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Operator: Good morning, and welcome to the AXIS Capital Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Cliff Gallant, Head of Investor Relations and Corporate Development. Please go ahead, sir. Clifford Gallant: Thank you. Good morning, and welcome to our third quarter 2025 conference call. Our earnings press release and financial supplement were issued last night. If you would like copies, please visit the Investor Information section of our website at axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast on our website. Joining me on today's call are Vince Tizzio, our President and CEO; and Pete Vogt, our CFO. In addition, I would like to remind everyone that the statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on the Form 10-K or our quarterly report on Form 10-Q and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding the forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, our non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our earnings press release and financial supplement. And with that, I'll turn the call over to Vince. Vincent Tizzio: Thank you, Cliff. Good morning, and thank you for joining our call. In the third quarter, our team once again delivered excellent results as the momentum in our performance further accelerated. The transformation we have undertaken has now demonstrated sustained profitable growth, underpinned by an enhanced operating platform with new capabilities, products and a highly focused team. In the quarter, we delivered a 14% year-over-year increase in diluted book value per common share at $73.82, 18% annualized operating return on equity, 20% increase in operating earnings per share over the prior year quarter at $3.25. Premiums of $2.1 billion, our highest third quarter ever, up nearly 10% over the prior year, including $670 million in new business. And finally, a combined ratio of 89.4%. We are achieving these results in a changing risk landscape with many different micro markets at play. Our strategy positions us well to compete in this environment. Premium adequacy across our aggregated portfolio is solid. We are actively cycle managing and leaning in where it is prudent. The investments we're making in people, products and platforms are creating value. Indeed, the further acceleration of our premium growth in insurance is bolstered by our new and expanded lines of business. Additionally, we continue to draw upon third-party capital partnerships while bringing innovative product capabilities to meet the diverse needs of our distribution partners. By example, we launched AXIS Capacity Solutions, which during the quarter, transacted its first deal, a partnership with Ryan Specialty. Through our How We Work program, we are continuing to strengthen all aspects of our operations and how we go to market. In the quarter, we made continued strides in modernizing our underwriting platform while leveraging emerging technologies and AI to drive efficiency, improve decision-making and support scalable growth. I'll share several examples. We've implemented a highly modern application platform across all business units and functions with very little legacy technology that is improving speed to market, heightening accuracy and reducing manual effort and cost. We are presently applying AI solutions in all forms, custom and package within applications on user desktops and in all cases, driving productivity increases. We've deployed the first release of our next-generation underwriting platform in North America, advancing how we ingest, route and review submissions while enhancing our overall efficiency. These advancements reflect the pledge that we made at our Investor Day to invest $100 million into our operational infrastructure. Capitalizing on our excess capital position, we have been accelerating and expanding these efforts, particularly in supporting our new business lines. We see these investments as a key to advancing our profitable growth ambition. We are also deepening our relationship with our distribution partners. In a broker survey conducted this year, our customers recognize AXIS with top quartile Net Promoter Scores while distinguishing our company for its specialty leadership and ranking us ahead of the market for our underwriting knowledge and solutions-oriented approach. None of these results can be achieved without a highly engaged and disciplined team. The AXIS culture we've developed and deep commitment of our people is exciting and enabling our progress. During the quarter, we have added talent to our underwriting teams throughout the globe. And on the corporate side, we notably announced Matt Kirk as our future CFO, succeeding Pete. Let's now dig deeper into our segment results. We'll start with insurance. Our insurance segment again delivered an outstanding quarter, highlighted by record third quarter premium production of $1.7 billion or 11% over the prior period, new premium written of $570 million, a current accident year ex-cat combined ratio of 83.3% and record underwriting income of $153 million, up 55% over the prior year. In North America, we produced stellar results with premiums up 12% and submission volume up 18% in the quarter as we continue to capitalize on the investments we've made in expanding our product offerings and in enhancing our underwriting platforms, yielding greater efficiency gains. Our lower middle market strategy is generating sustained acceleration and strength in value. In our Global Markets division, results were strong, and premiums were up 9%. In the quarter, our growth came from lead product positions in the London market, notably marine, energy and construction. Importantly, these classes remain premium adequate and have a robust pipeline. With respect to broader market conditions within insurance, we continue to observe an evolving risk environment. But overall, the competitive landscape is disciplined. Let's unpack this further for AXIS. In liability, rates were up 10% in the quarter with 8% growth. We generated a 12% rate increase and a 11% growth within our U.S. excess casualty business. Within this business, we continue to lean into the highly premium adequate wholesale lower middle market segment. Our casualty portfolio is well managed and within wholesale distribution, our excess casualty unit is recognized for its thought leadership and disciplined underwriting. As respect to property, we grew our property book 8% with rate changes varying widely across our many classes. Illustrating this, we see greater competition in large account E&S business but are still observing rate increases in small account business in our international book. We serve customers through 8 property underwriting units across the world, which are all seeing different degrees of competition, and we benefit from the diversity of our customer segmentation in these units. An increasing contributor is our lower middle market property unit, which evidenced continued growth in the quarter. Our property underwriting strategy remains disciplined and enjoys premium adequacy and average net limit in the low single digits, a well-balanced peril and geographic mix and is backed by a [ cat XOL ] protection that attaches at $100 million per event. In Professional, we grew 18%. The majority of our growth came from transactional liability and E&O. We are encouraged by the increasing contributions that we are continuing to see from our new and enhanced product offerings, including Design Professional, Allied Health and Environmental. As respect to management liability, we continue to drive reasonable growth within our private D&O business. As respect to public D&O, consistent with the last quarter comments, we continue to observe that pricing is flattening out. Within cyber, we observed industry ransomware attacks as increasing, but thus far not being reflected in our claim counts. That said, we are seeing the increased competition of MGAs and surplus capacity have placed unwarranted downward pressure in pricing dynamics. We have maintained our underwriting discipline, which is reflected in our selective approach in the quarter. In addition, we have now completed the reshaping of our delegated cyber book. We are strengthening our capabilities in our cyber risk advisory services, which help policyholders increase their organizational preparedness and resilience. We are focused on strengthening our SME presence globally and notably in the United States through our partnership with Elpha Secure. As respect to our reinsurance business, we continue to generate strong bottom line performance with our seventh straight quarter of consistent profitability. Our reinsurance underwriting strategy remains highly disciplined and focused on select specialty lines. In the quarter, we produced 6% premium growth. Specialty short-tail lines contributed 91% of our new business premiums, a combined ratio of 92% and underwriting income of $35 million. Reflective of our disciplined approach, we are increasingly vigilant in navigating liability and professional lines. Consistent with past comments, we generally do not view ceding commissions nor the rate environment for these lines, particularly in North America to be in keeping with our return expectations. Taken together, this was another strong quarter for AXIS. Across the micro markets of specialty insurance and reinsurance, we see an increasing need for tailored risk solutions. Thus, we see AXIS is very well positioned to support our customers and importantly, our distribution partners, while at the same time, rewarding our shareholders with sustained and attractive returns. We are building on our momentum. We are leveraging our capital position, the talent of our team and the support of our distribution partners to lean into our new and expanded lines as well as identifying new avenues to drive profitable growth. We are investing in our infrastructure and operations, embracing technology and AI. We're excited for our future, and we believe the best is yet ahead for AXIS. And with that now, I'll pass the floor to Pete for his comments. Peter Vogt: Thank you, Vince, and good morning, everyone. AXIS had another excellent quarter. Our net income available to common shareholders was $294 million or $3.74 per diluted common share. And our operating income was $255 million or $3.25 per diluted common share, producing a 17.8% annualized operating return on common equity. This drove our book value per diluted common share to $73.82 at September 30, an increase of 14.2% over the past 12 months and up 16.9% when adjusted for dividends declared. I'll start with consolidated company underwriting highlights. Our gross premiums written of $2.1 billion were up 9.7% over the prior year quarter, driven by accelerating growth initiatives in insurance. On a net basis, premiums were up 9.5%. Our combined ratio was an excellent 89.4%, and our accident year loss ratio ex-cat and weather was 56.3%. Cat losses were just $44 million, producing a cat loss ratio of 3%. Cat losses were driven by a combination of a $24 million impact primarily from severe convective storms in the United States and $20 million of losses related to the Middle East conflicts, which hit our marine and terrorism lines. We adhere to our philosophy of wanting to see sustained positive signals before releasing reserves. And we recorded a release of $19 million with $15 million in insurance and $4 million in reinsurance in the quarter. We continue to believe we are strongly reserved, and we rely upon a great deal of data and analysis to reach our conclusion. For example, from a high level, statistics like IBNR to total reserves are holding steady, continuing to give us confidence. Our consolidated G&A ratio, including corporate, was 11.7%, down from 12.1% a year ago. We continue to execute on our How We Work program, including investing in our business with new technology and adding underwriting teams. The investments we're making give us increased confidence that we will manage costs, grow the premium base and hit our full year 2026 target of an 11% G&A ratio. Now let's move on and discuss our segment results in more detail. Insurance had a strong quarter. Gross premiums written were $1.7 billion, a record third quarter for insurance and an increase of 11% compared to the prior year quarter. The strongest driver has been the continued momentum of our new and expanded initiatives. These initiatives contributed nearly 70% of the growth in the quarter. The growth was broad-based across the portfolio as all classes of business grew, except for cyber. In property, where we grew 8%, North America E&S grew 12.5% as our lower middle market initiative continues to grow, and we continue to attract new business at rates above our long-term target returns, even in the midst of the changing market landscape. Pro lines, as Vince mentioned, we had 18% growth, and I would reiterate that the growth was driven by a number of new and expanded products. Growth in A&H continues to be driven by our pet product and in credit and political risk, the new surety initiative continues to grow. In cyber, as Vince noted, market dynamics remain a challenge. Therefore, excluding the remediation work, which we completed this quarter, the rest of the portfolio was essentially flat year-over-year. Net written premiums were up 11%, and as we've signaled, we're keeping a little bit more of our well-priced portfolio. In insurance, we are gaining momentum from our recent growth initiatives. As we sit here today, we believe that going into next year, we will be able to construct a portfolio that remains premium adequate and that can grow at a mid- to high single-digit growth rate, excluding any impact from new sidecars such as RAC Re. But a lot of that depends on what happens in the shifting landscape and as always, our priority is underwriting profitability. With respect to RAC Re, we are excited about the new vehicle, which builds upon our strong relationship with Ryan Specialty. We expect to retain about 1/3 of the gross premiums written generated by the facility, which we expect to produce strong combined ratio business. In addition, we will earn fees on ceded earned premiums. The total volume will be a function of the growth rates of the underlying underwriting entities. And I would stress that this transaction is done on an underwriting year basis, which means a slow buildup of revenues in 2026. The insurance combined ratio was an outstanding 85.9%. The quarter included 3.9 points of cat and weather-related losses and 1.3 points of reserve releases from short-tail lines. Now let's move on to the reinsurance segment, where the business has continued to deliver stable, consistent and strong profitability. We grew 6% as we found opportunities to grow in credit surety lines as well as the agriculture business. In liability, we continue to be cautious, but this quarter benefited from a higher level of positive premium adjustments versus the prior year. The reinsurance combined ratio was 92.2% with an ex-cat accident year loss ratio of 67.9%. Cats were just 0.3 point with just over 1 point of benefit from the reserve releases. As we have done all year, we are taking a cautious stance to booking our reinsurance loss ratio while continuing to deliver consistent profitability. We had a very good quarter for investment income at $185 million. Our outlook for investment income remains favorable as we continue to generate excellent operating cash flow, which was $674 million in the quarter, and is driving growth in our asset base with a market yield of 4.8% is above our 4.6% book yield as of September 30. Our effective tax rate of 18.9% in the quarter reflects the geographic mix of our profits as we continue to generate outstanding results in our U.S. operations. We remain in a very strong capital position. We have returned substantial capital to our shareholders this year as we have completed $600 million of share repurchases and declared $105 million in common dividends. And we recently passed a new repurchase authorization for $400 million. I would reiterate that our priority use for capital is to fund profitable growth and to invest in the business. Our excellent financial results continue to demonstrate the hard work and commitment of our team to make us the leading specialty insurer in the world. We're tremendously excited for the future. And with that, operator, we'd be happy to take questions. Operator: [Operator Instructions] And our first question today will come from Andrew Kligerman with TD Cowen. Andrew Kligerman: I guess the first question would be around the really nice growth in property. And Vince and Pete, you gave really good color on how it broke down, notably North American E&S up 12.5% and then overall, up 8%. But I was kind of interested, Pete, you mentioned it's hitting your long-term targeted returns. So if I look at the loss ratio, and I don't know how you would kind of put in a cat load, but we all know pricing is coming down. So how does the combined ratio or loss ratio, whichever way you want to look at it, line up with where you're coming in presently? Because I'm kind of curious as to how that's going to trend as you grow the business. And it sounds like it's a great opportunity and lower middle market, I'm hearing really good things. Vincent Tizzio: Yes. Andrew, this is Vince. I'll start, and then Pete will come over the top. Please allow me as well to express on behalf of AXIS to all those in the path of Hurricane Melissa, our best wishes and speedy recovery as we are watching that, obviously, with good care. But direct to your question, we had 8-odd percent growth in our property line in the quarter. As you indicate, Pete and I detailed, it's important to play some context around this growth. First, we're letting that this growth in our judgment comes from an extremely solid starting point of premium adequacy. Second, a well-constructed portfolio with respect to limit/peril mix. Importantly, in our insurance business, 40-odd percent of our property business is noncritical cat, and our lower middle market growth was exceptional in the quarter. All of these have a different gearing effect against what you point to on the rate change, which in and of itself really doesn't address the start point of our premium adequacy. As you know, we've been working very hard over the past several years at reducing the cat profile of our company generally and within insurance, I think that we've shown that ability. And so taken together, that is exactly how we're able to produce the kind of results that we are. I'll finally note that, recall please that we go to market in property through 8 different entities around the world, and we're attracting different customer segmentations, industry groupings and obviously, geographic dispersion. And so we feel great confidence in the integrated approach that we're taking with our actuarial team, our claims team and certainly our underwriting leadership principally led with Mike and Sara in our insurance business where this growth is occurring. Pete, I don't know if you want to add to that. Peter Vogt: Yes. Very much appreciate the color on property. And I think that gets to your question there, Andrew. I think also inherent in your question is as you're looking at the insurance loss ratio of 52.3% and how is that kind of staying nice and consistent given what is some pricing pressure out there. I think what I would note is Vince has said this many times, we necessarily can't control the market, but we can control mix. Underlying that, I would say we've seen our underwriting loss ratios by our lines of business and business classes actually. We've actually shown the effect of rate and trend there where we've seen some increase in the underlying loss ratios, but that has actually been offset by mix. And if I look year-to-date, especially year-over-year, we've got a higher proportion of the short-tail lines of business, which tend to have a smaller -- a lower loss ratio. So underlying, we are reflecting rate and trend in what we're seeing in the markets in our underlying classes of business and the loss ratio. But the mix of business has changed such that, that's kind of offsetting the pressure we've seen. And that has allowed the loss ratio in the ex-cat loss ratio in insurance to stay very consistent. Andrew Kligerman: Great. And then maybe shifting over to third-party capital -- AXIS Capacity Solutions. That first deal with Ryan seem very exciting, very promising. Could you talk a little bit about the potential for more deals like that? Are you looking at a lot of them? Is there a pipeline out there that you're seeing? Vincent Tizzio: Yes. Andrew, I'll start. This is Vince again. Thank you for your question. AXIS Capacity Solutions we formed earlier this year, really in recognition of an emerging trend that we've observed in wholesale distribution relating to cross-class, cross-geographic opportunities. And in the case of Ryan Specialty and specifically RAC Re, this was an illustrated example where AXIS participated on about 1/3 of the MGUs within the Ryan Specialty organization. We had the opportunity to curate and participate on the select remaining MGUs that come to market from that very strong partner of ours. We agreed to do so with some careful deliberation around the portfolio makeup, the underwriting terms and conditions. At the same time, we assisted in the facilitation of a sidecar with the strength and belief on the prior comments we've made in any instance relating to delegated to work as hard as we can to align economic interest. We believe that the sidecar was a perfect example wherein AXIS receives a fee from the sidecar and the profitability trigger for Ryan Specialty is only satisfied after the profitability of the underlying business is met. And so we thought this was an appropriate transaction for us to lean into an existing channel of distribution that we have, a recognition of the underlying portfolio, an alignment of economic interest and ability to have our hand in the claims control of the underlying business and to ensure that we have transparency in the information. As it relates to the second part of your question, this transaction has no doubt spawned increasing interest from a variety of partners around the world. And yes, there is a pipeline. And critically important to Pete and myself is that we maintain the underwriting adherence from the lessons we learned in our own reserve charge relating to the delegated book that we had back in December of '23. We are leaning into the principles that we've previously outlined for when we engage in delegated underwriting authority and most importantly, we have satisfied ourselves on the alignment of interest, which is critically important to us. Operator: The next question will come from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I wanted to go back -- go to, I guess, the insurance growth comments. Pete, I think you said mid- to high single-digit growth, like excluding sidecars like RAC Re. I believe RAC Re could add like $150 million on a net basis. So does that mean if we kind of lump that in there that next year could get to double digits? I'm just trying to bring all the guidance together for the insurance segment. Peter Vogt: Yes, Elyse, thanks for the question. And I specifically bifurcated the 2 because of exactly that. So I do think with the agreement we've got with Ryan Specialty, whatever comes in for RAC Re could actually put us into double digits for next year. Obviously, that's going to be dependent upon the underwriting platforms underneath and what they see in the markets, as I mentioned. But with RAC Re, with given what we've already got going on in our own core book with the expanded and new initiatives, we could be into double digits next year. Elyse Greenspan: And then my second question is on the G&A ratio, right? So the fees right on the RAC Re are contra right to G&A. And I believe, right, that wasn't contemplated when you guys told us sub 11 next year. So could you help us, I guess, kind of think through like the tailwind relative to the G&A guidance? I know it takes time for that to earn in, but I still think that there would be some tailwind expected in '26, right? Peter Vogt: That's -- I think the real important thing that you've got there, Elyse, is the comment where it's going to take some time to earn in. The deal with RAC Re is actually done through our Lloyd's Syndicate. So the announcement was basically on an underwriting year basis. So when we think about that from, I'll call it, SEC GAAP gross written premium, we would expect to see the written premium actually come in over a 3-year period. So that will be coming in '26 to '28. Given its underlying coverholders, you got to think about the underlying as a risk attaching basis. So the earned premium is actually going to be pretty much over a 4-year period, you're thinking '26 to '29. And so it will ramp up slowly. So as we think about calendar year '26, the impact from the fees are going to be pretty de minimis in that very first year because the ceded earned will take that same time to ramp up. Elyse Greenspan: And then one last one, capital. Is the Q3 buyback a good run rate level? And any current color you can give us on your excess capital position today? Peter Vogt: Yes. I'll ask Vince to chime in on that. But we did buy back $110 million in the third quarter. Again, our philosophy is we are going to look at growing the business first. We do want to see organic growth, and we're going to invest in our platform. As Vince talked about, we've been doing a lot on the technology side with regard to improving ourselves as we go to market with our distribution partners and clients. Having said that, I would not look at $110 million in a quarter as any kind of run rate. As we said, we're going to be opportunistic on our buybacks. We're not going to be held to any specific number quarter-to-quarter. We have a new $400 million authorization, and we'll look to use that as we go forward based upon how we look at the business, where we see the growth coming from as well as where we think we're trading on any given quarter. And with that, I'll ask Vince to chime in on that. Vincent Tizzio: Sure. The only thing I would come on over the top with Pete is, Elyse, you know that we'll continuously evaluate our capital position assuring ourselves that it's aligning shareholder interest with balancing the prudent risk management approach that we've taken. You know the chief source of using our capital will be inside the operating model. We expressly indicated an acceleration of expenditure in our technology and data analytic infrastructure. The continued hiring of persons in the quarter, discrete. We hired over 140-odd persons into the organization. And so we continue to invest. We're very pleased with the assimilation of our new colleagues that are supporting the growth that you're evidencing from us. So we'll maintain our course. We're not going to sort of guide on the order of magnitude of buybacks. We will use them opportunistically, as Pete has said. We've shown that through this calendar year over $600 million or approximately $600 million just in this operating year. So I'll leave it there. Operator: The next question will come from Josh Shanker with Bank of America. Joshua Shanker: I want to talk a little bit about paid to incurred ratios. Obviously, they remain persistently high. You have a lot of growth ambitions in what some people are calling a soft market. Generally, you're already growing faster than the industry, which usually depresses paid to incurred. Can we talk about where paid to incurred is right now, but also with an eye on what to expect? If you are growing as fast as you seem that you might be able to, that should be depressing paid to incurred ratio? And is that what we should expect going forward? Vincent Tizzio: Josh, this is Vince. I'll start out. Thank you for your question. We commented last quarter, the first instance that you saw a paid to incurred in an elevated state that we look at this [ indice ] really over a continuum of time. And I thought it really appropriate this quarter to unpack sort of our point of view and our learnings of what this ratio really means. We think, frankly, it is only one of many points that you look toward in terms of confidence in the health of the portfolio, the health of our reserves. And we think there's a few underlying factors that you'll continue to see evidence in the AXIS journey. Josh, when we indicate going on a transformation, we talk about the mix shifts in our underlying portfolio, long tail versus short tail. You're seeing AXIS with more than 50% in short tail. You see large losses from time to time arise inside a specialty organization, though decreasing in the last few years here at AXIS from time to time will evidence some of them. Third, you see timing differences between when we're paying some of these large losses and when they were originally a case reserved. And finally and perhaps most critically, from my learned point of view, whenever you undertake transformation and you make changes in your claims organization, including not only numbers of persons, the skills of those persons, the creation of newer capabilities in the form of complex claims organizations, shared service organizations, you invariably will get some form of acceleration. And so taken together, I would tell you expressly on behalf of AXIS that we're very comfortable with what we're observing. We would not be surprised to see if there are additional quarters reported where paid to incurred seems elevated. And overlaid with some of the statistics that Pete shared with you that we look at equally and importantly, with a critical eye, we feel very comfortable. Nonetheless, we appreciate the interest in the question. And you also referred to this notion of growth. Again, we're happy to unpack where the growth is coming from, what the line of business distinction is in terms of short tail versus long tail, what size customer it is and what kind of profit profile we believe it holds out. With that, I'll ask Pete if you'd like to come over the top with any additional comments. Peter Vogt: Yes. I think I would, josh, a couple of things just to point out. One, I appreciate the question. Getting to the heart of some of the question, we do want to say we're very comfortable in the strength of our insurance reserves. And we do review a multitude of metrics each and every quarter to give us confidence in those reserves. So it's not only paid to incurred, but we were looking at, as I mentioned, IBNR to total reserves, paid to ultimate factors, incurred to ultimate factors. And we look at these all by line of business as well as by duration. And then looking specific to this quarter, when we look at the paid to incurred ratio, a couple of things we're seeing is, one, we are having significant improvement in our claims organization in North America because as we've talked about through How We Work, it's all across the company. And in our claims organization and insurance in North America, we've actually seen an improvement where our closing ratios, that's paid to new claims has actually improved from 98% last year to 118% this year. So we're getting after more of the claims. We've seen some of the courts open up. We closed some claims, most importantly, those paid claims we paid in the quarter and some were material, especially in the FI book, and these are all pre-2019 claims. They were fully reserved for. So there's been no surprises on the reserve front that we've seen. So overall, we feel really good about where our claims organization is improving and evolving to, and we feel very good about the level of the reserves on our balance sheet. Operator: The next question will come from Matt Carletti with Citizens. Matthew Carletti: I just had a small cleanup question on the reserves. Pete, you talked about the -- it wasn't a huge number, but I think the $19 million of favorable in the quarter, $15 million in insurance, $4 in reinsurance. Can you just talk a little bit about where that came from? This was a more short tail, long tail? And were there any bigger moving pieces behind the scenes? Or was it just pretty kind of nothing to see here and just a [ broad small ] favorable? Peter Vogt: Yes. Thanks for the question. All coming from the short-tail lines. When we look at insurance, it actually came from property, credit and surety as well as A&H. On the reinsurance side, came from agriculture. 2024 continues to perform really well. So all from the short-tail lines. And in the background, always a little bit of movement when you look across the accident years looking back, but nothing material or notable. And so still feel very good about the reserves in totality as well as across the accident years. Operator: The next question will come from Charlie Lederer with BMO Capital Markets. Charles Lederer: Pete, you mentioned the favorable impact of mix on the underlying loss ratio in insurance. I guess just based on the accelerating breadth of growth in that segment that we saw in the quarter, how do you see that written growth impacting the ex-cat loss ratio as those premiums earn in? Peter Vogt: Yes, it's a great question, Charlie. As we look forward to next year, obviously, it's going to be very dependent upon what we see in the markets and where rate trend goes from here as well as right now, we have a really good property in the quarter, but we've also seen really good growth in our long-tail lines. So -- as I look forward to next year, I wouldn't necessarily want to give a number for next year, but we feel really good about where we are in insurance. But as the mix changes, that will impact the loss ratio next year. Again, overall, we look at the combined ratio, some of our longer-tail lines have really good acquisition costs associated with them. So we're feeling really good about the overall insurance segment as we go into next year. Charles Lederer: And then just on the G&A expense ratio. I know you mentioned you're still very confident in getting below 11%. I guess last year, you had a large catch-up in 4Q. Thanks to some really strong ROEs. I guess, should we be thinking about the same kind of dynamic this year, just given it's been a light cat year? Peter Vogt: Yes, Charlie, this is Pete. I appreciate the question. As we sit here through 9 months, we've done really, really well for our shareholders and got to complement the AXIS team for all the work they've been doing, not only with light cats, but as we think on an ex-cat basis, still able to grow the underwriting income and a really good ROE as we look at the ROE year-to-date at about 18.2%. So as we think about the end of the year, given we still think really good, and we're very confident about the fourth quarter, my expectation is we could [ be some ] reward for our teams as we go into the fourth quarter. So you may be looking at like what we did last year as consistent with what we might be doing this year. But really, really appreciative of the team overall for all the great work they've put in to create the results we've got this year so far. Operator: The next question will come from Jing Li with KBW. Jing Li: My first question is on Markel's renewal rights. I'm guessing that it plays a role in the solid professional line growth. Like can you provide an update on how is the profitability of the acquired book comparing to your underwriting expectations? Vincent Tizzio: This is Vince Tizzio. We had about $6-odd million from the Markel renewal rights transaction in the quarter discrete. We're pleased with the underwriting of that business. It's AXIS-led and it is meeting our expectations in terms of limit, remit, scope of terms and conditions. And thus far, we're pleased with the sort of the trade of what we expected through the renewal rights to accept versus that which we've non-renewed. And finally, we're very pleased and appreciative of our distribution partners for the support that they've lent in this transition from Markel to AXIS. Jing Li: Got it. Just a follow-up on that. So what's kind of the renewal retention rate in there? And how does the pricing on those renewals compared to the back book? Vincent Tizzio: I have data on the latter part of the questions. On the former, I have to search and see if I have the exact retention because, again, this is a renewal rights transaction. It wasn't part of our renewal base in the prior period. In terms of the acquisition or the hit ratio of what is coming over for potential retention, it's probably around half of what -- of the total, which would be in keeping with our expectation. We wouldn't expect reasonably to accept every renewal that's coming over. In terms of pricing, it is aligned with our expectations within the broader FI portfolio, which is a very strong portfolio for AXIS, well managed and historical for us. We've been in the business a long time. Operator: The next question will come from Andrew Andersen with Jefferies. Andrew Andersen: Just looking at the A&H growth within insurance, it's been doing really well for a couple of years now. Could you maybe just help us think about kind of how you're achieving that level of growth, whether it's kind of pricing, distribution, product breadth and maybe why that's a little bit different from the growth levels within reinsurance? Vincent Tizzio: This is Vince. I apologize, Pete. Within insurance, we're very pleased with our A&H business. It is predominantly driven by our pet business, which is a partnership business with Fetch. That was the predominant driver of growth in the quarter and will be for the year. Additionally, we've spoken in prior quarters about measures we were taking to support our other companion divisions within A&H, notably out of London market and Lloyd's. We have a very strong group there that is performing well, continuing to grow double digits, performing profitably. Further, we've reshaped our AXIS group benefits business over the last several years. It's been repositioned. It's in the phase of really executing its new underwriting strategy. There, again, it demonstrated growth. But off of the total basis, it's really driven by pet. The outlook for pet for us remains favorable, though Pete would describe because of what he detailed in the first or second quarter, I can't quite recall the reinsurance change. That level of GWP growth will dissipate, but the net will continue to be strong for AXIS. And certainly, most importantly, we like the profit outlook of that business. Peter Vogt: Andrew, this is Pete. Just to add a little bit of color. About a year ago, I think -- I know we mentioned that in our agreement with Fetch, we became the sole provider of the program. And that really helped because we were only 50% provider beforehand. So that has helped the pet growth this year really drive A&H through the first 9 months. We started being the sole provider and we got to the fourth quarter of '24. So when we go to the fourth quarter of '25, that growth rate is going to normalize a bit. And I would expect -- A&H, while it was up 35% in the third quarter, I would expect it to be more up just into the double digits when we get to the fourth quarter where that will actually normalize. If you like to look at the growth rate overall, you remember, I mentioned net written premium was actually negative in the first quarter. That's what was causing some anomalies, and that was because while we took over all the gross, we were ceding 50% of that pet business to the other partner that Fetch had. So all of that will normalize in the fourth quarter. So the gross growth will actually slow down. But if you're looking at like the net earned premium that you can see in the Q, that's been kind of normalized all year, and that's probably a better metric to look at. Andrew Andersen: And then just on the technology spend. I think you talked about the $100 million that you laid out at the Investor Day. Could you kind of level set where we are relative to that $100 million? And could we be seeing some benefit to the expense ratio in the next couple of years? Is that spend levels off? Vincent Tizzio: Yes. We noted expressly that we've accelerated the expenditure. That number certainly in the period that we talked about will probably approximate $150-odd million over the 3 years. In terms of its efficiency, no doubt. You should see efficiency gains on the expense ratio. In the quarter, discrete, just looking at North America, we're pleased with the early insights that shows improving quotes that are up about 27% year-over-year discrete 3Q '25 versus '24. Buyings are up about 19%. And so in the businesses that have had the effectuation of our technology enhancements, we are seeing individual productivity gains. We think that's going to continue to get stronger. The partnership between our How We Work organization led by Ann Haugh and Michael McKenna, who leads North America, will only get better over time. We're seeing a number of proof points, whether it be between the operations relationship with underwriting, the insights from actuarial being made more quickly into the underwriting. These are all going to show increasing propensity of buying and efficiency in how we go to market. So we're pretty optimistic. Operator: The next question will come from Brian Meredith with UBS. Brian Meredith: A couple here for Pete. First one, Pete, will AXIS qualify or will there be a benefit from the substance-based tax credits that Bermuda announced, I believe, in September? Peter Vogt: Yes. Brian, this is Pete. We're keeping our eye on that. Right now, it's always a bit early to tell. I'm going to mention that on the quantum, but we should be getting some benefit. But I mean, the consultation paper is out. We've submitted comments back to the government. We worked with the industry to do that. We should get some substance-based tax credits to see what they are. It's going to depend upon what the final legislation is. We should expect to see that mid-December or so. So we'll obviously have more to say about that on our fourth quarter call. If you recall or if you've looked at it, there's kind of a transition timing on that, too. So it may be some benefit in '25. It will go into '26. But we should get some associated with that. Obviously, our footprint on the island is not as big as others. And so our benefit -- it will be beneficial to us, but hard to say where the quantum is today. Brian Meredith: Great. And I'm assuming that's a benefit to your G&A expense ratio. Peter Vogt: Yes, that would actually flow through G&A because that actually would show up as tax credits against the payroll. So it definitely would go through G&A on the substance basis, yes. Brian Meredith: Great. Second question, and just -- I don't want to bring this up again, but the paid to incurred loss ratios. Pete, you mentioned some large claim payments, right, that kind of skewed it maybe the last quarter or 2 in the insurance segment. Is there any way to kind of ballpark what those were and maybe it gives us a better kind of a run rate paid to incurred ratio when we strip out those large claims activity? Peter Vogt: Yes. One, I would say, a lot of them were central to our FI book really, and they're actually coming from 2019 and prior. When we look at how big they were, there were a couple that were in there on a gross basis, Brian, in excess of $20 million. So when we look at it in total, just that line of business, the top 3 claims had in excess of $50 million worth of pay in the quarter. So that actually skews it a bit. And then last year -- actually, interestingly, Q3 last year, it just happened that in the quarter, we got about $20 million of recoveries from our reinsurers in the quarter, which depressed the number last year in the quarter. But overall, I think what's really important as we think about the paid to incurred especially, a lot of improvements in our claims organization. Megan Watt and her team are really embracing how we work and putting better processes into place. So in North America insurance, where we're seeing actually the close to new claims being at 118%, that's really quite good, especially since we're closing these claims within any reserves we had already been putting up. Brian Meredith: Got you. And then I guess last one, too, maybe this is more for Vince, the RAC Re deal. Maybe give us a little bit of color on kind of what do you think the margin profile of that business is going to look like and the kind of makeup of kind of the business you're expecting to receive since it's [ Lloyd's of London pipe ] business. Vincent Tizzio: Well, the mix of line is in keeping with our broader portfolio. Property will be a meaningful participation. And then there's some niche specialty lines within construction and professional and marine, where we have strong confidence in the underlying margin of the business and now what is going to be through these MGUs. So I would say it's in keeping with our overall profit profile of insurance that we've spoken about in the historical past. I don't see anything untoward affecting that. Operator: The next question will come from Robert Cox with Goldman Sachs. Jack Kendall: This is Jack on for Rob here. I was wondering, when you talked about the mid-single-digit to high single-digit growth in '26, can you just give us like any type of color on what lines you're expecting that growth to come from in '26? Or kind of how you're building up to that overall growth rate? Vincent Tizzio: I think what we'll say in this regard is, one, we're not going to lay out our playbook of exactly where the lines are coming from. But suffice to say, we have great confidence in the continued growth trajectory of our new and expanded initiatives in the quarter, discretely, they contributed meaningfully against the $165 million of our overall insurance growth. You know from our prior disclosures, we are a market leader in marine and energy segments of professionals, certainly within the wholesale, excess casualty, marketplace, the property marketplace and increasingly in the lower middle market. And so taken together, alongside our niche, highly defined delegated relationships in surety and in pet, we think that there's ample growth within these lines to reveal itself in '26. Jack Kendall: Got it. And when I look on an external basis, it looks like on a net premiums earned property and some of maybe the lower loss ratio lines, credit, property, cyber were a little bit less of a grower in mix for the quarter relative to the first 2 quarters. I'm just trying to work through the business mix impacts on a net premiums earned basis that's supporting kind of the underlying margins. Is there anything you can think of on like a sub-class basis or a better way to look at that from an external perspective? Peter Vogt: Yes, this is Pete. So I would tell you that if we look -- to your point, if we look year-to-date, the short-tail lines are up 60% -- or at 60% versus 57% last year. But in the quarter, it was 59% versus 58%. So very close, but down a little bit as we think about it on an earned basis. But the other thing that's also going on is we are seeing some adjustments within SEC classes, for example, in the political and credit risk, where we're writing more surety business, which has a lower loss ratio. So it's going to be hard to see overall. But as that mix ebbs and if we do write, as you note, more long-tail business, that might have a higher loss ratio. Again, I'd point to the combined ratio we'll look at because some of those lines have lower acquisition costs associated with them, and we feel good about the combined ratio going into next year. And that's kind of what I -- why I pointed that out. Operator: The last question of the day is a follow-up from Charlie Lederer with BMO Capital Markets. Charles Lederer: Just a quick one. I think this is the first quarter with the new LPT fully in place for the whole quarter. I think you guys were expecting some deferred gain amortization to come from that deal over time, I know smaller dollars, but was there any of that in the quarter? And I guess, should we expect that to be a small benefit next year? Peter Vogt: Charlie, this is Pete. Yes, there was a deferred gain in the quarter. It actually runs through other income. My recollection is that number was about $1.6 million in the quarter. That will adjust over time as we get further out in the duration. But yes, that will actually come through in 2026. I don't have the exact number for 2026 in front of me, but it is a very small number that will come through next year also through that line. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Vince Tizzio, CEO, for any closing remarks. Please go ahead, sir. Vincent Tizzio: Thank you for joining today's call. We continue to be encouraged by the sustained positive momentum in our performance and have confidence in our future. I want to extend my deep appreciation to all of our AXIS teammates worldwide for their outstanding work that they deliver day in and day out. This concludes our third quarter call. We look forward to updating you on our continued progress in the quarters ahead. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Escalade Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting and Investor Relations. Please go ahead. Wes Smith: Thank you, operator. On behalf of the entire team at Escalade, I'd like to welcome you to our Third Quarter 2025 Results Conference Call. Leading the call with me today is Interim President and CEO, Patrick Griffin; and Stephen Wawrin, our Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the lines for questions. With that, I would like to turn the call over to Patrick. Patrick Griffin: Thank you, Wes, and welcome to everyone joining us on today's call. Before I discuss our third quarter results, I'd like to address the leadership transition that we announced this morning. Effective October 29, I was appointed Interim President and CEO by the Board and replaced Armin Boehm, who departed the company on that same date. On behalf of the company, I want to thank Armin for his contributions over the last several months. We wish him the best in his future endeavors. I want to assure our investors, employees and customers that this transition does not reflect any disruption to our strategic direction or our operations. The Board and leadership team remain fully aligned and committed to executing our long-term vision, and we remain focused on delivering exceptional consumer experiences, building enduring brand loyalty and maintaining operational excellence. These principles have defined who we have been for more than 5 decades as a public company and they continue to guide us today. As many of you know, I've had the privilege of working at Escalade for the past 23 years and have served as a member of the Board of Directors since 2009. As a result, I will work to ensure that this leadership transition will be as seamless as possible for all the stakeholders. Finally, the Board and executive leadership team are confident in our path forward, and we remain sharply focused on creating value for our shareholders. Turning now to our third quarter results. We experienced improved results driven by solid demand across most of our portfolio of leading brands as well as cost discipline and operational efficiency. We achieved these results despite heightened consumer uncertainty and ongoing tariff-related costs. Net sales [Audio Gap] of net sales. Margin improvement was driven by lower manufacturing and logistics costs, benefits from our ongoing footprint rationalization and tariff mitigation initiatives. Importantly, we believe our third quarter margins represent a sustainable level of performance absent any unforeseen cost or tariff pressures. Top line growth was led by [Audio Gap] continued investment in innovative high-quality products positions us well in an environment where consumers are increasingly focused on both value and quality. These efforts have enabled us to gain market share in this dynamic market environment. As discussed on our prior calls, we have executed a proactive tariff mitigation and supply chain readiness strategy. This playbook not only supported margin expansion this quarter, but has also positioned us well for the holiday shopping season as we strategically manage our inventory levels and assortment. Beginning in July, we implemented a series of targeted price increases across our portfolio. Our approach was surgical, grounded in careful analysis of price elasticity and market dynamics. These price increases reflect a balanced approach to share the impact of tariffs across the supply chain while preserving competitiveness and protecting margins. Our teams continue to closely monitor trade policy developments and will recalibrate as needed. Looking ahead to the fourth quarter, we anticipate consumer spending to remain cautious, consistent with broader retail trends, which are likely to result in softer holiday sales compared to recent years. Notably, we have observed a shift in consumer spending patterns across our portfolio with strong demand for premium products, while demand for lower-priced products is softening. Persistent economic and geopolitical volatility has weighed on consumer confidence and sentiment, particularly with middle and lower-income consumers. With price sensitivity elevated, many of these consumers are delaying higher ticket purchases, trading down or waiting for promotional opportunities. In response, we are collaborating closely with our retail partners to drive value-oriented marketing and promotional strategies for certain segments of the market, highlighting products that resonate most with consumers and aligning pricing and inventory with demand trends. Our proactive supply chain management over the past 6 months ensured that we are well prepared for the holiday season. We are ahead of schedule from an inventory delivery perspective and are fully prepared to capitalize on the entire holiday shopping season. While navigating through near-term headwinds, we remain firmly focused on our long-term strategy of investing in product innovation and brand development to strengthen our market leadership and to enhance the consumer experience. Through our investments, we are positioning Escalade for above-market growth and long-term value creation, anchored by leading brands defined by quality, innovation and durability. We are focused on strengthening our brands through strategic partnerships. Recent collaborations in archery, basketball and billiards are helping elevate visibility and consumer engagement. We've seen this model succeed with our Pickleball and Cornhole brands, and we expect similar results as we expand this strategy across our brand portfolio. During the quarter, we launched our 2026 archery assortment, which included over 30 products across our Bear, Trophy Ridge and Cajun brands. Early response from consumers to these new products and cutting-edge innovations has been good. These new products include the Redeem and Alaskan Pro archery bows, offer advanced technology and performance at unparalleled price points. Within Trophy Ridge, our refreshed accessory lineup includes the #1 selling Whisker Biscuit arrow rest, continues to reinforce our market leadership in the archery category. During the third quarter, we also completed the acquisition of Gold Tip from Revelyst. This acquisition aligns closely with our long-term strategic and financial criteria and will allow us to achieve greater scale and unlock additional synergies. Gold Tip's 20-year heritage in carbon arrows, along with Bee Stinger's premium stabilizers, enhances our category leadership and broadens our product offering to archery and bowhunting customers. We are actively integrating this business into our operations and expect this acquisition will be accretive to earnings in 2026. Looking ahead, we will continue to pursue additional tuck-in acquisitions that are both financially accretive and strategically aligned. At the same time, we will maintain a disciplined focus on balance sheet strength by prioritizing debt reduction, consistent dividends and opportunistic share repurchases to support shareholder value creation. We also continue to emphasize community engagement as an organization and with our team members. We are particularly passionate about supporting initiatives that foster positive change, bring people together and encourage healthy active lifestyles. As the latest example, we partnered with Project Blackboard and the Chicago Sky WNBA team to completely transform the basketball court at the Anna R. Langford Community Academy in Chicago. We look forward to continuing our community outreach efforts. In summary, I am proud of our team's continued discipline, execution and strategic progress in the third quarter. While the consumer environment remains challenging, we are well positioned to navigate near-term uncertainty and deliver long-term value for our customers and shareholders. With that, I'll turn the call over to Stephen for a review of our third quarter financial results. Stephen Wawrin: Thank you, Patrick. For the 3 months ended September 30, 2025, Escalade reported net income of $5.6 million or $0.40 per diluted share on net sales of $67.8 million. For the third quarter, the company reported gross margins of 28.1% compared to 24.8% in the prior year period. The 344 basis point increase in gross margin was primarily the result of lower operational costs driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs, partially offset by $4.3 million in tariff-related costs. Selling, general and administrative expenses during the third quarter decreased by 4.1% or $0.5 million compared to the prior year period to $11.2 million. Earnings before interest, taxes, depreciation and amortization decreased by $1.3 million to $8.6 million in the third quarter of 2025 versus $9.9 million in the prior year period. This decline primarily reflects the absence of a onetime $3.9 million gain on the sale of assets recognized in the third quarter of last year. Total cash used from operations for the third quarter of 2025 was $1 million compared to cash provided by operations of $10.5 million in the prior year period. The year-over-year decline in operating cash flow primarily reflects increased working capital usage, driven by the timing of quarter end accounts receivable collections and our strategic inventory investments in preparation for the ramp-up to the holiday season. As of September 30, 2025, the company had total cash and equivalents of $3.5 million. At the end of the third quarter of 2025, net leverage was 0.7x. As of September 30, 2025, we had $20.2 million of total debt outstanding. With that, operator, we will open the call for questions. Operator: [Operator Instructions] We have the first question from the line of Rommel D. from Aegis Capital. Rommel Dionisio: I wonder if you could just provide a little more granularity on these really strong market gains you guys are obviously displaying here with such solid top line performance despite a somewhat sluggish overall environment. You talked about archery, some major new product launches there. I wonder if you could just maybe touch on a couple of the other categories where you're seeing market share gains despite taking the price increase in July. Patrick Griffin: Thank you, Rommel. We've had pretty good success in other categories. Just an example, our safety category. We're taking market share there. We're a domestic manufacturer, and we've taken new opportunities against competitors that we're bringing in products. So we continue to see opportunities there. And then some of our other categories, and our games have done well as well. So we're, I think, poised for success with new products are going to continue to come out looking into the first quarter as well in the fourth quarter. Rommel Dionisio: Okay. Great. And maybe just a follow-up on that. You highlight some of the stronger categories, archery, table takes, billiards, and safety. I just happen to know pickleball wasn't in that list despite the growth in that market. Can you just maybe talk about that? Was just maybe an off quarter or timing of new product launches. I wonder if you could just touch base on that category in particular. Patrick Griffin: Yes. No, Rommel, thanks. Pickleball, we've been in pickleball a long time. It's a growing overall market, and you read about it in the news. And so when they're building courts, they're converting courts, and it's also a competitive category. So we're continuing to maintain the market share that we have at retail if you go into a DICK'S and Academy, and we're continuing to invest with new products with the hype we just launched, and that was well received. So over the long term, we're going to maintain our position in pickleball and continue to invest there. We think long term, it's going to be a sport that's going to be around for a long time. It's fun. It's easy to learn, and it's enjoyable. Rommel Dionisio: Great. Maybe I could just do one last one on costs. In the first quarter, I think you highlighted $1.6 million impact from tariff and this quarter's $4.3 million. A lot of moving parts there. It seems to change on a weekly basis. But can you provide any insight on what the impact could be going into the fourth quarter? Is it roughly in that $4 million range? Or is it -- is that going to drop off from some of the recent negotiations delivering some benefits? Patrick Griffin: Yes. No, that's a great question. As you know, that's a dynamic situation right now as you read the news this morning with what's supposedly been negotiated with the meeting with Trump and GE. So we'll watch that and see how that impacts what we're purchasing, and that will maybe take some time to get implemented. But directionally, we're expecting the impact to be lower in the fourth quarter relative to the third quarter. Operator: [Operator Instructions] We have the next question from the line of David Cohen from Minerva. David Cohen: A couple of questions unrelated to one another. First of all, could you give us a little more color on the management transition, what the time line is for hiring a permanent CEO and what traits you're going to be looking for in the new CEO? Patrick Griffin: Yes. Thanks, David, for the question. So I think the main color is to refer to the press release that we announced and the Board will gather and look for the permanent CEO and the traits that they want to focus on. But I would say it's one where there's a focus on -- that's aligned with our culture as a company that has a growth mindset. And that is focused on the business. David Cohen: Okay. The second question just relates to the comment about capital allocation and the continued focus on debt paydown. The debt level at this point is the lowest it's been in a long time. We're getting to a point where there's not going to be much more debt to pay down, which is obviously a happy problem. In your mind, does that change the priority list as to what we're going to be spending free cash flow on over the next 12 months? Patrick Griffin: That's a great question. When we think about leverage, we feel like we're in a good spot, but we don't mind having cash on the balance sheet as well. So we may be in a position we're building a cash position. We continue to look for acquisitions. We've got a nice pipeline of acquisitions. We were pleased to get the Gold Tip acquisition done this past quarter. And we think that's going to be a significant addition to our archery portfolio, which will start to play out in 2026. We're continuing to pay a dividend, and we think that's important. And then we'll look for share buybacks opportunistically as well. So that's another lever that we have. And then finally, we're investing in our businesses as well in terms of domestic production here and warehousing and other things along with brand building and tooling and other things. So we're pushing all the levers from a capital allocation point of view. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks. Wes Smith: Thank you, operator. Once again, thank you for your interest in Escalade and joining our call. Should you have any questions, please feel free to contact us at ir@escaladeinc.com, and a member of our team will follow up with you. This concludes our call today. You may now disconnect. Operator: Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Kate. Welcome to Roblox's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Stephanie Notaney, you may now begin your conference. Stefanie Notaney: Thanks, Kate. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q3 2025 results. With me today is Roblox's Co-Founder and CEO, David Baszucki; and our Chief Financial Officer, Naveen Chopra. Our shareholder letter, SEC filings, supplemental slides and a replay of today's call can be found on our Investor Relations website. Our commentary today may include forward-looking statements, which are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these risks, uncertainties and assumptions are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update these statements, except as required by law. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics can be found in our shareholder letter and supplemental slides. With that, I'll turn it over to Dave. David Baszucki: Thank you, Stefanie. Good morning and thank you for joining us today. A year ago, at RDC, we shared the goal of capturing 10% of the global gaming content market. We'd like to report that we've made tremendous progress. We estimate now that 3.2% of global gaming bookings or revenue is going through Roblox, and that's up from 2.3% last year. Our platform and our creator ecosystem is healthier than it has ever been. Similarly to Q2, in Q3, we saw strength both across the platform with both existing and new experiences on the platform. The number of experiences that have more than 10 million daily active users on the platform at some point during Q3 2025 hit 7, and that includes a lot of experiences we're all familiar with as well as 5 that were created in the last 12 months. That's Grow a Garden, Steal a Brainrot, Brookhaven, 99 Nights in the Forest, Plants Vs Brainrots, Ink Game and Blox Fruits. We believe the success on our platform continues to be driven by raw platform capabilities and performance, continued improvements in Discovery, continued improvements in our virtual economy. And complementing that, the investments we've made in infrastructure, which supported multiple groundbreaking records over the last quarter, including a 45 million peak concurrency during the weekend in August. Let's get into the financial results. In Q3, our DAUs hit 151.5 million. That's up 70% year-on-year. This was growth really across all regions, including U.S. and Canada, 32% up year-on-year; APAC up 108% year-on-year. And importantly, we see continued evolution of our age demo with 13 and over DAUs growing 89% year-on-year. Right now, 2/3 of total DAUs are 13 and up. Hours had similar strength, hitting 39.6 billion hours of engagement in Q3. That's up 91% year-on-year. Strength across all regions, U.S., and Canada, up 47% year-on-year. APAC hours of engagement up 127% year-on-year. Commensurate growth with 13 and up 107% year-on-year, 68% of our total hours are 13 and up. Q3 revenue was $1.36 billion, up 48% year-on-year. Q3 bookings was $1.92 billion, up 70% year-on-year. Once again, strong growth across regions, U.S. and Canada, bookings up 50% year-on-year. APAC bookings up 110% year-on-year. Some highlights, Japan, 125%; India, 146%. Indonesia bookings up 804% year-on-year. Our monthly unique payers continues to be strong at 35.8 million, up 88% year-on-year. And in Q3 through DevEx, we hit $427.9 million of DevEx, up 85%, a new record. I want to highlight that DevEx, which is what our creators are earning on the platform, has grown 250% from the same period 2 years ago. We continue to have strong conviction for our long-term vision, and we'll continue to be more diligent about investing in this innovation to support long-term genre expansion and growth. We've talked about genre expansion a lot over the last year. I want to do a few highlights here. We have a lot of technology that showed at RDC this year that's rolling out, including server authority and custom matchmaking, which will make Roblox more resilient and powerful for competitive genres like shooters, sports and racing. We've already showcased avatar enhancement technology that is in the pipeline that we believe is going to really expand the look and feel of Roblox to higher fidelity and more lifelike avatars and continued focus in raw performance on the platform, including tech like Harmony and SLIM, which we believe is part of the future of high fidelity gaming. And the ability of our creators to make experiences that can run both on low-end 2-gig Android as well as really nice high-end gaming to -- PCs. On Discovery, we've continued really a commitment to transparency that we also believe is good for the company. And we shared the notion that we're sharing our Discovery signals with our creators, making those transparent in their analytics dashboard. And we've highlighted that we're using play-through rates, 7-day play days per user, 7-day intentional co-play days. So our creators can see exactly what we're using to make recommendations. We continue to see Discovery highlight new hits. For example, in Indonesia, Fish It! has become extremely popular, and we believe our Discovery system has helped promote that. I would also highlight our content ecosystem continues to be strong with what have now become perennial successes like Brookhaven, Adopt Me! and Blox Fruits, which all continue to draw strong engagement. And some of our hits from last year like RIVALS and Dress To Impress continue to launch active and successful updates. Really important at RDC, we announced an 8.5% increase to the DevEx rate. Creator earnings surpassed $1 billion in the first 9 months of 2025. Also in support of our creator ecosystem, we've launched our IP platform, which we believe really is the future way to allow IP holders and creators to connect without all of the complexity of handcrafted individual one-on-one contractors or contracts. And I want to highlight IP owners like Mattel and Kodansha have joined that platform. And we recently announced and launched Roblox Moments which we believe is an additional innovative discovery surface for our creators. Now in addition to all of this, I want to make a couple of highlights on some of the areas of tech we've been really working on before I hand over to Naveen. First, really safety, which has always been a top priority for us and foundational to everything we do at Roblox. Just yesterday, we announced a partnership with the AGA, the Attorney General Alliance on a child safety coalition. Stay tuned with this. We believe there's a wonderful opportunity to share and develop what we believe is going to be the industry standard in communication for social and mobile apps, including our commitment by the end of this year to use AI-based facial age estimation to estimate the age of everyone on our platform. And to use that to gate who uses communication technology and help route who can communicate with who, even in addition to what we already do, which is filtering of all text and no image sharing on Roblox. We believe as new technology rolls out, it allows us to harvest and use this technology for continued advancements in safety and civility. We've also released over 100 innovations this year in our safety and civility group, including an announcement that we're going to be adopting IARC, an International Age Rating Coalition rating over the next few quarters. And we've raised our minimum age for restricted content to really the global standard of 18 years old. I want to highlight, we do run stricter than typical industry policies on Roblox. We believe it's an essential strategic investment to how we run the company. And as we roll out facial age estimation, we really do believe this is going to add long-term value creation for shareholders, even if there are any short-term headwinds from that rollout. On the AI side, we are now up to running over 400 AI systems inside the company. These are core within safety, discovery, and creation, highlighting a few things that we've shipped so far. Our Cube 3D model, which we shipped earlier, is really going to come to life over the next 1 to 2 quarters as this goes live in multiplayer mode for everyone on the platform. We've also open sourced the Studio MCP server, which is making Roblox Studio the ability to integrate as both a client and a server in complex AI-based workflows. Behind the scenes, our safety model for PII continues to get better all the time. And we shipped RoGuard for our safety of our LLM text-gen tech in game. Stay tuned for a lot more generative AI. I want to highlight that in addition to AI for safety and discovery, there's been a lot of chat about how much training data various people have access to. Within Roblox every day, we are moving forward to capturing, which is literally over 30,000 years of human interaction data and doing this in a PII-compliant way. This is unique data, data we have no intent of ever getting outside of our walls or selling that can really be used as we start to roll out our future vision of allowing people to play both with others as well as with NPCs and supporting unlimited creation in Roblox, not just for our creators, but for everyone. And that can mean per object with clothing, per the world you're in, per game creation and ultimately, with friends in real-time well playing. Finally, 45 million concurrent users is a really big number. And we supported this really moving towards what we think is more and more an optimal mix of our own data centers, both core data centers, edge data centers and GPU installations on our own bare metal with bursting with our cloud partners. And we did this in really a wonderful way by bursting over weekends for several hour slots when we hit peak numbers. We're going to continue to go down this route. We're investing more and more in our own bare metal for scale. Core data centers give us load balancing and efficiency. Everyone in Brazil is happy because we added a new edge data center there to reduce latency. We're going to continue doing that. And we are more and more now building out our own native bare metal GPU capability, but coupling with our cloud partners. We're going to make sizable improvements here. The big improvements we've seen in cost to serve may be harder to realize for the next few quarters, but this is all consistent with our long-term focus. With all of this excitement about innovation, we, of course, we have a lot of initiatives we work on every day to enhance our platform. We focus on the details. And with that, we're going to hand it -- I'm going to hand it over to Naveen to complement my introduction. Naveen Chopra: Great. Thanks, Dave. Good morning, everybody. I'm going to try to keep my comments relatively brief so we can get to some questions. As Dave noted, the tremendous growth that we saw in the quarter was driven by this combination of big viral hits and underlying platform growth. And so with that in mind, I want to just share a few observations regarding overall platform health, if you will. Last quarter, I highlighted the engagement growth that we were seeing in experiences outside of our top 10. Well, this quarter, the growth in engagement for these experiences, again, outside of the top 10 accelerated even further from 47% in Q2 to 58% in Q3. That's the engagement. And then on the monetization side, spending in that cohort of experiences remained north of 40% -- excuse me, spending growth remained north of 40%. We also saw healthy growth in bookings per daily active user. That was true in every region other than APAC, which I call out because very importantly, in APAC, the trend really is a function of mix shift at the country level. Payers, as Dave highlighted, grew 88% year-on-year, which is a very healthy growth rate in and of itself. But notably, it's higher than the rate of user growth, which was 70%. And we believe that this dynamic is at least in part caused by changes that we've made in our economy. Remember, we launched regional pricing for marketplace items back in June. And we think that, that helped drive higher payer penetration in markets like Southeast Asia. We did see a decline in bookings per payer on a blended basis, but similar to my comments on bookings per DAU, it's important to understand that this was really driven by geographic mix shift. So platform evolution looks healthy, and that really increases our conviction in our long-term goals. But as Dave pointed out, also underscores the importance of continuing to invest to ensure that we can deliver healthy growth over a multiyear period of time. So what does that look like financially? Well, on the top line, we see momentum in the business to continue to deliver healthy double-digit bookings growth. We think that will be aided by the launch of a number of the key technologies Dave touched on that will roll out in late Q1 and early Q2 of 2026. Many of these technologies are designed to enable genre expansion on our platform. You saw some of those demoed at RDC. From a reported growth perspective in '26, we think the adoption of these technologies will be a factor, meaning how quickly developers adopt some of these new capabilities will influence the growth rate, particularly given the tough compares that we know we'll have coming out of 2025. We're also conscious of the fact that the new safety policies we're rolling out consistent with our commitment to being the gold standard for safety may cause some short-term friction to engagement and bookings. But ultimately, we think those are a magnifier of long-term growth. And then on the expense side of the equation, we are envisioning more investments in DevEx, in infrastructure and people to support our goals around safety and genre expansion. That's the reason you're not seeing year-over-year margin expansion in Q4 based on our guidance. And it's the reason that we expect margins to decline slightly in 2026, given the combined impact of a full year of higher DevEx rates, limited cost to serve improvements around infrastructure and safety and higher growth rates in our comp and ben expense lines. There'll also be incremental CapEx starting in Q4 2025, that's incorporated in the guidance that we shared. And I would tell you to expect similar levels of CapEx in 2026, which, of course, implies that CapEx intensity next year should be lower than 2025 and but still somewhat elevated relative to 2024. So I realize probably getting a little bit into the weeds there, but let me step back for a second. I think the key takeaways here are we are way ahead of our long-term growth plans. And in fact, the reality situation is that bookings have grown faster than our ability to deploy the appropriate growth investments. And that means you're going to see some slight margin compression as we catch up over the next few quarters. But I think those investments really should give everyone even more confidence in our ability to continue to deliver sustainable long-term growth. So hopefully, that's some helpful color both on what we're seeing and what we're expecting. And with that, I think we'll open the line for questions. Operator: [Operator Instructions] We'll first go to Matthew Cost at Morgan Stanley. Matthew Cost: Dave, I want to start on AI. I mean just when I look at your infrastructure plans, clearly, you're very excited about putting GPUs and more data center power behind what you're doing. Tie that back to what the user experience or the games on Roblox are going to look like in this world that you're building towards. When you think about what Cube is capable of, what will real-time content generation and what you're calling 4D content creation mean for Roblox experiences and for engagement over the next couple of years? And then I have one for Naveen as a follow-up. David Baszucki: Matthew, great question. And this is a fun one to answer. It also highlights the -- just enormous future technical innovation we have great looking in front of us. We have shared publicly at RDC and others really a vision of what the ultimate spec for Roblox should be. And that ultimate spec should be creator decides everything from fun, anime look and feel all the way up to photorealism, anywhere from one player to 100,000 people at a concert simultaneously. The ability to use AI to do real-time modification of that world, everything from a piece of clothing to really 100,000 people with a Dungeon Master modifying the whole environment in real time, a mix of true human players, NPC players altogether doing this with a very tight eye towards efficiency and cost because we're a freemium platform. Ultimately, doing this on everything from a 2-gig RAM Android device to a high-end gaming PC. So that is an amazingly complex spec. What you're going to see coming out soon with Cube 4D is real-time generation in experience in multiplayer, not just the static objects, but of complex objects, vehicles, weapons, other types of things that user can interact with in multiplayer. More of that to come, more AI supporting the stack everywhere, but we're marching as quickly as we can to that really big visionary spec. Some of the gameplay that we will see, we do not know what it is. We've seen that historically on Roblox more and more as we both cover new and existing genres in a predictable way, along with new types of games. I would highlight Dress To Impress was an example a year ago where the raw technology we were building to support more traditional gaming allowed the creation of a whole new genre. So stay tuned both for more coverage of existing genres at higher performance as well as as of now, unthought of types of gameplay. Operator: [Operator Instructions] We'll move next to Brian Pitz with BMO Capital Markets. Brian Pitz: Dave, you mentioned increasing the DevEx rate by 8.5% putting more economics into creators hands. However, at the same time, if you look at competing UGC platforms like Fortnite, they're also offering very attractive economics to try to win over creators to build a mere UGC platform. How do you think about the need to continue driving economics towards creators to help send off any competition from other platforms that either are currently in development or could be coming in the future? David Baszucki: Great question. I do want to highlight that generally at Roblox, we run the company by looking to the future and not looking over our shoulder. I would say in this situation, there's one additional component to what is the DevEx rate, and that is the ability of a new creator or an existing creator to make enormous economic returns. And so one needs to multiply the DevEx rate by the volume of users on the platform, by the breadth of the creative tools, by the velocity that new creators can make new experiences. And in the end, that's how I believe, and we believe creators analyze the situation, not simply by the DevEx rate. We do believe for every incremental percentage within, obviously, our fiduciary duty and our balancing of earnings and DevEx and all of our other costs, that for every incremental percent, we do believe there can be some effect on the creators in making Roblox a more appealing platform. It ends up at the highest level, making us think about our company where we want our COGS to be as lean and as efficient as possible, our personnel costs to be as lean and efficient as possible, our infra trust and safety costs to never compromise and at the same time, to be run as thoughtfully as possible. And this has been one of the benefits of building out our own infrastructure. And then finally, being very thoughtful on how much we move back to our creator community relative to our own cash flow. So I think it's much bigger than kind of this one-to-one comparison. And that's -- really long term, we want to move as much money in a prudent and thoughtful way while always being responsible for trust safety and our earnings to the creators. Operator: We'll move next to Eric Sheridan with Goldman Sachs. Eric Sheridan: Can you share with us key learnings as older age cohorts continue to scale as a percentage of the mix in the business? And based on those learnings, how can you line up your investment priorities to sustain that growth and stimulate that aspect of mix in the years ahead? David Baszucki: I'll share some key learnings, and then I'll share how we are lining things up. I think one of the key learnings is Roblox has a huge ability to virally attract new users to the platform with new hits. And we've seen that both with Dress To Impress. We've seen it with Grow a Garden, where we really get user acquisition at enormous scale organically as word-of-mouth traverses these properties. We've also seen with new types of gameplay, once again, use those 2 as examples, that older players are excited and interested in that. If anything, as we look at the global gaming market space, which is estimated anywhere -- I won't make the exact estimate, but numbers between $180 billion and $200 billion. We see all of the existing genres, and we've been able to align those genres with our technical road map. As we shared before, a lot of our technology, we believe, is going to support sports. A lot of our technology will support racing. Some of the new technology we're working on is going to make RPGs better. Some of the technology we're working on now, we believe we're going to see more and more avatars on Roblox that have a much bigger diversity just as we see in the gaming ecosystem as a whole relative to what we have on Roblox. And so we can use that to guide our technical road map. But I would highlight we're not copying. We are envisioning satisfying those technical constraints while at the same time, building a platform where the exact same experience can run a 2-gig RAM Android in a very difficult networking configuration and at the same time, look absolutely amazing on a high-end gaming PC, eliminating really kind of this void between mobile and desktop and console. We also believe the future of platforms like Roblox is much more cloud integrated such that AI and generative AI is always available in the experience for all creators. So we are able to align a bit both our own vision as well as what are all of the current genres in the gaming ecosystem and make sure we line up with that. So that's -- we're optimistic there's a lot of growth ahead of us in some of these genres where we're not fully at 3% of the global gaming market right now. Operator: We'll move next to Jason Bazinet with Citigroup. Jason Bazinet: I just had a question on the shareholder letter. I think in your '23 Investor Day, you laid out 20% plus bookings growth from '25 to '27. And in the shareholder letter, you acknowledge the great results you've had so far this year. But then you say, as we look to next year, our long-term objectives have not changed. Is that essentially a soft way of saying that you think that the growth will be below 20% in '26? Is that what you're trying to say? Because I think that's what the market is trying to digest with the premarket exit in your stock. Naveen Chopra: Jason, it's Naveen. Thanks for asking to clarify that. Look, I think we are not providing any specific guidance about 2026 at this point in time. I think that would be premature. We need to land the plane on '25, and then I think we'll be able to dial in expectations for 2026 more specifically. I think what we're trying to highlight for people is that there are some important things to consider as we look at expectations for bookings growth next year. There will be tailwinds from the momentum that we are seeing in the platform today. There will be tailwinds from a lot of the tech that's going to be hitting the platform in the first half of next year. But there could also be potential headwinds, obviously, from the tough comps and then potentially from some of the new safety policies that we are going to be rolling out. We don't think any of that changes where we expect this business to be over the next several years. But I think it is too early to put any specific numbers around '26 at this point in time. Operator: We'll move next to Cory Carpenter with JPMorgan. Cory Carpenter: Maybe building on that, you did not mention advertising as a potential tailwind next year. So just curious what your early learnings have been in rewarded video. How big a push or priority do you plan to make that in 2026? Naveen Chopra: Yes. So I think consistent with some of the comments we've shared recently around advertising, we remain very bullish about the long-term opportunities there, but we are cautious about the near term because we want to make sure that we get it right. And as you've heard at RDC, we are now rolling out rewarded video on sort of a limited basis. I think we pointed out in the shareholder letter, we now have over 140 creators onboarded. What we have learned from that is that we want to be very thoughtful and diligent with those creators about how we integrate rewarded video to make sure that it works for them from an engagement and a monetization perspective, that it works for our users in terms of the experience, performance, et cetera. And that obviously, we are representing our advertisers in a high-quality way. So there's still a lot for us to do on that front and therefore, not something that we would call out as a major contributor in the short term, but something that is going to be a key part of our business as we progress over the next few years. Operator: We'll move next to Ken Gawrelski with Wells Fargo. Kenneth Gawrelski: Could you talk a little bit about the various genres? And how do you think about the recommendation engine, which has been clearly very successful in kind of surfacing new hit games? Could you talk about how you're pushing more diversity of genres and to make sure that there's enough experiences out there? And is this a concern? Are you seeing -- are you worried at all a little bit about more concentration in certain types of genre games or in certain game mechanics? David Baszucki: Great question. And part of my intro was to highlight that diversity on the platform with 7 titles over 10 million DAUs at some point during the quarter and 5 of them new. One of the way we have been thinking about Discovery, there's 2 big areas of it. One is we're not trying to optimize the short term. We are trying to optimize the long-term enterprise value of the company. And we're also trying to optimize ecosystem health in addition to what we put in front of users, which really does mean surfacing new creators and new genres side by side. The second part on our Discovery, we're moving more and more towards complete transparency of our Discovery algorithm. We're sharing the signals that we believe point to long-term health of the ecosystem. And as you correctly noted, we believe part of that long-term health is through expansion in some genres like RPGs, shooting, racing, battle, sports, and other genres on the platform. The final thing I want to highlight on the way our Discovery system is working is long term, there's really 3 prongs to Discovery on Roblox. There's our own recommendation engine. It's coupled with on the homepage sponsored tiles, which is paid Discovery by our creators. And more and more new creators who are launching a new game or bursting are using that to complement our organic Discovery. Finally, our top hits and curated sort is an additional way that we complement that with the vision on the platform. We're being very careful not to look backwards, not to burn in what has historically been big on Roblox, but instead to look forward to what we believe will be new types of gaming on the platform. So I believe relative to a year or even 2 years ago, our Discovery system is working better than it ever has, and I think we have continued improvements coming. So stay tuned. Operator: We'll move next to Benjamin Black with Deutsche Bank. Benjamin Black: So just touching on the growing number of experiences that are eclipsing 10 million users. So with the growing data set that you have on user engagement, DAU behavior, does the Discovery model just get increasingly smarter at recommending content? So I guess the question is, are you starting to have a real data moat in Discovery? And then Naveen, over the past couple of quarters, we've seen a divergence in hours engaged growth and bookings growth. Could you just help us understand sort of why this is happening? Is it easy as sort of a mix shift towards low monetizing experiences or low monetizing regions? And if so, how should the relationships between those 2 evolve from here? David Baszucki: This is a really good question. I want to put it under the umbrella of, first, privacy safety, PII safety, adherence to all local laws and all of that. And the second, I want to put it under the umbrella -- but we're not under any financial pressure and have no intent to ever release any of this Roblox data anywhere off the platform. Once we look into those 2 things, though, the data set is enormous. The data set is not simply who clicks where. The data set is real-time 3D avatar interactions. It's what areas of a certain experience are retaining more. It's what are avatars doing in any creator's experience. It's the ability to analyze that and the ability to analyze the data that makes up a 3D experience. And in addition to maybe more traditional signals for Discovery, use 3D and time-based immersion signals to help predict what may be a good experience on our platform. That goes back to an interlock with what I shared, which is every day on Roblox, there's over 30,000 years of potential 3D interaction avatar training data available for us. So the answer is yes. We will mix more content understanding, understanding of what makes experiences interesting and fun into our Discovery mechanism. And I'll kick it over to Naveen for the second part of that. Naveen Chopra: Yes. Thanks. Ben, your -- or at least the second part of your hypothesis was correct in terms of the dynamic between hours growth versus monetization growth, meaning it really is about geographic mix shift. You can see that if you look at -- in the supplementals, we have some disclosure around bookings per daily active user. I realize you were comparing monetization versus hours, but it's a very similar dynamic, i.e., if you look at this on a regional basis, very strong growth year-over-year. But the mix of hours is skewing toward regions that just do monetize at a lower level, and that's what you're seeing in the blended numbers. And as I pointed out in my remarks, even at the regional level, we see some geographic mix shift between specific countries that impacts the monetization at the entire region. So it really is all about growth in various regions. Operator: We'll move next to Omar Dessouky with Bank of America. Omar Dessouky: So you called out the tough comp in '26 and some of the dynamics there. I'm looking back at Roblox, a lot has changed, obviously, new CFO, the company has almost doubled in size over the last 2 years. And when things change, you may consider different approaches. And with '26 being such a tough comp year potentially, Roblox has never used advertising to attract users either through ad networks or otherwise. And given that -- it sounded like Dave said that the virality of your hits is the main engine for user growth in a tough comp year like '26, why wouldn't Roblox consider advertising to kind of smooth out these troughs and peaks in growth? That's my question. David Baszucki: Omar, great question. A couple of things to take a step back at. Big picture right now, we're simultaneously excited that we've nudged over 3% of the global gaming content market running on Roblox. And at the same time, there's almost 97% out there. So I continue to be enormously bullish as we roll out our tech and we expand genres, and we do this really in a new way for gaming complemented with AI. The second thing I do want to highlight is that this quarter, next quarter, we're rolling out a lot of what we shared at RDC, which supports massive expansion of the way Roblox works and the types of genres. You correctly note, Roblox got to where it is primarily based on viral growth, but we do buy traffic. I don't know if it shows up in our financial statements, but we very thoughtfully complement that with paid user acquisition. And what we are testing and starting to roll out is the notion that we can partner with the creators on our platform to help them supercharge their paid acquisition in partnership with us. And there's a future opportunity for us to expand paid acquisition where a creator may be a little hesitant to buy paid traffic and send that to Roblox because we get some benefit as well. They land in our client, that user may pay other experiences. But when we start sharing that with creators, there's an opportunity for both creators to expand paid acquisition and for us to support them and do it with them. So we already do some paid acquisition. There's an opportunity to make this a lot larger. We always do this in a financially prudent way, which is appropriate return on ad spend in the right amount of time so that we're doing this incrementally. So yes, great idea. We've got this in our sights to expand. And Naveen, I don't know if you want to complement that at all. Naveen Chopra: I think the only thing I would say is that in terms of overall scale of what we're spending on growth marketing, it is still very modest, and we rely on the tremendous organic growth that the platform still has. As Dave said, there's a lot of market white space yet for us to tackle. And we added I think close to 40 million users relative to Q2. So the organic growth engine is working really well, and that will still be, I think, the primary driver of growth. But there are some very interesting things that we can do, as Dave described, in conjunction with our devs to promote some of the content that is coming to the platform, which is consistent with our goals around genre expansion, content diversity, content velocity, et cetera. So looking forward to continuing to experiment with that. Operator: Time for one last question from Clark Lampen with BTIG. William Lampen: I'll try to make these quick ones. Dave, you talked about making the platform more attractive to the creator community. Over the last few quarters, we've obviously seen a really big spike in users. You've invested in developer exchange fees, tech, the platform. We obviously have a very good view into user growth, but a little bit less so on the developer side of the ecosystem. Has dev growth essentially held serve with users in a way where we could think about that sort of growing proportionate to DAUs? And maybe just take that a step further for Naveen, if we think about that and sort of the elasticity of growth and engagement, we've been through investment cycles in the past. This one feels a little bit different because it's AI-oriented. Is there a reason to think that like the yield on some of these investments, if we are seeing proportionate growth, could be a little bit more immediate? And is that reflected in some of the comments around '26? David Baszucki: I'll go first, and then I'll hand it over to Naveen on the yield side. At RDC, and I don't know if we published as part of this earnings, there's one spec or stat that we constantly share, which is some averages around top 10, top 100, top 1,000 devs and their year-on-year growth in bookings and engagement. And we continuously see, I would say, a flattening of that tail where the top 1,000 looks very, very healthy. So I think we're in a very healthy zone still. We continue to flatten that curve. We have many, many more creators making a living or making $1 million or making $10 million on the platform, and that all is continuing to grow. I believe we can extrapolate to the future, which is our vision of having 10% of that global gaming bookings running through our platform, and that gives a little bit of a perspective of what we would hope happens to that wide range of creators on the platform. Just one highlight on infrastructure. We continue to highlight the movement to supporting our own bare metal data centers, both for core edge and AI and complementing with burst. This has been part of the key to our efficiency, and I'll let Naveen speak on the yield of these investments as we get into that. Naveen Chopra: Yes. I think the way to think about, call it, the payback period on these investments is that there are a variety of things that we are doing that we will start to see the fruit relatively quickly. There are others that are more long term in nature. The AI stuff, in particular, there's a lot of AI investment that we've already made. You heard Dave talk about some of the benefits we're already seeing around Discovery, economy, et cetera. So I view those as having relatively near-term payback. There are others that are going to be longer term. And quite frankly, it's going to take us a little while to roll out the CapEx to train and ultimately deploy these models to move them on to our own metal, as you heard Dave describe. So those are not necessarily going to have as immediate of a payback. But I think it's fair to say we're already getting benefit from a number of the investments that have been made on this front, call it, in 2025 and increasingly in '26 and beyond. I think that's our last question. So thank you all for joining. And then I will turn it back to Dave for any closing comments. David Baszucki: I just want to once again thank you all for your support and your insightful questions today. We look forward to continuing to innovate in our quest to have 10% of global gaming on the platform. Thank you all. Operator: Thank you. And that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Repsol's Third Quarter 2025 Results Conference Call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO and a brief introduction will be given by Mr. Pablo Bannatyne, Head of Investor Relations. I would now like to hand the call over to Mr. Bannatyne. Sir, you may begin. Pablo Bannatyne: Thank you, operator, and good morning to all. Welcome to the Repsol's Third Quarter 2025 Results Presentation. Today's conference call will be hosted by Josu Jon Imaz, our Chief Executive Officer with other members of the executive team joining us as well. At the end of the presentation, we will be available for a Q&A session. Before we start, let me draw your attention to our disclaimer. During this presentation, we may make forward-looking statements based on estimates. Actual results may differ materially depending on a number of factors as indicated in the disclaimer. I will now hand the conference call over to Josu. Josu Jon Imaz San Miguel: Thank you, Pablo. Good morning to everyone, and thank you for joining us. Repsol delivered a solid operational and financial performance in the first quarter of 2025, moving ahead on key projects, optimizing the asset portfolio and reinforcing its commitment to shareholder value and capital discipline. The energy landscape continues to be shaped by geopolitical stability and concerns of all our supply. In the U.S., gas prices softened compared to the previous quarter, yet fundamentals still point to a tighter market heading into next year. The Refining business continued to build on a positive momentum in a market characterized by additional supply deficit. Operations at our industrial sites restore activity levels following the disruptions caused by the Iberian outage in the second quarter. On the Commercial side, all business segments delivered a stronger year-over-year contribution. Retail fuel sales remained robust, well supported by seasonal trends. The adjusted income totaled EUR 820 million, 17% above the second quarter and 47% higher than in the same period of 2024. All four divisions improved their results over the third quarter last year. Cash flow from operations amounted to EUR 1.5 billion. The accumulated operating cash flow through September reached EUR 4.3 billion, 15% higher than in the first nine months of 2024. Net CapEx was EUR 0.3 billion in the quarter with a EUR 0.8 billion contribution from disposals, asset rotations and the EUR 0.2 billion received from the sale of tax credits in the Outpost project. The accumulated net CapEx to September was EUR 2.5 billion, including EUR 1.3 billion in proceeds from disposals and rotations. By quarter end, all the transactions announced in 2025 have been fully collected. Net debt stood at EUR 6.9 billion by quarter and an increase of EUR 1.2 billion compared to June, mainly due to integration of the new joint venture established with NEO Energy in the U.K. As part of the agreement, Repsol has retained a funding commitment of the commissioning liabilities related to a portion of its legacy assets. This amount was previously recognized as a nonfinancial liability in our financial statements. Repsol doesn't increase at all, Repsol exposure but it is now classified in a different way, it is classified as financial debt at the consolidated level. So is only, let me say, an accounting procedure and excluding the impact of U.K. integration, net debt would've been flat compared to June. Gearing rose to 20.5% by quarter end and 10.4%, excluding this remaining aligned with our strategic objective of preserving our current credit rating. Looking at the evolution of the main macroeconomic indicators in the quarter. Brent crude averaged $69 per barrel, 2% higher than in the second quarter and 14% lower than the same quarter last year. The Henry Hub averaged $3.1 per million BTU, 9% lower quarter-over-quarter and 41% above the same period driven by strong middle distillate differentials, the refining margin indicator stood at $8.8 per barrel, 49% higher than in the second quarter and 120% higher than the same period in 2024. Finally, the dollar continued to weaken against the euro with an average exchange rate of 1.17. Turning now to the Upstream performance. This division continued to deliver efficient and competitive growth, enhancing returns through new projects and portfolio management. We are improving the business and together with our partner, positioning the company for a potential liquidity event. Third quarter adjusted income was EUR 317 million, 28% below the second quarter and 11% higher year-over-year. Production averaged 551,000 barrels oil equivalent per day, about 1% lower than the previous quarter and probably in line with a year ago. Compared to the third quarter of last year, the impact of divestments and natural decline was offset by higher contributions from Libya and the U.K. In the U.K., the merger with NEO energy was completed in July. The new inventory is projected to produce around 130,000 barrels per day in 2025, increasing Repsol's net production in the country from around 30,000 to 59,000 barrels per day. On an annual basis, the JV is expected to contribute around $700 million of EBITDA for Repsol in 2026. In Indonesia, in September, we agreed the disposal of our stake in Sakakemang, completing our country exit after the disposal of our interest in Corridor announced in the second quarter. After this transaction, Repsol E&P is now present in 11 countries, 10 producing plus an exploratory position in Mexico, consistent with our strategic objective of concentrating operations on geographies where we hold the strongest competitive advantage. In this regard, the U.S. continues to strengthen its position as a strategic growth region within our Upstream portfolio. In the Gulf of America, the joint development of Leon and Castile reached first oil in September. And in Alaska, the first phase of Pikka is expected to start up early 2026. These projects, together with the upcoming startup of Lapa Southwest in Brazil are expected to add around 50,000 barrels of oil equivalent per day of new low emissions, low breakeven production by 2027. In addition, these developments have accounted for a substantial share of the upstream investment effort outlined to 2027 and their completion will allow us to transition to more normalized CapEx levels in the division at around or even below EUR 2 billion per year. Finally, as part of the preparation of our vehicle ahead of a potential liquidity event, Repsol E&P completed last quarter, a $2.5 billion bond offering, the largest in use U.S. dollars in Repsol's history. The offering structure in three tranches attracted a strong demand, underscoring the solid support for our upstream strategy. Continuing with the Industrial division, third quarter performance was driven by the consolidation of the refining up cycle and the solid contribution from the trading business. Following the impact of the Spanish outage on second quarter, operations activity at our industrial complexes returned to normalized levels, enabling us to capture the positive refining scenario. The adjusted income totaled EUR 315 million, 218% higher than in the second quarter and 70% above the same period a year ago. In Refining, our margin indicator climbed to levels not seen since the first quarter of 2024, supported by stronger product spreads, mainly in diesel. The premium of our indicator was $0.7 negatively impacted by the turnaround of Cartagena and planned maintenance at the C43 biofuels unit, and the absence of crude shipments from Venezuela. The C43 plant resumed full capacity operations in October. Distillation capacity utilization was 85%, while conversion units operated at 101% of nameplate capacity. Refining margins have remained robust. In the fourth quarter, with the indicator averaging $9.8 in October and $7.1 year-to-date, the export margin this morning was $13 per barrel. No major refinery turnarounds are planned this quarter, supporting healthy utilization rates. Fuels margins remain also at solid levels, driven by stricter regulatory mandates in Europe and lower imports. In the Chemical business, Market conditions in Europe remain challenging with flat demand and higher costs compared to other geographies. Repsol's petrochemical margin indicator declined by 22% over the previous quarter, driven by lower prices and higher energy costs. Our priority for this business remains lowering breakevens and expanding margins through differentiation. The Sines expansion scheduled to start in 2026 is expected to add around EUR 80 million of EBITDA at the current scenario. And in Puertollano, a new plants dedicated to highly specialized application is also planned to come onstream next year. In the wholesale and gas trading business, we received 5 cargos from Calcasieu Pass last quarter. This is in line with our goal of reaching a total of 11 cargos listed in 2025 contributing around EUR 100 million of incremental EBIT compared to initial plan. In our industrial transformation initiatives, the project to retrofit a former gas oil hydro-skimmer in Puertollano is expected to begin operations in the second quarter of 2026. An additional retrofitting project is currently under evaluation, which will become our third major advanced fuels facility in Spain. In Tarragona, the development of the Ecoplanta is progressing according to plan. Thus we signed our first offtake contract to supply renewable methanol to continue at this facility as part of our long-term agreement for the supply of renewable marine fuels. In hydrogen, during the quarter, we took the FID for our first large scale electrolyzer is going to be constructed in Cartagena, and we are finalizing the analysis for the approval of another two projects. These electrolyzers will constitute the main part of our total capacity in operation by the end of this decade. Moving now to customers. This division delivered the highest quarterly result in the history of Repsol's commercial businesses with all segments delivering higher contributions year-over-year. Third quarter adjusted income reached EUR 241 million, 22% above the second quarter and 34% higher than in the same period of 2024. EBITDA was EUR 434 million, a 25% increase year-over-year, bringing the accumulated figure through September to EUR 1.1 billion. This performance keeps us on track to deliver in 2025, the EUR 1.4 billion EBITDA targeted for 2027 in our plan. So this figure is going to be achieved this year. And all that is supported by resilient demand, efficiency gains, growth in power and gas retail in Spain and Portugal and the growth of aviation fuel sales in Iberia. In Mobility, sales of road transportation fuels grew 14% year-over-year, reaching pre-pandemic levels. The non-oil business delivered robust contribution margin growth in service stations, 10% above the third quarter of 2024. As of today, 56% of our network in Spain offers multi-energy solutions. In October, the range of renewable fuels available at our service station has been expanded with the incorporation of 100% renewable gasoline after our Tarragona refinery achieved the first industrial scale production of this product, a real technological milestone. Finally, in power and gas retail, we add 157,000 new customers last quarter for a total of 2.9 million clients by the end of September, on track to reach our 3 million target before year-end. Turning to low carbon generation. The adjusted income reached EUR 31 million, EUR 24 million higher quarter-over-quarter and EUR 38 million increase year-over-year. These better results were driven by renewables, the main driver, a higher contribution from combined cycles, whose activity increased to ensure system stability following the Spanish outage, the blackout we suffered in April. The average pool price in Spain was EUR 67 per megawatt hour, 71% above the previous quarter and 16% below the same quarter in 2024. The power generated by Repsol reached 3.3 terawatt hour, 39% higher year-over-year. Repsol has reached 5 gigawatts of installed renewable capacity under operation, and we expect to add another 500 megawatts before year-end, mainly driven by the startup of Pinnington Solar in Texas. We keep -- sorry, executing our business model based on building our projects from stretch and divesting in early stages of production to optimize financial structure and maximize returns. In the U.S., the 629-megawatt Outpost solar project achieved commercial operation in September joining Frye and Jicarilla that are already producing in the country. We are now in the process of closing the partial divestment of this development with cash in expected in 2025. In Spain, an additional asset rotation is also under negotiation for a 700-megawatt renewable portfolio, of which and that is an important fact to see in the current market situation, more than 400 are wind. Finally, earlier this month, we acquired an 805-megawatt wind pipeline with the end of hybridizing production at our combined cycle plant in Escatron in the Spanish region of Aragon securing the power supply for the future data center to be built in the area by a third party. Moving now briefly to a summary of the financial results. In this slide, you may find an overview of the figures that we have covered today. For further details, I encourage you to refer to the complete set of documents released this morning. Regarding our update outlook to the end of 2025. The cash flow from operations guidance remains unchanged at around EUR 6 billion, with the benefit of a higher refining margin indicator, as I explained before, and this effect is going to be partially compensated by the lower Henry Hub price and weaker dollar. Net CapEx is unchanged at around EUR 3.5 billion. I have the ambition to put this figure below EUR 3.5 billion by the end of the year, subject to the timing of the divestment processes under execution. Upstream production remains at an estimate of around 550,000 barrels per day. We will allocate EUR 1.8 billion to shareholder remuneration, EUR 1.1 billion for cash dividends and EUR 700 million to share buybacks to reduce capital at the higher end of our strategic cash flow from operation's distribution range. Following July 2 dividend payment, the total EPS distributed in 2025 has been EUR 0.975, an 8.3% increase over 2024. Our first capital reduction was carried out in July through the redemption of shares acquired for an equivalent amount of EUR 350 million and a second capital reduction for the same amount will be executed before year-end. For this, a new buyback program was launched in September of the acquisition of shares for the equivalent of EUR 300 million with the remainder, EUR 50 million coming from the settlement. In conclusion, Repsol is delivering on its commitments and the strength of our business model position us well to manage the uncertainties of the current environment. In the upstream, we are improving the margin of the barrels we produce, bringing forward our growth projects and upgrade in the portfolio. In Industrial, we are capturing the positive momentum in Refining while progressing on the transformation of our sites, building resilience to ensure the long-term sustainability of the business. Customer keeps increasing its cash contribution to the group, helped by a successful multi-energy story and a growing power retail business in Iberia. And in low carbon generation, we continue to deliver along our strategic lines, targeting free cash flow neutrality after factoring the proceeds generated by asset rotation. Ensuring strong distributions to our shareholders remains a key priority in our history of value growth. Always, of course, maintaining a clear commitment to our robust balance sheet and our net CapEx objectives. Next year, after the share capital reduction executed in 2025, our ordinary dividend per share will be around EUR 1.05 per share. I said around because that is going to depend on the exact figure of the shares we are going to redeem at the end of the current share buyback program. In 2026, the same key strategic principles will guide our path. After the release of our full year results in February, and in light of the changes in the macroeconomic, regulatory and business landscape that our industry has gone through our Capital Markets Day will be held in March and were we will provide updated projections to 2028. With this, I will turn it over to Pablo as we move on to the Q&A session. Thank you very much. Pablo Bannatyne: Thank you very much, Josu Jon. [Operator Instructions] As usual, I would like the operator to remind us Of the process to ask a question. Please go ahead, operator. Operator: Thank you. [Operator Instructions] Pablo Bannatyne: Thank you, operator. Let's get started with our first questions coming from Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Thank you very much. And congratulations on the strong results and looking forward to the Capital Markets Day. Two questions, if I may. First, I wanted to focus a bit on biofuel, an area that you're growing very fast but also where we're seeing a tremendous improvement in margins. I was wondering if you could lay out what is the contribution at the moment from that business? And how big that could get next year with potentially further tightening with RED III and also higher volumes in the second half of the year. And then secondly, I wanted to come back to Venezuela. You're building up receivables. They are clearly difficult situations with the U.S. sanctions, I was wondering if there is any ongoing dialogue that could resolve the situation and allow you to take more Venezuelan cargos? Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, next year in 2026, taking into account the production we have in the co-process of our industrial activity plus the operation of C43, plus the second half of the year where we are going to have production coming from the retrofitting of Puertollano and adding the trading activity of these biofuels, plus the commercial side because you know that we already have 40% of our service stations commercializing this product. I mean to give you only a reference, not at the current levels of margins. But if we take -- roughly speaking $800, I mean I'm not giving, let me say, a guidance of prices because I don't have a crystal ball. But if we take $800 per ton as HVO minus UCO margin for 2026, with all these concepts, we will capture EUR 125 million of EBITDA. I mean roughly speaking, because that is not exactly -- it could be a rule, but you could add roughly speaking, EUR 30 million, EUR 35 million for every $100 per ton of margin. You have to take into account, Michele, you perfectly know that after investing in Puertollano, we will have a capital employed in this business of around EUR 400 million. So my point is that the business is performing in the right way. And that is -- it's positive. If you ask me if I see the current margins stay for coming months, I mean the normal situation will be to see some kind of going down of the margins because, I mean, we have had a lot of capacity out in turnaround program and so on in Europe. So that will be the most logical. But I mean, there is room to have a pretty good situation in this business. Going to Venezuela. I mean, let me say that as always, we are always to comply and will comply with all laws and regulations applicable for all operations in Venezuela. You know that we are still there. We maintain our presence and production in Venezuela. We are producing gas for the domestic market is our main activity in Venezuela. And I could confirm you that we maintain, and we are shipping going, maintaining a constructive and fully transparent dialogue with the U.S. administration at the moment to try to ensure a stable framework for our activities. I mean, and when I say a stable framework for our activities, this framework, of course, includes viable mechanisms or monetizing our products. So I mean, I'm not going to say that situation is okay because you know the difficulties that -- in political terms, the country is experiencing but let me say that I could confirm that we maintain this constructive and transparent dialogue with all the authorities, of course, including the American authorities. [Foreign language] Pablo Bannatyne: Thank you very much, Michele. Our next question comes from Alejandro Vigil at Banco Santander. Alejandro Vigil: The first one, I'm very curious about this strategic update in March, probably I'll have to wait for March to have more details. But you can elaborate about the reason for this update on potential moving parts of this strategic update. And the second question is about distributions. I agree that you are delivering these distributions in line with your range. But considering the strong cash flow this year and potentially good expectations for next year if there is potential upside in your share buyback program of EUR 700 million? Josu Jon Imaz San Miguel: [Foreign Language] I mean I could confirm that -- I mean, this strategic update, that is a terminology discussion, obviously, it's irrelevant Alejandro, what I'm going to say. But I mean I prefer to talk about the Capital Markets Day because the strategy is defined and the strategy is written on stone and that means that the priority is going to be the shareholder distribution, as we defined in February 2024 plus the strong balance sheet for Repsol because for us, it's very important and a proven CapEx transforming and pushing in the growth process of the company. But that is going to be the priority of the strategy that is going to go on from next March on. So what is going to be the target? So you can't expect, let me say, surprises because these three principles are going to be defined and written on the stone. Saying that the Capital Market Day is going to try to give you because, I mean, things metrics are changing in two years and giving you a clarity about '26, '27 and '28 years, in terms of all kinds of operational and financial metrics. That is the end of the Capital Markets Day we are going to call for March. So -- but again, the strategic principles are written on stone. First, distribution for our shareholders, strong balance sheet and a prudent net CapEx. That's -- I mean, if you allow me, Alejandro probably, and you were right. The consensus of the market six months ago would be that we have problems to deliver this prudent CapEx in net CapEx terms because the perception after 2025 on the first -- sorry, 2024 and the first month of 2025 for the market could be, and you were right that the CapEx effort was very high at the beginning of this strategic plan. That was right because we were, let me say, paving the way for the growth for the projects we were investing in and we were taking advantage of the negligible debt we had at the end of 2023 for launching this view. But as you could see, I mean, at the end of September, net CapEx is at a figure of EUR 2.5 billion. And again, the target we have is EUR 3.5 billion for the end -- by the end, better said, of 2025. But my ambition is to be below this figure this year. And next two years, if you take and that is going to be probably speaking, what I have in mind, a figure close to this EUR 3.5 billion in 2026 and 2027, you can see that we are going to be in the low range of the net CapEx we defined in the range for our strategic plan, EUR 16 million, EUR 19 billion. Today, our view is that we are going to be at around EUR 16 billion in this period. So we are going, let me say, to elaborate a bit more, all these figures that you could see in the figures of this quarter that we are on track of going in this direction. So what you could expect in terms of general framework of distribution and I said, priority we are going to be, of course, in the range of what you said and you could be sure, Alejandro, that in the current program in the current market conditions is going to be delivered also next year. So -- but of course, I prefer to wait and talk about that in March in the Capital Market Day, that we are going to be in the range defined. And if we see a higher cash flow from operations and that could happen in the current environment, what you could expect, of course, is going to be -- in fact is going to go, better set, in that direction. Excuse me, sorry, this year's , Alejandro forgot. I mean, if we take EUR 6 billion of -- and we are in the higher range, 30, 35 of this -- of the range. I mean it's true that we are going to have probably, as I mentioned before, a higher refining margin. What I'm seeing for this fourth quarter in terms of Repsol refining margin is going to be probably in the double digit is how I see the refining margin of Repsol in this fourth quarter at double digit. But if you take this figure, I mean, we could add, let me say, roughly speaking, $200 million more to the expectations we had -- the guidance we had before. It's true that the dollar-euro exchange rate is showing us a weaker dollar. So that is, I mean, reducing a bit also the cash flow from operations for our businesses and slightly weaker Henry Hub comparing with the $4 million BTU of last guidance. I mean, all in all, it could be possible to be above the EUR 6 billion, I mentioned before, as guidance but the figure is going to be negligible. And I mean, you are going to understand that if we are EUR 100 million, EUR 140 million of -- above this figure, I mean, we are going to be open a program of EUR 40 million, EUR 30 million or EUR 50 million. So I mean, we prefer to say that is over this year 2025 and we talk about that in March, but always under the same principle we are applying now. Thank you. Pablo Bannatyne: Thank you very much for you question. Our next question comes from Alessandro Pozzi at Mediobanca. Alessandro Pozzi: The first one is on the Refining margin outlook. You mentioned the spot prices into the double digits. What is your view for the rest of the year and going into 2026? Do you think the current, say, strength is driven more by lack of products? Or is it concerns around the availability of these or maybe in 2026, so more of a panic buying right now. And the second question is on capital allocation, clearly, customer is delivering much better results. As you look at 2026 and 2027, what do you think are the areas of the business that can give you a better return and where you can probably increase CapEx in the next couple of years? Josu Jon Imaz San Miguel: [Foreign language] I mean, starting by your first question related to Refining margin. Of course, let me underline that is evident but I'm going to repeat that I don't have a crystal ball but analyzing from our experience and the facts and the indications we are seeing in the market, I'm going to jump a bit into the unexplored arena of seeing what is going to happen with Refining margins. So First, current evidence. I mean, as of today, this year, we have $7.1 per barrel in our system. This month, in October, this figure is at around $9.8 per barrel. And this week, I mean, what we are seeing is something in between $12, $14 per barrel. That's our facts. What is behind that? My perception is that we have two drivers and both drivers pushing this direction, demand and supply. Supplies are crystal clear. I mean, new refining projects in the Atlantic Basin, they are -- they continue facing delays and operational problems. You know Olmeca in Mexico, my perception is that the problem of Olmeca is not going to be solved in the short term. So that could go on next year. Dangote is having operational problems that is going to be probably solved by 2026. In the midst, we have seen -- I mean, everything we talk about that remember in February, when I said that we were seeing probably speaking 1 million barrels a day of discontinuing activities in the refining in the world. I mean, in Europe, Wesseling in Germany, Lindsay and Grangemouth in the U.K., they are close on track in the case of Lindsay, Houston and Los Angeles also in the U.S., Dalian in China, Osaka in Japan, Kwinana in Australia, I mean all that is going to add more than 1 million barrels a day of less production. We said that new projects this year, they were going to be slightly above 1 million barrels a day. But with the operational problems I mentioned before, in the case of Dangote and Olmeca, this figure is lower. And I mean, there is a new, let me say, a new fact over the last 2, 3 months that due to the attacks on Eastern European refineries, the best approach we could have today, and again, that is not easy to be reported in an accurate way because, I mean, in a war situation, truth is sometimes hidden but probably a figure close to 37%, 38% of the refining capacity in Russia has been attacked and probably a figure close to a 25% of the total capacity could be out of operation. So we are speaking about a very important figure that is 1.5 million barrels a day, fully unexpected. On top of that, we are seeing that over the last 2, 3 years in a very unfair way for competition, refiners from China, India and so on, they were taking advantage of not fulfilling the sanctions against the Russian oil. They were buying cheap Russian oil, refining this oil and putting this product in a very unfair competition way in the European market. Thanks to the policies of the European Union and the Trump administration related to enforce sanctions against this unfair way, all that is going to have an impact in the market. I mean if we go to the demand, I mean, demand is growing, that is also a fact to 0.6 million, 0.7 million barrels a day this year. In our markets, we are experiencing a high demand as you could see in our Commercial businesses. And we have to say that -- I mean, we are still -- we are not already in the European coal season. I mean the European coal season is going to increase pressure on diesel. If we add to that the new ECA regulation in the Mediterranean that are effective from May 1 that are boosting marine gas oil demand. And at the same time, we are seeing that gasoline is also strong because the new hybrids that they consume a lot of gasoline and so on. I mean, again, I don't have a crystal ball but I'm comfortable. It's not a commitment because it's not in my hands, of course, that we are going to see an average of double digit in Repsol this quarter, I mean, a refining margin with double digit. I mean, jumping into the 2026 is more complex. But I could say that the $6 per barrel we saw 1 year ago for 2026, I mean, we are going to be clearly above this figure. Probably the first quarter, we are going to experience a similar situation we are going to experience the fourth quarter of the year. We could see probably in the second half a more normal market in terms of supply. But all in all, I think that -- I mean, seeing margins of, I don't know, $7, $8 per barrel over 2026 is not going to be a surprise for me. Going to the capital allocation on the 2026, 2027, we are going to see, I mean, good results and improvement, clearly speaking in the Upstream, new barrels, Leon-Castile already in operation, Alaska that is going to start the operation at the end of -- or the first part, as I said, of the first quarter. U.K., where the improvement is going to be clear. So better margins, new barrels, more production, 570,000 barrels a day, roughly speaking, we will clarify this figure in the Capital Market Day that we are going to be at around this figure and a clear improvement in the Upstream. Going to the Industrial, as I mentioned before, better by margin, Puertollano, the retrofitting in operation, a higher refining margin, and I mean, I know that there is -- and I have a concern related to the Chemical business because the performance and what we are suffering in the market is very negative. We have a competitiveness program that we are enforcing new margins, reduction of energy cost, cost reduction. On top of that, we are going to see, so the derivative chemical even in this exit margin adding at around EUR 80 million of new EBITDA in a year. We also have the ultra-high molecular weight polyethylene plant in Puertollano. So all in all, the commitment I have with my Board is that next year, in this acid margin scenario, so with no, let me say, tailwind pushing margins, we could be EBITDA neutral in 2026, and we will have in 2027, a positive result in the Chemical business. Again, at the current bad margins environment. Of course, any tailwind coming from the point of view of margins is going to improve this figure. In the customer growth is going to go on because -- I mean, it's not because of market situation, it's structural because we are entering new businesses, retail, power and gas is a new business where we are growing. We already have EUR 200 million of EBITDA and growing 3 million customers this year. Probably next year, we will be at around 3.5 million customers. That is -- we could be close to this figure but we have a clear growth road map. We are growing in lubricants. In aviation, I mean, if you check the figures in Iberia, we are in historical flights. Overcoming year after year, the figures we have. We are growing in the non-oil, as I mentioned before. So this EUR 1.4 billion of this year is going to be a figure close to EUR 1.5 billion of EBITDA in this business by 2026. And I mean, you see in low carbon businesses, I mean, in power generation, you could see that we are improving the result. We will see ups and downs, but there is a clear structural trend. Why? Because we are reducing our cost, our unitary cost because we have a business to operate more gigawatts and month after month, we are adding new production. So the unitary cost is going to be reduced in coming months and in coming years. On top of that, with difficulties at the beginning in the U.S., but the rotation business, the rotation game is going to go in the right direction because the projects we have Outpost has a higher PPA than Frye. Pinnington has a higher PPA than Outpost. That means that things are going in the right direction. These 9 months, if you take the total concepts, you could see that this business is close to be neutral in cash terms. I mean that is not going. It's not structural. We are going to have in coming months, I mean, capital needs for this business. But we are not going to be far in the period of a Capital Market Day defined to see that this business could be able to grow with a minimum capital commitment from Repsol because it's starting to work the model. So my point is that this EUR 3.5 billion is going to be deployed in a prudent way in these businesses, reducing, let me say, slightly default in the E&P because the projects are already on track. In the Industrial business, we will put on track the projects I mentioned before, customer business, I mean, it's investing but the investment level in intensity is lower than in some other businesses. And in the case of renewable power, this effort, let me say, has an asymptotic direction towards being neutral in cash terms. Are we going to achieve this target in 2026? Probably not. But this time, it's not far. So thank you. Pablo Bannatyne: Thank you very much, Alessandro. Our next question comes from Biraj Borkhataria of RBC. Biraj Borkhataria: So first one, just on refining. I might have missed this but I understand you have no maintenance in Q4 but are you able to give a bit more detail on the first half of '26. Just thinking about your ability to capture $13, $14 refining margins over the coming months if that was to persist. And then second question is just on the financials. There is a very significant difference between P&L tax and then the cash tax you pay and the gap seems to be getting wider. Just trying to understand if there's any particular reason why those 2 numbers won't converge over time. So any color there would be helpful. Josu Jon Imaz San Miguel: Thank you, Biraj. I mean, going to your first question, I mean, let me say that this quarter, in 2025, what I have in mind is that we are only to turn around the 1 crude unit in Puertollano and the breaker. I mean, breaker with my whole respect to this unit because its fuel production is negligible in Tarragona. So that is going to be the only turnaround campaign this quarter. If we go to 2026, what we have in the program, I mean, accepting some hydrosulfuration units, some catalyst changes and so on that are negligible in days terms. The only large turnaround campaigns are A Coruña, that is the smallest of our refinery, where we are going to have the conversion units maintenance that is going to stay for something between 40, 50 days in 2026. And in PetroNor, we are going to maintain the coker and the coker stay out of service for 40 days more or less. I mean that is the only -- any kind of significant maintenance campaign neither in Cartagena nor in Tarragona, as I said before, some -- I mean, catalyst changes, a hydrosulfuration unit, but I mean, nothing relevant. And let me say that if we see this historical what is program, a program could happen. I hope that we -- and I expect we could cope with any incidents in this sense. But when we analyze the historical -- in historical terms, the turnaround campaigns, it's going to be a quite soft year in terms of maintenance campaign in coming 15 months. Going to your second question, of course, you could check the figure in a more accurate way with our IR team. But there is no anything relevant to report related to the P&L in tax and in cash. We are, of course, optimizing, as always, credit tax positions. You know that because we are investing hard, we have a lot of tax credits because the investment we are developing in some jurisdictions like I don't know, the U.K. and some others because the losses of the past. And probably in the whole year 2025, we could have a figure close to EUR 800 million at the end of the year. But again, we are trying to optimize these figures and trying to use the credit tax positions we have. So that's clear. Pablo Bannatyne: Thank you, Biraj. Our next question comes from Guilherme Levy at Morgan Stanley. Guilherme Levy: Two questions from me, please. The first one, thinking about the next steps around the listing of the E&P subsidiary in the U.S. You, of course, started to talk about a potential reverse takeover process. So I was wondering if there are any particular features that you would like to see in a potential target to be taken over in the U.S. if exposure to either gas, oil or to any particular basin would be preferred. And then second one, also in the U.S., can you provide us some color in terms of the hedges that you currently have on gas prices over the coming quarters? Josu Jon Imaz San Miguel: Thank you, Guilherme. I mean, we are preparing the company for being ready for a liquidity event in 2026. As I mentioned before, in July, liquidity event could mean first, an IPO, a reverse merge with a company listed in the U.S., a new private investor entering in Repsol. So I mean, that's the broad meaning of liquidity event. And again, for me, here it is more important, the road and the journey at the end. That means that we are putting all the effort first in having a better upstream with better barrels. We are delivering in terms of improving the portfolio. We are in less countries in better jurisdictions with better barrels. When I say better barrels in terms not only of more sustainable barrels but also in terms of higher cash flow from operation per barrel, we are putting on track the projects that is very important. In a period that has been complex in terms of inflation and so on in the market, we have been able to put projects on track that has happened in September with Leon-Castile and it's going to happen in coming 3 months with Alaska. So that is the full focus of the company in this sense. On top of that, we are working internally in all the requirements and reporting and so on to be prepared for any event in this direction. But again, we are not in a hurry. We don't need any proceeds coming from this liquidity event. We are seeing that day after day, we are improving the quality of our upstream. That means that we will be prepared alongside 2026. We are fully aligned with our partner, EIG in this strategy. And of course, we will be ready to take advantage of any opportunity in the market but not being in a rush, not jumping any opportunity that could appear in the horizon and having crystal clear that maintaining the control on the 51% of the stake in this business, so consolidating this business is a line for Repsol. So we are going to own in this way. Going to some color about the gas for -- I mean, in 2025, we have 55% of the volumes hedged already with a collar with no cost, 6.1, so capturing all the value, guarantee the $3 million BTU and capturing all the value up to 6.1. Next year, if we go to the first quarter, we have a 20% of the production in the first quarter in a collar 3.5, 12.3. That is a surprising figure. But I mean, it was done with no cost. That means that we are guaranteeing the $3.5 million BTU and capturing all the price to $12 per million BTU. On top of that, we have a collar over the whole production of 2026, covering 52% of the production with a floor of 3.2 and capturing the value up to $5.1 million BTU, and in 2027, we have already hedged at 12% of the production debt is with a floor of 3 and capturing the price up to $5.8 per million of BTU. So let me say, as I summarize, we are comfortable because we are guaranteeing a minimum that is going to give us the return we expect in the gas production we have. And on top of that, we have plenty of room to capture any upside appearing in the market. Thank you, Guilherme. Pablo Bannatyne: Thank you very much, Guilherme. Our next question comes from Ignacio Doménech at JB Capital. Ignacio Doménech: Just a question on asset rotation, both on Upstream and on Renewables. So starting with Upstream. There was some news regarding potential asset rotation in Pikka and Alaska. So I was wondering if you are comfortable with your stake there or you are planning to dilute part of the exposure to the asset. And then in terms of asset rotation in Spain, just wondering if you've changed any -- if you've seen any change in appetite, just thinking about the 700-megawatt portfolio you're planning to rotate. Josu Jon Imaz San Miguel: Ignacio, thank you. So going to your first question, I don't have any appetite to divest in the Upstream business. We are comfortable with the position we have in the upstream business. We are an oil and gas company. We are adding barrels. We are adding new barrels. And probably, let me say that Alaska is a company maker asset in terms not only because the barrels we are going to start producing in 2026 but because the potential growth that this asset in Pikka 2 in coke and so on could have around the current production in lands and fields that are already in the hands of the JV we have with Santos. So I mean we have always to consider any option because, I mean, the portfolio is -- has to be managed. But today, I don't have any appetite to dispose or divest Alaska, I mean, and I need, let me say, a real very high figure to consider any option for that because, I mean, we are very happy, and we are very close to the first oil. So we are going to start monetizing this asset in 3 months. So we will consider, as always, any option in any asset. But to date, we don't have any target and any appetite to divest any asset in the upstream or Repsol. Going to the renewable asset rotation in Spain, I mean, we are seeing a positive appetite. It's curious because if you analyze Ignacio and you perfectly know Spanish renewable business, we have been able to rotate in a very successful way all the processes we have had over the last 4 years. And remember that the last one happened 8 months ago, roughly speaking, with green coat in a basket of assets that I thought I have in mind was that they were around 400, 500 megawatts in Spain. And we are seeing a very high appetite for these assets because, I mean, you know that today, 400 new operational production in wind in Spain is a quite scarce asset because you know that wind is able to capture the prices over the whole day, capturing also high prices in some parts of the day. And the advantage of the minority part of this basket of assets that is solar is that the PPAs are already there and are very good PPAs because they were negotiated in the -- I mean, 2 years ago, roughly speaking, in the high peak of the crisis, energy crisis in Spain, when there was Spain and Europe, when there was a strong appetite to negotiate PPAs. So very good asset with very good PPAs with very good mix of wind, solar. And I mean, for an investor, it's a real attractive asset. So I'm probably -- in the case of Outpost, I think that we are going to be able to monetize or to cash in, probably we are going to be there before the end of the year. In the case of these assets, we will close with a high probability of the transaction this year in 2025. And I prefer to be prudent because the authorization competition and so on, we need in terms of permits, probably the cash-in could enter in 2026. But in any case, the expectations are very positive. Thank you. Pablo Bannatyne: Thank you very much, Ignacio. Our next question comes from Irene Himona at Bernstein -- Societe Generale. Irene Himona: Just one quick one for me. I understand some of your disposal proceeds are from selling tax credits. And I'm not sure I understand myself how that works. How would it influence, for example, the future economics of those projects, if you can perhaps elaborate a little bit? Josu Jon Imaz San Miguel: Thank you, Irene. I mean you know that all the assets we have in the U.S., they are covered by the IRA, not only the current one but also the rest of the assets we are going to develop because we have in a safe harbor 3 gigawatts more in the country. So that means that we shape, let me say, the much more in terms of the support of the IRA. And in the case of how it works, there are 2 ways to monetize this support the PTC and the ITC. The ITC is some kind of upfront cash coming from the tax administration that is, I mean, in the range of 30%, 40% of the CapEx, even 50% in some places because it depends if there are industrial training areas and so on, the support, the local support is higher. And in some cases, you have what is called the PTC. The PTC is some kind of continuous payment for 10 years in your operation but you could monetize up 50% in upfront payment of this PTC. And in the case of Outpost, this EUR 185 million, something that appear, roughly speaking, are the part fitting with this upfront payment coming from this PTC. So it's quite complex, Irene, because some projects they have the ITC, some others, the PTC take the message that all of them, they are going to have sufficient support in the range, 30% to 50%. And if you need more granularity about these projects, of course, be sure that the team of IR will be ready to give you more clarity about that, Irene. Thank you. Pablo Bannatyne: Thank you, Irene. Our next question comes from Matt Lofting at JPMorgan. Matthew Lofting: First, I wondered if you could add some thoughts and color on what you're seeing in the market on light heavy spreads and the sort of the cost effectively of the feedstock basket in the Refining business. Just thinking about that in the context of the moving parts in the market at the moment. It looks like some debits and credits, more barrels coming from the Middle East, on the other hand, some of the constraints around Venezuela, et cetera, that you talked about earlier and what all that means for the outlook on the premium over the benchmark. And then secondly, just Jon, I wanted to just pick up on the earlier points that you made around CapEx. you talked about the low end of the sort of the range on the 4-year plan. I just wonder whether there's a case and a sort of a need to be more ambitious on medium-term CapEx reduction below that range rather than the low end in the context of moderated upstream prices now versus early 2024 areas of the low carbon value chain and the economics of that being still more challenging and probably greater geopolitical uncertainty in the macro backdrop than was the case when you did the CMD 18 months ago. I appreciate the thoughts there. Josu Jon Imaz San Miguel: Thank you, Matt. I mean, going to the -- it's true that this third quarter and one of the factors impacting a negative way in the premium of the refining margin that -- I mean, it was pretty good at $0.7 per barrel, we expect a bit more was the scarcity of heavy crude oil in the Atlantic Basin. And the main factor was the reduction of the exports of Maya crude oil from Mexico in this summer. The potential, let me say, reasons or problems behind this decision, they were left behind. And this quarter, we are seeing more Maya in the market. So probably we are going to see higher discounts for the heavy crude oil. On top of that, I mean, the rest of the crude oil, I mean, Colombia, Canada, what comes from Middle East, I mean, Basra and so on, they are entering in our system. Also, I mean, a small amount coming from Italy, Albania and so on. So my perception is that this component of our refining diet is going to be better in the fourth quarter than in the third one. In the case of Venezuela, it's clear because, I mean, you perfectly know that the constraints in the market are higher. But what we could see could be a more favorable environment this fourth quarter comparing with the third one, mainly because the Maya crude oil could be the driver that changed. I mean, we will talk about the -- in the Capital Market Day about the CapEx effort and so on. But again, we are comfortable with the figures I mentioned before. If things are worse, there are plenty of room to reduce this figure. In the case of the -- I mean, in case of seeing low oil and gas prices, that is not the case today, and we are not seeing that. We have the unconventional buffer, as you know. So the E&P could reduce default but we are not now there. We don't want now to reduce default because we are seeing good prices and good returns. You see that we have been able not because a CapEx reduction mindset because we prefer to be prudent guaranteeing the returns in the decarbonization of industrial assets. We have reduced the hydrogen ambition in almost 2/3 by 2030 comparing with the figures we have 2 years ago in our ambition. We are also prudent about the future investments in renewable fuels in Spain. We are analyzing a third project, and probably that is going to be done but we want to guarantee that this project is going to have good returns, and we are analyzing this option. You see that we are also being very prudent in the development of guaranteeing the returns of the renewable power generation. So my point is that situation is different. We have reduced our CapEx in a significant way because we want to guarantee returns. And in case of needed, we will be ready to do it. But today, we are comfortable in these figures because, as I mentioned before, the distribution to our shareholders will commit is guaranteed under this scenario. The balance sheet is strong, and we could modulate the CapEx in this effort. Thank you, Matt. Pablo Bannatyne: Thank you very much, Matt. Our next question comes from Naisheng Cui at Barclays. Naisheng Cui: Two questions from me, if that's okay. The first one is on data center in Spain. I understand you also do some data center things as part of your business. I wonder if you can add a bit of color on that. What's your view over there on the sector? Then the second question is just to clarify on the $2 billion divestment target for the year. I understand you mentioned earlier, there's no appetite to divest any upstream asset, but can you get to the $2 billion by just divesting the remaining U.S. and Spanish asset, please, the renewable ones? Josu Jon Imaz San Miguel: Thank you, Naish. I mean, first, I'm not an expert in data centers, my first disclaimer. Secondly, if I have to imagine a place in Europe, where you need to have data centers, computation capacity and so on. And energy is an important driver and renewable energy is an important driver. It seems to me that Spain is the right place to develop this data center. So from this point of view, I'm quite positive about the possibility to develop this data center. We are not a data center operator. So we are not going to invest in this business. What we are doing is because there is an appetite from investors to be in data centers in Spain, we have an asset that is Escatrón a CCGT with 800 megawatts of power in operation. And because the current regulation, we could use the connection permits of this asset to promote around this asset, an equivalent figure, in our case, 800 megawatts of wind hybridization with this CCGT plan. For that reason, we acquired an early pipeline of 800 megawatts of wind assets in Aragon in this region that is going to be developed something between '28, '29. So that means that we have the unique opportunity to develop wind assets in Spain that, as I mentioned before, is a very valuable production. And we could use half of this figure, 400 megawatts to fit with renewable power, combining with the CCGT, a potential investor in the area. And what we have is we have water in the area because you know that this kind of CCGTs, they need the refrigeration cooling processes. We have land. We have good connections, fiber in IT terms in this area. So what we are going is to sell the right to develop a data center in the area to a potential promoter -- and on top of that, we are going to provide this data center with PPAs with self-consumption, combining the wind and the gas. So we are seeing as an opportunity. I mean, we are going to monetize an option we have. And there is -- what we are seeing is that there are a lot of people interested in these assets. So it seems to me that today are a lot of people ready or interested in investing in Spain in this business. But again, Naish, I mean, if you need more clarity, of course, we have our team to -- at your service my comment related to your question. I mean, when we go to the figures, -- as you could see in the first months, we got the figure of EUR 1.3 billion by September. I mean, I'm taking EUR 1 billion of divestments plus the EUR 0.3 billion additional coming from -- I think that EUR 100 million, roughly speaking, from Aguayo Project. Aguayo Project is the first rotation we did in Spain at the beginning of the year. But because we retained the 51% is not in our accounting divestments but you could see the cash entering in our accounting. And on top of that, we have the $200 million coming from the PTC I mentioned before of Outpost. All in all, EUR 1.3 billion by September. We expect EUR 300 million more coming from the rotation of the U.S., I mentioned before, Outpost and the cash-in is going to be -- we have very high probability before the end of the year. All in all, EUR 1.6 billion, that is going to be enough to reach this EUR 3.5 billion net CapEx. And as I mentioned before, what could be out in cash in terms of this year 2025 is the rotation of the 700 megawatts in Spain that because the permit and authorization process and so on could be probably closed but not monetized before the end of the year. In any case, because we have been more prudent in gross CapEx terms, we are going to be below this EUR 3.5 billion -- that is my ambition before this EUR 3.5 billion of net CapEx by the end of this year. Thank you, Naish. Pablo Bannatyne: Thank you very much, Naish. Our next question comes from Henri Patricot at UBS. Henri Patricot: I have 2 questions, please. The first one, I want to come back to the comments you made, Jon, on the customer business. You mentioned on track to reach the EUR 1.4 billion EBITDA this year and maybe close to EUR 1.5 billion in 2026. But actually, you're already very close to EUR 1.5 billion over the past 12 months. So I was wondering if you're just being a bit conservative on the outlook for 2026 or if there was some exceptional performance over the past 12 months in the third quarter, in particular, that will explain why we should expect a slower growth in '26? And then secondly, on the Puertollano advanced power fuels plant, which you now plan to start up in the second quarter and have the first contribution in the second half of '26. If I'm not mistaken, you're previously flagging start-up in early 2026. Wondering why it's taking a little bit longer and if there's a risk of further delay of this project. Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, EUR 1.4 billion of EBITDA, that is going to be this year. Cash flow from operations will be at around EUR 1.2 billion, roughly speaking, this year. I mean I think that I'm not conservative. I'm ambitious for 2026 when I say that EUR 1.5 billion of EBITDA is our target. Why I'm, let me say, ambitious because the target we are achieving now for customers in the retail and power business in terms of EBITDA are the targets we had for 2027. So we are anticipating 2 years the delivery of the strategic plan. Is this performance exceptional? I mean, I don't think so. I think that is structural. I mean, if you take what has happened with our customer business over the last 10 years, from 2016, 2017, we have doubled the EBITDA figures of this business. And we are developing this effort year after year. That is not because ups and downs in the market because we have had ups and downs over these 10 years. It's structural. And the reason is, first, new businesses, I mean, an EBITDA that was not there and now is there and is growing when new businesses mainly. I mean, I could talk about power and gas. I talk about lubricants that you know that now we have an international footprint. We will talk about the [ gas ]. I mean, this kind of business developed around the energy efficiency that is also new. On top of that, I mean, we have almost 10 million digital users of our app Waylet. That is a unique position, not only in the energy sector in Spain, in the retail leadership in Spain. So we are becoming a leading retailer in the country with more than 3.5 -- almost 4,000 sales points with 24 million customers, including Spain and Portugal without digital leadership. So it's structural. We are growing this business. Of course, we will have better and worse situation of the market. But let me say that with EUR 1.5 billion of EBITDA, I'm feeling quite comfortable. And in this sense, I think that it is ambitious. I mean, if you take the EBITDA of this business and taking into account the investment level in this business that, I mean, it's also growing because we are growing in the gas and power business and so on, that you could pay almost 60%, 70%, the 2/3 of the cash dividend of Repsol could be paid by the free cash flow of this customer business that is always hidden because we are in all forms always talking about Brent price, Henry Hub price, refining margin. But the reality of this business is there. The retrofitting of Puertollano, I mean, it's going to be in operation at the end of the first quarter. So there are some -- there is -- I mean, no material delay. Perhaps some weeks of commissioning the project, but that is not, let me say, material in a complex industrial project like that. It is on budget. It's going to be finished at the end of the first quarter. And in the second quarter of 2026, it's going to be fully operational. [Foreign Language] Pablo Bannatyne: Thank you very much, Henri. Our next question comes from Paul Redman at BNP Paribas. Paul Redman: Two, please. The first one is just on the EUR 3.5 billion of CapEx you're talking about, I think it's for next year. How much divestment is included in that? And will the cash in from the Spanish sale be included in next year's or this year's divestment target? And then secondly, you mentioned earlier, Jon, about a possible EUR 1.05 dividend for next year. I see that's in between your EUR 1.3 and EUR 1.1 dividend guidance or range for 2026. I just want to understand how you get to that EUR 1.05, what we need to think about. Josu Jon Imaz San Miguel: Thank you, Paul. I mean going to your first question, that is net CapEx, the gross CapEx is going to be higher. What we are seeing, clearly speaking about rotation today are mainly the 700 megawatts of Spanish assets I mentioned before that is going to be cash in, in 2026. Plus probably Pinnington in the U.S. that is going to be partially in operation at the end of this year, 2025 but we are not yet in the process of rotation and so on because you have to prove, let me say, the operation of the asset. So that probably is going to be in 2026. And I don't have in mind any other disposal now, but you know that we always are analyzing our portfolio in a dynamic way. But you are right. This figure is net gross is going to be higher, and we will give you more clarity about that in the Capital Market Day of March. And going to the dividend, I mean, as I mentioned before, and I'm sorry for not having the possibility to be more precise, but you are going to understand why. This year, the dividend has been EUR 0.975. What we have in the strategic plan is that the total amount distributed in cash is going to increase in a 3%. So there is a first effect of a 3% growing of this figure. But on top of that, the absolute amount is growing but we are going to have less shares in 2026 than the shares we had at the beginning of this year. Why? Because we are going to redeem and here is where I can't be more precise because we are still in the process of acquiring the shares in the share buyback process. But probably, I mean, we take the prices and so on, we are going to cancel a figure that is going to be close. And again, disclaimer is going to be close because this math effect to a 4.1%. When I take the 3% plus the 4.1%, we arrive to a figure that is going to be close to EUR 1.05. We will have a full clarity about this figure at the end of this year, knowing exactly the number of shares redeemed but we are going to deliver and we are going to do what we commit in our strategic plan in terms of distribution. Again, that is an important target and what we said on that is going to be delivered. Thank you, Paul. Pablo Bannatyne: Thank you, Paul. That was our last question today. With this, we will bring our third quarter conference call to an end. Thank you very much for your attendance. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the CVR Energy Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin. Richard Roberts: Thank you, Eric. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy Third Quarter 2025 Earnings Call. With me today are Dave Lamp, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 third quarter results, let me remind you that this call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 third quarter earnings release that we filed with the SEC and Form 10-Q for the period and will be discussed during the call. That said, I'll turn the call over to Dave. David Lamp: Thank you, Richard. Yesterday, we reported third quarter consolidated net income of $401 million and earnings per share of $3.72 EBITDA was $625 million. These results include a $488 million benefit associated with the full and partial small refinery exemptions granted to the Wynnewood Refining Company for the 2019 through 2024 compliance years in addition to solid operations and improved market conditions in both our petroleum and fertilizer business. In our Petroleum segment, combined total throughput for the third quarter of 2025 was approximately 216,000 barrels per day for crude processing utilization of 97%. Light product yield was 97% on crude oil processed after working off intermediate inventories built during the Coffeyville turnaround earlier this year. We ran at full rates at both refineries in the third quarter with no significant lost opportunities. We do not currently have any additional turnarounds planned in the refining section for the duration of '25 or '26, and we currently expect the next planned turnaround to be at the Wynnewood refinery in 2027. Group III benchmark cracks averaged $25.97 per barrel for the third quarter of '25 compared to $19.40 per barrel last year. Average RIN prices for the third quarter were approximately $6.33 a barrel, nearly 25% of the Group 3 2-1-1 crack. Regarding RFS, after years of fighting for the rights of the Wynnewood refinery -- the rights that the Wynnewood Refinery Company is entitled to, EPA in August finally ruled on a backlog of 175 outstanding SRE petitions covering the past compliance period that have been pending before it for years. In addition to affirming its prior grants of the Wynnewood Refining Company's 2017 and 2018 petitions, EPA granted full waivers for 2019 and 2021 and fifty percent waivers for 2020 and 2022 to 2024. Based on these decisions, we were able to reduce our outstanding RFS obligation on our balance sheet by over 80%. While we continue to believe Wynnewood refinery deserves 100% waivers for every year, we are pleased to have these lingering issues resolved and a large obligation on our balance sheet significantly reduced. For the third quarter of 2025, we processed approximately 19 million gallons of vegetable oil feedstock at our renewable diesel unit at Wynnewood. Gross margin was negative by approximately $0.01 per gallon for the third quarter compared to a positive $1.09 per gallon for the previous year. The loss of the blenders tax credit and a significant increase in soybean prices this year continue to weigh on the profitability of the renewables business. We did not recognize any of production tax credit benefits in the quarter as we continue to wait final regulations from the IRS, but we estimate the unbooked production tax credit value would have been approximately $4 million for the third quarter and $9 million year-to-date. As a reminder, we believe that we would have the ability to retroactively claim these credits once regulations are finalized. In the Fertilizer segment, the ammonia utilization rate was 95% for the quarter compared to 97% for the third quarter of 2024. Nitrogen fertilizer prices for the third quarter of 2025 were higher for both UAN and ammonia compared to the third quarter of 2024. And fertilizer supplies remain tight around the world, which has been supportive of pricing. Now let me turn the call over to Dane to discuss our financial highlights. Dane Neumann: Thank you, Dave, and good afternoon, everyone. For the third quarter of 2025, our consolidated net income was $401 million, earnings per share was $3.72, and EBITDA was $625 million. Our third quarter results include a positive change in our RFS liability of $471 million an unfavorable inventory valuation impact of $18 million and unrealized derivative losses of $8 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $180 million and adjusted earnings per share was $0.40. Adjusted EBITDA in the Petroleum segment was $120 million for the third quarter, with the increase from the prior year period driven by a combination of increased Group III cracks, higher throughput volumes and improved capture rates. Our third quarter realized margin adjusted for RFS liability impacts, inventory valuation and unrealized derivative losses was $12.87 per barrel, representing a 50% capture rate on the Group 3 2-1-1 benchmark. Net RINs expense for the quarter, excluding the RFS liability impact, was $88 million or $4.45 per barrel, which negatively impacted our capture rate for the quarter by approximately 17%. The estimated accrued RFS obligation on the balance sheet was $93 million at September 30, representing $90 million RINs mark-to-market at an average price of $1.03. As a reminder, our estimated outstanding RIN obligation excludes the impact of any future small refinery exemptions. Going forward, we intend to continue to recognize 100% of Wynnewood Refining Company's current period RINs expense in our financials until EPA rules on our pending petitions. For modeling purposes, Wynnewood Refining Company's annual RIN obligation based on the 2025 RVO is approximately 120 million RINs. For the third quarter of 2025, we estimate adjusted EBITDA in the Petroleum segment would have been approximately $34 million higher with the benefit of a 100% small refinery exemption for 2025 or $17 million higher with a 50% small refinery exemption. Adjusted refining margin per barrel would have been approximately $1.68 per barrel higher with a full SRE for 2025 or $0.84 higher with a 50% SRE. Direct operating expenses in the Petroleum segment were $5.69 per barrel for the third quarter compared to $5.72 per barrel in the third quarter of 2024. The decrease in direct operating expense per barrel was primarily due to higher throughput volumes. Adjusted EBITDA in the Renewables segment was a loss of $7 million for the third quarter, a decline from the third quarter of 2024 adjusted EBITDA of $8 million. The decrease in adjusted EBITDA was driven by a combination of a decline in the HOB spread due to higher soybean oil prices, along with the loss of the blenders tax credit and nothing booked for the production tax credit. Adjusted EBITDA in the Fertilizer segment was $71 million for the third quarter with higher UAN and ammonia sales pricing driving the increase relative to the prior year period. The partnership declared a distribution of $4.02 per common unit for the third quarter of 2025. As CVR Energy owns approximately 37% of CVR Partners common units, we will receive a proportionate cash distribution of approximately $16 million. Cash flow from operations for the third quarter of 2025 was $163 million and free cash flow was $121 million, of which approximately $83 million was generated by the Fertilizer segment. Significant uses of cash in the quarter included $43 million of capital and turnaround spending, $43 million for cash interest, $26 million paid for the noncontrolling interest portion of the CVR Partners' second quarter 2025 distribution and a $20 million repayment on the term loan. Total consolidated capital spending on an accrual basis was $40 million, which included $25 million in the Petroleum segment, $14 million in the Fertilizer segment and $1 million in the Renewables segment. For the full year 2025, we estimate total consolidated capital spending to be approximately $180 million to $200 million and capitalized turnaround spending to be approximately $190 million. Turning to the balance sheet. We ended the quarter with a consolidated cash balance of $670 million, which includes $156 million of cash in the Fertilizer segment. Total liquidity as of September 30, excluding CVR Partners, was approximately $830 million, which was comprised primarily of $514 million of cash and availability under the ABL facility of $316 million. During the quarter, we paid down $20 million on the term loan, leaving the current principal balance at approximately $235 million. Looking ahead to the fourth quarter of 2025 for our Petroleum segment, we estimate total throughput to be approximately 200,000 to 215,000 barrels per day, direct operating expenses to range between $105 million and $115 million and total capital spending to be between $20 million and $25 million. For the Fertilizer segment, we estimate our ammonia utilization rate to be between 80% and 85%, which will be impacted by the planned turnaround currently underway at the Coffeyville facility. We expect direct operating expenses, excluding inventory and turnaround impacts, to be between $58 million and $63 million and total capital spending to be between $30 million and $35 million. Turnaround expense is expected to be between $15 million and $20 million. For the Renewables segment, we estimate fourth quarter 2025 total throughput to be approximately 10 million to 15 million gallons with a catalyst change expected in December. We expect direct operating expenses to range between $8 million and $10 million and total capital spending to be between $1 million and $3 million. With that, Dave, I'll turn it back over to you. David Lamp: Thanks, Dane. Refining market conditions continued to improve during the third quarter with refined product demand remaining steady and inventories continue to trend near 5-year average levels. Increased geopolitical tensions have contributed to the strength in crack, particularly diesel cracks following a string of Ukrainian drone attacks on the Russian refineries over the past few months. Within the Mid-Con, where we operate, we continue to see positive supply-demand trends with gasoline and diesel inventories at or below recent historical averages and demand improving. During the quarter, we began producing jet out of the Coffeyville, and we expect to see production and sales volume of jet fuel ramp up over the next few quarters as we continue to make commercial progress. Looking out over the next few years, multiple pipeline projects have been announced that would connect refined product supply from PADD 2 into PADD 4 and 5, which could provide a constructive solution to meet consumer demand across all regions. Overall, we remain cautiously optimistic about the near- and medium-term outlook for the refining sector. As I mentioned, supply and demand balances remain favorable even with the trend of high fleet utilization continuing. There are still several refineries in the U.S. and Europe that are scheduled to shut down over the next few quarters, representing a total capacity of around 400,000 to 500,000 barrels per day and with minimal new fuels refinery capacity projected to start up over the next few years. Meanwhile, refined product demand appears stable, and we continue to believe any pro-growth initiatives from the Trump administration will -- should be positive for GDP growth and demand for transportation fuels in the U.S. This dynamic of stable and improving demand with limited new refining capacity could help cracks remain healthy. In the Renewables segment, profitability has been challenged this year after the loss of the BTC and the increase in soybean oil prices following EPA's announcement of increasing RVOs and limits on credit generation from an imported feedstock. As we've talked many times over the past few years, while we want to participate in the renewable space, we will only do so if profitable. Unfortunately, the renewable diesel business relies heavily on government mandates and subsidies to be profitable, and the government does not currently seem to be interested in supporting the renewable business it created. Given the losses that we have faced this year in our renewable business and that we have seen little government support that return it to profitability in the near term, we have made the decision to revert the renewable diesel unit at Wynnewood back to hydrocarbon processing during the next scheduled turnaround in December. We believe that we have more opportunities to create value in the full hydrocarbon processing mode, and we look forward to working on some of the alternative uses for the logistical assets built for RD service. We would also retain the option to switch back to renewable diesel service in the future if incentivized to do so. In the third quarter, we recognized $31 million of accelerated depreciation associated with the pretreatment unit as a result of our decision to revert the RD unit back to hydrocarbon processing. We also wrote off approximately $3 million of capital investment associated with the potential renewables project at the Coffeyville. We anticipate additional accelerated depreciation impacts of approximately $62 million in the fourth quarter as well. Finally, in the Fertilizer segment, we saw continued strong pricing through the summer due to tight supplies, trade and geopolitical issues. The harvest is currently on schedule and nearing completion. Current USDA estimates on corn planting and yields would imply carryout levels at or below 10-year average, although grain prices have remained low on the expectation of a large crop production in Brazil and North America. Domestic and global inventories of nitrogen fertilizers remain tight, which we believe should continue to support prices into the spring of 2026. We have a number of projects in flight to support capacity increases at both plants and infrastructure projects to target improved reliability for max utilization to capture this market into the future. Looking at the fourth quarter of 2025, quarter-to-date metrics are as follows: Group 2-1-1 cracks have averaged $25.69 per barrel with a Brent-TI spread of $3.80 per barrel and a WCS differential of $11.62 under WTI. As of yesterday, Group 3 2-1-1 cracks were $30.10 per barrel and RINs were approximately $5.91 per barrel. Prompt fertilizer prices are approximately $700 per ton for ammonia and $360 per ton for UAN. As we stated in our last earnings call, returning the balance sheet to targeted leverage is a key focus for us in the near term. With the SRE grants at the Wynnewood Refining Company received in August, our balance sheet has improved significantly through the reduction of the RFS obligation; however, EPA has not ruled on SRE petition we submitted in July. If the Wynnewood Refinery company is granted a 50% waiver for 2025, we currently estimate that we would have to purchase approximately $100 million worth of RINs by the end of March of '26 to satisfy both our obligated subsidiaries for '24 and '25 obligations. Beyond the current cash needs for RINs, we intend to continue to prioritize paying down the term loan with the excess cash flow we are able to generate. Reducing the balance on the term loan is one of the several criteria in the Board's decision around a potential return to the quarterly dividend, and that decision is evaluated every quarter. If cracks remain elevated, we would likely be able to reduce debt faster and accelerate conversations with the Board around the dividend. As always, we will always look to ways to improve capture, reduce cost and ultimately grow our business profitably. As