing. This is the phenomenon which we are following closely. It is not as pronounced here as in other banks yet. However, it is definitely something we will have to look at in the future because we see diverse attitudes of various banks, which are becoming very active in refinancing their own customers. We are more selective in our approach. We check whether so far the clients had just one mortgage loan, or whether they have a stronger relationship with us. And the phenomenon on the whole is much lower than in other banks. Unknown Executive: Maybe I will make a more general comment. Given that we are at a stage of declining interest rates. We can, of course, expect strengthening of this phenomenon. But also from my experience elsewhere, I can say that there are some markets, especially those saturated markets, refinancing is actually the name of the game. And some banks may position themselves in such a way so as to aim at refinancing the existing loans, which are characterized by being proven to some extent. There are markets where a large part of that market is built on this type of product. And there is no such great supply of new money. The market is also more monopolized. This is not what we see here in this market. But also a lot of loans were sold at a fixed interest rate. So something will happen here, but we do not know yet what. Unknown Executive: Any other questions from our audience in the room? Well, at any time, we can come back to your questions. Let me read the question that we got online. At the conference back in June, the bank claimed that 70,000 payment [ bands ] will be sold. What is the end result of that action? Unknown Executive: To be honest, I'm worrying too, but I cannot answer this question. I think that we have to get back with the answer through a separate channel. We will do that. Unknown Executive: Now let me combine a few questions. But we already explained the fact that we are actually reducing our sensitivity to interest rate cuts by 5 basis points. Why? What is the reason for that? And is there any competition in the deposit market? And what is our sensitivity to that in the declining interest rate environment? Unknown Executive: Okay. We showed that our NIM is sensitive by 15, 20 basis points per 100 basis points interest rate cuts. Well, the actual was 15 basis points. This is a slight change. We speak about the range. During the past quarter, we increased slightly the share of assets with fixed rate, and that's about mortgage loans and bonds, direct securities. As far as deposits are concerned, since like 18 months, we have had very active management of the deposit side of our balance sheet. And as you could tell during the past quarterly presentations, the deposit side helps us offset the impact of the interest rate cuts. But the deeper the cuts, the less room we have to maneuver. And how NIM is going to land in the future, it all depends on how we are going to respond with the term deposits given the upcoming interest rate cuts. Unknown Executive: So we have one more question about the numbers. Do we have any guidance for upcoming quarters regarding the cost of legal risk of Swiss franc-denominated mortgages? Unknown Executive: So in terms of the cost of risk, let me start with the historical background. In April, we implemented yet another edition of the settlement program. The settlement program is progressing quite well. We targeted -- and we addressed the majority of the targeted population. We observed that in terms of the incoming lawsuits, we have more lawsuits that are about the lost mortgages. So we are tracking the parameters on an ongoing basis, and we will respond accordingly. Is it the end of the provisions? And is it the end of the Swiss franc mortgage story? I believe we haven't reached that point yet, and time will tell when this point in time -- when it comes. Unknown Executive: We have another question. Please quantify the possible changes of site -- based on our performance. This is a simple arithmetic. So are we going to comment on that? Unknown Executive: No, let's let people crunch the numbers. We will find out something about ourselves. Unknown Executive: Okay. We got another question about PZU to Pekao transaction. Our CEO mentioned that on the 6th of November, we have General Meeting of Shareholders, and we do have an item of the agenda about this transaction, and it will be available on our Investor Relations website if you are not able to participate in the streaming. The question is when we expect legislation and the decisions on the Alior Bank? And what would be the exchange parity? Unknown Executive: Well, as I said earlier, it is our intention to speak about the transaction to the General Shareholders' Meeting at great length. And therefore, I would rather refer you to the 6th of November. Let me just say that we have little control over the legislative process. We expect it to unfold duly. Hypothetically, I assume that it should come to a close by the end of this year. And following this assumption and given the structure of the transaction that has been presented in the term sheet, I believe that Q3 is also a good timeline for closing. In terms of the exchange ratio, it's premature to answer this question. Unknown Executive: Any other questions from the room? Andrzej Powierza: Andrzej Powierza, Citi. I have a question about the cost structure and specifically personnel cost structure. Is it possible to estimate roughly what percentage costs are attributed to the IT personnel? Unknown Executive: I don't think that I have such data breakdown at hand. Perhaps we will come back to you offline with this piece of information. Unknown Executive: There are a handful of technical questions. I will address them on a one-on-one basis. Thank you so much for your attention. As we said on the 6th of November, we have General Shareholders' Meeting. We don't have the date for the publication of the annual report. Normally, it happens in February. But obviously, our Management Board will be available to you during upcoming investors conferences. Thank you so much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Erkka Salonen: Good day, ladies and gentlemen. I am Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you all to this Finnair's Third Quarter 2025 Earnings Call. I have here with me our CEO, Mr. Turkka Kuusisto; and our new CFO, Mrs. Pia Aaltonen-Forsell. I will now turn this call over to you, Turkka. Please, go ahead. Turkka Kuusisto: Thank you, Erkka, and very good afternoon to all of you joining this earnings call. The busiest season is now behind us and we are happy to report that we did deliver a solid Q3 financial performance, especially considering the negative impact from the industrial action. As you might recall, it took until the mid-July to get the final CLA concluded and behind us. And before that, the quarter was shadowed by 3 strike days that led into cancellation of more than 300 flights. And today, we are reporting somewhat -- some EUR 18 million of direct impact from the industrial action. And of course, for us, it's been very difficult to evaluate the so-called indirect impact, but they are in millions of euros. So if we take the comparable operating result of EUR 51 million and calculate back EUR 18 million plus something from the indirect side, I guess that we can all agree that we would have been on par with the last year performance or even above. The revenue increase was 2% and that was also influenced by the cancellations and the indirect impact of the industrial action. And then unfortunately, we faced some unexpected maintenance/AOG issues during the quarter that continued to impact negatively to the ASK and revenue development. But it's worth of mentioning that after we got the CLAs and disruptions behind us, our quality of our service and flight regularity returned to a very high level almost immediately because the weeks followed by the industrial actions actually scored to 99.3 in terms of regularity, but now the full quarter result is somewhat lower because of the AOGs. Also from the traffic plan and summer season network planning side, it was a great success when it comes to our traffic in Far East Asia, especially in Japan. We decided to increase the frequencies and capacity so that we flew 25 weekly frequencies between Helsinki and Japan, which made us the biggest operator or carrier between the Europe and Japan. And as we can see from our load factors and also yield development, that has been a very strong geographical region for us during the summer season. It's not on my slide, but Pia will revert to it later in her presentation. But yesterday, the Board of Directors of Finnair has also decided on the second installment of the return of capital payment that is now due 7th of November, if I recall it right. Still taking some remarks around the collective labor agreements. Now we have reached with all employee groups and unions agreements that are in line with the general labor market framework and policies, which is, of course, extremely important for us when it comes to protecting and developing our cost competitiveness, not only in the short term, but also when we take a longer-term value creation road map in front of us. We've been working intensively when it comes to returning customer satisfaction. And as you know, the biggest contributor to the positive NPS development is the quality of the service and regularity and punctuality. Very happy to report that the NPS of the total customer base did increase from the low point of 28-ish close to 40 from August to September. And then the development has continued. I will come back very shortly in this seat cover issue that we faced. But anyhow -- and then we will -- when we take a more granular view related to the NPS development and explore the, let's say, the core customers of ours, we are actually trending even higher. So the most frequent flyers are even more satisfied with our services as we speak. Even though it was an event after the reporting period, this seat cover issue that we faced, we wanted to take the topic also today with you because it has gained quite a lot of media attention because we needed to ground 8 aircraft of our 321 fleet 2 weeks back because of a question marks in the certification process of the seats and seat covers. To be very transparent, we followed the instructions of the designer and the OEM of those covers and seats. But then in our own procedures -- internal procedures, we found question marks and therefore, we decided to ground the aircraft. But also very happy to report that all planes are now flying. 6 of them are back in our scheduled routes. 2 of them are anyhow in the maintenance shop, one being painted and then one going through a heavy overhaul process. So from that point of view, the operation is stabilized back to normal. When it comes to quantifying the financial impact, especially now when we face this CLA-related disruptions, this is a completely different size item. It's a minor item versus the CLA disruption and impact. So we are at max discussing few million euros. So that's something that we wanted to very transparently discuss with you today. And of course, also within the guidance range that we will discuss later in this call. Then moving to the geographical footprint of ours. As already mentioned, Asia performing very strong double digit growth, both in ASK and revenue development and also RASK developing positively and also the RPK yield and load factors also on a positive side. Europe and domestic rather stable or flattish, but nothing extraordinary in these geographical regions. And the big negative numbers in the Middle East area are explained by the fact that we are not flying anymore from Copenhagen and Stockholm to Doha. So it's only Helsinki-Doha operations. So therefore, we are 2/3 down given that change in our scheduled traffic. North Atlantic traffic and North America, especially USA has, of course, remained as a challenge, I guess, for all air companies because of various aspects. And we had a plan to increase the ASK and capacity for that area and we did so. Of course, we already hedged some of the capacity down given the CLA issues and also the development that we witnessed early Q2, early Q3. But anyhow, the demand and yield development didn't meet our expectations. So therefore, we are reporting a double-digit decline in RASK and also load factor came down by high single digit numbers. But maybe with these words, I would hand it over to Pia to discuss the financials in greater detail. Pia Aaltonen-Forsell: Thank you, Turkka, and good morning, good afternoon, everybody. And I can maybe start by saying I joined as CFO on 1st of August and I've been happy to join in a period when we have resumed normal operations, as Turkka just described. So someone said to me earlier today that, hey, Pia, you had sort of the right smile when you presented the results. We are not on camera right now, so you cannot see that. And I think it's based on the fact that, hey, we have been able to operate. Q3 is an important season. And you can also see that in the results that despite the really difficult periods that we had before this quarter and the long strikes and the fact that the strike impact was still EUR 18 million into the operating result of this quarter, we did land at a comparable operating result of EUR 51 million. And really, if you take into account the strike impacts, we were more or less sort of at last year's level. And given some of the sort of structural changes on the cost side that I will come back to, I still think this was a good expression of the team's also ability to bounce back. So thank you to the team and also, of course, customer trust rebounding. Thank you to customers, as you, Turkka, pointed out. There's maybe a few other sort of smaller changes that are visible on this page, but I think I'll answer your questions later on if you have detailed questions on the specific lines. And I would really go to the next page, which is more about giving the holistic view of the results in the third quarter. So we already discussed the strike impact. And I think that's maybe just a technical note, if you look at the more detailed bridge that we have in some of the appendixes, of course, there, you see sort of a breakdown of all of the elements. But I really think it's important to summarize the strike impacts into one bucket. And then there are considerations relating to the closure of the Russian airspace that had led to higher navigation and landing costs in this very corner of Europe where we are operating. Obviously, we are one of the few that really remains with sort of big traffic amounts here. So we have taken some additional costs due to that. And obviously, that's a topic, the Russian airspace closure that is a fact that we have to accept and that's where we are right now. Obviously, then is there a question, could these costs be lower? That's for the authorities to look into if that could be possible or not. Then there's another big societal change right now, which is particularly in Europe, the strive towards decarbonization. And that's visible for companies like us in many ways. But in this chart, what you see is, of course, the addition to costs. So you see it's like EUR 10 million more per quarter. And I think that gives a good representation of what we are experiencing right now. So we are experiencing the emission rights costs now sort of being there to the full because there are no more free allowances for us. So that change has happened during this year and that we still had maybe something I don't want to say in our back pocket, but some reserves from previously. But that is definitely something that going forward we know the European legislation is there. There are no more free allowances. And that's really one of the big points of additions to costs during this year for decarbonization. And obviously, the other one is sustainable aviation fuel, where there's now the mandate to buy 2% blend and that's obviously as well increasing our costs. So it's a fair representation, a quarterly addition of EUR 10 million during this year. And I still see into next year, there will still be a little bit of a hike up because of the ETS and the emission rights sort of being full-blown impact during next year. So those were those structural changes. And then you can see that we have volume growth and that's really -- if I would like to simplify things, I would say that the green change here, the improvement of EUR 70 million, really the gross actually improvement on volume side is even a bit bigger than that. But obviously, if you look into the details, you can see a few other minor changes there as well. Someone asked me about the changes in yield. I think one sort of noteworthy thing is that the compensations that we have paid also for the strike, they tend to go impacting that key figure. So maybe that's just one thing to keep in mind. I also already got today a lot of questions about the impact, which, Turkka, you already commented, about the seat covers and whether that's a big thing or not. It's not a big thing. But obviously, for our customers, it came during a period of school holidays. So of course, that's a thing that we really needed to fix as soon as we could and it has also been debated quite a lot. But if I look only from a financial perspective, it's a few millions. The impact will be in Q4 and that negative impact is within -- when we have given the guidance for Q4, obviously, that's within the limits of that. Okay. I will speed up. I only have a few more things to say. The second installment of the return of the capital. So this was something that was already decided in the AGM. Now it's kind of the formal decision about also paying the second installment because we are in a strong enough financial position to be able to pay. That will be happening on the 7th of November. When you look at the ratios from our balance sheet, we are kind of continuously showing some improvements. And I think I will go to the next page to finally comment on a few of the things that we've done through this year. Obviously, if you look at first the operating cash flow, that's sort of the big -- that's the positive here. When you then look at where have we spent and allocated some of the cash, obviously, we've done a lease buyback. We have also been paying back our loans and leases according to the schedules. So I think that the same diligent work that was already started earlier to make the balance sheet healthier has continued step-by-step and it continues to show as gradually also improving ratios. I think with that, Turkka, I would hand it back to you. Turkka Kuusisto: Yes. Thank you, Pia. So a few remarks related to the way forward. You might already be aware of that in 2 weeks' time, we have a more in-depth discussion with you in form of a CMU. So already now to all of you, a warm welcome to our event. But in the meantime, what we've communicated externally that for the summer season 2026, we will be adding new destinations and more frequencies to the summer season in the Europe, Catania, Florence, Valencia and island of Kos being a concrete examples. And then also, I guess we already discussed that in connection with the Q2 report that we are reopening the Helsinki-Toronto route after 10 years of not flying to Toronto. So that will be an interesting avenue also for us to explore the demand and connectivity between Helsinki and Canada. Of course, a big step for us and I guess, also for the whole industry is the development of new distribution capabilities, but also a more modern digitalized interaction with the customers. And as a first airline, we did introduce ancillary combos where our passengers before the flight can select and collect various ancillaries and buy them as one bundle and get some monetary benefits out of it. And I guess this is a very important milestone and step for us as a company because you can see from our figures that during the third quarter of '25, the revenue from ancillaries actually bypassed the cargo revenue. So that's a concrete example of that the selected commercial strategy is paying off and we are further improving our capabilities and competencies to continue that double digit growth. As Pia mentioned, our company and of course, the whole industry is facing this environmental compliance and also the CO2 reduction challenge and dilemma. And we are, of course, very proactive when it comes to contributing to the different collaboration platforms to build the availability and affordability of next-generation fuels, i.e., SAF and eSAF maybe later down the road. And in the meantime, of course, we are engaging intensively with our customers also on the corporate side to provide them with opportunities to contribute to the CO2 reduction challenge. And that's, of course, for the corporate customers important topic because if and when they have committed to their own SBTi targets, they need also that Scope 3 reductions in their whole value chain. And then maybe as a final remark on this slide, for the fourth year in a row, we did receive a 5-star rating from APEX that is a Global Airline Passenger Experience Association. And for us, these are, of course, important acknowledgments, especially given the time when we have faced for various reasons more than needed kind of reputational issues. So that in the big scheme of things, we need to be very humble and fix the disruption situations that we have faced. But just wanted to push the point that nothing is broken in the platform and the underlying business and operations. So therefore, we have a great platform to build on. With these words, we will take you to the outlook and guidance slide. We are today providing you with a specified outlook and guidance based on the Q3 development. And today we are saying that the capacity by ASK will increase by some 2% during 2025 and revenue will be approximately EUR 3.1 billion. And the comparable operating result range has been narrowed from the upper limit side. So if we said -- when we said in July that the range is EUR 30 million to EUR 130 million, today we are saying it's EUR 30 million to EUR 60 million. And what led into kind of lowering the upper end of the comparable result range is explained by a few factors. First and foremost, the North Atlantic demand and yield development has continued to soften. And then when we will take already discussed indirect impact from the industrial action, the unexpected AOGs. And then in July, when we envisioned the potential upside scenario and to reach that, it would have required a continuation of oil price decrease. So therefore, in connection with this report, we see that it's unlikely to reach the earlier upper end. So therefore, we are taking it down. But I want to highlight that this guidance is now in line with the previous one because already then we discussed that we are closer to the lower end of the provided range. And then as a final remark, already something that I mentioned, warm welcome to all of you and please register if you haven't done so yet, November 13 at 13 hours Helsinki time, where we will provide you with a Finnair Capital Markets Update. In addition to me and Pia, you have the opportunity of meeting the full leadership team of Finnair. So it's a great engagement and opportunity to discuss with the full team. But with these words, welcome to the event, and let's open for the Q&A. Erkka Salonen: Thank you, Turkka. Now would be a convenient time for any questions you may have. So please follow the operator's instructions to present them. Operator: [Operator instructions] The next question comes from Kurt Hofmann from Aviation Week. Kurt Hofmann: Okay. My questions are a bit fleet-related and then the North Atlantic. I wanted to ask you what's about the campaign regarding the future narrow-body fleet, which you plan to decide by the end of the year, if you maybe have an update for us? And then I would like to ask you also regarding the wet leases to the Qantas, the A330 Qantas aircraft, how this continues or you maybe have too many A330s in the fleet already? And then I'd like to ask you a bit about the North Atlantic. Turkka Kuusisto: So if I start with the 330s, the wet lease arrangement or collaboration continues until the winter season of '26. So I guess it's end of March when the wet leased aircraft and our pilots then, of course, will return to our own operation. And then we have now already deployed the 2 330s on dry lease basis to Qantas. And I guess it was last week when the second aircraft was received by Qantas. So currently, 4 out of 8 330s are tied to Qantas collaboration. The 2 wet leased aircraft will return to our own network for the summer of 2026. But we need to keep in mind that one of the 330s will -- the lease agreement will not be continued. So the fleet size will decrease. The total fleet size will decrease from 8 to 7 in months to come. When it comes to the narrow-body campaign, we want to run a thorough and a diligent process when it comes to the campaign and we will communicate more when we have some tangible news. We are having discussions with the OEMs. And of course, the process has progressed since we last talked. But today, we don't have any news to be disclosed. Kurt Hofmann: Okay. And second part from my side, the North Atlantic. As many airlines are suffering already kind of overcapacity and you also mentioned that the North Atlantic business was not doing that perfectly, do you have some measures for this? Do you plan to reduce the North Atlantic network maybe then for next year or especially over the winter when the demand is lower? Turkka Kuusisto: For the winter season, we are flying less because some of the U.S. destinations are summer destinations for us. So the winter schedule is different. And of course, when it comes to the summer schedule '26, we have still some time to evaluate that how the demand will develop and we might tweak the intended summer season plan accordingly. So we are following the market development, demand development and yield development extremely carefully. Kurt Hofmann: Okay. Just a clarification, how many Airbus 330s will be then flying for Qantas or will be with Qantas? Turkka Kuusisto: 4 now. Operator: [Operator instructions]. The next question comes from Joonas Ilvonen from Evli. Joonas Ilvonen: It's Joonas from Evli. If I can just return to this North Atlantic capacity question. So I already saw from your September traffic figures that your North Atlantic capacity already decreased a bit. So was this a reflection of this transition to winter schedule? Or did you like already make some -- did you already kind of react to this rather weak situation in North Atlantic traffic? Turkka Kuusisto: It's both and intentional reaction. But at the same time, we have one of our 350s grounded because of this towing accident when the wing tip actually hit the hangar door. So we are down 1 350 that has also led into the capacity decrease in our totality. And then we decided to hedge the North Atlantic traffic. Joonas Ilvonen: All right. So when will this aircraft return to traffic exactly? Turkka Kuusisto: The current prognosis is early 2026 because, again, we want to, of course, secure the airworthiness and safety of the aircraft. It has taken a bit longer than expected. Joonas Ilvonen: Okay. So regarding your EBIT guidance for Q4 basically. So this North Atlantic situation still continues to weigh on your result. And what about the -- I mean, you mentioned these landing costs and environmental and SAF costs, EUR 10 million impact quarterly. I think you kind of -- you already implied that this environmental costs will increase towards next year. But what about Q4? Are they still like around EUR 10 million during Q4? Or you only see increase in Q4? Pia Aaltonen-Forsell: Pia here. Yes, to confirm that, I think we are now on the 2% SAF mandate, it's been there since start of the year. The end of the free emission allowances has been there since the start of the year. So it's a pretty even development during this year, about EUR 10 million per quarter. And then going into next year, what impact is then simply that we still had some benefits this year from, let's say, previous years relating to the EU EPS. You could say that we had hedged or you know how this works. We benefited somewhat and that's why I said that there could still be some increase towards next year, but it's not as big as the increase year-on-year from '24 to '25. Joonas Ilvonen: That's clear. And a final question. So given this rather weak North Atlantic situation and thinking about next year, maybe you can -- you will come back to this later, but can you already like -- because the Asian traffic seems to be doing rather well at the moment. So do you have already any plans to probably allocate more capacity there versus North Atlantic? Turkka Kuusisto: No, I guess that's something that we do on a daily basis that we want to optimize the utilization of the fleet. Of course, within the given constraints, I guess we will fly more to Tokyo if we had more landing slots. So it's kind of a complex topic, but something that we monitor on a continuous basis. And I guess that towards the end of the year, early 2026, we can also provide you with a more detailed view that how shall we utilize the wide-body capacity. Erkka Salonen: As it seems that there are no further questions, we can conclude. Oh, one more. Operator: The next question comes from Kurt Hofmann from Aviation Week. Kurt Hofmann: It's me again, but I found it quite interesting, your Asian network and it's still doing quite well despite you have to fly such a long route. I think is it the Americans now not allow any more the Chinese carriers to fly over China to the U.S. Do you think you can see some improvement that one day you are able to fly again over Russia in the near future? And what do you think regarding the in a way unfair competition with the Chinese carriers which flying directly via Russia to Europe and you fly -- you have to fly around? Turkka Kuusisto: So 2, of course, very important and complex questions, Kurt. So when it comes to the closed Russian airspace, that's something that I already -- I can say already today because I've discussed that with you and media also earlier. Our strategic thinking and our strategy process is built on the kind of assumption that the Russian airspace remains closed for the time being because we don't see any development that would change the situation quickly in a very short-term future. When it comes to kind of a level playing field, I guess that's something that the European carriers are jointly acknowledging that that's something that should be dealt with if the situation continues. But I guess that there is kind of a bigger theme than only a national topic here in Finland or topic related to Finnair. So I would mark that as a EU level discussion. Erkka Salonen: So now there are no further questions and we may conclude the call. Many thanks for the excellent questions and joining the event. We wish you a nice day. Turkka Kuusisto: Thank you all and hope to see you in 2 weeks' time. Pia Aaltonen-Forsell: See you soon.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to DTE Energy Q3 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Matt Krupinski, Director of Investor Relations. You may... Matt Krupinski: Thank you, and good morning, everyone. Before we get started, I'd like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix. With us this morning are Joi Harris, President and CEO; and Dave Ruud, CFO. And now I'll turn it over to Joi to start our call this morning. Joi Harris: Thanks, Matt. Good morning, everyone, and thank you for joining us. While this is my first time leading our earnings call as CEO, I've had the privilege of engaging with many of you over the past couple of years and appreciate the dialogue. I'm off to a running start and continuing to build on the strong foundation we've established. I have a number of exciting updates to share with you today, which include highlighting the progress we're making on achieving our 2025 financial goals, providing a strong 2026 operating EPS outlook and outlining our enhanced 5-year plan that now extends through 2030. A highlight of our strategy is the transformational growth we're seeing in data center demand. I am pleased to announce we finalized an agreement with a leading hyperscaler to support 1.4 gigawatts of data center loads. This is an exciting milestone that I'll expand on as we walk through our updated strategic plan. Aside from the 1.4 gigawatts of new load, we are still in late-stage negotiations with an additional 3 gigawatts of data center load providing potential further upside to our capital plan as we advance these negotiations. As a result of this first data center transaction and continued need to modernize our utility assets, our updated plan includes significant increases in utility investments for our customers and deliver 6% to 8% operating EPS growth through 2030. We are confident we will reach the high end of our targeted range in each year, driven by R&D tax credits and the flexibility they provide. This plan supports our continued strategic shift toward higher-quality utility earnings fueled by increased demand, continues our efforts to build the grid of the future while transitioning to a cleaner generation and demonstrates our ongoing commitment to affordability for our customers. Thanks, Matt. Good morning, everyone, and thank you for joining us. While this is my first time leading our earnings call as CEO, I've had the privilege of engaging with many of you over the past couple of years and appreciate the dialogue. I'm off to a running start and continuing to build on the strong foundation we've established. I have a number of exciting updates to share with you today, which include highlighting the progress we're making on achieving our 2025 financial goals, providing a strong 2026 operating EPS outlook and outlining our enhanced 5-year plan that now extends through 2030. A highlight of our strategy is the transformational growth we're seeing in data center demand. I am pleased to announce we finalized an agreement with a leading hyperscaler to support 1.4 gigawatts of data center loads. This is an exciting milestone that I'll expand on as we walk through our updated strategic plan. Aside from the 1.4 gigawatts of new load, we are still in late-stage negotiations with an additional 3 gigawatts of data center load providing potential further upside to our capital plan as we advance these negotiations. As a result of this first data center transaction and continued need to modernize our utility assets, our updated plan includes significant increases in utility investments for our customers and deliver 6% to 8% operating EPS growth through 2030. We are confident we will reach the high end of our targeted range in each year, driven by R&D tax credits and the flexibility they provide. This plan supports our continued strategic shift toward higher-quality utility earnings fueled by increased demand, continues our efforts to build the grid of the future while transitioning to a cleaner generation and demonstrates our ongoing commitment to affordability for our customers. I will share additional details of our plan over the next few slides. Dave will give an overview of our third quarter results 2025 guidance and 2026 early outlook, and then we will open it up for your questions. I'll start on Slide 4 by saying that we are continuing to deliver strong results in 2025 and we are well positioned to hit the high end of the guidance this year. As always, our success is a testament to our dedicated and engaged team committed to serving our customers and communities. I am extremely proud that our team was recognized by the Gallup organization for the 13th consecutive year with A Great Workplace Award and our employee engagement ranks in the 94 percentile globally among thousands of organizations. We are well positioned to achieve the high end of our 2025 operating EPS guidance range. Looking ahead to 2026, our early outlook reflects operating EPS growth of 6% to 8% over our 2025 guidance midpoint, and we are confident in our ability to deliver at the higher end of that range. Let me move to Slide 5 to provide more details on our long-term plan. We are in an exciting time for our industry and for DTE and we are focused on seizing the opportunity to deliver for our customers, communities and investors. We're increasing our 5-year capital investment plan by $6.5 billion compared to the prior plan, driven by the data center transaction and the continued need to modernize our utility assets. At DTE Electric, the additional investments are strategically focused to support data center low growth, advanced cleaner generation and to enhance distribution infrastructure that will drive continued improvements in reliability. DTE Gas is focused on system reliability and infrastructure renewal, ensuring safe, efficient service for our customers while modernizing our network. DTE Vantage will continue to prioritize investments in utility-like long-term fixed-fee contracted projects, which aligns well with our strategy to deliver stable, predictable earnings for our investors. Our investment plan supports a further strategic shift towards higher-quality utility earnings over the next 5 years, targeting utility operating earnings to increase to 93% of our overall earnings by 2030. Importantly, data center opportunities are helping drive this shift as we allocate additional capital to serve this load, which further supports affordability for our existing customers. We have incorporated a more conservative growth outlook for DTE Vantage, which is largely influenced by commodity pricing assumptions in our longer-term forecast. As part of our most recent strategic analysis, we evaluated a range of pathways to drive sustainable long-term value. This effort reinforced our conviction that leaning into our core utility business, while taking a more conservative view at DTE Vantage will best position us to deliver value for our customers and for our investors. As you can see in the appendix of this presentation, the 2030 outlook for Vantage is flat to 2025 guidance. As our solid project development pipeline offset the expected roll-off of 45Z production tax credits after 2029. We're confident this approach also positions us well for consistent future growth as we expect to continue to make progress on additional data center opportunities that will deliver upside to our base plan. Let me move to Slide 6 to highlight updates to our capital plan at DTE Electric. Our updated capital investment plan at DTE Electric provides a $6 billion increase over the prior plan driven by the data center transaction and customer-focused initiatives that align with our long-term strategy. A key component of this plan is new storage investment to support the increased data center load. Importantly, this incremental storage investment is fully funded by the data center customers. The plan also includes renewable investments that support the continued success of our MIGreen Power voluntary renewables program and fulfill the requirements of the legislative clean energy plan. And to ensure reliable baseload generation as we transition away from coal, we are planning the construction of a combined cycle gas turbine to replace our retiring coal plants. We are submitting a competitive bid for the 2026 Integrated Resource Plan, all-source RFP for a new CCGT to replace Monroe power plants. We're also continuing to invest in distribution infrastructure to harden the grid and improve reliability for our customers. These grid investments are already delivering results, driving a nearly 90% improvement in the duration of outages since 2023 as we make strong progress toward our goal of reducing power outages by 30% and cutting outage time in half by 2029. Our current rate case filing supports these reliability investments while remaining focused on customer affordability. This filing includes a request for approximately $1 billion in distribution spending to be included in the infrastructure recovery mechanism by 2029 which was largely supported by the MPSC staff in its recent testimony. The IRM will help drive consistent, predictable investments in grid modernization to improve reliability for our customers, while also simplifying future regulatory proceedings. The order for this case is expected at the end of February. Overall, I'm thrilled about the opportunities ahead for DTE Electric. As we continue our efforts to improve reliability for our customers, transition to cleaner generation and execute on economic development opportunities to drive low growth and support affordability for our customers. Let me move to Slide 7 to provide an update on our advancement of data center opportunities. As I mentioned, we successfully executed a significant agreement to support 1.4 gigawatts of new data center load, representing a major step forward in our utility growth strategy while also delivering meaningful affordability benefits to our existing customers. The demand is expected to ramp up over the next 2 to 3 years, giving us a clear runway to align infrastructure development and resource planning with customer needs. While we can use existing capacity to support this ramp, we'll also need to invest in new energy storage solutions to meet the full capacity requirements. Our updated plan includes nearly $2 billion of incremental energy storage investments and additional tolling agreements to support this data center load. Given our excess capacity, we will use our existing industrial tariff for this customer and combine it with an energy storage contract to support the incremental storage investment. We are including key terms in these agreements that will protect existing customers, including a 19-year power supply contract with minimum monthly charges. The data center will fund its own storage needs through a 15-year energy storage contract. These terms are important to us and our customers as we ensure the data center revenue supports the required investment to meet this new demand. We plan to submit our regulatory filing tomorrow requesting approval of the data center contract. Energy storage investments will begin ramping in 2026 to align with the projected increase in data center load. As I mentioned, we also have additional data center opportunities beyond this initial 1.4 gigawatts. We are in advanced discussions with additional hyperscalers for over 3 gigawatts of new load, and we have a pipeline of an additional 3 to 4 gigawatts behind that. We also expect longer-term growth opportunities through the expansion of these initial hyperscaler projects. The generation investments that will be needed these additional opportunities could very well come into the back end of our 5-year plan, providing incremental capital investments above what we are laying out for you today. A key step in preparing for the development of new generation to support large data center loads is integrating these requirements into our next IRP filing, which we expect to file next year. So a lot of great opportunities ahead of us on the data center front. We will continue to provide updates along the way as things progress. Let me move to Slide 8 to discuss our commitment to customer affordability. We have a history of executing on our investment plan with a sharp focus on customer affordability. As you can see on the chart, our average annual bill increase over the last 4 years is significantly lower than the national average and Great Lakes average. We remain committed to maintaining this focus on affordability throughout our plan. We are advancing on a number of initiatives to support affordability for our customers while continuing to invest and support our key priority. Importantly, near-term data center growth will help create substantial affordability headroom for our existing customers as we sell our excess generation. Our continuous improvement culture will ensure O&M and capital investments remain efficient. The shift from coal to natural gas and renewables also helped to further reduce O&M costs while our diverse energy mix ensures economic fuel costs for our customers. And finally, the IRA provisions support the renewable energy investments while supporting customer affordability goals. So to wrap up my comments, I'll say I'm very excited about our long-term plan and the opportunities we have ahead of us to continue to deliver for all of our stakeholders, including excellent service to our customers and communities and continued strong financial performance for our investors. I'm looking forward to spending more time with many of you at EEI to discuss our updated plan. With that, I'll hand it over to Dave. Over to you, Dave. David Ruud: Thanks, Joi, and good morning, everyone. Let me start on Slide 9 to review our third quarter financial results. Operating earnings for the quarter were $468 million. This translates into $2.25 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $541 million for the quarter. Earnings were $104 million higher than the third quarter of 2024. The main drivers of the variance were timing of taxes and rate implementation, partially offset by higher O&M and rate base costs. The impact from the timing of tax for the quarter was fairly significant at $63 million favorable relative to third quarter 2024. This is due to the timing of investment tax credits associated with when our solar projects are placed in service. This timing was known and built into our plan and the remaining year-to-date timing favorability of $33 million relative to 2024 will reverse in the fourth quarter. Moving on to DTE Gas. Operating earnings were unfavorable $38 million, which is $25 million lower than the third quarter of 2024. The earnings variance was primarily driven by higher O&M and rate base costs. With our confidence that we will hit the top end of our overall DTE operating EPS guidance range this year, we've been able to unwind onetime lean operational measures and other unsustainable reductions that were implemented over the past few years at DTE Gas to counteract warmer weather. This will likely bring this segment in below its guidance range in 2025. Let me move to DTE Vantage on the third row. Operating earnings were $41 million for the third quarter of 2025. This is an $8 million increase from 2024, driven by RNG production tax credits in 2025, partially offset by lower steel-related revenues. We remain on track for the full year guidance at DTE Vantage. On the next row, you can see Energy Trading earned $23 million for the quarter. We continue to experience strong margins in our contracted and hedged physical power and gas portfolios. On a year-to-date basis, we are currently above the high end of operating earnings guidance for this segment. This strong performance places us in a favorable position to leverage any potential further upside across DTE to continue to provide flexibility for future years. Finally, Corporate and Other was unfavorable by $77 million quarter-over-quarter due primarily to the timing of taxes, which will reverse by year-end as well as higher interest expense. Overall, DTE earned $2.25 per share in the third quarter of 2025, which positions us well to achieve the high end of our guidance range in 2025. Let's move on to Slide 10 to discuss our 2026 outlook. As Joi mentioned, we are well positioned to deliver another strong year in 2026. Our 2026 early outlook range, $7.59 per share to $7.73 per share, which provides 6% to 8% growth over our 2025 guidance midpoint. And we are confident that we will deliver at the high end of the guidance range due to the flexibility that the 45Z tax credits provide. Utility growth will be driven by customer-focused investments, including distribution and cleaner generation investments at DTE Electric and main Renewal and other infrastructure improvements at DTE Gas. DTE Vantage will see growth from the development of new custom energy solutions projects and continued contributions from RNG production tax credits. And at Energy Trading, we continue to see strength in both our structured physical power and physical gas portfolios, giving us confidence in our targets as we head into 2026. We will share additional details on 2026 during our fourth quarter call following the close of a strong 2025. Let's turn to Slide 11 to discuss our balance sheet and equity issuance plan. We continue to focus on maintaining solid balance sheet metrics. To support the significant increase to our capital investment plan that we need to execute for our customers, we've increased our planned equity issuances. We are targeting annual issuances of $500 million to $600 million in 2026 through 2028. This level of equity supports the capital that is now coming earlier in this plan relative to our prior plan. The increased equity will help fund the increase in our capital plan, including the storage investments related to our data center agreement while ensuring that we maintain a strong balance sheet. We will continue to maximize the use of internal mechanisms to issue equity, but will also incorporate manageable external issuances. Our 5-year plan fully incorporates the equity needs and continues to deliver 6% to 8% operating EPS growth with a bias toward the upper end each year through 2030. Our long-term plan also includes debt refinancing and new debt issuances. We expect to strategically utilize hybrid securities to support our financing plan, and we will continue to manage future debt issuances through interest rate hedging and other opportunities. Importantly, we continue to focus on maintaining our strong investment-grade credit rating and solid balance sheet metrics as we target an FFO to debt ratio of approximately 15% -- this plan ensures that DTE continues to be well positioned to make the necessary investments for our customers while delivering the premium total shareholder returns that our investors have come to expect over the past decade with strong utility growth and a dividend growing with operating EPS. Let me wrap up on Slide 12, and then we will open the line for questions. Our team continues our commitment to deliver for all of our stakeholders. We are delivering solid results in 2025. We are on track to achieve the high end of our operating EPS guidance range, and we are confident we will achieve the high end of our 2026 early outlook, again, due to the flexibility that the 45Z tax credits provide. Our updated 5-year plan provides high-quality long-term 6% to 8% EPS growth through increased customer-focused utility investment, which increases our utility operating earnings to 93% of our overall earnings by 2030. This plan increases our 5-year capital investment by $6.5 billion over the previous plan, supported by the data center transaction and the continued need to modernize our utility assets. Additional data center opportunities provide potential upside to this 5-year capital investment and EPS growth plan. We continue to target 6% to 8% long-term operating EPS growth with 2026 operating EPS midpoint as a base for this growth. We are confident that we will reach the high end of our target range in each year, driven by RNG tax credits and the flexibility they provide. we continue to target a strong dividend that grows with operating EPS. Overall, we are well positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our capital investment plan. With that, thank you for joining us today and look forward to seeing many of you at EEI. We can open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: So obviously, the upside slide, it seems fairly material around incremental data center opportunities. Are the data center deals kind of are they an inflection point to rebase higher or shift that 6% to 8% CAGR? Or should we still kind of assume lengthen and strengthen? I guess, what do you need to see to revisit that guided trajectory, especially since some of it can hit the back end of the plan and you're already growing at the higher end? Joi Harris: Thanks for the question. Yes, we're really excited about the first 1.4 gigawatt deal we have on the table, and we feel well positioned to execute on that. We're continuing conversations. As I mentioned in the intro, we've got 4 gigawatts -- well, 3 to 4 gigawatts that we're continuing to work with hyperscalers with a total pipeline of roughly 7. That said, as we are advancing these negotiations, our intent would be to find terms that we can then -- and the ramp that we can then incorporate into our next year's IRP and then determine the generating resource to support that load. It could be a large generating load or a combination of batteries and renewables. But the intent would be to get it into the 5-year plan, if at all possible, and that would give us growth opportunities above and beyond where we are today. So we feel really good about the deal we have on the table and our ability to execute on it. Shahriar Pourreza: Okay. Got it. But just -- I guess, just to -- is it accretive to the 6% to 8%, I guess, how do we sort of think about how you currently guide? Joi Harris: Yes. I think that is a fair assumption that it would be upside to our current 6% to 8%. Shahriar Pourreza: Perfect. And then just -- and obviously, you noted a more conservative outlook for Vantage due to commodity pricing. But I guess what are you seeing on the energy service side? And does it make sense to monetize certain assets, especially with the inflection of equity needs starting in '26? Joi Harris: Yes. We're continuing our focus on our energy service business line and Vantage. We're working on behind-the-meter project, in fact, outside of the state of Michigan for our data center, and that could be an additional vertical that we pursue. But Vantage has been a really great part of our portfolio for over 20 years with a really strong BD pipeline and opportunities for really good returns. So -- but as always, we look for ways to optimize value for shareholders. We don't have anything imminent right now, but it's something that we'll continue to examine. Shahriar Pourreza: Got it. Perfect. And big congrats, Joi, on your first earnings call. I know Jerry is listening. He's proud and just keep that dividend growing for him now that he's on a fixed income. Appreciate it, guys. Joi Harris: Thanks Shar. Operator: And your next question comes from the line of Jeremy Tonet with JPMorgan. Aidan Kelly: This is actually Aidan Kelly on for Jeremy. Yes. So just regarding the EPS CAGR, is the right math to think about like 2026 high end and then growing 8% off that until 2030? Or should we think about the EPS CAGR kind of being based off the midpoint each year? Joi Harris: So midpoint this year is the way we guide. And the 45Zs give us the potential to hit the top end of our range. And as you know, those 45Zs extend through 2029. Aidan Kelly: Got it. Okay. That's helpful. And then just on the incremental load, maybe just like how much should we think about like the load is needed to trigger a new gas plant versus just more energy storage at this point? I mean like when you look at the 7 gigawatt pipeline, how should we think about like what's needed for new base load versus just like incremental storage? Joi Harris: Yes. So think of it this way, any new data center load that we bring on after this 1.4 gigawatts will require additional resources. If we bring on something in the gigawatt range, it would require a combined cycle to support it. Anything lower than that, we could do a combination of either smaller CCGT and some renewables and batteries. But we'll know all of that for certain once we sign the deal and incorporate it into next year's IRP. And that will really dictate the resource requirements and the resource mix. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Congratulations again, Joi, and to the whole team here. Nicely done here, I got to say, and nicely done on firming up this contract here, as you say. Now with that said, and just to follow up on some of the last questions here, how do you think about the data center timing here? You talk about it being accretive to the plan. How do you think about the time line for its ramp? I know that you already cautioned that it wasn't entirely clear cut. But how do you think about it being accretive versus perhaps serial and an extension of the 6 to 8. We don't mean to nitpick too much here, but I think we heard your comments earlier, and I just wanted to come back and understand when that would really start to kick in and be accretive. Joi Harris: Yes. You can think of it toward the tail end, given just the lead times on some of the materials and the construction cycle Julien, you could think of it towards the back end of our plan. So call it, late 2029 into the early 2030s. Julien Dumoulin-Smith: Got it. So that uptick would potentially be probably that first year really would be that 2030 time frame. And then the question would be how sustained that elevated growth rate would be predicated on the success of the 3 gigawatts in late-stage negotiations? Joi Harris: Yes. And again, I'll repeat, we're going to take all of this and incorporate it into next year's IRP. And really, that will dictate not only the timing, but the right resource mix, which will then drive timing of construction, lead times for materials and such. Julien Dumoulin-Smith: Right. In your owned versus a contracted piece, et cetera, et cetera. Joi Harris: Exactly. Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering just on the advanced stage data center pipeline. Is there any rough timing for when you'd expect the potential to finalize those deals and bring them forward or advance other projects maybe into the -- from the earlier stage pipeline into the advanced stage pipeline? What's the pace of crystallization of some of the projects? Joi Harris: Yes. Thanks for the question. So we're in active negotiations, and we have been for some time. We are still settling on some key terms and ramp rates. I would envision that we would have at least an idea of the ramp and firming up some of the terms before we file next year's IRP. We're pulling that forward. That's the idea into the third quarter. So we would want to be able to understand the ramp, understand exactly when that ramp would lay out over a 5-year plan and incorporate it into our modeling, so we can put it into the IRP. David Arcaro: Okay. Perfect. Yes, that's helpful. And then you piqued my interest with the behind-the-meter project that you're working on for Vantage for a data center. I was just wondering if you might be able to elaborate on maybe how big of a project that might be, what kind of power generation technology you're using? Any thoughts on maybe how returns stack up for that type of a project versus others in the Vantage pipeline? Yes, curious about that overall opportunity. Joi Harris: Yes. We're still in discussions with the data center provider. It's primary power. So it's behind the meter. You can think of that as more like CTs. And again, it's a little too early for us to give a lot of details around this deal. We haven't fully closed it yet, but it's a really good opportunity for the Vantage team and it's right down the fairway if you look at our skill set as an enterprise. So this is just a really good example of the type of projects Vantage has in the pipeline that supports their income targets, and we'll look for additional opportunities like that should they become available. We'll keep you posted, though, as things develop. Operator: Your next question comes from the line of Bill Appicelli with UBS. William Appicelli: Just a question around the rate case in the ERM. I guess what is the potential upside for investment there should more supportive regulation and decisions come your way around -- in terms of just the capital outlook on that mechanism? Joi Harris: Yes. So just to give clarity, the IRM, the investments are already in our plan. What we did hear back from the staff was strong support for the investment profile that we laid out in the case and the pace. So the -- our intent, though, is to continue to grow the IRM in future cases. So in this case, we requested up to $1 billion beginning in 2027. And what we were really happy to hear the staff support even a pull forward. So they did pull out maybe $200 million of the pull out maintenance and suggested that, that should get incorporated into our existing IRM in 2026. So that would be incremental IRM spend that would show up next year should we get that final ruling in 2026 in February. So again, it just showcases that we're aligned with the staff on the type of investments we need to make to improve reliability and the pace. William Appicelli: Okay. Great. And then just taking a step back, I mean, when we think about the broader growth rate through 2030, just to be clear, when you guys say bias to the upper end, that's with the plan as it stands here today? Or would that need to require some additional capital to push you to the upper end? Or I just want to clarify that? Or would that be then to the points made earlier, upside to the plan overall? David Ruud: That 6% to 8% through 2030 is our plan that we've laid out here today. And we say we have a bias to the upper end in each year, again, in that plan due to the 45Z tax credits and the flexibility that they provide. Joi talked about the additional opportunities we have with additional data centers that would drive some additional upside to that plan. William Appicelli: Okay. So then when we talk about the through 2030, which is post the tax credits, when you talk about the bias to the upper end extending out that far, that reflects just the capital plan as it stands today? David Ruud: Yes. Yes. We see -- when we get to 2030, because of the 45Zs also, you have flexibility year-to-year. So we think there's opportunity in 2030 to hit the upper end that year 2 of the 6% to 8% range. Operator: Your next question comes from the line of Michael Sullivan with Wolfe Research. Michael Sullivan: I just wanted to pick right up on that last question, Dave. So in 2030, when the 45Zs go away, what is it that pushes you to the high end? Or is there like some way you can continue to book those a year beyond the expiration? Or just a little more color on that would be helpful. David Ruud: Yes. What we see with these 45Zs is flexibility, right? So we've been able to -- as we've done this year is find ways to pull forward some expenses to help future years. And we just see that favorability from 2029, helping us in 2030 as well to be able to be in a good position to reach the higher end when we get out there, too. Michael Sullivan: Okay. That's really helpful. And then another one for you, Dave. I think in the past, you may have all pointed to more of like a 15% to 16% FFO to debt range and looks like now just 15%. Any color on what's going on there? David Ruud: Well, I'll just say, Mike, we have got great growth opportunity in our utility as we're doing this work that Joi described for reliability and cleaner generation also at the data center. So we're comfortable targeting this 15% range continues to give us the right cushion over the thresholds that we think. And it puts us in a really good place, remain committed to having a good balance sheet. And we're working with the rating agencies to ensure they fully understand our financing plan, really our strong cash flows, too, and they'll be comfortable with it going forward. Michael Sullivan: Okay. And one last quick one. Just the $2.5 billion for CCGT investment, I think you're building a 1.5 gigawatt plant. Is that the full amount? Or are you not capturing the full investment in the 5-year and the plant itself could cost a little more than that? Because that just seems a little on the lower end, I would have thought of what a combined cycle would cost. Joi Harris: Yes. It trails into '31, so beyond the 5 year. Operator: Your next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: Dave, a question for you first. You mentioned that at gas, you're unwinding some cost-cutting efforts from the past few years. I know that as a company, you're masterful about being nimble with O&M expenses, but I thought that was typically more short term, like within a year, maybe 2. So I'm a little surprised to hear you talk about it over a multiyear period. Can you discuss some examples of what might be included in there? What type of actions you're referring to? And then as we look to '26 and beyond, how should we think about the O&M outlook for the gas business? Joi Harris: Yes. We've essentially let some of the backlogs, maintenance backlogs we allowed those to rise, and we're unwinding a lot of that this year. So that's just an example of some of the things that we typically do in the gas company. And we were ahead of plan when -- before we saw warmer weather. So we had some opportunities to relax our maintenance efforts, and this is nonemergent maintenance backlog. And this year, we're just getting back on track. We're getting back to our normal run rate for maintenance and other expenses. David Ruud: And Andrew, I'll say like on our ability to be nimble, like we had a couple of years of warmer weather at gas. And so that did extend over a couple of years, but it still shows that we're able to balance things across our business to make sure we do everything to hit the numbers. Andrew Weisel: Okay. Great. And that is part of the outlook? Joi Harris: The outlook for Gas? Andrew Weisel: We think about O&M -- yes, the outlook for O&M at gas going forward? Joi Harris: Yes. The O&M for gas. This is -- I think this is a normal run rate that we would typically see. And then as usual, we build in some flexibility where we can lean if we need to or invest, should we see colder than normal temperatures. Andrew Weisel: Okay. Got it. And then, Joi, in your prepared remarks, I want to ask about affordability a bit. I think you said the 1.4 gigawatts of new data center load should bring meaningful affordability benefits the existing customers. But then you also talked about protecting them. So I'm just wondering, can you give more specific -- are you expecting the new data centers and this specific deal to be neutral to residential customer rates or monthly bills or deflationary? And how will that impact flow through? Will that go through rate cases or through the industrial tariff? How is that going to work for existing customers? Joi Harris: Yes. This is great for existing customers because we don't have to build anything substantial to support the load. We're using our excess capacity to support the load and building batteries on top of it just for peak shaving purposes. And the customers get that full benefit. So it will show up in the form of a lower ask over our next rate case cycle. So customers will get that flow through in that form. In terms of the protections, the contract terms protect our customers from stranded assets or rate shock over a period of time when we're serving the customers, the data center customers that is. Andrew Weisel: Thank you very much and congrats. Joi Harris: Thank you. Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: Hope all is well. I just wanted to follow up 2 quick cleanups. One to Mike's question earlier on the FFO to debt, Dave. As Vantage becomes a smaller and smaller portion of the company's earnings mix, any conversation with the agencies of an improved or a lower downgrade threshold? David Ruud: We are in constant communication with the rating agencies I think right now -- and because we have a lot of really utility-like projects at Vantage, I don't know if that will lead to lower thresholds, but we will continue those conversations because we will be moving more into that going forward as well. Anthony Crowdell: And the current threshold is 14% or 15%? David Ruud: It's down around 14%. It depends -- the rating agency depends on the way they measure it also relative to how we do, but more in the 13% to 14%. Anthony Crowdell: Great. And then one of the earlier questions, I think Bill was asking on the IRM mechanism. You highlighted, I think, staff is $1.2 billion. I guess just is the cadence of spend, if you could just talk about that? And then also, the company previously or historically would file maybe an electric case every maybe 12 to 24 months. Does that stretch out the filings, the frequency of the filings? Joi Harris: Yes. So the way -- the IRM is $1 billion. It starts in 2027. We have an existing IRM, but it starts to ramp up in our filing in 2027 and grows to $1 billion over 3 years. And the way that we've laid this out, we would start to see that investment grow and make adjustments along the way based on performance. So in our next filing, we will look to update it and increase it even further. You asked about will that keep us out of rate cases. Where we have it right now, it would give us maybe 6 to 8 months worth of, I think, benefit that we could push out a rate case for that period of time. As it continues to grow, that time will lengthen. Anthony Crowdell: Great. Joi, such an improvement versus Jerry. Great move. Joi Harris: Thanks Anthony. Operator: Your next question comes from the line of Paul Fremont with Ladenburg. Paul Fremont: I guess my first question is the junior subordinated debt that you talked about, is that instead of or in addition to the planned equity -- annual issuance of equity? David Ruud: Yes. We do expect to have some junior sub that comes within our plan. We're going to look at that strategically, but that would be additional to the equity that is laid out. What we've laid out is what we would need to do for true equity issuances of $500 million to $600 million. Paul Fremont: Great. And then on the CCGT, what is the cost per kW that we should assume for the CCGT? Joi Harris: Well, we're seeing ranges. So right now, it's roughly $2,500, and we're still updating our estimates. We'll know for certain once we get the finalization of our RFPs and see what is coming out. We've got the IRPs for our power island, but there's still some additional work. But that's our initial estimate at this point. Paul Fremont: Great. And then turbine availability, if you get the 3 gigawatts that you're in advanced stage negotiation, do you see -- what time frame do you see sort of being able to get turbines? Joi Harris: Yes. Well, we're actually in the queue for our turbines that we want to bring on to replace Monroe only. And that CCGT we have in the plan, it only supports the retirement of Monroe has nothing to do with data centers. If we want to bring on another CCGT to support data centers, we're still seeing a 3- to 4-year time line for at least 1 gigawatt and above. There is some flexibility we're seeing for smaller turbines. It just depends on how big of a data center load we're trying to serve and when the ramp kind of gets to the top end. So we'll flesh all of this out in next year's IRP and again, pick the right resource mix to support the load. Paul Fremont: So I guess, just theoretically, if some of the 3 gigawatts were to be finalized, if their need were sort of before that 3- to 4-year time line, you would serve that load potentially through purchase power? Or how would that work? Joi Harris: Yes. The way that we're going to address these contracts is really get a sense of how quickly they want to ramp and then use the IRP modeling to tell us what is the optimal resource mix to support that load. It could be a combination of renewables and battery storage, similar to what we're doing with this -- the deal that we have on the table or it could require a CCGT. Still too early to say. All of that will get fleshed out as we finalize the negotiations and incorporate it into the IRP next year. Paul Fremont: Great. And then last question for me. You're looking at potentially higher trading contributions in '25. Can you give us a sense of how much? And will next year's trading contribution be sort of back at the 50 to 60 level that it was this year? David Ruud: Right, Paul, Trading is having a really good year. We're seeing these strong margins. We talked about both gas and physical power portfolio, again, structured and hedged. Right now, our year-to-date is above the range, and that's given us some flexibility across our business. We don't plan for earnings to continue at that pace. We put in the $50 million to $60 million, as you mentioned. However, because some of these contracts are longer term, we do see some favorability that could come into '26, but we don't forecast that long term. We forecast around the 50 to 60 still. Operator: Your next question comes from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: So lots of questions ahead of me. But can you give me a sense the 1.5 gig or the current data center contract that you just finalized 1.4 and then the additional contracts in the works. I mean, how do they compare versus the load that you currently serve? Yes, like a percentage-wise, how big of an impact is it? Joi Harris: Yes. So the 1.4 increases our load by 25%. So that should give you a sense of what an additional gigawatt could equate to if we were able to bring it on. Agnieszka Storozynski: Yes. I mean, yes, that puts it in perspective. Now on Vantage, I understand that you're shifting investments towards basically a higher multiple business, which makes sense. But I would -- it's kind of surprising to see that there is less of growth opportunities for Vantage in this day and age where you have this seemingly an explosion of behind-the-meter generation, like cogen seems to be such a hot investment right now. Omni because it's behind the meter, Omni because it's time to power. So again, you did mention some commodity price pressures, but I'm a little bit surprised to see this lower growth CAGR for that business. Joi Harris: Yes. Angie, we're going to continue to work the BD pipeline there. And this first deal that we're getting -- at least trying to get under our belt would inform if this is a vertical that we can pursue further. And again, this is outside of the state of Michigan. We're hearing more and more that this behind-the-meter option is something that data center providers want to pursue. And so to your point, we're going to keep working it and ensure that we've got the execution capability. We've settled on a design, we think that works, that gives the redundancy. So we think that could position us to be really attractive to data centers that are looking to pursue this type of solution. Agnieszka Storozynski: Okay. And Dave, could you comment on growth expectations for your dividend in this new higher CapEx environment? David Ruud: Yes, Andrew, we're going to continue to revisit the dividend growth. We said in our prepared remarks, we're going to grow them with our operating EPS. And right now, we're in a payout ratio that's right in the midpoint of our peers. But we're going to continue to look at that and make sure that it supports both growth and what our investors prefer here. Agnieszka Storozynski: Very good. Congrats, thank you. David Ruud: Thank you. Operator: Your last question comes from the line of Travis Miller with Morningstar. Travis Miller: Just want to confirm the cash flow and earnings mix here over the next couple of years. So do you hear it correctly, the ramp comes for this data center, the ramp comes next year. And then there's really no incremental capital that you would fund because they're funding the storage, right? So cash flow and earnings should be pretty close at least over the next 1 to 2 years as this data center contract ramps up. Is that correct? David Ruud: Well, we're investing the storage to fund the storage assets. And then we'll be getting the cash flows from the ramp, which does ramp up really quick. But we will be investing in those storage assets. And that's why one of the reasons why we're pulling some of our capital forward and need some of this additional equity. Travis Miller: Okay. Okay. And that would be over a short period of time though, right? David Ruud: Yes, short periods, few years time. Travis Miller: Okay. And what size is the storage? Investment? Not dollars, but how many gigawatts or megawatts? Joi Harris: It's a gigawatt of storage, and then we're going to use tolling agreements. So in accordance with our IRP settlements, we are going to build 2/3 of the requirement, and then we're going to use tolling agreements for the other 1/3, which are -- we'll get the FCM on the tolling agreements. Operator: There are no questions at this time. Joi Harris: All right. -- thank you, everyone, for joining us today. I'll just close out by saying DTE continues to have a really strong year in 2025, and we are well positioned for 2026. And I am just really excited about our long-term plan and the opportunities ahead. And I look forward to seeing many of you at EEI in just over a couple of weeks. So thank you all for joining us today. Have a great morning. Stay safe and be healthy. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to the Lincoln Electric 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] This call is being recorded. It's my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you, and you may begin. Amanda Butler: Thank you, Janice, and good morning, everyone. Welcome to Lincoln Electric's Third Quarter 2025 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steve Hedlund, our Chairman, President and Chief Executive Officer; as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions, but before we start our discussion, please note that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. In addition, we discussed financial measures that do not conform to U.S. GAAP. And a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which, again, you can find on our Investor Relations website at lincolnelectric.com. And with that, I'll turn the call over to Steve Hedlund. Steve? Steven Hedlund: Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We reported solid third quarter results this morning. Sales increased 8% driven by pricing, benefits from our M&A strategy and resilient demand for short-cycle portions of our product portfolio in the Americas Welding and Harris Products Group segments. While we are still navigating a period of challenged capital spending in our automation portfolio and sluggish demand in the EMEA region, our results demonstrate the strength of our operating model. We are effectively offsetting inflation and volume headwinds through commercial and operational agility. We are achieving our targeted neutral price cost position and generated an incremental $8 million in permanent savings this quarter. This resulted in both higher gross profit and operating income margins, a 15% increase in our adjusted earnings per share performance, and record cash flow generation with 149% cash conversion. Our strategic investments and operating model continue to compound earnings are delivering top quartile ROIC performance and are supporting a balanced capital allocation strategy that invests in long-term growth while returning cash to shareholders through the cycle. Let's turn to Slide 4 to discuss organic sales performance in the third quarter and into October. Organic sales increased 5.6% on higher price and narrowing volume declines. Volumes reflected ongoing stabilization in the demand for our short-cycle consumables, most notably in Americas and the Harris Products Group segments as well as in our North American industrial gas distribution channel. An encouraging area of improvement was the low single-digit percent volume growth we achieved in welding equipment in the Americas, which has shown continued momentum in October. Our automation portfolio continues to be challenged from deferred capital spending in the automotive and heavy industry sectors. In the third quarter, we generated approximately $200 million in global automation sales. This was slightly below expectation and primarily due to project timing, which will be recognized in the fourth quarter. We were encouraged by a broad increase in automation order rates in late September and through October. If this trend continues, we expect fourth quarter automation sales to be approximately 15% to 20% higher sequentially, but still below last year's sales level. Looking at end market organic sales trend, we continue to see 3 of our 5 end markets, representing approximately 60% of revenue, achieving steady to higher organic sales growth in the quarter. While largely price driven, we did achieve volume growth across general industries, the HVAC sector and in midstream energy. Construction Infrastructure organic sales were steady in the quarter from a high single-digit percent increase in Americas, which was offset internationally. Heavy Industries organic sales trends improved on easier prior year comparisons, price and higher customer production activity in construction and agricultural equipment, which we are encouraged to see. While automotive remained challenged due to slow capital spending, we are pleased to see consumable volume growth outpaced domestic production rates in Americas. We are encouraged by the industry's latest October model launch survey that points to a reacceleration in new model launch plans through 2029. This aligns with an increase in long-cycle automation orders we closed in October. If this momentum continues, it's just an inflection to growth for auto capital spending in our business in early to mid-2026. To summarize, before passing the call to Gabe, we are in the final quarter of our 5-year Higher Standard 2025 strategy. Our global team has done an outstanding job over 5 very dynamic years that have spanned a global pandemic and a global trade war. I am proud that our initiatives have delivered, and we are on track to achieve most of our financial and sustainability targets. Since 2020, our strategy baseline year, our operating income margin has increased 500 basis points and has averaged 16% across that time frame, which is on target. Our earnings have more than doubled at a high-teens percent annual compounded growth rate, and we have generated over 165% in total shareholder returns through the third quarter. Our relentless focus on serving customers, driving innovation and continuous improvement and winning together positions the company for superior performance in the next growth cycle. And now I will pass the call to Gabe Bruno to cover third quarter financials in more detail. Gabriel Bruno: Thank you, Steve. Moving to Slide 5. Our third quarter sales increased 7.9% to $1.061 billion from 7.8% higher price a 1.7% benefit from acquisitions and 60 basis points from favorable foreign exchange translation. These increases were partially offset by 2.2% lower volumes. Gross profit dollars increased approximately 11% to $389 million, and gross profit margin expanded 90 basis points to 36.7%, a $2.5 million benefit from our savings actions as well as diligent cost management and operational initiatives substantially offset the impact of lower volumes and a $5 million LIFO charge in the quarter. We expect a similar LIFO trend in the fourth quarter. SG&A expense increased 11% or approximately $21 million versus the prior year, primarily from a challenging prior year comparison due to lower employee costs. In the prior year, we had a decrease in variable costs associated with incentive compensation programs as well as an approximate $7 million adjustment to long-term performance-based incentive programs. The year-over-year increase was partially offset by a $6 million benefit from our permanent savings actions. SG&A expense as a percent of sales was 19.5%, in line sequentially. Reported operating income increased 21%. The year-over-year increase primarily reflects special item charges in the prior year period. Excluding special items, adjusted operating income increased approximately 9% to $185 million. Our adjusted operating income margin increased 10 basis points to 17.4%, reflecting a 19% incremental margin. We reported an effective tax rate of 26.1%, which is 250 basis points higher versus prior year, primarily from an approximate $9 million special item tax expense from the election of provisions from the One Big Beautiful Bill Act. This election also reduces tax payments by approximately $25 million per quarter starting in the third quarter and through the first quarter of 2026. Excluding special items, our effective tax rate was 21.1%, which was a 250 basis point improvement versus the prior year. We reported third quarter diluted earnings per share of $2.21. On an adjusted basis, EPS increased 15% to $2.47. Our EPS results include a $0.07 benefit from share repurchases and a $0.01 unfavorable impact from foreign exchange translation. Moving to our reportable segments on Slide 6. We Americas Welding sales increased approximately 9% driven by 9.6% higher price and a 1.4% contribution from our Vanair acquisition, which anniversaried August 1. Volume declines narrowed to approximately 2%. The increase in price reflects actions taken through the first half of the year to address rising input costs that fully matured in the third quarter. We anticipate price levels to hold sequentially in the fourth quarter. We will continue to monitor trade policy decisions and take appropriate actions as needed. Americas Welding segment's third quarter adjusted EBIT increased 5% to $132 million. The adjusted EBIT margin declined 60 basis points to 18.2%, primarily due to the challenging prior year comparisons from lower employee costs related to incentive compensation programs previously discussed and lower automation volumes. These factors offset the benefits of diligent cost management and $4 million in permanent savings. We expect Americas Welding to continue to operate in the 18% to 19% EBIT margin range for the remainder of the year. Moving to Slide 7. The International Welding segment sales increased 1.6% as an approximate 4% benefit from our Alloy Steel acquisition and 2% favorable foreign exchange translation were partially offset by 4% lower volumes. Volume compression narrowed in the quarter on prior year comparisons and growth pockets in Asia Pacific, including high single-digit percent growth in China. The segment continued to navigate challenged European demand trends. Adjusted EBIT increased approximately 29% to $26 million. Margin increased 230 basis points to a more normalized rate of 11.3%, which reflects mix, seasonality and $3 million of permanent savings. We expect International Welding's margin performance to continue to operate in the 11% to 12% range for the balance of the year. Moving to the Harris Products Group on Slide 8. Third quarter sales increased 15% with 2% higher volumes and nearly 12% higher price. Volumes reflect HVAC sector strength this year and our expanded retail channel presence. We expect softening HVAC production in the fourth quarter. Price continued to increase on metal costs and price actions taken to mitigate rising input costs. Adjusted EBIT increased approximately 28% to $28 million, and margin improved 190 basis points to a record 18.3% on volume growth, effective cost management and strategic initiatives. The Harris segment is expected to operate in the 16% to 7% range for the balance of the year due to seasonality and reduced HVAC production activity previously mentioned. Moving to Slide 9. We generated record cash flow from operations in the quarter, aided by lower tax payments. Year-to-date cash flows have increased approximately 13% with a 119% cash conversion ratio. Average operating working capital improved 50 basis points to 18.6% versus the comparable prior year period. Moving to Slide 10. We are executing well on our capital allocation strategy. In the quarter, we invested $136 million in growth, reflecting CapEx investments and our final investment in Alloy Steel. Our adjusted return on invested capital increased to 22.2%. We also returned $94 million to shareholders through a combination of our dividend and $53 million in share repurchases. Looking ahead, we announced our 30th consecutive annual dividend payout rate increase, which is 5.3% starting early next year. We continue to expect superior shareholder returns through our strategic growth initiatives and our capital allocation strategy. Moving to Slide 11 to discuss our operating assumptions for the year. We are maintaining our top line and margin assumptions given performance to date, order trends, effective cost management and benefits from our savings programs. We expect traditional seasonality in our sales performance as we move from the third quarter to the fourth quarter with a modest sequential improvement in our operating income margin. We are increasing our interest expense assumption to a low $50 million range due to recent borrowings for the Alloy Steel transaction, and we are increasing our cash conversion range to above 100% to better align with performance. To wrap up, our manufacturing footprint and supply chain strategy have proven to be well positioned and resilient in this operating environment. Combined with diligent cost management and a focus on long-term growth, we will continue to effectively manage any headwinds and leverage opportunities to drive superior long-term value. And now I would like to turn the call over for questions. Operator: [Operator Instructions] Your first question comes from the line of Angel Castillo from Morgan Stanley. Oliver Z Jiang: This is Oliver Jiang on for Angel this morning. I guess maybe just to start, how -- curious as to how you're seeing kind of demand trends unfold kind of the first month into the quarter. Specifically around kind of construction and infra, it sounds like that's actually gotten better, just going off the slide. So, any, just curious if you can share some color there. Gabriel Bruno: Yes. I guess, just in general, Oliver, as we mentioned, we saw continued strength as we wrapped up the third quarter and into this fourth quarter. We've been looking to strength out of our automation business, and we're starting to see an acceleration of orders that are broad-based. And so while it's still pretty early in the quarter, we're optimistic that we're seeing strength progressing in capital investment. We're seeing in our core business in Americas segment as well. We're seeing some progressive trends as we wrapped up the third quarter and into the fourth quarter. The last thing I'd mention in terms of order trends, and we do expect, as I mentioned in my comments, to see some compression on the HVAC part of our business from the production levels expected to soften in this fourth quarter. When we think about that, we think about 10% to 15% of our business exposed. So while it's traditional seasonality within our Harris segment, we do expect incremental softness within the HVAC markets. Steven Hedlund: And Oliver, just to add specifically on your question about Construction Infrastructure, it's really a tale of 2 cities. We saw a lot of strength in the Americas Welding segment, more challenge in the international overall up and positive, which is encouraging, but again, very regionally distinct. Oliver Z Jiang: That's really helpful. And maybe just as a follow-up, in automation, it sounds like encouraging to see kind of that order rate tick up. And that could potentially, if it trends throughout the rest of the quarter, it sounds like revenues will be higher sequentially. Curious as to like how that translates to margin just from an incremental perspective? I know there's some higher fixed costs there, but yes, just curious if you can share some color as well. Steven Hedlund: Yes. So the automation business does have a higher fixed costs, so higher incrementals and also higher decrementals. A lot of that business is a fairly long-cycle projects, right? So as we take orders, particularly on the automotive side, you'll start to see the revenue and margin impact of that increased activity next year, more so than fourth quarter. There are some short-cycle portions of the business in terms of cobots and more preengineered systems. So we might see a little bit of an uptick sequentially from third quarter to fourth quarter in automation, but I think the big benefit from the renewed capital spending will come next year rather than fourth quarter. Gabriel Bruno: Just to add, Oliver, when you look at short term, the mix of business within the Americas segment, as you know, 80% of our Automation business is within the Americas segment. So while the incremental activity that Steve points to, we won't see realized into 2026, as we mentioned, the sequential improvement, we do expect between 15% to 20% improvement in the Q3 levels, which would provide a more improving mix in the margins within the Automation segment. Operator: Your next question is coming from the line of Bryan Blair from Oppenheimer. Bryan Blair: It would be great to hear a little more on how your team is thinking about cycle positioning and the potential for demand recovery and acceleration into 2026. I understand comps are relatively easy, that certainly influences optics, but the growth in consumables, that's certainly notable in the quarter. Equipment grew for the first time, I believe, since the fourth quarter of '23. So there seems to be some real underlying momentum respecting that you haven't offered 2026 guidance. Just any color on the puts and takes of the backdrop and your thoughts on the setup going into next year would be appreciated. Gabriel Bruno: Yes, Bryan, thanks for that. No, we're well positioned, as you know, as markets begin to expand. The question is when. When we think about consumables as being a key indicator for short-cycle activity, pretty positive with all the dynamics in the market to see some positive trends there. So we're well positioned for growth, although we need to see more consistency before we have more confidence in what an expansion could look like. On the automation equipment side, I mean, that's where we're seeing good activity with some consistency there. We do expect to see a posture to return to growth there. So it really is about being in a position to accelerate our performance with growth, and we're well positioned. We've been shaping our model, but we want to see a little bit more consistency in the order activity before we point to a more consistent growth pattern in our business. Steven Hedlund: Yes, Bryan, as we've navigated through this part of the cycle, we've tried to be very thoughtful about how we can strengthen the business for the long term. We've talked about some of the controls we put on discretionary spending and looking for structural cost savings basically by changing how we get the work done so that we can become more efficient, more productive, get the cost reductions, but not compromise our ability to capture demand in an up cycle. Bryan Blair: Understood. That's very helpful color. The broad acceleration in automation orders that that's certainly encouraging. And it's been multiple quarters of, I guess, wait-and-see posture from customers on that front. I'm just curious if you're hearing any consistent rationale for moving forward with what the orders now for the conversion of high levels of quoting activity to now solid order flow and mentioning that it's broad acceleration, not just auto. We know that, that's been pending and platform changeovers, et cetera. There will eventually be investment there. Just curious, auto and other sectors is, again, there's any consistency to customer rationale for now moving forward after multiple quarters of being kind of on pause. Gabriel Bruno: No, I would add, Bryan, just it's broad-based, as we mentioned, not just automotive, although you did note that with program launches announced just in this month of October versus April is probably mid-teens overall uplift in activity. So that's pretty positive, but it is broad-based, and we believe that our key theme of how we introduce high-quality solutions within automation capabilities we offer do differentiate ourselves. And so we -- our quoting activity is broad and very high still and seeing the progression of more commitment to capital is a good sign. Steven Hedlund: And Bryan, I'd also add that you saw CAT's release yesterday, right? The heavy industry part of our portfolio is starting to get more confidence in their future production rates, therefore, more willing to spend capital. That also has a trickle down effect in the general industries. And I think we're also seeing this is maybe more anecdotal because we don't necessarily track it this way. But we are starting to see some investments as companies look to reshore or nearshore production. Operator: Your next question is coming from the line of Saree Boroditsky from Jefferies. Saree Boroditsky: Pricing has obviously been very strong in Americas. I think when you started the year, you expected some demand destruction with higher pricing. So curious if you're seeing this or if it's been more inelastic. Gabriel Bruno: Yes. I'd say, Saree, our initial concern, right, was that price and volume would fully offset each other. And I think we've seen demand from a volume standpoint, be a little bit more resilient than that. So trailing -- the reduction in volume trailing, the increase in price and giving us a net increase in organics. I think what we're starting to see now is the volume not being less negative but actually starting to flip towards being positive. Now part of that is easier comps as we started to enter the slowdown this time last year. But I think there's general optimism amongst our customer base that we're starting to see the first innings of a turn in demand. Saree Boroditsky: I appreciate that color. And I know you talked a little bit about 2026 volume recovery earlier. But just curious now that we're in our second year of volume decline, you saw some momentum. How you would expect to see a slower recovery? Would it be kind of a recovery? Or would you see some strong growth coming out of this downturn? Gabriel Bruno: Well, it's always difficult, Saree, to predict kind of the trajectory of any expansion, but a couple of signs that I'd point to. Short-cycle activities, we've already talked about in consumables it begins a cycle of growth that leads into investment. So for example, when we see on our part of our business in the Americas where consumable volumes are improving on the automotive end market, that points to production, and then it leads to growth in capital investment. When we see heavy industries stabilize, and then we start to point to modest levels of activities and growth in different pockets of heavy industries, that's also a positive indicator. We saw the same thing in general industries where consumable activity turned positive. So when you see persistent consistent levels of industrial production activity, then we expect to see more accelerated capital investment. So we're starting to see that. We need to see a little bit more consistency there, but that does lead us into a more optimistic view of where the markets are trending. Steven Hedlund: Sure, I'd expect to see a slow build of volume growth rather than an avalanche of everything suddenly breaking loose. Operator: Your next question is coming from the line of Nathan Jones of Stifel. Nathan Jones: I guess I'll start with a question on incremental margins. Currently, you're looking at volume declines and price increases driving organic growth. And obviously, you don't get any operating leverage on price. Particularly, if it's offsetting increased costs, right? You get volume leverage of volume. So maybe some advice on how we should think about incremental margins as the growth is primarily driven by price as we head into maybe the first half of next year. And then that flips to maybe more volume-driven growth in the second half of next year. You talked about investments you made in throughput and being more efficient. Maybe does that change the we should expect lower incremental margins in the short term and maybe higher than historic incremental margins as volume improved from those investments? Just any color or commentary you can give us about how we should think about incremental margins? Gabriel Bruno: Yes. I would look to, when -- I think about our current environment, where we have high teens incremental margins and the trajectory of what we're talking about with modest volume declines. In general, as you know, Nathan, when we see volumes approaching that mid-single digits, we're going to be in that mid-20s incremental margins. There is upside with automation. And as we continue to shape our international segment, which leads into upwards of 30, low to mid-30s type incrementals. But you should see more accelerated incrementals as you see an acceleration of growth. Outside of that, you see more of what we've done to date. So we'll see if high teens type of incrementals in this kind of environment. Nathan Jones: I guess my follow-up question will be on Europe. Your main competitor reported yesterday, a bit more bullish on the outlook for improved volume in Europe going into next year. Maybe just any commentary on your view of any inflection in European volume growth. Steven Hedlund: Yes. Sure, Nathan. The commentary from the European governments about increasing defense spending and the like is encouraging. But at this point, it's still commentary. We're not seeing that translate into order intake for us. So I guess we would be cautiously optimistic that maybe Europe might get better, but we're not in any way counting on it. We're planning for it. Operator: Your next question is coming from the line of Mig Dobre from Baird. Mircea Dobre: First question, I guess 2 parts to it. So can we put a finer point maybe on the volumes that you expect in the fourth quarter in Americas? The short-cycle business is improving, but apparently, automation is going to be down again year-over-year, even though maybe better sequentially. So net-net, what should we be thinking in terms of volume -- and I guess the second part of the question is in international. If I understood correctly, the way you're thinking about margin in the fourth quarter is really not all that different than what we've seen in Q3. Now I know the business does have a little bit of seasonality typically and the fourth quarter is usually better than the third. So I'm wondering, again, what might be different this time around? Gabriel Bruno: Yes. So Mig, I'll answer the international margin question first. So you're right, we do expect traditional seasonality in the fourth quarter, which is an uptick from third. And then on top of that, incremental sales from the acquisition we've made. So we mentioned operating within that 11% to 12% range. I expect us to probably be on the higher end of that range, but still within that framework from an international segment standpoint. On the Americas side, we do expect sequential, as you note, automation growth, but still probably low double digits behind the prior year as we had a record level of automation sales and margins in 2024's fourth quarter. So sequentially, I would think of the fourth quarter, as I've mentioned, to be seasonally adjusted. So it will be up 100, 200 basis points fourth quarter versus third quarter, all in with all the puts and takes. And we do expect an improvement in the operating margin profile. I expect, as I mentioned, Americas to be in the higher end of that 18% to 19% range. Mircea Dobre: Okay. That's helpful. And then my second question, and you'll have to excuse my ignorance here on the accounting dynamics. But from a LIFO charge's standpoint, is this something that we should be contemplating in 2026 as well? Or are we starting to lap some of these issues, and you talked a little bit about incremental margins on a volume recovery, but I do know that there are some temporary cost takeouts, which, I guess, presumably revert as volumes increase. So without maybe asking for specific guidance on 2026, just level-setting expectations here for the Americas segment in particular, as how people should be thinking about incrementals. Gabriel Bruno: Yes. So I would follow a more traditional incrementals framework as I've mentioned in previous question, Mig. On LIFO, LIFO accounting gets reset every year. So we're pointing to the valuation of inventories and the cost related to that. So we do expect, as I mentioned in my comments, to LIFO charges in the fourth quarter to follow the same trending we've had in the last couple of quarters, last year would be a credit. But I can't really speak to 2026, until we start seeing the inflationary trends and then what reset, what a LIFO accounting would look like. On temporary cost savings, that's built into our model. So as volume improves, then we'll allow for temporary costs to come back into the business. But that's all part of our incremental framework that we have as a business. Operator: Your final question is coming from the line of Steve Barger from KeyBanc Capital Markets. Christian Zyla: This is actually Christian Zyla on for Steve Barger. My first question is on your automation business. Kind of a long one. Last quarter, your comments implied automation to be down about mid-single digits year-over-year. Where did the underperformance come from? Maybe I missed it, was it all related to automotive CapEx? And then with your comments about October activity in answer to 1 of your earlier questions, how are you thinking about the fourth quarter now? Is it -- is stable from 2Q still a fair level? Or should we be thinking about 4Q in parts of '26 closer to 3Q level? Gabriel Bruno: Yes. In terms of our sales mix, we did see the compression largely in automotive, but also in heavy industries. So you've got that mix and the strengthening we pointed to, Chris, was broad-based. We had talked about a pacing after the second quarter that was more in line with $215 million per quarter. We were below that in the third quarter, just the timing of how we recognized the revenue. We're going to recoup that in a little bit more into the fourth quarter. So I would say we're a little bit ahead of where the pacing that we had talked about in the second quarter, but still implies a mid-single-digit decline for the full year. So -- and then that's sort of the comments in terms of order activity really come into really more of a 2026 profile business. So we're trending just a little bit better than what we had communicated at the -- after the second quarter call. Christian Zyla: Got it. That's great color. And then last question, just on your Harris business, your ability to get pricing has been incredible. The last 6 quarters have averaged high single digits. Is this primarily demand-driven pricing? Or how would you break down the pricing ability from demand tariffs and maybe some catch-up pricing? Do you think this dynamic continues into the next quarter and next year, presumably? Gabriel Bruno: Yes. So in general, Chris, remember, Harris has good portion of the business that's tied to commodity silver and copper, and we have a mechanical pricing model that adjusts to changes in the markets, particularly in silver and copper. So the movement in pricing is largely reflective of changes in the commodities in the broader markets. Operator: This concludes our question-and-answer session. I would like to turn the call back to Gabe Bruno, Chief Financial Officer, for closing remarks. Gabriel Bruno: I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much. Operator: Ladies and gentlemen, that concludes our call for today. Thank you all for joining. You may now disconnect.