this will be my last earnings call before retirement, I'd like to say it's been a pleasure to work for the last 45 years in an industry that makes modern life possible. I have crossed paths with a ton of people over the years, all of who I've learned something from and contributed to my success. With that, I am grateful. With that, operator, we're ready for questions. Operator: Our first question comes from the line of Matthew Blair with TPH. Matthew Blair: Dave, wishing you the best in retirement. It's really been a pleasure working with you over these past, I guess, several years. So yes, wishing you the best. I wanted to follow up on your commentary on the new product pipelines that would take Barrels West. It seems like this could be a potential positive for Mid-Con refiners like CVR. But could you talk about whether you would plan to make commitments, shipping commitments on any of these types? And if so, like is there a proposal that looks more favorable in your view? David Lamp: Well, we haven't really studied that too much yet because a lot of the details on these lines is still coming out. But I think you're right, Matt, that it will be very constructive for the Mid-Con. As I've said many times, the Mid-Con has been long on product with the high utilizations we've seen in the northern tier of the PADD 2. And any relief of where to move those barrels will be a positive to the Group 2 and then probably a positive to Group 4 or PADD 4 and PADD 5. Obviously, one of the projects goes all the way to California, the other does not. And I'll remind you that the Denver pipeline is out there also, which moves barrels to PADD 4 also. So we think it's helpful. Whether we take line space on any of them, we haven't decided yet and more to come on that in the future. Matthew Blair: Sounds good. And then I guess in regards to the decision on the renewable diesel plant, is there any opportunity to still utilize the pretreatment plant? Or would that be just completely shut down as well? David Lamp: Well, in the short term, it definitely will be shut down, and that's why we took the accelerated depreciation. It's probably -- if you look at the current spreads on basis of soybean oil and other feedstocks, they're pretty tight and doesn't give a lot of incentive for the PTU, but we will look for all those opportunities we can find. We know we have use for the rest of the logistical assets. So just look for us to find new ways to use that in the future. Operator: Your next question comes from the line of Paul Cheng with Scotiabank. Paul Cheng: Just want to extend my congratulations on your retirement, and thank you for all the help throughout the years. We appreciate. On the renewable diesel, -- so what does it take? Is it just the change of the catalyst or that there's other changes that you need to make in order for you to convert back into running hydrocarbon? And also that do you have an estimate of the cost to keep the [ PTC ] to sustain in a reasonable shape so that in the future, if you decide that to restart it? David Lamp: Yes, Paul, I think it's a pretty easy conversion for us because we considered this when we built the unit. So it's mostly a catalyst change. There's a few other pieces of pipe we need to do. But in the general case, it's just really a piping change. As far as the PTU goes, I think we'll mothball it in a way that we can bring it back in short order should something change in the renewable space. The renewable space is -- I just -- I guess the decision was largely made just because we just don't see any catalyst that can really change the projection of that thing. RINs were designed to make the marginal producer breakeven. Some people are predicting a big increase in RINs, but our unit was limited to mainly soybean oil and a little bit of corn oil. It couldn't really handle any of the real low CIs just because of metallurgy. And even with the low CIs, what's happening in most cases is the HOBO goes up and down and the RINs change, it's just going into the feedstock cost. So we just didn't see much of a chance to really -- for anything to change in that space that is going to make it a good deal. Paul Cheng: So even with the PTC or facility, we're never able to handle the low CI stuff? David Lamp: Well, any of the very low stuff like used cooking oil, we're not designed to handle it, metallurgical wise. With land use, that helped, but the PTC does not -- even with that doesn't make up for the BTC. Paul Cheng: I see. And when you're saying that you're going to move the PTC and that is there any -- or that the cost is so minimum that to maintain it going forward that it's just a drop in the bucket. So it's really just pocket change or that that's a reasonable cost associated on a going-forward basis? David Lamp: Once we mothball it, Paul, it's really pretty low cost. There'll be some costs that we started, but there won't be a lot. Paul Cheng: I see. And then a final question, I mean that with all the proposed new pipeline getting the barrel out from the Mid-Con, does it in any shape or form that change the way that how you're looking at your configuration and how you're going to run those facilities or that doesn't really matter? David Lamp: Well, depending on which of those 2 options really happen, I think we can make a reformulated gasoline. We can probably make some Arizona clean burning gasoline, but CARB would be challenging for us. So -- and I don't know that we'd ever want to make an investment for CARB. Eventually, I think that formulation may melt away or go away at some point when California wakes up to the high cost of fuel out there and what it costs to make that reformulated special blend for them. But certainly we'll have the other 2 grades that we can do. And then it's just a question of volume. If we do elect to take that business, how much volume would it be and what changes would we have to make to do that. I'll remind you that -- we have this KSAAT project that is going to make more alkylate at Wynnewood. We're going to be alkylating all our C3s that today we sell. And so that's going to increase our alkylate production, which helps us in some of these clean burning gasoline. Paul Cheng: Yes. So you're trying to make gasoline for the Arizona market, as you say, it's just a matter of the warning and how much it's going to cost. Can you give us some idea that if you want to make, say, 20,000 barrels per day, how much is that cost and what need to be done? David Lamp: We haven't looked at that yet, Paul. Just I can't give you any guidance on that. Operator: Your next question comes from the line of [ Alexa Patrick ] with Goldman Sachs. Unknown Analyst: I wanted to ask on the $100 million RIN obligation you guys talked about outstanding. How are you guys kind of thinking about the strategy of meeting that RIN obligation when we also keep in mind that we're still waiting on some incremental SRE updates for specifically '24 and '25? Dane Neumann: Yes. Thanks, Alexa. So right now, we're just thinking about the December deadline for '24 and the March deadline for 2025. The $100 million encompasses covering Coffeyville and Wynnewood at 50% through 2025 and also Wynnewood through 2024. Again, as you mentioned, we're particularly monitoring for the 2025 waiver outcome. And Wynnewood last few years gotten 50%. We expect that to be a worst-case scenario. We still believe it should be 100%. And in the event that we do get 100%, the nice thing is the RINs that we purchased for that could be used for Coffeyville compliance going forward. So it feels like a conservative thing to do to plan to buy the 100 million RINs between now and March 31. Unknown Analyst: Okay. That's very helpful. And then maybe just some early thoughts on '26, how we should be thinking about capital spend? And then any considerations there related to the RDU conversion? David Lamp: Yes, we don't -- we usually give that guidance in the fourth quarter, Alexa. So I think we'll wait until that time to fill you in on that. Operator: Your next question comes from the line of Manav Gupta with UBS. Manav Gupta: Dave, thank you for all the years that you provided us insights into the refining market. I do have to say that if you look at the last 1.5 or 2 years, this is the most bullish I've heard you on an earnings call. So it's good that you also feel that this is a much stronger refining environment that we are in. And so the question that comes back to is by when do you think you would be at the right debt levels to restart some form of dividend because that's the #1 question we get is CVR is doing much better, when can we see some form of payout for the shareholders? David Lamp: Well, that's a difficult prediction to make, Manav. I do -- I will tell you that I haven't -- I've been in the business a long, long time, and I've watched these markets for a long, long period of time. And this setup that I see coming is probably the best I've seen in a long time. Just look at the number of refineries that are shutting down and the supply of new ones, we came through a big wave of new refineries coming on, some of which are still in the start-up phase. There just is very few fuels refineries that are going to be starting even in conception right now that are going to make a difference in this balance. And demand is still growing, even though it's slower. No doubt EV penetrations hit. But the matter of fact is the -- the refinery is going to -- to me, it's going to be short in the future. And it's a great space to be in. If you consider what it takes to build a refinery these days, I don't care where you do it in the world. It's just really expensive. It's almost 4x what our -- what the market cap of what these companies are today. And that just bodes well to me for the future on what cracks will look like. Operator: Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments. David Lamp: Thank you. Again, I'd like to thank you all for your interest in CVR Energy. Additionally, we'd like to thank our employees for their hard work, commitment towards safe, reliable and environmentally responsible operations. With that, we'll talk to you next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to the Director of Corporate Development and Investor Relations at Methanex, Ms. Jessica Wood-Rupp. Please go ahead, Ms. Wood-Rupp. Jessica Wood-Rupp: Good morning, everyone. Welcome to our third quarter 2025 results conference call. Our 2025 third quarter earnings release, management's discussion and analysis, and financial statements can be accessed from the Financial Reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward-looking information. Please refer to our third quarter 2025 MD&A and to our 2024 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the Natgasoline facility, and our 60% interest in Waterfront Shipping. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner, for his comments and a question-and-answer period. Rich Sumner: Good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter average realized price of $345 per tonne and produced methanol sales of approximately 1.9 million tonnes generated adjusted EBITDA of $191 million and adjusted net income of $0.06 per share. Adjusted EBITDA was higher compared to the second quarter of 2025, primarily due to higher sales of produced products, offset by our lower average realized price. I'll start by providing an update on our newly acquired assets and integration activities. During the third quarter, both the fully owned Beaumont plants as well as the 50% owned Natgasoline plant operated at high rates, produced a combined 482,000 tonnes of methanol and 92,000 tonnes of ammonia. We have a structured 18-month integration plan across all functions of the business to ensure we fully realize the expected benefits of this highly strategic transaction. We've begun executing on our integration plan and working with our new team members at these manufacturing sites on asset and safety reviews. On the supply chain side, we've integrated the new logistics operations into our business to ensure we meet customer needs while focused on planned synergies. Given normal inventory flows, the high rates of third quarter production from these new assets will not fully flow through earnings until the fourth quarter of 2025. Now turning to methanol market conditions. Global methanol demand was relatively flat in the third quarter compared to the second quarter across all downstream derivatives. Demand for methanol-to-olefins in China operated at high rates, consistent with the second quarter and increased to approximately 90% by the end of the quarter, supported by an increasing amount of import supply availability from Iran, which we estimate operated at close to 70% rates through the quarter. This increased supply from Iran, along with relatively high operating rates across the industry, led to an inventory build, particularly in coastal markets in China. Looking ahead to the third quarter, we estimate the methanol affordability into MTO and the marginal cost of production in China to be approximately $260 to $280 per tonne. We continue to see spot and realized methanol prices in all other major regions at premiums to these pricing levels. We posted our fourth quarter European quarterly price at EUR 535 per tonne, representing a EUR 5 increase from the third quarter. Our North America, Asia Pacific, and China prices for November were posted at $802, $360, and $340 per tonne, respectively. We estimate that based on these posted prices, our October and November average realized price range is between $335 and $345 per tonne. Now turning to our operations. Methanex production in the third quarter was higher compared to the second quarter with the full contribution from the new assets and higher production from Geismar, Medicine Hat, and New Zealand, which all experienced planned or unplanned outages in the second quarter. In Geismar, production was higher in the third quarter after the site experienced unplanned outages late in the second quarter. All plants returned to production in early July. As previously noted, both the Beaumont and the Natgasoline facilities operated at high rates during the third quarter. In Chile, we operated the Chile I plant at full capacity throughout the quarter, marking the first time we've had one plant operating at full capacity throughout the Southern Hemisphere winter months for more than 10 years. During the quarter, the Chile IV plant successfully completed a planned turnaround and restarted at the beginning of October. We expect both plants to operate at full rates through to April 2026. In New Zealand, we had higher production in the third quarter as the plant restarted in early July after a temporary idling of the operations to redirect contracted natural gas to the New Zealand electricity market. Gas supply availability in New Zealand continues to be challenged, and we're working with our gas suppliers and the government to sustain our operations in the country. In Egypt, we operated at approximately 80% of capacity during the third quarter as gas availability during peak summer demand remains constrained. There has been stabilization of gas balances in the country, but some continued limitations on supply to industrial plants are expected going forward, particularly during the summer months. The plant is currently operating at full rates. Our expected production -- equity production guidance for 2025 is approximately 8 million tonnes, which is made up of 7.8 million equity tonnes of methanol and 0.2 million tonnes of ammonia. Actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. Now turning to our current financial position and outlook. In late June, we closed the OCI acquisition, consistent with our financing strategy, using proceeds from the bond issued in 2024 and borrowing $550 million under the Term Loan A facility. During the third quarter, we repaid $125 million of the Term Loan A facility with our cash flow from operations and ended the third quarter in a strong cash position with $413 million on the balance sheet. Our priorities for the rest of 2025 are to safely and reliably operate our business and continue to execute on our integration plan. Our capital allocation priority is to direct all free cash flow to deleveraging in the near term through the repayment of the Term Loan A facility. We do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and ensuring we have financial flexibility. Based on our fourth quarter European posted price, along with our October and November posted prices in North America, China, and Asia Pacific, our October and November average realized price is forecasted to be between $335 and $345 per tonne. Based on a slightly lower forecasted average realized price coupled with produced sales levels much closer to our run rate equity production, including the newly acquired assets, we expect meaningfully higher adjusted EBITDA in the fourth quarter of 2025 compared to the third quarter. We'd now be happy to answer your questions. Operator: [Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotiabank. Ben Isaacson: Rich, can we talk about Trinidad? You saw Nutrien closure, and I'm not asking you to comment on their issue, but I believe you're next door. And so my questions are, what's your relationship with the NEC? Are they asking you for retroactive port fees or is that a risk? And then if Nutrien is down, which it is, does that mean more gas allocated to you? Rich Sumner: Thanks, Ben. Yes, we have a contract with the NEC for port fees or port arrangements, that's not -- we're not in a similar situation there. As it relates to gas and gas availability, we're in a similar situation as we've been talking about in Trinidad, which is gas markets are tight. A lot of the downstream contracts come up at the end of -- most of them come up at the end of this year. Ours runs until September 2026. So we're in discussions with the NGC about gas. When we look at the gas outlook, we think that in the near term anyways that tightness remains. There are activities happening in Trinidad that over the next few years could mean some slight uptick on supply there. But we don't see a meaningful change to the situation we're in, which is a one plant operation. And right now, we're operating one plant at full gas supply. So even if there were more gas available today, certainly, we wouldn't expect that a restart of Atlas or anything like that would make sense. There just isn't enough gas to go around today for all the downstream. So our situation will be focused on the next round of discussions for the current gas supply. We don't have a turnaround for Titan for some time. So that's our main focus and we're in discussions with the NGC. Ben Isaacson: And if I can just do a quick follow-up. Rich, you talked about kind of recontracting some of the OCI book. Can you just talk about that? What was the existing OCI book like and why does there need to be some recontracting now? Rich Sumner: Yes. I think one thing to note is we did increase our sales. So you would have seen from Q2 to Q3, we increased sales by about 350,000 tonnes, which is about 1.4 million tonnes on an annualized basis. The assets are running extremely well. And so when you've got the production there, there could be some recontracting that we need to do for next year, certainly, we're in those discussions. In the near term, we'll take that into our supply chain. We'll actually flex as much as we can within our existing sales contracts. So we have flexibility to increase sales there. And then we'll be working if we had to do short-term contracts to the end of the year, we don't see that being significant. What you should expect though is in the fourth quarter, we will have higher sales than we did in the third quarter. And you should expect next year, the quarterly average sales to be higher than they were in the third quarter as well as we recontract for next year. Operator: Our next question comes from the line of Joel Jackson with BMO Capital Markets. Joel Jackson: I'm going to ask 2, but I'll do one by one. Can you maybe give us an idea, could you quantify like if -- I mean, accounting you're able to -- if you do the Q4 accounting in Q3, what would have been the EBITDA like boost in Q3? Basically, how much is earnings hit by the accounting treatment the first month-and-a-half of Beaumont? Rich Sumner: I think -- thanks, Joel. I think the way to think about it is that we had 1.9 million tonnes of equity production coming through sales. When we look at our production in the third quarter as well as into the fourth quarter, we now are at a point where we've got the asset base with the newly acquired assets closer to what we would say is our run rate with our new strengthened asset portfolio, which we think is really something that is going to -- we're working on is consistently demonstrating this performance. So when we think what is that run rate number, if we gave, when we introduced the OCI transaction, is about $9.5 million, a little bit more than that per annum of equity tonnes, including ammonia. So what should be coming through is about 2.4 million to 2.5 million tonnes. That's a delta of 500,000 to 600,000 tonnes versus Q3. So that's where the main earnings difference is coming from, which is a meaningful -- that's a meaningful increase in EBITDA. And that's what we're expecting when we get into the fourth quarter is that sales of produced product is going to look more like our equity run rate. So that's why we're kind of guiding to a meaningful uplift as we move into the fourth quarter. We're not at $350 per tonne, but we're close. So it should be setting up to be a strong quarter. Joel Jackson: Second question, just first, there were some news this week that maybe Natgas, the plant lost some gas or it was down. Tackle that for a second. And then I know you talked about before about turnarounds, maybe being able to do turnarounds maybe a year later than usual, looking at some of the [indiscernible] you have. Can you speak about that? And then I imagine Beaumont, Natgas, G3 wouldn't have to have turnarounds anytime soon. Also [indiscernible] Beaumont and Natgas probably wouldn't? Rich Sumner: Yes. First on the Natgas point. I think there may be some interpretation from gas monitoring around the operations in Natgasoline. We don't really comment on kind of daily gas reports where I think where this has been picked up. Nothing should be read into that, that there's any significant issues happening at Natgasoline based on any of that information. So probably I'll end it there on that one. But on the turnarounds, we have guided to about $150 million in CapEx per year, and that's 2 to 3 turnarounds a year. I think that's good guidance. We're always looking at ways that we can optimize around maintenance without sacrificing safety and reliability. And that's something that our team is consistently looking at. Within the $150 million, there's a good -- there's a meaningful amount of capital for the new assets, that's something we're looking at closer. But we're going to -- we would stick with the guidance of around $150 million on average and something we're always looking to further optimize. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: You ran Beaumont and Natgasoline at high rates, you expect to run them at high rates. Where is the methanol going? Are these going to North American customers or offshore customers? And if they're going to offshore customers, what kinds of customers are they? What products are they making? Rich Sumner: Yes. I mean when we -- so when we introduced the OCI acquisition, what we had said was a large percentage of the contracted business we would expect would be in North America and Europe, and that's largely where we're selling the product. Obviously, the assets are running really well. And so there's some small uncontracted tonnes, which then we will increase the flexibility in our existing assets, our existing customer base as well as having to place some of those tonnes. That's a short-term basis. What our commercial -- global commercial team is working on now is looking at 2026 recontracting. And I think you can -- we give guidance about what our regional allocations look like on a percentage basis, and we would say those are the regional allocations to think about our global portfolio for next year. In terms of which applications we sell into, we sell into -- we have diversified set of customers. So you can think of our sales portfolio as almost a representation of the breakdown of global methanol markets. And that's pretty much what it will look like next year, a well-diversified sales portfolio into different derivatives with a similar global allocation that we guide to in our investor deck. Jeffrey Zekauskas: Just maybe if I could try it one more time. Global methanol demand isn't really growing very much, if it's growing at all, and you've got extra production. So whose tonnes are you squeezing out? Rich Sumner: Well, these tonnes were existent before we had them. So we're not squeezing out any tonnes. There is some incremental production over what we might have modeled. So we're talking about 200,000 tonnes in a 100 million tonne market, which isn't meaningful. So we're not worried about placing those tonnes. And methanol markets year-over-year, we would say, are growing -- it's growing about 2% to 3%. 2% to 3% is really being driven by China and Asia, where it represents 70% to 80% of global methanol demand. That's on the back of export manufacturing and strength in those markets as well as energy derivatives mainly in China. So the market is not growing at strong rates. The Atlantic and other markets generally flat. But we don't think that the market is in retreat and supply continues to be constrained, right? So we have a constrained methanol market with -- when we look at gas being either in mature gas basins or gas being redirected into LNG. Existing supply continues to be tight. So we're not concerned about having higher operating rates. Quite frankly, it's the opposite. We've got our assets in low-cost basins and it's highly profitable to have this production in our system. Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Nelson Ng: First question just relates to capital allocation. I think, Rich, you talked about paying down the Term Loan A gradually. So from your perspective, would the balance sheet be in the right place after you fully repay the Term Loan A and obviously have a reasonable cash buffer on -- in place in your balance sheet? Would that be -- would you be done deleveraging at that point? Rich Sumner: No, we won't be done deleveraging. But we do think the focus doesn't need to be entirely to deleveraging. We are -- our main focus in the near term is paying down the initial tranche, like you said. And if you look at the Term Loan A facility balance that we have, also consider that we've got excess cash on hand. We think we've got about $350 million left to go there, which is our primary focus. And really, our primary focus is we continuing to deliver what we're doing right now and what we've done through the third quarter and really focusing on conversion to cash for shareholders. Beyond the $350 million, we -- our debt target gets us back to our 3x debt to EBITDA. Our target has always been 2.5x to 3x, and we've got a debt tranche coming due -- a bond coming due in '27, which we wouldn't want to fully refinance. Having said that, we believe we've got a really strong asset base with competitively -- stronger, more competitive asset base. And so the strength of the free cash flows is there that we can continue to deleverage and focus on the balance sheet. We don't have a significant growth capital, and there could be some room there as well for shareholder returns. But that's what we want to -- first, we want to get there and the focus on that is the $350 million that's in front of us. And it's really -- that's the primary focus today. Nelson Ng: My next question is just in terms of, you talked about how you've started on the 18-month integration strategy. And obviously, it's still early days. But do you -- in terms of the -- I think it's roughly $30 million of anticipated synergies that you expect to realize. Can you give a bit more color in terms of where most of those benefits will come from? Rich Sumner: Yes. So the $30 million is primarily IT-related, insurance related, logistics, which means terminals and other optimization around logistics. So it's -- those are relatively hard synergies, and we plan to be realizing those on an 18 -- it's more like almost a year period now, but 18 month -- 12- to 18-month period. Some of those are easier to get at in the near term than others. IT will take a little longer. The other elements of the deal, I think, is that we're really focused on is getting above deal value results. And when we look at that, we focus on the assets. We model these assets at a certain operating rate as well as annual capital and maintenance capital. And I think today, we're achieving above those results. So our goal is to replicate that. And obviously, we're still early, and we're really focused on working with the teams, understanding the assets, how they operate the safe and reliable assets and be able to deliver and replicate this going forward. So that's the primary focus. Operator: Your next question comes from the line of Josh Spector with UBS. James Cannon: This is James Cannon on for Josh. I wanted to ask on New Zealand because I think last quarter, you guided to about 400 kt out of that unit this year. It seems you're tracking decently above that, but you held the overall guide relatively stable. Is there anywhere else in the portfolio you're seeing maybe weaker-than-expected results? Rich Sumner: Yes. I mean, I guess I'll kind of caution around New Zealand. Right now, we've got the asset running at 60% to 70% rates through the third quarter on the one Motunui plant. That gas balance is, we're really tight on gas. The country is tight on gas and our gas allocation is allowing us to operate at minimum operating rates today. So it's still something we're really focused on. The 400,000 tonne sort of assumes that for part of the year, we would be shut in. But at the end of the day, we're really focused on how we maintain that 400,000 tonne based on gas supply today. So we're working closely with gas suppliers. When you look at the other assets in the portfolio, everything is pretty much on the guidance. Egypt today, we're at full rates. We've come off the summer where we were at 80%, which is actually a very good result relative to the -- a lot of the -- that's usually where the demands on the grid are the highest. So today, Egypt is probably above. We've got 2 plants operating in Chile. So that run rate assumes the average for the year. So we're a bit above there. And then the other assets, we're pretty close. So things are going well right now. I think we need to think about that backdrop against how our newly acquired assets are running. And it sets up really well for us to demonstrate the strong free cash flow generation that we expect from the investments we've made, have P3 fully operating and really, I would say, the strength of the portfolio enhancement we've made with these assets. So that's our focus right now is continue to replicate that and focus on free cash flow conversion for shareholders. Operator: [Operator Instructions] And your next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: So can you give a sense for what's going on in terms of the global industry utilization rate and what you're seeing in terms of demand, in particular in Asia for DME and MTO applications? And then secondly, can you speak to how the IMO decision to defer the flex fuel mandate might affect the cadence of demand for methanol over the next couple of years? Rich Sumner: Thanks, Laurence. Yes, from industry operating rates, Q2 and Q3 period tend to be the highest. And I would say across the industry, we've operated high. And what do I mean by that is if you look -- these are round numbers, but the Atlantic is operating at 80% operating rates. The Pacific, ex-China, is operating at 75% rates, and China is operating at 70% rates. Those may not seem high. But if you back out capacity that's permanently idled or gas feedstock that has been redirected or issues around, geopolitical issues that's constraining supply, the effective utilization is much higher than that. So we would say that we're at very high operating rates and there's not a lot of latent capacity, especially when Iran is operating at 70% rates, which is seasonally high there. So notwithstanding that, we did see some build during the quarter in coastal markets in China. But as that built up, we've now seen MTO operating rates moving up above 90% and that meant that inventories are now moderating in the coastal markets in China. So I think everything there tells us that even when everything is working, the market actually is relatively in balance. And then when we move into the Q4, Q1 period, supply gets restricted. And there actually isn't enough supply to meet all demand today, which is -- we would say this is a constructive market from that perspective. When you ask about MTO and DME demand, DME has been -- that demand is relatively flat. There's no -- it does go up or down a bit between 3.5 million and 4 million tonnes based on operating rates, but it's not really a move around the demand side. MTO moves up or down based on availability in the market as well as affordability there. And we've seen MTO continuing to operate now at high rates as we move into the fourth quarter. We would expect that might come under pressure as Iran gets restricted and there's less import supply availability. So hopefully, that answers the first question. On the IMO, we -- first, on the marine side, that is the big upside for methanol and a new application. Obviously, 400 ships should be in the water between -- dual fuel vessels between now and the end of the decade, represents a big demand potential. The IMO, obviously, we were watching closely what the IMO would do around the adoption of the net zero framework. Really what that would have done if it were adopted and some of the guidelines that they were proposing were adopted, it would have enhanced the competitiveness of low-carbon methanol as a fuel to meet those regulations. So the deferral by -- it has been deferred by 1 year. It came up against meaningful political opposition. We think that 1 year deferral allows the IMO to line out their guidelines and spell those out more, which was a big pushback during the meeting, but the opposition is a big hurdle. So that's something we're going to closely watch. The marine industry continues to support the net zero framework. There's been a lot of invested capital by shipping companies on investing incremental capital on dual fuel ships to meet low carbon regulations in the future. So something we're going to continue to watch. Our Low Carbon Solutions team will be working really closely with the marine sector on how that goes forward. Operator: Our final question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: How have you fared in buying gas forward for your new assets that you've acquired? And that gas prices have been pretty low from the time you bought it, but they've moved up. Are you hedged yet or do you have more to go? Or where do you stand? Rich Sumner: Thanks for the question. The gas situation, when we acquired the assets, the OCI assets came to us largely unhedged. We already had our North American exposure. At least in the near term, we were hedged at around a 70% level on our existing book of assets. Where that puts us today is, I'll start, in the near term, we have hedged a little bit up. So we're closer to the 70% level to the end of the year across our total North American exposure. Into '26 and '27, the number gets closer to 50% to 60% hedged. We opportunistically enter the market if there's attractive pricing. Today, we wouldn't be looking to hedge at today's price. We will be seeking if the pricing drops below $3.50 as an example, we'll look to put in more. Today, we're comfortable with that open exposure and we'll opportunistically enter the market to layer more in when the pricing allows for that. Interestingly, the near end of the curve isn't priced that way, but the longer end of the curve actually is priced lower, and we did some contracts below $3.50 on a nominal basis out beyond 2030 recently, not big contracts, but -- so we're always looking to seek competitively priced gas for us that's really favorable for our North American exposure. Jeffrey Zekauskas: So in terms of hedging near term, it might be that you wait until the spring before you really try to lift your purchases again. Is that a base case? Rich Sumner: I mean it will be market determined. Of course, if we see the forward curve drop off for any reason and it's attractive, then we'll enter the market. I understand what you mean. Typically, we'll see some softening when inventories start to build so much as the gas market trades off of how inventories are trading. But we'll wait and see. And obviously, we've got a team that's reviewing these things daily and managing our exposure for us. Operator: And with no further questions in the queue, I will now turn the call over to Mr. Rich Sumner. Rich Sumner: Okay. Thanks again for joining the call this morning and for your questions and interest in our company. We hope you'll join us on November 13th for our Investor Day presentations and Q&A. Operator: Thank you for your questions. And this concludes today's conference call. You may now disconnect.
Øyvind Paaske: Good afternoon, and welcome to the presentation of Akastor's third quarter results. My name is Oyvind Paaske, CFO, and I'm joined today by our CEO, Mr. Karl Erik Kjelstad. We are also pleased to have HMH with us from Houston, represented today by Eirik Bergsvik, CEO; and David Bratton, SVP Finance. As usual, Karl will begin with some key highlights, followed by Eirik and team, who will present the HMH update. I will then take you through Akastor's consolidated financials before handing it back to Karl. Toward the end, we'll open for questions through the web-based Q&A solution where you can post questions at any time. With that, I'll turn it over to Karl. Karl Kjelstad: Thank you, Oyvind, and good afternoon and good morning to our U.S. participants, and thank you so much for joining us for this earnings call. Let us start on Slide 2 with the key highlights for the third quarter. Akastor continued to be in a solid financial state. We have a positive net cash position and no draw on our corporate RCF. With this, we are very pleased to announce another cash distribution to our shareholders, this time, NOK 0.4 per share, supported by the realization of our holding in Odfjell Drilling. This is aligned with our strategy to return excess capital to shareholders while maintaining a sound capital structure. Turning to HMH. The company continues to deliver robust financial performance and demonstrate resilience even in a challenging offshore drilling market. Despite headwinds affecting service activity and spare part sales, HMH achieved adjusted EBITDA of USD 42 million, a solid quarter with a margin of 19%. Importantly, the company also delivered a strong cash flow, underscoring the quality of its operation and its ability to generate value also in a demanding environment. The value of our shareholding in HMH now represents 77% of our total net capital employed with a book value of NOK 3.4 billion at the end of this quarter -- of the third quarter or NOK 12.5 per Akastor share, somewhat higher than last quarter due to positive earnings in the period. Then AKOFS Offshore. AKOFS Santos vessel was formally awarded the 4-year MPSV contract in the quarter, expected to commence in January 2027, safeguarding long-term earnings for AKOFS. AKOFS' earnings for the quarter were impacted by the planned 45-day yard stay required to complete the 5-year classing of the AKOFS Seafarer vessel. Except for this scheduled yard stay, all vessels, including Seafarer, delivered strong operational performance. It's again worth noting that our current book value of AKOFS, where the value related to our equity holding in the third quarter was reduced in nil, reflects a conservative measure driven by historic cost and the company's negative earnings to date. This does not, in any way, fully capture the underlying asset value of AKOFS. We continue to see significant upside potential and remain focused on ensuring this value is increasingly recognized and understood. DDW Offshore, all vessels recorded 100% revenue utilization through the quarter, delivering an EBITDA of NOK 43 million. The book value of our investment in DDW Offshore stood at NOK 1.2 per Akastor share based on an average book value per vessel of $11 million. Finally, the third quarter, we completed the sale of our remaining shares in Odfjell Drilling in line with Akastor strategy of realizing assets to enable capital distribution to shareholders. This transaction generated proceeds of NOK 118 million in September bringing the total proceeds from the sale of Odfjell shares during 2025 to NOK 222 million. Slide 2. I would like to have a few more comments on the Odfjell investment. Back in 2018, we in Akastor made initial investment of USD 75 million in Odfjell Drilling through a preference shares and warrant agreement structure, supporting the acquisition of Stena MidMax that today is called Deepsea Nordkapp. In November 2022, we sold the preference shares back to Odfjell Drilling for $95 million, while we retained the warrants. In May 2024, we exercised these warrants and received just over 3 million ordinary shares and during the second and third quarter '25, we realized these shares generating, as mentioned, NOK 222 million. All in all, these investments have delivered a total return of about NOK 750 million, corresponding to 2.2x multiple or an IRR of about 19% in Norwegian kroner terms. Needless to say, we are pleased with the outcome of this investment and also a bit sad to sell the shares as we see -- as we have great belief in Odfjell Drilling going forward, but we are pleased to be have been able to yet another distribution to our shareholders following the realization. With that, I'm pleased to introduce HMH's CEO, Eirik Bergsvik, that will take us through HMH's third quarter results. So Eirik, the word is yours. Eirik Bergsvik: Thank you, Karl Erik. Good day, everyone, and thank you for joining us on the call. I'll begin by sharing a summary of our third quarter highlights and then provide some perspective on our current market conditions. After that, David will take us through the financials in greater detail. Starting with our results for the third quarter. We reported revenue of $217 million, which is up 3% year-on-year. Our EBITDA for the quarter came in at $42 million, representing a decrease of 8% compared to the same period last year, but up 16% versus prior quarter. This resulted in an EBITDA margin of 19.3%. Our performance this quarter on cash was strong. We generated $35 million in unlevered free cash flow this quarter, primarily driven by improvements in working capital management and the collection of project milestone payments. Order intake for the quarter totaled $171 million, down versus last year as expected as offshore activity works through the current white space. I want to take a moment to thank the global HMH team. Our team continues to work hard to advance our strategic initiatives focused on strengthening margins and driving operational efficiency. This is positioning us well for the continued growth in the future. Now turning to current market conditions. We are seeing continued signs of stabilization and improvement in broader contracting and utilization trends with deepwater offshore markets, benefiting both our customers and HMH. Speaking with our customers, despite the pipeline for early 2026 jobs still being limited, they are seeing significant opportunities for contract activity in mid-2026 and early 2027. Provided oil prices remain reasonably stable, our customers are anticipating a gradual move toward a tighter market with improved backlog as we approach the inflection point sometime in 2026. With that, I'll hand it over to David to walk through the financials in more detail. David Bratton: Thanks, Eirik. I'll begin with the total company results and then move into the segment details. Revenue for the quarter was $217 million, up 3% year-on-year and up 7% quarter-on-quarter, primarily due to aftermarket services, partly offset by a decrease in projects and products. Adjusted EBITDA in the quarter was $42 million, down 8% year-on-year, primarily due to spares and product volume, partly offset by an increase in contract services and increased 16% quarter-on-quarter, driven by contract services and a rebound in spares from prior quarter, partially offset by a decrease in projects. The adjusted EBITDA rate was 19.3% in the quarter. Orders for the quarter were $171 million, down 12% year-on-year and down 1% quarter-on-quarter, driven by a reduction in projects and spare parts due to the continued white space in the offshore market. This was partially offset by an increase in service orders. Finally, on cash flow, unlevered free cash flow in the quarter was positive $35 million in the quarter, driven by project milestone collections and strong working capital management. We ended the quarter with $57 million in cash and cash equivalents on hand. Next, I'll walk you through the product line results in more detail. In aftermarket services, revenue was $105 million in the quarter, up 26% year-on-year and up 14% quarter-on-quarter, driven by contract services. Aftermarket service order intake was $99 million in the quarter, up 42% year-on-year, mainly driven by contract services, partially offset by lower field service and repair activity. Quarter-on-quarter order intake increased 25%, supported by digital technology orders and contract services with some offset from field service and repair activity. Spares revenue was $58 million in the quarter, down 6% year-on-year, driven by softer global offshore activity, but up 12% quarter-on-quarter due to higher output of our topside spares volume compared with the prior quarter. Spares order intake was $56 million, down 18% year-on-year and down 13% quarter-on-quarter, driven again by the lower offshore spares order volume partially offset by an increase in international land spares activity. In Projects, Product and Other, revenue in the quarter was $54 million, down 16% year-on-year, driven by lower product volume and down 8% quarter-on-quarter, driven by a decrease in projects, partially offset by increased product volume. Lastly, moving to net interest-bearing debt. We ended the quarter with $57 million in cash and cash equivalents and a net debt of $144 million. Overall, as Erik said, we're proud of the team's performance this quarter and continue to advance strategic initiatives to strengthen our margins and improve operational efficiency. And with that, I'll turn the call back over to the team in Oslo. Øyvind Paaske: Thank you, David. I will then take you through the Akastor's financials, starting on this Slide 10 with our net capital employed. The carrying value of HMH, where Akastor's net capital employed corresponds then to 50% of the book equity value in the company increased by NOK 54 million compared to Q2, driven by positive net profit in the period. The net capital employed related to NES remained stable, while [ DDW ] declined somewhat in the period, driven by lower net working capital, which was turned to cash in the period. The net capital employed of AKOFS was reduced to 0 in Q3, as Karl mentioned, down from NOK 79 million in Q2, reflecting our share of the net loss for the third quarter. As Karl noted, continued losses have gradually reduced our book value, which by the end of Q3 then stood at 0. This means we now carry no value of our equity holding in AKOFS in our books. Again, we emphasize that this outcome is driven by accounting principles based on our historical cost and does not reflect the underlying asset values. We do carry the shareholder loans provided to AKOFS Offshore totaling NOK 418 million at the end of the period. These loans are included in our reported net interest-bearing debt. The value of our listed holdings, which per end of Q3 included ABL and Maha Capital decreased by a total of NOK 134 million in the period related then to the sale of Odfjell Drilling, partly mitigated by increased share price in Maha. The negative value of other, which includes smaller financial investments, pension accruals and other provisions was reduced by NOK 20 million in the quarter, and the balance here mainly relates to pension obligations. In total, our net capital employed decreased by NOK 209 million in Q3, primarily driven by the sale of Odfjell as well as the net losses in AKOFS Offshore. Then over to our net cash position and an overview of development in the period. In Q3, our total net cash increased by NOK 134 million, reaching NOK 279 million at the end of the period. This improvement was primarily driven by the divestment of Odfjell Drilling shares and positive operational cash flow in DDW, partly offset by the dividend of NOK 0.35 per share, which we paid out in July. The Q3 net cash position includes a net debt position of NOK 169 million in DDW Offshore, improved from NOK 228 million last quarter due to positive cash flow during the period. Total net interest-bearing debt at quarter end stood at a net cash position of NOK 970 million, which includes interest-bearing positions towards AKOFS Offshore and HMH as well as the remaining seller credit to Mitsui of NOK 39 million, which are to be settled in Q4. Looking ahead, the cash balance in Q4 will be impacted by the seller credit payment as well as the approved dividend payment totaling about NOK 110 million scheduled for payment in November. Our external financing facilities remained largely unchanged from last quarter, except for a cancellation of an undrawn NOK 70 million share financing facility following the divestment of Odfjell Drilling. The DDW term loan was reduced to approximately $24 million after scheduled installment during the period. We are in discussion to refinance this term loan and expect completion of this in Q4. Our corporate RCF remained fully available and undrawn at the end of Q3, and we have agreed with our banks to extend this facility to June 2027 with only final documentations remaining. At quarter end, total available liquidity was NOK 816 million, including NOK 69 million of cash held through DDW. That then includes the undrawn RCF with NOK 300 million. Then our consolidated P&L. As a reminder, most of our holdings are not consolidated in our group financials. Therefore, the consolidated revenue and EBITDA represent a small portion of our total investments. DDW Offshore delivered revenues of NOK 128 million for the quarter with all vessels on contract throughout the period. EBITDA was NOK 43 million, up year-on-year and quarter-on-quarter, driven by higher fleet utilization. EBITDA was, however, impacted by some FX effects and certain nonrecurring vessel costs. Other revenues were NOK 2 million, while other EBITDA was negative NOK 16 million. As a result, consolidated revenue and EBITDA for the quarter ended at NOK 130 million and NOK 27 million, respectively. Our net financials contributed positively by NOK 54 million, driven by value increases across most holding, including the Odfjell Drilling and Maha Capital. FX accounting effects were negative NOK 23 million, reflecting a smaller weakening of the U.S. dollar versus the Norwegian kroner. Net interest and other financial income added NOK 4 million, bringing total net financial items to a positive NOK 38 million for the quarter. Share of net profit from equity accounted investments was neutral overall with AKOFS contributing negatively by NOK 81 million, while HMH contributed positively by the same amount. And with that, I'll pass the word back to Karl for the last section. Karl Kjelstad: Thanks, Oyvind. Let me round off this presentation with some ownership agenda reflections. Firstly, on Slide 16, our investment portfolio was in the quarter reduced from 9 investments to 8 following the mentioned exit from Odfjell Drilling. Let us then move to Slide 17, covering HMH, been already covered by Eirik to some extent, but let me anyhow add some few reflections as HMH owner. First of all, our ownership agenda for HMH remains firm. It is to expand the business through organic growth and also do value-adding acquisitions. It is to maintain a leading market position and also continue to target to make HMH investment liquid at some point in time. We remain somewhat cautious regarding the short-term outlook for the drilling market. That said, and also, as Eirik stated, we do see encouraging signs when looking further ahead. 2026, 2027 show signs of becoming a start of a new offshore rigs up cycle, driven by the deepwater offshore development. Regarding the listing process, there is no concrete news at this point, but HMH is steadily keeping its S-1 registration filing updated and is as such, continuing to prepare for a listing. Timing of possible public offering is subject to a variety of factors and difficult to comment at this time. Let us move to Slide 18 and covering NES Fircroft. NES Fircroft continues to deliver solid results with both revenue and EBITDA increasing by 5% compared to the third fiscal quarter of 2024, despite a continued somewhat challenging environment for recruitment. As mentioned earlier, the company is exit ready. And together with the main owner, AEA Investors, we have, for some time, been exploring several alternatives for an exit. There is nothing specific to report at this stage, and we will revert with an update when there is more clarity on this. In addition to our focus on making this investment liquid, a key priority is to continue growing the company, both organically and also through M&A to enhance value for all shareholders. Slide 19, covering AKOFS Offshore. As mentioned, all AKOFS vessels remain on contract through the quarter. Aker Wayfarer achieved a revenue utilization of 97%, while AKOFS Santos delivered 94% revenue utilization in the quarter. As noted last quarter, AKOFS Seafarer earnings was impacted by its scheduled 5-year class renewal survey, resulting in a 45 days off hire. We are pleased to see that the survey was completed in line with budget and on planned time, but it led to a revenue utilization of 49% for the period due to this. The total revenues for AKOFS [indiscernible] were USD 28 million with an EBITDA of USD 3 million. Looking ahead, Seafarer will transition to a new contract terms late in the fourth quarter. This will increase the running rate earnings. We were also pleased to see that AKOFS formally awarded the new 4-year MPSV contract with Petrobras commencing in January 2027. And this contract value, as previously disclosed, will further strengthen AKOFS' earnings and cash flow once it commenced. During the third quarter, we also reached an agreement with our co-owner MOL to restructure Santos financing, addressing historical, what I would call, misalignment from the shareholder loan structure and fully aligning ownership interest. As a part of this, Santos senior debt will be extended by 1 year to first quarter 2027 with commitments in place. Then DDW Offshore. All 3 vessels remain on contract in Australia throughout the third quarter, delivering 100% revenue utilization. EBITDA for the quarter was NOK 43 million, impacted by certain nonrecurring vessel costs. Scandi Emerald's contract with Petrofac ended in late October and the vessel has since demobilized to Singapore, where it's currently on a short-term contract before entering to the spot market ahead of its scheduled classing -- 5-year classing early next year. Looking ahead, our focus remains on maximizing fleet utilization, supported by solid contract backlog that provides operational and financial visibility. Our ultimate target is unchanged, and we continue to actively assess secondhand market opportunities for potential sale of all 3 vessels. Then finally, let's look at Slide 21 regarding some key priorities for Akastor going forward. Our strategy remains firm in place. Our core objective is to develop the companies in our portfolio and when timing and values are right to execute value-enhancing exits. With a strong net cash position and no drawn on corporate facilities, we are well positioned to maximize values when opportunities arise at the right time. Today, we are pleased to announce our second ever dividend of NOK 0.40 per share, marking another important milestone in our commitment to return value to our shareholders. So I believe that concludes the formal part of this presentation, and we will move over to a Q&A session and take a brief pause to allow you to submit questions. There are already some questions on the screen here. So Oyvind, can you please facilitate that session. Øyvind Paaske: Yes. Thank you, Karl. I guess we can go right to the questions. So first, a question for you, Karl. With the current liquidity position of Akastor, would you be able to pay a Q4 dividend from existing resources? Or do you attempt to maintain the policy of distributing proceeds from asset realizations only? I'll hand that over to you. Karl Kjelstad: Yes. Thank you. No, as I said, we are committed to distribute the value to shareholders, but the future distributions will be when we do transactions when we -- because we also want to maintain a solid financial state with flexibility to act in the most optimal way when it comes to realize our assets. Øyvind Paaske: Thank you. Then we have a few questions on the same topic. So I'll take one of them regarding HMH, so I'll pass that over to Eirik. So Eirik, this is a question from the audience. Do you see potential for increased revenues related to reactivations of some of the rigs that are now experiencing white space? And it's commented that you might have the BOP for a few of the Noble and Valaris rigs currently idle with contracts commencing in late 2026. So I'll pass that question to you, Eirik. Eirik Bergsvik: Yes, thanks. Well, limited what I can say about that. But if you look at what we've been hearing from our clients, from the drillers, what we've been seeing and have been presenting on the various events this autumn, it looks very clear that we could expect some reactivations because of utilization becoming as high as, I would say, never been before, according to what the driller says. So yes, we look positive on that -- those possibilities. And yes, that I think is what I can say about that right now. Øyvind Paaske: Thank you, Eirik. Then I guess lastly, there's also a few questions on the same topic, but I'll pass that to you, Karl, even though you commented on it briefly. But given the appetite for IPOs, do you see an opportunity to list NES Fircroft? And is the company ready for an IPO? Karl Kjelstad: The company is ready for an IPO. So that's, of course, an option to make the investment liquid or any other alternative is to do a trade sale of the company. So all options are on the table is what I can say. Øyvind Paaske: Thank you. And with that, I think we are actually through the questions. And we'll just then like to thank you all for your attention and welcome you back for our presentation of the fourth quarter results on February 12 next year. Thank you very much.
Operator: Good morning, and welcome to InterDigital's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to Raiford Garrabrant, Head of Investor Relations. Please go ahead. Raiford Garrabrant: Thank you, Haley, and good morning. Welcome to InterDigital's Third Quarter 2025 Earnings Conference Call. I am Raiford Garrabrant, Head of Investor Relations for InterDigital. With me on today's call are Liren Chen, our President and CEO; and Rich Brezski, our CFO. Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions. For additional details, you can [Technical difficulty]. In this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk Factors sections of our 2024 annual report on Form 10-K and in other such [Technical difficulty] presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren. Lawrence Chen: Thank you, Raiford. Good morning, everyone. Thanks for joining us today. This was another outstanding quarter for InterDigital. We completed Samsung smartphone arbitration and signed 4 new license agreements. We increased our annualized recurring revenue by 49% year-over-year to an all-time high of almost $590 million. We appointed a new Chief Licensing Officer. One of our senior wireless engineer was reelected to a chair position to lead the development of next-generation wireless standard, including 6G. And this morning, we announced that we completed the acquisition of an AI start-up to add significant expertise to our research teams and accelerate our AI native video research. Our business success was also recognized in recent high-profile rankings from Newsweek, Fortune and Time Magazine. Revenue for the third quarter was up 28% year-over-year to $165 million. Adjusted EBITDA and non-GAAP EPS were up 62% and 56% respectively year-over-year. In the quarter, we also increased our dividend by 17% to $0.70 per share. And over the course of the year, we have returned more than $130 million in capital to shareholders. As with previous calls, Rich will dig deeper into the numbers while I recap our recent business highlights and how we are executing our long-term growth strategy. Last month, we announced the appointment of Julia Mattis as our Chief Licensing Officer. Over the last 15 years at InterDigital, Julia has served in a series of leadership roles within the licensing team, including Chief Licensing Counsel, Head of Smartphone Licensing and most recently as our Interim Chief Licensing Officer. She has played a critical role in negotiating many of our largest license, including Apple and Samsung. I'm thrilled about this appointment, and I'm confident she has the right skill set and experience to thrive in her new role. At the beginning of Q3, we announced that we have completed the Samsung smartphone arbitration valued at more than $1 billion over 8 years. Together with Apple, we have 2 largest smartphone manufacturers licensed through the end of this decade. As a reminder, after announcement of Samsung license, we raised our annual guidance by $110 million to $820 million at the midpoint. Also in the third quarter, we signed a new license with Honor, a top 10 smartphone vendor based in China. The agreement follows our recent agreement with OPPO and Vivo. We now have 8 of the top 10 smartphone vendors and around 85% of the total market under license. The license also increased our annualized recurring revenue by $26 million to a record setting of $588 million. Of the $588 million in ARR, our smartphone program now accounts for over $490 million, putting us very close to our midterm goal of $500 million in recurring revenue from smartphone by 2027. Following the conclusion of our Honor agreement, we are taking active steps to license the 2 remaining top 10 smartphone vendors. These include initiating enforcement proceeding against Tencent in court in UPC, India and Brazil. As I have said before, while we always prefer to complete licensing deal through bilateral negotiation, we will take all necessary steps to ensure we receive fair value for our foundational innovation. In the third quarter, we also closed renewal with Sharp and Seiko in our smartphone program and with an EV charging company in our consumer electronic and IoT program. The agreement with the EV charging company is another example of how our horizontal technology has broad applicability across different industry verticals. Overall, the total contract value for license that we have signed since 2021 is now well over $4 billion. In our video service program, we are making more progress in enforcing efforts with Disney. Last month, a court in Brazil granted us a preliminary injunction against Disney. After a court appointment, independent experts found that Disney infringed our 2 patent suit related to video including technology. The independent expert report contained a detailed analysis of our innovation and the role it plays in enabled Disney's various streaming platforms, validating our belief that our portfolio is a critical enabler for the video service sector. The preliminary injunction in Brazil is an important early step in our multi-jurisdictional enforcement campaign with Disney. As I mentioned before, we always prefer bilateral negotiation to get deals done and only use enforcement as a last resort. High-value litigation like this can be lengthy, but when choosing to enforce -- when we choose to enforce our right, we have a very strong track record of ultimately signing long-term agreement with the prospective licensee. So as we drive our growth strategy across devices and services on the video side, we continue to strengthen our research and innovation team. Earlier today, we announced our acquisition of AI start-up Deep Render, which specializes in the application of AI to make video compression more efficient. Let me explain why we believe the deal is such a great thing. This acquisition added our existing AI talent pool in our research and innovation team. It accelerates our AI native video research. It strengthens our position in foundational research as the next video compression standards started to take shape and build on our current leadership in HEVC and VVC CUDA, and it has depth in our IP position with Deep Render's AI and video patent portfolio. I will also add this is a great cultural match. Much like InterDigital, Deep Render is a company of researchers and inventors who are dedicated to solve some of the most complex technical challenges in video and AI. With the consumption of video booming across smartphones, consumer electronics and video services, such as streaming, we believe that our video innovation will become an even more significant driver of our growth strategy. Staying with our research teams, in the third quarter, one of our senior wireless engineers were reelected to lead a key engineering group within 3GPP, the organization, which set cellular wireless standards. This shows not only how we lead 5G, but also means that we are ideally positioned to lead the development of 6G ahead of the expected rollout of next-gen mobile network devices and services in 2030. Shortly after the end of the quarter, we also announced that we have been awarded a contract by National Spectrum Consortium in partnership with the U.S. government to lead research and conduct demonstrations on how to better manage the use of spectrum in the United States by both civil and military applications. This project reflects one of InterDigital's unique strength in solving complex technical challenges to improve connectivity for consumers and in price and enhancing national security across communication ecosystem. There are very few companies worldwide that can take on this sort of challenge, and I'm delighted that United States has turned to our engineering team for help. As we continue to execute on our growth strategy, our progress are recognized by third parties. Newsweek recently named us as one of American's greatest companies, Fortune recognized as one of American's fastest-growing companies and Time Magazine listed us among American's Growth Leader of 2025. This award reflects the dedication and strong contributions from our employees and why we believe our platform has never been stronger to deliver more growth and even more shareholder value. And with that, I'll hand you over to Rich. Richard J. Brezski: Thanks, Liren. I'm pleased to report that our strong growth momentum continued in Q3 with revenue, adjusted EBITDA and non-GAAP EPS all exceeding the high end of our guidance range. Our Q3 performance was powered by our Samsung arbitration result and new license agreements, including a license with Honor, a top smartphone manufacturer based in China. These new agreements helped drive total revenue of $165 million, an increase of 28% year-over-year. This exceeds both our initial top-end guidance for Q3 total revenue of $140 million and our updated increased top-end guidance of $159 million that we announced at the time we signed Honor. The upside we delivered compared to our increased guidance was driven by additional license agreements we signed since then. Our annualized recurring revenue, or ARR, increased 49% year-over-year to another all-time high of $588 million in Q3. This year-over-year growth was driven primarily by new agreements signed over the intervening year in our smartphone program, including license agreements with OPPO, Vivo, Lenovo and most recently, Honor. In this time, we increased our share of the smartphone market under license from about 50% to roughly 85%. These agreements, together with our excellent Samsung arbitration result, increased our smartphone ARR 65% year-over-year to $491 million in Q3, almost at the level of our smartphone midterm ARR goal of $500 million. In CE and IoT, ARR increased to $97 million in Q3, also an all-time high. Our new license with an EV charger company is another example of the growth opportunities that exist beyond the smartphone market, and we believe we can more than double ARR from CE and IoT by 2030. Our subscription-based IP-as-a-Service model offers a high level of visibility and provides a reliable source of cash flow even in the face of an uncertain economic environment. This enables us to continue to fuel our innovation engine and drive future revenue growth. Based on the strength of our intellectual property and the huge markets built upon it, we believe we are on track to grow ARR at a double-digit CAGR towards our 2030 target of $1 billion plus. And it's important to remember that while ARR is a great metric to track the growth of our business, there is economic value above ARR alone. Over the last 10 years, we have recognized $1.5 billion of catch-up revenue. This has been tremendously valuable because we have used the majority of that money to fund share repurchases over that time period. Today, we continue to have a lot of catch-up opportunity remaining, which tends to be 100% gross margin as we pursue our goal of 100 -- excuse me, $1 billion of ARR by 2030. Our adjusted EBITDA for the quarter of $105 million increased 62% year-over-year and equates to an adjusted EBITDA margin of 64%, an increase of 14 points compared to 50% a year ago. The significant increase in adjusted EBITDA margin year-over-year demonstrates the leverage inherent in our model. You might remember that on our last earnings call, I said strong free cash flow over the second half of the year would drive free cash flow for the full year of 2025 above $400 million or close to double 2024 levels. I am happy to report we did, in fact, collect large payments during the quarter, driving free cash flow to $381 million for the quarter and $425 million year-to-date. Finally, non-GAAP EPS rose 56% year-over-year to $2.55 and exceeded our increased guidance of $2.08 to $2.27 per share. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth and return excess capital to shareholders. In Q3, we increased our dividend by 17% and returned $53 million to shareholders through $35 million in buybacks and $18 million through dividends. In October, we bought back another $15 million of stock, bringing total return of capital to more than $130 million year-to-date. In just the last 3-plus years, we have repurchased more than $0.5 billion of stock, and we expect to continue to buy back shares over the remainder of this year. Looking forward to Q4, we expect recurring revenue will include $144 million to $148 million of revenue from existing contracts. That means we expect full year revenue from existing contracts will be $820 million to $824 million. So before adding any potential contributions from new agreements we may sign over the next 2 months, we expect to meet or beat the midpoint of the increased full year guidance we issued last quarter. Of course, revenue from any new agreements we may sign over the balance of the quarter would be additive to these amounts. Based again only on existing contracts, in Q4 we expect an adjusted EBITDA margin of about 50% and non-GAAP diluted earnings per share of $1.38 to $1.63. For the full year, again based only on existing contracts, we expect an adjusted EBITDA margin of 70% and non-GAAP diluted earnings per share of $14.57 to $14.83 for the full year. With that, I'll turn it back to Raiford. Raiford Garrabrant: Thanks, Rich. Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q4, including the RBC Tech Conference and the ROTH Tech Conference, both in New York City; the Southwest IDEAS Conference in Dallas; and the NASDAQ Investor Conference in London. Please reach out to your representatives at those firms if you'd like to schedule a meeting. At this point, Haley, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from the line of Kevin Garrigan from Jefferies. Unknown Analyst: Congratulations on the strong results. I just want to drill in on the consumer IoT side. So just wondering if you can walk us through your biggest prospects as we look for the rest of the year and into 2026. And your first agreement with an EV charging manufacturer, do you guys see that -- see the EV charging space being a significant contributor to ARR growth? Lawrence Chen: Kevin, this is Liren. Regarding the consumer electronic IoT space, if you look at -- this is really a class of multiple opportunities. Our largest single opportunity under the consumer electronics is smart TVs where we continue to make progress. We have licensed the largest TV maker, Samsung. We are currently working on with multiple use, the next few players, including LG, Hisense and TCL. So that's our largest opportunity. Regarding IoT opportunities here, we also have quite a different collections, including automobile, EV charging as we announced today and a few other consumer-driven IoT platforms. One more thing I also want to emphasize is in our consumer electronics also include PCs and desktops. So if you go our supplemental deck on our IR website, we have to try to break it down what the size of market where we are in each segment. Regarding your question for EV charging, we do think that it's an interesting market for us. It's growing because some of the charging market is consumer-driven, some of them is commercial driven, and they have different technology in there. Some of them is Wi-Fi enabled and some others that we have cellular connectivity, and we try to get a value that's fair towards the technology that's incorporated in those devices -- those stations. Unknown Analyst: Got it. Okay. That makes sense. And then as a follow-up, can you just explain a little bit more on how you plan to integrate Deep Render with your own video codec technology and not to give away any plans, but are there other companies out there that you're looking into to kind of complement your streaming business? Lawrence Chen: Kevin, yes, good question. This morning, we announced the closing of Deep Render. Deep Render is a start-up company. They are headquartered in London. And what they have been focusing on is this thing called native AI for video CUDA end-to-end. So it's really a more different way of solving the problem end-to-end by incorporating the AI function from bottom up. So we introduced an AI team. We have been working on video space for, frankly, many, many years. And the native AI function is one of the areas we have been working on. But by acquiring this team, we added a lot of really strong expertise, speed up our AI capability for the native AI video research. And interesting enough, it's also a critical juncture of time for next generation of video standard that's coming under discussion. So we feel we have a strong chance of integrating some of the AI feature into the next video standard. And then lastly, as part of the acquisition, we bought the different IP patent portfolio team and patent portfolio. So there are some AI patents and video patents, and we are in the process of integrating. So it's a strategic acquisition, and we feel very good about it. Regarding other opportunities, we frankly have a very robust pipeline. We are looking at all kinds of different opportunities and have a dedicated team passing through them and -- but I don't have anything else to report at this time. Operator: Our next question comes from the line of Scott Searle from ROTH Capital. Scott Searle: I apologize, Liren, if this was covered earlier, I got on the call a little bit late. But in terms of the Disney injunction, I'm wondering if you could give us an update in terms of what next steps there are that we should be looking for as you go forward. And how this is impacting conversations and discussions with other streaming vendors? Lawrence Chen: Yes. So regarding Disney injunction, in my prepared remarks, we received the injunction by the court in Brazil. The injunction was supported by third-party independent expert the court has appointed, which frankly support our position on all the important issues. The trial court issued the injunction and Disney actually appealed the injunction. And in the appeal court, we restated the injunction. So the injunction is currently in effect, but the court has given Disney until end of November to comply, November 30, if I remember right. So needless to say, we are watching monitor situation quite carefully, and I don't want to speculate on what Disney will do from there. But it's also worth noting that the Brazil PI injunction is just one step of a multi-jurisdictional enforcement we have been taking on. As we disclosed in the 10-Q filing with a lot of details, we have multiple cases coming up for trial in Germany, in UPC and in the United States, every starting this month, starting October. So there's over a dozen patent cases that are going to trial between now and mid of next year. So needless to say, we feel good about the position we are in. And -- but in the meantime, we are always open for negotiations. Scott Searle: Got you. And just to follow up on that. Has that actually improved the dialogue with Disney or impacted any other conversations you're having with other streaming vendors? Lawrence Chen: Yes, Scott, I can't get into the discussions with specific vendor. We're mostly under NDA. But I can assure you that the industry is paying attention and every progress we made with different enforcement, I do think it is giving us an even stronger position in a lot of negotiations. Scott Searle: Got you. Two more and then I'll get back in the queue. Just in terms of a deep under to dive down a little bit more, do you see this as helping with the existing streaming customers in terms of enhancing your product portfolio there and really being able to get monetization across the goal line? Or is this going to predominantly open up some other opportunities? There's a lot of Edge AI that goes on, which sounds like some of the Deep Render patent portfolio would seem to cover. So I'm wondering, is it for existing core opportunities? Or does this really expand the product breadth that you've got now within the video codec and streaming market? Lawrence Chen: Yes. Scott, for the Deep Render opportunity, they are currently in a stage of start-up. So when we acquire them, they don't really have revenue obtaining customers. However, we are super excited about the technology. The technology, as I explained earlier, was really based on this native AI end-to-end. We actually believe it's a new paradigm to solve the video delivery problem across Internet. As you are aware, video is super important for many use cases. About 80% of Internet traffic on every single day is driven by video. So be able to come up with a brand-new way of solving that problem is super exciting for us. So regarding how we plan to monetizing it, frankly, we believe we have multiple options. But as of today, we are not really trying to determine exactly how we're going to make money other than solving the most difficult problems, making sure our technology is leading the industry and obviously making sure we build a strong patent portfolio built on what we already have and the different patent portfolio they are merging with our portfolio as well as new IP we continue to do that. Scott Searle: Got you. And then maybe I'll just throw in too quickly at the end. AI in general, you guys have been investing not just with Deep Render, but organically within the organization in terms of AI capabilities, which have, I think, from a 5G and 6G standpoint, kind of facilitated your core business there. But is there an explicit opportunity to license AI as it is as a stand-alone? And then second, from an M&A standpoint, you guys have not been particularly acquisitive in recent history outside of Technicolor. Now you've added Deep Render to that. Are there -- how aggressive are you thinking about the opportunities as you go forward over the next several years? It sounds like there's a pipeline of opportunities there, but is it really a stated goal to close some things as we look out over the next 2 to 3 years? Lawrence Chen: Thanks, Scott. Yes, as you acknowledge, we have very deep depth in AI expertise. We have a dedicated team. We've been working in AI field for multiple decades. And our CTO, Rajesh Pankaj, is actually industry recognized AI leader, spans wireless AI and video space. So our current main sort of leverage of AI technology to apply AI to solve foundational problem in wireless and video systems. As you are aware, upcoming 6G standard, the native AI built in wireless is a key research area that we are leading. Regarding monetization strategy here, Scott, I really think there will be multiple opportunities for us to monetizing AI technology, but we have a very robust existing technology-driven standard-driven IP licensing model, but I believe AI could give us new opportunity as we keep on driving the technology forward. Regarding the M&A pipeline here, as I referred a little bit earlier, we have a dedicated team internally actually led by our Chief Growth Officer, Ken Kaskoun. And we process a lot of opportunities. Some are bigger ones that may be driven by IP assets. Some others are driven by technology development as we have done through the Deep Render. But our bar is very high. And with our recent business success. As Rich referred to here, we have a very strong balance sheet and we believe give us a different opportunity we can pursue them. Operator: Our next question comes from the line of Arjun Bhatia from William Blair. Unknown Analyst: [ Linda Lee ] here on for Arjun. I wanted to ask just to piggyback on the prior question regarding the acquisition. What other areas within the existing focus points of technology IPs are you looking forward to in adding additional fields through M&A? Lawrence Chen: Yes. So regarding the M&A space here, we are frankly testing fairly wide net. As you are aware, our 3 pillars of research is wireless, radio and artificial intelligence. And we continue to look at to say do we have the industry-leading team? Do we have the key research in those areas that's driving things forward? But we frankly also look at the adjacent area. We are always sort of applying those opportunities with different criteria, right? We want to make sure we have critical mass that we can move the industry. We also like to see how we can build a competitive advantage over a long period of time. And then frankly, with our increasing balance sheet and financial capability, we also try to look for bigger opportunities over time. Unknown Analyst: That's helpful. And in terms of the Transcend litigation, you announced today that you are officially going on the litigation. Can you just give us maybe any more color in terms of maybe timeline and additional kind of color in terms of that in general? Lawrence Chen: Yes. So as I said in the prepared remarks, we have frankly built a lot of momentum in the smartphone licensing program. We currently licensed 8 of the top 10 smartphone vendor already that essentially make up roughly 85% of the market. So Transcend is the largest on-licensed vendor as of today. They make roughly 100 million devices per year. And those devices tend to be lower end and selling to emerging market. So we have been negotiating with them for multiple years, and we feel we have made them multiple really fair offers. But so far, they have refused to take our offer. So we feel it's necessary for us to defend our position for IP and frankly equally important to set a level in greenfield with other customers who are paying us licensing fee, right? It's not fair that they got a free right of our IP. So we have launched a multi-jurisdictional patent litigation against them. That's in UPC, that's in India and Brazil. Those are a significant market for them. It's hard to predict precisely timeline because some of the cases are frankly still being processed by a court. We don't have definite date yet. And -- but it's always -- during litigation, we always try to negotiate a patent licensing deal with the party involved. And even though the timing precisely is hard to predict, but given our history, we frankly have a very strong track record of if we have to enforce our right, and we almost always end up with a bilateral agreement that's fair to both party. Operator: Thank you. At this time, I'm showing no further questions in the queue. I would now like to turn it back to Liren Chen for closing remarks. Lawrence Chen: Thank you, Haley. Before we close, I'd really like to thank all our employees for their dedication and contribution to InterDigital, as well as many partners and licensees for a very strong quarter. Thank you all for everyone for joining today's call, and we look forward to updating you on our progress next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Lufthansa Group Q3 2025 Results Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marc-Dominic Nettesheim, Head of Investor Relations. Please go ahead, sir. Marc-Dominic Nettesheim: Thank you, and welcome, ladies and gentlemen, from our side to the presentation of our third quarter results 2025. With me on the call today are our CEO, Carsten Spohr; and our CFO, Till Streichert, and both will present our results for this third quarter and discuss the commercial outlook for the remaining 3 months of the year. Afterwards, you will have the opportunity to ask questions. And as always please limit yourself to 2 questions so that everybody else has a chance to participate in Q&A. Thank you very much. And with that, Carsten, now over to you. Carsten Spohr: Yes. Thank you, Marc. And to all of you, a warm welcome also from my side. It's just a few weeks since we met many of you at our Capital Markets Day in September. And today, then following this, I'm pleased to share our third quarter figures with you together, of course, with Till Streichert on my right here. As you have read from the figures published this morning, we can report rather positive developments for the quarter with quite a few aspects and KPIs showing improvements. The most important one for sure, we are well on track in terms of regularity and punctuality of our flight operations, which serves in the end as the basis for all other improvements we'll be talking about later today. So let me nevertheless, start with a macro view of the whole industry. The global aviation sector continues to boom. And over the next 20 years, at least according to IATA forecast, the global passenger numbers will once again double. I think there are very few industries in the world, at least in the real economy that can count on such a reliable and long-term upward trend in demand. And in the current aviation landscape, strong demand growth meets limited supply very likely for many years to come. And this combination obviously generally works in our favor, even though, of course, there are downsides on the operational side with delayed aircraft. We'll also be touching on this in a minute. But overall, as by now the fourth largest airline group in the world and as #1 in Europe, our passenger airlines are globally well positioned to benefit from this global high demand, especially premium classes. We'll come to that as well. And on top of that, the supply constraints also provide enormous momentum for the MRO sector, worldwide aging fleets ultimately drive higher maintenance demand and that ensures stable and recurring revenues for Lufthansa Technik even though we had some setbacks this quarter due to tariffs, Till will elaborate on that. And this balanced portfolio provides stability in macroeconomic turbulence times. And on top of it, of course, we have Lufthansa Cargo, where we also own a business that can benefit from these current global uncertainties. Our industry has become more resilient and so have we in the Lufthansa Group. Through collective efforts and focus, we have regained network stability that sets the foundation for our future profitable growth. The core, as mentioned before, of our whole business model remains a stable flight operation. In this regard, the summer '25 clearly marked a turning point, especially if you compare it to the 3 summers before. And this came not for free. We had massively invested into stabilizing the system. We have, for example, extended scheduled flight times. We have brought up the share of aircraft reserves. We have increased connecting times in our hubs, but all this was well worth it. Stabilization came. And on top, of course, significant reduction in IRREG cost allowed us to also have a positive impact on our financial numbers. And now, of course, looking into the future, starting in '26, there will be efficiency enhancements that we will have on the top of our agenda. This fortunately goes hand-in-hand with the biggest fleet renewal of our company's history. Just 3 weeks ago, our first Dreamliner with a new Allegris Cabin on board took off to Toronto, and we will get further 787s almost by the week, actually more than by the week, we get 2 this week alone and will bring the number up to 34 total very soon. Until the end of the year, we will have received at least 8 brand-new Dreamliners, at least according to the updated information from Boeing. And on top of that, on behalf of Airbus, we were able to get and receive the first 350-900 for Swiss with a new product SWISS Senses on board also just 2 weeks ago. So now our premium long-haul product, Allegris is not only available in Munich, but also in Frankfurt and in Zurich. Ladies and gentlemen, let me take a look at the numbers. In Q3, we were able to further expand our capacities and that particularly on the North Atlantic. And despite the somewhat cautious booking situation in spring caused by the tariff announcement around Easter, we, in the end, experienced a well-booked summer. Globally, we have seen moderate capacity growth of 3.2% compared to the previous year. By that -- or partly by this, total revenue has increased by almost EUR 300 million to EUR 11.2 billion -- sorry, by EUR 500 million, reaching EUR 11.2 billion. Our adjusted EBIT for the third quarter remained stable at EUR 1.3 billion, more or less on par with last year. And year-to-date, though, we can report an improvement of already EUR 300 million versus '24, showing some nice progress on this promise of significantly improved results for the whole year. Key driver of our financial success, again, is and has been the stabilization of our flight operations. Regularity in Q3 was at 99%. Departure punctuality improved by more than 10 percentage points compared to last year. This brings me to our capacity allocation. Year-to-date, we have mainly grown on our European -- domestic European routes and on our North Atlantic routes. And while the third quarter indeed showed some but anticipated yield softness in these regions, the North Atlantic was still our most important profit pool. Of course, as you well know, supported by our successful joint venture with United and Air Canada. But it's worth to note that the yield softness is, of course, also partly currency driven. Excluding currency effects, our RASK actually remained stable versus the prior year. Looking ahead, we plan continued growth on the North Atlantic, in line with the market and also given that capacity-wise, we are still somewhat lagging behind our peers compared to pre-pandemic levels. Growth on the continental network, nevertheless, will be more limited, more or less stable, less than 2% with capacity discipline translating for sure into improved booking outlooks in terms of load factor and yields. In Asia, we remain cautious regarding growth given our unfortunately continued structural disadvantage due to the closure of the Russian airspace. However, increased demand to Japan, South Korea and India give us confidence. In the winter schedule this year, we offer 43 weekly flights to Japan and South Korea and even 64 weekly flights to India. As a matter of fact, Frankfurt, Tokyo has become our best-selling route in terms of revenue. Going forward, we are also optimistic again for the Middle East. Already now, we are seeing a significant recovery on our important route to Tel Aviv. We're also happy to reopen [ Tehran ] again, which is also contributing to our commercial success in this part of the world. But not only the Middle East services are picking up, bookings across all traffic regions reflect a positive trend not only for the coming months in '25, but also for the first visible weeks in '26. Up until January, the booked load factor is consistently above last year's level and balanced capacity growth is helping, as mentioned, to stabilize yields. Compared to the third quarter, yield decline clearly slows down in the months ahead despite ongoing headwinds from a weaker U.S. dollar. So combined with a favorable seat load factor development, that means our revenue -- revenue -- sorry, unit revenues are stabilizing also on the North Atlantic again. And we, like others and our American peers already communicated on this as well, we are benefiting in our industry from an extending and extending and extending summer season. I recall that a few years ago, I called it the endless summer, but even then, I didn't realize that one day summer will last until Christmas. That's more or less what we see right now, very nice bookings to leisure destinations all the way through the late fall. But even more important, especially for Lufthansa and our business model is the fact that premium bookings remain above last year's levels. And also finally, corporate sales are gaining some further traction. Summarizing, our booking outlook is robust, and we are well positioned to capture further upside as demand continues to recover more and more. And with that, I hand over to Till, who will now guide you through the detailed figures of the third quarter. Thank you. Till, over to you. Till Streichert: Yes. Thank you, Carsten, and a warm welcome also from my side. Thank you for joining us today to discuss our Q3 results and also the financial outlook for the rest of the year. So let me get started. In the third quarter, revenues increased by 4% compared to prior year, driven by a 3% capacity increase as well as robust growth in both our cargo and MRO division. This reflects the resilience of our core business, and you can see also the ongoing high demand for air travel, air cargo and MRO services. In the passenger airline business, notably, ancillary revenues rose by an impressive 13% compared to the previous year. And this growth is a strong proof point of the effectiveness of our evolving offering structure and you can see also the success of our digital initiatives across the airlines, which continue to drive new revenue potential on top of the classic ticket sales. On the cost side, we benefited from lower fuel costs with a positive impact of EUR 170 million in the third quarter compared to prior year. At the same time, we continue to observe rising costs in other line items, many of which affect the sector, the entire industry as a whole. Fees and charges increased by 9% year-over-year with ATC costs alone rising by 17%. Airport-related passenger charges and handling charges also saw double-digit increases, mainly in our home market in Germany. In the end, the anticipated head and tailwinds offset each other, and that resulted into a third quarter adjusted EBIT of EUR 1.3 billion, pretty much on par with last year. The adjusted EBIT margin is 11.9%, which is slightly 0.6 percentage points below the previous year's level. Now when looking at EBIT, the Q3 development included a substantial one-off effect on the tax side, where we recorded an increase by EUR 121 million net. This increase is largely driven by the so-called German tax booster announced earlier this year. And while the initiative to gradually reduce German corporate tax rates in the future will eventually have a positive impact, it initially led to a revaluation of our deferred tax assets, resulting in a higher tax burden in the quarter. At the same time, our financial result increased by around EUR 128 million compared to the previous year, and that's mainly due to currency translation and market valuation effects. And as a result, net income decreased by approximately EUR 130 million. Let's now take a closer look at the results of our Passenger Airline business. Revenues rose by 1% to EUR 8.9 billion in the third quarter, and the adjusted EBIT amounted to EUR 1.2 billion, which is in line with last year's result, which is a solid achievement given the market environment in the third quarter. We increased capacity by 3.2% compared to prior year with a strategic focus on our key markets. And as anticipated, unit revenues declined by 2.2% during the quarter and the positive revenue effect from higher seat load factors, increasing ancillary revenues and less IRREG events mitigated but did not fully compensate the negative effect from lower yields. There were 2 primary drivers behind the yield softness, a highly competitive environment in the [indiscernible] business and the anticipated temporary slowdown in North Atlantic demand, which was intensified by a weak U.S. dollar exchange rate. Adjusted for the currency effects, unit revenues were largely on par with previous year's level. While unit revenues in the third quarter showed the expected dip, we kept our unit cost position firmly under control. As a result, ex-fuel unit cost only increased by 0.5% despite the previously mentioned cost pressures. A flat ASK at Lufthansa Airlines contributed significantly. And that is, for me, a reflection of early proof points of our transformation success, resulting in an improved operating result for Lufthansa Airlines despite the challenging trading environment. And this underscores as well our unwavering focus on executing on the turnaround program, and that remains a crucial catalyst for driving as well profitability in the quarters and years to come. So let's have a closer look at the positive effects of the turnaround program on our 2025 results. And here, it is worth highlighting the progress that we've made. The program is delivering tangible and measurable results with a positive effect on adjusted EBIT of around EUR 500 million until year-end. So that's the full year figure. And that is also delivering on our target that we've set for ourselves. As mentioned before, this rapid progress already had a positive effect on our unit cost, resulting in year-to-date unit cost reduction of 1.4 percentage points at Lufthansa Airlines. For Q3, unit cost of Lufthansa Airlines increased by just 0.1%, so almost flat. This shows that the effect from the turnaround program materialized in the second half of the year as expected. Key drivers for the cost improvement revolve around reestablished operational stability, laying the foundation also for further -- for future optimization. And in addition, structural adjustments such as the successful renegotiation of several MRO contracts as well as our commitment to focus growth on more cost-efficient AOCs are starting to pay off. City Airlines has grown to 11 aircraft by the end of September, and we recently announced the allocation of 4 of our A350s to Discover. In addition to the cost benefits already realized, the program has also achieved meaningful progress on the revenue side. Measures include the realization of pricing uplifts through new tools and the continuous rollout of our new cabin product, Allegris, clearly one of the key drivers of the increase in ancillary revenues per passenger. And with many additional measures in implementation for the years to come, the effects of our turnaround will enable profitable growth for Lufthansa Airlines in the years to come. Let us now move to one of our other strong pillars, Lufthansa Cargo. And this year's positive trend remains unabated. The adjusted EBIT reached EUR 49 million in the third quarter, an increase of EUR 11 million compared to the previous year. With that, our year-to-date operating result stands at EUR 184 million, which is an impressive increase of EUR 132 million or 250% compared to last year. So a very strong first 9 months in comparison to last year. This result was primarily volume-driven with chargeable weight up by 11% in Q3 compared to the previous year, compensating for slightly softer base yields. And the volume increase was a result of -- or was also a result of higher capacity due to additional new 777 freighter and the marketing of IATA belly capacities, which started during summer this year. Our points of sale in Europe and the Asia Pacific region have shown particular strength. The Asian e-commerce business remains our most important growth driver here and frequent charter flights to and from China built at preset rates ensure regular revenue streams and provide also a degree of predictability in what is normally a business model that is known for its high short-term dynamics. Proactive cost management also shown positive results at Lufthansa Cargo. Ex-fuel unit cost decreased by 6% versus prior year, and that was driven by a reduction in mainly IT cost and also higher crew productivity. Looking ahead, the fourth quarter is expected to deliver this year's strongest result, in line with the usual seasonality of airfreight. And all in all, Lufthansa Cargo, there remains well on track to deliver a full year result significantly above last year's level. Let me now provide you with an update on our MRO segment's performance and outlook as well. Lufthansa Technik's positive top line outlook was once again confirmed by a growing market and a strong customer order book. Revenue grew by 10% in the third quarter, driven by a strong 28% growth of third-party business, which is particularly encouraging. At the same time, adjusted EBIT amounted to EUR 130 million, a decline of EUR 31 million compared to the previous year. This negative result and this margin development was driven by ramp-up efforts in new facilities such as Portugal and Calgary and substantial external headwinds, including supply chain disruptions, currency effects and mainly tariffs. At EUR 13 million, this impact of tariffs alone makes up more than 40% of the adjusted EBIT decline in the third quarter. So that is just for the third quarter. Lufthansa Technik has already started implementing countermeasures to limit the impact of tariffs on their results going forward, for example, through the redirection of production flows. And as an example, material from customer locations in Canada or South America is no longer shipped via our logistics hub in the U.S. And including these measures, we expect to limit the full year net effect of the tariffs to about EUR 50 million and to mitigate the impact in the upcoming years as well. Looking ahead, we expect a more positive development for Q4, particular, the output growth in the Engine segment is encouraging, which will be a key driver for future profitable growth. And please keep in mind here, despite the tariffs that we are facing this year, keep in mind that the MRO business is a marathon, not a sprint. And what matters is that the demand environment overall is healthy and intact and our Ambition 2030 strategy remains firmly on track. Let's now turn back to the group level, and let's have a look at our cash flow. In the first 9 months of the year, the operating cash flow amounted to EUR 3.9 billion, an increase of EUR 600 million compared to the previous year, and the improvement was primarily driven by a stronger operating result as well as tax repayments with each of these 2 items contributing roughly EUR 300 million. Moreover, net capital expenditure were EUR 200 million lower than last year. And one of the reasons was a decrease in gross CapEx of EUR 100 million due to the delays of our Dreamliner deliveries. All of these effects improved our adjusted free cash flow, which amounted to EUR 1.8 billion at the end of September. And until year-end, we still expect to take delivery of between 7 to 10 Dreamliners, some of which were delayed from previous quarters and resulted there was also in the shift of CapEx and some of it will come through -- this will come through, obviously, in the fourth quarter. For the full year 2025, we therewith stick to our guidance and expect adjusted free cash flow to be broadly stable versus 2024. Our balance sheet strengthened further. Our strong liquidity position currently at EUR 11.9 billion ensures that we are well positioned for the upcoming aircraft deliveries and debt maturities as well. And at the end of September, net debt amounted to EUR 5.1 billion, which represents a decline of EUR 600 million compared to prior year, and this improvement is mainly attributable to the strong cash flow generation. The key highlight in September was the successful issuance of a new EUR 600 million convertible bond at an annual 0% coupon rate. And at the same time, as you know, we took the opportunity to buy back half of our existing convertible bond. And these actions further optimized our capital structure and also demonstrate our proactive approach to financial management. Net pension obligations decreased by roughly EUR 500 million to EUR 2.1 billion, primarily driven by an increase in the discount rate. And our leverage ratio at the end of the third quarter was 1.6x, reflecting a continuous downward trend since the end of last year. Now moving over to fuel cost. Since the start of this year, our fuel costs have developed in a highly favorable way, and I'm pleased to confirm that this positive trend persists. And our Q3 fuel bill of EUR 1.7 billion was in line with our expectations, and there was also substantially below prior year. And for the full year 2025, we expect fuel cost to amount to about EUR 7.3 billion, roughly in line with our previous guidance. And thereof EUR 7.1 billion relate to fossil fuel only representing a reduction of EUR 700 million compared to last year, and the remaining EUR 200 million relate to additional cost for sustainable aviation fuel. Given the favorable fuel price during the first half of October, we also decided to execute additional hedges for the remainder of 2025, even going beyond our regular target hedge ratio of 85%. For 2026, we have already hedged our Passenger Airlines business at a rate of 71%, ensuring continued protection against fuel price volatility next year. Let me now close by commenting on our financial outlook. Taking into consideration our year-to-date result improvement of EUR 300 million and our positive outlook for the rest of the year, we again confirm our 2025 adjusted EBIT guidance for the group achieving a result significantly above prior year's level. Let me give you some more details on our outlook for Q4 to underline our positive expectations for the rest of the year. On capacity, we will continue our focused and disciplined growth path with an envisaged ASK growth of about 4%. On unit revenues, we see a more positive demand environment in Q4 than the one we experienced in Q3, and we do expect RASK to be flat compared to last year's level. On unit cost, I mentioned before that the Lufthansa Airlines turnaround program is proving successful. And for the first 9 months of this year, we've seen a unit cost increase across the group of 2.5%. So that's for the entire passenger airlines. And for the last quarter, we expect the CASK increase to be below this figure, so to be below what we had year-to-date incurred. For Lufthansa Technik, we expect a stable Q4 adjusted EBIT compared to last year. And given the negative external factors, mainly tariffs and currency movements, this means that Lufthansa Technik will most likely not be able to achieve a clear increase in profits this year. And as described before, we've taken action to mitigate those effects going forward, and we stick to our midterm outlook of EUR 1 billion adjusted EBIT in 2030. As every year, we will provide you with guidance on 2026 alongside our full year 2025 communication in March next year. However, I can already provide you with a direction of what we plan for next year. Regarding capacity growth, we will focus on long haul as described during our Capital Markets Day. And next year, we are planning long-haul growth in the mid- to high single-digit region, while we expect almost no short-haul growth. And in total, we want to continue this year's disciplined growth with about a 4% year-over-year increase in ASK. Also, I expect to see progress in the modernization of our fleet. We expect that this will lead to a reduction of reserve aircraft on the ground, which will improve aircraft productivity, our clear goal of asset utilization -- improved asset utilization and hence, also our profitability next year. This will be enabled by new aircraft delivery, which Carsten will comment on in more detail in a few minutes. However, I can already tell you that we expect the delivery of twice as much long-haul aircraft in 2026 and this year. And finally, let me reiterate that for 2026, we continue to believe that the Lufthansa Airlines turnaround program will achieve a gross EBIT impact of EUR 1.5 billion, and we will achieve an adjusted free cash flow. This is now for the group of broadly on the same level as 2025. To summarize, we keep delivering with a confirmed and a refined full year guidance for this year. And we deliver -- we have delivered there with tangible proof points also on the main value levers mentioned at our Capital Markets Day. And for the upcoming months, we do see a more positive demand environment, which already today gives us reason to also believe in a good start into 2026. And with that, let me hand back to Carsten, who will provide you with some more thoughts on the strategic outlook, including insights on fleet and customer development. Carsten Spohr: Yes, Till, thank you very much. And indeed, part of the optimism we are portraying here today and one of the facts why we are convinced to be in a good path today is driven by our comprehensive fleet modernization and harmonization. After years of waiting was added on by COVID, we have finally reached a point where we take delivery of a new aircraft more or less every week. Out of the total 230 next-generation aircraft in our order book, we anticipate more than 50 deliveries until the end of next year. And obviously, all these aircraft freighters aside are equipped with our premium products, which delights customers, which also excites our flight crews and obviously will also add to the excitement of our shareholders when it turns into additional profits. Flights with the premium cabin, Allegris and SWISS Senses, now, as mentioned before, in my opening takeoff from our biggest hubs, Munich, Frankfurt and Zurich. And on the high-yield routes or the highest yield routes, these include selling our exclusive new first-class suites. When you talk about business class, we don't only receive outstanding passenger feedback, but we also see above expectations, I must say, a high willingness to pay extra for the first-time individualized seating options we offer. Our most profitable compartment continues to be premium economy. This will grow by 50% by the end of the decade. And as you also know, we will also equip existing Lufthansa and Swiss subfleets, including our flagship 748, 747-8 and the 777 at SWISS with the new products. In total, the new product will already be available on 1/3 of the wide-body fleet by the end of the coming year. By '27, this applies to roughly 70%. And then by the end of the decade, every long-haul aircraft of Lufthansa and Swiss will fly with our new premium products. On the Capital Markets Day, we presented how we enhance and harmonize our offers and products. And our aim is, as expressed there, to further integrate all activities across our group and realize even more synergies. For example, our increasingly popular airline app, which already serves all group airlines or at least group hub airlines and is hosted to one single group-wide -- by one single group-wide IT platform. To further enhance the physical travel experience, we have invested EUR 70 million in onboard improvements just at our core brand, Lufthansa alone. For our loyal Miles & More customers, we are offering new opportunities to earn and redeem. And together, for example, with the Marriott Group or also in partnership with Deutsche Bank, where we're just launching a new credit card. If you put all these initiatives together, they contribute to significantly improved customer satisfaction, which has increased by an unheard of 8 percentage points in the third quarter compared to the year before, but not only on customer satisfaction, but in all dimensions, we want to continue, obviously, our successful development. So looking ahead, we want and must make our group, especially our core airline, also more profitable again. The fundamentals of our business for this have never been stronger. We are also, as mentioned in the opening, operating in a favorable market environment characterized by resilient and rising travel demand on the one hand and supply constraints persisting on the other hand. This supports a continuing capacity discipline across the industry and therefore, supports strong yields across all our markets. Over the past decades, we have transformed from a national flag carrier of Germany into Europe's leading multi-hub airline network. And this group, as you know, is built on 4 strong strategic pillars, integrated network airlines with now 6 hubs, complemented by a strong point-to-point carrier, world-leading MRO business and very flexible cargo operations, each of them contributing to our resilience and value creation. We're, therefore, confident to achieve a full year '25 result significantly above prior year's levels, the targets which we are reaffirming today. Also midterm, we will significantly further increase our profitability level, targeting an adjusted EBIT margin of 8% to 10% between '28 and 2030. We're proud to say that we deliver on our promises, and we look forward to providing you with further and tangible proof points soon. For now, though, we're looking forward to your questions. Thank you. Operator: [Operator Instructions] And the first question comes from Jaime Rowbotham from Deutsche Bank. Jaime Rowbotham: Two areas I wanted to explore. The first is on the Q4 unit revenue comment. Perhaps you clarify if the flat RASK guide for Q4 includes what you currently see on currency, i.e., we should compare it to the 2.2% decline in Q3 as opposed to the 0.4% decline, which excluded FX. And in terms of the stabilization of the intra-European trend coming from growing ASKs at less than 1% compared to 5.5% in Q3. I can understand how this helps the yields, but it must hamper a bit the narrow-body aircraft utilization, which we saw at the CMD was running low. So just keen to understand how you balance that. Second area was cargo. Till, you mentioned visibility is low in cargo given the short-cycle nature of the business. I just wondered if you'd be willing to say what might be a sensible range of profit outcomes for Q4 relative to the circa EUR 200 million of operating profit delivered last year. I'm just conscious that, that figure could half and you'd still have about 30% year-on-year growth, so significant growth in full year EBIT. Till Streichert: Jamie, let me start with the second question first, just on cargo. So you're quite right. We had last year an exceptionally strong year where actually out of the EUR 250 million profit, we made EUR 200 million just in the last quarter. So we don't even need that in this quarter to already achieve comfortably our target of significantly above. Look, can I be more specific in terms of what I do expect for cargo? Difficult to say without now kind of specifying really our guidance, which we stayed away from. But just leave -- I'd like to leave it with that. We have seen, obviously, year-to-date very good performance. And you can see also in the third quarter, the strong volume demand, which we are quite positive about even after airfreight traffic streams or air freight streams have kind of reorganized a bit globally post the so-called Liberation Day, and we are participating in that. And drivers of this volume is really the belly capacity, the added ETA commercialization of belly capacity and the freighter added capacity. So this makes me positive. But of course, we now need to see how the last 2 months we're going to come out. But all in all, clear and I would say, optimistic confirmation of our significantly above 4 cargo. RASK guidance, your first question in terms of FX. So you're quite right. The comment in terms of improving RASK guidance and stabilization there in terms of year-over-year is basically a like-for-like. So there's no FX assumption that changes that changes in there. And let me remind you as well that we have seen already during the third quarter between July, August and into September, September was already a month that was notably better in terms of RASK evolution. Operator: And the next question would come from James Hollins from BNP Paribas. James Hollins: First of all, probably for Carsten. Just on that corporate strength, it's not something we've seen for a while. It's certainly something the U.S. names were flagging. I was wondering if you could sort of run us through if that's sort of a big acceleration as we've come into the autumn, where it's particularly strong? Is it U.S. inbound to Europe? Is it maybe in Germany, first time in a long time, maybe signs of this fiscal stimulus working. So just run us through on the corporate side there. And then secondly, I hate to be that person in the room, but maybe get your view on the likelihood of a strike sort of take us behind the scenes of weather. Obviously, the media have got their views on what's going on, but just get your views on likelihood of strike, would be great. Carsten Spohr: Yes. James, I think we've missed one question from before utilization of our [indiscernible] fleet, if it would go down further, it's the opposite, we are probably looking at 2% growth on [indiscernible] with the same fleet size. So take that as a thumb rules, you see an increase in productivity by at least 2% more production of the same fleet. James, proper strength, indeed, the U.S. carriers and also our people, of course, leaving the shutdown aside. Don't forget our largest customer is the U.S. government. So recent weeks put aside, we see some development from the U.S. Also, Germany is at least not aggressively growing, but somewhat growing on volumes. Tech industry is strong. For example, consulting is strong. Finance industry is strong. So it's not crazy the growth, but compared to what we have seen now for quite a few years, it was worth mentioning it. Likelihood of the strike by the