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, and welcome to S&P Global's Third Quarter 2025 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions]. I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations and Treasurer for S&P Global. Sir, you may begin. Mark Grant: Good morning, and thank you for joining today's S&P Global Third Quarter 2025 Earnings Call. Presenting on today's call are Martina Cheung, President and Chief Executive Officer; and Eric Aboaf, Chief Financial Officer. We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we are providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we are providing, and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. The financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our Media Relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Martina Cheung. Martina? Martina Cheung: Thank you, Mark. In the third quarter, we delivered record revenue, record operating profit and record EPS. On every headline financial metric, it was the strongest quarter we've ever had. Revenue increased 9% year-over-year with subscription revenue increasing 6%. We continue to make important strategic investments while focusing on productivity and disciplined execution. This allowed us to deliver 180 basis points of margin expansion on a trailing 12-month basis and increased our adjusted EPS by 22%. We also returned nearly $1.5 billion to shareholders through dividends and buybacks since our last earnings call. We're also announcing today that we expect to launch an additional $2.5 billion share repurchase during the fourth quarter following our Investor Day. This will allow us to return approximately 85% of 2025 adjusted free cash flow while still using the net proceeds from the OSTTRA divestiture for additional share repurchases. We now expect to fund the acquisition of With Intelligence through a combination of $1 billion in incremental debt and cash on hand. The double-digit revenue growth in our Ratings and Indices businesses really highlight the incredible value of our global franchises. The investments we've made in prior years, particularly in capacity, new products and technology, allow us to efficiently meet market demand in these periods of favorable market conditions. Market Intelligence also saw another quarter of revenue acceleration on both a reported and organic basis. Improvements in productivity and execution have supported the acceleration of revenue growth and margin expansion in the quarter. We continue to be pleased with the results the teams are delivering. We've been focused on innovation across the company, and we made some very exciting announcements recently that we believe will accelerate our leadership in strategically important areas. As I'll discuss in a moment, we've announced a number of important advancements in AI. We also announced the planned acquisition of With Intelligence, and we announced an exciting partnership with both Cambridge Associates and Mercer. This multipronged approach to innovation and growth allows us to be nimble and decisive in our approach to strategic growth and combine assets in unique ways to serve our customers. We also wanted to call attention to our progress in artificial intelligence. And later in the call, I'll give a bit of a preview into some of what we'll be discussing at Investor Day. This morning, we announced in our press release that we have signed an agreement to divest our Enterprise Data Management and thinkFolio businesses, subject to customary closing conditions. This is a continuation of our efforts to streamline and simplify our business while making sure that our products and services are strategically aligned. We will always strive to be good stewards of our portfolio of businesses, and we may continue to make tactical divestitures from time to time. However, with these announcements, we can say that this multiyear exercise of portfolio optimization within Market Intelligence is substantially complete. Before I get into further details of our performance this quarter, I want to touch on some leadership announcements we've made recently. First, Dan Draper and Swamy Kocherlakota will be departing, as previously announced; and second, Mark Eramo will be retiring. I want to extend my heartfelt thanks to each of them for their meaningful contributions and leadership over the years and for their help to ensure a smooth transition. With Mark's retirement, Dave Ernsberger will assume the role of sole President of Commodity Insights. We're also thrilled to welcome Catherine Clay as the new CEO of S&P Dow Jones Indices, who will be joining next week. Now turning to the current market conditions. Billed issuance increased 13% year-over-year in the quarter with particular strength in high-yield and structured finance. Equity markets continued to perform well in the third quarter as equity prices and equity inflows both contributed to a very strong quarter in our indices business. With volatility tempering from the elevated levels we saw in the second quarter, our ETD growth moderated somewhat as well, but remained positive against a difficult compare from last year. While we have seen some pull forward of high-yield refinancing from the 2026 maturity wall, we remain encouraged by the fact that for high-yield specifically, the Q4 maturity wall is 6% higher than what we saw at this point last year, while the 1-year forward maturity wall also remains healthy. In investment grade, the Q4 wall is very modestly lower than what we saw last year, while the 1-year forward maturity wall is still higher. Our outlook for the rest of the year assumes billed issuance growth in the mid- to high-teens range in the fourth quarter and assumes that U.S. equity markets are flat from September 30. Eric will walk through what that means for guidance in a moment. Now turning to some very exciting news from earlier this month. We announced the planned acquisition of With Intelligence, which we expect to close by early 2026, subject to customary conditions. With Intelligence brings an incredible amount of differentiated data on private markets, including extensive data in private equity, private credit, infrastructure, hedge funds and family offices. Importantly, this data is sourced directly from asset allocators and fund managers. S&P Global can combine that contributory data with our already massive data estate covering more than 50 million private companies, our pricing and valuation data from MI, credit ratings and estimates, energy data from CI, and infrastructure and data center information from 451 Research. This unique combination of differentiated private markets data will allow S&P Global to provide essential intelligence to customers that they will not be able to get from any other provider. The team at With Intelligence has built a truly incredible company, and we believe that we will be able to accelerate the growth of With Intelligence as part of S&P Global's Market Intelligence division. Our goal is to create the most comprehensive solution for private markets participants anywhere in the world. We're excited to tell you more about our long-term vision for private markets at Investor Day in a couple of weeks, but this acquisition helps us take another meaningful step towards turning that vision into reality. The acquisition of With Intelligence is just one of the many ways we are adding to innovation. In the last few months, we've also made some very exciting announcements around our organic product innovation. In the third quarter, we announced AI-powered document search within iLEVEL. This comes quickly after the launch of automated data ingestion, or ADI, in iLEVEL earlier this year. iLEVEL is already the leading platform for private markets portfolio monitoring. And while ADI made it easier for users to bring new data into the platform, Document Search makes it easier for them to get portfolio intelligence out of the platform. Just last week, we announced the launch of Document Intelligence 2.0 within Capital IQ Pro. The new Document Intelligence allows users to extract real insights across multiple documents simultaneously. We brought deep research functionality and allowed users to leverage that within our data and content without ever having to leave the Capital IQ platform. Users can now analyze multiple documents from different sources, including filings, transcripts, investor presentations, news and proprietary research, all simultaneously through a familiar conversational interface. We're not just making our products better either, we're also innovating new ways to let users interact with our data and content. In recent months, we've announced collaborations with Microsoft, Anthropic, Google, Salesforce, IBM and others to make sure that wherever our customers are working, they are doing it with S&P Global's differentiated data. While still in early stages and with strong IP protections in place, we view these collaborations as important ways to reach new customers and help our existing customers to get the most out of the leading tools in the market. We'll have demos of all of these innovations available in the product showcase at our Investor Day in just a few weeks. Back in September, we announced a strategic collaboration with investment firms, Cambridge Associates and Mercer, to deliver comprehensive private markets performance analytics, and we expect to launch a beta by year-end. We also announced a collaboration with Centrifuge to bring the S&P 500 Index on chain, expanding access to the world's most widely recognized benchmark. Centrifuge is a decentralized infrastructure provider specializing in real-world asset integration. And this collaboration lets us enter the fund tokenization space by licensing the S&P 500 Index. In addition to the acquisition of With Intelligence, we also recently announced the completion of our acquisition of ARC Research. ARC Research is the leading independent provider of investment performance data, benchmarking capabilities and insights in the private wealth market. It maintains the world's largest proprietary data set of more than 500,000 private client portfolios with decades of history. We're thrilled to add ARC Research's impressive capabilities to our wealth initiatives within S&P Dow Jones Indices. We continue to look for new ways to meet our customers' needs and these recent announcements of organic innovation, strong partnerships and the acquisition of truly differentiated assets are all examples of S&P Global driving greater customer value. We're seeing that show up in our customer conversations as well. In the third quarter, we had another major investment bank adopt Capital IQ Pro as its primary desktop solution in a competitive displacement, driven by the value in our data transparency, modeling flexibility and strategic support through a full migration to Capital IQ Pro, Visible Alpha and our GenAI capabilities. We also had a very strong expansion with a large global asset manager in the quarter, where we were able to demonstrate clear customer value across multiple products, particularly within the software solutions of Market Intelligence and more than triple the total value of the contract. Perhaps the best example of S&P Global moving from strength to strength is in the area of artificial intelligence. S&P moved early and powerfully into the AI space many years ago, and we have continued to grow the business profitably ever since. As many of our investors will recall, we acquired Kensho back in 2018. Including that acquisition since 2018, we have invested over $1 billion in AI innovation across 3 developmental stages. From 2018 through 2021, we invested to build out foundational capabilities through products like Kensho Link, Kensho Scribe, Kensho NERD and Kensho Extract. These tools have enabled us to look across our global data estate, scrub, process and tag data and link that data across multiple data sets. We can also create machine readable files from unstructured data like audio recordings of earnings transcripts and automate the ingestion and tagging of new data sets. These foundational capabilities are incredibly important in a world where machine readable metadata is a prerequisite for usage of any data in an LLM. In 2022, we shifted to early innovation in GenAI. With the advent of large language models, our early actions in AI positioned us very well to leverage our expertise in the field and find exciting applications of LLMs in our ecosystem. We launched the first version of Document Intelligence as well as ChatIQ within Capital IQ Pro and conversational search in our S&P Global marketplace. As more and more of our customers were coming to us for help finding ways to marry S&P data with rapidly evolving technology, we accelerated the deployment of GenAI in our products over the last 3 years. You can see that on the slide. Almost all of the new GenAI-powered products, features and enhancements were built leveraging the foundational AI technology built by Kensho over the past 7 years. Importantly, our AI innovation serves as a powerful example of our ability to leverage our scale, our expertise and our fiscal discipline. The fact that we made such bold investments early on means that we've been able to innovate very efficiently from a financial perspective. Aside from 2022, we have delivered meaningful margin expansion every year since we acquired Kensho in 2018, while still accelerating our AI innovation. We are confident we'll be able to continue driving both technological innovation and margin expansion in the years to come, which brings me back to our stellar financial results in the third quarter. Eric will provide more details shortly, but our results in the third quarter really spotlight the hard work, dedication and spectacular execution of our teams around the world. Not only did we see accelerating revenue growth for S&P Global, but we saw another consecutive quarter of acceleration in MI on both a reported and an organic basis. We also achieved meaningful margin expansion on a trailing 12-month basis in every single one of our divisions. We are pleased with the results in the quarter and look forward to seeing many of you at our Investor Day in just a couple of weeks. Eric, over to you. Eric Aboaf: Thank you, Martina, and good morning, everyone. Starting with Slide 12. The third quarter demonstrated the power of our business as we delivered accelerating revenue growth and very significant margin expansion while still reinvesting in product innovation. Reported and organic constant currency revenue both grew 9%, while expenses grew 2%, enabling us to deliver 330 basis points of year-on-year margin expansion to 52.1%. Excluding the contribution from OSTTRA, which was divested earlier this month, adjusted margins would have been 51.6% and margin expansion would have been slightly higher. Through our disciplined execution and continued capital returns, we delivered 22% growth in adjusted diluted EPS. While this slide demonstrates the diversity of our revenue streams across the divisions, we also want to provide some additional insight into the different types of products and services that generate that revenue for us. The majority of our revenue comes from the benchmarks we provide, all of Ratings, all of Indices, all of Platts within Commodity Insights, as well as the distribution of our Ratings content through Credit and Risk Solutions in MI. We also generate revenue from workload tools and software like Capital IQ and the Enterprise Solutions business in Market Intelligence and a portion of the upstream business in Commodity Insights. Our proprietary content, research and data sets as well as data that is heavily curated, enhanced and linked makes up the rest of the Commodity Insights' and a large portion of MI's Data, Analytics & Insights business. What is left is data that is publicly available and not materially enhanced by S&P Global. That portion makes up about 12% of Market Intelligence and less than 5% of the company's total revenue. That means that over 95% of the revenue is derived from proprietary sources, and the value that we generate for our customers really can't be replicated by any other single company. We plan to provide more detail around this breakdown at our Investor Day, but we thought it would be helpful in the current environment to at least provide this early view. Slide 13 illustrates the progress we are making in key strategic growth areas. Energy Transition & Sustainability revenue grew 6% to $96 million in the quarter, driven by demand for data and insights from Commodity Insights and sustainability products in our Indices division. Moving to Private Markets. Our revenue growth doubled from last quarter, accelerating to 22% year-over-year to $164 million. Growth was primarily driven by Ratings benefiting from strength in private debt issuance and middle market CLOs. S&P is committed to bringing increased transparency to the private markets and our acquisition of With Intelligence as well as our recent partnerships will enable us to further deliver on this mission while reinforcing our leadership position and accelerating our revenue growth. We are very excited to announce that in the third quarter, we achieved our merger revenue synergy target on a run rate basis, well in advance of the time line we laid out back in 2022. We exited the quarter with $355 million of run rate synergies and thus no longer expect to report on these synergies going forward. Finally, our ability to innovate across our business remained a key growth driver in the third quarter. We continued to deliver a vitality index at or above our 10% target. Turning to our divisions. On Slide 14, Market Intelligence accelerated revenue growth on both the reported and organic basis in the third quarter. We are particularly encouraged by the 8% organic constant currency growth, which represents the strongest organic growth in MI in 6 quarters. Continued strength in subscription was augmented by double-digit growth in our volume-driven products. We look forward to finishing the year strong. Data, Analytics & Insights had revenue growth of 5%, with organic revenue growth up 6% year-over-year, aided by especially strong demand for industry and company data. Enterprise Solutions benefited from an increase in issuance volumes in the secondary loan markets and strong demand for our lending workflow solutions as well as robust growth in subscription products. Reported revenue growth of 9% included the impact of $10 million in Fincentric revenue in the year-ago period. Excluding that impact, organic growth accelerated to 13% year-over-year. Credit & Risk Solutions grew 6% on a reported and organic basis, continuing to benefit from demand for Ratings data feeds that are catering to client needs for digitization and automation. Adjusted expenses increased 1% year-over-year, largely driven by higher base compensation expense, partially offset by productivity savings and elevated incentive compensation last year. This resulted in Market Intelligence's very significant operating margin expansion of 360 basis points to 35.6%. We are raising the low end of the guidance range for revenue growth given the acceleration in organic growth we've seen over the last 2 quarters. While we continue to expect some incremental investment expense to land in the fourth quarter, we are raising our guidance range for MI margins by 75 basis points at the midpoint for the full year. Now turning to Ratings on Slide 15. In the third quarter, strong investor demand and resilient market sentiment contributed to a favorable financing environment and supported our growth in issuance volumes. Ratings revenue increased 12% year-over-year, well above our internal expectations and with the growth balanced between both transaction and non-transaction revenues. Transaction revenue grew 12% in the third quarter, benefiting from particular strength in high-yield and bank loan issuance. Favorable market conditions supported refinancing activity as high-yield issuers took advantage of spreads, and we continue to see elevated demand in structured finance. Non-transaction revenue also increased by 12%, driven primarily by higher annual fee revenue. Contributions from initial Issuer Credit Ratings, or ICRs, and Rating Evaluation Services, or RES, were both above our expectations as well. In fact, the third quarter was a record for us in RES revenue. Adjusted expenses declined 4% based on the lapping of elevated incentive compensation last year and continued productivity improvements. This contributed to the division's 540 basis points of margin expansion to 67.1%. We are raising our outlook to reflect the third quarter's outperformance and our assumption of continued favorable market conditions in the fourth quarter. We expect billed issuance growth in the mid- to high-teens range in the fourth quarter, driven by continued refinancing activity and opportunistic issuance. While we expect M&A volumes to improve going forward, we continue to expect 2025 volumes to be below historical norms, including in the fourth quarter. And now turning to Commodity Insights on Slide 16. Revenue increased 6%, largely driven by the eighth consecutive quarter of double-digit growth in Energy & Resources Data & Insights. Energy & Resources Data & Insights and Price Assessments grew 11% and 7%, respectively. Our commercial momentum persists as we continue to transition more customers to enterprise contract relationships, though growth was somewhat tempered by the incremental sanctions we called out last quarter. As I'm sure many of you saw, the United States recently introduced additional sanctions just last week, and I'll walk you through the expected impact shortly. Advisory & Transactional Services revenue grew 4%. We had another record quarter in Global Trading Services. However, we continue to see the impact of headwinds we called out last quarter, primarily in consulting and non-subscription revenue associated with the uncertainty in the energy markets. Upstream Data & Insights revenue declined 2% year-over-year as expected. The decline was driven by customer consolidation in the energy space and lower oil prices weighed on discretionary spending. We expect these headwinds to persist through the fourth quarter and likely into next year. The Upstream business has some truly valuable and differentiated data, and we're working diligently to help our customers realize the value of our offering. As we mentioned last quarter, we are actively intervening by engaging with clients, accelerating product innovations and aligning commercial incentives to stabilize the business and reposition it for growth. Adjusted expenses increased 6%, largely driven by the lap of a onetime credit related to higher royalty and conference costs and higher compensation expense, partially offset by productivity initiatives. Operating profit for Commodity Insights increased 7% and operating margin expanded by 30 basis points year-over-year to 48.1%. We are tightening the ranges for both revenue growth and operating margin for the full year. While we continue to expect strong revenue growth and margin expansion in CI for full year 2025 and beyond, we do expect the modest headwinds we discussed today to persist into at least the early part of next year. As I mentioned a moment ago, we have seen some additional sanctions introduced recently that could impact our Commodity Insights business. In total, we expect the sanctions introduced since we gave our initial guidance in February to contribute a headwind of approximately $6 million to Commodity Insights in 2025 and approximately $20 million of headwinds in 2026. This, of course, assumes the current sanctions remain in place and no new sanctions are introduced. Now turning to Mobility on Slide 17. Revenue grew 8% year-over-year, highlighting the mission-critical nature of the division's products and strong execution, notwithstanding the ongoing tariff and regulatory uncertainty lingering across the OEM and manufacturing end markets. Dealer revenue increased 10% year-over-year, driven by strong performance in products such as CARFAX and automotiveMastermind. Manufacturing revenue declined 3% year-over-year as tariffs and related uncertainty weighed on consulting revenues and discretionary spending at automotive OEMs. Financials & Other increased 12% as the business line continues to benefit from the strong underwriting volumes and commercial momentum. Adjusted expenses grew 6%, driven by continued advertising and promotional investment, but offset by strong operating leverage and the lapping of elevated incentive compensation last year. Segment margins improved 110 basis points year-over-year to 43.3%. Lastly, we remain on track to meet our key milestones for our spin-off of our Mobility division. We will continue to keep investors updated on the progress of the separation. Now turning to S&P Dow Jones Indices on Slide 18. Revenue increased 11% with double-digit growth in Asset-Linked Fees, which benefited from both higher AUM and net inflows and in Data & Custom Subscriptions revenue. Revenue associated with Asset-Linked Fees grew 14% in the third quarter. This was driven by higher equity market appreciation and strong net inflows into products based on S&P Dow Jones Indices. Exchange-traded derivatives revenue were up 1% against a difficult year-over-year comparison, supported by higher average daily volumes in our SPX ETDs. Data & Custom Subscriptions increased 10% year-over-year, driven by new business growth in end-of-day contracts, which posted low double-digit growth and growth in our real-time offerings. Adjusted expenses were up 7% year-over-year, driven by strategic investments, partially offset by lower incentives. Indices operating profit grew 12% and operating margin expanded 100 basis points to 71.2%. Our outlook for 2025 assumes U.S. equity markets are flat from September 30 through the end of the year, and we expect modest year-over-year growth in ETD volumes in the fourth quarter. Now turning to guidance. Slide 19 outlines our enterprise guidance on a GAAP and adjusted basis. We are raising our enterprise outlook for total revenue growth and margins. We now expect total revenue growth in the range of 7% to 8%, and we expect adjusted margins in the range of 50% to 50.5%. We're also showing guidance for margin, ex OSTTRA, for year-on-year comparability purposes. As I'll discuss in the next slide, we expect higher revenue growth for Ratings and Indices and we tightened our ranges to the upper end for Market Intelligence and Mobility, while we slightly lowered the higher end of the range for Commodity Insights. We now expect adjusted diluted EPS in the range of $17.60 to $17.85, 4 percentage points above the initial guidance we provided back in February and representing growth of 12% to 14% year-over-year. We expect the additional share repurchases we announced this morning to be neutral to adjusted EPS in 2025, given how late we are in the year, but we expect the reduction in share count to more than offset the additional interest expense in 2026 and beyond and be slightly accretive to EPS. Moving to the division outlook on Slide 20. Our revenue guidance for Market Intelligence was lifted towards the upper end of our prior range to 5.5% to 6.5%, reflecting our strong execution and the acceleration in organic growth year-to-date. For Ratings, based on the current expectation for mid- to high-teens Billed Issuance in the fourth quarter, we expect revenue growth of 6.5% to 8.5%, which is above previous guidance, including our outperformance in the third quarter. We trimmed our outlook for Commodity Insights at the upper end of our prior range due to the sanctions and the other factors I discussed previously. For Mobility, we raised the revenue guidance range towards the upper end of our prior range. For Indices, we now expect 10% to 12% revenue growth, reflecting market strength and higher net inflows. Our updated outlook is now well above our initial 8% to 10% outlook in February. On the next slide, we are raising our margin outlook for the enterprise with higher margins in nearly every division, as I discussed previously. We are pleased with the financial results the team delivered in the third quarter. These results highlight the vital importance of our products to our customers, especially in the dynamic environment we've seen thus far in 2025. We continue to focus on rapid innovation, prudent strategic investment and disciplined execution. We saw the results of that focus in the third quarter. As we look forward to Investor Day in a couple of weeks, we're excited to tell you more about what's coming next. We have a compelling strategy that we believe will drive revenue growth and margin expansion in the years to come. With that, I'll turn the call back over to Mark for your questions. Mark Grant: Thank you, Eric. [Operator Instructions] Operator, we will now take the first question. Operator: Our first question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: Market Intelligence organic growth of 8% was really a standout this quarter. I was hoping you could expand more on the success there, whether you're seeing a better market environment, higher pricing or just more success with your new product introductions. And thanks for the color on sort of the AI and everything associated there. It sounds like you have been investing nicely in those types of technologies. It sounds like you've continuously invested there and don't need to like really ramp that up, that it will scale. So just wanted to sort of hear your thoughts on MI in terms of growth drivers and investment. Martina Cheung: Toni, it's Martina. Thanks so much for the question. And let me first respond and then I'll hand over to Eric. So yes, we were extremely pleased with the results in the quarter, and it is a continuation of the strong execution that we've seen from the Market Intelligence leadership team throughout the course of this year. You'll recall that we've talked a lot about the revenue transformation that the team has undergone. That includes greater alignment, reducing the silos amongst the sales teams, and reducing the incentives and simplifying the overall revenue model. And in addition to that, as you said, we've had incredible product innovation that we're very excited about. So all those things have contributed. We also have worked very closely -- or see work very closely between the Market Intelligence sales teams as well as the Chief Client Office. And as a result of that, we've seen competitive wins, and we've seen some really great deals in the quarter. So maybe just one example of the competitive win with a major investment bank who chose Capital IQ Pro as their primary desktop, and did that because we could bring not just the comprehensive nature of the desktop, but also Visible Alpha as well as great excitement in the Generative AI capabilities that we've announced. And so those are some good examples of the growth drivers in focus. The other point that I would make and, yes, in response to your observation around the fact that we've been innovating and investing for a decade now. We see that with the acquisition of Kensho and really the foundational capabilities that Kensho has developed over many years. And as I said in the prepared remarks, that's allowed us to build and innovate very economically from a financial perspective. We'd anticipate continuing to do that going forward. Eric, maybe over to you as well for more comments. Eric Aboaf: Sure. Toni, we've been really pleased with the momentum around growth in MI. Pipeline has been healthy. Sales are up around 10% on a year-to-date basis. So we've got good momentum. That's translated into nice ACV growth. ACV has been ticking up quarter after quarter after quarter. In the first quarter, we said it was a bit over reported revenue. In the second quarter, we said it had ticked up. In the third quarter, I can also confirm that it's up again. And on an organic ACV basis, which is how we describe the business, we're growing in the 6.5% to 7% range. There's always a bit of ups and down in the reported growth because of the volumetric and transaction revenues that come in. That's what got us to 8% reported -- I'm sorry, 8% organic this quarter. But we're seeing the momentum that we [indiscernible] see, and it's a result of a lot of the actions that Martina just summarized. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: I wanted to ask about Ratings. I think you made some comments around the maturity wall for 2026 and some pull forward in high-yield and lower maturity wall for investment grade. And then you also said that RES revenue was strongest ever. So I'm curious how you would characterize sort of where we are in terms of normalization of Ratings issuance and how we should think about growth over the next few years in Ratings. Martina Cheung: Faiza, thank you for the question. So we have seen this year growth beyond what we actually expected at the beginning of the year. And it's quite remarkable given the record issuance that we saw in 2024. Q3, as we have said and you pointed out, there are very strong high-yields and bank loans. We saw opportunistic issuance. We saw M&A, again, not at historical averages but more than we would have anticipated earlier in the year, and those are all contributing to the Billed Issuance growth that we saw. The second point I would make around Q4 is, seasonally, we would have usually seen maybe not as fast growth from an issuance perspective in Q4. However, we are expecting Q4 to look more or less similar to Q3, probably 1% or 2% below or above Q3, which is why we guided to mid- to high-teens there for issuance. And that would be a combination of factors. We are seeing opportunistic issuance with spreads at really record levels. And we're seeing a little bit of pull forward from 2026 from a refinancing perspective. And we do expect issuance across both investment grade and high-yield. I would just mention the investment grade may fall into our frequent issuer fees. So you wouldn't see that necessarily in our transaction fees in Q4. And maybe just again there, consistent levels of M&A that we saw in Q3. I think as it relates to your overall question on how we feel about the outlook, look, at this point, we're looking at maturity walls through 2026 that are about 8% higher than they were this time last year, and our maturity walls through 2028 are quite strong. And so we're excited about the Ratings business going forward. Let me maybe pass over to Eric to talk a little bit about the non-transaction revenue as well. Eric Aboaf: Faiza, what I like about the Ratings business is it's got both that transactional component that Martina just described and the non-transactional, which is really around surveillance and, I'll call it, the accumulated set of clients and ratings that we support and monitor for our clients. And so what that creates is a bit of a flywheel or a ballast to growth that creates continuity for us that's quite strong. It includes both RES and ICRs, which were up over 20% this quarter. It includes some of the CP monitoring. CP was up strongly. So the 12% up this quarter on a year-on-year basis was really quite strong. We don't expect it to be that strong every quarter, but it's the kind of continued revenue momentum that -- or revenue engine, I would say, that really creates continued growth in the business at a nice and consistent pace and is a really important part of our franchise. Operator: Our next question comes from Manav Patnaik with Barclays. Manav Patnaik: Thank you for the slide on the AI spend over the years and how that's helped margins. I wanted to just ask within MI itself going forward, how big a role do you think AI will have in helping expand those margins in a meaningful way? Because it's always been, obviously, one of the more competitive areas that you've always had to invest. So just trying to think about how that changes that balance. Martina Cheung: Manav, let me start, and I'll hand over to Eric as well. We're excited about AI, and we have been for quite some time. And we do think that our historical investment there and innovations over the last decade have positioned us extraordinarily well, especially in Market Intelligence. I'd characterize the benefit there in 2 ways because, of course, we will be able to innovate economically from a financial perspective, as I've mentioned in the prepared remarks, based on the foundational capabilities that we have. But bear in mind, we'll get growth and we'll get productivity in both cases in Market Intelligence. And so on the growth side, you'll see us continuing the rapid pace of innovation within our current product estate. And we monetize that in 2 ways. The first would be in features and enhancements that we wouldn't separately monetize, but would be part of ongoing conversations around how we create value for customers. The second will be in actual add-on. So a good example of that would be the ADI, or automated document ingestion, that we launched for iLEVEL, which has really great uptake in our iLEVEL customer base as an add-on. And then, of course, we will launch new products. In the quarter, for example, we launched a new product combining ProntoNLP's capabilities with our machine readable transcripts, and it really allows users to extract sentiment and characteristics from -- excuse me, filings, not transcripts in a much more efficient way. And then remember that we will also partner with new distribution channels, the hyperscale partners and others such as Salesforce and IBM to ensure that we can monetize there as well. One example I wanted to give you there is a way in which we would think about these partners as greater channels for customer acquisition is that with the IBM partnership, we will make S&P Global agents available within IBM's systems so that IBM's customers can actually access S&P Global maritime and trade insights, procurement insights and economic and country risk insights. And so these are all ways in which we're increasing the monetization capabilities, which will drive commercial value. Maybe let me hand over to Eric on the productivity side. Eric Aboaf: Manav, it's Eric. As much as we're interested in AI on driving top line growth, and there are just a series of examples there and more to come. The benefits around productivity, I think, are beginning and are real. And I'll give you a couple of examples. For example, MI and our other businesses, together we consolidated our data operations into an enterprise data office, about 6,000 employees within MI that moved into that group. It's now 8,000 in total across the company. And what we're able to do is begin to reduce some of the redundant activities, consolidate workflows, process map and begin to actually consolidate tools. And a lot of those tools that we're now using are, in fact, AI-driven. We actually moved about 6,000 of our data operators onto an internally developed content workflow tool that was vibe coded, and actually then reduce some of our licensing costs for some of the fragmented or, I guess, multiplicity of tools that we previously had. And that in and of itself has actually driven multiple millions of dollars of savings this year. But it's not just in MI. We're doing this across the company. In Commodity Insights, as you know, we have a large pool of researchers where they leverage off of our data. But we've started to use AI tools for content creation, for first drafts of research reports, to update and synthesize data sets, so both structured and unstructured data. And that, too, has already created multimillions of dollars of savings this year and it's part of what's actually helping with the margin expansion. So we see the benefit of GenAI at the beginning with more to come. And in truth, it's a real aid to the business, both for accelerating top line growth, but also to expand margins at the same time. Operator: Our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Martina, just wondering if you can talk a little bit more about the strength of the private markets growth that you saw given the meaningful acceleration there. And following the partnerships that you made with Cambridge and Mercer and the pending acquisition of With Intelligence, just how you feel about the overall positioning of your private market data sets as we head towards the end of the year here. Martina Cheung: Scott, yes, we had a strong quarter, and that was driven largely by very strong issuance within Ratings. And in there, it was across a multitude of products, not just debt ratings but also structured finance. We saw data center securitizations, middle market CLOs and other issuance driven by private markets participants. And so very good performance. We're excited as well, to your point, around the growth opportunities that we are afforded with the announcement of the partnership of Cambridge and Mercer, but also With Intelligence. And this is an area where we are responding to needs of customers in the market and gaps in the market. So I'll give you one example here first with Cambridge and Mercer. There is a gap in the market right now to be able to actually get like-for-like comparisons for benchmark performance at the fund level, the deal level, the asset level. And with Cambridge and Mercer, we've worked with them. They are 2 leading companies in the space, and we've created a common classification system and really a global standard so that when companies report in iLEVEL, without needing to change their own reporting formats, we can interpret and concord their outcomes with this global standard, which Cambridge and Mercer have helped us to tune with their data. And that gives them more accurate and easy like-for-like comparisons to do benchmarking and understand exposures, et cetera. So that's wonderful. With Intelligence is bringing us data that has been critical for us in areas for use cases around deal sourcing, allocation, and also performance benchmarking. And these are areas that we've been developing organically over the last many years. And With Intelligence really allows us to accelerate those initiatives. The team has built an incredible database also with some very unique data. And as we looked at it, the more closely we looked at it, the more excited we got about the quality of the data. So you put all those things together and it gives us a great story and a great opportunity to expand our private markets revenues going forward. And we're excited to talk about it more at Investor Day. Thanks for the question. Operator: Our next question comes from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: One quick housekeeping question. Can you help us size the EDM and thinkFolio divestiture? But more importantly, I also wanted to follow up on an earlier question regarding MI, like with the 8% organic constant currency growth this quarter and improving ACV growth, the enterprise wins that you've talked about, and then when we blend in the acquisition of With Intelligence, how do you view your prior midterm guidance of 7% to 9% MI revenue growth going forward? Eric Aboaf: Ashish, it's Eric. Let me tackle those in order. But as you know, we're still in 2025. And so it's a little premature to get into 2026. EDM and thinkFolio were not material to our consolidated financials. The revenues are relatively small, even relative to MI. And so to us, it was a good opportunity to exit. It will be slightly accretive to MI revenue growth on an organic basis and slightly accretive to margin to MI as well in 2026. So we're pleased with how this helps us reshape the portfolio. But as you said, for 2026, what we'll do is be quite transparent about our guidance. We'll make sure that there's clarity around the expected impact around each of the divestitures and the With Intelligence acquisition, which we're really quite excited about as another vehicle for accelerating our growth in MI going into the future. Operator: Our next question comes from Alex Kramm with UBS. Alex Kramm: Just wanted to come back on the AI discussion for a minute. I probably need to go back and read the transcript, but I think you gave a lot of detail here on how you think your business is breaking down. And if I heard the number correctly, I think in Market Intelligence, you think maybe just 12% of the business is maybe not as proprietary as the rest of it. So can you just speak to that a little bit more? What makes you comfortable that, that's the right number as, obviously, there's a lot of change coming from AI, maybe workflows change, maybe certain things will get in-sourced over time by some of the largest customers? So maybe help us a little bit if the message is, hey, almost 90% of Market Intelligence, you feel really strong around the AI defensiveness. Eric Aboaf: [indiscernible] describe that in a little more detail. MI really is a composition of a number of different product lines. And maybe think about how we report, because it gives you a window into how we think about what is really unique to our franchise. So the first business, Credit & Risk Solutions is really around our own benchmarks and models. It's the data feeds, RatingsXpress, RatingsDirect and really completely proprietary in nature. The next portion of MI is Enterprise Solutions. That's really workflow and software tools. And we've got some of our premier assets in there, WSO, iLEVEL, ClearPar, Debtdomain. I mean you can go on and on. But each one of those is a unique construct that clients have embedded deeply into their own workflows and their own processes and so are quite important to what they do. And I don't think there's an easy way to replicate those from the outside given that they are both embedded and they have proprietary data within them. And then there's our Data, Analytics & Insights business, which is really the mix of data feeds and desktop. And I think on that one, you've got to think about it in a couple of parts. About half of that is literally proprietary, curated, enhanced data and advisory kind of information. And so you've got just the examples of our franchise that you know well. It could be some of the fixed income pricing, Compustat, the maritime data; if you operate in the commodity space, the valuation analytics, the advisory solutions, the events. That's literally half of Data, Insights & Analytics. We've got 1/4 of that product line that is a mix of workflow tools and benchmark models. A good portion of Cap IQ is in that, and that's, again, integrated into our clients and has a mix of workflow tools, but it has been built up off of that proprietary and enriched and enhanced data that we provide that I just mentioned. And then the last quarter of Data, Analytics & Insights, I think, is what you would describe as not as defensible. It's the undifferentiated data. It's things like the ownership data that comes in 13F filings that you can get from the SEC or you can get from us. It's the directories information. It's the transactional data. It's the assemblage of press releases that we provide to clients. And we even put a portion of Cap IQ in there, because we think some of that can be replicated in pieces. But we took a conservative assessment there as well. So all in all, it adds up to about 12% of MI, about 5% of the total company. And our view is -- our business really is about adding more and more data and, in particular, proprietary enhanced data every year, and expanding and deepening our workflow integration with our clients. And so in a way, it's a moving process that's always being enhanced and enriched, and it's what keeps us -- what's kept us differentiated in this business for decades. And we need to be vigilant. We need to be careful. We need to be active in this area, but we also feel it's really quite defensible and strong and foundational, what we provide, and not something that can be replicated. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: Just wanted to go back to the quarterly results. The adjusted operating margin was really impressive, especially when looking at Ratings and the Market Intelligence business. Were there any onetime items in there? And I'm just wondering how sustainable you think that margin expansion is? Eric Aboaf: Jeff, it's Eric. I think that was a particularly strong margin expansion quarter. If you recall, a year ago, there were some incentive compensation adds that we made. And on a year-on-year basis, kind of the impact of those incentive changes was about a 3 percentage point tailwind to expenses. And that's not something that necessarily repeats. It happens when it happens. And so you've got to just factor that into our expense growth rate. I think even with that, we feel quite strong and quite confident about [indiscernible] revenue growth substantially exceeded expense growth even adjusted for the incentives. I would say that if you're thinking about margin expansion, the trailing 12 months data that we provide is actually probably even more indicative of overall performance and something to take another look at as well. Operator: Our next question comes from Craig Huber with Huber Research Partners. Craig Huber: Martina, to your company's credit, for many, many years, you guys have had most of your contracts with clients on an enterprise-wide basis as opposed to a per seat model. Can you talk about that a little bit here? There's obviously a lot of fears out there in the marketplace that AI is going to displace a lot of the white-collar workers out there, et cetera, and that could hurt payments to data providers, analytics companies, et cetera, like your company. So just talk about that competitive moat, if you would, that you guys have had in place for well over 10 years now. Martina Cheung: Thanks, Craig, for the question. What I would say is that the nature of our enterprise subscription models really protects us from, I would say, volatility in many forms. And we've seen, as you know, over the last 10 years, headcounts in end markets go up and go down and go up and go down. And so I'm not making any predictions around the impact of AI on our end users because I think it's not the only factor, quite frankly, that will impact drivers of increases or decreases. What I would say is that we are really thoughtful in how we add to the quality of what we do and the usability of what we do with our products, whether it is in Commodity Insights, in Market Intelligence and Ratings and Index. And as you know, we are actually really bringing to bear not just AI capabilities, but agentic workflows there as well, which we're being asked to do by our clients to help them to be as efficient as they can possibly be. And so our view is create value, be proactive with our customers and helping them to realize value from AI as well and an overall focus on higher levels of engagement with our customers and making sure that we can get the best experience for them as possible. Thanks for the question. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: Martina, I know you spoke just a little bit about the With Intelligence acquisition already. I'd like to hear a little bit more here. We're definitely intrigued by the private data space. There's a lot of providers in that space. So if you could help us compare With Intelligence to BlackRock's Preqin, who I see as the closest peer in terms of relative data coverage across asset classes. I know With Intelligence's heritage, which is further back, started with hedge fund data and then expanded through acquisitions into other asset classes. And so if you could just compare the 2 providers and give us that kind of insight, I think we'll understand the positioning better. Martina Cheung: Andrew, thanks for the question. Yes, we are very excited about the acquisition. And the team indeed has emerged or matured, let's say, from their hedge fund beginnings into being a truly multi-asset class platform. It's private equity, private credit and areas that are very, very fast growing as well, like infrastructure and then quite unique data around family offices, for example. And so true multi-asset class scales covering the largest funds, information on 30,000 managers, 30,000 investors. And the quality of the data, quite frankly, is something that got us very, very excited. And that's really a testament to the phenomenal execution of the With Intelligence team. I think when you take that with the combination of what we already have within Market Intelligence and the organic growth that we've had there with our company data and with the data we've been collecting over the last several years, you've got something quite compelling. And then, of course, you tag on the potential with the Cambridge, Mercer partnership as well. And look, ultimately, we are confident that we can expand and accelerate the growth of with Intelligence within the Market Intelligence team. And the teams are really just sort of itching to get going here. So very exciting for us. Thanks, Andrew. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: In response to an earlier question, you said that the Market Intelligence ACV has grown 6.5% to 7.5%. So I take it to mean that that's a good indicator for the underlying subscription growth of that business. But you also currently have a long-term target for 7% to 9% growth for Market Intelligence. So I'm curious if that long-term target still holds or if that's under review. Eric Aboaf: Jason, it's Eric. We did go into ACV growth, which is a real, I think, important proxy for organic revenue growth on a consistent basis. And as we described, it's been ticking up over the last few quarters, which is the kind of trajectory we'd like to see. It's particularly in line with the trajectory of adding to sales, right? As sales are up each year, you'd expect ACV to actually continue to increase and accelerate. And we've seen that from the low 6% range in the beginning of the year to the 6.5% to 7% range now. The work hasn't finished. We continue to sharpen our execution. We continue to invest in a broad range of products in MI, as Martina described. And it's a little premature to get into '26 guidance or multiyear targets, but that's exactly what we'll cover at Investor Day in just a few weeks. But we're quite, I think, proud and confident in that stabilization phase that we navigated through late last year and the beginning of this year in MI and the acceleration quarter after quarter after quarter. And so I think it bodes quite well for revenue growth, organic revenue growth, organic ACV growth in the coming quarters. And we'll just -- why don't we just talk more about it at Investor Day when we see you there. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Martina, I just wanted to ask you a little bit about the pace of portfolio moves. You said you're kind of getting to an end state of what you expected in Market Intelligence, and I'm looking forward to hearing kind of the vision over there at Analyst Day. But I wanted to ask, once you're done with that and kind of the spin-off of the Mobility division, is there going to be a focus on other divisions in the same way? In other words, should we see -- do you see yourself making portfolio moves within the Commodity Insights in a way that -- you just wouldn't do so much at the same time. So should we be seeing more of it but just focused in other areas? And then, also, if you don't mind just circling back to what Toni asked about in terms of the market growth in -- market improvement in Market Intelligence versus your execution, it just wasn't clear to me whether you're seeing improvement in the end markets or not, if you could just address that as well. Martina Cheung: Shlomo, thanks for the question. Well, we are, I think, as we said, substantially complete with the portfolio optimization that we embarked on within Market Intelligence over the last several years with the announcement of EDM and thinkFolio. And look, we are always going to be good stewards of shareholder dollars. We're going to make sure that our products align with our strategy, our customers' needs and balance that with value realization for our shareholders. And so from time to time, we may do tactical divestitures, certainly nothing at the level of something like Mobility, for example. And we'll continue to do that very tactically as we go forward. I think in terms of the end market conditions in Market Intelligence, I would really just point you to how we think about our business. And look, a great example there is the desktop. The Capital IQ Pro desktop continues to perform strongly and actually it's growing faster than the end market. And so we're very focused on our execution. We're very focused on the strength that we bring in our products, the partnership that MI has with the Chief Client Office and our ability to really consolidate as much as we can for our customers with us so that they can reduce their spend and we can increase our value with them. So we're quite committed to that course of action and the team is executing very well. Thanks for the question. Operator: Our next question comes from Russell Quelch with Rothschild & Co. Russell Quelch: I think you mentioned on the last call, Martina, that you've started to distribute data via Microsoft Copilot, but it was limited to some of your Commodity Insights data. So my question here is, have you made any progress in integrating any more of S&P's data sets into that platform? Are you seeing any sort of notable uptick in data usage as you leverage this in some of those other AI-based distribution channels you mentioned earlier? And perhaps when should we expect to see this in revenue? Martina Cheung: Russell, thanks for the question. Yes, so the Commodity Insights data availability in Copilot has really captured quite a bit of attention with our Commodity Insights customers, and the team has been able to monetize that as an add-on to subscriptions with existing clients. So that's been great. And we've been working with Microsoft on getting additional data sets in there, for example, with Market Intelligence. Now we have been on a journey, as you know, and you can see, to partner with many of these players around the industry. And the method and approach there is to ensure that we're enabling our clients to maximize the value they get out of these various channels. Today, this is licensing additional channels for customers. And it's actually quite common for our customers to license our content via multiple channels already. So very consistent with what we've done in the past. And many of these players have actually approached us. So after our first few announcements, we actually got quite a bit of reverse inquiry from the LLMs and hyperscale players to work with them also. And we have a huge amount of interaction with our clients, depending on which partner it is that they want to work with and work with us as well. And as I mentioned, with the example of IBM and there are other examples beyond that, we look at this as a means to tap into new clients as well, so new client acquisition channels also. Look, the last point I'd make is we're learning as much about these players as they're learning with us as we go through these partnerships. In many cases, the strategies for the LLM players and the hyperscale players are actually quite unique and different. So we don't necessarily see any one of these players with exactly the same strategy as another. And as we evolve, we're very flexible in how we can work and how we can create additional value. And as we evolve, we'll likely see these relationships evolving with the pace of the technology as well. So exciting time. One additional point I would make here and just for the absence of doubt, we are very conscious of how we protect our IP in all of these arrangements. And importantly, we don't add all of our data into these channels either. There are some data that we think are best provided through our own platforms. So more to come on that, I would say, Russell, in a couple of weeks, but it's definitely creating quite a bit of value for us and our clients. Thanks for the question. Operator: Our next question comes from Jeff Meuler with Baird. Jeffrey Meuler: Can you just run through where you have revenue sensitivity to IPO volumes just with the backlog, I guess, building into '26, but also does the materiality even rise to a level where we see it in numbers as we think through the short-term impact? Obviously, really good MI numbers in Q3, government shutdown potentially impacting Q4. Eric Aboaf: Jeff, it's Eric. I think the revenue sensitivity to IPO volumes specifically are primarily in MI around some of the volumetric and transactional usage revenues that we report. In fact, if you look at our supplement, as the capital markets accelerated in third quarter, you would have seen that, what we call, the non-subscription transaction revenue growth in MI was 13%. The non -- the recurring variable revenue was up 11%, right? Those are really coming through, in particular, in the Enterprise Solutions space, where you've got kind of usage metering and pricing in effect on a number of the products and subproducts. So that's, I think, the immediate one. The broader one is, as you have more IPOs in the marketplace, there'll be more debt and equity issuances, and those tend to help the franchise broadly as well. Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: Historically, you've delivered pricing increases in the 3% to 4% range. As you increasingly include AI functionalities into your products and drive product upgrade cycles, how do you see your pricing increases trending going forward? Martina Cheung: George, it's Martina. I'll start there and hand over to Eric. We will always base any pricing conversations that we have with our clients on the value that we generate from our clients. And we certainly see and hear a lot of very positive feedback from our clients from not just the AI enhancements, but the additions to content, the additions to various different features and enhancements that we've got across the entire portfolio. And so that can show up in multiple ways. It can show up in retention. It can show up in new sales, and it can show up in actual price increases. This wouldn't be something we'd expect to actually break out separately, but let me turn over to Eric and see what else he has to add here. Eric Aboaf: George, I would just add that the AI benefits will come through the revenues over time in a multiplicity of ways, as Martina described. The execution focus that we have right now is actually rolling out those offerings within products as new products, et cetera, and then really monitoring and surveilling the usage of those offerings, right? Just we want to see them each go up an S-curve of usage, usage by our existing clients, the usage by new clients, the amount and depth of usage and repeat usage. That's the way we can ensure that we monitor and see where clients are getting the value that they're looking for. And playing that back to clients is exactly what they like to see because they're trying to understand how to get the benefits of AI through their ecosystem and ours, and it's a natural way to do it. So that's the focus right now, and I think will pay dividends over time. Martina Cheung: Yes. And George, maybe just one other point I would add is, don't forget that we will also launch new products using Generative AI. So think about us launching agents, think about the reference I made to the ProntoNLP filings product as well. And so those are other ways that we would think about commercial value from Generative AI and product related. Thanks for the question. Operator: Our final question will come from Sean Kennedy with Mizuho. Sean Kennedy: Really nice results, especially in Market Intelligence. Great to see. So I had a follow-up question on the data partnerships. How do we think about the incremental margin profile from the current and future partnerships? You touched on this a bit earlier, but do the potential new customers still need an S&P subscription? Or are you exploring different revenue models like consumption to help fully unlock the value of your data assets in the GenAI era? Martina Cheung: Sean, thanks. I'll start and certainly, we can -- Eric, if there's anything else you want to add, you can chime in as well. So right now, Sean, all of this has been done off the basis of customer needing to have a license with us. Frankly, some of that is actually because some of the capabilities may not yet exist depending on the partner in question to actually license a new customer over that channel. So that's why we say we look forward to customer acquisition with new customers on a go-forward basis. So right now, it's very much on the current license base. The revenue model going forward, look, I mean we may consider additional ways to monetize. We're a little far away from that at this point. Again, some of it is just where the LLMs and hyperscale partners are in their own journeys, but we're being proactive in thinking about that and the full opportunity there as well. Eric, anything else that you'd add to that? Eric Aboaf: No, I think that's really a clear summary. We're excited about this space. The protections we have between permissioning and licensing and the paywall are just natural, both defensive mechanisms, but also ways to monitor usage. And as we get more usage, there's more value, and that has a very virtuous and positive benefit to our results, including the financial results and growth over time. Martina Cheung: Okay. Well, I do want to say a huge thank you to all of the colleagues at S&P who delivered a phenomenal Q3. I'm very proud of everyone and a huge thanks to all of you. Thank you to all of our participants on the call today for your questions, and we're excited to see you in 2 weeks. Thanks again. Take care. Operator: Thank you. That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about 2 hours. The webcast with audio and slides will be maintained on S&P Global's website for 1 year. The audio-only telephone replay will be maintained for 1 month. On behalf of S&P Global, we thank you for participating and wish you a good day.
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 afternoon. This is the conference operator. Welcome and thank you for joining the Technip Energies Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Phillip Lindsay, Head of Investor Relations. Please go ahead, sir. Phillip Lindsay: Thank you, Maria. Hello and welcome to Technip Energies financial results for the first 9 months of 2025. On the call today, our CEO, Arnaud Pieton, will discuss our 9-month performance and business highlights. This will be followed by CFO, Bruno Vibert, who will discuss our financials. Arnaud will then return for the outlook and conclusion before opening for questions. Before we start, I would urge you to take note of the forward-looking statements on Slide 3. I will now pass the call over to Arnaud. Arnaud Pieton: Thank you, Phil, and welcome, everyone, to our results presentation for the first 9 months. Let me begin with the key highlights. I am pleased to report that Technip Energies has delivered a solid financial performance for the first 9 months of this year. We recorded year-over-year revenue growth of 9%, we maintained strong profitability and we generated a significant uplift in free cash flow. These results reflect our disciplined execution, the strength of our asset-light business model and the commitment of our teams worldwide. Based on these results, we confirm our full year guidance. On the commercial front, we strengthened our global leadership in LNG and modularization. Notably, we were awarded a major contract in U.S. for Commonwealth LNG using our modular SnapLNG solution, a topic I will expand upon shortly. Finally, in line with our strategy to enhance our Technology, Products and Services segment; we announced the acquisition of Ecovyst's Advanced Materials & Catalysts. The transaction broadens our capabilities across the catalyst value chain and upon completion will be immediately accretive to T.EN's financial profile. Turning now to our theme for 2025 and our foremost priority, execution. On Project Delivery portfolio, it continues to deliver solid progress as evidenced by year-to-date revenue trends and margin resilience. We are transitioning into pre-commissioning activities for the first of our 4 trains on the NFE project. Simultaneously, we are intensifying activities on the adjacent project, NFS, which continues to ramp up. Alongside this progress, we are advancing towards completion of downstream projects, including the Assiut cleaner fuels refinery in Egypt and the Borouge ethylene plant in the UAE. In TPS, we have been achieving important milestones across a range of decarbonization projects. We have successfully started up the first plant deploying our innovative Canopy by T.EN solution for Carbon Centric in Norway. And for the TPS scope of Net Zero Teesside, we are progressing with the CO2 absorber module fabrication at our facility in India. In summary, the third quarter has seen strong execution across important energy and decarbonization contracts. Let me now provide an update on our recent commercial successes, which have further cemented T.EN's global leadership in LNG and modularization. I am delighted to confirm that we signed another major LNG contract in the U.S. with Commonwealth LNG. This milestone follows the execution by T.EN of the front-end engineering and design. The delivery model for Commonwealth LNG leverages SnapLNG by T.EN, our innovative modular pre-engineered and standardized solution. The Commonwealth LNG facility will feature 6 identical liquefaction trains to deliver a total capacity of 9.5 million tons per annum. We have initiated the project under a limited notice to proceed. This allows us to begin preliminary activities such as placing purchase orders for key equipment. It is important to note that the full value of this contract will only be reflected in our order book upon issuance of the full notice to proceed, at which point it will make a significant contribution to the company's backlog. In conclusion, a very positive development for T.EN, one that enables us to enter the U.S. LNG market on our own terms through early engagement, the application of modular solutions and a disciplined contractual approach. Beyond our recent success in the U.S., I would like to draw attention to several other important awards in LNG and circularity markets. First, our position as a leader in deep offshore floating gas liquefaction has once again been reaffirmed. In August, we secured a large contract for Coral Norte, a floating LNG unit in Mozambique for Eni. This initial scope covers preliminary activities with further order intake anticipated upon full contract award. Second, our early engagement approach continues to be a cornerstone of our success. It positions us strongly for future awards and helps derisk project execution. In line with this strategy, we have been awarded 2 FEED contracts for the Abadi LNG development in Indonesia for INPEX. First, for the liquefaction facilities to deliver annualized production of 9.5 million tons and the second is for the modularized floating gas infrastructure. We remain very confident in our medium-term outlook for further LNG awards. Lastly, we have secured a key service role for the Ecoplanta waste-to-methanol project in Spain for Repsol. This award builds on the strategic collaboration between Technip Energies and Enerkem and illustrates the strength of the partnership in accelerating the deployment of circular solutions at scale. Turning now to September's announcement of the acquisition of Ecovyst's Advanced Materials & Catalysts, AM&C. The acquisition supports Technip Energies' strategy for disciplined growth of our TPS segment. It demonstrates our value-driven approach to M&A, it is financially accretive and it benefits from positive long-term market trends. It will bring in differentiated capabilities in catalyst technologies and advanced materials, enhancing our ability to deliver high performance process critical solutions to our clients. It also adds a new dimension to our catalyst business, unlocking avenues for product development and market expansion. Post completion, a talent pool of 330 people will join Technip Energies bringing complementary skills and expertise into the company and we will ensure the entrepreneurial culture and business momentum of AM&C is preserved through the integration process. Now importantly, the deal will have no impact on our investment-grade credit rating. T.EN will retain a substantial net cash position providing capital allocation flexibility for other opportunities. Before passing to Bruno to review our 9-month performance, I'd like to take a moment to outline how the AM&C acquisition will, following completion, materially enhance our TPS offering across the asset life cycle. With catalyst IP at the core of many process technologies, catalysts serve as a key differentiator in process technology development and are highly complementary to our existing offerings. One of the compelling aspects of catalyst is their consumable nature, which opens multiple recurring revenue streams throughout the OpEx phase. Where T.EN would typically sell process technology once per project, catalysts are replenished multiple times throughout the lifespan of a plant. As such, around 70% of AM&C revenues are tied to operating expenditures, which will improve our long-term revenue visibility. In terms of financial impact, the addition of AM&C will increase the technology and product component of our TPS revenues from 40% to over 45% based on 2024 pro forma. Furthermore, AM&C generates EBITDA margins substantially higher than our TPS segment. In summary, the transaction is all about advancing TPS, accelerating its growth, enhancing profitability and providing T.EN with a platform to unlock further value for all stakeholders. I will now pass to Bruno to discuss the financials. Bruno Vibert: Thanks, Arnaud. Good morning and good afternoon, everyone. I am pleased to present the key highlights of our solid financial performance for the first 9 months of 2025 reported on an adjusted IFRS basis. Our revenues increased by 9% year-over-year reaching EUR 5.4 billion. This growth was underpinned by strong activity levels across our LNG portfolio and offshore projects. Recurring EBITDA rose also by 9% to EUR 478 million delivering a healthy margin of 8.8%, which is stable versus last year. The improvement in TPS profitability was notable although it was offset by a rebalancing of the project delivery portfolio towards more early stage work. EPS recorded a modest increase of 2% year-over-year supported by strength in EBITDA. This was partially offset by lower financial income and an increase in nonrecurring costs mainly attributable to planned investment in Reju and other strategic initiatives, which are more capital allocation in nature. Excluding these strategic investment costs, EPS growth would have been double digit. Free cash flow conversion from EBITDA remained robust at 87%. This strong conversion rate supported free cash flow growth in the midteens compared to last year. In summary, a very solid first 9 months and I'm pleased to confirm that we are on track to achieve our full year guidance. Turning to the performance of our segments. Let me begin with Project Delivery. Revenues have grown substantially rising by 16% year-over-year to reach EUR 4.1 billion. This uplift has been driven by strong activity across LNG projects and growth in contribution from recently awarded projects, including GranMorgu and Net Zero Teesside. On profitability metrics, both recurring EBITDA and EBIT have recorded strong increases with growth rates at or approaching double digits. Recurring EBITDA margins experienced a modest contraction of 30 basis points year-over-year. This movement primarily reflects portfolio rebalancing with a higher proportion of early phase projects, which typically contribute limited margin at this stage. We continue to see the full year EBITDA margin to be consistent with the 9-month performance at around 8%. Finally, our backlog remains reassuringly strong at over EUR 15 billion equating to more than 3x our 2024 segment revenue. This resilience persists despite the absence of major awards during the third quarter and the impact of adverse foreign exchange movements. Encouragingly, our commercial pipeline remains well populated with good proximity to major awards in the coming months and quarters. In summary, Project Delivery continues to demonstrate robust momentum underpinned by solid revenue growth, a healthy backlog and very strong positioning for future opportunities. Turning now to our Technology, Products and Services segment, TPS. TPS revenues declined by 9% year-over-year. Strong volumes in consultancy services and studies and ramp-up of assembly on our carbon capture products were more than offset by a lower contribution from our ethylene furnace deliveries. Additionally, foreign exchange movement had a significant impact on our revenues. In fact approximately half of the overall revenue decline can be attributed to these currency effects with the weaker U.S. dollar being a notable factor. Despite the reduction in revenue, recurring EBITDA increased by 6% year-over-year driven by an impressive 200 basis point margin expansion to 14.8%. This improvement was driven by a strong performance in our productivity activities. Furthermore, catalyst supply and strength in project management consultancy also contributed to this margin expansion. Looking at our order intake. The book-to-bill ratio on a trailing 12-month basis remained above 1, which is a positive indicator. Nevertheless, commercial activity through 2025 has been affected by the broader macroeconomic environment leading to some delays in the awarding of several anticipated larger product and services contracts. As a result, TPS backlog has reduced by [ 16% ] since the start of the year standing at EUR 1.7 billion as of period end. Despite these short-term headwinds, our teams are actively engaged with clients and we see healthy pipeline of tangible opportunities across our core markets. Turning to other key financial metrics beginning with the income statement. Corporate cost for the first 9 months of 2025 totaled EUR 46 million with a return to more normalized pattern in Q3 following the specific factors that impacted long-term incentive plans in the first half of the year. Net financial income remained very positive at EUR 70 million, but trending modestly lower compared to the prior year aligned with the broader movement in global interest rates. Finally, on the P&L, nonrecurring expenses has increased year-over-year presenting a headwind to our EPS growth. As I highlighted last quarter, the majority of these costs are associated with capital allocation decisions. Approximately EUR 35 million relates to the investment in adjacent business models, including Reju, as well as strategic initiatives such as M&A activity. Moving on to the balance sheet. Our financial position remains very healthy. Key line items, including cash, debt and net contract liability are stable compared to our year-end position. Before handing back to Arnaud, let's take a closer look at our cash flows. Free cash flow, excluding working capital, totaled EUR 416 million for the first 9 months corresponding to a robust cash conversion from EBITDA of 87%. This strong result underscores our disciplined execution, the strength of our asset-light business model and the favorable contribution from net financial income. Working capital year-to-date is slightly positive. Capital expenditure at EUR 60 million was modestly up compared to last year. The main investments were directed towards the ongoing expansion of our Dahej facility in India as well as the continued modernization of our facilities and labs. Finally, despite a foreign exchange impact of EUR 201 million, cash and cash equivalents at the end of September stood at EUR 4.1 billion, which is consistent with the year-end position. With that, I now hand back the call to Arnaud. Arnaud Pieton: Thank you, Bruno. And turning now to our outlook. Last November at our Capital Markets Day, I spoke about the global megatrends of population expansion, urbanization and rising economic output; all driving demand for more energy and infrastructure. I talked about the need to supply more energy derivatives like fertilizers and plastics and about producing more with less emissions and less waste. In other words, the critical need for a pragmatic decarbonization with greater circularity. Despite the macroeconomic and geopolitical backdrop, these trends are robust and enduring and as T.EN has the solutions to these challenges, we see opportunities across our markets to build upon our growth potential. Traditional energy sources, particularly natural gas, continue to play a vital role in ensuring energy security and affordability for the foreseeable future. This reality is creating compelling opportunities for T.EN in the near, medium and long-term horizons, notably in LNG and selective offshore developments. The chemical sector, especially ethylene where T.EN is a leader, is seeing early signs of recovery. Plans for greenfield projects and retrofit work are firming up with major investments ahead, notably in markets like India. In decarbonization, the blue molecule space is already a source of opportunity for T.EN where carbon capture remains the preeminent solution for decarbonizing many sectors, notably power generation and cement. In summary, T.EN remains opportunity rich, naturally hedged and positioned to thrive in any energy scenario. So to conclude, our performance for the first 9 months delivered solid year-over-year growth in revenue, EBITDA and free cash flow. We have very notable near-term prospects with potential to strengthen our medium-term outlook and we have excellent visibility for 2026 with already close to EUR 7 billion scheduled for execution next year. As we pursue further growth, we remain disciplined in managing the company's capital allocation and our cost base. We are focused on building for the long term, investing to enhance our differentiation and delivering value creation for our shareholders. With that, we can now open for questions. Operator: This is the conference operator. [Operator Instructions] The first question is from Sebastian Erskine of Rothschild & Co Redburn. Sebastian Erskine: The first one just on TPS and the performance so far. So I'm thinking about the full year, it looks towards the bottom end of the EUR 1.8 billion to EUR 2.2 billion. I'd appreciate to get your thoughts on specifically what's kind of disappointed year-to-date versus your expectations. And then I was intrigued to note in the presentation, you mentioned kind of early signs of recovery in ethylene. I'm just thinking kind of given the supply of polyolefins driven by China and some kind of supply consolidation in Europe and North America, it appears a difficult market. So I appreciate some more details on that and what you're seeing so far. Arnaud Pieton: So let's start with the TPS performance. I'll start with making a bit of a statement in a sense that, yes, TPS 2025 is a bit of a blip, we may call it this way, in a sense and I'll remind everyone of a few things. Technip Energies we were creating in 2021 and since our creation, we have dedicated our investment R&D efforts to low carbon solutions. So we have invested with notable successes and continued successes to bring to the market new solutions and new solutions were mostly in future growth markets such as SAF, carbon capture, circularity for example. And it's fair to say that the environment in 2025 hasn't really been supportive of more CapEx in those areas. But when I look at what is coming our way, I must say that the trend is undisputed. So it's a bit of a game of resilience. We, as a company, must find the right solution, make them investable and affordable for our clients and everyone around. So in the short term, this has impacted 2025. You've heard from Bruno that the services part of our TPS segment has remained really strong. The blip or the disappointment is more coming from the amount of CapEx in solutions for decarbonization and SAF and carbon capture in 2025. But we remain extremely confident for the future. Again, the trend is undisputed. So I will take advantage of your question and my answer to your question to also say that in the short term, this CapEx trend for low carbon solution may impact the growth momentum for TPS in 2026 as well. So in the same way as we have been trending towards the bottom end of the 2025 guidance for this year, I think it might be fair to consider that the same trend will apply to 2026. So maybe calling for a bit of a rebaseline for TPS towards the bottom half of the 2025 guidance for 2026 on a pure organic basis. I'll take advantage of your question as well to remind everyone that during our Capital Markets Day, we also said that we needed to continue to invest in our traditional markets. So in 2026 you will see, I would say, a larger share of our R&D investment being directed towards what people may consider more traditional markets so a bit less decarbonization and a bit more ethylene maybe even though even in ethylene, we are innovating through low emission furnaces. And we continue to invest in all markets, hence also the acquisition of AM&C, which covers both the traditional and the future growth markets. So really, look, the important is maybe a little bit of a blip in terms of the top line, but TPS should not be about top line. It should be about bottom line and we are delivering on the bottom line for TPS as well as for the whole company. And it highlights again the benefits of our model, which combines long cycle Project Delivery and a short-cycle TPS. So I think it speaks to the strength of the company overall. In terms of ethylene, yes, indeed, we see an increased visibility on ethylene and we are anticipating order intake in 2026 based on our various discussions with series of clients. This includes green and brownfield opportunities. The key ethylene opportunities with technology and license selections will happen as early as Q4 2025 so in the weeks to come. Of course if it's pure technical license selection, it will not have a significant impact to our order intake just as yet, but it will follow with potential proprietary equipment award in 2026 and this will be more clearly visible in our order intake for TPS next year and the main areas, as indicated, are India, Middle East, China and Africa. The global ethylene industry today has a capacity that is north of 200 million metric ton per annum and again, ethylene is GDP led and with the expansion driven by demand in packaging, construction, automotive, consumer goods sectors. The global growth forecast at 3% to 4% per annum of this GDP would see the industry capacity grow to north of 300 MTPA by 2040. So there's a large volume of work that is required in terms of greenfield and brownfield in the ethylene sector and we are starting to see those early signs of work and recovery coming our way. Operator: The next question is from Bertrand Hodee of Kepler Cheuvreux . Bertrand Hodee: So I have many question on your LNG potential awards. You've been highly successful commercially, but yet there are significant awards that are not yet in the backlog. And probably can you give us some color on U.S. Commonwealth LNG? Specifically, you've been ordered limited notice to proceed. The project is very close to FID, but had a setback 2 weeks ago in terms of permitting in Louisiana. Maybe you can share your view on that and also whether you think that the client could be in a position of taking FID without having these permits on board? And then if you can give us some color also on Coral, why it's not, I'd say, in the backlog as Eni has taken full FID? And then probably the last one to make the world too on Rovuma LNG, it looks like Exxon is targeting now an FID in Q1. Can you confirm that you've performed the FEED and that the FEED is complete? And probably if you can also give us some color on the FEED, whether it is on the SnapLNG concept or not? Arnaud Pieton: So I'll start with stating that our overall environment and commercial pipeline has not really changed. You're right to say that we haven't seen large awards in Q3 or even through 2025 with the exception of our very large -- I mean the largest blue ammonia plant in U.S. that we signed in Q1. But 2025, we always stated that it would be a year of execution and that not controlling the FID, awards could come very late in '25 or could actually be in 2026. But the long-term fundamentals and the medium-term fundamentals of our markets really remain strong. So the commercial pipeline has not weakened at all and it's not the first year in 2025 where we are seeing a bit of a weak order intake until FIDs are coming, in which case, all of a sudden there is a very nice spike of new awards coming to -- making it to our backlog. So specifically on Commonwealth LNG, first of all, the team is mobilized. We are progressing the work through limited notice to proceed and we continue to be very confident with the project. We obviously don't control the FID. Whether it's this quarter or next makes very little difference for us. We continue and our client is very confident that they can address the small concern that was maybe caused by a permit situation and they are very confident that there is no impact whatsoever on their path to FID from this permit vacation. I will also state that earlier this year, the project was really strengthened with Mubadala Energy agreeing to acquire about 25% stake in the project. So it's giving a lot of credibility to this project. And I mean our contract with Commonwealth LNG also allows for, I would say, a next or an extended limit notice to proceed if the FID is not reached in the weeks or months to come or before year-end. Then we will enter into another phase of limit notice to proceed with, I would say, more money being spent and more investment being made into the project and the team continuing to progress the project. So I would say what you're hearing from me is a high level of confidence in this project because of its progress, its stakeholders and the money that is flowing into progressing the work at this stage. On Coral floating LNG, why not in the backlog? There has been a lot of press about this one. FID has been taken. It's not yet in the backlog because there's a bit of an administrative technicality that needs to happen for the full notice to proceed to be provided. In other words, there's a bit of SPV or special purpose vehicle in Mozambique that needs to be formed and we will receive our purchase order, if I may say, from this SPV. It's a pure administrative exercise and we are very confident that it will happen in the early part of next year. So it will come into -- join our backlog by then. On Rovuma LNG, a very exciting project for Exxon in Mozambique. We have indeed executed the FEED and so therefore, following our guiding principles, we are competing for the project execution. It's a competitive process, as you know, it's all over the press. So our association with JGC is competing against another consortium or JV and we are in, I would say, final stage of finalizing our price. That will be submitted to Exxon in the weeks to come. The concept that is selected is, I would say, very similar to SnapLNG even though it's not totally Snap because there are a few variations in technologies, but nothing major. So it's a concept that we like and that we know really well now because we've worked on the field for the past couple of years. Bertrand Hodee: And just a very small follow-up. Obviously there is some market concern on the low level of revenues for TPS in Q3. I noted that you have EUR 480 million something of revenue for execution for TPS in Q4. It looks to me that something around EUR 500 million or even above is likely within reach for Q4 for TPS now? Arnaud Pieton: Yes. And that's why you've heard from Bruno and myself that we are confirming guidance for the year. So we will be within the range that we provided for 2025, absolutely. Operator: The next question is from Alejandra Magana of JPMorgan. Alejandra Magana: Just 2 quick ones from my end. After the Ecovyst AM&C deal, are you seeing other bolt-on opportunities at similarly attractive multiples or does it make more sense to focus on integration before adding more? And my second one, what is the current share of recurring technology and services within TPS currently? Arnaud Pieton: So to start, I'll start with AM&C and then I'll hand over to Bruno on the level of recurring revenue within TPS. So AM&C, it's a super attractive acquisition that we are making. We are focusing in the short term on integration of course; first of all on the closing and then on the integration. Now I want to characterize a little bit AM&C. AM&C is a business that is, first of all, self-sufficient and performing. That's why in my prepared remarks, I really insisted on the fact that we will be focusing on making sure that we are through integration, maintaining AM&C's ability to operate and be, I would say, entrepreneurial and provide them with the means to invest. So there isn't, I would say, too much integration to do and therefore, I think this speaks in favor of preserving nicely AMC's ability to perform. This addition actually opens the door to actually more avenues and things we can now contemplate to complement the AM&C offering. So it's probably not the end of the journey. But with always some prerequisite, as Technip Energies, we want to preserve investment grade. We will remain selective and disciplined and our M&A targets are focusing on techno product and catalyst and maybe opportunistic in services, but the technology is our priority. So we are contemplating adding complementary technologies and solutions to AM&C and our existing portfolio. So yes, we continue to scout like any good and healthy company is probably doing and we feel really good about AM&C in particular as there isn't a massive herculean effort of integration to do. We will preserve the AM&C objective, if I may say, once it is part of the Technip Energies family. Bruno on... Bruno Vibert: Yes, sure. So on the recurring revenue aspect and contribution within TPS to your point. And as Arnaud mentioned in his remarks, one of the attributes for AM&C and the quality of earnings was the fact that this was 70% OpEx related in terms of revenue generation, which is for us something which is interesting because today, we would be far below in terms of this. When it gets to the current TPS portfolio in terms of services, we may have a few master service framework and we may have very limited operation and maintenance services. So the bulk of our services are really associated to new CapEx. And in the variation of revenues that we've seen this year and the 9% reduction of TPS, as I said, part of it -- almost half of it is FX. But a significant component was the fact that over the last couple of years, we've had a low petrochemical cycle so ethylene cycle, which has resulted to some extent in this movement. So as explained in the CMD, the replication of the ethylene model was I think a good way for us to derisk that we were less dependent on the cycle so to have carbon capture, sustainable fuels, circularity. All these are building blocks to make us a little less dependent on one industry cycle. But second, to your point, yes, having a bit more exposure to the OpEx element such as the catalyst and what it brings in terms of proximity to clients, that's an interesting bolt-on and add-on as a platform to our revenues. So that will absolutely increase the quality of earnings of TPS. Operator: The next question is from Richard Dawson of Berenberg. Richard Dawson: Just a couple of follow-ups from my side. So margins in TPS actually have been running above the top end of guidance year-to-date. Clearly, you had a very strong result in Q2. But looking into Q4, do you still see pretty good sort of solid margins there for TPS? And then secondly, just coming back to the U.S. LNG opportunities and particularly Lake Charles. We saw the client delay FID to Q1 2026, which, to your point, doesn't really matter for earnings estimates going forward. But does this have anything to do with the price refresh campaign on that project concluding? Bruno Vibert: Richard, I'll start with the first question and I think Arnaud will cover the second one. So on TPS margin, yes, to your point, we've seen high margin. That's why at the end of H1 in July, we upgraded guidance in terms of EBITDA percentages and we're absolutely on track there. It was the outcome of good performance from the services aspect of TPS that you should absolutely expect this to continue. And the fact that by the delivery of the furnaces and some of that, we had a bit less contribution from the top line, but then more contribution from the bottom line. As Arnaud mentioned, I think the trajectory and the kind of rebaseline, we are around the same track is in continuity. So yes, although revenues are expected to pick up from TPS on Q4 versus Q3 in terms of bottom line, the bottom line of TPS should continue to be strong. And then when the closing of AM&C is done, we will have a further upside coming from the contribution from AM&C, which will be a further improvement of TPS margin. Arnaud Pieton: So on U.S. LNG and your follow-up question. So we have 2 opportunities in the U.S. on LNG. The first one, which I discussed a bit earlier, which is Commonwealth and on which we have a team already mobilized and therefore, working on this limited notice to proceed. By the way, this limited notice to proceed is the same, I would say, avenue or system that is being used by Eni to allow the progress to happen on Coral Norte. So it's not unusual. And there's on Commonwealth again, money spent and there isn't subject around price or budget. The price verification campaign, that was a contractual phase agreed with our client on Lake Charles LNG, was completed. The good news is that you may have heard from Lake Charles LNG themselves, our client, that the price that we came up with was actually well per expectation for the lack of better word. So this price verification done, the ball is in the hands of our clients and no concerns with regard to cost. The price verification results basically to qualify it as per our client was right. So that's super encouraging. And obviously while we don't control FID, we are hopeful and very hopeful that this FID will be taken next year. Operator: The next question is from Victoria McCulloch of RBC. Victoria McCulloch: And just to follow-up on that point about Lake Charles. Does that mean the price verification that you've done lasts until the end of 2026? Is there a time that you can give us that that lasts for? Obviously we've seen lots of delays to the U.S. LNG FIDs and with respect that continues. So it would be helpful to understand when exactly the refresh lasts until. And then we haven't really talked about SAF today. Can you give us a view on the contracting outlook maybe for the next 6 to 12 months? I think there has been discussed a reported opportunity coming up at some point in this year. Has that slipped again to the right into next year? That would be helpful. Arnaud Pieton: So again, on Lake Charles, the price verification comes with, I would say, the mechanism for price adjustments depending on the delay or the time the client takes from the submission of the price refresh and the actual time for FID. So there is a frame and we are absolutely within the frame in a very controlled manner. So everything is accounted for, if I may say, and planned. So the validity remains because the contract allows for the price adjustment depending on the timing between submission of the budget and actual FID. So no exposure for T.EN and I would say, a constant monitoring of the situation there. When it comes to SAF, so indeed, you're right. We had signaled that SAF was and is an opportunity. So I'm happy to report that SAF remains an opportunity for 2025 and 2026, but including for Q4 2025. So yes, let's see. We are well advanced with one, which I won't share too much on right here, but many and good building blocks for potential FID within this quarter. And more generally speaking, when you think about SAF and you need to think about scale, the SAF projects are kind of feedstock constrained and most will be local plants serving local needs. So don't expect big export projects like for LNG for example. SAF is not about that scale, but there's a lot of SAF needed going forward with -- it's a theme for the long term for sure. EU is 6% by blending by 2030 and 20% by 2035. So that's 15 million ton per annum by 2035. So it's a huge investment required. So even if there was to be a bit of a slowdown as policies can be challenged, there's still a massive potential and it's important to know that T.EN is part of it and it remains an opportunity, including for this quarter. Operator: The next question is from Guilherme Levy of Morgan Stanley. Guilherme Levy: I have 2, please. The first one on a topic that we haven't spoken about today, Reju. You talked about the pace of -- you talked about the nonrecurring expenses this quarter related to this one. So I was just curious about the pace of spending there over the coming quarters. And if you can provide us with an update on FID conversations in terms of service [ Reju ] partners, that would be great. And then the second one thinking about your backlog. Can you quantify to us how much of the TPS backlog and how much of the Project Delivery backlog are denominated in euros or U.S. dollars? Arnaud Pieton: So I'll start with the easy part, if I may. So on Reju in particular, before handing over to Bruno, a bit of -- I'm happy to offer a bit of an update on the progress. So we've continued to progress on Reju development and this progress is coinciding with progress on regulation and policies, which is extremely encouraging for our Reju initiative and the brand that we have created. So in this quarter, we've produced from our demo plant in Germany the first batch of yarn made of RPET or recycled polyethylene and this yarn was subsequently converted into fabric. And we have now the first Reju fabric that has been made available to a series of brands for them to conduct their testing and, I would say, the characterization and the qualification of the product. So really super encouraging and good progress on Reju this quarter and more to come. All that progress is taking us closer to FID of course. Now as we've mentioned in the past, FID remains dependent on of course the level of subsidies that we will and we can benefit from and from the countries in which we've applied for subsidies and contemplated the installation of the first plant. So that is work in progress and we are a few months away from, I would say, finding out what and how many subsidies will be coming our way. Bruno? Bruno Vibert: Yes. So on the FX, of course it's a moving element because of project change and so on and they have a bit of a different setup. On project, most of the projects are delivered with what we call multicurrency, which means back-to-back we invoice to the client the cost of our cost base in a specific currency and this is then recharged as part of the selling mechanism. So a lot of USD, but there is a bit of a hedge which is made through these elements. So Project Delivery is slightly less impacted to some extent by FX on a given year. For TPS, and as I said, about half of the year-on-year movement can be assessed to be associated to FX. When we do services in the U.S., in the Middle