pilots in the end, the union has to answer. But as we already said before, we have done our yearly staff survey and the biggest improvement in satisfaction comes from the pilots. And the pilots also expressed not worries about their pensions, which are already quite high, but rather expressed worries about their future and future growth and future careers. As we always allocate strike cost is personnel cost, of course, any strike would increase the cost disadvantage of the mainline and decrease perspectives and careers even further. So putting all that together, I think there's room as our Head of HR offered to talk about future perspectives rather than additional pensions. We just cannot afford and not willing to raise further also in terms of fairness to the pilots in the other airlines. I think that's about what I can say about that today. James Hollins: Can I just come back on the U.S. government shutdown? Maybe just give us your thoughts on what you're seeing very near term? I assume U.S. inbound corporate, given that your largest customer has taken a hit and maybe whether you sense there's a feeling that there's a bit of reticence from some Europeans going to the U.S. because there might be delays or whatever. Just it would be great. Carsten Spohr: Well, I think there was a very special event -- not event, effect, sorry, from my language. Coming out of the Easter tariff announcement, the so-called Liberation Day Till referred to, that was the time around Easter when German booked their late summer holidays. And surely, we saw some softness out of Europe, especially Germany, Austria, Switzerland and Denmark [ flying off ] to the U.S. We never saw that coming out of the U.S. There, of course, the yield was impacted by the currency. So I think that what people have been seeing a little bit in Q3, and we forecasted that in Q1 and Q2, if you recall, is already softening and/or the effect is softening. So we will see a more positive outlook on Q4 and also in the first weeks of '26. The shutdown in general is, of course, affecting U.S. carriers a lot more than it affects us because the main travel from the U.S. government is domestic U.S., but also us with our joint venture partner, United, enjoying some nice business from the U.S. government, which, of course, is slow now. But I don't think the shutdown will eventually last too much longer either. Operator: And the next question comes from Harry Gowers from JPMorgan. Harry Gowers: First question, can I just ask on your -- you've got this slide, I think, Slide 6, which kind of shows the bookings outlook and kind of the RASK development into Q4. So first question, I think October is missing from that chart. So could you give any commentary on what you've seen in the bookings for October? And then is your flat RASK guide for Q4, is that just what you see in the books at the moment? Or have you made any further assumptions on how bookings and pricing will actually evolve over November and December? And then Till, maybe one for you. Could you just clarify or kind of narrow down the range a little bit on ex-fuel CASK for Q4? Because I think you said the guidance would be below the 2.5% you've seen year-to-date. But are you going to see an ex-fuel CASK, which is higher than the 0.5% that you saw in Q3? And what exactly would be driving that? Till Streichert: Thanks, Harry. I'll start with the second question, and then we'll work backwards to the first one. On CASK, so as I said, we've got year-to-date 2.5% CASK growth. Remember, the quarterly trajectory was basically we had 3% and 4% CASK growth in the first and second quarter, now 3.5%. Pretty pleased with that. And for the fourth quarter, I expect something which is below the 2.5%. Now being even more specific, look, hard to say what's the driver of the movement from the 0.5% in the third quarter up to something which is below the 2.5%. It's -- I expect that MRO will going to be one of the drivers, which goes up in the last quarter a bit. And then we've got the usual drivers as well on additional cost evolution from ATC, from fees and charges, et cetera, et cetera. But again, with that for me, what we said at the -- throughout the year, this half 1 versus half 2 is starting to materialize where CASK is coming down. And that for me, if you just say I look at half 1 and half 2, clearly an effect of the materialization of the Lufthansa Airlines turnaround and look in the same way also for the other airlines that are all running their efficiency drives. So that's on CASK. On RASK, so what we've shown there is basically Page 6 is really what we've got on the books. So there are no -- that's what we see in terms of seats sold at the seat load factor that we've got right now. Your question, October, October was with -- I mean, we've almost closed, it was good. And there was for the third quarter, what we said is clearly better trading environment and resulting into this positive evolution from the third quarter where we obviously saw that as a dip. And here again, the comment that throughout the quarter, September was already notably better than July and August. Operator: And the next question comes from Jarrod from UBS. Jarrod Castle: You're still talking about a material increase in adjusted EBIT. Consensus is EUR 1.9 billion, give or take, versus the EUR 1.6 billion, give or take, last year. From where you stand today, do you see risk on the upside or the downside? Or are you comfortable with kind of where consensus is? Just any broad color. I know you've still got 2 months left of the year. And then secondly, the balance sheet continues to degear. So just thinking about the dividend payout ratio. Are you or the Board thinking more towards the top end of the 20% to 40% of net income guidance for this year? Or again, is it a little bit too soon? Till Streichert: Look, in terms of -- let me not comment specifically on the consensus. We've given a bit of color, of course, on the fourth quarter with RASK, CASK, also a bit of explanation on what I expect to happen on Lufthansa Technik and Cargo. So I don't want to be specific on that. We've given the elements. I think you get to a good picture with that. And I would probably leave it more or less with that element or with that answer. But if you would see us uncomfortable, obviously, then we would have said something. Let me put it like that. And finally, on the dividend policy, which we did reconfirm at the Capital Markets Day of 20% to 40% in place, this is a healthy dividend and the exact payout ratio within that range. We will obviously detail further down the line when we've got the full year results. But you can imagine, and that is what I also highlighted at the CMD. Of course, I want that our dividend per share continues to grow, driven by the improving operating performance as a key driver of it, okay? And the strength of the balance sheet as a backdrop and the lower leverage is helpful. I'm very happy with that. But also here, let me just highlight the fourth quarter, I do expect still to have aircraft deliveries and CapEx outflow. And with that, I did reconfirm that I expect free cash flow to be broadly stable versus prior year. And with that, you've got the key elements put together. Operator: Then the next question comes from Muneeba Kayani from Bank of America. Muneeba Kayani: Just going back to Slide 6, and thank you for that. It's very helpful. The bookings number, just to clarify the dark blue in there, is that kind of comparing to bookings at the same time last year in terms of the year-on-year increase? And then just kind of when you're seeing that yield improvement, is there any specific region that is driving that? Or is it across the board? You point out premium yields above previous year for every month. What are you seeing on the main cabin, please? And then on the unit cost side, so in your 2026 guidance, you're talking about fleet productivity. Till, you've talked about unit costs getting -- trends getting better in the second half of the year. I know you're not giving guidance specifically on next year. But broadly, how are you thinking about unit costs on a passenger airline in '26? Till Streichert: So that was 3 questions. So the first one, just quickly, yes, you are right. That's a year-over-year comparison. So nothing else, the dark blue bookings number on Slide 6. The second question on yield evolution. So we have, in fact, seen an improvement in all traffic regions, albeit I would actually also highlight that intercont is probably -- is improving more. I expect it to improve more than cont. And in terms of cabin class, premium, so this is the same theme that we've seen also before. Premium continues to be doing better than basically economy class. And your third question in terms of CASK evolution, I'll answer it from 2 angles. One is what I said also at the CMD, longer term, I do expect that our CASK growth, we are able to clearly beat inflation on CASK. And when we now talk about 2026 specifically, please bear in mind that we will be giving guidance and further details closer to the time beginning of March. But for now, all of the drivers that you highlighted, asset utilization, productivity gains, turnaround improvement playing into it, you can almost roll forward a bit also from what we've started to do and seen in 2025 as proof points. So -- and again, the flat CASK at Lufthansa Airlines in the third quarter, and again, bear with me, I'm not saying that this will be now flat for the next quarters to come. There will always be a bit of volatility, but a 0.1% CASK increase at Lufthansa Airlines only in Q3 is a big success. Operator: And the next question comes from Conor Dwyer from Citi. Conor Dwyer: The first was on basically your comments around next year on long haul. You talked about mid- to high single-digit capacity growth. And I said that obviously, that will have good implications on the unit cost side. But how are you thinking about the risks there from a unit revenue perspective that a lot of that just gets eaten up by some of the pricing pressure that, that may bring? And then secondly is on Technik. So as you said, very strong revenue growth with third parties, but quite a bit of a pullback on the internal revenue side. So I'm just wondering what exactly is that reflecting? Is that basically the need to fly planes because you're tied on capacity slow deliveries or anything else that might not have thought of? Till Streichert: Conor, it was a little hard to really understand. I'll start and you please just repeat where we don't answer your question fully, okay? I'll go with Technik first because there, I think I got it. So to repeat, 10% revenue growth, that was good. Indeed, the third-party business over-indexed, 28% growth, which for me is actually extremely good because there [indiscernible] obviously take it from the market. In terms of internal business, I think you were questioning, is that a problem that we are scaling back there? I'm not aware. I mean, obviously, mathematically, there's a little bit of a shift. But again, what matters is the external revenue because that's where you are usually in long-term contracts -- going into long-term contracts and building basically business. I hope that answers the Technik question. Conor Dwyer: I was really just wondering, basically, is that weaker internal revenue reflecting basically the need to fly the planes and that some maintenance actually internally is going to be coming more so through the winter in that regard. Till Streichert: Sorry, I struggled. Can you just repeat it again? Conor Dwyer: Yes. So the question was more so around with the internal revenue being a bit, let's say, less in the peak summer, is that reflecting the need to fly the planes currently and do the work through the winter because you're kind of tight on capacity at the moment? Till Streichert: The need to fly... Conor Dwyer: So you're basically charging less internal revenue on the maintenance business. Is that basically reflecting the fact that at the moment, you basically need the planes flying and more work is to come, i.e., on the internal revenue side through winter? Till Streichert: Look, this is math -- I would actually think this is more mathematical what's happening here. I wouldn't read too much into the internal revenue generation or whether there are shifts in terms of business. I mean, obviously, this is also driven by just what's happened in terms of MRO that we use internally with Lufthansa Technik. Conor Dwyer: That's fine. Then the other question was simply basically around the risk of medium to high capacity digit capacity growth into next year in long haul. What the risks are basically around unit revenue there, even though there is obviously some unit cost benefits from doing that? Carsten Spohr: Well, I think the major effect on long-haul growth next year is North Atlantic. And there, we are still lagging behind our peers compared to pre-COVID. So if you draw a line from 2019 to where we are in North Atlantic capacity, we have a little catch-up to do, and '26 is going to be another catch-up year. So we don't see a risk on the yield side because we're basically catching up to demand overhead. They can also get new airplanes. Don't forget the new airplanes we'll be using to a large degree on the North Atlantic as well. Operator: And the next question comes from Antoine Madre from Bernstein. Antoine Madre: Two questions, please. First is that the free cash flow guide for 2026 more on the safe side with the current turnaround and the current fuel price level. So maybe you could give some color on the '26 CapEx? And second, we saw that the 777X is now expected for 2027. Does that further delay fleet simplification initiative? Till Streichert: Antoine, let me start with the free cash flow guide. Look, I mean, we'll technically speak about that when we speak in March next year. But let me say -- let me reiterate what I also guided at the Capital Markets Day. I do expect that 2026 free cash flow should be broadly on the same level as 2025 and there was also 2024. And as a reminder, I do expect progression in terms of earnings improvement. This will improve as well operating cash flow. But we do have, and we've given you also the schedule on the fleet renewal. The next 2 to 3 years will be the years where we've got elevated fleet renewal and there was also elevated gross CapEx. And there with -- in combination with utilizing also more sale and leasebacks, we have arrived at the conclusion of a broad free cash flow target -- broadly stable free cash flow target for 2026, but further details to come when we speak in March. Carsten Spohr: Yes. On the delays or additional delays on the 777X, we never expected the airplane to be in operation commercially in '26. So we are scheduling the aircraft earliest summer '27. So there's no need yet to make any changes to our plans so far, and we'll see where it goes from here. Operator: Then the next question comes from Andrew Lobbenberg from Barclays. Andrew Lobbenberg: Can I just carry on from the 777 question and go to the 78 question. I think there have been stuff in the press about how the approval of the seats might be challenged by the U.S. government slowdown. So how confident are you on the timing of the approval of the Allegris seats other than the front row in the 787? And does that impact your willingness or enthusiasm to take delivery of the 7 or 8 aircraft to come in the balance of Q4? And then my second question would come down to the RASK because obviously, we've been dancing between the flat RASK, excluding FX and the 2% negative RASK, which I think is your headline number. But in your regional RASK, down in the appendix, which I think is just the pure airline tickets, that number is negative 5% for Q3. So could you perhaps explain to us a little bit about the difference between the regional RASK number and the headline RASK number? And how should we think about that -- the differences and how those differences evolve in terms of irregularity or ancillaries or whatever? Carsten Spohr: Andrew, I'll start with the first one. So far, the shutdown has an impact on some delays by days of the deliveries of the aircraft. I'll come to the certification in a minute. So therefore, we don't expect 10 aircraft anymore this year, but rather probably around 8; 6, we have scheduled to fly. That's a minimum which we would need to achieve to not have any changes in our published schedules, and we're pretty optimistic to be above 6. As I said, 8 probably the most likely shot as of today. We do not yet see delays due to the shutdown in the certification part. This is basically all paperwork, which has to be done. So we're still confident to get that done by the end of the year. But we all have learned there's always question marks when it comes to the triangle between Boeing, Collins and the FAA. So I can only say what we know as of today. And again, that the confidence of my team on the ground in the U.S. still tells us end of the year is feasible. And then maybe even the last aircraft would already arrive with unblocked seats, but also quickly afterwards, we can unblock the seats of the aircraft, which are already across the pond in Europe. Till Streichert: Andrew, I'll take the question on RASK. So the figure of minus 2% that we are referring to here for the third quarter in terms of RASK evolution includes ancillaries, cargo revenues and also the revenue benefit from less Iraq events. And what you are referring to in terms of the regional RASK in the appendix is excluding exactly those 3 line items. So there's no ancillaries in, no cargo belly, no benefit from irregularities. And therewith, in terms of dynamics going forward, look, I still do expect that we will going to improve further on [indiscernible]. So you should see that basically helping. I do expect that on the cargo belly over time, also contribution continues to evolve positively. And ancillaries, as you can see right now, is growing strongly. And with Allegris, rolling -- with Allegris rollout taking pace, gaining pace, you should see actually even on that one, a stronger contribution. It's just important to distinguish between what we show as a regional RASK, which is RASK 1A and the one that is basically RASK 3, including everything. Andrew Lobbenberg: So when we think of the numbers in compute and do our modeling, is there some double count of your RASK with the belly compared to what's in the cargo business? Till Streichert: No, there's no double counting. So this you see -- this is strictly or this is kind of mutually exclusive and collectively exhaustive allocated in the reporting. Operator: And the next question comes from Stephen Furlong from Davy. Stephen Furlong: You talked about Boeing. Can you just ask about Airbus? They announced a slowdown in the production rate of the A220. Is that something that worries you or not? I think it's gone from 14 to 12. And then the other question, I just want to ask about cargo, which is performing very well. In general, it tends to be, I guess, a division or product that is very -- even more volatile, let's say, than the passenger business. But maybe you could just talk about some of the structural things that are happening that maybe would suggest that the cargo business and profitability be more enduring than perhaps the volatility in the past, not just with Lufthansa, but the industry. Carsten Spohr: Stephen, no, so far on the 220, we don't expect any delays. Actually, we just met with the Airbus management last week. So we're still confident that our 40 220s we have ordered for Lufthansa City Airlines will be starting to be delivered end of next year and will come on time. On cargo, 2 thoughts. First of all, it's still a volatile business. But one wave seems to more or less compensate the other. So there are so many trends now in the industry compared to the old days when there was only 1 or 2 mega trends that I think you see one wave on top of the other. And like I know if you're a sailer, that happens in the harbor in the end, then there is kind of... Stephen Furlong: I [ know ]... Carsten Spohr: Then you know, it's kind of zeroing out. That's one element. But I think more important is another one. As you well know, Stephen, we talked about this before, cargo has 2 elements. There's the so-called planned air cargo, Think about pharmaceuticals, think about valuables, think about consumer e-commerce. And then there is an unplanned cargo, which is mainly B2B spare parts to keep factories around the world going and so on. And you see clearly a shift at least in Lufthansa cargo, which tends to be more high-end cargo, we see more and more shift towards the valuables, pharmaceuticals and especially to e-commerce. And e-commerce is always what you call planned air cargo. You always send your fashion products from China by cargo and not only when something goes wrong in the supply chain, which happens on the more B2B-driven cargo providing factory. So I think that could be a reason why things become a little bit less volatile. But I would still call cargo volatile, but it just, as I said before, has worked in our favor over the last years because the predictability of supply chains has come down. And therefore, even the unpredictable high volatile cargo has helped us to support our profitability. So that's -- I wouldn't want to be a forecaster here on this, but this is where how we look at things, and that's why the optimism for cargo is going on. And an argument which is not new, but which proves to be right even more, remember, I always -- when I see you in London, I say, I wish I had a home base of London, how nice must it be to run an airline in Heathrow. But that's true for passengers. When it comes to cargo, Frankfurt is, I think, for cargo, what London is for passengers. Amazon has just announced to shift additional cargo streams via Frankfurt. So here, surely, our biggest hub is a major advantage why on the passenger side, things probably look more fun in Paris or London. Operator: Then the next question comes from Antonio Duarte from Goodbody. Antonio Duarte: As you have seen the reallocation of assets to more efficient routes talking about summer next year and into the future, could you give us some colors on which airlines you're planning to expand the most considering different EBIT margins between these? And following on this topic as well, we have seen a year-on-year improvement in your Lufthansa Airlines EBIT margin this quarter. Could you also talk us a bit about any targets you have going into Q4 and maybe into next year? Carsten Spohr: Antonio, I hope I got your first question right. But since some time, and I would definitely say since coming out of COVID, beyond operational requirements, we really allocate aircraft and growth according to ROCE principle. So where do we return investments highest? And that means currently, those airlines which have a favorable cost position, think about Discover, think about Edelweiss, think about Lufthansa City Airlines, but also ITA, we're looking at additional growth due to their cost position and due to their market opportunities to somewhat underserved home market roam. So that's what we do. That ROCE principle also internally clearly communicated to unions, to our staff, I think will help us to make sure that the right airlines grow. And I think on Lufthansa Airlines, I want to repeat what I said. First, we had to stabilize operations. We did. Now customer satisfaction had to be stabilized. It is going on while we speak. Allegris plays a role, also [indiscernible] plays a role, also the EUR 70 million of improvements we invested on board. And therefore, I think as Till pointed out, we are optimistic to perform on track with our Lufthansa Airlines turnaround program. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Marc-Dominic Nettesheim for any closing remarks. Marc-Dominic Nettesheim: Thanks to all of you. Thanks to you, Carsten and Till, for your answers, and thanks to all of the interested participants for your questions. We're looking forward from the Investor Relations team to continue our dialogue. And for now, we wish you a great afternoon. Talk to you soon. Bye-bye from Frankfurt. 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 line. Goodbye.
Operator: Welcome to the XPO Q3 2025 Earnings Conference Call and Webcast. My name is Stacy, and I will be the operator for today's call. [Operator Instructions] Please note that this conference call is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable security laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of risk factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. During this call, the company may also refer to certain non-GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to XPO's Chief Executive Officer, Mario Harik. Mr. Harik, you may begin. Mario Harik: Good morning, everyone, and thank you for joining our call. I'm here with Kyle Wismans, our Chief Financial Officer; and Ali Faghri, our Chief Strategy Officer. This morning, we reported another quarter of strong execution. Company-wide, we generated adjusted EBITDA of $342 million and adjusted diluted EPS of $1.07, both exceeding expectations. Excluding a nonrecurring benefit in the third quarter last year, adjusted EBITDA grew by 6% and adjusted diluted EPS by 11%. In our North American LTL business, we grew adjusted operating income year-over-year by 10% to $217 million and improved our adjusted operating ratio by 150 basis points to 82.7%, significantly outperforming seasonality. We've now achieved 350 basis points of margin expansion over 2 years in a soft trade market, underscoring the power of our operating model. Importantly, we grew LTL adjusted EBITDA to the highest level of any quarter in our history at $308 million. The consistency of our performance highlights 2 inherent strength of our business. First is our ability to drive above-market yield growth. And second, to optimize our network with high-impact proprietary AI and other technology. The foundation of our operational strength is our world-class service and it's the most powerful catalyst of customer loyalty and margin expansion. In the third quarter, we reduced damage frequency to the best level in our history, and we improved on-time performance year-over-year for the 14th consecutive quarter. These improvements reflect the importance we place on delivering consistently for customers as a core tenet of our culture and the pride our team takes in meeting that goal. We're also optimizing our network so that our facilities, fleet and technology work together to reduce 3 handles, shorten transit times and increase productivity. These operational gains are being supported by the investments we've made in our network and equipment, which continue to enhance service quality and drive long-term cost efficiency. Speaking specifically to our investments, we focus on high-growth freight markets, and we have one of the strongest LTL networks in the industry. We use the 30% excess door capacity in our network as a strategic tool, optimizing freight flows today while positioning to capture profitable share gains and stronger incremental margins as the cycle turns. On the equipment side, our investments have lowered the average age of our tractors to 3.6 years at quarter end, giving us one of the youngest fleets in the industry. A newer fleet, combined with the efficiency of our maintenance program strengthens reliability, safety and service performance. In the third quarter, it drove a 10% reduction in our maintenance cost per mile. Together, these investments are improving efficiency across linehaul, dock and pickup-and-delivery operations while ensuring we have the right capacity in place to support growth ahead. Turning to pricing. Our service quality and focus on a more profitable mix drove another quarter of above-market yield growth and margin performance. In the third quarter, we grew yield excluding fuel by 5.9% year-over-year and 3.1% sequentially. We also improved revenue per shipment, excluding fuel sequentially for the 11th consecutive quarter. Underpinning this performance was the value shippers placed on our reliability and damage-free service. We're also seeing benefits from a richer mix of local accounts and premium services, both of which carry higher margins and contributed to the outperformance in the quarter. By rigorously executing our strategy, we're translating the strength of our service into industry-leading yield growth and meaningful margin expansion. Turning to cost efficiency. Our progress for productivity and AI continue to be a highlight in the quarter, while our reduced reliance on purchase transportation will insulate our cost structure when the cycle turns. Starting with purchase transportation, we improved outsourced miles to 5.9% of total miles, the lowest level in company history and down from 25% a few years ago. Our lower reliance on third-party carriers gives us greater control over service quality and will support stronger incremental margins when truckload rates recover. Notably, productivity was the largest contributor to our strong cost performance in the quarter, enabled by our AI-driven optimization tools, which are generating measurable returns. In linehaul, the models we deploy are driving meaningful reductions in overall miles run as well as empty miles and the impact of these gains accelerated throughout the quarter. More recently, we rolled out automated mapping for door loading to streamline trailer utilization. This has already increased shipments per trailer by low single digits versus last year. Linehaul represents our largest cost category at about $1.6 billion per year, so the efficiencies we realized here had a significant impact on our P&L. Pickup and delivery is another area where our implementation of AI solutions is showing strong potential and is in the early innings. Every logo route we run is precisely optimized for time, distance and number of staff, collectively, these initiatives contributed to a year-over-year productivity improvement of 2.5 points in the quarter. This reinforces how quickly AI is gaining significance as a driver of our margin outperformance. And we're just beginning to unlock its potential. As these tools scale, we expect ongoing enhancements of productivity, margins and the customer experience across our operations. In closing, I want to frame today's strong earnings report within the context of the strategy that powers our model. Together, they keep us performing ahead of the market independent of the macro. At its core, our model integrates a high-performing network of capacity with key markets, advanced technology and a culture that excels at delivering world-class service and results at scale. And our applications of AI are amplifying our strategy, creating new opportunities to meaningfully expand our margins. It's a dynamic combination. And as the cycle turns, we expect our momentum to accelerate driving greater upside to margin and long-term value creation for our shareholders. With that, I'll turn it over to Kyle to walk through the financials. Kyle, over to you. Kyle Wismans: Thank you, Mario, and good morning, everyone. I'll take you through our key financial results, balance sheet and liquidity. For the third quarter, total company revenue was up 3% year-over-year to $2.1 billion. In our LTL segment, revenue was also up to $1.3 billion. Excluding fuel, LTL revenue grew 1% year-over-year, supported by ongoing strength in our yield. On the cost side, our salary wage and benefit expense increased just 1% year-over-year due to productivity improvements. Our AI-driven tools helped to offset the impact of inflation and the added labor cost from our in-sourcing initiative. We also drove additional efficiency gains across the network, including a 48% decrease in third quarter purchase transportation expense as we in-source more linehaul miles. Strategically, the in-sourcing we're doing now should significantly mitigate costs later when the cycle recovers, and third-party carriers raise their rates. Depreciation expense in the LTL segment increased 11% or $9 million, consistent with our strategy of investing in capacity and equipment to support long-term growth. Turning to profitability. Company-wide adjusted EBITDA increased 3% year-over-year to $342 million. In LTL, adjusted EBITDA was up 9% to $308 million and adjusted operating income was up 10% to $217 million, both for company records. We also expanded our LTL adjusted EBITDA margin by 180 basis points to 24.5%, reflecting strong pricing and operational execution. In our European Transportation segment, adjusted EBITDA was $38 million, and corporate adjusted EBITDA was a loss of $4 million. For the total company, operating income was $164 million and net income was $82 million. Diluted earnings per share decreased to $0.68, reflecting a $35 million charge related to a legal matter dating back to Con-way in the 1980s before we acquired the company. On an adjusted basis, diluted EPS was $1.07, up 5% year-over-year. And lastly, we generated $371 million of cash flow from operating activities in the quarter and deployed $150 million of net CapEx. Moving to the balance sheet. We ended the quarter with $335 million of cash on hand after repurchasing $50 million of common stock and paying down $50 million on our term loan facility. Combined with available capacity under our committed borrowing facility, this gave us $935 million of total liquidity at quarter end. Our net leverage ratio was 2.4x trailing 12 months adjusted EBITDA compared with 2.5x in the prior quarter. Looking ahead, while we remain committed to investing in initiatives that support long-term growth, we expect our CapEx to moderate and free cash flow conversion to increase. This positions us with greater flexibility in continuing to return capital to shareholders while strengthening our balance sheet. And with that, I'll hand it over to Ali to walk you through our operating results. Ali-Ahmad Faghri: Thank you, Kyle. I'll start with a review of our LTL operating performance where we continue to expand margins and deliver record third quarter adjusted EBITDA despite a soft freight market. Shipments per day were down 3.5% year-over-year and weight per shipment declined 2.7%, resulting in a 6.1% decrease in tonnage per day. Notably, both shipments and tonnage per day improved year-over-year versus the second quarter, a positive trend we expect will continue for the fourth quarter. One key driver of this improvement in shipments per day was our local channel where we continue to take profitable share. High-margin local shipments now represent 25% of our total, up from 20% just a few years ago. This reflects the success of our targeted sales initiatives for these desirable customers and the strong appeal of our service quality. Looking at monthly trends compared with the prior year, July tonnage was down 8.7%, August tonnage was down 4.7% and September was also down 4.7%. Moving to shipments per day. July was down 5.6%, August was down 3.4% and September was down 1.5%. For October, tonnage is estimated to be down in the 3% range, in line with normal seasonality compared with September. Turning to pricing. We delivered another quarter of above-market yield performance with 5.9% growth excluding fuel versus the prior year as well as a sequential improvement. Revenue per shipment, excluding fuel, also increased sequentially for the 11th consecutive quarter, underscoring the momentum of our pricing initiatives. We expect to improve pricing sequentially again in the fourth quarter supported by our premium services and growth in the local channel. Underpinning this, our data analytics and proprietary technology are becoming increasingly adept at aligning pricing with the value we provide to customers. Turning to profitability. Our LTL margins were exceptionally strong as we improved our adjusted operating ratio by 150 basis points year-over-year, exceeding our outlook and we were the only public LTL carrier to expand margins this quarter. Sequentially, we improved our adjusted OR by 20 basis points in a quarter that typically sees 200 to 250 basis points of seasonal deterioration. It marks the first time we've achieved sequential OR expansion in the third quarter aside from extraordinary years like 2020 and 2023, and it underscores the continuous improvement that is a hallmark of our strategy. Looking at our European Transportation segment, we continue to grow the business and strengthen its position against the challenging macro backdrop. We increased third quarter revenue 7% year-over-year, while gaining wallet share with existing accounts and new customer wins. Adjusted EBITDA, one they get outperformed typical seasonal patterns reflecting disciplined execution across our operations. In addition, we grew the sales pipeline by high single digits, putting us in a strong position to capitalize on rising demand in key markets. To close, I want to highlight what continues to set our performance apart. Our LTL results reflect industry-leading trajectories for profitability, cost efficiency and operational excellence. We're consistently generating above-market yield growth through our service while also increasing the contribution from high-margin local customers and premium services. Pricing is a key driver of our margin outperformance with a long runway to continue compounding these gains regardless of the macro environment. And on the cost side, our deployments of AI are adding to the bottom line, driving meaningful improvements in productivity and network efficiency. All of these structural advantages are independent of the cycle, contributing to our outperformance today while positioning us to accelerate earnings growth as freight volumes recover. Now we'll take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] First question has from Ken Hoexter with Bank of America. Ken Hoexter: Great. Ali and Mario and Kyle, I guess just a great job on operations and in-sourcing. I mean just continued cost controls. But the key here, I guess, is the October tonnage you just noted was down 3%. Industry leader is, I guess, 4x worse than that. Maybe, Mario, if you want to talk a little bit about is that the system is now enabling you to address customers faster, better on pricing? And then maybe talk about how you expect to outperform seasonality. And then carry that over to your thoughts on margins into fourth quarter? Mario Harik: Thanks, Ken. Well, if you look at October tonnage for us, that would be down in the 3% range, which we still have a few days here to close out the month, but this is where we expect it to be. And that's largely in line with typical seasonality from the month of September into the month of October. Now if you think about the reasons of the outperformance, a lot of that goes back to our strategy is firing on all cylinders. I mean, from one perspective, our service product has never been better. We are onboarding more small- to medium-sized customers than we've had in the past. So far, year-to-date, we have added 7,500 local customers. And here this last quarter, we added another 2,500 local customers, and that's paying the dividend. And when you look at premium services that we are launching, customers are taking advantage of that. We want to be there for them, and these are services that customers are asking for. And they come at a higher yield, they come at a higher margin, but they also check the box where these are things we were not doing in the past for our customers. Over the last 1.5 years, we launched a half a dozen of these services. Here, the latest one was grocery consolidation in the second quarter. And we're seeing more momentum accelerate in those premium services as well. So these are some of the factors why we're seeing, again, in outperformance when it comes to the volume side. When it comes to the margin outlook, typically for us, in the fourth quarter, we see a sequential increase of OR of 250 basis points from Q3 to Q4. And we do expect to continue to materially outperform that seasonality here in the fourth quarter, and this implies that OR will also improve meaningfully on a year-on-year basis and accelerate versus where we were in the third quarter on a year-on-year basis is our current expectation. And that will put us on the path towards delivering on our full year outlook of 100 basis points of OR improvement. Now keep in mind, Ken, this is the second year in a row where we meaningfully outperformed the industry, and that's our expectation. And we're still in the early innings. I mean, if you roll forward, obviously, at some point in a cycle in the cycle -- in a soft macro, we're improving margin and whenever the cycle starts turning, we're going to improve it even more. Operator: Next question, Scott Group with Wolfe Research. Scott Group: Mario, just to follow up, I know you said you expect to outperform seasonality on OR in Q4. But any sort of color magnitude? And then I think any way you look at it, right, you're exiting Q4 with a lot of year-over-year margin improvement. I know it's early, but any way to think about -- any early thoughts on how to think about margin improvement into next year? Mario Harik: Yes. I'll start with next year, just trying to give some color on it, and then I have Ali just cover more details on the fourth quarter. But if you look at next year, obviously, we do expect a strong year of both OR improvement and earnings growth in 2026. And this is even in the current soft macro environment. So without assuming any macro recovery yet, which is not what we're hearing from customers, by the way, customers are starting -- we're hearing more and more from customers that they do expect a recovery in 2026, but we'll see what the macro has absorbed. But even without a macro recovery, we do expect to improve both OR meaningfully and the earnings as well. Now we will talk more about the specifics of 2026 once we report the fourth quarter. But at a high level, just from a building block perspective, we're going to continue to benefit from another year of above-market yield growth. As you know, Scott, we with on a trajectory, the bridge the gap between us and best-in-class on yield and we still have 11 points to go get over the years to come. In premium services, we're still, I would say, in the early to middle innings in terms of getting to the 15% target of assessorial as a percent of revenue on -- if you look at -- and if you think of our local accounts or small to medium-sized businesses, we are currently in the, call it, 25% range of the book is those kind of customers and our goal is to get up to 30%. It's going to take a number of years for us to get there. So we still have a lot of runway in terms of all the initiatives that we are driving to deliver that above-market yield growth. And the second category, which we're very excited about, is on the cost side with AI. We've launched multiple capabilities here in the second and third quarter that have paid dividends and all of these are incremental to what we're doing. And we have another number of initiatives that are currently in pilot that are also showing very early signs of great numbers here that we're going to be able to improve our productivity even further as we head into '26 and '27 and beyond as well. So all of these are the levers that are -- that will enable us to drive the stand-up performance, and this is without a macro recovery. Ali-Ahmad Faghri: And Scott, this is Ali. On the fourth quarter from a margin perspective, as Mario noted, we do expect to materially outperform seasonality here in the fourth quarter. If you just take the 100 basis points of OR improvement, we expect for the full year that would imply a modest sequential increase in our OR as we go from Q3 to Q4, but obviously, much better than the typical 250 basis points of seasonal increase that we normally see as we go to the fourth quarter. And I think, more importantly, Scott, what that implies is a pretty meaningful acceleration in our year-over-year go our expansion relative to the 150 basis points we just delivered here in the third quarter. Scott Group: Okay. So in the ballpark of like 250 basis points of year-over-year improvement? Ali-Ahmad Faghri: That's in the right range, Scott. Operator: Next question, Jonathan Chappell with Evercore ISI. Jonathan Chappell: It sounds like as we look past the fourth quarter, yield is going to be -- continue to be one of the biggest drivers, especially if we're not expecting much of a macro improvement. Can you walk through some of these cost line items and how we should think about the cadence going forward? It seems like PT is maybe getting to about as low as it can get to, correct me if I'm wrong. So a lot of these AI initiatives, productivity, et cetera, does that mostly come out of maybe some of the bigger cost line items, salaries and wages, et cetera? Just as a helpful framework to think about OR improvement potential next year without any volume. Mario Harik: You got it, Jonathan. So first, Jonathan, when you think about the PT in-sourcing, that's only a modest cost benefits for us in 2025 even. And the reason why when we in-source third-party linehaul, we've hired people, so that would show up in the salary, wages and benefits line. And we also added equipment, sleeper cab trucks for our Road Flex operation, and that shows up in both depreciation and a higher set of miles from a maintenance perspective, the cost per mile there goes up as well. On a net basis, if you look at the reduction in purchase transportation expense on the [ P&L ] and the addition of these incremental costs, that's only a very small cost benefit that we had in 2025 and here in the third quarter as well. The outperformance on the cost side have been coming from a better productivity. So if you think about it in the third quarter, we improved productivity, which we measure as shipments -- hours or labor hours per shipment has improved by 2.5 points despite shipments being down about 6 points, and that's the biggest -- the bigger part of the outperformance. Now we're still in the early innings of delivering on these improvements. If you take a step back and you look at all the things we're doing from a technology perspective, from a field execution perspective, our operators in the field are just killing it and you think about being able to manage and giving them the tools to be able to be more successful as well, we do expect that to compound over time and will go up further on the cost side. But the best way to think about it would be we have wage increases obviously caused our overall cost to go up and other cost inflation and then we offset that with productivity and how we're operating and moving freight across the network as well. Operator: Next question, Jordan Alliger with Goldman Sachs. Jordan Alliger: Just sort of -- so sir, continuing out, maybe just thinking longer term and let's say we get to the point of inflection on tonnage with all that you've done on PT and in-sourcing and these productivity benefits you're talking about and technology, et cetera. When we get to that point of inflection, can you maybe talk to how you're thinking about incremental margins whenever that churn actually is, whether it be next year or whenever? And what can we see? Or how do you feel that leverage will look on incremental? Kyle Wismans: Sure, Jordan. It's Kyle. So if you think about incremental margins, we'd expect those to be comfortably above 40%. And if you think about the major drivers for that, yield is obviously going to be the biggest contribution to the top line growth. And that's going to support a really strong flow-through to the bottom line. And as Mario talked about from the yield initiative standpoint, we're still in the early innings and there's a lot of run rate of growth, whether it's growing premium as we've talked about, increasing local channel or otherwise. And you think about as demand recovers, again, we're in a great position to deliver those based on the structure we've put in place. So obviously, the PT coming down is going to insulate us from rising truckload rates. That's going to give us strong operating leverage and you couple that with having world-class service and 30% excess capacity, we'll be in a great position to capitalize on the demand recovery in the market. Operator: Next question, Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to talk a little bit about -- maybe we think about the multiyear pricing opportunity. Clearly, you've made a lot of strides this year that will also create what will be more difficult comps in 2026 as well. So barring, we still don't see a major improvement in the volume environment, what's your degree of confidence that you can continue to see strength on the pricing front as we think out over the next 12 months? Mario Harik: Thanks, Stephanie. Well, if you take a step back and you think longer term, today, the pricing -- when we started our plan a few years ago, the price differential between us and best-in-class was 15 points. And that this is obviously ex fuel and normalized for their network versus our network. And today, although we are in the trough of the freight cycle, that differential is at 11%. Now we've always said it's going to take us 5-plus years for us to bridge the entire gap. And that's what kind of gets us excited about the future is that the run rate on a lot of these initiatives are -- again, we're either in the early or middle innings depending on the initiative for us to be able to continue to drive that above-market yield growth. Now if you think in the current market, the way we think about it, when we started our plan, we had roughly around 9% to 10% of our revenue came from what we call accessorial revenue. So these are premium services. Well, let's say you're moving a shipment for a customer in and out of a trade show as an example, you would be charging a small incremental charge associated with that. And our goal is to go from 9% to 10% up to 15%. As of last quarter, we were at 12%. So we have another 3 points to go, and we expect to get that roughly about 1 point a year over the next 3 years. If you look at small to medium-sized businesses, when we started our plan, we were under-clubbed in that area, we were about 20% of the book was those type of customers and how we've been able to add more and more of these customers with up to 25% and [ however ] of the mix being small- to medium-sized businesses. And our goal is to get to 30% at a clip of roughly, call it, a couple of points per year. And every couple of points for a year of more small- to medium-sized businesses is an incremental 0.5 point of yield that we get just given these are smaller customers, they typically operate at a higher margin as well. So we have another, call it, 2.5 years of run rate on that specific lever for us to go. And then the last one was when we saw the price differential on contract renewals was approximately about 8 points and our plan was to scale that difference about the point per year. And we are a few points in. So we have another 5 years, call it, of incremental price we can get given the great service product we are offering our customers to bridge that gap as well. So the way we think about it, again, it's a big opportunity, it will take us a number of years to get there. Even in the soft freight macro, we're delivering now for a few years in a row above market yield improvement given those levels, and we expect that to continue through the years to come. And when the cycle turns, that's going to accelerate even further as well. Stephanie Benjamin Moore: And just one quick follow-up. I know you gave some commentary about moderating CapEx. And if we kind of put the pieces together in terms of your expectations on what we just talked about on yield and expectations to continue to grow margin through 2026. Can you talk about what that means from a free cash flow standpoint? Mario Harik: Yes. Stephanie, so if you think about free cash flow, just starting with CapEx for this year. So I mean from a CapEx standpoint, we're going to moderate a couple of points when you think on a percent of revenue basis. So last year, about 15%. This year, that will come down a couple of points. And again, we're lapping a year significant expansion from a service center standpoint, and that's really a onetime spend in nature as well as some of the fleet investments will come down as we've made a lot of progress on our linehaul in-source. So if you think beyond this year, that CapEx number is probably closer to the midpoint of our long-term guidance range. We said 8% to 12%. We're probably somewhere in the middle of that. So what that's going to do for us is really help us drive even more cash flow when you think about next year. I mean, this year, I think we're going to grow north of $400 million from a free cash perspective. And again, we're generating higher income. We'll get some benefit from lower cash taxes and the lower CapEx coming through. And I think in the long term, as EBITDA continues to accelerate and earnings grow and we have a lower CapEx profile, we're going to generate much more cash in the future. Operator: Next question, Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Yes. I wanted to see if you can give us some kind of guideline of how to think about your pricing for the fourth quarter. You said that it would improve quarter-over-quarter. Are we still looking at something in that 5% to 6% range? And as we go into 2026, like are you seeing 150 basis points? I suspect that you're like 100 to 150 basis point kind of premium pricing. Do you think that continue to be sustained as we go into 2026 based on some of these levers that you just talked about, Mario, as far as what's driving that premium pricing? Mario Harik: Yes. I'll talk on 2026 and the long term, Fadi. So we do expect to continue, as I mentioned, if you look at it on the assessorial side, we had a point on the small- to medium-sized businesses, we have a 0.5 point. So all of these would be incremental to what the market is doing. Now obviously, as you know, if the market goes up and down, we're going to -- whatever the market does, I would also outperform it based on the company specific levers that we are driving is how we think about it. Kyle Wismans: Yes, Fadi, if you think about it from the fourth quarter on a year-over-year basis, we'd expect yield ex fuel to be in a similar growth range on a year-over-year basis what we saw in the third quarter. Operator: Next question, Chris Wetherbee with Wells Fargo. Christian Wetherbee: Maybe 2 quick questions here. First, as you think about tonnage in the fourth quarter, obviously in line or maybe I guess the third -- 3% decline in October, can you think -- can you talk a little bit about what normal seasonality might mean for the full quarter in 4Q? And then if you think about just sort of the pricing environment, maybe more broadly, there's been some concern about pricing in LTL, particularly given where TL is now. I don't have any thoughts there, maybe contract renewals. It seems like the pricing environment is still fairly stable for you. You're getting better than sort of industry level, just maybe some comments broadly on how you think the competitive environment looks today. Ali-Ahmad Faghri: Chris, I'll start with the fourth quarter volume. So October, as you know, for us, tonnage was down in that 3% range year-over-year. Now if you just roll forward normal seasonality for the rest of the quarter, that would imply full quarter tonnage being down in a similar range year-over-year as the month of October, perhaps a little bit higher when you factor into tougher comps in November and December. But for the quarter as a whole, we would expect it to look similar as what we saw here in the month of October. Mario Harik: And on the pricing discipline, Chris, so we continue to see a constructive industry pricing impediment. Going back to your question on contract renewals for us is accelerated in the third quarter versus where we were in the second quarter. And at a high level, I mean, although we have been in a soft freight market, customers and we've been in a freight recession now for 3 years, yet to continue to see that very strong industry pricing. And there's a few reasons for that. I mean, if you take a step back, this business is a cost inflationary business. We have to invest in equipment. We have to give our employees more wage increases. We have to invest in service centers. And customers do understand that for us to be able to provide that great service, we need to be able to invest in our network. And on the industry capacity side, we -- if you look over the last few years, there has been a significant amount of capacity exited the market. But when you look at pre-COVID levels compared to where we are today, you have 10% less industry terminals, and you have roughly around 5%, 6% less doors. And if you compare it to [ pre-Yellow ] bankruptcy to where we are today, both terminal count in the industry as well as door count is down in that mid-single-digit range. So a lot of the conversations that we're having with our customers, you can tell there are concerns when that cycle starts turning, they want to make sure they're working with the carrier that has the capacity to be able to support them while delivering a great service product for them as well. And all of these things lead to that, again, very disciplined industry where pricing stays steady. And again, we have to invest and that kind of manifest itself in the pricing pattern there as well. Operator: Next question, Richa Harnain with Deutsche Bank. Richa Harnain: So just piggybacking off that last question. Maybe, Mario, you can just flesh out a little more around the competitive environment in terms of like maybe what your customers are saying. Any -- down 3%, something very special is happening at XPO, but it seems like the broader industry is struggling a bit more. So maybe you can talk about, like, again, just what customers are saying regarding overall macro trends and when maybe we could look forward to coming out of this malaise? And then -- yes, in terms of like you just said that certain customers are leaning more into quality. Just talk about who's really struggling out there? Is it like on the private side, are you noticing more service disruption? And are you benefiting from that and taking share from that category to the market? Mario Harik: Thanks, Richa. Well, if you look at the customer demand outlook, as you know, every quarter, we do a survey with our top customers, and we just wrapped up here the third quarter one last week. And what we're hearing from customers for the fourth quarter has been consistent with what we've been getting from a trade recession perspective, where demand is still soft. We're not seeing the underlying tone from customers for the fourth quarter. So as we close the year, be bullish or bearish is kind of somewhat in the middle. It's fairly neutral on the demand side. Now we are seeing differences between customers. Some customers are doing better than others, depending on the segment of what industry they are in as well. Now that said, for 2026, we are getting more optimism in terms of the overall demand outlook. A large number of customers now expect an acceleration in 2026, which is encouraging to hear. Now if you take a step back, in our industry, typically LTL volumes are correlated with the ISM Manufacturing Index, which has been, as you know, subseasonal now sub-50 for the better part of 3 years. However, when you look at periods of change in the Fed fund rate, there is an inverse correlation between the ISM manufacturing index and the Fed fund rate. So you can imagine a declining rate environment that is going to, over time, drift up the ISM and lift back up the industrial manufacturing economy here in the country. The second area is around the big, beautiful build that's stimulating customers thinking about pulling forward that capital or stop