East; it's very much USD denominated. So that's why year-to-date you would have close to 50%, for instance, of TPS that was run through USD services. Arnaud Pieton: Maybe on Reju and nonrecurring, Bruno Vibert: Yes. Sure. On nonrecurring, so EUR 49 million and what I said about EUR 35 million being Reju, also adjacent business models and also cost for the quarter that we've incurred notably for consulting and so on for the AM&C transaction. I think it was a very good investment. Part of when I recall the question earlier on having good multiples, it's also the very thorough due diligence that we made on all aspects to get to this point and to cover our base. So overall, I think Reju and adjacent business models are well on track. I think we said EUR 50 million max as an expenditure for 2025. That's what we expressed at the time of the CMD. We are actually on a run rate slightly lower than that. I think we are closer to EUR 10 million over the last couple of quarters as a run rate. And the incremental for this quarter, it was a bit of summer, was around the ad hoc expenses associated to the transaction. The rest of nonrecurring is as always some small restructuring and so on, which is as we have our backlog shift and so on, we always slightly addressed. We are not presenting EPS on an adjusted basis so that's why when you have such an increase in EBIT or EBITDA at 9%, you don't see the full -- this doesn't follow through to the bottom line. But as I said, if you take out the EUR 35 million, which are really investments in capital allocation, you will have close to 15% actually of EPS growth year-on-year. So that's where you see the traction. Arnaud Pieton: We are really investing for the future here and I think it's one of the attributes of Technip Energies is that we have the ability to invest for our future and unlock future value creation. Operator: The next question is from Guillaume Delaby of Bernstein. Guillaume Delaby: I have many questions, but I'm going to stick to one. If I understand correctly, since the beginning of the year within TPS, you've been actually surprised by your carbon capture business, but slightly disappointed by your ethylene business. If I understand correctly, this is about to reverse, i.e., over the coming quarters ethylene could accelerate while CCUS may or might slow down a little bit. Just a confirmation that my understanding is correct. And second point, I understand that there are only very early signs, but should we assume that the provision -- the forecast you made for the ethylene market at the Capital Market Day is still valid? Arnaud Pieton: Yes. So first of all, the forecast is still valid as far as we see. Yes, absolutely. So back to TPS. I mean you're right to say that in the year we've seen some acceleration recently in carbon capture and while ethylene was low and it is about to reverse. Very clear early signs of reengagement and new investments in brownfield and greenfield and also decarbonization with the replacement of furnaces by low emission furnaces for existing infrastructure. Now I wouldn't be, I would say, so negative as to say that carbon capture will slow down. Carbon capture, we have some significant opportunities on the horizon with FID in 2026 probably for projects of significant size. So it's still there. For sure, I think where we would have hoped further acceleration, it's in the space of green hydrogen for example where the business plan is not exactly as we would have expected despite the fact that we were successful last year with the largest green ammonia project in the world in India. Well, the momentum is we have those spikes, but I would say it's not a very recurring trend of awards in that space. So a bit of a disappointment in some of those new markets. Now I think the 2035 trajectory is there for decarbonization. It's here to stay. It's happening maybe not at the pace that we would have preferred or we could have hoped, but it's happening. So I think the fundamentals are here and it's important to -- it's a bit of a game of resilience as I explained earlier. Operator: The next question is from Paul Redman of BNP Paribas. Paul Redman: Two questions, please. The first one is I can see some phasing going on in the backlog for TPS so it looks like some phasing forward. There might be other movements. I just wanted to see whether from '27 into '26, whether you can give any guidance on kind of what's going on there? And then secondly, I just want to ask about the conversations you're having with possible LNG customers and whether you're hearing any growing concerns about gas price outlook in the next decade 2030 plus and whether you think that could have an impact on LNG project sanctions from here? Arnaud Pieton: I'll start with LNG and then I'll hand over to Bruno on the phasing of the TPS backlog. So LNG, the sentiment, as you read the press, is indeed on a potential surplus. But as far as we are concerned, what we're observing is that the energy demand and the coal to gas switching will continue to support the long-term demand growth for LNG. A reminder of the fact that LNG is a supply-led market and very long cycle. So while there might be an oversupply in 2028 when the new trains currently under construction are coming on stream or a lot of them are coming on stream. Well, we are not LNG producers and our customers, they take their investment decision not based on an oversupply that will be probably temporary. They take their investment decision based on their Vision 2040 to meet the demand by then. So LNG is a supply-led market long cycle. If prices do soften, then it will attract a new breed of customers and buyers of LNG and therefore, it will trigger another wave of investment. So we continue to see the total liquefaction capacity needing to be around or north of 900 million tons per annum by the middle of the next decade. So a very healthy pipeline for Technip Energies in spite or despite the short-term softening on price of LNG. And this is not exactly what we are subject to at Technip Energies. The investments are really for the long term and when you take investment decision in 2025, you start producing depending on the size of your project in 2030. So you really look beyond the short-term softening of the price and, if anything, it would just attract more customers. And gas would be a good idea to replace coal and displace coal and gas is very needed for all the data centers. And so yes, that's why we've put and we are putting this 900 million ton number out for the middle of the next decade. Bruno? Bruno Vibert: Yes. In terms of TPS and phasing and backlog scheduling, as always, TPS is a shorter cycle. So you will always have more of the TPS backlog incurred over a short period of time. And usually you have basically the backlog, which represents about 1 year of revenues. In terms of services, you may have some services which are spread out for master service agreements or master services. And then we've seen a bit of acceleration for some project management consultancy. Now where you have somewhat an extended backlog in TPS, it's for construction scopes of equipment and here I think, as I said in my remarks and as Arnaud mentioned also, the work done for the TPS scope of Net Zero Teesside has started well notably at our fabrication yard in India. So firming this up meant that we've been able to reassess the backlog scheduling and certainly more on moving it forward versus backwards due to good progress and good execution. Arnaud Pieton: And I know we are reaching the top of the hour, but I want to take maybe 1 more minute to insist again on the quality of the coverage that we have for 2026 Technip Energies and notably in Project Delivery. We have a large and qualitative coverage for 2026 at EUR 7 billion as I stated during my prepared remarks. So it's putting us well ahead of the curve, if I may say, for achieving our 2028 framework that we declared last year at our Capital Markets Day. So it speaks to the strength of the model we have. And it's not the first time that we see delayed FIDs, but this is not a source of anxiety for us. We continue to remain calm and focus on the right opportunities, the derisked one and those that are compatible with the level of financial performance and profitability that we want to achieve as Technip Energies. Operator: Mr. Lindsay, I'll turn the call back to you for closing remarks. Phillip Lindsay: Thank you, Maria. That concludes today's call. Please contact the IR team with any follow-up questions. Thank you and goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good afternoon, and welcome to Garanti BBVA's Third Quarter 2021 Financial Results Webcast. Thank you for joining us today. Our CFO, Mr. Aydin Guler; and our Head of Investor Relations, Ms. Ceyda Akinç, will be presenting today. [Operator Instructions] With that, I would now like to hand over to management for their presentation. Ceyda Akinç: Hello, everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance, let's, as usual, go over the [Audio Gap]. Turkish economy grew by 1.6% Q-on-Q in the second quarter. And for the third quarter, we nowcast 0.5% to 1% Q-on-Q growth. This implies a slowdown on a quarterly basis, yet it could still generate 4% to 4.5% annual growth. Therefore, we view risks to our full year GDP growth forecast as balanced and keep our forecast at 3.7% for '25 and 4% for '26. In terms of inflation and monetary policy, following September inflation reading, we revised up our year-end inflation expectation to nearly 33% and policy rate assumption to 38.5%. Pace of rate cuts will depend on disinflation gains and we evaluate the ex-post 6, 7 percentage points real rate can be required due to sticky service inflation and uncertainty on pool inflation. We expect CBRT to maintain gradual rate cuts with ongoing reliance on macro prudential measures for longer. In terms of current account deficit, we assume private consumption staying much lower than its long-term trend, thus keeping current account deficit moderate in short term. We forecast current account deficit to be 1.2% of GDP in '25 and 1.5% of GDP in '26, which can be easily financed. Led by moderating noninterest spending below inflation trend and still strong tax revenues, cash primary deficit to GDP came down to 0.6% of GDP in September. We observed an increasing effort on fiscal consolidation since April, resulting in a negative fiscal impulse. Accordingly, in our current macro baseline, we assume 3.6% of budget deficit to GDP in '25 and 3.7% in '26. Now moving into our financials. I will start with the headline figures. At Garanti BBVA, we could sustain the quarterly growth in earnings also in the third quarter. With a 9% quarterly growth, third quarter net income reached a new record level of TRY 30.9 billion. This brought our 9 months net earnings to TRY 84.5 billion, which translates into 31% ROE with relatively low leverage. During the quarter, strong NII improvement and stellar fee generation more than offset the increase in net provisions. Earnings outperformance once again enabled by core banking revenues. Moving on to Page 7. We delivered consistent growth for 7 consecutive quarters in core banking revenue. As we will discuss in the following slides, recovery in core margin was better than expected on the back of opportunistic liquidity management and well-managed spreads. Trading income increased supported by securities trading and the absence of derivative transactions, mark-to-market losses that paid on second quarter base. Net fees also held up well, growing 11% on the back of payment systems and strong lending activity. As a consequence, our core banking revenues to assets reached 7.8% in 9 months, which suggests the highest level among peers. A big part of this success comes from our asset mix. Now moving on Slide 8. Our asset growth continued to be fueled by customer-driven sources, namely loans. Performing loan share in assets remained strong at 57% and lending growth was across the board. In securities, we had opportunistic foreign currency security additions and realized some gain from TL fixed rate security portfolio. Moving into Slide 9 for further insights on loan portfolio. In the third quarter, we recorded 10% growth in TL loans. Credit cards and consumer loans were the front runners with 15% and 12% growth, respectively. Our market share in TL loans increased further to 22% with outperformance in consumer GPL and mortgage loans. Our SME focus remains intact, and we preserved our market position in micro and small enterprises with around 24% market share among private banks. We continue growing in profitable way, focused on segments where we see more value. Now let's look at the evolution of our asset quality. In the third quarter, there was retail restructuring-related increase in Stage 2 loans. As you may know, in line with our prudent provisioning strategy, once loan is restructured, we classify this loan under Stage 2. Due to the respective regulation, restructuring in consumer loans gained pace notably in the third quarter, and thus, our restructuring loans under Stage 2 increased. However, please also note that as of October, this regulation has been terminated. Our Stage 2 coverage ratio declined due to improved repayment performance of some individual assessed firms. While our Stage 2 coverage is now 9%, if we look at TL and foreign currency breakdown, our foreign currency Stage 2 loans coverage remains healthy at 18%. Now let's walk through the evolution of NPLs. Our NPL ratio rose modestly to 2.8%, in line with the expectations. We are witnessing the national consequence of robust consumer and credit card growth that sector registered in the last couple of years. Retail and credit card portfolio still accounted for around 70% of net NPL flows. If we move on to the net cost of risk on Page 12. In the third quarter, net provisions increased Q-on-Q, mainly due to the exceptionally low base of second quarter, which has benefited from large ticket provision reversals. Yet on a cumulative basis, net provisions continue to perform better than expected. As a result of this trend, we also revised down our net cost of risk expectation for this year-end, which I will explain in more detail in final slide. Now moving to the other side of the balance sheet, how we are funding our balance sheet growth. Not only in assets, but also in funding, we rely on customer-driven sources. Total deposits make up 69% of total assets and remain TL heavy. This quarter, in TL time deposits, our growth was flattish due to cost optimization to support spreads. On an average basis, TL deposit growth was strong, and we continue to meet the required regulation in TL deposits rate. Growing demand deposit base in line with our expanding customer base supported TL deposit growth. On foreign currency side, deposits increased by 14% due to gold price increase and flow from maturing KKM deposits. Excluding subsidiaries impact, foreign currency deposit growth was 10% and 40% of quarterly increase was purely coming from surge in gold prices. Our active funding management is also visible in net interest income on Page 14. In the third quarter, our core margin recovered better than expected by 44 basis points with the support of opportunistic liquidity management. Let me elaborate on this. In the third quarter, we created excess TL liquidity with utilizing more repo and swap funding and then placed this TL liquidity to depo facility at better yields. On spreads, as you can see on the right-hand side of the slide, our TL loan to time deposit spreads remained flat in the third quarter. We managed to fully reflect 300 basis points July rate cut to our funding costs. However, in September, pace of decline in TL time deposits was more gradual than expected, mainly due to the impact of TL deposit regulations. In the fourth quarter, on average, we expect spreads to progressively improve. We are expecting another 100 bps cut in December, which may bring down fourth quarter average TL time deposit cost to below third quarter average. Another component of NIM was swaps. You may notice the increase in swap costs as we utilized more swaps in the third quarter due to its funding cost advantage relative to TL time deposit costs. Lastly, in terms of CPI linker income, CPI rate used in the valuation increased to 30% from 28% following September inflation data, yet CPI linker income contribution to NIM remained flat due to redemptions from the portfolio. Here, I would like to mention that October CPI reading will be announced in the coming days, and we are expecting October CPI rate to be around 33%. If it realizes at this level, we will once again adjust our CPI linker income valuation and reflect the full year adjustment into the fourth quarter. Putting all this together with the help of lending growth, we were able to register 20% growth in NII base. As you can see on the left-hand side, with 5.3% net interest margin and TRY 46.5 billion NII, including swap, we have the highest net interest margin and NII level among Tier 1 private peers. And our balance sheet positioning lie at the heart of this unmatched performance. We would like to present this slide every quarter in order to underline that our margin reliance is rooted in high share of TL loans and TL deposits. First, TL loans make up 62% of TL assets. In a current environment where loan yields are about 2x higher than securities, this presents a sustainable revenue advantage. Please also note that while our securities share in assets is the lowest among peers, when we look at the components, it's mainly because of low share of CPI linkers. We are not lagging behind peers in terms of fixed rate securities. CPI linker share is only 38% and in a disinflationary environment, yield gap may widen further. And 58% of TL securities are fixed rate securities at attractive rates, which will again serve as a hedge in a declining interest rate environment. On liabilities, TL time deposits represent 69% of TL liabilities. And here, we continue to preserve our funding cost benefit versus repo in the 9 months. Here, I would like to underline that, as you know, there are 3 main funding sources for us: customer deposits, repo funding and swap funding. On a daily basis, we manage our funding sources by taking into consideration margin and risk metrics. As our track record shows, we have operational agility, and we are well positioned to respond. Now let's move on to the other P&L items, fees. Our fee base remains robust, up by 54% year-over-year. On an annual basis, payment system fees continued to lead to growth. On a quarterly basis, strong cash and noncash loan growth, which supports lending-related and insurance fees, followed by increasing wealth management fees. Digital engagement continues to rise and number of active -- digital active customers reached 17.6 million. Moving to our operating expenses. Our OpEx base growing in line with expectation. OpEx base increased by 70% in the 9 months due to planned investments to fuel sustainable revenue generation streams. As we have been communicating, we have been investing in customer acquisition through salary promotions and to enhance customer experience and to increase customer penetration, we have been leveraging the power of artificial intelligence and digitalization, which in return supports our revenue generation capability. Hence, our OpEx base is largely covered by fees, and we continue to have the lowest level of cost/income ratio among peers. As per our capital strength, in the third quarter, our solvency ratios improved with strong support from profitability and Tier 2 issues we had in July. As you know, in October to support our capital base for future growth, we successfully issued $700 million Tier 2 in October, which will provide 92 basis points uplift to our capital adequacy ratio and reduce currency sensitivity by 5 basis points. Let's now summarize our performance before closing. We sustained our unmatched leadership in earnings generation capability. Backed by our customer-driven balance sheet growth, we defended our NII well. Remarkable fee performance enabled us to cover 84% of operating expenses, better-than-expected net cost of risk trend sustained with exceptionally high provision reversals. As a result, we ended the first 9 months with 30.9% ROE while maintaining sound capital ratios. Now let's look briefly at what's ahead. In terms of guidance, our message remains fully aligned with what we communicated in the second quarter call. In this quarter, to enhance transparency, we quantified the underlying impacts and formally revised our guidance for select PL items. Yet our ROE guidance remains unchanged. Let's take a closer look at what we revised. We lowered our year-end net cost of risk expectation to below 2%, given exceptionally high provision reversals recorded during the year. Due to the change in policy rate expectation and the impact of TL deposit regulations, we revised our NIM expansion guidance down to 1.5% to 2%. Please note that in the beginning of the year, our policy rate assumption for this year-end was 31%, which we now revised upward to 38.5%. On a year-to-date basis, we were able to increase our margin by 1% on a consolidated basis and by 1.3% on a bank-only basis. In the fourth quarter, we expect TL spreads to improve Q-on-Q, while the contribution from CPI linkers is also increased. Taken together, this gives us confidence that we will achieve NIM expansion within the revised range. Lastly, we revised up our fee growth guidance, and now we expect fee coverage of OpEx to be 90% to 95% on a [Audio Gap] better-than-expected trend in net provisions and fees will mitigate headwinds on net interest margin. As a result, ROE is likely to settle near the lower bound of the guided range. This concludes my presentation. Thank you for listening. Now we can take your questions. Operator: [Operator Instructions] We have first question coming from [indiscernible], HSBC. Seems like there's a problem with the line. So now as we have no further questions, this concludes our Q&A session. I would now like to hand the floor back to our management for their closing remarks. Aydin Güler: I think Ceyda probably explained everything very clearly. So we don't have any written even questions, right? So let me conclude the meeting by saying thank you all for joining us today. We are pleased to close another strong quarter that reflects our solid fundamentals and disciplined execution in a dynamic environment. So numbers speaks for themselves. That's what we are saying. During the third quarter, we managed our margin effectively, strengthened our leadership in Turkish lira loans and continue to expand our deposit base as well. Clear indicators that we remain our customers' primary bank. We also continue to advance our digital transformation and sustainability efforts, consistently creating long-term value through innovation and operational excellence. With our strong capital position and focus on balanced TL-driven growth, we are confident in our ability to continue delivering sustainable value for all our stakeholders. Thank you once again for your participation. Have a nice day. Thank you.
Operator: Good day, and welcome to the Q3 2025 UFP Industries Inc. Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Stanley Elliott: Good morning, everyone, and thank you for joining us to discuss our third quarter results. With me on the call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Will and Mike will offer prepared remarks, and then we will open the call for questions. This conference call is available to all interested investors and news media through the Investor Relations section of our company's website, ufpi.com where we will also post a replay of this call. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These statements also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Will. William Schwartz: Welcome, everyone, and thank you for joining today's call to discuss our financial results for the third quarter of fiscal year 2025 and share our thoughts on what we are seeing in the marketplace and provide some preliminary thoughts on how we see the business heading into 2026. Net sales remained steady at $1.56 billion on a 4% decline in units and 1% decline in price. We saw encouraging traction in new product sales, which totaled 7.2% of total sales. Our profitability remains pressured when compared to a year ago but on a trailing 12-month basis, we continue to flatten out. Much of the market dynamics that we've seen early in the year have continued. We're seeing cyclically soft demand ongoing trade uncertainty and competitive pricing pressures, creating a difficult operating environment. Despite the ongoing market headwinds, we continue to see a number of our business units finding a level of unit and profit stabilization. While it might be early to identify what we are seeing as green shoots, it does leave us cautiously optimistic heading into 2026. I couldn't be more proud of the team and how they've managed through a difficult 2025. I think it's important for investors to understand, we are not sitting idly by and managing through what the cycle dictates to us. We have and will continue to take the necessary steps to emerge from this market a much stronger, leaner and profitable company. Across all of our businesses, we target above-market growth but with an overarching focus on returns. How we get there will vary by business, and it speaks to the balanced nature of our portfolio. We continue to introduce value-added products across our portfolio that will improve mix and drive higher margins. And we continue to address underperforming operations, primarily through active restructuring efforts, but in some cases, divestitures. We continue to make the necessary investments to upgrade our capital base and capabilities as we've discussed with our $1 billion CapEx program. Within this framework, we have earmarked $200 million towards automation to improve throughput and lower our cost structure. We are making select greenfield investments for certain products to expand geographically or expand capacity. In addition to what we are doing organically to drive outcomes, we remain very active on the M&A front and continue to explore transactions of various sizes. M&A has always been a key part of the UFP growth story and will be an important part of the story and a great complement to the other actions we're taking to win in the marketplace. We have completed three bolt-on acquisitions this year, all smaller in nature, but all are great fit from both a cultural and product perspective. The first, a wood packaging manufacturer located in Mexico and allows us to strengthen our business with certain multinational customers. Two, a supplier to the manufactured Housing, RV and Cargo markets whose location is complementary to our existing footprint and allows us to execute strategies to reduce our operating costs while providing additional capacity for growth. And lastly, a distributor to the RV market that complements our existing locations and product lines. We have taken steps to become more intentional, more strategic and focused in our deal evaluation. Our process around M&A targeting continues to mature. Centered around this is how an asset aligns with our core business while delivering on growth, margins and return targets. While the pace has improved, we will remain patient and disciplined. And to that point, we have been able to pivot to share repurchases this year given the market conditions and market volatility and have bought back roughly $350 million or 6% of our market cap through October. As we look ahead, the opportunities for our business are positive across the board, and we are using this period of softer demand to strengthen the core of our business. We believe we have the right team in place to weather the current climate and capitalize aggressively on opportunities when the market recovers to deliver on our long-term targets. Now turning to the individual segments. In our Retail segment, let's start with ProWood, which has performed well even in a tougher market. We continue to work on our cost positions and improving our manufacturing process. ProWood recently introduced TrueFrame, a proprietary kiln-dried factory plain joist product. The value we add on the front end helps the structure resist warping and twisting, which reduces build time and improves product quality and aesthetics. Along those lines, Surestone is another area of focus. We continue to see strong demand for our Surestone products and efforts to raise brand awareness are beginning to yield results. Consumers and contractors understand we collectively have something that they can't get anywhere else. While we're waiting for these investments to fully scale, we're confident in its potential once capacity is in place. That includes expansion efforts in Selma and our new plant in Buffalo, New York. Both expansion efforts are progressing well and will be fully operational and realized in first quarter 2026. These expansion plans are consistent with our plans to double market share over the next 5 years. Throughput improved every month of the quarter and into October. We remain on track to be fully stocked for the 2026 selling season as a part of our big box program as well as positioned to service our expanding relationships with 2-step distributors. ProWood also continues to serve as an important distribution partner for our Surestone products, and we see distribution as a competitive advantage for our ProWood business. I strongly believe our ability to self-distribute product, both pressure-treated lumber and composite decking products at the same location are true differentiators versus our market peers. The leveraging of these two strong brands allows us to provide a very high level of service in order fulfillment. To support the launch of this product, we have invested $30 million to support the brand, and we are pleased with the initial success. All of the metrics we are tracking to determine a successful return on our investment, including unaided brand awareness, product sample questions and website traffic, to name a few, have exceeded our expectations. We will continue to build on this platform to increase exposure, and we like our position looking ahead to 2026. Moving on to our Packaging segment. It was the first to fill the impacts of a down cycle. And based on performance for the past several quarters, we feel it is among the first to begin to stabilize from a sales and margin perspective. We like the long-term trends in these businesses and the complementary nature of packaging to other parts of our portfolio. We're well positioned to aggressively grow market share across the business given our engineering and design capabilities and structural packaging, geographic expansion on our Protective Packaging business and leveraging our low-cost position in our Pallet business. Like other parts of our portfolio, we continue to invest and drive cost out of the business. While developing new solutions to help customers reduce labor while improving safety in their packaging operations. We are working through patent process approval for our U-Loc 200 product and received an award for one of our structural packaging solutions this October. Now wrapping up with Construction. Markets remain pretty consistent to our last quarter, while we reported a very competitive Site Built business. Builders look to manage home inventories while consumer confidence and affordability remain challenged. And while we don't have a national footprint, we do overlap with some of the markets that have been more pressured. We continue to position this business for longer-term success with investments in automation to improve our cost position and throughput. Our Factory Built business continues to outperform our end markets as we develop new products that add content and expand our addressable market. We continue to believe our Factory Built business addresses the affordability issues impacting the residential marketplace, and we believe our Site Built offerings address these challenges as well. In both cases, we are working to bring solutions to the market that can help improve build times and reduce labor content at the job site. We also bring solutions to the nonresidential and public construction markets with our Concrete Forming business where we provide solutions that reduce job site labor. We have had great success in this fragmented marketplace and appreciate that our products are fungible across all types of concrete construction work. Looking ahead, we remain focused on driving innovation across the portfolio and making strategic investments to create shareholder value. We believe we're in a position of strength when it comes to M&A given our $2.3 billion in liquidity. As we've said before, our focus remains on the most attractive opportunities that enhance our core business. We have identified targets across each of our business units that complement our core strengths. We continue to refine the business, and we are looking to put capital deployment strategies towards the places with the greatest opportunities for shareholder return. Our balance sheet is ready for transaction that strengthen these areas. And we have the right team in place. We'll be patient and discerning and we're prepared to act when the right opportunity matures. We continue to be committed to our long-term targets and believe the steps we're taking today will position us to achieve these results in the future. As a reminder, we are driving towards a 12.5% EBITDA margin. to achieve 7% to 10% unit sales growth, some of which will come from M&A and new products. We will focus on driving ROIC in excess of 15%, which is well ahead of our cost of capital. and all of this while maintaining a conservative capital structure. We are making progress even in this down cycle and performing 200 basis points better than we did in 2019. That's a testament to the strength of our business model, which as previously stated, we continue to refine. In closing, I believe in the work UFP Industries is doing for the benefit of our shareholders, our customers and our communities. We will continue to bring to market value-added solutions that strengthen all three. Thank you again for joining us today. We're proud of the progress we've made and confident in our path forward. With that, I'll hand it over to Mike Cole, our Chief Financial Officer. Michael Cole: Thank you, Will. Net sales for the quarter were $1.56 billion, reflecting a 5% decline from $1.65 billion last year, because of modest declines in overall volumes and pricing. Share gains and recent acquisitions helped to offset some of the volume pressure from softer demand and more competitive pricing was primarily isolated to our Site Built unit. These headwinds resulted in a 15% decline in our adjusted EBITDA to $140 million, while adjusted EBITDA margin fell to 9% from 10% a year ago. Importantly, the structural improvements we've made in the business since 2019 have resulted in a nearly 200 basis point improvement in overall margins since that time. It's worth noting that 75% of the decline in our consolidated gross profit was due to lower volume and pricing in our Site Built business as affordability and confidence levels continue to weigh on residential construction activity. Even in this environment, our trailing 12-month return on invested capital stands at 14.5%, well above our weighted average cost of capital, clear evidence of the strength of our balanced business model. Operating cash flow was $399 million, and we maintain a robust cash position of over $1 billion, giving us the flexibility to pursue our strategic objectives. As we remain patient for the right M&A opportunities to materialize, we've returned significant capital to shareholders, repurchasing nearly 6% of our total outstanding shares through October. Moving to our segments. Sales to customers in our Retail segment were $594 million, a 7% decline compared to last year, driven by softer repair and remodel demand and our strategic exit from lower-margin product lines. Within our business units, ProWood volumes declined 5%, reflecting higher interest rates and weaker consumer sentiment. Deckorators delivered 5% unit growth and 8% net sales growth, including a 31% increase in Surestone decking and 9% growth in wood plastic composite decking. These gains were partially offset by a 13% decline in railing sales. As we discussed last quarter, our reeling sales declined due to the loss of placement with a large retail customer, which, to a lesser extent, offset some of our wood plastic composite decking growth. Positively, we gained share with another major retailer through the launch of our Summit Surestone decking, positioning us for a net market share gain as we expand capacity to supply approximately 1,500 stores. We expect to capture the full benefit of the share gain in 2026, an important step toward our goal of doubling our composite ducking and railing market share over the next 5 years. While our year-over-year gross profits in retail declined by $13 million, we consider the causes to be temporary. Falling lumber prices weighed on the profitability of our ProWood pressure-treated products. Inefficiencies associated with implementing and running our new composite decking capacity will be overcome as the lines reach optimal efficiency shortly. And lower volumes and inefficiencies resulting from the wind-down activities at our Edge manufacturing locations will be eliminated as we move production to other plants. Adjusted EBITDA in retail declined by $11 million because of the decline in gross profit and foreign exchange gains last year offset by a decrease in SG&A expenses despite significant investments we've made in building the Surestone brand. As we indicated last quarter, the closure of the two Edge manufacturing facilities is expected to improve adjusted EBITDA by $16 million in 2026. Looking ahead, we believe the continued improvement and resiliency of our ProWood business growth and margin potential of our Deckorators unit, restructuring of Edge and SG&A improvements position us well for stronger results ahead. Packaging sales were $395 million, down 2% with a 3% organic unit decline, offset by 1% growth from recent acquisitions. Pricing remains stable, and we continue to gain share with key customers. Protective Packaging volumes grew 15% driven by geographic expansion. While gross profit declined by $4 million due to price competition in PalletOne, overall sequential trends in this segment are stabilizing, providing cautious optimism for 2026. Adjusted EBITDA in this segment was flat year-over-year, supported by SG&A reductions. Construction sales were $496 million, down 7%, primarily due to volume and pricing pressure in Site Built as we protect our share. positively, volumes grew significantly in Factory Built, commercial and concrete forming, highlighting the strength of our diversified portfolio. Gross profit declined $20 million year-over-year, entirely due to Site Built but it's important to note profitability remains above 2019 levels, reflecting structural improvements. Adjusted EBITDA declined $9 million as we reduced SG&A by $10 million and align costs with current demand. In this environment, we remain focused on balancing cost discipline with long-term growth investments, expanding market share, driving innovation, strengthening our brands and improving efficiency through technology. Consolidated SG&A declined $13 million this quarter, even though we invested significantly in advertising for Surestone driven by a $7 million decline in incentive compensation and a $12 million reduction in our core SG&A. Looking ahead, we've targeted an annual run rate of EBITDA improvements from cost and capacity reductions, of $60 million by 2026. Our plan for SG&A expenses in 2025, excluding highly variable sales and bonus incentives is $137 million for Q4 and $553 million for the year. The annual target is $11 million lower compared to 2024, and it's comprised of $31 million of anticipated cost reductions offset by a $20 million increase in Deckorators advertising costs. Additionally, our Q4 targets are 3% of gross profit for sales incentives, 18% of pre-bonus operating profit for current year bonuses and $7 million of vesting expense associated with prior year share grants under our bonus plan. In addition to SG&A reductions, we've taken actions to reduce and consolidate capacity at locations that don't meet our profitability targets. We anticipate these actions will have a favorable impact on gross profits totaling nearly $14 million in 2025. And as I previously mentioned, the closure of our Bonner facilities is expected to eliminate operating losses totaling $16 million in 2026. Based on the actions we've taken to date and opportunities for continued improvement, we're confident in our ability to meet or exceed our goal of $60 million in cost out by the end of 2026. Moving on to our cash flow statement. Our operating cash flow was $399 million for the year, supported by strong working capital management. The strength of our free cash flow generation has allowed us to continue to invest in growing and improving key parts of our business. while also more aggressively pursuing share repurchases at an attractive price. For the year, our investing activities include $206 million in capital expenditures, comprising $81 million in maintenance CapEx and $124 million of expansionary CapEx. Our expansionary investments are primarily focused on capacity expansion for manufacturing new and value-added products geographic growth in our core higher-margin businesses and efficiency gains through automation. Our investing activities also include three small acquisitions. Finally, our financing activities primarily consisted of returning capital to shareholders through almost $62 million in dividends and $291 million in share repurchases. Turning to our capital structure and resources. We continue to have a strong balance sheet with over $1 billion in cash and total liquidity of $2.3 billion. Our capital allocation priorities remain unchanged: invest in organic and inorganic growth grow dividends in line with long-term free cash flow and repurchased our stock to offset dilution from share-based compensation plans and opportunistically buy back more stock when we believe it's trading at a discounted value. With these points in mind, our Board approved a quarterly dividend of $0.35 a share to be paid in December, representing a 6% increase from the rate paid a year ago. Last July, our Board of Directors approved a new $300 million share repurchase authorization that's effective through the end of July 2026. We were active in the quarter and repurchased almost 840,000 shares or nearly $78 million through October under this authorization. This brings our total repurchases in 2025, to $347 million or roughly 6.5% of our market capitalization. We currently plan to spend approximately $275 million to $300 million for CapEx for the year, slightly lower than previously anticipated due to longer lead times for launching and completing certain projects. Finally, we continue to pursue a healthy pipeline of M&A opportunities across our portfolio. that are a strong strategic fit and provide higher margin return and growth potential. We'll remain patient and disciplined on valuation as we pursue these opportunities. Finally, our outlook remains consistent. Low single-digit unit declines across each of our segments through year-end, reflecting soft demand and pricing pressure. Cycle faces the most pronounced headwinds, while our other businesses show signs of stabilization or modest growth. We're confident that our actions, cost reductions, capacity optimization and strategic investments position us well for above-market growth and margin expansion as business conditions normalize. With that, we'll open it up for questions. Operator: [Operator Instructions] And our first question will come from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: Good morning, everyone. Just wanted to start on Deckorators. And I was hoping you could talk about kind of where we stand with the Surestone retail rollout and whether it's kind of the pace of store expansion, service, sell-through, how that's generally performed relative to yours and your customers' expectations kind of coming into the year. William Schwartz: Yes. Good question there, Kurt. And what I would tell you is we remain on pace. We've talked about it openly. We're really targeting that 2026 selling season, and we'll be on shelf and ready to go for that season. We're still working through the capacity expansions that we've talked about, the CapEx expansions. And that's on pace. We'll see that really kind of kick in at the end of Q4 and into Q1, we'll be fully operational. I would tell you, sell-through is good. I think everyone is happy. It kind of shows in the results, especially in a market when you consider that the consumers, it's a very difficult market to upsell, looking for a value proposition. And so we're outsizing the market and results. And for that, I think all of us are really happy. Kurt Yinger: Okay. That's helpful. And it's probably difficult to parse out. But with the Surestone growth that we're seeing, is there any way to kind of ballpark what the impact of kind of the new retail shelf spaces as compared to maybe what you're seeing in the Pro channel. And relatedly, I mean, wood plastic composite grow 9% is very impressive considering the emphasis around Surestone. Maybe talk about some of the success there even with some of the shelf space losses last year? William Schwartz: Yes. We're very pleased and continue to gain share. We're happy. We're excited about where we're heading. And we're winning in all those places. Surestone is obviously something no one else can get their hands on. It's not produced by anyone else. It's a new technology. We continue to invest in that branding and that strategy. And with more awareness, I think it will continue to take market share. But we're very committed, we're very excited, and our teams continue to innovate and develop a great product to match up to all the price points. Kurt Yinger: Okay. All right. That's helpful. And just lastly on lumber kind of a 2-parter. I guess, first, given the current demand and competitive environment, if we were to see lumber prices start to inflate, is that a risk to profitability just given the demand environment? And then secondly, recognizing you guys don't want to be speculators on lumber. But just given where prices are, I guess, how do you think about the opportunity to perhaps lean into inventory here kind of in the winter months ahead of spring and summer of next year. William Schwartz: Yes. Good question there. And we always try to balance that. We're looking at what we believe the market will do. We try to use that in our strategies for building inventories for the following season. Right now, I think pricing is indicative of kind of the end takeaway and we continue to look at that. We focus on it. Your first question, getting back to is the pressure in a reduced demand environment certainly passing along those things are difficult, but we feel like we're positioned in and poised well to handle it. And in a lot of our business, our strategy is that we were priced for Texas in that. So it's kind of a balanced model. Operator: One moment for our next question. That will come from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: First of all, I just want to kind of acknowledge and applaud the improved disclosures and just the way the information is laid out in the release this quarter. So nice job on that. Maybe to start with, just continuing with composite decking and Deckorators. One of the competitors with recent consolidation was talking about sort of more bundling of products. Given sort of the size and scale I'm curious kind of from your standpoint, what are you doing to sort of continue on this pathway you talked about doubling market share. Can you talk about some of the puts and takes there? Michael Cole: You kind of cut out the last part of your question. Ketan Mamtora: Oh, I'm sorry. I'm just curious, from your standpoint, kind of what are you doing so that you kind of laid out the path to doubling share in that business. So from your standpoint, can you talk about sort of what you are doing? William Schwartz: Yes. So I think there's a couple of things there. One, that technology that we continue to talk about, and there's a reason we talk about it, it is next-generation material in technology that applies past decking too. But secondarily, and something that's not traditional for us is that branding exercise. We're really leaning into it because there's a great story to tell. And we believe that's going to drive those market share gains that we're talking about. We're building momentum every single day. And right now, we're at a capacity constraint that's about to be fixed, and you'll really start to see that capitalized on. Michael Cole: I think also the investments made to make sure the probe plants can distribute the Surestone product has been something that makes us unique and a key part of the growth strategy. Ketan Mamtora: Got it. No, that's helpful. And then switching to the cycle side. Curious kind of what recent trends you are seeing. And as you sort of start to think about 2026, given sort of there is a lag involved, any perspective on kind of what you're hearing from your customers and the competitive price pressures that business is being? Are you kind of seeing signs of stabilization and then it is more of a sort of just kind of an exit rate kind of a thing. Curious kind of what latest you're seeing there? . William Schwartz: Yes. I wouldn't tell you -- I think that's the area of the business that's the most murky and lacks clarity. There's a lot of things out there. Interest rate cuts, consumer confidence has to grow, but I think some of the -- just the uncertainty, the affordability piece leaves it a lot more cloudy and trying to project what 2026 holds. We're cautiously optimistic. Most of our businesses, we see stabilization. That one, we just don't have enough clarity at this point to put a bow on it. Mike, do you want to add anything there? Michael Cole: Yes. I would just -- I think part of your question, too, is pricing trends sequentially, Ketan, from Q2 to Q3, we did see additional pricing pressures. So we can see costs coming down mostly because of material cost but pricing was off more than material costs. So clearly, a little more pressure there, which probably extends on into Q4 as well, given the environment. Ketan Mamtora: Got it. That's helpful. And then just one last one from me. From a capital allocation standpoint, I mean, clearly, the balance sheet is very strong. And it seems like you are leaning more into kind of share repurchases. As we sit here today, how are you thinking about any opportunities that may come up from an M&A standpoint given sort of the weak environment right now versus kind of continuing to lean in on share repurchases. How are you sort of thinking about that balance? And within that inorganic piece, what is it that is sort of the most interesting to you from a growth standpoint right now. William Schwartz: Mike, you want to hit on that a little bit? Michael Cole: Yes. I guess, Ketan, the way we're thinking about it right now, our cash flow generation is really good. And what we're looking at is allocating more of our free cash flow towards share buybacks. And you can see we've accumulated a lot this year. And trying to preserve the balance sheet, the cash, the unused debt capacity for more meaningful M&A transactions. And very focused on our strategies. And so trying to be really disciplined on making sure larger transactions that fit into strengthening the core is where we're focused. William Schwartz: Yes. The last thing I'll add there, Ketan, is I'm really impressed and appreciate the work our team has done. We're really starting to refine the opportunities and really hone in on the spaces we're going to invest. And we believe we're going to have some opportunities there. Operator: Thank you. One moment for our next question, and that will come from the line of Jay McCanless with Wedbush. James McCanless: One and definitely I want to echo what Ketan said about the disclosure. We really appreciate the heightened disclosure and help so makes our job easier. So thank you all for doing that. The first question I had, and I know I'm nitpicking here, but kind of the language in the outlook where you are talking about Construction, Site Built versus Factory Built you guys changed that language up a little bit. Maybe it looks like you backed off how strong Factory Built is. Could you talk about that and talk about where the strength of that business is now versus a quarter ago? And what are you hearing from customers as we're heading into the spring season, well, almost there a couple of months? William Schwartz: Yes, I don't think it's really a huge shift. I think everything right now, consumer confidence affordability is just challenging in the marketplace and just trying to temper that a little bit. But we're still excited about where that goes. And the affordability challenges, that market, we believe, has a lot of legs and will continue to grow. But just tempering that just around the current environment and housing total. Michael Cole: I think in Q3, Jay, the industry production looked like it was a little more challenged than in not showing the types of increases it had been earlier in the year. So I think it's just a reflection of what we're seeing more recently. James McCanless: And then -- been a lot of noise about tariffs, et cetera, lumber tariffs, especially, I guess, what are you all kind of thinking about potential tariff impact for 4Q as we look ahead to '26. What should we be building in or thinking on our models? William Schwartz: Yes. What I would tell you is look at the pricing today, that's been hanging out there for a while. We've talked about it openly and yet we sit at some really low points in the marketplace. So would continue to reiterate. We're well positioned. The majority of our purchases are domestic purchases already, and I think there's opportunity for shifts that we see big changes. We're prepared and ready to act as needed, but I think it will be reflective of the market in total. James McCanless: That's great. And then the last question I had is, we've seen some articles out there talking about how data center builds are going to start flexing higher in '26. And I guess are you all seeing anything on the leading Edge of that from your customers that would support that view. And I guess, is there anything else you all could do to expand on concrete forming to take advantage of if there is this really big data center build that's going to start next year if you guys are doing anything or can do anything to expand your capacity or ability to take share in that market? William Schwartz: Yes, I'll hit that. Certainly, we're excited about that, and it's reflective in the numbers for concrete forming, meeting where the customers are at. And that opportunity certainly continues to present itself and the value-added solutions we can put there. we continue to try to grab more share of the wallet in the spend, and I believe we're excited about it. Operator: One moment for our next question. And that will come from the line of Andrew Carter with Stifel. Unknown Analyst: I realize that I'm kind of mixing a little bit of apples and oranges. But when I look at your Site Built units down 15% and then I take builders, which is, I guess, a good national proxy average, single-family, multifamily core organic they're down 13. They said content. All those things are headwinds. So you can assume that units are a little better than that. I guess what I'm asking is, past 10 quarters, your Site Built has consistently outperformed there, which I would call kind of a national metric. So what I'm getting at is as you look at your specific geographic footprint in Site Built, I think you've kind of been a little bit immune to the challenges during this kind of post '22 rightsizing are things getting worse and deviating from the national average, anything material you see? Or would you just not make too much out of that 3Q number? William Schwartz: Yes. I think -- and we've described it in the past. We've tried to remain -- we haven't invested in some of the boom and bust markets. And so we don't have that full geography of the U.S. in footprint. But I would tell you, some of the Western markets that have been really good for us over the past couple of years. We've seen some declines in a bigger way, and I think that's probably more representative of what you're reading into those numbers. Unknown Analyst: Fair enough. Second question I would ask is, you did say stabilization in some of your markets in the last quarter, I think you said that the challenges where you called out three businesses, structural pallet and, of course, Site Built. I guess as you think about stabilization, is there a path to, I guess, reclaiming some of the margin? Or do you have to -- are we stabilizing it kind of -- are you stabilizing at sort of a trough that we should think of and carry on into the next couple of years? William Schwartz: Yes. So we kind of -- we feel like we found the trough in some of the businesses, and we see that sequentially in margin pressure in pricing. And so specifically in the structural business, I'll call that out. And or -- when you hear me talk about optimism, it's not necessarily we're projecting the market changes drastically in 2026. It's really more of a result of the work we've done in cost out, automation, a lot of the investment that we've made and a lot of the hard work that our employees have made. And that's really what drives it more than anything. Michael Cole: And the share gain opportunity that we have, we've had in addition to Surestone, we've had other areas of the business where we've accomplished market share gains. And so that gives us good optimism into '26. Unknown Analyst: Last question I'll ask. It's kind of -- it's been asked a little bit about the kind of the sure stone and kind of all in on kind of your composite -- or your sorry, Decking, Railing business. But could you give us a cadence of kind of when you hit your full potential from a revenue perspective? And then also the flip side, there's a profitability perspective. I mean you mentioned some items that were headwinds in the quarter. When do those become kind of fully tailwinds? And then you, of course, invested $20 million in incremental advertising this year. Do you sustain that next year? Do you increase from that? And I will stop there. William Schwartz: Yes. I'll kind of start there and then I'll let Mike jump in. First and foremost, go back to the operations. We'll be fully operational in both sites, Q1. So a lot of those challenges that come along with capital investment, the disruption that takes place when you're introducing a lot of that technology, new equipment, et cetera. So we'll be operational in Q1. So some of that falls off. You asked about the brand, driving the brand advertising. We do not plan to adjust our marketing efforts in 2026, up or down. So that's going to remain pretty similar. And we continue to talk about market share gains. So we'll start to see the results of that in '26. Mike, do you want to add any additional color? Michael Cole: Yes, I would just say that we're expecting the most meaningful part of the sales growth to occur in '26 and maybe even more importantly, the margin. The contribution margins with the new capacity that tremendously helps us accelerate throughput through the plants. That really begins to have an impact in '26. There is inventory, I guess, to work through that would be at the higher cost, probably for the balance of the year. So really excited to get those new lines running optimally. And start enjoying some of those cost benefits in '26. Operator: One moment for our next question. And that will come from the line of Reuben Garner with Benchmark. Reuben Garner: So to start on the Packaging business, I think you referenced stabilization a couple of times in your opening remarks, even discussed kind of potentially aggressively growing in that market. I guess 2-part question. One, would you go as far to say that you're seeing green shoots in the end market overall? Or is it simply more of a bottoming and things have leveled off for long enough that you're a little less concerned about downside? And then secondarily, the growth part there, like what exactly is driving that potential aggressive growth or above market growth in that vertical? William Schwartz: All right. So the green shoots piece, the second part of your answer is right. We feel like we found the bottom. At least it feels that. Stabilization is feeling like we found the trough, feeling like we found the bottom. There's a couple of things that give us optimism. That's number one. A lot of the work we've done with national accounts and our strategic sales teams really focusing on big opportunities, and there are some near-shoring opportunities. We believe we'll expose themselves both in '26, but really beyond. And so that's really the optimism that we have. And then some consolidations, cost out, some automation work and investment inside of our factories, that's where the optimism comes from. We're geared and ready to roll. As business starts to come back. So I wouldn't say it's green shoots yet, but certainly optimistic. Reuben Garner: Okay. Great. And then the lumber piece, so lumber prices are relatively consistent with the year ago despite all the duty increases, the tariff talk and everything else that's gone on and supply coming out. So clearly, demand is much lower than a year ago broadly for wood. My question is, as we do see a recovery, given the increased tariffs and duties and the supply that's come out, it would point to pretty substantial upside to lumber prices and probably well above what would have been considered normal 5, 6, 7, 8 years ago. Does that impact the competitiveness of the wood in the packaging space? Are there alternatives that become an issue alternatives to wood that become an issue for you guys? Or did you kind of see through the pandemic spike that would necessary in a lot of these categories, and they'll have to deal with it just like they do in housing where there's not really an alternative to wood framing. William Schwartz: Yes, it's a really good question. Specifically, as we talk about packaging material, it's really the beauty of the balance of our business. And so what I would tell you is when you get into a more fiber stricken market, less fiber availability, that's generally where we tend to win a little more because we're not just buying those low-grade products. We're buying the entire gamut of products. We're buying the uppers and that gives us a little buying benefit. And so for us, we're kind of agnostic as where the market is. But generally, when the market gets tighter, that is also represented in pricing, it's generally a better market for us. We're able to put some pricing and purchasing strategies in place to take advantage of that. So that's why you can describe it. Reuben Garner: Great. And last one for me on Surestone. Can you remind us, is there any recycled component to that product? I know historically, it's a higher-end product and a little bit more costly maybe to produce in the wood plastic composites. Is there an opportunity to increase recycled or other ways to drive cost down besides just more volume and throughput in new facilities? . William Schwartz: Yes, there's certainly an element of recycled product in it today, and there's opportunity to grow that, and we'll continue to invest in taking advantage of that. So the answer is yes and yes. Operator: And one moment for our next question. We do have a follow-up from Kurt Yinger with D.A. Davidson. Kurt Yinger: There's a lot of moving pieces in retail with ProWood and Edge and Deckorators this year. Last year was actually a really impressive gross margin performance at 15%. Is that a reasonable bogey to get back to in 2026? Or given the actions that you've taken, is that perhaps even conservative? Michael Cole: Yes. Kurt, I think some of the challenges we've had this year with lower unit sales in the pro wood side, falling lumber prices on the ProWood side challenges with introducing the new capacity and inefficiencies as a result in the Edge business this year. To me, those are all challenges that are temporary. So we see a path to those types of margins that we experienced last year. And not only that, we see a path to improving it. We believe there's even more upside to margin in the proved area. There's a lot of things to be excited about in terms of cost out and being more efficient. But -- and then obviously, the Surestone and the mix benefits we get from the decorator side of things, a lot of reasons to be excited about margin expansion and above-market growth in the retail area in general. William Schwartz: There's one last piece there. I'll tack on because Mike had an absolutely spot on. The -- we didn't get to fully realize the value of our internal distribution through our ProWood plants this year. So when you think about Deckorators flowing through that, that's also a margin expansion opportunity for the ProWood plant as well. So just kind of wanted to make sure I mentioned that. Kurt Yinger: And Will, when you say you didn't fully realize that, is that kind of based on the growth you expect next year or something else going up? William Schwartz: Yes, absolutely. And that was just lack of capacity this year, and we weren't able to take full advantage of it because we didn't have the capacity we'll have that in 2026 and beyond, and we'll really be able to utilize that volume. It expands both the Deckorators side and the ProWood side. Kurt Yinger: Right. Okay. That makes sense. And then just going back to Site Built I know you mentioned that margins are still, I think, better than pre-COVID levels. I guess if you take a step back, like how would you kind of characterize your cost competitiveness there relative to what you see to peers mean it feels like an area where the automation and efficiency opportunity is maybe greater than other parts of the portfolio. So I don't know if that's fair or not, but any color there would be really helpful. William Schwartz: Mike, do you want to hit that? Michael Cole: Yes, I think we're really focused on being a manufacturer of engineered wood components. I mean that's all that we do. And the team, I think, has done a fabulous job of investing in automation and enhancing our processes in the plants in order to be able to be more efficient. So I can't speak with respect to peers, we're kind of built differently, just being a manufacturer of those product categories. But we feel really good about what the team has accomplished. I think that's one of the reasons why our margins, and I think I referenced in my comments that our margins this year are higher than what they were in of 2019. And I think it's because the team has done a great job in being investing in being more efficient in the plants. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Schwartz for any closing remarks. William Schwartz: Thank you, everyone. As we continue to press forward and fine-tune our business, I'm confident in the strategy and the team we have in place to meet our long-term goals and to bring new high-value products to market. Thank you to those on the call for your interest, and have a great day. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions Third Quarter Fiscal 2025 Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Bill Warmington, Vice President of Investor Relations. Please go ahead. William Warmington: Thank you, operator. Good morning, and thank you all for joining us today to review CCC's Third Quarter 2025 Financial Results, which we announced in the press release issued earlier this morning. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO; and Brian Herb, CCC's CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2024 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we will provide a transcript of portions of this call, and we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in the transcripts. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. I'll now turn the call over to Githesh. Githesh Ramamurthy: Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top and bottom line results. In the third quarter of 2025, total revenue was $267 million, up 12% year-over-year and ahead of our guidance range. Adjusted EBITDA was $110 million, also ahead of our guidance range, and our adjusted EBITDA margin was 41%. These results underscore the strength of our platform and the scalability of our model and the growing demand for AI-driven innovation across the insurance economy. On today's call, I'll focus on 2 key themes that define our Q3 performance and outlook. First, adoption continued to improve across our platform, particularly among our largest and most sophisticated customers. This momentum builds on the strong trends we observed in Q2 and reflects customers' growing confidence in CCC's ability to help deliver measurable ROI and operational efficiency at scale. Second, we are proactively investing in our organization to harness this momentum to accelerate value creation across the insurance claim and repair ecosystem, enhancing our go-to-market capabilities, deepening client and partner relationships and strengthening our multisided network. We believe these investments position CCC for continued durable long-term growth. Let's start with the first theme, the accelerating adoption of CCC's platform across our customer base. In Q3, we saw momentum across our customer base with multiple renewals, relationship expansions and new business wins. These results reflect the value our solutions deliver and the trust our clients place in CCC. A recurring theme in CCC's 4 decades is the evolution of individual solutions into a connected platform. The most recent evolution is with our AI-based solutions, which are following a similar trajectory as previous growth cycles. Starting with the launch of Estimate-STP in late 2021, we've expanded vision AI use cases to create a powerful AI layer that enhances our core software with advanced capabilities in routing, estimating and workflow. These capabilities are seamlessly connected through our event-based overlay, IX Cloud, which links more than 35,000 businesses across the CCC network. When multiple solutions are used together, it creates a compounding effect, reducing cycle time across the ecosystem and improving outcomes for insurers, repairers and consumers alike. We continue to see good engagement from our auto physical damage or APD insurance clients in Q3 with multiple renewals and contract expansions. For example, a top 20 insurer signed on for Intelligent Reinspection, our workflow AI solution, demonstrating the growing demand for intelligent automation across the claim life cycle. Adoption of these solutions continues to scale, driven by their proven ability to deliver meaningful ROI and operational efficiency. As I have said before, our largest and most sophisticated customers put new technologies, including our solutions through rigorous testing and piloting before full adoption. Our customers consider these processes to be essential to validate their specific ROI to identify internal process improvements and to align stakeholders across their organization. We're now seeing evidence that working with our customers through these diligence processes contributes to increased adoption of our solutions. Over the past year, a top 10 insurer has increased the number of AI-based solutions in use and the volume of claims being affected by those different AI use cases. As a result, this customer increased the number of claims leveraging at least one CCC AI model from roughly 15% of their claims to about 40%. This is a clear example of CCC turning innovation into operational impact, delivering measurable gains across the claims journey. Following the progress in APD, let's turn to casualty, an exciting growth area where our investments in technology, talent and product innovation are paying increasing dividends. For example, Liberty Mutual, the sixth largest auto insurer in the United States by 2024 direct premium written has signed with CCC and is actively transitioning a substantial portion of their casualty business to our platform. This decision was based on the strength of CCC's platform capabilities, the breadth of our extended ecosystem and our ability to deliver operating performance through ease of use, actionable analytics and continuous innovation, including AI. This transition has just started and will not be at full run rate until mid-2026. In addition to the Liberty Mutual contract, we had multiple renewals and contract expansions across our casualty client base, including a top 5 insurer for both first and third-party claims. Growth in our casualty business is outpacing overall company growth and represents one of CCC's most compelling long-term opportunities, which we believe may reach or even exceed the scale of our auto physical damage insurance business over time. Part of our confidence in the casualty opportunity comes from the fact that its total addressable market is similar in scale to APD, but its customer count is currently just 1/5 that of APD and contributes approximately 10% of our revenue. Medical inflation and complexity are also increasing rapidly with our insurance customers increasingly focused on addressing this area of claims. We're also advancing tools to help our insurers manage injury claims, an area where EvolutionIQ is already delivering results. EvolutionIQ saw good momentum in Q3, renewing and expanding contracts with multiple top 15 disability carriers, launching Medhub for auto casualty and adding its first workers' compensation cross-sell into an existing CCC customer. A central pillar of our investment thesis in EvolutionIQ was the integration of its AI-powered injury claims resolution capabilities into CCC's auto casualty suite. This strategic alignment positions us to accelerate our momentum in casualty and unlock new cross-sell opportunities across our APD client base of over 300 insurers. The first milestone in this integration journey was Medhub, EvolutionIQ's AI-powered medical record synthesis solution becoming generally available for auto casualty in Q3. Medhub's ability to decode complex medical documentation and surface actionable insights is generating strong interest from multiple top 10 insurers. In the past 12 months, Medhub has processed 6 million documents, 5.5 million full summaries and 82 million pages. Another strategic rationale for our acquisition of EvolutionIQ was the opportunity to deploy EvolutionIQ solutions, particularly its emerging workers' compensation product line into CCC's existing insurance client base. With 7 of the top 10 workers' comp P&C insurers already CCC clients, we are excited to announce that in Q3, a top 25 CCC APD and casualty client became a new customer for EvolutionIQ's workers' comp solution. Together, CCC and EvolutionIQ are enabling insurers to harness AI more broadly, driving meaningful improvements in operational efficiency, customer experience and claim outcomes. Over time, we plan to scale these capabilities across our client base, unlocking new pathways for growth and long-term value creation. This integration is a natural extension of our platform strategy, uniting data, AI and workflow automation to address complex challenges in injury claims resolution. While insurers are scaling adoption of our AI solutions, repair facilities are also embracing innovation to meet the challenges of increasingly complex vehicles and higher consumer expectations. As vehicles become more advanced and customers demand faster, more accurate and more transparent service, repair facilities face growing pressure to deliver. CCC's platform is designed to help repairers thrive in today's demanding environment. This quarter, we saw continued momentum of repair facilities adopting our latest solutions. For example, Build Sheets, our accuracy-enhancing part selection tool has now been adopted by over 5,500 repair facilities, up from about 5,000 last quarter. Usage of our photo AI-powered estimating tool, Mobile Jumpstart is also accelerating. In September, we surpassed an annualized run rate of over 1 million AI-based repair estimates generated using Mobile Jumpstart. Jumpstart enables repairs to cut estimate preparation time from 30 minutes to under 2, freeing up technicians and accelerating cycle times. With tools like JumpStart and Build Sheets, CCC is helping define what modern, efficient and consumer-centric repair looks like. We believe our AI-driven tools and the connectivity of our network are driving a widening gap in operating efficiency and consumer experience between repair facilities on the CCC platform and those that are not, a gap that we anticipate will continue to expand as adoption and expectations rise. Let's take CCC's routing AI solution, First Look as an example. It helps insurers only route vehicles to a repair facility if they're truly repairable, preventing shops from losing valuable time and space on vehicles that will ultimately be declared total losses. Our workflow AI solution, Intelligent Reinspection is another example. It reviews supplement requests, which now occur in about 2/3 of repair claims. With CCC's new solution, roughly 40% of those supplement requests are auto approved, significantly shortening cycle time for repairs. We will continue to introduce new solutions that combine the connectivity of our multisided network and the power of AI to deliver even greater efficiency and consumer experience gains for our customers. As a result, we expect the productivity and service gap between those on the CCC network and those who are not to expand over time. This brings me to the second theme of today's call, the organizational investments we are making to accelerate value creation across the insurance claim and repair ecosystem. In addition to getting to know many of our team members during his first 6 months at CCC, our new President, Tim Welsh and I have met with dozens of clients. These conversations were invaluable and had 3 takeaways. The first is that our insurance customers are increasingly focused on the affordability of their products. A recent Guardian service study found that 1 in 4 Americans have downgraded or dropped insurance to free up cash and 1 in 3 would temporarily go without coverage to afford basic necessities. This underscores a critical question our clients are asking, how can CCC help improve operational cost efficiency to make insurance more affordable for consumers? The second takeaway is that our clients are intent on leveraging the opportunities presented by the current wave of technology-driven transformation. AI creates new possibilities for handling claims and new opportunities for participants in the CCC ecosystem to collaborate. Insurers, repair facilities, OEMs and other participants in the ecosystem are looking to us for strategic guidance on how to leverage AI to streamline workflows and navigate the organizational change required to implement these innovations. They are not looking for incremental gains. They want a step change, and they want CCC to help them achieve it. The third takeaway is that our clients want us to do more with them. Over time, we've built long-term relationships by supporting their mission-critical processes and consistently delivering platform-driven innovation. As a result, our role has evolved into a trusted adviser and innovation partner. Clients are asking us to provide solutions that integrate more deeply across their operations and ecosystems as well as work closely with them to help shape the future of insurance. These client conversations reaffirm the strength of our product investments and highlight CCC's growing role as a transformation partner of choice. Combined with strong adoption momentum we're seeing across our platform, this gives us the confidence to invest behind the demand, positioning CCC to capitalize on what we believe is a transformative era of growth and innovation. One of the key investments we're making is a refinement of our go-to-market strategy to better engage customers around the broader value of the CCC platform. As we shared on our February call, early changes included simplifying our solution packaging by combining insurance offerings into a more holistic outcome-driven bundles, enhancing change management support to accelerate adoption of newer innovations and consolidating all market-facing and service functions under Tim Welsh's leadership to drive alignment and accountability. The next phase of this evolution involves augmenting our teams with new skill sets. bringing in talent that can help us build broader, deeper and more strategic relationships across key clients. One way that we are doing this is augmenting our existing teams with new client leaders that have proven expertise in deep strategic consultative platform sales, which will allow us to engage higher and more broadly across the organization. We are funding these investments by reallocating existing spend to these higher ROI opportunities. These moves reflect our confidence in our long-term growth potential and are guided by what our clients need most. As part of our broader effort to align the organization for scale, we have also separated the previously combined roles of Chief Product Officer and Chief Technology Officer and are actively recruiting to fill both positions. This structural change enables greater focus and specialization across both functions, which we believe will drive stronger execution, enhance client satisfaction and elevate the consumer experience. In parallel, we are continuing to invest in our multisided network, adding new capabilities, expanding participation and integrating advanced AI features that enhance our ability to deliver differentiated value at scale. With over 200 partner organizations, we see significant opportunity to deepen existing relationships and forge new ones, further strengthening the CCC ecosystem. Taken together, these investments reflect our commitment to scaling CCC's impact by aligning our organization more closely with client needs, deepening strategic relationships and strengthening the ecosystem that powers our platform. We are confident that these steps position us to lead in a rapidly evolving market and deliver meaningful durable value for our customers, partners and shareholders. Every day, CCC's solutions help our customers support over 50,000 people affected by vehicle accidents and over 10,000 impacted by workplace injuries, helping them get their lives back on track as quickly as possible. Since going public in 2021, we've doubled the annual dollar value of claims processed in our system from slightly over $100 billion to over $200 billion. For this, we are truly grateful to the growing trust and reliance from our customers across the insurance economy. We saw clear traction in Q3, particularly among some of our largest and most sophisticated customers. Their adoption trends reinforce our confidence in the structural changes we're making to scale our impact and deliver against a compelling long-term growth opportunity. As the insurance economy continues its digital transformation, CCC remains deeply committed to providing our customers with solutions to shape a future where innovation drives better outcomes for businesses, consumers and communities. We are excited about the road ahead and confident in our ability to deliver strong results and lasting value. I will now turn the call over to Brian, who will walk you through our results in more detail. Brian Herb: Thanks, Githesh. As Githesh highlighted, Q3 was a strong quarter with meaningful new business wins, renewals, contract expansions and a continuation of the adoption momentum we saw in Q2. These results reflected the continued execution of our platform strategy and the strategic investments we're making to support long-term growth. Now let's turn to the numbers. I will review our third quarter 2025 results and then provide guidance for the fourth quarter and the full year of 2025. Total revenue in the third quarter was $267 million, which is up 12% from the prior year period. In the third quarter of 2025, approximately 5 points of growth was driven by cross-sell, upsell and adoption of our solutions across our client base. including repair shop upgrades, the continued adoption of our emerging solutions and casualty. Approximately 3 points of growth came from our new logos, mostly repair facilities and parts suppliers and about 4 points of growth came from EvolutionIQ. In the quarter, contribution from our emerging solution expanded to just over 2 points of growth, mainly driven by our AI-based APD solutions, subrogation, diagnostics and Build Sheets. Emerging solutions represent about 4 percentage points of our total revenue in Q3 of 2025, and these solutions continue to be the fastest-growing portion of our portfolio. Industry claim volumes in Q3 declined 6% year-over-year. That compares to 9% decline in Q1 and an 8% decline in Q2. The trend continues to represent approximately a 1 percentage point headwind to growth, consistent with the impact we experienced in the first half of the year. Turning to our key metrics of software gross dollar retention or GDR and software net dollar retention or NDR, please note that both of these metrics now include EvolutionIQ, and we're using an annualized software revenue on a combined basis for the prior year to provide a baseline for annualized revenue growth. GDR captures the amount of revenue retained from our client base compared to the prior year period. In Q3 2025, our gross dollar retention was 99%, which is in line with the last couple of years. We believe that GDR reflects the value we provide and the significant benefits that accrue to our clients from participating in the broader CCC network, our strong GDR is a core tenet to our predictable and resilient revenue model. Net dollar retention captures the amount of cross-sell and upsell from our existing clients compared to the prior year period as well as volume movements in our auto physical damage client base. In Q3 2025, our NDR was 105%, which is down from 107% in Q2 2025, primarily due to timing of deals. Now I'd like to turn to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP. We provide a reconciliation of GAAP to non-GAAP metrics in our press release. Adjusted gross profit in the quarter was $199 million. Adjusted gross profit margin was 75%, which is down from 78% last quarter and against Q3 of 2024. The lower adjusted gross profit margin is mostly driven by higher depreciation from newly launched solutions and software enhancements. Other impacts include a onetime impact of the write-off of a discontinued solution and revenue mix. Overall, we feel good about the leverage and scalability of the business and making progress towards our long-term target of 80% over time, but this percent can move around quarter-to-quarter. In terms of expenses, adjusted operating expense in Q3 2025 was $106 million, which is up 12% year-over-year, including the acquisition of EvolutionIQ. Excluding EvolutionIQ, adjusted operating expense increased 3% year-over-year, primarily driven by higher resource-related expenses and professional fees. Adjusted EBITDA for the quarter was $110 million, up 8% year-over-year with an adjusted EBITDA margin of 41%, this was above the high end of the range, which was $104 million to $107 million, reflecting the revenue that flowed through in the quarter and some phasing of costs that have moved into the fourth quarter. Stock-based compensation as a percent of revenue declined to 15% in Q3. That's down from 24% of revenue in Q1 and 18% of revenue in Q2. We expect stock-based compensation as a percent of revenue to continue to trend down in Q4, and in 2026 to reach high single digits in 2027. That's subject to further business needs and market conditions. Now let's turn to the balance sheet and cash flow. We ended the quarter with $97 million in cash and cash equivalents and $993 million of debt. At the end of the quarter, our net leverage was 2.1x adjusted EBITDA. We continue to show improving trends in free cash flow generation. Free cash flow in Q3 was strong at $79 million. That compares to $49 million in the prior year period. This reflects strong collections and favorable timing on working capital. Free cash flow on a trailing 12-month basis was $255 million, which is up 28% year-over-year. Our trailing 12-month free cash flow margin as of Q3 2025 was 25%. That's up from 22% in Q3 of '24. We have used our strong free cash flow performance to return capital to shareholders through the share repurchases. In Q3, we completed open market repurchases of 4.8 million shares of CCC common stock for about $45 million. We continue to be active buyers in October, bringing the total year-to-date repurchase to approximately 30 million shares for approximately $280 million under our previously announced $300 million share repurchase program. I'll now turn to guidance. Beginning with Q4 2025, we expect revenue of $272 million to $277 million, which represents a 10% to 12% growth year-over-year. We expect adjusted EBITDA of $106 million to $111 million, a 40% adjusted EBITDA margin at the midpoint. For the full year 2025, we are raising the low end of our guidance range and maintaining the upper end for both revenue and adjusted EBITDA. We are now expecting revenue of $1.051 billion to $1.056 billion, which is a 12% year-over-year growth at both the midpoint at the high end of the range. For adjusted EBITDA, we're now expecting between $423 million to $428 million, a 40% adjusted EBITDA margin at the midpoint and a 41% margin at the high end of the range. This includes a moderate EBITDA loss from EvolutionIQ. Excluding EvolutionIQ, our guidance implies about 100 basis points of year-over-year margin expansion at the midpoint. So a couple of things to keep in mind as you think about our Q4 and full year guide. First, our Q4 revenue forecast for the core remains in line with our previous guidance. We are raising the low end of our full year revenue guidance range to reflect strong performance in Q3 and maintaining the upper end of the range because of a slightly softer contribution from EvolutionIQ. Overall, the pace and scale of new business wins, renewals, contract expansion across the core business and EvolutionIQ reinforces our confidence in our long-term growth as we head into 2026. Second, we are raising the low end of our full year adjusted EBITDA guidance to reflect Q3 outperformance while keeping the upper end unchanged as we expect to absorb Q4 cost tied to the organizational investments Githesh outlined, which include some onetime consulting recruiting fees as well as exit and onboarding costs. As a result, we do not expect these investments to impact margins going forward, and we remain on track to resume margin progression in 2026. So as we wrap up, I'd like to reiterate our confidence in the strength of our business and our ability to deliver against our long-term strategic priorities. Our Q3 results and positive momentum underscore our commitment to support our clients as they advance their digital transformation. We're encouraged by the growth of emerging solutions and the disciplined execution that is driving margin expansion and strong free cash flow. As we look ahead, we believe our durable business model, expanding portfolio of AI-enabled solutions and strategic investments, including continued investments in our core platforms and the teams that support them position us well to create long-term value for both our customers and our shareholders. Operator, we're now ready to take questions. Thank you. Operator: Thank you. [Operator Instructions] Our first question today comes from Kirk Materne with Evercore ISI. S. Kirk Materne: Congrats on a nice quarter. I guess, Githesh, one of the things that stood out was the customer you alluded to that has gone from 15% of his sort of business being touched by AI to 40%. Can you just talk, I guess, at a high level about what that means from a monetization perspective for you all? Meaning when we think about the kind of revenue contribution on an ACV basis from that client, is there sort of a linear scale for you all as sort of your AI solutions penetrate that client? And then, Brian, could you just clarify a little bit on the EvolutionIQ? I think it was 4% contribution. I think you guys were looking at 5%. Can you just sort of -- it might have just been some little things, but could you just give us a little bit more color on that front? Githesh Ramamurthy: Thanks, Kirk. The main theme here is that as we've expanded our vision AI we have expanded the use cases across a broader spectrum of the claims. So as the quality, the caliber of the vision AI to help guide and make decisions all the way from the consumer at the front end, helping decide whether the car should be repaired, totaled, using it for Estimate-STP, using it for Intelligent Reinspection. So there's a lot of different places in the workflow that the solution is now being applied in addition to subro. In terms of the specifics, in terms of the impact on financial, I'll let Brian pick that up. But we're super excited about the uptake and how we've been able to expand that core AI vision capability across many other facets of the claim. Brian Herb: Yes. So if you think about AI and AI touching the claim, there is an incremental opportunity or an upcharge that we have. If you think about in our APD client set, if they take our core solutions, think about kind of estimating valuation workflow, and they're using those today. Now they're deploying -- if they deploy our AI layer that sits on the top of those, such as Estimate-STP that's on the top of our estimating solution or our reinspection, which sits with workflow, you could think about that client fully rolled out, could increase about 50% of their revenue across the APD solution set. So that's how to think about the sizing of the AI impact on our clients. Your second question on EvolutionIQ, I can take as well. So yes, you're right. We saw 4 points of contribution in the quarter. That will step up slightly in Q4. So we will see a larger contribution from EvolutionIQ. It will look more like 5% of the overall growth in the fourth quarter. The slight slippage that we saw in Q4 really comes down to timing of deployments and when clients are going live. These are signed clients, but there's been some timing and delays when they're going live, and that has pushed the revenue out. It's not revenue leakage or revenue loss, it's really a timing point on the revenue. Operator: Our next question comes from Gabriela Borges with Goldman Sachs. Gabriela Borges: A question Brian, I want to understand a little bit of your growth profile into next year in the context of some of the changes you're making. If I think through the commentary from this year, some of the things outside of your control have led you to be, call it, in that 7%, 8% lower half of the revenue target -- the long-term revenue target of 7% to 10%. So my question for you is, what are the scenarios where we can be closer to the high end versus the low end of that long-term target for next year? And the timing of the changes that you're making in the organization, why now? And do you think they can contribute to you being towards the higher end of the revenue growth target range for next year? Githesh Ramamurthy: Okay. Thanks, Gabriela. Let me take the last part of your question first. So if you look at -- when I look back at the last 20-plus years of how we've been doing this, we've always focused first on building out a high-quality set of solutions for essentially the next generation of the next wave. That was true when the Internet came along, that was true when mobile came along, that was true as we delivered new solutions. And we have, as you know, invested substantially over the last 4 years, 5 years, in fact, much, much longer on a set of AI solutions. And those are now starting to scale. We talked about that in Q2, we talked about that in Q3, and one of the things that we have seen as we've started to deploy solutions, clients starting to adopt them is really 2 out of the 3 things that, as Tim and I have been going around talking to people, our customers are asking us for. Customers are saying, we want to use these tools to deliver a step function change, not a linear incremental change. And that also means we need you guys to help us with more because it requires process changes, change management on our end. And so that is actually one of the key reasons why we're making these changes now and now -- for 2 reasons, right? Tim now had significant opportunity to spend time in the business. And the feedback from clients is the breadth of the solutions have increased where clients are saying, we need you to do more and we need you to help us. And so therefore, we need to be working at higher levels in the organization because it affects so many other components of the organization. And that's why we are making the augmentation. And remember, this is an addition and augmentation of our core capabilities as opposed to any whole scale changes. Does that help with that part and then the answer... Gabriela Borges: Yes, absolutely. Githesh Ramamurthy: And then the answer to the second part of your question about growth rate is, yes, this, as Brian pointed out, claim -- the drop in claim frequency has moderated -- starting to moderate. But most important for us, what really drives the growth is the adoption of really, if you think about it, our emerging solutions. We're continuing to build on the core insurance, adoption of emerging, as you followed us for a while, you've seen the breadth of the adoption in really 2 dimensions. One, clients expanding use of Estimate-STP, Intelligent Reinspection, a lot of our solutions. So that's one dimension. And the second dimension is as our most sophisticated customers deploy these solutions and we see great references, adoption by more and more clients. So those are 2 dimensions for emerging solutions. And then for casualty, we've said that's a sizable opportunity. And as large as customers start to come on for casualty, we think that will help drive the growth. And then on EIQ, that as we go from 2025 into 2026, we see the core disability solution continuing to chug along well. But one of the things we pointed out is one of our traditional CCC clients using the workers' comp solution. So that's a nice new -- a new -- brand-new product that can be rolled out to our existing customers. So at a very macro level, we're looking at growth from a whole series of these new solutions. That's really more we believe will start driving growth. Operator: Our next question is from Dylan Becker with William Blair. Dylan Becker: Appreciate it. Maybe, Githesh, starting with you on casualty, talking about it kind of continuing to grow faster than the aggregate business here. I'm wondering how much of the emphasis that you're seeing from customers on the casualty side is driven by like the market factors around inflation and the need for kind of tech modernization and data there versus or maybe pairing that with the maturation of your platform and the differentiation of being able to kind of pair all of the APD data that you have there. It feels like it's kind of a combination of both, but wonder if maybe one is helping accelerate the other, they're kind of working in tandem together, how you guys maybe think about it. Githesh Ramamurthy: Thanks, Dylan. The way we think about it is really at 2 levels. So first and foremost, when you think about it at a macro level, medical inflation is really running very aggressively out of control. And there's a whole host of things happening with our clients when it comes to the medical, what's happening with medical inflation and its impact on the affordability of insurance for consumers. So that's one macro fundamental thing that's changing. Second, and perhaps as important is that the investments we have made in our casualty platform over the last several years, similar to what we've been able to do on the auto physical damage side, where we have given customers tools, technologies and capabilities to be able to manage this, the maturity enhancements and honestly, some of the very uniquely differentiated features we have in casualty are also helping with adoption. Dylan Becker: Perfect. Okay. Great. And then maybe another way of kind of asking for Brian here, too. If we net out the EIQ contribution piece, it looks like the core accelerated again here kind of closer to 8%. It's a function, it seems like of emerging stepping up as well, but you still maybe have the call option of claims volume normalization. I guess, is that first a fair characterization? And as you start to see more of these kind of like large customer multiproduct components and maybe some stuff that's already signed layering in next year, can you give us a sense of kind of the conviction of kind of that steady-state model here playing out as you guys had kind of laid it out or see it taking place, if that makes sense? Brian Herb: Yes, it makes sense. Thanks, Dylan. Yes, so you're right. I mean the last 2 quarters, if you pull out EvolutionIQ in both Q2 and Q3, we're doing about 8% in the core on an organic basis. And in that, as you alluded to, we're seeing about 1 point of headwind drag on claim volume. So that's running through the numbers as well. When you think about what we talked about last quarter on Q2 call and then the call today regarding some of the client wins, the expansion, the new casualty win, the adoption of emerging solutions, it certainly gives us confidence as we exit the year and the momentum in the business. So we're feeling good on the exit run rate coming out of the year and setting us up for 2026. That said, each year, we need to grow about $100 million of revenue. So although it gives us good momentum and feeling confident about delivering against the position, there's still more to do next year. But overall, there's a lot of positive momentum in the business. Operator: Our next one comes from Josh Baer with Morgan Stanley. Josh Baer: First, on the contribution from new logos, it seems to be tracking slightly better than some of the frameworks that you've laid out. Just hoping you could dig in a little bit there and talk about types of customers you're landing, the size of those lands. Any other context on new logo contribution? Brian Herb: Yes, I can take that. Hi, Josh. So yes, we're really happy and pleased with the new logo performance. We've been seeing about 3 points of growth from new logos over the past couple of years, and that's been very consistent. As you alluded to, over time, we do expect that to moderate. And in our long-term framework, we expect that to be more like 2 points of growth just because of the market leadership position we have both on the carrier side of the business and the shop side of the business. But we're really happy with the performance that we've been seeing. It remains to be distributed. It's a combination of repair facilities, part suppliers, and we are still bringing in new carriers. We talked about a carrier win earlier in the year that's contributing to the new logo as well. So yes, we're pleased with the performance and feeling good on how that's playing through. Josh Baer: Got it. And a follow-up on the claims headwind. I assume it's just rounding. I did want to check. Did the headwind get smaller following the lighter declines in claims? Or is there anything else going on there? And then if you could talk about any of the monthly trends from July through October. Brian Herb: Yes. I mean we're seeing -- I'll let Githesh reference the second part. But as far as the drag that we're seeing in growth, I mean, claims were down 9% in Q1. They were down 8% in Q2, and we saw about 1 point of headwind in the first half. In Q3, it's down 6%. We're still seeing roughly 1 point. There is some rounding in that. I'd also say and we've talked about this in the past that the claim decline isn't perfectly correlated with our revenue model. So it just doesn't work out mathematically -- it perfectly correlated. It matters on client mix, product mix and also timing of true-ups and whatnot. So there's kind of a lot of factors that play into it. I think you can say there's a slight benefit in rounding, but it's pretty marginal. And we're still facing kind of the 1% headwind. We're assuming that as we go into Q4 as well. Within the guide position, we are assuming a 1 point drag in Q4 as well. I don't know, Githesh, if there's anything you want to... Githesh Ramamurthy: No, I think this is also correlated to, I'd say, 2 macro things I'd point out. One is the cost of the increase in claim inflation, that's moderated significantly in 2025. So our numbers show, and you see that in our reports and crash course that claim inflation has moderated. And also the second thing we're noticing is that there are more filings for rate decreases by carriers than there are for rate increases. So we think from a consumer and affordability standpoint, those 2 other macro factors are starting to play in. And -- but with that said, the other point we also look at is the number of consumer self-paid claims versus insurance filed claims. We still think the consumer self-paid claims are at significantly elevated levels compared to where they were 2 or 3 years ago. Operator: Our next question is from Saket Kalia with Barclays. Saket Kalia: You have nice quarter. Githesh Ramamurthy: Thanks Saket. Brian Herb: Hi, Saket. Saket Kalia: Yes, sure. Githesh, great to see the Liberty Mutual win on the casualty side and just generally momentum build in that business. You talked about how the TAM there is similar in size to APD. I was curious though, maybe on the market share side, right? What does the market share look like in the casualty business? And specifically, how much of that market is maybe done manually or through homegrown solutions versus maybe incumbent software vendors that you would have to displace? Even anecdotally, kind of how you think about that? Githesh Ramamurthy: Yes. So I would say at a very high level, I'd say the majority of claims processed today, even on the casualty side, are using some kind of software. So over the last couple of decades, that's the vast majority. I wouldn't put any specific percentage other than the vast majority. But there are still pockets where many elements are still done manually, and we're seeing that with a few customer adoptions. But for the most part, it's done using existing providers. You know... Saket Kalia: Got it. That's helpful. Githesh Ramamurthy: You know, as we've talked about this, we feel very good about the solutions we've been building, and it's been several years in the works. Saket Kalia: Understood. Brian, maybe for my follow-up for you. You talked about the net dollar retention and maybe how timing of deals there impacted a little bit. Can you just dig into that? Maybe that's on the EvolutionIQ side, but can you just dig into sort of that timing impact and either talk about sort of what NDR would have been this quarter adjusting for that timing or maybe on the other side, maybe talk about how that NDR could trend into Q4 when presumably that timing sort of corrects. Does that make sense? Brian Herb: Yes, it does. Yes, happy to cover it, Saket. Yes, so we've talked about it in the past, and you see it run through the numbers. I mean, NDR will just move around quarter-to-quarter. It really has dependency on deal flow phasing, timing of deals that come home in the quarter, the deals you're lapping from the prior year. So there's just a dynamic of the deals that are playing through. The second part is product mix matters as well. So as you know, casualty solutions and our part solutions do not go into our NDR calculation, but they are in total growth. And casualty was very strong in the quarter, so it contributed to total growth, but that's not running through the NDR. So that's a factor as well. And then third, I'd highlight that EIQ was softer in the quarter in this quarter Q3 than it was in the prior 2 quarters. So that's playing through. And that really is on the implementation of their deals as well. So all those factors are playing through the NDR in the quarter. Operator: Our next question is from Tyler Radke with Citi. Tyler Radke: Githesh, I wanted to go back to some of the comments you had around reinvesting in certain areas of the business. I know you were sort of on a listening tour with your newly appointed President, and it sounds like customers sort of want to see higher-level solutions to the problems they have. And so I imagine part of tackling that is investing in the right heads on the go-to-market side. But I guess a couple of questions. Like how are you thinking about any changes on the product side? Does this sort of need -- is this just sort of a messaging and positioning thing from the go-to-market team? Or are there sort of product level changes you need to make to be able to sort of tackle these problems more holistically? And then, Brian, as you think about those investments, how are you sort of weighing that versus sort of the framework you have around expanding margins? Is this something that you feel like you can absorb by offsetting costs elsewhere? Just how you kind of think about that on the margin side heading into next year? Githesh Ramamurthy: Tyler, I'll take the second part of your question first, and then Brian will take the third, and I'll do the first part of your question. So to start with, let's talk about product. One of the things that we are seeing is that the solutions that we are building, deploying, and remember, we first came to market with our AI in November of 2021. And so we are now almost 4 years into -- after 7 years of development, and we are seeing true differentiation for our customers. Our customers who deploy these solutions are getting better results, better operating performance than those that don't. And those results are actually validating for us that the core solutions that we've built are delivering results. And with the other part of what we also feel we need to do is with IX Cloud, as we continue to expand the ecosystem, merging really 3 things from a product standpoint, the deep workflows we are involved in, the use of very -- moving information to the right person at the right time for the right claim in the right location for the right customer, that is another layer. And then third, as we integrate AI into really every facet of what we do, these are going to require continued development. And it's no different from when I look back 5 years, 10 years, et cetera. This is just a natural next step in our evolution. And this is one of the reasons we pointed out that we are also separating out the Chief Product Officer role from the Chief Technology Officer role because we think more dedication to those activities will be super helpful based on the client feedback. And then in terms of your first question in terms of go-to-market and what we're seeing is it just very simply comes down to our customers telling us, we need you to do more for us, and we need you to work in a broader scale across our companies, which is honestly very gratifying to hear and exciting to hear. And therefore, we're making the investments to really augment that side of the business. And then I'll turn it over to Brian for the margin question. Brian Herb: Yes, absolutely. Tyler, so the way to think about these changes that we're doing in go-to-market, think about them, they're strategically and operationally important, but they're not financially material. We are reallocating resources to higher ROI opportunities. And there are some onetime costs associated with the actions that I referenced. We're absorbing those costs into our Q4 position. So our guide didn't change for the year. But think about this reinvestment, it's not focused on cost reductions, but there are efficiencies which will offset some of the investments that we're making. So when you think about kind of coming out of Q4 and into next year, we are expected to deliver margin expansion next year, consistent with the margin progression that we talk about in our guidance framework. And so that's how you should think about kind of the impact as we roll out of this year into next year and how it will play through the margins. Tyler Radke: Okay. And apologies for the 3-part question. So I'll keep it to one follow-up here. Githesh Ramamurthy: No problem whatsoever. Tyler Radke: So Liberty Mutual, exciting announcement there. Just remind us like where are you at with other top 20 carriers? And do you think that kind of creates a referenceability halo effect? And apologies if that was 2 questions, but just related to that big customer. Githesh Ramamurthy: Yes. Look, we don't comment on -- we generally, by and large, don't comment on any specific customers or deals. And so this was a bit of an exception for us. I would say, even when you think about the Liberty Mutual decision, references did play a huge role in even their decision. And obviously, this helps us for sure. They've been a wonderful partner, just like many other wonderful partners we have. And the only point is every -- this is why we focus on high-quality, high-caliber implementations. It also feels great. It's a validation of the tremendous investments we've made in casualty that is most importantly being recognized by our customers. Operator: [Operator Instructions] And our next question comes from Samad Samana with Jefferies. Jeremy Sahler: This is Jeremy on for Samad Samana. It's good to see the decline in auto claims volumes moderating a bit. I guess, is there a cyclicality element to the medical insurance claims as well? I know you called out that medical insurance is experiencing a very high inflation right now. I guess where are we in that cycle? Is there maybe upside to the volume you're seeing in medical that might align with the recovery in auto down the line? Githesh Ramamurthy: Yes. I would say the pattern, to keep it very short, there is less of a pattern in medical than it has been in auto physical damage. The reason is medical claims tend to be much higher dollar claims. And therefore, people -- when those claims happen, people do file the claims, whereas for auto physical damage because of higher deductibles and people's propensity to pay for the claims out of pocket is a lot higher for auto physical damage than it is for casualty. Jeremy Sahler: Got it. That makes sense. And on gross margins, it came in a little lower than we expected. I know you gave a few factors. I guess, can you help us size the impacts from some of the more structural impacts like higher depreciation? I know you called out some software enhancements versus that write-off on a discontinued solution. And then maybe what is that discontinued solution as well? Brian Herb: Yes. Happy to cover it. Yes. So 75% in the quarter, which is slightly down from where we've been trending. We talked about kind of 3 things that are driving. The largest one that's driving it is the higher depreciation associated with putting new solutions or enhancements of solutions into the market. Once we go live with those solutions, we then start to run the depreciation through and that hit gross profit. That was by far the largest impact in the gross profit. There's also product mix. Casualty has a higher cost of revenue component than some of our APD solutions. Casualty was strong in the quarter, so that had an impact. And then we did have revenue -- or I'm sorry, depreciation acceleration when we took a solution out of the market. The size of that was about $2 million overall. And it wasn't a material solution, we just sunsetted a product as part of our regular assessment across our portfolio. So that's how to think about the size of the solution that we took out of the market. Operator: And our next question comes from Gary Prestopino with Barrington. Gary Prestopino: Two-part question here or 2 just separate questions. But could you maybe give us some idea of on the transactional revenue side, what was the absolute decline in those revenues versus the decline in claims volumes or even if they did decline? Brian Herb: Yes, Gary, it's Brian. I mean the way to think about it, remember, our business is largely subscription-based. So 80% plus of our revenue is subscription, not tied to transactional. Of the 20% transactional, the decline in claims had about 1 point of impact on the growth in the quarter. That is similar to the impact -- roughly similar to the impact that we saw through the first half. So we are seeing a 1 point headwind through the year. As I mentioned earlier, we are also assuming that headwind stays for Q4, and that's baked into our guide position. So our transactional revenue overall has that 1 point of impact across the total company. Gary Prestopino: Yes. I guess what I'm getting at, though, is a concern about the impact of claims declining, and it's definitely affected your stock price. And what I'm trying to get at is, despite these claims declining, are your sales on the transactional side declining at a lesser rate? I mean if it's 1 point, and it's 20% of revenue, then I would kind of do the pencil on paper and it would be maybe a 5% decline in revenue. That's what I'm trying to get at. Githesh Ramamurthy: Yes. Gary, we've grown on an overall basis. On an absolute basis, we've actually grown. So I'm not sure we understand the specifics of your question. Brian Herb: Yes. May I -- let me -- Gary, let me cover it. I mean your math is out of the 20%, we are -- there's an impact on claims volume within that, which is down in the quarter, it was down 6%. So when you just take 6% on 20%, that's roughly what you're getting at, which is just about 1 point. So that is the right math. What we're saying is we are absorbing that. But as we continue to grow adoption of new solutions, the scaling of emerging solutions, the new logo, we're clearly offsetting that. It's certainly playing through the overall position. Our 8%, you could say, would have been 9% if we didn't have that claim volume. But that's how to think about the impact on the claim volume decline running through our transactional side of the business. Gary Prestopino: Okay. And then I'll just sneak one more quick one here. In terms of the casualty business, is your competition more or less companies that have a single point solution in casualty, but nothing in APD? I guess is there anybody out there like you that can sell both APD and casualty claims processing? Githesh Ramamurthy: Gary, as you know, we generally stay away from commenting about casualty, much rather speak about what we do. But by and large, there's a mix. There's a mix. There are -- it's a mix of providers. It's a competitive market, and we need to -- that's why we need to invest and keep staying ahead with our solutions. Operator: Thank you. I'm showing no further questions at this time. So I would like to turn it back to Githesh Ramamurthy for final remarks. Githesh Ramamurthy: Thank you all for joining us today. And on behalf of the entire CCC team, I want to express our sincere appreciation for your continued investment, interest and support. We're also pleased with the third quarter performance and remain confident in our ability to deliver on our strategic and financial objectives. And as we look ahead, we remain focused on scaling innovation, deepening client partnerships and delivering differentiated value across the economy. But most importantly, we're proud to help people get back on track when the unexpected happens, helping life move forward. I'd like to take a moment to thank our customers for their trust, our team members for their dedication and our shareholders for their continued support. We're excited about the opportunities ahead and look forward to updating you on our next quarterly call. Thanks, everybody. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Githesh Ramamurthy: Thank you.
Operator: Ladies and gentlemen, welcome to the ANDRITZ Q3 2025 Results Conference and Live Webcast. I'm Sergen, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's our pleasure to hand over to Mr. Pfeifenberger. One second, Mr. Pfeifenberger. Please go ahead, sir. Matthias Pfeifenberger: Good morning, and warm welcome from ANDRITZ from Vienna. I'm Matthias Pfeifenberger from Investor Relations. It's my pleasure to host with you the Q3 earnings call this morning. And also have with me our CEO, Dr. Joachim Schönbeck; and our CFO, Vanessa Hellwing. We'll start the call as usual with the CEO highlights and the headline figures, followed by a financials overview and then go back to the developments in the business areas and the outlook, followed by the Q&A session. Make sure you register for the Q&A with full name. Thanks a lot, and it's my pleasure to hand over to Dr. Schönbeck. Joachim Schönbeck: Thank you, Matthias. Good morning, ladies and gentlemen. Thank you very much for spending your Thursday morning with us. We are happy that we can report rather good results. We had a strong order intake in the fourth consecutive quarter. We could now benefit from the increasing project activity. The order intake in Q3, I would say, like in the entire years was driven by continued strong demand for power generation, and that materialized in the business areas, Pulp & Paper, Hydropower and Environment & Energy. Although we had a slight decrease in the revenues compared with the previous year and the previous quarter, but we could protect the bottom line and stable comparable EBITA margins as we have, I would say, early enough initiated the cost reduction measures to adjust our capacities to the slowing market demands. We had a negative foreign exchange revenue translation, which basically is in line with what it was in the second quarter, very strong euro against the main currencies we are trading in. There's still no direct tariff impact on our business. Very good. The project execution improved, and we have seen a continuing margin progress in Hydropower, both definitely helped us to save our profitability. We made significant forward movement on sustainability. We achieved two major milestones. EcoVadis lifted our rating from Bronze to Gold. Now we are in the top 5 percentile in that arena, which is very good. And in summer, we got SBTi approval for our greenhouse gas emission targets, now fully in line with the targets of the Paris Agreement. So, I think that is very good. If we look to the numbers itself. Major KPIs. Let's go first Q1 to Q3. Our '25 order intake now is at EUR 6.9 billion. That's up 20% from previous year. The revenue at EUR 5.5 billion, down 8% to the previous year. Order backlog nearly on a record high, EUR 10.8 billion, nicely building up, also a good cushion for the next months to come. That's up 15% from the previous year. If you look at the comparable EBITA margin, we kept that constant 8.5%, and that's EUR 471 million. And the reported margin dropped to 8.1%. That's EUR 449 million. The difference is basically the restructuring cost to severance, mainly the severance payments that were included there. Net income is stable at 5.5%, EUR 303 million. If we look at Q3 alone. The order intake went nicely up 15% from last year Q3 to EUR 2.2 billion. Revenue dropped by 8% to EUR 1.9 billion. Order backlog went up 15% from last year Q3 to EUR 10.8 billion backlog we just reported. And the comparable EBITA margin is at 8.9%, nice solid figure, same level as the previous year, EUR 168 million. And the reported EBITA margin dropped to EUR 160 million, that's 8.5%. That's on the same level as last year. Net income, also here stable, 5.9%, EUR 111 million. We see project activity is increasing. We have here, you see this on a rolling 12 months level, you can see a strong growth for the fifth consecutive quarter. And order intake is significantly above EUR 2 billion for the last 4 quarters with contribution from all business areas and also book-to-bill above 1 for the fourth consecutive quarter. So, we feel that is in the, I would say, a difficult environment we are facing at the moment, that is a good sign. It gives us a good view towards what is coming in the next months. Going to the details of the order intake. You can see, if we start with Q3, that all business areas contributed to the growth in order intake except Metals, which had a significant drop by more than 50% compared to last year, but this quarter and the last year contained a significant large orders. So, we are at a run rate without any large orders in Q3 with EUR 300 million. We are, I would say, online with the volume we can expect from without any significant orders. In Pulp & Paper, we jumped by 94% to above EUR 900 million in the Q3. Excellent result. Hydropower was growing on already very high level to EUR 525 million. And we were also very happy that now Environment & Energy started to grow again, 25% up from the Q3 last year to EUR 424 million. That is very good. If we look to Q1-Q3, you see a mixed picture. Pulp & Paper, strongly up 36%. Hydropower, very strongly up by 50% to almost EUR 2 billion in three quarters. That's very good. Metals is down by 10% to almost EUR 1.2 billion, and also at EUR 1.2 billion is Environment & Energy, down by 4%. We are very happy that the Pulp & Paper market response is very good. Even without large Pulp net orders in South America, we can make that business grow. In the Metals, definitely, we see a particular uncertainty. You know that steel and aluminum is one of the main targets of the tariffs. That definitely creates uncertainty about investment plans. And the automotive industry is really in, I would say, a critical situation on where to go, where to invest and where the markets will be for the next years. Hydropower, definitely supported by strong demand on energy, strong demand on green energy. But also grid stability, energy storage and turbo generator business for the data centers is definitely lifting up our business. Environment & Energy, the strongest growth here comes from flue gas treatment businesses, and that again is originating in demand for power generation. If we have a quick look to the regions. You can see that -- it might be a bit of a surprise, the strong growth in Europe, growing to 37%; North America is stable at 23%; and China and Asia both are up. Significant drop in South America, and I think that reflects what is happening in the world today. On the revenue side, as I already mentioned, we see a drop in revenue by 8% on the quarter and on Q1 and Q3. Several reasons for that. We have a foreign exchange translation impact coming from the strong euro. That's the currency we are reporting on to you. But a lot of the businesses, as you know, we are doing local for local in the other currencies, which weakened. So, that's basically not taking any business or any market share from us. In Pulp & Paper, the increase in order intake started in Q4 last year. And now we are in, I would say, very -- in the project cycles, we are at a very early stage. So, the revenue growth is not there. But backlog is building up nicely, projects are on track. So, that's not a major concern. It's not a major concern at the moment. In Metals, we saw some decline and we saw also some delays in the projects, because of tariffs going on and off. So, deliveries has been switched back and forth. Hydropower is apparently not affected. It's a continuous growing business and the energy sector is basically not affected at all by any of these economical uncertainties. Environment & Energy is slightly growing also in the revenue. So, it's a mixed picture. The foreign exchange translation impact is almost EUR 60 million in Q3 and amounting to almost EUR 140 million in Q1 to Q3. And we do not see that this trend will change in Q4. So backlog, as I said, is building up nicely. Now for the fourth consecutive quarter, building up majority, as you know, from our business in Pulp & Paper and Hydropower. We expect that 2/3 of that backlog can be converted to revenue within the next 12 months and 1/3 after that. EBITA development. As I told you, on a profitability, comparable EBITA margin remained stable at 8.5%. And the reported EBITA margin dropped down to 8.1%. The gap are the restructuring costs, which we had mainly in the Metals sector and in Pulp & Paper. What did support the margin and protected our bottom line was definitely the improved project execution. We could see that a certain amount of the low-margin legacy projects in Hydropower are phasing out and that restructuring efforts are now bearing first fruits, which definitely had helped us a lot. So, as I told you, we have been uplifted on our ESG rating from Bronze to Gold. We basically had achieved our ESG targets for 2025. So, we announced -- in the summer, we announced new ESG targets. And you have an overview here. In some areas, they are quite different. In some areas, they are basically continuing what we have already been targeting for. The E-impact revenue, higher than 50%. That's basically the revenue with our green products. On the greenhouse gas emissions, we are now -- I have said, the SBTi targets are now our new targets for 2030. That's reduction in our own operations of 42% and on the value chain of minus 25%. We will keep our former KPI, this greenhouse gas emission related to our sales, because we believe that is a very good indicator and probably much more feasible to handle for you than the absolute values. And then we turned our water usage. We concentrate on water use and water stressed areas that was recommended, and we have plans to reduce that by 25%. Same is for the residual waste. Our accident frequency rate, the LTIFR, we want to keep below 1 over that time. We want to increase our women in leadership positions, lifted above 15%. Voluntary turnover below 4% and the employee engagement index above 75%. On the governance side, we concentrate on supplier prequalification, supplier social audits and sustainability-rated suppliers. And then, we also have a certified Sustainability Management Index. That's basically an index that reflects how well our operations are covered by certifications like the ISO 9000, ISO 14000 and so on. So that's, I would say, a new set. We are very confident that we can reach these targets. I already said we could get improved ratings from, I would say, biggest in EcoVadis. But also the other rating auditors had improved their view on ANDRITZ, I believe we are in a good way there. So, we are continuing our successful M&A strategy. We made some four very, very good acquisitions this year, excellent fit to our businesses that we are doing: two acquisitions in the USA, LDX and Diamond Power, strengthening our local footprint there with local for local and also local manufacturing and service teams available; and then, we have made two acquisitions in Italy, one to support our Paper business and one to support our Metals business. We trust that there might be more M&A on the way. Service business has a good development. It's at 41% of the total revenue in '24. In the last 4 months, it even jumped up to 44%. And in Q1-Q3, we moved that up to 44%. So, we see -- I would say, we see a bit of a mixed development on the Service side. While the revenue is rather -- is growing more slowly. We could see a good jump in order intake in Service in Q3, but also in Q1 to Q3, and that gives us a good indication that we are on the right track to keep our target to continuously increase our Service revenue, and to keep, let's say, the fluctuations in our P&L small. So, that's a short overview from myself. I'm happy to hand over to Vanessa, who will explain to you and lead you through our financial performance in the first 3 quarters. Vanessa, please. Vanessa Hellwing: Yes. Thank you, Joachim. And hi, everybody. Also a very warm welcome from my side here from Vienna. Before going into the financial details of the third quarter results, let me shortly highlight again the key cornerstones of our strategy of long-term profitable growth. I really love this long-term chart that you can see in a minute, yes, as you can see, as it reflects that ANDRITZ is growing well across the cycles with only a few down years with rather moderate revenue declines, like you see currently, but also the performance trajectory of 400 basis points margin expansion over the last 2 decades. And quite a low margin variance from peak to trough in these respective mini cycles. As outlined last time, this resilience is basically achieved by our well-balanced portfolio, our asset-light and flexible cost base, our strong service growth as well as our successful M&A strategy. I would not like to present the same slide to you without at least one additional aspect. So, if you focus on the last 5 years only, our compound annual growth rate of 5.6% on revenue compares to 12% on comparable EBITA. So, that proves profitable growth is really a cornerstone of our strategy. Let me now walk you through the key components of our EBITDA to net income bridge for the first 9 months of '25. Our EBITDA margin remained stable at 10.4% despite higher non-operational items, while the absolute EBITDA decreased by 9%, in line with the temporary decrease in revenue that we are undergoing in the first 9 months of this year. Depreciation was marginally higher, resulting in a reported EBITA of EUR 449 million with reported EBITA margins declining slightly year-over-year to 8.1%. This is on the back of the higher NOI, while on a quarterly comparison, the margin remains at the same level with 8.5%. Purchase price allocations from the recent acquisitions have lifted IFRS 3 amortization to EUR 51 million. This will normalize again somewhat in the fourth quarter due to the final phaseout of PPA amortization for Xerium that was acquired in 2018. Xerium is contributing to IFRS 3 terms with EUR 18 million in '25 so far, but will be 0 from October onwards. While -- And that comes in addition now, our recent acquisitions show a higher PPA amortization usually in the first year and leveling down thereby by next year, especially LDX which is part of ANDRITZ since Q1, impacts that number with about EUR 11 million as of September. In the financial results, we see a big swing to positive EUR 9 million from this year from minus EUR 10 million last year. Obviously, the reduced interest gains, again, status that picture with an impact of about EUR 20 million due to lower interest rates on the one hand and, on the other hand, reduced liquidity generating interest. Furthermore, we see the effect from the deconsolidation of OTORIO last year with a negative impact of EUR 20 million, the recent fair value adjustment of Armis shares accounting for plus EUR 21 million this year. As a reminder, ANDRITZ has sold its stake in OTORIO to Armis, a leading supplier of cyber exposure management and security. And ANDRITZ received a consideration in Armis equity that generated the fair value gain that I just mentioned. And to complete the picture of net income here, the tax rate decreased by 0.2 percentage points to 25.4%. Summing up the net income for the first 9 months of 2025 at EUR 303 million is reflecting the revenue and the consequential EBITDA decline as well as higher non-operating items, while our net profit margins actually remain solid at 0.5%. On the next slide, let me walk you through our free cash flow calculation and start again with EBITDA at EUR 578 million year-to-date 9. Outflows from net working capital have continued at EUR 86 million in the first 9 months of '25, and you will see more details later on our working capital slides. Cash outflows from income taxes were a bit higher than last year. This rate is in the first place attributable to foreign tax related to project execution. As mentioned already, with the swing in the financial results, also here we have a cash related negative net effect from interest gains and expenses. Provision releases deducted from the operative results were higher than last year and mainly reflect personnel-related payouts of almost EUR 30 million for pensions, severance payments and termination, while the remaining impact is project related. The personnel accruals released were mainly built last year in Q3 for restructuring reasons in Metals and Pulp & Paper, so that also explains the year-over-year big swing that we see. Adding up all items mentioned here brings us to a cash flow from operating activities of EUR 340 million for the first 9 months. Deducting a somewhat higher CapEx of EUR 164 million for the first 9 months '25, we arrive at a free cash flow of almost EUR 150 million, down from EUR 248 million last year. As Joachim already mentioned, our M&A delivery exceeded last year's level with 4 larger deals signed so far in '25, increasing our M&A spend significantly to more than EUR 300 million within this year compared to EUR 61 million last year, sorry. So, talking about capital allocation. Here, you can see a clear focus this year is on acquisitions, further feeding our remarkable ROIC on a long-term perspective. At this cash bridge, you can also easily deduct the sum EUR 250 million dividend payments from April this year and will almost get to the liquidity development that you will see at one of the following slides. I would now like to turn your attention to more details on the development of our operating cash flows. Operating cash flow amounted to EUR 145 million in the third quarter '25 and EUR 314 million for the first 9 months. We are gradually improving our operating cash flow quarter-by-quarter, not reaching the high last year's levels. In general, we are still seeing the usual volatility in operating cash flows on a quarterly basis, which is typical in the project business and also driven by the actual processing of large and midsized orders. However, please keep in mind that we are still running high levels of order intake close to the all-time high order backlog without mega projects and respective also without mega down payments that we have -- that have often boosted our cash flows in the past years. Important also to emphasize here again is the overall high level of operating cash flows we are maintaining compared to the historic level, driven by higher top line levels, better margins and improved cash conversion. That becomes evident when we look at the right side of the chart showing the 3 years' rolling average. And as you know, 2 to 3 years actually reflect the average execution cycle of our capital business. So, let me now turn from cash generation to liquidity and walk you through the changes in our net liquidity profile. Over the last 3 years, we have steadily increased -- no, we have steadily decreased our liquid funds by termination of bonds and promissory notes. We still continue a strong financial position, especially when including our EUR 500 million revolving credit facility, which is not added here to the gross liquidity. In 2025, our net liquidity declined further from EUR 905 million at the end of 2024 to EUR 413 million by September '25. As outlined during the Q2 call, this further reduction was expected and is driven by ongoing purchase price payments related to our recent acquisitions. The dividend payment of EUR 254 million deducted in the second quarter was also a major part of the EUR 492 million reduction in net liquidity during the first 9 months of this year. Again, our reduced operating cash flow at EUR 314 million. We had outflows for slightly higher normal CapEx of EUR 170 million as well as significantly increased M&A spending of EUR 305 million paid out for the acquisitions until Q3 and maybe some more to come in Q4. Despite that, ANDRITZ continues to hold a strong financial position with sufficient liquidity as part of our DNA. Let's now -- let's turn to the net working capital development on the next slide here. And here we focus on the quarterly development of the operating net working capital. As you can see, we are still pretty lean overall with current run rates of some 12% to 13% of revenue. Just to recall once more, for a project engineering company like ANDRITZ, the operating net working capital consists of the typical trade working capital, means inventory receivables and payables as well as contract assets and liabilities, including prepayments related to POC orders. What you can take from that picture is that operating net working capital has increased slightly following the period in 2022 when we received several large projects and therefore large prepayments. A general increase in operating net working capital also results from the structural exposure of ANDRITZ. We have increased our service business and, therefore, also our inventories to provide an optimum of service and spare parts availability to our customers. Following the increase throughout last year, the operating net working capital has been slightly reduced in Q2 '25 after the all-time high in Q1 in absolute terms, but also as a percentage of sales. And to discuss the renewed increase in Q3 that you can see, let me turn to the next slide for more details. As you already saw, we have split the operating net working capital into its two components, trade working capital, you can see on the upper blue part of the chart; and contract assets and liabilities and advanced payments, and those are displayed at the bottom of the chart, reflecting here our project cash flows. This is a typical management element for us as the project engineering company, as you might know. The trade working capital remains relatively stable at about 16% of revenue on a long-term average. And our net contract liabilities and prepayments usually fluctuates between 3% to 10% of revenues, depending on where we stand actually with the execution of several thousands of our projects. This fluctuation is especially driven by large projects where we typically receive significant down payments. To discuss the easy part of the slide first, the bottom gray, on the prepayments received side. We have seen a constant improvement over the last few quarters, which created additional contract liabilities. With the increase in our trade working capital in Q3, but also after the first 9 months in 2025, the drivers here are multi-folded. In general, we have a typical seasonal trade working capital buildup in the first 3 quarters of the year, which is typically followed by a slowdown in Q4. Then we have higher levels of inventories, like I just mentioned, for supporting the expansion of our service activities. And certain payables decreased in large projects from the past years that are getting closed out now. Lastly, but most importantly, the net increase in our trade working capital was impacted by our acquisitions this year. Especially also in relative terms, the target revenue are only accounted for on a pro rata basis, resulting from the individual date of the first time consolidation, while on the other side, the assets of the acquisitions are accounted for in full. And this is why, we also see a relative jump in the related percentage numbers from 18% to 21%. So, we can say broadly, we have the full working capital of the M&A targets included but only a part of their revenues, which clearly has an impact here in this overview. Following the details on our capital allocation, let me provide a quick update on our ROIC performance. To recall ROIC is our main metric, quantifying value generation over the long run, and it has been increasing since 2020 and stands at a substantial margin to our cost of capital. And above 20% is actually an industry-leading level. So, you can see, ROIC has declined in the first half of '25 and now also further in Q3 to just under 19%. On the one hand, this is obviously driven by the organic EBITA decline. But more important, this is because of our recent acquisitions again with purchase price allocation leading to higher goodwill and intangibles, but EBITA from the acquisitions is still only included on a pro rata basis. As mentioned before, also relevant for the working capital ratios. So, this is a very typical effect that comes along with the first-time consolidation of acquisition targets in the case that closing happens intra-year and not as a year -- to a year start. So, at the end of my presentation, let me quickly summarize the development of our headline financials. Our main indicator is still pointing upwards. Order intake significantly increased by plus 15% in Q3 and plus 20% year-to-date. Again, worth highlighting once more, we now delivered growth in order intake and book-to-bill ratio above 1 for the last four consecutive quarters, as already mentioned by Joachim before. Order backlog missed the all-time high of ANDRITZ's history by only EUR 23 million. It was only higher in 2022 when the large Pulp & Paper orders, OKI and Bracell were booked. The significant increase in order backlog over the last few quarters to this record level already secures a material part of the next year's revenue recognition. And in margin development and order intake this is very positive and strict risk management is improving project execution. As a consequence of high revenue recognition from completion of larger orders last year, our revenue trajectory is still pointing downwards on a comparison base, but we are gaining ground and especially when adjusting for negative FX translation effects. So, please keep in mind, even we are an Austrian company, we have major local business -- local currencies. And when reporting globally in euro, this obviously has some reporting effects when FX rates are changing, And that's what we can see here and also referring to what Joachim said before. So, along with lower revenues and restructuring impact from capacity adjustments in Pulp & Paper and Metals, our absolute operating and net profit decreased, but we were able to maintain our comparable EBITA and net profit margins on a stable level, as you can see here. Operating net working capital and ROIC remain in high focus going forward, with the development in Q3 obviously impacted by the recent acquisitions we have made. Our enhanced capital allocation and higher M&A delivery, and support value creation and has reduced our net liquidity position consequentially. And last but not least, the number of employees is quite steady at group level but with variances, of course, across the business areas. While restructuring measures significantly reduced headcount numbers, specifically in Pulp & Paper and Metals, this effect was offset by hires, on the one hand, in growing business areas, but especially with 780 employees who joined ANDRITZ this year through our acquisitions. And as mentioned, FX has been headwind in the first 9 months, but tariffs have still not impacted our key end markets. And we will provide further details on that later in the presentation. And with this, for now, I would like to thank you for your kind attention and hand back over to Joachim, who will now present the key developments across our business areas. Joachim Schönbeck: Very good. Thank you, Vanessa. And if you allow me having a quick look on the business areas, starting with Pulp & Paper. We are happy with the business development in Pulp & Paper, looking at the order intake, looking on the well acceptance of the market, of our offerings in a, I would say, definitely difficult time for our customers, in particular for our customers in Europe, but partially also in North America. Demand clearly driven by power generation. So, the hunger of the world for electricity is definitely driving it on the one side. And there is also a trend in the Chinese Paper industry to backward integrate in order to better prepare themselves for the fierce competition in the market. And so we could book in total -- now in the last 12 months, we could book -- we received order for four complete pulp mills, all technological islands supplied by ANDRITZ in the Chinese market. So that's a really strong sign of the customer confidence in our technology. On the revenue side, we are down compared with the previous year. As I said, especially here in Pulp & Paper, we are in a very early stage of the project execution. You could see on the other side the order backlog increased by EUR 500 million. Projects are stable. And so, this volume will definitely and securely turn into revenue and deliver also to the bottom line. We have initiated a restructuring program. Vanessa explained that little bit. That is on its way, and we are now in the budgeting phase for the next year, having a very close look to what we can expect to the markets to see whether we really are on the right size or whether we need to take some further actions. On the Metals side, as I mentioned, the situation is definitely more challenging as both major industries, automotive and steel industry, are facing severe economic uncertainties. The order intake, I would say, with the EUR 300 million is on the low side. But from a steady business alone, nothing to be too concerned about. But customers do not invest. They do not spend money. They need to keep their spendings low as both markets are a bit down and the high energy costs in Europe definitely pose also, I would say, strategic questions for our customers in the Metals industry in Europe. The restructuring is going on. You can nicely see already, I would say, positive effects of that. If you look to the comparable EBITDA margin, we are now in Q3, we are at 6.4%, so within our target range, which shows that the restructuring has already shows effect. And particularly here, we know that the market will not recover and we will continue our rightsizing and further look that we adjust the capacities to the level to keep -- to maintain competitive. Hydropower provides, I would say, a good view, a happy news across all KPIs. Strong growth in order intake, 50% in the first 3 quarters. Very, I would say, solid growth in revenue and over-proportional growth in the bottom line. You see that we are at a comparable EBITA margin. We are at 7% now. It's in the -- that's within our targets. In Q3, EBITDA increased by 48%, while the revenue in the third quarter increased only by 8%. So, strong working, better margins, better prices hit the bottom line, good project execution and particularly phasing out of the old legacy projects. And I would say the trend for renewable energy, strong demand for grid stability, energy storage and also turbo generators. We have quite a positive outlook for the next years to come. What's also very good is that this growth is not only attributed to the capital project, but the service is growing in line. So, we see a nice development in the service both on the revenue side, but even more on the order intake. Comparable EBITA and profitability, I already commented on that, very positive. Development on Environment & Energy. We see several effects. We are happy that we could turn around the order intake now in Q3 by a solid growth of 25%. In total, full year, we are still down 4%. Growth is driven mainly by several midsized orders in flue gas treatment. So, that originates also in power generation. Why we are positive that this is a trend continue for some time to come. Slight growth in revenue to an all-time high. We also could grow service revenue, and that's on a good way. And the EBITDA is very stable on a, I would say, good, high level. If we come to the outlook. On the trade barriers, no news on the left side of the chart. It's basically what we explained to you last year. The negative foreign exchange translation impact now on the Q3 is EUR 58 million. And on the right-hand side on the pie chart, you see how the total negative impact to EUR 173 million is split by the various currencies we are doing business in, largest portion from the Brazilian real, followed by the U.S. dollar, the Chinese renminbi, Mexican peso and then 1/3 is to the others. So, the strong euro here really plays the major role. We confirm the guidance that we presented to you beginning of the year. And we repeat that on the revenue side, we will be at the low end. So, we expect total revenue at EUR 8 billion for 2025. And on the margin side, we are positive that we will be in the range. Midterm targets, also confirmed. On the margin side, with the restructurings we are currently having underway and with the increase in the Service business, we definitely can protect that. On the revenue side, we are definitely depending on also the markets. So we are careful, but we think we can confirm the EUR 9 billion to EUR 10 billion. I think, you know that, that also includes some acquisitions. On the comparable EBITDA margin targets for 2027, we at least can report that we are in the target ranges for the Q3 results now for Hydropower and for Metals, which have been below our targets for a very long time. So, please take that as a positive sign, and we trust it's a trend and it's not a one-off. Environment & Energy is also with a 10.3% comparable within the targets. And Pulp & Paper in Q3 was 10.8%, is just very short of the target for 2027. So I would say, if we look in total where the global economies are, we are not unhappy with where we stand and we see also good opportunities to improve from where we are. So, that's from my side. Thank you very much for your attention. And I hand over to Matthias to moderate the Q&A. Thank you very much. Operator: [Operator Instructions] And we have the first question coming from Sven Weier from UBS. Sven Weier: They are largely around the Pulp & Paper business. The first question being if you could give us an update on the large greenfield contracts given latest development in Pulp pricing and demand, whether you still see bigger tickets going ahead maybe in the next 12 months? And let's maybe start there. Joachim Schönbeck: Thank you, Sven, for the question. I mean, we don't know on the decision makers of our customers. We are working -- several projects are under preparation. For our business, we are not planning with the decision in the next 12 months. But we are working on engineering to prepare the projects. Sven Weier: And I mean, of course, Pulp is not the only business with big tickets. I mean, how do you see it maybe on the Hydro side? Do you see scope that in this business, you have some really bigger projects in the pipeline that could go ahead? Joachim Schönbeck: Yes. Hydro, I would say, is definitely a strong driver. We have several large projects underway, under negotiation. And we can expect larger orders also for next year. Yes, that's very clear. Sven Weier: And then maybe coming to the Service business that you thankfully outlined in the presentation. I was more wondering about Pulp & Paper specifically here again, because your peer yesterday reported about further softening of Pulp & Paper service revenues in the quarters ahead. I mean, are you observing similar trends? Or are you better off because you're maybe not so exposed to the Board market? Joachim Schönbeck: I believe you hit the point right away, yes. Paper & Board is definitely hard hit by the low utilization of the assets. We also see that. But our exposure is not that big. So, we do not see a decrease in service. On the contrary, we see -- overall, we see a strong growth in order intake and service in the first 3 quarters of this year. Sven Weier: And for the Pulp & Paper business specifically? Joachim Schönbeck: What I said now was for the group. But even in Pulp & Paper, we see a growth in order intake, yes. Sven Weier: Okay. Good to hear. And the final question from my side is just on pricing, because here, again, Valmet said yesterday that they will reinvest some of the cost savings out of their program into gaining share. I mean, is that something you observed in the capital equipment decision, that there's more pricing pressure from your peers? Joachim Schönbeck: Yes. I can confirm that observation. Sven Weier: And I mean, what's your position on that? Do you rather walk away from the business? Do you think your technology is better anyhow, so you don't have to compromise on price? What's your strategy there? Joachim Schönbeck: No. We fight for orders. We believe a low investment is a huge benefit for our customers. So, I think that's good. That is what competition is made for, yes. And we take it on. And this is why also we need to look to our cost base constantly. So, we do not walk away from any opportunity. Operator: The next question comes from Daniel Lion from Erste Group. Daniel Lion: Can you maybe outline a little bit your expectations now in the Environment & Energy markets? Do you think we've seen a sustainable turnaround on demand in the third quarter, maybe now especially supported by another rate cuts, potentially good talks between the U.S. and China on solving trade issues? How do you see the development going on there? Joachim Schönbeck: On Environment & Energy, I would say our largest hope for growth is clearly related to the green products and to the products that Europe has planned to use for the energy transition, green hydrogen, also carbon capture, recycling and all of that. Some of that we could see with some of these flue gas orders. They go in that direction. I believe that this RED3 directive from the EU is significantly hurting the green hydrogen market in Europe. All the investments are basically stuck there. It's basically regulation. Carbon capture, we give a positive future. Specifically in the Nordic countries, there is a huge interest and they are moving a bit faster than Central Europe in the regulations. I would say on the midterm, I have no concerns there. I cannot give you satisfying guidance on the timing. But that has not so much anything to do with interest rates, but with regulations that is in the hand of the politicians, I would say, here specifically in Europe. Daniel Lion: Okay. And maybe digging a little bit deeper. Austria wants to actually invest quite heavily in green hydrogen in the coming years. There are several projects ongoing. How are you reflecting on these investments? What would you expect in terms of volume that could fuel your business part? And yes, leave it like this. Joachim Schönbeck: Yes. So I'm happy to hear that and I'm embarrassed that I'm not aware of that. So, thank you for that information because I should know rather than you about these investments. We have one project under execution in Austria. I believe there is more. There is -- and we feel good positions with the technologies we have. Next year, we will have industrial plants in operation, which gives our customers, I would say, a good feeling and security that they will invest in a rather mature technology with us. So, I think if these investments will come, I believe that we will have a fair share of that. Daniel Lion: Okay. Perfect. And maybe a last one. You just published a few days ago, I guess, a bigger order on synchronous condensers. Could you maybe put some kind of a volume tag on that? Northern Ireland. Joachim Schönbeck: Northern Ireland, I would say that's in the lower to mid double-digit million range. If we take that with several orders from in Ireland and Northern Ireland, if you refer to that, yes. So it's good volume. It's -- but these are not these mega projects, at least not in Europe, yes. Operator: The next question comes from Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have two, please. The first one is on Hydropower. Given that your order backlog has grown nicely, can you give us some insight into workload and capacity utilization in the division as well as on pricing to get a better idea about the revenue growth potential for 2026? Joachim Schönbeck: So, I think we can say that all capacities are loaded. And pricing is that we are trying to push prices up, which is in the bidding structure of the highly regulated areas, not as easy as it's usually done in, I would say, private markets. But you can see, and I think that is what we are reporting for the last quarters, you can see a constant improvement on the margins. So, the better prices also reached the bottom line, but also over absorption contributes to that. Christoph Blieffert: Okay. The second question is on Pulp & Paper service revenues, and I have to come back to Sven's question. According to my math, service revenues are down mid-single digit in the first 9 months. Can you maybe walk us through the reasons behind that? And can you explain how you want to grow service revenues in Pulp & Paper in '26 and also maybe elaborate a little bit on potential self-help measures? Joachim Schönbeck: Yes. So, we have been -- the service revenue is correctly calculated by you. It's down in the first three quarters. The main driver is the low Paper & Board consumption. I would say the overall utilization in that area, our customers is not higher than 60%. So, then service and parts are not needed. So that is driving us down. What gives us a good feeling is that the order intake on the service is up compared with the previous year. That will give us some workload for the next year. We're expanding our service offerings on the pulp side. We just made this acquisition with Diamond that will contribute -- that's basically 80% to 90% service business that will contribute to the Pulp & Paper service. And we have ongoing restructuring in paper service, because the low market demand does not require these capacities that we have. So, capacity reduction in the market areas where there is no demand and expanding our service offerings on the pulp side, that is basically our recipe for going forward. Christoph Blieffert: And one follow-up question. Can you give us a brief idea or rough idea about the revenue split in services between Pulp & Board/Paper? Joachim Schönbeck: I cannot. Sorry for that. Not that I'm not willing to, but I don't have these numbers. Operator: [Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Matthias Pfeifenberger. Matthias Pfeifenberger: Akash from JPMorgan, who was not able to join the call. The question is, can you tell us about activity you're seeing in synchronous condensers for the first 9 months? What is the book-to-bill in the business? At the last Capital Markets Day, you said this is about EUR 100 million business. How fast do you see this growing? And can you talk about investments in this business? Joachim Schönbeck: So, synchronous condenser book-to-bill is significantly above 1. I would say a very solid pipeline of projects to come that is across all regions. The more renewable, especially the more solar and wind is installed, the higher the demand on synchronous condenser. I would say the market outlook we gave at the Capital Markets Day of EUR 100 million share of ANDRITZ, I would say, is probably rather on the low side. Matthias Pfeifenberger: Perfect. I think, if there are no more questions, this concludes our today's Q3 earnings call, and I'd like to hand back once more to Dr. Schönbeck for concluding remarks. Thanks a lot for joining. Joachim Schönbeck: Yes. So, thank you very much for attending the call. I appreciate your detailed view to our business. The questions you asked point out that you probably know ANDRITZ even better than I do it. Yes. So thank you for that attention, and looking forward to deliver to you also a solid and good Q4. And see you then next year. Thank you very much. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the TF1's 9 Months 2025 Results Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pierre-Alain Gerard, Executive VP, Finance, Strategy and Procurement. Please go ahead, sir. Pierre-Alain Gerard: Thank you very much. Good evening, everyone, and thank you for joining us for our 9 months results presentation. Let's start with our key highlights on Page 3. Audience first. In the first 9 months, the TF1 Group made progress in all targets year-on-year and reinforced its leadership. Audience share rose by 0.8 points to 33.8% among women below 50 and by 0.7 points to 30.7% among individuals aged 25 to 49. The TF1 channel maintained its high audience share in the 4+ target, reaching 18.8%, up 0.2 points year-on-year. With a distinctive editorial stance on the latest international political and economic news, LCI has achieved an audience share of over 2% in the 4+ target since it moved to DTT Channel 15 in June, already ahead of our year-end expectation. In digital, TF1+ attracted 36 million streamers per month on average in the first 9 months and 41 million streamers in September 2025, a new record. Second, our financial performance. The group's consolidated revenue amounted to EUR 1.6 billion in the first 9 months of 2025, stable year-on-year. This amount includes an advertising revenue of EUR 1.1 billion. The 2% decline compared to last year reflects an uncertain and unstable environment. Also bear in mind that the first 9 months of 2024 had been a strong period for the group, fueled by a dynamic market in H1, the broadcasting of the Euro and the halo effect from the Paris Olympics. Now focusing on TF1+. Advertising revenue maintained its strong growth momentum, rising by 41% year-on-year to EUR 134 million. Regarding our COPA and net profit, excluding tax surcharge, we successfully managed to mitigate the impact of ad market headwinds as they only declined by a few million euros compared to last year. We will come back to this in more detail later. The group also maintained a strong financial position with net cash of EUR 465 million at September with an increase of more than EUR 100 million year-on-year. Capitalizing on its successful strategy, the group confirms the following 2025 targets: strong double-digit revenue growth in digital, aiming for a growing dividend policy in the coming years. The current phase of political and fiscal instability in France adversely impacted the advertising market in October, linear in particular. First indications for November are also below expectations. Given this context and with limited visibility until the end of the year, the group has adjusted its 2025 guidance for margin from activities to a level between 10.5% and 11.5% versus a broadly stable margin compared to 2024. This margin level remains solid given adverse market conditions combined with the rollout of our digital strategy. Let's go now into more details. On today's agenda, we'll first give you an update on our business segments. We will then provide additional information on our financial results. After that, we'll update you on our strategy and outlook, and we'll close with a Q&A session. For those of you who are joining us by phone, note that we are broadcasting this presentation as a webcast. You can also find it on our corporate website. Let's start with a quick update on our linear streaming and studio businesses. Now turning to Page 6 and our audience performance. Reach is the key underpinning factor of the value we deliver to customers. In the first 9 months, TV's overall daily reach stood at 76%, while TF1 Group maintained an unrivaled position, covering 52% of French people every day, well above any other media such as YouTube, SVOD services or TikTok. The group maintained its leadership across commercial targets and the TF1 channel retained a significant lead over its main commercial competitor, ahead by 9 points among women below 50 with an audience share of 23%, ahead by 8 points among individuals aged 25 to 49 with an audience share of 20%. Over the first 9 months, the TF1 channel recording high ratings in its genre, ranking #1 in French drama, news, entertainment and movies. Let's turn now to our streaming activities on Page 7. Our strategy is to leverage the group's solid content lineup to address both linear and non-linear expectations. 20% of total viewing comes from non-linear perception among individuals aged 25 to 49 for the TF1 channel. This share is even higher on our strong franchises, reaching, for example, more than 80% for the reality TV genre and more than 50% for our daily soaps, Plus Belle La Vie and ICI Tout Commence. Now looking at the right-hand side of the page, let me give you an update on the platform's building blocks. On consumption, TF1+ attracted 36 million streamers per month on average in the first 9 months and hit a new monthly record with 41 million streamers in September. Overall, streamers watched 834 million hours of content on TF1+ in the first 9 months of 2025 according to Mediametrie, 1.4x the figure achieved by the Second Rank platform. In terms of site-centric figures, which cover all streaming usage not captured by Mediametrie such as specific AVOD and aggregated content, streamed hours rose by 14% year-on-year. On ad inventories, ad load reached 5 minutes and 4 seconds per hour on average in the first 9 months versus 5 minutes on average in 2024. On the value front, CPM reached EUR 13.2 per CPM, a 1% increase year-on-year. As a result, advertising revenue generated by TF1+ rose by 41%, reaching EUR 134 million at end September. On next page, after launching TF1+ in January 2024 and having positioned it as the advertising -- in the advertising market as a premium alternative to YouTube, the group has entered the second phase of its strategic plan. The first key aspect of the second phase is the new form of monetization on TF1+ involving micro payments. Streamers can now take advantage of new features, giving them a la carte access to a wide range of high-quality works and content in return for small payments. Since September, streamers have had access to previews of our top programs. This feature has been rapidly adopted by TF1+ streamers with close to 200,000 transactions recorded over the month of September. These initial figures are very promising, especially since the micro payment offer is not yet available across all telcos and only covers a small portion of our content. On the TF1+ app, the only environment where this offer was fully deployed in September, this already corresponds to 2.6 transactions per converted streamer. We have continued to enrich our offer with new features like ad-free content and exclusive live channel for Star Academy launched in October. Now turning to Page 9 for an update on Studio TF1. Its revenue totaled EUR 213 million at end September, growing by 11% year-on-year, supported by a good momentum, notably in the third quarter. COPA reached EUR 20 million at end September, up EUR 13 million year-on-year. I will come back to this in more details in a few minutes. Highlights in the first 9 months included the launch of TF1, TF1+ and Netflix of our daily series Tout Pour La Lumiere, All For Light in English, the production of Flemish version of Dancing with the Stars for the Belgian channel VTM, the delivery of the documentary series From Rockstar to Killer to Netflix, the third season of Memento Mori for Prime Video, the theatrical releases of the movie, Jouer Avec Le Feu, Avignon and Yapas de Reseau. Let's move now to a more detailed breakdown of our financial results for the first 9 months of 2025. You will find additional information in our consolidated financial statements and their notes as well as our management report, all of which are available on our website. First, a word on revenue on Page 11. The group's consolidated revenue amounted to EUR 1.6 billion in the first 9 months of 2025, stable year-on-year and above the company compared consensus. Revenue from the Media segment declined by 1% to EUR 1.4 billion. Advertising revenue amounted to EUR 1.1 billion, down 2.2%. In linear, the trend in the third quarter was similar to that seen in the first half, with spending by advertisers adversely affected by an uncertain environment. By comparison, the first 9 months of 2024 had been a strong period for the group due to the dynamic market in H1, the broadcasting of the Euro and the halo effect from the Paris Olympics on our revenue. Despite these headwinds, TF1 gained market share as the overall linear market at end September is estimated to be down by a low double-digit percentage year-on-year. In terms of digital advertising revenue, TF1+ continued to demonstrate its appeal for advertisers, rising by 41% to EUR 134 million in the first 9 months of 2025 and significantly outperforming the market. And again, let me remind you that we only disclose here advertising revenue and not a broader streaming revenue, which would be much higher. Non-advertising revenue in the Media segment amounted to EUR 264 million in the first 9 months, up 5% year-on-year. Revenue from interactivity and music and live shows in the first 9 months offset the impact resulting from the deconsolidation of My Little Paris and PlayTwo in the third quarter. Studio TF1's revenue totaled EUR 213 million, an increase of 11% year-on-year. That figure includes a EUR 25 million contribution from JPG compared with EUR 8 million last year. As a reminder, JPG has been consolidated in Studio TF1 financial statements since the third quarter of 2024, and its activity is skewed towards the second half of the year. Excluding JPG, Studio TF1's revenue still rose in the first 9 months, notably thanks to premium deliveries to platforms and successful theatrical releases, as mentioned earlier. COPA amounted to -- on Page 12, COPA amounted to EUR 191 million in the first 9 months of 2025, slightly declining by EUR 7 million and above the company compiled consensus. Margin from activities stood at 11.9%. As a reminder, in Q3 2024, COPA included a EUR 27 million capital gain from the disposal of the Ushuaïa brand. In Q3 2025, the group completed the disposal of the disposals of My Little Paris and PlayTwo that we announced during our H1 results, which generated a capital gain of EUR 17 million. Excluding those items, COPA in the first 9 months of 2024 rose slightly year-on-year by EUR 3 million. The Media segment reported COPA of EUR 171 million. This represents a year-on-year decrease of EUR 20 million, resulting from a decline in advertising revenue and lower gains from the disposal that I just mentioned. Studio TF1 generated COPA of EUR 20 million, a strong increase of EUR 13 million, notably thanks to the JPG's contribution. Studio TF1 margin was up 5.7 points year-on-year, reaching 9.4%. Regarding the income statement on Page 13, I have already commented on consolidated revenue and COPA. Looking further down, operating profit totaled EUR 175 million, broadly stable year-on-year. That figure includes EUR 9 million in amortization charges relating to intangible assets arising from the JPG acquisition and EUR 7 million in nonrecurring expenses related to the group's digital acceleration plan. Net profit attributable to the group, excluding exceptional tax surcharge, was EUR 138 million, slightly down EUR 8 million. Compared with last year, net profit includes lower gains from disposals and a decrease in financial income due to lower interest rates. Income tax expense for the first 9 months included an exceptional contribution levied on French companies under the 2025 finance bill. This exceptional EUR 15 million tax surcharge for the period comprises EUR 10 million based on 2024 taxable profits fully recognized in Q1, as you remember. Moving on Page 14 on the net cash position. At September 2025, the TF1 Group had a solid financial position with net cash of EUR 465 million, up EUR 101 million year-on-year. Our solid balance sheet is an asset to navigate the volatile environment and keep rolling out our digital road map. Note that the EUR 238 million in CapEx compared to EUR 183 million last year, but it includes EUR 27 million proceeds from Ushuaïa. The difference between EUR 238 million and EUR 210 million of 2024 reflects future deliveries for Studio TF1. The EUR 41 million decrease compared with end December 2024 mostly reflects free cash flow after working cap of EUR 84 million and the dividend payment by TF1 of EUR 127 million in April. Before turning to our outlook, let me wrap up the key takeaways of our first 9 months. In a very uncertain and unstable environment, the group successfully tackled advertising market headwinds, thus mitigating the impact on COPA. First, we managed to gain market share across the board in a more challenging market than expected, underlying the competitiveness of our ad sales. Digital grew by 41%, significantly ahead of the market, while the decline in linear was limited to 6% compared with an estimated low double-digit percentage market decline. Second, we keep a tight control on cost, as illustrated by the EUR 9 million decrease in programming costs and the savings achieved in operational costs. And on the other hand, we safeguard the resources required to fuel the second phase of our strategy. Lastly, we actively manage our portfolio, both on media and on studio, as illustrated by the disposals of My Little Paris and PlayTwo and by the successful integration of JPG. Let's now have a look at our targets for the rest of the year. First, in terms of lineup, we will maintain in Q4 the best offer of free family-oriented and serialized entertainment as illustrated by the return of Star Academy, a 360-degree experience that will be broadcast across TF1, TFX and TF1+ alongside a social media presence that will drive strong engagement, particularly among younger targets. Q4 highlights also include the new premium French drama, Monmartre as well as 6 matches involving France National Football and Rugby teams. About Rugby, as you know, TF1 has secured the rights to broadcast the 2027 Rugby World Cup and the 2026 and 2028 Nations Championship as well as the 2027 and 2029 Autumn Nations Series. The deal reinforces TF1 Group's long-term strategy to make the most popular sporting events available to French viewers on free-to-air television. As you know, our objective is to sustainably finance this premium lineup going forward. After launching TF1+ in January 2024 and establishing it as a premium alternative to YouTube, the group is in the second phase of its strategic plan, which involves 3 pillars. The first pillar of this new phase is micro payment. As mentioned earlier, this feature, which was launched in September 2025, previews has been rapidly adopted by TF1+ users. New features, ad-free content and an exclusive live channel for Star Academy were launched in October. And again, if you do the math, the additional revenue potential of this initiative is significant if a portion of our monthly streamers transact several times a month. The second pillar is the extension of the group's distribution strategy illustrated by a landmark deal signed with Netflix. Starting in the summer 2026, we will show all 5 of our linear channel on Netflix as well as more than 30,000 hours of content available on demand. This unprecedented alliance will unlock additional reach for TF1 as a significant portion of Netflix subscribers consider Netflix as their primary source of TV entertainment. In addition, TF1 will benefit from Netflix's unrivaled expertise in content recommendation. Finally, the third pillar of this new strategic phase is the expansion of TF1+ distribution among French speakers worldwide. TF1+ has been available in Belgium, Luxembourg and Switzerland since 2024 and in 22 French-speaking African countries since June 2025. Moving on Page 18. Capitalizing on its successful strategy, the group confirms the following 2025 targets: strong double-digit revenue growth in digital, aiming for a growing dividend policy in the coming years. And the current phase of political and fiscal instability in France is undermining the confidence of economic actors and is resulting in a more challenging advertising market than expected, particularly in linear. The general trend seems to be the same across Europe, but the magnitude of the decline in October, low double-digit percentage appears to be specific to France. First indications for November are also below expectations and visibility remains limited until the end of the year. At this stage, we conservatively assume that it will be the same in December. In this context, the group adjusts its 2025 margin from activities target from broadly stable compared to 2025 to between 10.5% and 11.5%, a solid margin level. Many thanks for your attention, and now I'm ready for your questions. Operator: [Operator Instructions] Pierre-Alain Gerard: We have a written question on the platform here. So it is about the organic growth of Studio TF1 in the third quarter of the year. So the perimeter effect is EUR 11 million over the 9 months. And on a like-for-like basis, the growth is 6%. Operator: [Operator Instructions] At the moment, there are no questions from the phone. I'll turn the call back to you for any closing remarks. Pierre-Alain Gerard: Thank you very much. So to summarize these results, what you need to bear in mind is that we managed to gain market share across the board. We have a tight control on cost and active portfolio management, which led us to gain market share both in linear and in digital. So in this turbulent market, this is why we adjust the margin between 10.5% and 11% which is still a strong level. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Hello, and welcome to the X-FAB Third Quarter 2025 Results Conference Call. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]. I'd like to hand the call over to your host, Mr. Rudi De Winter, CEO, to begin this conference. Please go ahead, sir. Rudi De Winter: Thank you. Welcome, everyone. In the conference call today, we also have Alba Morganti, CFO. In the third quarter of 2025, we recorded revenues of $229 million, up 11% year-on-year and 6% quarter-on-quarter, which is well above the guidance of $215 million to $225 million. We also progressed well in our core markets: automotive, industrial, medical with a revenue of $216 million, up 14% year-on-year and 5% quarter-on-quarter. Our core business now represents a share of 94% of the total revenue. Now breaking it down by end markets. In the third quarter, the automotive revenue was $147 million, up 1% year-on-year and 2% quarter-on-quarter. The third quarter industrial revenue was $48 million, up 51% year-on-year and 1% sequentially, reflecting the overall recovery of our industrial end markets. The gradual recovery of the silicon carbide business contributed to this positive evolution. Now for the medical business, the revenue in the third quarter hit a record high of $21 million, up 74% year-on-year and 40% quarter-on-quarter. The growth was mainly driven by contactless temperature sensor, DNA sequencing and echography applications that altogether did very well in the past quarter. Now looking at it by technology. In the third quarter, the CMOS revenue recorded a growth of 10% year-on-year and 4% quarter-on-quarter, mainly due to the extra capacity that came online for the 180-nanometer BCD-on-SOI and 35-nanometer CMOS node demand was weaker. Microsystems revenue was up 27% year-on-year and 9% sequentially. This is based on a broad set of customer-specific microsystem technologies that we co-created with our customers. Also, demand for new developments in the micro systems remain strong, and this is an area where we will continue to see above-average growth. Our silicon carbide business continued to recover and revenue grew strongly by 30% year-on-year and 20% -- 21% quarter-on-quarter. The number of wafers produced in the third quarter more than doubled compared to a year ago. The revenue did not follow the same way due to the product mix and also the ratio of consigned substrates that was much, much higher last quarter than a year ago. The positive trend in the evolution of our silicon carbide business is underpinned by increasing bookings attributed to sustained demand from data center, electric vehicles and renewable energy applications. We also see good traction on our new technology platforms that we released at the end of 2024. Many customers are developing their new generation products based on this platform that will give improved performance and lower system cost. The fact that we offer full supply chain for silicon carbide in the U.S. is well perceived by our U.S. customers that are designing in products for high value-added assets such as data centers, industrial equipment and electric energy systems. Quarterly prototyping for the past quarter was $20 million, down 16% year-on-year and 6% down quarter-on-quarter. The order intake for the third quarter amounted to $163 million, down 25% year-on-year and down 21% compared to the previous quarter. The booking in the industrial segment was good. The weakness is primarily due to inventory corrections by automotive customers as well as broader macroeconomic uncertainties resulting from geopolitical tensions and trade disputes. These factors have led to a more cautious ordering patterns while customers also take advantage of shorter cycle times, placing orders later than usual and with reduced lead time. As a result, feasibility is still restricted. The backlog for the third quarter came in at $347 million compared to $413 million at the end of the previous quarter. Let's now move to the operations update. In September, we had the inauguration of the new cleanroom in Malaysia, which will increase the site's manufacturing capacity from 30,000 to 40,000 wafer starts per month. Production at the new facility is being scaled up progressively with the full increase in capacity anticipated by the fourth quarter of 2026. The expansion will effectively double our capacity for the popular 180-nanometer BCD-on-SOI technology, which is particularly suited for applications such as smart motor drivers various drivers such as piezo actuators, LED drivers and battery management systems. The recovery of the silicon carbide business is supported by the existing capacity at our Texas facility. The current installed capacity will enable us to do more than double the wafer starts. The capital expenditure for the third quarter was $23 million, bringing total year-to-date CapEx to $179 million, and the full year capital expenditure is projected to be less than $250 million. Let me now pass the word to Alba for the financials. Alba Morganti: Thank you, Rudi. Good evening, ladies and gentlemen. We will now go through the financial update. I would like to start this section by highlighting that the third quarter, we succeeded in increasing our sales by 6% quarter-on-quarter, which were the highest since almost 2 years, totalizing USD 228.6 million and which is well above the guided $215 million to $225 million. Our EBITDA grew by 4% quarter-on-quarter and 7% year-on-year, being the highest this year. Our EBIT was almost $24 million, down 5% year-on-year, but increasing by 10% if we compare it to Q3 last year. Third quarter EBITDA was almost $354 million with an EBITDA margin of 23.6%. If we exclude the impact from revenues recognized over time, the EBITDA margin would have been 24.2%, within the guided range of 22.5% to 25.5%. Our profitability remains unaffected by exchange rate fluctuations as we continue to be naturally hedged. At a constant U.S. dollar euro exchange rate of 1.10 as experienced in the previous year's quarter, the EBITDA margin would have been unchanged at 23.6%. In the third quarter, we reported a financial result of minus $5.6 million, mainly due to interest result of $4.3 million and realized foreign exchange losses arising from the reevaluation of the euro-denominated debt amounted to $800,000, but of course, it's a noncash item. Cash and cash equivalents at the end of the third quarter amounted to $174.2 million, which means an increase of $16.5 million compared to the previous quarter while net debt decreased by $21.1 million quarter-on-quarter. Despite the peak of CapEx expenditures payments in the first half of '25, our financial situations remain solid. As anticipated and now visible, our CapEx are now significantly decreasing which translates into an improvement of our net debt position, which trend is inversely for the first time since a while. Especially in the current context of uncertainties and geopolitical tensions, it's important to keep our financials strong. And to conclude this financial section, I would like to share our next quarter's guidance. Our revenue is expected to come in within the range of $215 million to $225 million with an EBITDA margin in the range of 22.5% and 25.5%. This corresponds to a full year revenue in the range of $863 million to $873 million for the full year 2025. This guidance is based on an average exchange rate of USD 117 to euro, and does not take into account the impact of the IFRS 15. And now I would like to give the back -- the word back to Rudi. Rudi De Winter: Thank you, Alba. I'm glad about the solid increase in revenue for the third consecutive quarter amid a challenging macroeconomic environment. This is a significant interest or there is significant interest in our specialty technologies. Our silicon carbide business has made measurable progress with growing design activity on our latest silicon carbide technology platform. Additionally, our microsystems division continues to advance with collaborative co-creation projects enhancing our growth pipeline, while visibly continues to be limited, I'm confident in X-FAB position that supports sustained long-term business expense. Besides the third quarter results, I announced today that I will be passing on the CEO role to Damien Macq, today, COO; on the 6th of February 2026 after the full year results call. Damian is very well prepared and the Board of Directors and myself have full trust. He is the right person to lead X-FAB. I will make sure there is a smooth transition. I will be supporting him in my role as a member of the Board and of course, further future. Operator, we are now ready for taking questions. Operator: [Operator Instructions]. Our first question this afternoon or this evening, will be coming from Mr. Michael Roeg of Degroof Petercam. Michael Roeg: Yes, Well, first of all, congratulations on taking the next step and well, spending a bit more time in the Board of Directors, looking down on your successor and guiding him. But of course, I will leave you with a couple of tough questions. So the first one, bookings have come down strongly, and prototyping sales has also come down based on the chart in your PowerPoint presentation. So should we expect a slow start in 2026? Rudi De Winter: Well, first of all, the prototyping is something that fluctuates. There are milestones on projects and so forth that -- so I think the prototyping is at a good level. Remember, this is discussed from 0 every quarter, and it's all about new contracts and new activities. So it's still a substantial business development activity ongoing, so on. Quite happy about that. The production bookings, they indeed are weak, that we still have quite a good backlog. That represents roughly almost to our 2 quarters. So it's a bit less -- it is, of course, too early to say, but it's a sign of weakness in the market. So our guidance for the Q4 is still good. It's in the range of where we were now Beyond that, visibility is low. And yes, so we could see maybe a weaker start from next year. Michael Roeg: Okay. And is there a decent amount of backlog for way deep into 2026? Or is most of it typically scheduled for Q1, Q2? Rudi De Winter: This backlog is -- so customers, they order now typically, when they need the goods. So typically, all this backlog is mostly to execute on deliveries in the quarters to come. Michael Roeg: Okay. That's reassuring at least. Then I have a question. If I compare your sales in Q3 with those of Q2, then they've grown by $13 million, yet the sequential trend in gross profit is minus $2 million. And this is not explained by depreciation and amortization because that was the same in the 2 quarters. So something was in your cost of sales, something strange. Can you explain that? Rudi De Winter: Yes, there is an effect that -- of inventory. So the work in progress, I mentioned we have shorter cycle times because we have improved capacity. The cycle times come down in the -- in the fab that is very much appreciated by our customers, so we can deliver faster. But as a result, the work in progress is lower and that has -- in the quarters where we decreased this WIP as a negative effect on the profitability. Michael Roeg: Is that something that only hits your P&L wants to the lower work in progress level and then if it remains at that level in Q4, and then you will not have that cushion? Rudi De Winter: Yes. yes. So this is -- this is an effect that we have when the WIP -- so this is a typical effect when the activity in the factory decreases or the cycle times as short and the valuation of the WIP decreases when the valuation is -- when we come back to a steady state, then this effect is not there. But you can also have the opposite effect if bookings go up, loading in the fab goes up, you have the opposite effect where the revenue is not yet there, but the WIP increases and the WIP is valued and therefore, it has a positive effect -- could have a positive effect on the margins. Michael Roeg: And if I do the calculations, it's around $4.5 million to $5 million impact in the quarter. This is above average, I guess, normal trends, correct? Rudi De Winter: Yes. So this is -- if we look at the full year, it's even bigger. So we also have inventory or WIP corrections in the previous quarter. I think it is coming to a stabilization in -- by the end of the year. Michael Roeg: Okay. Then my next question is about Texas. You mentioned in the press release that there will be capacity expansion in 2026 towards the end of the year. How much CapEx is there involved with this particular expansion program? Rudi De Winter: There is no CapEx involved. What is mentioned there that these equipments that are already delivered and paid for that will be qualified and will be added to the operating and the production lines. Michael Roeg: Okay. So this is part of the existing program that has just been completed. So there is no additional expansion program currently planned? Rudi De Winter: For now, there is no expansion with additional cash out planned. Michael Roeg: Okay. And during the Capital Markets Day, you mentioned that there would be discussions about further automation of 4 of the 6 fabs. Is there anything that came out of that or a midterm plan for that? Rudi De Winter: Well, this is an ongoing process that we're working on more automation. This is mostly labor and IT and that kind of thanks to a lesser extent, related to CapEx. There might be some CapEx that is minus compared to the equipment investments. Michael Roeg: Okay. Then my final question, a very quick one. There was $2 million of other income in the OpEx. Can you explain what that was for? Rudi De Winter: There was a sale of $2 million. Operator: Next question coming from Emmanuel Matot of ODDO BHF. Emmanuel Matot: I have 3 questions. First, already, could you comment about your decision to step down from your role of CEO, what are the motivation behind that very important decision for you? Second, too early to guide for next year, for sure. But with the churn you have and the ramp-up of significant production capacities, are you confident at this stage for further sales growth next year? And third, I wanted to know if you compete in some spaces with GlobalFoundries because it has just announced a significant capacity expansion in Germany, and I wanted to have your view on that. Rudi De Winter: Yes. So first of all, with respect to the organizational change and me stepping down as CEO. So as we as a manager or as the founders of the company, we always, yes, have in mind that, yes, it's important to grow succession and then move on. I think while the team is very well prepared and Damien Macq is ready to take that role in my view. And therefore, I decided or started thinking about this a while ago. And I think now it's the right moment to for him to take over. And I think this is very well placed to do it. Second question, so I didn't -- now the question was GlobalFoundries. It was a question on GlobalFoundries Dresden. So GlobalFoundries Dresden, they're in different -- I don't see this as a competition to X-FAB. They're maybe also doing automotive first, but that's more into ECU type processors and FD SOI for further applications. It's a different type of SOI. So X-FAB is also doing a lot of SOI and we are very successful in SOI, but it's high voltage SOI. That's different characteristics and FD SOI is more used for lower voltage systems and lower power applications. And the third question was? Emmanuel Matot: It's about the visibility you have now, which seems to be limited, but also we can expect significant production capacity next year on products, you are fully loaded. So growth next year or Gary, you don't want to comment at all. Rudi De Winter: Well, today, the capacity, we are not in allocation anymore as compared to a year ago. So the revenue, the output is mainly driven by the demand in the market that we are following 1:1 now. And so if demand is there, we'll be growing if -- so we will follow the demand. So we're able to -- if demand is there, we're able to anticipate only take advantage and grow. If it's not there, of course. So we are now dependent on the market and, of course, all the new projects that we are in the pipeline, and we gradually rolling out. Operator: We'll now move to Robert Sanders of Deutsche Bank. Robert Sanders: Best of luck with your next role and welcome to Damian. I just had a question about Nexperia. So you're in the European automotive supply chain. There's been a lot of warnings around line stoppages from both European and non-European OEMs talking about significant risk weeks of inventory. Can you just give us your take on how severe and serious the situation is based on what you can pick up? And then I have a few follow-up questions. Rudi De Winter: Yes. I'll following this, of course, also closely, but I also -- most of it is what I also pick up in the press. So what I know is that Nexperia is indeed in it's more -- seems like low tech components, but they're very good at it, and they're producing that in very high quantities. And so they're having some areas of significant market share. And I think for most of those components, there are replacements, but ask the question whether these -- if there are shortages, whether the replacements can be ramped up quickly enough. I have no to my knowledge, it is not yet line stops, but I cannot tell how far it is of. Robert Sanders: Yes. I mean, based on your experience, I mean, what they do is they do small signal logic components like diodes and BJTs and stuff like that, but they are used in like body, comfort, lighting, BMS, interfaces, sensors, safety, just a lot of low-value components. As you say, they have very high market share. I mean based on what you've seen in your previous job, I assume you would be looking at 6 to 9 months to requalify on a competitor. Is that the sort of time line? Rudi De Winter: Well, I think that also, if you look back at the COVID situation, normal -- the market is normal, then all these things take time. However, if there is a threatening line stop things can -- things can change quickly, and there is a lot of agility and creativity. So I think it is more -- I think it's not so much a matter of qualifying it. I think there is -- most of the cases, people are very agile and flexible to move if it's really needed. But it's more a matter of the components in sufficient quantity there from alternative sources. Now I also typically see there have been cases in the past also when Sumitomo plant was blown up years ago. That was producing 50% of these particular chemicals that were absolutely needed everywhere in the semiconductor industry. We had 50% market share. But -- also there, the dynamics, the agility of the whole market, then that came in motion. And finally, it's sourced it out. So let's see how this will turn out. Robert Sanders: Right. And then just a question about China. Obviously, since we last spoke China has turned downwards. There's been production cuts at BYD and Li Auto and all these other guys, too much unsold inventory. How have you seen that manifest in your business, whether it's direct with Chinese customers or indirect through Melexis? Rudi De Winter: I think that's too early, too early to say with somewhat further in the supply chain. It's difficult. We don't have a good visibility, except that we see our bookings in the third quarter that were lower than the previous quarter, in particularly in the automotive segment a bit across the board. As I mentioned, the bookings in industrial, they were good. Yes. So it seems to be more on the automotive side, as I see the weakness. Robert Sanders: And just one last one on OpEx. How should we think about the impact on OpEx of all these various different expansions, whether it's on G&A or just on your cost base more generally? Rudi De Winter: That we do not expect an effect except to the fact that once these expansions are active and producing, then they come into the depreciation. So it will have an effect on our depreciation. Operator: [Operator Instructions]. We will now go to Guy Sips of KBC Securities. Guy Sips: Most of my questions were already answered. There were also experience-related. I have one question on the data center. Do you see there the positive trend, you see that accelerating? Or is it just on a continuous pace as it was over the last quarters? Or do you see a real improvement since, let's say, the Capital Market Day? Rudi De Winter: Well, I think it's -- in the revenues, we see a gradual progress. So in the beginning of the year, we saw strong activity in data center that continues, but it is complemented now also with better demand for industrial and renewable so inverters for renewables and also a bit of automotive. So it's the silicon carbide activity is broadening. And I think that a lot of the data center -- yes, growth still has to come. So it's not yet -- so first of all, the architectures architectural change that uses more silicon carbide in data centers still is coming. And I think also all the announcements on CapEx and so forth start to build buildings and they're not yet installing the infrastructure yet. Guy Sips: And can you put a kind of a time frame on this? Rudi De Winter: No, I cannot answer. It's -- I think some of the customers of us who have announced activities with the data center companies on 800-volt architectures and so are rather talking about 20 -- real ramps in '27. Operator: Next question will be coming from Mr. [indiscernible] who is a private investor. Unknown Attendee: My question is actually the following. If AI is applied, let's say, on the development of prototypes, is it possible to substantially reduce the throughput time for the development and the prototyping. Rudi De Winter: It's a good question. I don't -- not really -- that's not really the case. So there is -- in digital -- in the digital world, there is more activity on automating design environments and so forth. So I think there, it could have an effect on the analog mixed signal design that we're doing so far, there are people looking at it at research institutes, but nothing that is practically usable to my knowledge. Unknown Attendee: Okay. And then I've got a second question. Is it the automotive business part of it? Is it coming to end of life, and that has to be replaced by new products, new components or in which stage are we? Rudi De Winter: Not particularly. So we -- there is, of course, a continuous flow of innovation, but we have existing products that are -- that exist already a couple of years that will -- that are also being designed in, in electric vehicles in certain functions. So that continues. But -- it's not that there is an abrupt end of life of certain components. Of course, if combustion engines are used to a lesser extent, if you have like applications like lambda sonda or pressure sensors that go into an exhaust system of a combustion car, that will gradually phase out. But yes, as you hear, there is push in Germany to extend lifetime of combustion engines and so forth. So I do not see an abrupt change in the next cities rather as a gradual change over the next 10 years. Unknown Attendee: Okay. And could you elaborate a little bit more on the Chinese market for our business? Rudi De Winter: Yes. So as X-FAB, we have direct Chinese business. It's around 10% of our business. But indirectly, we have also customers are selling into China. So I think the direct and indirect business of X-FAB, it's maybe closer to 35% or so of our revenue that goes into China. Now what our customers do have less that's a bit further away, as I would have to refer to the conference call of our customers. What we sell directly in China are predominantly technologies that are, to a lesser extent, available in China. So that's typically our BCD on SOI for high-voltage smart systems, like motor drivers, battery monitoring systems and so forth. And there, we see continued interest also for new designs with our customers because this technologies are not immediately available in foundries in China. Operator: [Operator Instructions] We'll now move to Trion Reid of Berenberg. Trion Reid: Trion Reid from Berenberg. Just also wanted to add to my best wishes really for whatever you're going to do in the future. I had 2 questions on the results. The first was just around the fact that you talked about the results being strong, but the order intake weak. I'd be interested if you have any comments around the pattern of orders through Q3. You saw a sort of any trend or you're just seeing more lumpiness or short-term ordering? Just be interested to get any more color on that. And then my second question was just on the CapEx, which was pretty low in Q3, but your Q4 guidance seems to suggest it will actually ramp up quite significantly in Q4, just to understand why that is and what that sort of implies for next year as well. Rudi De Winter: Yes. So your first question with respect to the bookings yes. So the -- yes, that is what it was in the third quarter. So far, if you ask what happened in October, yes, that's somewhat a continuation of the Q3. The peak or the low amount of CapEx in Q3 is indeed less than what we forecasted. This has to do rather with -- we're not pushing the throttle on our expansions in Malaysia. So the -- this is just a delay. So the cap -- we have not canceled anything. It's just that there is a slower rollout and therefore, also the invoices come in slower and so the cash out is also somewhat less. So the -- in Q4, we expect that it will increase. This is not new CapEx, but it's just a shift of things from Q3 and Q4, we'll have to see maybe there will be some shift from Q4 into Q1 next year. But the increase that you -- that we can expect in Q4 is not a sign for next year. It is just the balance from Q3 that shifted in Q4. Trion Reid: Okay. Great. And just to follow up on the order intake. You're suggesting that there was not a decline through the quarter that the quarter was weak for order intake in all 3 months. Rudi De Winter: No, it was somewhat flat over the quarter. It's not that there was a sudden effect at the end or so. It was somewhat flat over the 3 months. Operator: We have a follow-up question. This one coming from Mr. Robert Sanders of Deutsche Bank. Robert Sanders: Just on the Kuching ramp and the EUR 1 billion expansion that you've done. Is the idea to continue to push that ramp, even though the demand is not really there just to sort of get the economics going because of -- right now, it's a lot of tools but not a lot of revenue? Or is the idea to basically free that plan until the demand is there? Rudi De Winter: The plan is to continue with the rollout of the equipment and to install it, qualify it to be ready for demand that can come. So the -- the equipment is mainly for our 180-nanometer BCD-on-SOI and there, we have good design wins. We have a unique position in the market. So we have -- we feel confident that this will pick up, and we want to be ready. Robert Sanders: Got it. And is there any plan to reduce or exit any legacy facilities? I think you've already said you're going to end-of-life effort by the end of '26. So I'm just trying to understand how much of your capacity that's quite old now is sort of going to get wound down as part of this upgrade. Rudi De Winter: Well, this is an effort we're making the transition from already for many years, we're transitioning to more micro systems business. and gradually exiting the CMOS there. The end of life that we announced there was for 0.6 micron CMOS signal. CMOS is also a in there and that will run until end '26, a little bit in '27 and then there will be one cleanroom there that we -- there are 3 cleanrooms on the site there, and there will be one cleanroom that will be closed. Robert Sanders: Got it. And maybe a question for Alba. What is the France run rate annualized at the moment for revenue in just Corbeil? Alba Morganti: So yes, Corbeil is currently at $54 million per quarter at the moment. So yes, it was the highest quarter that we recorded now in Q3. So it's ramping up significantly. We also invested there in additional tools, as you know, and we are now running only X-FAB technologies since a while. So the efforts start to pay off. Robert Sanders: Got it. And what's the EBITDA of that facility? Alba Morganti: We don't give EBITDA breakdown, as you know, because we don't produce everything on one side. Some of the products are shifted from one side to the other. And -- so it's quite difficult to -- it's misleading to give EBITDA breakdown by site. You know that we start -- some products we start in one factory, then we continue in other factories and so on and so forth. So yes, as I said, it's misleading. Robert Sanders: Got it. And just last question. If Melexis is able to get BCD-on-SOI processes from 8-inch Grays in China. What does that mean for you? Does that mean that you will lose 30% of Melexis business? Or is that something you don't think is a likelihood? Rudi De Winter: Yes. I don't know if grays has BCD-on-SOI, I think definitely not in the quality and the features that we are offering. Anyhow, it's this -- if a customer designed a new product in another fab, it takes a lot of time to qualify and transition. In the meantime, all the existing business typically stays until the products are really end of life. So I don't see an immediate effect. Operator: As we have no further questions at this time. Mr. De Winter, I'd like to turn the call back over to you for any additional or closing remarks. Thank you. Rudi De Winter: Yes. Thank you very much, everyone. So I'm looking forward to hearing you again on the 6th of February for the Q4 results. That will then be together with Damien and I will be then handing over to Damien. Yes. Thank you very much, and have a nice evening. Alba Morganti: Thank you. Goodbye. Operator: Thank you. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day and a good night.
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.