delaying that capital deployment to a certain extent to make sure they can take a benefit of that. You also hear about the stability around tariffs. I think tariffs have impacted the economy this year, given there was more uncertainty. So a lot of companies deferred their capital deployment accordingly. But if you think about all of these things, they are conversion to 2026. A lot of these things would be behind us in the back few mid. But I said, it's very tough to call the macro. I mean, what customers are saying they do expect an acceleration. But there's a lot of moving parts here with more leaning towards the positive side. Now if you break it down between the type of customers in the third quarter, retail performed relatively better than the industrial counterpart. On the industrial side, which is 2/3 of our customers, machinery, electrical equipment, HVAC were stronger, while equipment or industrial for ag was a bit softer. And -- but overall, I mean, obviously, you see what the ISM is at. Again, it's a tough to predict environment, but there is more optimism on 2026 and looking forward. In terms of other carriers, it's tough to tell because it's not necessarily that you have one carrier that will struggle across the entire book, but you have certain regions and certain veins. And that kind of changes again, depending on the region, which carrier is, and which customer is as well. Operator: Next question, Tom Wadewitz with UBS. Thomas Wadewitz: So Mario, I wanted to get your thoughts on the next upturn and how important volume growth or share gain is. It does seem like whether you're the private players like whatever SCs are now or whether you're kind of OD sitting there with 35% excess capacity, there are a number of players that are like, "Yes, hey, when the market is stronger, we're going to take share" and then you got FedEx Freight is kind of a wildcard. I'm just wondering, you're improving service, getting a lot of price, which is great. Do you need to take share in a freight upturn to kind of make your plan work? Or is it just like, hey, you can grow the market, and you continue to get better pricing and you really do very well from a financial kind of margin and earnings perspective, even if you're not growing above the market. So just thinking about kind of how important that volume lever is and beyond market growth when you think about the next upturn? Mario Harik: If you take a step back, I mean, we -- for us, in the next cycle upturn, obviously, as Kyle mentioned earlier on, the incremental margins would be off the charts. And in a volume growth environment, you would have effectively earnings growing also at a very, very fast clip. Now how we get there, there are 3 dynamics at play. There is a pricing dynamic or a yield dynamic. There's a volume dynamic and there's a cost dynamic. And the beauty of it is that in the up cycle, all of these actually go in the right direction. If you think about it last year, even in a declining tonnage environment, with improved margins by 260 basis points. This year, we punished being down, call it, in that mid-single-digit plus range. We're improving margins meaningfully as well. So you can only kind of -- if you roll that into a model what tonnage increases, yield increases and cost improvements would do, you have mega increases in terms of earnings and margin expansion. Now in terms of how we get there, first, starting with yield, if you look at our industry, since the bankruptcy of [ Yellow ] and since COVID, you've had the private care years have been up on tonnage over that period of time. While the public carriers are more down on tonnage, and the industry as a whole is down in the mid-teens, and that's pretty close to what you see if you look at the U.S. census data for industrial companies, that we service in LTL, they have a similar amount of volume decline over the same period of time, about 16 to 17 points, not revenue decline because they offset that with pricing, but volume decline. So as the industrial economy starts coming back, you have, call it, in the mid-teens range of tonnage that is waiting to come back into LTL. When that volume starts coming back, you have the private carriers who some have added some capacity, but they will get tapped out on capacity faster than what the public carriers would be able to do. And carriers that have the excess capacity, we today, as of last quarter, we are north of 30% excess capacity, similar to the best-in-class carrier. And we would be able to support our customers there to be there for them in the context of that up cycle. Now we don't want to be the biggest market share gainer. We want to increase market share. We want to grow market share, but we don't want to be #1. If you think about it, it's all about the mix of business that we have and accelerating our yield growth associated with that as well. So we want to be the #1 performer on yield improvement over that period of time. And then the third dynamic on this one, Tom, is around cost control. If you look post [ Yellow ] bankruptcy, volumes were about 7 points better than seasonality from Q2 of that year to Q3 of that year. And during those -- the following 2 quarters, we improved productivity by 7 points and 5 points, so call it, the mid- to high single-digit range. You couple that with the new AI initiatives we're launching, you can see an increasing volume environment, productivity not improving in 1 or 2 or 3 points, you would see productivity even improving at a faster clip. You would see linehaul density improving as well in our network. And all of these would drive lower cost on a per unit basis, which leads to higher margin expansion and more earnings or associated with that as well. Thomas Wadewitz: Do you have a quick thought just a follow-up within that on what your kind of productivity metric is we should really focus on? You've got a lot of things going on with AI and productivity, and then you got the operating leverage. But what metric or 1 or 2 metrics we should look at just to kind of see the tracking on productivity? Mario Harik: Well, overall, every quarter, we kind of give an update on -- we typically count it because we want to combine it all together as labor hours per shipment, and this is what improved over the last quarter by 2.5 points and accelerated from where we were in the first half of the year. But internally, we use 3 predominant KPIs. One is that how many pallets per person per hour are we moving on our docks. What is the stops per hour we're seeing in how a pickup and delivery operation in our city operation. And in linehaul, it's a combination of what we call load average, which is how much weight are we putting in a pump equivalent of a trailer and what we call load factor, which is a component of miles and tons. But ultimately, when you combine all of these things, we look at them on a -- eventually, you see it in the salary bridges and benefits line that would offset the cost inflation we will be seeing in wage inflation, but we typically give a hours per shipment as a proxy to these KPIs. Operator: Next question, Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe just 2 quick ones on the demand side. Are you seeing anything from the government shutdown from a direct or indirect effect? And I know you guys talked more about grocery and we got this SNAP funding running out in a couple of days here. So do you think that would have any sort of meaningful impact? And then just maybe more broadly, truck market has got some optimism here that it might be recovering or stabilizing? Any updated thoughts on how that's affected your book of business currently either from a consolidation or direct competition perspective? Mario Harik: Thanks, Brian. I'll try to cover all that, if I missed one, just let me know. But first, starting on the government shutdown, we don't expect that as being impactful overall to LTL volumes. I mean usually, at least for us, we don't do much government freight as any. And I believe most of our peers fall in the same category. So there's no direct impact from that on LTL overall demand. On the -- some of the company-specific items that you mentioned, like grocery reconsolidation, that's a great opportunity for us because when you look at that market as a whole, it's a note of 1 billion of size what we estimated to be. It's an attractive market. It's a high-margin market because effectively, we use our network to help grocers consolidate freight from multiple inbound shippers and to their locations so they can free up that docks and have a more organized operation. And obviously, in our case, because you get that density at delivery, that kind of helps quite a bit in how we operate that business. And historically, we've been under club in that market -- part of the market. We had a very small share compared to our overall market share in the industry. And we did enhance this offering in the second quarter. And so far, here last quarter, we achieved preferred carrier status with 6 large grocers, and we have a pipeline of an incremental 100-plus customers that we are going after in that space. So we do expect that to be a growth market for us because we haven't been participating in the past, as an example. In terms of the truckload capacity impact to the LTL industry, we've historically said, Brian, that we -- if you think of the direct conversion, it's small, it's sub-1% of LTL freight typically is over that 15,000 pound mark. Where it make -- it might make sense in the trough of the truckload cycle to move it to truckload. When capacity exits, that would be a modest improvement, you will get to see that point come back into LTL. The second area is that we estimate that customers use TMS systems to consolidate LTL to truckload where it makes sense and we estimate that to be in the low to mid-single-digit range, a couple of points of volume that would have less LTL and went to truckload. And as truckload rates recover, that's going to convert back to LTL as well. So you're talking, call it, in the low to mid-single-digit range of incremental tonnage that would come with truckload rate coming back into LTL. Operator: Next question, Jason Seidl with TD Cowen. Jason Seidl: Mario and team, congrats on the very solid quarter. You guys mentioned utilizing AI a bunch to sort of help improve your place in the LTL market. Can you maybe dive into that a little bit more, talk about some of the things that you guys -- that you sort of maybe have in the works now for the future? And then where do you think you are versus the rest of the peer group in terms of your adoption of AI in the marketplace? Mario Harik: Well, first is, Jason, for us, it's a very, very exciting area of development. And it first starts, I mean, as you know, for the better part of a decade, we have been investing in our technology infrastructure. So unlike other carriers, we don't use mainframes, for example. We don't use all school systems. They're all cloud-based and all posted with Google Cloud. And this enables us to actually move quicker on being able to embed AI capabilities within the frameworks, within the applications that we are launching. But going to your question, there are 5 areas where we are applying AI and at different levels of maturity, some are still in pilot that we're in the process of rolling out and some have already rolled out. But 2 of the 5 areas are top line revenue generating. And then 3 of the areas are cost savings related. On the top line, we are rolling out AI pricing bots that effectively you can crunch tens of millions of data points and be able to provide better pricing for customers at the lane level and do this in a very, very effective way. We're still in pilot in that capability. And that would help us continue to ensure our above market yield growth as we get smarter at how we price. Number two is assisting our salespeople through AI tools. For example, we built our own AI lead scoring set of algorithms where effectively the AI analyzes, again, in that case, hundreds of thousands of customers of who would be a good shipper with XPO. So to give you an example, today, if you have a shipper whose location is 2 miles down the road from one of our terminals that is an industrial manufacturer that obviously is going to have a high propensity of wanting to ship XPO with LTL versus if you have a company that doesn't necessarily move freight that is 100 miles away from an XPO terminal, then obviously, that would be less attractive for us. So we're adding -- and we're also launching tools that help our sellers become more productive, too. We just recently launched a tool that helps organize our sellers' day where it even routes their customer visits to make it -- to make it more effective for them to be able to see the most amount of customers in a given day in that local market. But these are 2 set of AI capabilities we're launching for top line growth. And there are 3 set of capabilities that we are launching on the cost side, and these are in linehaul and pickup-and-delivery and in dock efficiency. Starting with linehaul, we just -- as I mentioned earlier, we launched a new AI model that helps us with managing exceptions in our linehaul network. And we launched that in the second quarter and further enhancements in the third quarter. Jason, just to give you an example, just this capability alone reduced our empty miles by 12%, our diversions by more than 80% and reduce our overall linehaul miles for the same amount of freight in the low to mid-single-digit range. On pickup-and-delivery, we are still in the early innings of launching enhanced route optimization algorithms. We're currently in pilot just in 4 terminals, and we're seeing great early results of those AI capabilities. And then on the dock side, we already have done tremendous progress there. Our small tool with labor forecasting and how we manage, how much head count you need for every shift, when does the ship start with person, when does it end per person. All of that is being done by AI as well. And that's -- all of these tools ultimately are in the hands of our great operators in the field who can then execute on that and deliver the kind of numbers we are delivering here. Jason Seidl: I appreciate all that great color. I guess my follow-up would be something we haven't talked about much, which is Europe and maybe you can give sort of the backdrop and the outlook for Europe. And are there any countries that are showing some strength that you talked about some of the positivity from your customers in the U.S? Ali-Ahmad Faghri: Jason, this is Ali. So our European business continues to outperform in a soft macro environment. Here in the quarter, we grew organic revenue for the seventh consecutive quarter. Specifically, we're seeing outperformance in the U.K., and we've also accelerated pricing growth for the second quarter in a row. And all of that translated to adjusted EBITDA here in Q3 outperforming normal seasonality and we'd expect that to continue here into the fourth quarter as well. I think typically, what we see as we move from Q3 to Q4 is that EBITDA steps down, call it, in that $10 million range sequentially. However, similar to the third quarter, we would expect to outperform that normal sequential step down in the fourth quarter, driven by the outperformance of the business. Operator: Next question, Bascome Majors with Susquehanna International Group. Bascome Majors: Maybe to follow up on Jason's questions, bigger picture. When we look at Europe, it's, call it, 5% of your earnings and operating income, 10% of EBITDA, but it's over 40% of consolidated operating expenses. And if we take a step back and think about cost takeout and profit improvement opportunities, like what's directed specifically at Europe? And is there an opportunity to really move the profit contribution up a lot higher on that low base, but -- of profit but high base of expenses? Mario Harik: Thanks, Bascome. Well, similar to what we -- obviously, the lion's share of our focus is on our North American LTL business, given the profit contribution as you highlighted, to the overall company. But for Europe specifically, there are multiple levers that we are pursuing for growth. As I mentioned -- as Ali mentioned earlier, we're obviously outperforming seasonality on profit growth from Q2 to Q3 and same thing with growing our overall revenue in that business as well. But there are multiple cost takeout opportunities as well associated with that business and higher efficiency. Today, we're either #1, 2 or 3 in LTL and truckload and in warehousing in Western Europe and we also have a plan to expand margins. Now I don't think the margin expansion in that business is going to be anywhere we are the magnitude of what you see here in the North American LTL business. It just has different costs. But at the same time, we are working on similar initiatives. And you can see it here, we're performing better than seasonality on the profit line. And we do expect it to better in a good split in 2026 as well despite the softer freight macro in Europe. As I said, ultimately, our goal is to sell that business. Our goal is to be a pure-play North American LTL carrier. We're patient, we want to make sure we get the right price for it. And whenever the time is right, we're going to sell that business and become a pure-play North American LTL. Operator: Next question, Christopher Kuhn with The Benchmark Company. Christopher Kuhn: Just thinking longer term, I mean, your shipments have exceeded best-in-class. It seems like the pricing opportunity could be even beyond the time frame you've given, and the service levels have been good. I mean, is there any reason over the long term that your OR can't actually exceed best-in-class? Mario Harik: Well, today, if you look at the OR differential, more than the lion's share is driven by price and a combination of mix and price through the 3 levers I mentioned, Chris, earlier on. But if you break it down, I mean, when we started our plan, I think the margin differential was about 15, 16 points, and now that's down to about half of that, about 800 basis points, which is the remaining runway that we have. But as I mentioned earlier on, our price differential on a normalized basis is 11 points, and that goes back to actually operating our network more cost efficiently given some of the AI tools and the optimization if we use machines for to be able to optimize our cost structure. Now if you think over time, as we bridge the pricing gap, there's no reason why our OR first going to get down to the 70s and the mid-70s and the low 70s kind of our expectation over the years to come is how we think about it over the longer term. Operator: I would like to turn the floor over to Mario for closing remarks. Mario Harik: Well, thank you, Stacy, and thanks, everyone, for joining us today. As you saw in our results, our strong execution extended our track record of continuous improvement. And while expanding margins in the trough of the cycle, and we're positioning the business for years of outperformance going forward as well. With that, operator, please end the call. Operator: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Operator: Good evening, and welcome to Universal Music Group's Third Quarter Earnings Call for the period ended September 30, 2025. My name is Alex, and I will be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Michael Nash, Chief Digital Officer; and Boyd Muir, Chief Operating Officer. [Operator Instructions] As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section on UMG's 2024 Annual Report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference. Lucian Grainge: Thank you. Hello, and welcome to all of you for joining us today. I'm very pleased to report that for our third quarter, we once again continued to post strong financial results whilst also making significant advances on the implementation of our strategic plan. For the quarter, revenue grew 10% and adjusted EBITDA grew 12%, both in constant currency. Matt will go into greater detail on the numbers later. But before he takes the mic, I will focus my remarks today on 3 strategic areas. First, how we continue to propel our new and established artists' careers to new heights, including how we extend the value of their IP by bringing our artists' music and stories into areas such as feature films. Second, our work with partners to develop commercial and creative opportunities for artists, songwriters and fans, specifically in leveraging responsible GenAI technology. And third, our ever-growing presence in established and high-potential markets around the globe. I'll begin my remarks by highlighting just a few of the stunning successes our artists continue to rack up around the world. In the U.S., UMG had 7 of the top 10 albums for the third quarter, with Morgan Wallen, I'm the Problem at #1, and our publishing company had interest in 7 of the top 10 albums. And of course, there's Taylor Swift. What Taylor has achieved with her 12th studio album is literally breathtaking. The biggest first week in music history now belongs to The Life of a Showgirl, over 4 million U.S. and 5.5 million global album equivalent sales. The album shattered a slew of other records as well. By debuting at #1 on the U.S. Billboard album chart, Taylor now has the most #1 albums, 15 by any artist in the 21st century as well as the most #1 albums ever by a solo artist. I can't tell you how proud we are of her. The soundtrack for the animated film, KPop Demon Hunters on Republic continues its historic chart success, twice hitting #1 in the U.S. The lead single Golden has spent multiple weeks at #1 around the world, including 9 weeks in Australia and 8 weeks in both the U.K. and the U.S. It is also the first soundtrack album in U.S. history to have 4 of its singles in the top 10 of the US 100, all at the same time. Sabrina Carpenter's Man's Best Friend also debuted at #1 in the U.S., spent 2 weeks at #1 in the U.K. and hit #1 in 13 other countries as well. It's her second #1 album. And KPop Group Stray Kids album Karma is their seventh #1 album in the U.S., breaking the record for the most #1 albums by a group on the Billboard 200 chart this century. I'm excited about the progress I'm seeing that's happening in the U.K. market as well. Olivia Dean secured the #1 album spot and the #1 single, a feat that made her the first British female solo artist to claim both top spots simultaneously since Adele did in 2021. And also in the U.K., we're thrilled that Sam Fender was awarded the prestigious Mercury Music Prize for his third album, People Watching. That's the kind of artist development that we like. Something which means a great deal to us as a global company is we're thrilled to see several of our Japanese artists now beginning to gain traction globally. As you know, Japan is the world's second largest music market, but there's been a misconception that opportunities for local talent outside of Japan are limited. Well, I'm extremely proud to report that UMG is shattering that misconception in several ways. For example, BABYMETAL, the group released its first album after signing with Capitol in the U.S. in August. The album debuted at #9 on the Billboard 200, making them the first Japanese group ever, ever to reach the top 10 in the U.S. in partnership with our Japanese company. Here's another example, the recent tour by superstar Ado in 33 cities across Asia, Europe, the U.S. and Latin America, attracting 0.5 million fans, was also a historic first for a Japanese artist purely outside of Japan. And here is a third example of a Japanese artist gaining global traction. Fujii Kaze, his enormous success with his third album, released in September by Republic Records and next year, he's set to perform at Coachella. This is quite a major development. I've also believed that we can break more local talent from Japan around the world. I'm really thrilled to see this progress, and it's really, I think, what sets us out and defines as a creative company. Helping our artists reach new levels of success also means extending their IP in ways that deepen connections with their existing fan base whilst introducing their music to a new generation of fans. One way we do this is through film. For example, the documentary produced by UMG's Polygram Entertainment, offering an intimate look at the life and legacy of Mexican-American artist, Selena. The film was awarded at the Sundance Film Festival earlier this year and was acquired by Netflix, who has recently announced its November release. Amazon MGM Studios has picked up Man on the Run, another Polygram Entertainment documentary, exploring Paul McCartney's creative rebirth after The Beatles break up. Man on the Run will be released in select theaters and then hit Prime Video globally in February next year. It will coincide with tour dates across North America this fall as well as the release of his book, Wings: The Story of a Band on the Run. I've seen it. And it's special, thoughtful, dramatic and emotional. The last film I'll mention is Song Sung Blue from Focus Features. It stars Hugh Jackman and Kate Hudson as the Neil Diamond tribute band Lightning & Thunder. The film features performances from Neil Diamond's iconic songwriting catalog and opens in the U.S. theaters on Christmas Day. I'm not exaggerating when I say I could go on and on about many more of our other artists' stellar achievements and projects. But I'd like to shift gears and speak a bit about our strategic advances, starting with our work with partners to develop commercial and creative opportunities for our artists as well as their fans. First, I'm pleased to report that we have successfully concluded our third major Streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing. The agreement includes all aspects of YouTube's various music services and platforms, embodies our artist-centric principles and drives greater monetization for artists and songwriters. And as part of our new YouTube deal, we've secured really important guardrails and protection for our artists and writers around GenAI content, which brings me to my second topic. We're seeing significant creative and commercial opportunities in GenAI technology, which is why UMG is playing a pioneering role in fostering its enormous potential in music. Our foundational belief is that artists, songwriters, music companies and technology companies, all working together will create a healthy and thriving commercial AI ecosystem in which all of us, including fans, can flourish. For several years now, we've been driving initiatives with our partners to put artists at the center of the conversation around GenAI. We struck artist-centric agreements, establishing foundations and parameters for innovation, new products -- sorry, innovative new products that will unlock the power of its revolutionary technology. And both creatively and commercially, our portfolio of AI partnerships continues to expand. You will have seen, I hope, yesterday's announcement that we have reached an industry-first strategic agreement with Udio, under which the companies settle copyright infringement litigation and will collaborate on an innovative new commercial music consumption, interaction and hyper-personalization streaming product. The new platform, which is expected to launch in 2026 will be powered by cutting-edge generative AI technology that will be ethically trained on authorized and licensed music and will provide further revenue opportunities for artists and songwriters and UMG. The new subscription service will transform the user engagement experience, creating a licensed and protected environment to customize stream, share and share music responsibly on the Udio platform. We also entered into an agreement and then a strategic alliance with Stability AI to codevelop professional AI music creation tools for creators of video, images and now music. The purpose of this agreement is to provide our artists and labels with an opportunity for direct feedback into the construction of professional studio music product that uses AI to generate music ideas and demos. As we've said all along, artists should be at the center of the AI conversation, and this agreement aligns closely with the objective. These advancements are made with both global and regional partners. For example, just last month, Universal Music Japan announced an agreement with KDDI, a leading Japanese telecommunications company that will establish a collaboration to use GenAI to develop new music experiences for fans and artists in that really important market. Even as we lead the way forward on creating commercial and creating opportunities with our new partners, we're also working closely with established partners on the AI front, which includes making sure that the safeguards are put in place to protect them and their work. Spotify recently announced critical steps they are taking to advance our artist-centric initiatives as they relate AI. We look forward to the products that will be introduced through this partnership. As I said, at the time of their announcement, it's essential that we work with strategic partners such as Spotify to enable GenAI products with a thriving commercial landscape in which artists, songwriters, fans, music companies and the technology companies can all flourish, as I've said. As we strike agreements with other companies, we will only consider AI products based on models that are trained responsibly. We're in discussions with numerous other like-minded companies, whose products provide accurate attributes and tools, which empower and compensate artists' products, both that protect music and enhance its monetization and the entire experience. Ensuring safeguards is also the reason we partnered with SoundPatrol, a company led by Stanford scientists. SoundPatrol deploys groundbreaking neural fingerprinting technologies for detecting copyright infringement in music, including in AI-generated works. Based on our experience with RAI Partners, and discussions underway with possible future partners, we can confidently say that AI has the potential to deliver creative tools that will connect our artists with their fans in groundbreaking ways and on a scale that we've never encountered. Further, I strongly believe that agentic AI will dynamically employ complex reasoning and adaptation, has the power to revolutionize the manner in which fans interact with and discover music. Imagine interacting with your favorite music through a sophisticated, highly personalized chatbot. We envisage that exciting possibility on the horizon. We see the bottom line like this. As we successfully navigate the challenges and seize the opportunities presented by new AI products and others yet to come, we will be creating new and significant sources of future revenue for UMG and our entire ecosystem artists and songwriters. Now I'd like to move on to another area in which we've recently made meaningful progress, and that is the expansion of our presence in established and high-potential markets. In Japan, we recently increased the majority stake we bought earlier this year in A-Sketch, the Japanese label and artist management business by acquiring from KDDI, its minority stake in the company. In August, we entered into a strategic partnership with Maddock Films, one of India's most prolific Hindi film production studios in its newly formed music label, Maddock Music. Under this partnership, Universal Music India is now Maddock Music's global strategic partner for future film tracks and other businesses and product offerings. The partnership deepens our presence in domestic film music, which is the largest music category in India. In Vietnam, Virgin Music Group formed a partnership with The Metub Company, Vietnam's leading digital entertainment and creator company. This innovative venture will focus on signing and servicing local talent and independent labels to help them grow their music, both domestically and internationally. In Ghana, for example, Virgin Music Group took another step in its ongoing mission to invest in Africa's music and creative scene by announcing a global distribution partnership with MiPROMO, one of Ghana's longest-serving creative media platforms. I'd also like to briefly mention a significant development for our business in China, Universal Music Greater China announced the appointment of Zhang Yadong, one of the most iconic producers in the Chinese music industry to the role of Chief Music Adviser at Universal Music China. Widely recognized as a visionary whose work had defined the sound of Mandarin pop for more than 3 decades, he's going to work along with UMG's worldwide infrastructure to introduce the next generation of Chinese artists to international audiences. We're extremely excited and committed about the moves that we've made in China. And we'll be investing and are investing in next-generation local talent. I'd like to close with this. The third quarter, whilst obviously just a snapshot, marked another great quarter where we delivered strong financial growth, drove exceptional success for our artists and songwriters, shape the future direction of our company with groundbreaking announcements and continue to expand our global footprint. The consistency of our performance, combined with the continued execution of the strategic plan demonstrates that with UMG's entrepreneurial energy, we'll continue to bring artistry and creativity of the world's most brilliant and beloved music makers that we have to every corner of the globe and at the same time, leaning into distribution and business models for the future in new and innovative ways. So on that, thank you, and I'd like to hand over to Matt. Matthew Ellis: Thank you, Lucian. I'm pleased to have joined a great business and team at such an exciting and promising time. And I'm equally pleased to be presenting our results for the first time this quarter. Q3 was another quarter of solid revenue and adjusted EBITDA growth at UMG as we continue to execute the strategy the company laid out a year ago at Capital Markets Day. On top of the continued strong predictable subscription growth we saw once again this quarter, our results also display our healthy breadth with multiple drivers of long-term growth as our strong physical and merchandising revenues reflect the opportunity to directly serve superfans. All of the growth figures I will discuss today will be in constant currency. UMG's revenue for the quarter of EUR 3.02 billion, grew 10.2% year-over-year while adjusted EBITDA of EUR 664 million grew 11.6%, with margin expanding 40 basis points to 22.0%. Recorded Music revenue grew 8.3% in the quarter with strong performances from the KPop Demon Hunters soundtrack, Mrs. GREEN APPLE, Taylor Swift, Sabrina Carpenter and Morgan Wallen, among many others. Within Recorded Music, our well-diversified subscription revenue grew 8.7% for the quarter. This result was driven largely by growth in subscribers. Within the top 10 markets, there was double-digit subscription revenue growth in China, Brazil and Mexico and high single-digit growth in the U.S. and we saw a double-digit or high single-digit revenue growth from 4 of our top 5 DSP partners. With healthy subscriber growth from a range of partners across both established and high potential markets and the monetization benefits of our Streaming 2.0 initiatives soon to follow, we remain encouraged by the trajectory of the subscription business. Turning to ad-supported streaming, revenue was largely flat against the prior year quarter. Growth continues to be challenged by the shift to short form consumption, which is not yet adequately monetized. We plan to continue addressing this through our deal negotiations. Physical revenue was better than anticipated, up 23%, driven by strength in Japan led by Mrs. GREEN APPLE and Fujii Kaze as well as initial shipments of Taylor Swift's latest album, The Life of a Showgirl. While physical revenue performance may be less predictable and have more seasonality than subscription revenue, it's important to note that over a longer time horizon, this is a growing business that reflects increasing demand by fans to own physical products, connecting them with the artists they love. Moving on to Music Publishing. Revenue grew 13.6% in the quarter with digital revenue growing 17%, driven by the strength of streaming and subscription, particularly in the U.S., U.K. and China. Performance income also grew 17%. Growth in both digital and performance revenue benefited from the inclusion of Chord and a major television studio business win in this year's results. In Merchandising and Other, revenue increased 15%, driven by the strength in the U.S. and U.K. This was a result of very healthy growth in touring merch revenue which was partially offset by a decline in D2C sales due to the timing of product releases. Our touring merch revenue strength this quarter was driven by the Weeknd, Morgan Wallen, Lady Gaga and Nine Inch Nails, amongst others. Now let me turn to adjusted EBITDA. As I mentioned at the beginning of my remarks, adjusted EBITDA of EUR 664 million grew 12%, and adjusted EBITDA margin expanded by 40 basis points to 22.0%, helped by revenue growth, operating leverage and cost savings from Phase 2 of our previously announced realignment plan. This was partially offset by the negative margin impact of the revenue mix, in particular, the strong physical sales and touring merch growth. We're very pleased with our results this quarter and excited by the momentum and opportunities that lie ahead. With improved Streaming 2.0 monetization just ahead of us and fans looking to engage with their favorite artists in new immersive ways, UMG is at the center of a healthy and growing industry. Thank you. Lucian, Boyd, Michael and I will now take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Thank you. Our first question for today comes from Peter Supino of Wolfe Research. Peter Supino: Matt, welcome, nice to work with you again. I wanted to start by asking you for your perspective on the physical business. Your comments stood out that you see it as potentially a growth business, and certainly, that's not the consensus among the investors. So I wonder if you could share any figures or thoughts that would help us extend that concept in our models? And then the second question, if you could just talk about the investment section of the cash flow statement. It's been elevated for the last couple of years, and we have some commentary from your Capital Markets Day that it will moderate in the next couple of years. Is that a good thing or a bad thing? Do you see that investment spend as high ROI or not more maintenance-oriented? Matthew Ellis: Yes. Let me start with the second question there around the investment section. And do I think that the investments in the business are good or bad thing? They are 100% a good thing. We have the business we have today because of the investments that the company has made across many, many years now. And the investments we're making are consistent with the strategy that we laid out, whether that's continuing to support our existing roster of artists or continuing to build out where we expand. Lucian spoke about our geographic expansion. We went into detail at Capital Markets Day about those plans, and you've seen us execute against that since then. So investments will continue to be an important part of the business as we execute on the strategy going forward. And I think you'll see that continue to be an important use of cash. And as we've discussed in the past, it is the first part of our capital allocation strategy is that investment in the business. In terms of perspective on the physical business, incredibly proud of the results that we've seen from our artists this quarter with the strength there. As you look at the fourth quarter, certainly, we expect to see good results. I would remind you that very strong comps from the fourth quarter in Japan a year ago and the prior year that we'll be coming up against. But that demonstrates that this continues to be a growing part of the business. And you ask if it's a good thing or not, absolutely is a good thing. What our fans are showing us is when they have opportunities to engage in many different ways with our artists, they want to do that and they will spend money doing that. So what the team has done is find ways to meet that demand that is inherently out there. So yes, you should expect to see continued growth in the physical business. Boyd, would you like to? Boyd Muir: Yes. Thanks, Matt. Maybe just to add a little bit about the -- what you're inferring in the question, I mean there's 2 pieces to this, the old-fashioned format transformation that's going on. The reality is the CD in most of the markets in the world is very much a declining format. But we're talking about something really quite different here. This is -- this business is morphing into how we connect the fan together with the artists through a physical product, the most -- 2 most significant examples of that so far is the growth in vinyl and the collectible aspect of that. As we've said before, 50% of vinyl that is sold is sold to people who do not own record players. So this is about a collectible. And clearly, the growth in merchandise is just another aspect of all of this is connecting the fan together with the artist. So it's that aspect that is growing. It's not a format evolution of the audio format in itself. And a very significant part of this is now coming through us directly connecting the fan with the artists through, say, calling a D2C business or a [ D2Fan ] business, where around that new release of these album products, we are seeing somewhere in the region of 2/3 to 75% of the total volume actually coming through our own managed stores in relation to this product. So we're having a direct relationship with the fan. So that's much more about the evolution of this going rather than just being a tired old format transformation. Lucian Grainge: I'd also add that it's the fans telling us that the belief that we have in the superfan and how we're able to provide products and services, both physically as well as what they look like digitally in the future, they're telling us about behavior and about connection. Operator: Our next question comes from Jason Bazinet of Citigroup. Jason Bazinet: I just had one question about superfan. It seems like going back to your Capital Markets Day, you guys are maybe more optimistic about this opportunity than some of the other labels. And I didn't know if that was a function of a different vision that you have about what superfan is going to be or if it's a function of maybe different agreements that you have with your artists that may allow you to participate in sort of superfan economics in a way that might be different than other record labels. Michael Nash: Jason, thank you for your question. And if I can infer that in part what you're asking about, goes to superpremium tiers on subscription services. I think that there is a component of it that is simply about the opportunity to monetize more valuable fans. And as we've stated before, if you look at the digital download era, the top quartile of consumers were spending 3x the average. So the propensity to spend is there. And we think about this in terms of direct-to-consumer and Matt and Boyd talked about vinyl and what that means in terms of monetizing super fandom. There are different components to the equation but we have strong conviction about that we have invested directly in. With respect to superpremium tiers, we're engaged with all of our partners, talking about the opportunity. There is technology change that's going to promote opportunities, I think, around innovation to introduce more sophisticated, higher value offers to consumers over time, and we're engaged in those discussions. We're encouraged to see executives at some of the platforms like Spotify talk about their excitement, their desire to get this right. Seeing great demand for different superfan segments. So it's not just Universal Music Group seeing that. We can't speak about the perception that other music companies have regarding the opportunity. We've made our perspective clear, but I think it's important to keep pointing out that one of the world's top 5 music subscription platforms, Tencent Music in China, has, over the course of the last year plus empirically demonstrated that a super VIP product, as I characterize it, priced at 5x the average price of subscription in that market, a market regarded as a challenging market to monetize music consumption. In that market, they've gained a very, very significant traction. They recently reported 15 million SVIP subs, 12% of their subscriber base growing at 50% year-over-year. And they said that, that resulted in a doubling of their revenue growth versus the rate of increase of subscriber growth in that reporting period. So we're seeing that in a market where you've got some innovation leadership. There's clear demonstration of the opportunity. We believe industrial logic prevails here where research clearly demonstrates that at least 20% of the subscriber base is the target market for a superpremium offer and you see a focus on innovation. And as Lucian said, we think that AI will be a significant component of the focus on innovation in terms of new digital products in the future. We think this is going to play out over time. That's the viewpoint that we have. We can't account for the viewpoint of other music companies. Operator: Our next question comes from Ed Young of Morgan Stanley. Edward Young: I'd love to add a little bit more color on the AI partnerships, particularly if it's launching in '26. You sound confident that you'll be able to sort of solve the artist-centric monetization challenge where requests are generic or by genre style versus them being by artist name. So I'd love to add a little bit more on that. And then second and related, you've spoken often as a management team about developing new business models and diversifying revenue streams. Do you think or do you see agentic AI companies as likely to join the distribution landscape? Michael Nash: Thank you for your question, Ed. I'm assuming that the first question relates to recent announcements and in particular, what we've announced with Udio. In terms of artist centricity, what's significant there is that the product vision is to focus on a superfan experience for customization, deep engagement, hyper-personalization of the experience for fans interacting through AI technology with the artists that they love. So if you think about this in terms of where the marketplace is, from our perspective, the economics of the music ecosystem are really driven by fans' desire to engage with artists and by fans' desire to participate in music culture. So we're envisioning products that deepen both of those things that enables deeper engagement that is very artist-centric and that enables the fans to participate in music culture. So I hope I'm answering the thrust of your question. Yes, the vision regarding the products that will be enabled by initiatives we're supporting and specifically the one that we announced with Udio will be very artist-centric. In terms of the question regarding agentic and new music models, we're very excited about what we see in terms of the evolution of the technology and as it relates to consumer interest. So we recently did some research in the U.S. market. And in that research, the readout was 50% of music consumers are very interested in AI in relationship to the music. But that's in relationship to their music experience. The thing that ranks the lowest is artist simulation, what we would call fake artists. And you're seeing there's a lack of traction around that other than the occasional novelty phenomenon that may capture some headlines. That's not what fans are interested in. What fans say that they're interested in is AI application that makes their music service better, that improves discovery, that enables them to better organize playlist to have a better recommendation system against their express preference. So the thing with respect to agentic AI that we see as a significant potential point of innovation, imagine a perfect seamless blending of lean forward and lean back, where the interface that you have for music consumption is in a position to understand not just your music preferences, but the films and television shows that you watch, the books that you read, the countries you travel to, the conversations that you're engaged in, really, really sophisticated management of recommendation and also an understanding of listening conduct, drive time versus dinner party versus workout. We believe that the application of technology to really enhance the consumer experience in relationship to music appreciation, music discovery and contextual listening, that suggests a possibility that makes music all the more valuable that increases the connection between artists and band, all of that we see has been very virtuous. Operator: Our next question comes from Adrien de Saint Hilaire of Bank of America. Adrien de Saint Hilaire: I've got a couple of questions, if that's okay. Given the price increases that were recently announced by Spotify and presumably your new wholesale deal kicking in next year with that platform, do you have enough visibility today to see subscription growth accelerates into 2026? And second question, I'm really, sorry, if I missed this in your prepared remarks, but are there any additional details that you can provide on the timing for your U.S. listing? Matthew Ellis: Yes. So thank you, Adrien. Regarding the U.S. listing, as you know, we announced in July that we had confidentially filed with the SEC. We're in the SEC review process right now. Obviously, the U.S. government shutdown makes everything there a little bit more complicated. So we're working against that backdrop. And we'll have an update of the market when we have additional news, and it's appropriate to do so. So I look forward to doing that at the right time. In terms of the price increases on Spotify, as you mentioned, glad to see those come through. Michael, you're closer to that than anyone. Michael Nash: Yes, happy to elaborate there, Matt. So with respect to -- and looking into your question to make sure I'm covering the gist of what you're interested in, the price increase impacts and the outlook for 2026. Of course, we don't provide quarterly or even annual guidance on metrics like that. In the fourth quarter, we're going to have a tough comp against some pricing changes, but we'll also see some benefit, small benefit from the Spotify price increases that were announced earlier this year. So those things pretty much trade off. We do foresee that in 2026, we are going to start to see the pricing benefits from our Streaming 2.0 agreement. Other than that, I would simply point to the guidance that we provided on Capital Markets Day a year ago with respect to 8% to 10% CAGR in the midterm. That's the way you should really be thinking about the impact of the price increases as they play out over time. Operator: Our next question comes from Silvia Cuneo of Deutsche Bank. Silvia Cuneo: A couple of questions from my side. The first one regarding AI, you announced 2 strategic agreements today. Could you elaborate on your expectations for future similar partnerships and how meaningful this could be in terms of financial benefits compared to, for example, social apps licensing? And specifically concerning Udio, could you help us understand the mechanics of these agreements, particularly whether there are variable revenue elements tied to Udio's growth? And then secondly, quickly, regarding your cost initiatives, could you please remind us of the key cost areas that Phase 2 of your strategic design is addressing and in comparison, especially to Phase 1? Lucian Grainge: I'd just like to frame some of the conversation before maybe Michael or Matt actually add some of the detail. Sequence is critical in all of this. Search, the power of possibility of what the technology is providing all of these businesses, and you're talking about AI and Udio and all the other companies that we anticipate or we will make deals with. I've got -- I think it's important to say this. I have exactly the same feeling about this progress that I did 15 to 16 years ago when we were looking at what was the transaction business and the really early fledgling what was perceived at the time of the disruption of the album into something called ad-funded streaming. And then ad-funded streaming became premium subscription. So we are in a sequence of how the technology and how the platforms with us, as a company and as an industry, integrate and learn together how to actually create products and to provide what artists want and consumers and fans want in an organized monetized way. So we are at the front, at the vanguard of a new era. And it's one of the reasons why we're positive, we're confident and why we continue to invest right across the board in all aspects of what we anticipate will be the growth and is the growth not only in the company but in the marketplace. So on that, maybe you guys like to add some more of the actual functional details of what the question was. Michael Nash: That's a great strategic framing, Lucian. So within the question regarding the new agreements and our outlook, let me start out at a more general level and then talk specifically about the 2 new agreements that we've announced in the last 24 hours. As Lucian said, we clearly established our position in this sector as being the industry leader, developing new business models, supporting new products, numerous agreements that we previously announced to enable entrepreneurs working with established platforms, and that goes back to 2023. So the most recent set of announcements and initiatives is building on that foundation of industry leadership. And you might have noted that Lucian sounded a call to action where we started to mobilize to prepare to be able to effectively execute and implement new deals and talked about the scope of ambition being up to a dozen different conversations in which we're engaged. We're very excited about the opportunity for innovation. With respect to commercial opportunity, as Lucian said, we believe the commercial opportunity is potentially very significant. These new products and services could constitute an important source of incremental additional new future revenue for artists and songwriters. Now we're just preparing the way for market entry of these new products. Some of the things we've announced are 2026 in terms of scheduling scope on product launches. So it's too soon to provide commentary on more specific in terms of opportunities scope, but we do believe this is potentially significant. In terms of product scope, the recent announcement, I think, provide a very clear indication of what we're thinking about in terms of new AI products targeting the superfan, deepening the relationship between artists and fans, enabling fans to more deeply participate in music culture and providing tools for our artists that are being responsibly developed to enable them to narrow the gap between imagination and creation of content to broaden the palette of options they have in terms of artistic tools to be able to create content. Specific to Udio, and let me just elaborate on Lucian's comments. We entered into an industry-first strategic agreement where we've settled copyright infringement litigation and we're collaborating on this innovative new product suite, new commercial music consumption, interaction, hyper-personalization, sophisticated curation, those are the elements that are going to define this product suite. The new platform, plan is to launch in 2026. It's going to be powered by Udio's cutting-edge generative AI technology, ethically trained, responsibly trained and authorized license music content, all those things very critical and obviously to the benefit of our artists, songwriters and to rights holders. The new service we see as potentially really transforming the user engagement experience within a walled garden, enabling this deep interaction with the content. And I just want to briefly highlight, in terms of artist tools the announcement with Stability AI, this is really a groundbreaking product development collaboration that we're announcing with Stability. Stability is organizing their effort to create new tools for professionals in a category of gaming with Electronic Arts, in terms of marketing, advertising with WPP, in terms of film production with their investor and Board member, James Cameron. So UMG joins that group of significant players in their categories as the leader in the music vertical, and that puts us in a position to directly engage in a very artist-centric way the conversation with our creative community around the evolution of these tools and puts us in a position where we're going to be able to provide the best opportunity for new creative potential out of AI responsibly trained for the ranks of artists and songwriters that we work. Lucian Grainge: This is happening. It's on, and we're on. Matthew Ellis: Silvia, on the cost question you had, obviously, as you said, we're in the second phase of the program. A lot of the activity that you've seen to date has been successful in both our U.S. and U.K. platforms. Boyd, you've lived this program for the past couple of years, so you could add a little bit more detail. Boyd Muir: Yes. Well, maybe just to take a step back to level for everyone. I mean the strategic alignment, which we announced, I guess, a couple of years ago now, it's a proactive initiative. It's not reactive. It's a proactive initiative. It's designed to achieve efficiencies and targeted cost areas, but at the same time, providing our labels with capabilities to deepen -- basically to deepen artist connections with new kind of areas of commerce, experiential and the like. We're focused very much in designing the label of the future, providing our labels with enhanced access to highest-performing internal teams and access to additional resources. And Lucian mentioned in his opening comments actually about the success that we're seeing in the U.S. and the U.K. And there's little doubt that this is as a result of the strategic alignment initiatives that we're pursuing. Operator: Our next question comes from Adam Berlin of UBS. Adam Berlin: I just got one question left, really, which is, you mentioned that Q3 physical benefited from early shipments of Taylor Swift's Life of a Showgirl. Can you talk about how much of the revenue that, that album will generate has already been captured in Q3? And is there still a lot more to come in Q4? Matthew Ellis: Yes. So Adam, thanks for the question. So yes, certainly, we did see some benefit, especially with getting the initial volume out to retail stores ahead of the October 3rd launch of the album. We've never broken out results by a particular artist or a particular piece of work. Not going to do that. Obviously, the initial shipments were significant. As Boyd said in his comments around our fan business, a significant number of vinyl sales is now in our D2C business, not going through retailers that we work with. And so those would have been on a different time line. So the vast, vast majority of the benefit from the physical sales of the album will be in fourth quarter, but we certainly did see some of the uplift, the 23% growth in physical year-over-year was due to those initial shipments, combined with the strength we saw in Japan that I mentioned. So we see this benefit, not just related to one artist. Our fans want to connect with all of our artists in geographies around the world. Operator: Our next question comes from Joe Thomas of HSBC. Joe Thomas: A couple of questions, please, on my side. Firstly, you were talking about the -- I think you were talking about new deal with YouTube and you've got protections across the whole gamut of what they provide. I'm just wondering if you could tie that into your comments on streaming and the difficulty of monetizing short-form video. Have you reached some sort of solution there? And what could we expect to come in the future? And then the second question is back to the cost savings. I realize there's costs coming out. There's also costs, sounds likely, going in as you invest in the capability of the business. What is the net cost saving over the quarter, please? Michael Nash: Joe, thank you for your question. In terms of the YouTube deal and the benefits of the new deal, the scope of it and then also how it relates to disruption of short form and monetization of that supported. So yes, we were very excited that we had an opportunity to complete this agreement with an important strategic partner. As Lucian said, our third Streaming 2.0 deal, we have a long-standing, very productive partnership with YouTube. With respect to the components of the deals related to monetization, obviously, every deal-making opportunity, we consider the unique attributes of potential licensee, circumstances or category, product plans, business strategy, that certainly applies to a major and uniquely diversified platform like YouTube. In talking about the new partnership in terms of Streaming 2.0 deal, we certainly are advancing important components of our core objectives here, taking into account these unique and multifaceted components of their platform and the foundational principles that we're carrying across in all of our negotiations with our partners. And as Lucian said, we secured key protections in the agreement on AI, which is a critical achievement in promoting interest of our artists on their platform. With respect to monetization of short form, improved monetization of short-form video is certainly an objective that we're actively advancing across multiple deal renewal discussions, including this one. Beyond that, I'm not going to comment on a specific component of a deal as it relates to an individual category. But our efforts to work on better monetization of short format to address the disruption the short format has brought to the ad-supported sector is a broad-based effort across multiple different deal renewal conversations. Lucian Grainge: Yes, I'd also add that we look at the rights as an overall category, and our strategic relationship and partnership with YouTube as an overall strategic partner on the music subscription, on short form, on long-form video and obviously, all the work that we're doing on AI. So it's an entire category with one strategic partner. And as the marketplace and as our products, their products, the technology grows and develops, it all blends and all sits together to actually create value for everybody. Matthew Ellis: With respect to the cost savings question, Joe, we don't really view it from the lens of the -- how you think about the net cost savings. We continue to invest in the business, whether or not we have a cost savings plan in place at a particular point in time. When you think about the margin expansion for the quarter, up 40 basis points again this quarter, you see the benefit of those investments driving the continued revenue growth, but also the operating leverage that then delivers and that again supplemented by the cost program. So we continue to look for ways to run the business more efficiently. As Boyd discussed, setting up -- continue to evolve the business as the industry evolves and what we do evolves so that we have the resources to continue to invest and provide the support to the business that we have. And I think you've seen the success of that. Operator: Our final question for today comes from Julien Roch of Barclays. Julien Roch: Coming back on the Udio deal you just signed. Could we have some indication of the payment mechanism. Will you get a share of their revenue? Will you get micro payments every time a song is created. So some color on how the money flow will work, without giving number detail. That's the first question. And then coming back on the deal you signed with Spotify, you gave one concrete example of what those products could be, Lucian did early on. I wonder whether we could get another couple of concrete examples of what those new AI products can be. Michael Nash: Julien, thank you for your questions. With respect to detail on the business models, you will probably not be shocked to hear that I can't go into granular detail. I will say this that obviously, the advent of AI with respect to new consumer products on new service categories on platforms, obviously introduces an opportunity for us to be creative and innovative in terms of the evolution of the business model and accounting for all aspects of the value that our content and artists bring to these platforms in terms of the establishment of the model's capability and in terms of the products themselves. We're obviously looking at all the components of the consumer experience and the value created and our participation in that value. So rest assured that we're working thoughtfully with new partners and certainly with Udio and reaching the agreement with them to be able to develop a sophisticated model that is going to deliver the value to our artists and songwriters and the rights holders that it should. In terms of more specific product concepts, with respect to how we envision the future, I think Lucian provided a great general sense of our outlook. But I would just encourage you to look at the specifics of the Udio announcement and the comments that have been made by their CEO and the comments that we've made, we now have a specific product development plan that has been set in motion by a new agreement for a service that's going to be launched next year. I think that what's being described there is the attributes of this customization, hyper-personalization, engagement with the artist content in a superfan experience in a walled garden on the platform gives you a good starting point for envisioning what the product scope is going to be. I think it's a good example of the kind of thing that's possible. We talked a little bit about on the horizon, things like agentic AI and obviously, that is to be constructed and developed in new conversations. So it's premature to go beyond a statement of kind of aspiration and outlook there. Operator: Thank you. That concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the Crocs, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Erinn Murphy, Senior Vice President of Investor Relations and Strategy. Please go ahead. Erinn Murphy: Good morning, and thank you for joining us to discuss Crocs Inc. third quarter results. With me today are Andrew Rees, Chief Executive Officer; and Patraic Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller. Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly, is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially. Please refer to our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other reports filed with the SEC for more information on these risks and uncertainties. Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. At this time, I'll turn the call over to Andrew Rees, Crocs, Inc. Chief Executive Officer. Andrew Rees: Thank you, Erinn, and good morning, everyone. Thank you for joining us today. Before we discuss the quarter, I would like to start by welcoming our Chief Financial Officer, Patraic Reagan, to his first Crocs Inc. earnings call. Our third quarter performance was driven by managing both of our brands in a disciplined fashion, streamlining our cost structure and controlling our inventory in the marketplace. We delivered very strong profitability and cash flow, which enabled us to repurchase 2.4 million of our outstanding shares and pay down $63 million of debt. These are fundamental levers of our value creation model. While our results came in ahead of our expectations, I acknowledge that this performance is not up to the standards that we expect for ourselves. We are working to regain momentum in the marketplace, and our teams have already begun executing against our strategies. With this in mind, I would like to begin the call today by elaborating on the progress we have made on our strategic pillars for both Crocs and HEYDUDE and the speed at which we are driving further simplicity and cost reductions across our enterprise. Patraic will then provide a more detailed overview of our financial results and outlook. Starting with the Crocs Brand. As we communicated last quarter, we elected to take 2 strategic actions to protect the long-term brand health. First, we pulled back on the breadth and depth of promotional activity across our digital channels in North America. This promotional pullback has had the greatest impact on our Classic Clog business as we work harder to protect our icon. Second, we continue to reduce receipts into the wholesale channel to better match supply to demand and ultimately drive a demand-led model. While these actions are impacting near-term sales, we expect them to enable a foundation for future growth. Further, we have seen a net positive benefit to our gross profit dollars in North America as a result of our pullback on promotions. Our return to growth in North America will be based on greater product innovation, diversification within clogs, growth within sandals and new categories. We are carefully managing our Classic Clog franchise with the desired outcome of creating clearer segmentation while leaning into innovation within new clog and sandal introductions. While improving the trajectory of North America is a top priority, we are making good progress against our 5 strategic pillars for the Crocs Brand. First, we will continue to drive brand relevance through clog iterations and innovation. During the quarter, we introduced the crafted clog starting at $60. This new franchise incorporates a non-molded comfortable upper with a Jibbitable back strap as we put personalization in the forefront of our design. We featured Lola Tung, the actress of hit show, The Summer I Turned Pretty, to bring this to market. Following our initial sell-up on TikTok Shop, we have seen strong consumer response in all channels. We're also focused on scaling existing clog franchises, including Croc Brand and Echo. Within the Echo franchise, we launched the Echo RO during the quarter and saw immediate success. Looking to 2026, we will expand our crafted franchise with new materializations, launch a new and improved Croc Brand, which is already an established fan favorite in our portfolio and introduce Echo 2.0 clog. We expect product diversification within our clog pillar to enable greater channel segmentation and drive long-term growth in our clog franchise. Second, we're focused on diversifying outside of clogs through new category expansion. Our sandals pillar outperformed the broader portfolio and took market share in this quarter with strong full price performance across our style franchise, including Brooklyn, Getaway and Miami. Retailers have continued to chase these key styles beyond the back-to-school season. As we look into 2026, these franchises paired with the reintroduction of an updated personalizable 2-strap sandal underscores our opportunity to gain further market share in this category. We are also excited with the response we have received around our new cozy franchise, the Unfurgettable, which we launched in partnership with actress Millie Bobby Brown. This style has already seen a very positive response on TikTok, resonating particularly well with the Gen Z female consumer. The Unfurgettable, along with broader newness in our cozy assortment has catalyzed our line business so far this season. Third, we will fuel consumer engagement with disruptive digital and social marketing. During the quarter, we launched a multiyear agreement with the NFL, which featured our classic and classic line clogs as well as Jibbitz. This release exceeded our expectations with particularly strong sell-through across the board, leading to multiple restocks. Other highlights in the quarter included a disruptive launch with Krispy Kreme and our newest release on Roblox. In the quarter, we launched a Pan-Asian Monsoon campaign, "Your Crocs, Your Splash." This campaign positions a Classic Clog as the footwear of choice for the rainy season and stars 2 prominent actors from South Korea and India. The campaign video generated approximately 575 million views across Instagram and YouTube. These partnerships are prime examples of how our brand excites, inspires and connects with a wide range of consumers across the globe. Fourth, we'll continue to create compelling consumer experiences across distribution. Year-to-date, we've accelerated our first-mover advantage in social commerce. We remain the #1 footwear brand on TikTok Shop in the U.S. and the growing adoption of this platform is gaining momentum with younger consumers. This month, we created further disruption in the market by live streaming both of our brands on TikTok Shop and our own dot-com throughout the month of October. Through this initiative, we have seen an uptick in our followers and influx of new consumers. In fact, Crocs was the first fashion brand to live stream 24/7 for an entire month across TikTok and dot-com. We're continuing to expand this partnership and have launched TikTok Shop in the U.K., Germany and Brazil. Fifth, we see significant opportunity to capture greater share across our international markets, many of which are still in their infancy of growth. In the third quarter, we saw broad-based strength across our Tier 1 international markets. China delivered revenue growth across all channels and was up mid-20% to prior year, outperforming the overall market handily. During the quarter, we launched a unique POP MART, China's SKULLPANDA collaboration, which included a Douyin live stream on POP MART'S page and was a smash hit in China. In addition to China, we saw strong growth in Japan and across all of our key markets in Western Europe. In summary, our priorities are clear: driving product innovation in clogs and sandals, staying agile and consumer-focused while sharpening segmentation and accelerating international growth where penetration opportunities remain. Turning now to HEYDUDE. We delivered third quarter results that came in ahead of expectations. We are encouraged by the progress we're making in stabilizing the brand in North America to return to profitable growth. Let me share more about the actions we have taken and what gives me confidence in our ability to reestablish brand growth. First, we're focused on building a community. Our recently refreshed consumer insights work underscores that we have a passionate group of brand fans, ones that identify as laid-back and no-fuss, but clearly seek the comfortable and lightweight products we have to offer. We launched our HEYDUDE Country campaign in June, which plays to our brand's affinities, including music, travel and pre and post sport and is centered around this laid-back, no-fuss consumer. Relatedly, we are encouraged to see the brands return to the top 10 preferred footwear brands among males in the Piper Sandler Taking Stock With Teens survey this fall. Second, our product direction is clear. We're building the core and thoughtfully adding more. Within our Wally and Wendy franchise, we launched the Stretch Sox and its performance has already surpassed legacy socks on a like-for-like basis. In 2026, we will launch Stretch Jersey, a sweatshirt for your feet, and retailer response to this product has been very strong as it appeals to both her and him. Outside of the core, we are seeing continued traction of our Paul franchise, which plays into the dress casual sneaker space, and we're solidly building on our slipper success again this holiday. Earlier this month, we launched our third collaboration with Jelly Roll, featuring the fan favorite Bradley Boot in 2 colorways. The initial launch on TikTok Shop drove the largest single day for HEYDUDE on the platform to date. We see this collab as serving to halo, our broader boot offering as we move into holiday. Third, we're focused on continuing to clean up channel inventory in the North America marketplace. During the third quarter, we accelerated returns and markdown allowances to our retailers to improve inventory health while elevating our brand presentation at wholesale. The nature of these cleanup actions has had an impact on revenue in the third quarter through vendor returns, and we're planning for continued markdown support in the fourth quarter. These actions have been effective in cleaning up the channel and establishing a foundation for future growth. On an enterprise basis, we're working to quickly rightsize our cost base. As we shared on our last call, we've already taken action on $50 million of gross cost savings this year and have since identified another $100 million of gross cost savings across the business to simplify the organization. While Patraic will go into more detail shortly, we expect these cost savings to generate greater flexibility across the P&L, enabling future investment to drive growth for our brands. At this time, I will turn the call over to Patraic to provide more detail around our third quarter financial performance and our fourth quarter outlook. Patraic Reagan: Thank you, Andrew, and good morning, everyone. Before I review the quarter, I'd like to say how grateful and excited I am to have the opportunity to serve as Chief Financial Officer of Crocs, Inc. This is a company I've long admired professionally and as a consumer, one whose profitable growth has been built on an enduring cultural icon. For Crocs and HEYDUDE, I see strong potential both domestically and globally, and I look forward to working with our talented teams across the world to further drive the company's strategic and financial goals. Now let's get into our results. Our third quarter revenue of approximately $1 billion were down 7% to prior year. Crocs Brand revenue of $836 million was down 3% to prior year, with wholesale down 8% and DTC up 1%. North American revenues were down 9% to last year as we continue to intentionally pull back on discounting within our digital channels during the quarter. This was partially offset by strong digital marketplace performance. These actions, in part resulted in DTC down 8%, while wholesale was down 11%. International revenue was up 4% to prior year, driven by direct-to-consumer, which was up 23%. DTC performance continues to reflect broad-based strength across both digital and retail. International wholesale was down 7% based on timing shifts we communicated last quarter. Within our Tier 1 international markets, we saw broad-based strength led by China and Japan, while Western Europe also drove strong results across the U.K., Germany and France. Now turning to HEYDUDE brand. Revenue of $160 million was down 22% to prior year, but ahead of our expectations. DTC was better than planned, down 1% to prior year. This was driven by the addition of new retail stores and strong digital marketplace performance, most notably on TikTok Shop, offset by the planned reduction in performance marketing spend as we work to enhance profitability, albeit with negative revenue impacts. Wholesale was down 39%, reflecting the previously communicated wholesale cleanup actions we took in the quarter. As a result of these actions, we started to see an improvement in wholesale sellouts, which are now in line with our inventory levels. This is an important data point as we position HEYDUDE for a return to growth. Moving back to Crocs Inc. Enterprise adjusted gross margin of 58.5% was down 110 basis points to prior year, including a 230 basis point headwind from tariffs. The tariff impact in the quarter was 60 basis points higher than we previously anticipated based on higher receipts and country mix. Excluding tariffs, our adjusted gross margin would have been up, reflecting lower negotiated product costs, higher ASPs for both brands and brand mix. Crocs brand adjusted gross margin of 61.8% was down 70 basis points to prior year, driven by tariff headwinds. HEYDUDE brand adjusted gross margin of 42.3% was down 560 basis points to prior year, driven by tariff headwinds and fixed cost to leverage, which was partially offset by higher ASPs. Importantly, the third quarter represents the ninth consecutive quarter of ASP increases for HEYDUDE. Adjusted SG&A rate was 37.7%, up 350 basis points compared to prior year. Adjusted SG&A dollars increased 3% to prior year, a notable improvement from the 15% SG&A increase in the first half of the year. This was driven by investments in talent, DTC and marketing, significantly offset by cost savings under the $50 million initiative that we announced earlier this year. Taken together, adjusted operating margin of 20.8% came in ahead of our guidance of 18% to 19%, but was down 460 basis points compared to prior year. Adjusted diluted earnings per share of $2.92 was down 19% to last year, and our non-GAAP effective tax rate was 16.9%. Moving on to inventory. At the end of Q3, our inventory balance was $397 million, up 8% to prior year, including the impact of higher tariffs and product mix. Importantly, inventory units were down low single digits to prior year. Our enterprise inventory turns were above our goal of 4x on an annualized basis as we proactively managed our inventory receipts. Our liquidity position remains strong, comprised of $154 million of cash and cash equivalents and nearly $850 million of borrowing capacity on our revolver. Our strong profitability and free cash flow enables us to return value to shareholders through buybacks and debt paydown. During the quarter, we repurchased 2.4 million shares of our common stock for a total of $203 million at an average cost of approximately $83 per share. This represented approximately 4% of our float. Year-to-date, we have repurchased 4.3 million shares of our common stock for a total of approximately $400 million. We ended the quarter with $927 million remaining on our buyback authorization. Total borrowings at quarter end of $1.3 billion included the paydown of $63 million of debt during the third quarter. Our net leverage ended the quarter at the lower end of our targeted range of 1 to 1.5x. Now turning to our fourth quarter outlook. For Q4, we expect revenues to be down approximately 8% in currency rates as of October 27. Within this, we expect the Crocs brand to be down approximately 3% with acceleration in our international business from a mid-single digit in Q3 to a low double-digit rate in Q4. North America revenue is expected to be down low double digits to prior year, reflecting a wider range of outcomes, including our view of a choiceful consumer, a highly competitive holiday season and lower inventory receipts in the wholesale channel. For HEYDUDE, we expect revenue to be down in the mid-20s range, including the impact of reducing performance marketing spend in the DTC channel and the investments we are making in wholesale marketplace cleanup. We expect adjusted operating margin to be approximately 15.5%. This excludes approximately $10 million related to cost reduction initiatives we referenced earlier. Our adjusted operating margin embeds gross margins down approximately 300 basis points, driven almost entirely by tariff headwinds. In addition, our adjusted SG&A dollars are expected to be below that of prior year as we continue to see the positive impact of our cost savings. Adjusted diluted earnings per share is expected to be in the range of $1.82 to $1.92. For the year, our capital expenditures are expected to be in the range of $70 million to $75 million. While it is too early to provide 2026 guidance, I do want to provide more context on how we are thinking about further cost savings. As Andrew mentioned, we are already benefiting from the previously actioned $50 million of gross cost savings in 2025. In addition, we have identified $100 million of incremental gross cost savings that we expect to benefit 2026. These savings include simplifying our organizational structure, deliberately reducing spend in noncritical areas and further optimizing our supply chain. It is too premature to share how much of these savings we will choose to flow to the bottom line. However, we are committed to managing our adjusted SG&A base to ensure we drive operating leverage in 2026 while creating greater flexibility across the P&L. To conclude, we have already taken several strategic and tactical actions to improve the momentum of our brands. We have also taken steps to provide flexibility in our cost structure, and we are intently focused on driving consistent profitable growth in the future. At this time, we will now turn the call back over to the operator to begin the question-and-answer portion of our call. Operator: [Operator Instructions] The first question comes from Jonathan Komp with Baird. Jonathan Komp: I want to ask first about the incremental cost savings initiatives. It looks like you're obviously preserving margin here, but are there structural deficiencies in the organization you're also trying to address when you look at the structure of the organization? And as you think about 2026 and the comment around driving operating leverage, could you achieve leverage in a scenario where revenue still is down in the first half and maybe not significantly growing for the year? Andrew Rees: Thank you, Jonathan. I'll address it to start, and Patraic will pick up anything that I missed. So what I would say in terms of the cost savings, there's several buckets we're looking at. I think number one is we've got a significant benefit from some efficiencies we've been able to drive in supply chain. We've invested quite a bit in our supply chain over the last several years, and we're now reaping some of the rewards of those efficiencies. And we've also integrated both our HEYDUDE and our crocs supply chains more fully. So that's given us some really nice benefits. Number two, we have looked at some structural key components. We've been quite thoughtful about this, where we've been able to reorganize kind of how we go to market and how we run some key parts of our business. We think that is going to give us more speed and more efficacy as well as generating a lower cost. And then we've also just been, I would say, rigorous around looking at where we're spending on vendors, outside services, et cetera, and consolidating that. And I think there's probably a small component in there is trying to use AI and some of the technological advances that we're seeing across the globe to make us more efficient and effective. In terms of the last part of your question, we will reinvest some of those savings in key areas around product innovation, around some things that we think will drive the top line. And we do believe that on an annual basis, we can absolutely provide -- we can achieve operating leverage in 2026. If revenues are down a little bit in a quarter that may be higher. But for the year, we're quite confident we can get operating leverage. Patraic Reagan: Yes. Jon, just a couple of things to add from a perspective -- from my perspective. What I would say is that our language in the prepared remarks were really intentional. So what we're trying to do is drive flexibility as we turn into 2026. And I think what's been great to see in terms of the response of the organization is that we've really been able to turn very quickly efficiently into identifying some of the areas that we're going to provide that flexibility in. And just to reiterate what Andrew said towards the end is we're clear that we need to protect product innovation and brand, brand marketing, right? It does us no good to just cut costs through the P&L at the expense of what is the core of our business. So what we'll do as we go through this is continuing to look at all areas of the organization, but product and innovation and communication to our consumers through brand is an area that we're going to ring fence. Jonathan Komp: That's really helpful. If I could sneak in one more. Can I just ask, Andrew, is portfolio management the consideration in your capital allocation strategy? And I ask in the context of coming up on the 4-year anniversary of owning HEYDUDE and still seeing significant challenges here? Andrew Rees: Yes. Thank you, Jon. No, I would say at this point, look, we believe HEYDUDE is a strong brand. It's a strong scale brand within -- particularly within the U.S. casual footwear space. We absolutely acknowledge the challenges that we have had in running and operating this brand over the last several years. But I think I feel like we're doing the right work. We've made the right decisions, and we are confident in its future trajectory. We're definitely focused on returning it to profitability, cleaning up the marketplace, making the right strategic decisions relative to promotion discount and also the amount we're investing in digital marketing. We have retooled the management team, and I'm very confident in the strength of our management team and its ability to drive the future. And so I think we're not contemplating any portfolio changes at this time. And I would say we're confident in returning HEYDUDE to the right level of profitability and also growth in the future. Operator: The next question is from Chris Nardone from Bank of America. Christopher Nardone: So just on Crocs North America, can you help identify some of the actions you're taking to help drive some improved results in this portion of the business? And in particular, it would be really great if you can elaborate on both your pipeline of new product and also how you think about the ramifications of potentially losing some of your core customers given your pullback on promotions? Andrew Rees: Yes. Thank you, Chris. So look, I would say returning the North American -- Crocs North American business to growth is a top priority for our overall company. As a reminder, some of the lack of growth or the decline in sales are based on some strategic decisions we made. One is reducing digital discounting. I think we elaborated on this in prepared remarks, but also reducing wholesale sell-in. So -- and in that, we're making sure that we're appropriately positioned to grow in the future and not eroding our brand and particularly not eroding our core iconic franchise. We do think, and that is embedded in our guidance. We do think the North American consumer is bifurcated. There is a portion of our North American consumers that are highly affluent. They're buying crocs, they're buying other high-end brands, and they are in great financial shape. But there is a large portion of consumers who are nervous. They are in less good financial shape and they're being super cautious about their spending and certainly spending closer to need. Given all of that and that -- the impact of that, I think we believe we're seeing in our business. I think others have talked about that, and that is embedded in our future expectations. But what are we doing, which I think is the core of your question? Number one, focusing on clog innovation and brand relevance. We're introduced -- we have introduced and are introducing a number of key product categories or key product franchises crafted, Echo and reintroducing Croc Brand to diversify our clog platform and allow greater segmentation across our wholesale partners, and we're quite excited about the impact that this will have. We're also continuing our diversification into new silhouettes and new categories. We had a strong sandal season in 2025, and we're -- we have a very strong pipeline of products going into '26 and are confident about continued sandal growth, continued growth in personalization. And we're in the heart of slipper season right now. And as you can see, we have a tremendous lineup of slippers and line product actually on both of our brands. And then continuing our, I would say, disruptive social and digital engagement. We're a leading brand on TikTok for Crocs, the leading brand on TikTok for Crocs, but also a close second for HEYDUDE. And you probably have seen during October, we launched a live streaming initiative where we live streamed both of our brands 24/7 for the entire month and gained -- and achieved all of our objectives from that perspective and learned a tremendous amount about how the consumer is migrating from traditional shopping to social shopping. So I think we have a well-rounded and robust strategy to return Crocs to growth in North America and are very confident in our ability to do that in short order. Operator: The next question is from Tom Nikic with Needham. Tom Nikic: I want to ask about the marketplace cleanup for HEYDUDE. I know there was quite a bit of action that happened in Q3. Should we assume that there's kind of more marketplace cleanup that has to happen in Q4? And would you think that by year-end this year, you'd be relatively clean and that we wouldn't see as much in 2026? Andrew Rees: Yes. Good. I'm glad you asked about this, Tom. So this is important. In Q3, we invested actually a considerable amount of money in terms of the marketplace cleanup. That was primarily return. So we took back aged and slow selling product from some of our large wholesale partners, and it was a substantial amount. We felt this was important to reset how the brand looks at wholesale. There is more in Q4, which is already embedded in the guidance that we provided. And that is primarily discount, that is discount support where we're looking to complete some of the cleanup activity. The majority of it will be done during 2025. I think there's some ongoing inventory health management that will happen in '26, but it will be far less impactful than we have seen in the last 2 quarters. And in fact, we've been doing this for some period of time. What I would say is as we look at the impacts of these investments we've made, I think we're quietly encouraged that sell-through is improving based on a reduction of aged inventory in the marketplace, a stronger presentation of HEYDUDE and a stronger presentation of new and current product. We particularly called out Stretch Sox. This was a franchise that we introduced earlier this year. And as the year has gone on, as our partners are more fully set on Stretch Sox and the socks product that was the precursor has sold down and has illuminated, we're really, really happy with the sell-throughs of that franchise, and it's really core and backbone franchise for the brand. Patraic Reagan: Yes. And Tom, just maybe 2 quick things that I would add is that, as you can see from prepared remarks, we highlighted that the sell-in and inventory levels are in much better line for HEYDUDE. So that's a very encouraging sign. And then secondly, we called out that for the ninth consecutive quarter, ASPs have increased with the HEYDUDE brand, which is also a key metric to watch as we continue to pivot the brand to return to growth. Tom Nikic: Very helpful. And Patraic, welcome aboard and looking forward to working with you. Operator: The next question is from Adrienne Yih with Barclays. Adrienne Yih-Tennant: Andrew, I wanted to ask about sort of some of the choicefulness that you might be seeing in the fourth quarter. We've heard from other discretionary companies generally that there's been a little bit of a weakness in the 25- to 35-year-old cohort. Back-to-school generally has been very strong and then a little bit of an exit kind of weakness coming out of the quarter. So if you can talk to that. And then Patraic, welcome aboard. A quick question on the end of quarter inventory. The spread looks like it's about 10% between dollars and units. So that seems like it's reflective of maybe the April tariff. How should we think about end of quarter inventory entering the new year. Did that then express kind of the August tariff? And how should we think about early spring, the pass-through on the gross margin? Andrew Rees: Okay. There's a lot there, Adrienne. So let me take -- let's take it in the order you asked it. I'll do the consumer and then Patraic can give you some color on inventory. I think -- look, I think you're going to hear from us essentially what you've been hearing from a lot of other people that the consumer is clearly being more cautious about spending and it's particularly -- I wouldn't categorize it by age group so much, I'd probably identify it more by socioeconomic strata. We definitely see it in our mid- to lower channels. There is less traffic to stores, right? So they're not even going to the store, right? They don't have the same level of disposable income or flexible income. So they're being more choiceful about what they're buying. They're making fewer trips to the store. And they're also shopping closer to need, right? So we expect -- we're anticipating to see that in the fourth quarter, where typically, even a constrained consumer does release the purse strings a little bit as they celebrate the holidays, whichever holidays they do celebrate, but they will shop a little closer to need. So those are the things that we're seeing. So I think it's the lower-end consumer is being more choiceful. They're being more cautious about what they spend on and they're shopping closer to need. That's how I would categorize it and think about it. Patraic Reagan: Yes. And Adrienne, thank you for asking the question about inventory. First of all, I'd start off by saying that how we manage inventory here, matching demand to supply is really a strength of the organization. And frankly, it's a competitive advantage in terms of the speed in which we can evaluate and react to consumer demand in both good times and bad. You're right, as you call out, the spread, that's directionally correct. And what you can think about is that optically, with inventory up roughly about 8% as we closed the Q3, that was almost entirely on a dollar basis driven by the impact of tariffs. What you really see is in terms of our diligence of managing inventory is on the unit side where we're actually down low single digits. So we feel really good about where we are from an inventory position as we ended Q3. We'll continue to exercise that muscle. Honestly, as we are in Q4, we're aggressively managing inventory. Like I said, it is a core competency of what we do. So we feel like as we turn into Q4, we'll continue to manage inventory from a unit standpoint similar to what we saw in Q3. And then in 2026, too early to comment really on '26, but I think you can take our history as an indicator in terms of how tightly we will continue to manage inventory and at the same time, making sure that we're serving our consumers across the globe. Operator: The next question is from Peter McGoldrick with Stifel. Peter McGoldrick: Welcome, Patraic. I'm interested in the market share in the under $100 assortment. I was curious if you could talk more about the current positioning of both of your brands and then any competitive dynamics that may be playing out as the consumer feels prices going directionally higher across the marketplace. Andrew Rees: Yes. I mean I can talk about that directionally. We don't -- we can't give you precise numbers around kind of market share. I think the strength of both of our brands is that they are extremely democratic in nature, right? They service a very broad range of consumers. Both brands attract consumers for whom this is a very -- a great value. Our brands are a great value. They also attract consumers that are -- that see these brands as aspirational. So we service a very broad consumer base. The -- I would say the vast majority of our products are under $100, right? So obviously, you're well aware that the Classic Clog essentially MSRP $50 and the majority of our HEYDUDE product is between $60 and $70. So from a price point perspective, we give the consumer excellent value. I think what you're kind of alluding to a little bit, we have seen competitive brands that sell at higher price points being pretty quick to elevate price points further and capture greater price or elevate pricing pretty quickly to compensate for tariff impact that they're seeing. We see less of that, I would say a lot less of that at the price points that we compete at. So I think the less than $100 arena remains relatively competitive. And I think the other thing that you might be alluding to is in terms of competition at these price points, we do see the athletic brands, particularly the big ones, leaning back into these price points and increasing distribution at the -- let's say, the sort of good to bad tiers of the market. Operator: The next question is from Rick Patel with Raymond James. Rakesh Patel: Congrats on the new role, Patraic. We have questions on the North America wholesale channel. First, any color on the spring wholesale order book and how that's shaping up? And second, can you point to any product or innovation wins that would give you particular confidence in being able to reinvigorate the wholesale channel as you look out to 2026? Andrew Rees: Are you looking for both brands, Rick? Or are you primarily focused on Crocs? Rakesh Patel: Primarily on the Crocs Brand. Andrew Rees: Yes. So we don't provide details on order book, as you know. But a little color we can help you with. As we look at the North American Crocs wholesale order book, there's 2 things going on. One is, number one, our retailers are planning cautiously, right? They're not expecting -- they're not seeing traffic growth and they're not expecting significant growth in the short term. And I actually don't believe they're going to plan significant growth into the early part of 2026. So they're fighting cautiously. As we talked about last time and as I just articulated a little bit to Peter's question, we do see athletic gaining some share in the good to better portions of the market. So there's some open-to-buy going to athletic. So there's pressure. We're also managing that carefully. So we would expect, I would say, continued declines in our wholesale sell-in for Crocs in North America. That is embedded in our guidance that we provided in Q4. So that's kind of the framework. And then the last part of your question was what are we doing and what product innovation that we think is going to counteract that. I would say, number one, we have a really strong lineup from our clog perspective in 2026. We just introduced Crafted, which is a clog with a materialized upper. It's a soft materialized upper. The current iterations that you can see in the marketplace have canvas uppers. There are some -- and there is also some leather uppers coming. In fact, it's a vegan leather suede coming to the market right about now. We think that franchise has a lot of legs because it makes the clog, the Classic Clog, which has a molded footbed, more approachable and more accessible to a broad group of people. Right now, Unfurgettable, which is our fuss -- our highly exaggerated fuss product and the other Lined products that we have in the marketplace, we believe are performing well -- are performing well, and we're excited about that. Next year, we're going to be introducing or reintroducing to the market Croc Brand. This is a fan favorite. I think if you look on Amazon, there's something like 200,000 4- and 5-star reviews for the Croc Brand. So we've been -- we've downplayed Croc Brand for some time deliberately to focus on classic. We're reintroducing Croc Brand. So we think that has a multiyear trajectory. And then lastly, we're bringing new Echo 2.0 to the market later next year. And I think the other piece that is important, and I mentioned already is building on sandals. Sandals were a really strong driver of growth in '25, and we have additional products and enhancements to key franchises as we think about sandals later into '26. Patraic Reagan: Yes. And Rick, just one final comment for me as we close this one out is we talked quite a bit about the wholesale channel, Andrew alluded to that and went into some great detail. I would say that we are seeing DTC accelerate as we go from Q3 to Q4. So we take that as a great sign in terms of how our products and our innovation pipeline are resonating with our consumers. So I don't want to drive past what's happening in the DTC channels. Rakesh Patel: And to clarify, you're seeing North America DTC accelerate? Patraic Reagan: That's right, yes. Operator: The next question is from Jay Sole with UBS. Jay Sole: Andrew, I want to ask about some of the actions you took on Crocs Brand in Q3, specifically with pulling back on promotions. Did you do that across the entire quarter? Or was there a moment during the quarter where you went back to promotions, whether it's peak back-to-school season just compete? And then maybe, Patraic, just on the Q3 gross margin, was there a tariff impact on the gross margin in Q3? If so, what was it? And then I think to the 300 basis points you talked about for Q4, is there any mitigation that's a part of that? Or basically, how much of the gross tariff costs are you absorbing? Andrew Rees: Yes. I'll be quick and then Patraic can get into your tariff question. So from a North American digital promotional pullback, that was across the entire quarter, right? And it didn't go to 0, obviously, but we did both have many more days that were nonpromotional and also the depth of the promotions that we run were typically substantially less than we had run previously. So it was across the entire quarter. Patraic Reagan: Yes. And then to answer the question on tariffs. So first of all, I think it's been really impressive to see all the actions that are taking place across Crocs as it relates to mitigating tariffs. And so the organization has been on the front foot in terms of identifying where we're able to mitigate where we can the impact of tariffs. Specific to Q3, roughly, we had about 230 basis points of tariff headwinds in the quarter. Obviously, we had several mitigating actions, whether it relates to negotiating with our vendors with our input costs, et cetera, in our supply chain. So we're able to mitigate a good portion of that. And as we go into Q3 -- or I'm sorry, as we go into Q4, the headwinds that you see there are almost entirely due to tariffs. And the mitigating actions will still be present, but in a slightly muted way, especially as we look at Q4 and the nature of -- kind of promotional nature of the quarter, and we alluded to that a bit in the prepared remarks is we're talking about anticipating a highly competitive selling season in Q4. Operator: The next question is from Brooke Roach with Goldman Sachs. Brooke Roach: I was hoping to follow up on Jay's question about tariff mitigation and just get your latest thoughts on pricing as you look to offset some of these tariffs, particularly given the stronger AUR results you've recently materialized. What are your plans for pricing as you move into next year? And then as a follow-up, Patraic, can you provide a little bit of color on how you see that tariff headwind directionally shaping into the first half of next year versus the 300 bps of gross margin pressure that you're forecasting for the fourth quarter? Andrew Rees: Yes. Thanks, Brooke. So pricing, so from a conceptual perspective, we don't price the cost, we price to market, right? So I think we've talked about this a lot over the years, right? What we think about from a pricing perspective, we look at both the strength of our brand, the trajectory of the brand and the competitive dynamics for products in the marketplaces in which we compete. And we do this around the world based on the local market. So what we have seen most recently, so in the back half of '25, we have actually taken select price increases on key products in some markets around the world. And we do have a number of those incrementally planned in the early part of 2026. At this point, though, we are not planning to initiate price increases, for example, on our core Classic Clog here in North America. We think that is well priced and that portion of the market is still -- is more price sensitive and more competitive. So I think we've got a great pricing framework. We're very precise and dynamic around this and -- but that's kind of where we sit at this point. Patraic Reagan: Yes. And Brooke, just building on Andrew's comments. So the nature of pricing here at Crocs is very dynamic and quite a bit of muscle built in that space. So we feel really good about how we're kind of pricing from a value standpoint to our consumers' price to value standpoint. As we turn into 2026, obviously, we're not providing any sort of guidance at this point in time. That will come in the next call. But directionally, what I can say is the large impact in tariffs for us and really any other consumer brand or footwear brand that's operating in the countries we operate in is most felt in the second half of this year. And so what you can directionally think about is that we'll continue to feel some of that pressure as we get into the first half of 2026. Operator: The next question is from Aubrey Tianello with BNP Paribas. Aubrey Tianello: I wanted to ask on stores and if you can give us an update on the store growth strategy for both brands, but especially Crocs, where there's been a pickup in store openings over the course of this year. How should we be thinking about store growth going forward? Andrew Rees: Yes. That's a great question, Aubrey. Glad you asked it. So starting with Crocs, there has been a bit of a pickup in store openings. A lot of that is driven out of our European store base, right? So we've very successfully opened a number of stores in Europe. Those are almost all outlet stores in the U.K. and France principally. And I would have to say they are performing incredibly. So we're super happy about that. Also some store openings in Asia and a small number here in North America. So as you probably know, our store base is incredibly profitable, very high sales per square foot, high margins and a very good strong flow-through. The other thing I would also highlight for those of you in New York is we did open our SoHo store earlier this year. It's performing very, very well indeed, super happy with it. And it's also, I would say, the pinnacle presentation of the brand. And you may have seen on social media that we were live streaming from that store during October. Terence Reilley, our Chief Brand Officer, did an amazing job live streaming from the store and also featuring some celebrities, including Jaxson Dart. So it's been a great investment for us. From a HEYDUDE perspective, we have also continued to open stores here in North America, again, outlet stores. I would say the one thing that we have done this year is shifted where we've opened the stores suddenly, and they're a little bit more in what we call HEYDUDE Country, the HEYDUDE Heartland. And again, those stores continue to meet our expectations. Patraic Reagan: Yes. And Aubrey, the only thing I would add and just kind of emphasize in terms of Andrew's comments are the profitability of the Crocs stores, both domestically and internationally, it's super impressive. And you can kind of see that in the cascade of the financials and something we haven't talked about as much on the Q&A portion of the call is generating the free cash flow that is just inherent into the -- in what is the strength of our financial model. And so our stores are an important part of that, and they throw off and they generate a lot of cash, which allows us then to both invest back into the business and return capital back to our shareholders. Operator: The next question is from Anna Andreeva with Piper Sandler. Anna Andreeva: Welcome to Patraic. We had a question on $100 million of savings. Just any color on how we should think about the cadence of those as we go through '26. Is the expectation that these are scaling as we go through the year or more equally divided? And what's the amount of savings we should expect for the fourth quarter? And then just as a follow-up, Patraic, you mentioned North America DTC accelerated quarter-to-date at Crocs, which is pretty impressive considering fewer promos. And I know Crocs [indiscernible] is a big deal for the business. Anything you did differently this year? Is this driven more by TikTok? Just any color you could provide on that? And what's implied in the guide for North America DTC at Crocs for 4Q? Patraic Reagan: Yes. So Anna, let me hit the cost savings first, and then we'll get into the second part of the question. So first of all, the $100 million number, that's a gross number, right? And so what we mean by gross is we have identified $100 million of savings across the entirety of our cost base, whether that's in cost of goods, SG&A, et cetera. And we are -- we've done that, number one, to make sure that we're operating as efficiently as we can, of course. But then secondly, to provide us with the flexibility to make choices as we get into 2026. And those choices could be flowing those savings to the bottom line. Those choices could be investing in areas that we see in terms of outsized growth that we're able to chase into. And so I'm not going to get into a cadence of kind of quarterly at this point. It's too early in that. We'll provide a little bit more detail on that when we get into 2026 during the Q4 call. And I think the second part of the question, Andrew is going to hit on. Andrew Rees: Yes. So just a point of clarification. We did not say that DTC accelerated during Q3, right? So we actually don't comment on trajectory within the quarter. But what we did say is we believe that DTC in North America will be stronger in Q4 than it was in Q3. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Rees, Chief Executive Officer, for any closing remarks. Andrew Rees: I just want to say thank you, everybody, for joining us today and your continued interest in Crocs Inc., and we look forward to continuing to speak to you in the future. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the American Homes 4 Rent Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Nicholas Fromm, Director, Investor Relations. Please go ahead. Nicholas Fromm: Good morning, and thank you for joining us for our third quarter 2025 earnings conference call. With me today are Bryan Smith, Chief Executive Officer; Chris Lau, Chief Financial Officer; and Lincoln Palmer, Chief Operating Officer. Please be advised that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, October 30, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. A reconciliation of GAAP to non-GAAP financial measures is included in our earnings press release and supplemental information package. As a note, our operating and financial results, including GAAP and non-GAAP measures, are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.amh.com. With that, I will turn the call over to our CEO, Bryan Smith. Bryan Smith: Welcome, everyone, and thank you for joining us today. 2025 is quickly coming to a close, and our industry-leading results continue to reinforce the benefits of the AMH strategy, which is centered around portfolio optimization, operational execution, and a prudent approach to capital management. During the third quarter, we saw solid contribution from all areas of the AMH platform, driving Core FFO per share growth of 6.2%. Due to our strong third quarter results and updated outlook on the full year, we increased our Core FFO per share guidance by $0.01 to $1.87 at the midpoint, representing growth of 5.6%. In this last stretch of 2025, our focus is on building occupancy and gaining momentum to position the portfolio for strength heading into 2026. Fundamentals in the single-family rental industry continue to benefit from favorable population demographics within the millennial cohort and a growing need for high-quality housing. The AMH portfolio continues to capture this demand given our portfolio's high-quality assets in superior locations with a focus on highly desirable single-family detached homes. Turning to the third quarter. We delivered solid Same-Home core revenue growth of 3.8%, driven by Same-Home average occupied days of 95.9% and new, renewal, and blended rental rate spreads of 2.5%, 4%, and 3.6%, respectively. On the expense front, the team's focus on controlling the controllables kept Same-Home core operating expense growth muted at 2.4%, leading to Same-Home Core NOI growth of 4.6%. As we exited the third quarter, we saw a tapering of activity that drove October Same-Home Average Occupied Days to 95.1%. Preliminary new lease spreads of 0.3% were balanced by continued strength in renewal rate growth of 4%. Given the heightened focus on monthly updates, it is important to mention that our internal dashboards indicate that we have reached an inflection point in seasonal leasing activity. Leasing velocity has improved over September levels, and this, coupled with benefits from our lease expiration management initiative positions us to close out the year with momentum. Turning to our growth programs. We remain focused on portfolio optimization and prudent capital allocation. This year, we are on track to deliver approximately 2,300 homes, of which 1,900 are wholly owned. As a reminder, development is being funded by internally generated cash, incremental debt capacity from growing EBITDA, and recycled capital from our disposition program. Despite the headlines of a slowdown in MLS activity, we continue to see great success selling nearly 1,200 homes to end-user homebuyers year-to-date. This enables us to accretively deploy disposition proceeds into development, driving residential leading earnings contribution outside of our Same-Home pool while also continuing to improve the quality of our portfolio. As we begin to shift our focus to 2026, we expect a similar number of deliveries from the development program next year, maintaining strategic sizing of the program to be funded with internally generated capital and incremental debt capacity. Outside of development, we continue to review thousands of assets each month across all of our markets, but bid-ask spreads are still too wide considering the current cost of capital. To close, our strong year-to-date performance is a direct result of the enduring AMH strategy and outstanding execution from our teams. Our industry-leading Core FFO growth guidance reflects earnings contribution from all areas of the business and maintains our position at the top of the residential sector. With that, I'll turn the call over to Chris. Christopher Lau: Thanks, Bryan, and good morning, everyone. I'll cover three areas in my comments today. First, a review of our quarterly results; second, an update on our now fully unencumbered balance sheet; and third, I'll close with commentary around our 2025 guidance, which was increased for a second time this year in yesterday's earnings press release. Starting off with our operating results. This quarter was another example of the power of the AMH strategy and our ability to create value and grow earnings across all areas of the business. For the quarter, we reported net income attributable to common shareholders of $99.7 million or $0.27 per diluted share. On an FFO share and unit basis, we generated $0.47 of Core FFO, representing 6.2% year-over-year growth and $0.42 of Adjusted FFO, representing an impressive 9.1% year-over-year growth. In addition to our strong execution this quarter, we've now received the majority of our final assessed property tax values, which landed favorably compared to our initial expectations in several states, notably Texas. Additionally, the team was highly active on the appeals front this year, filing over 24,000 individual appeals with a record level of success. All combined, we now expect full year 2025 property tax growth to be in the high 2% area, which has been positively reflected in our updated full year outlook that I'll talk about shortly. Turning to investments. For the third quarter, our AMH development program delivered a total of 651 homes to our wholly owned and joint venture portfolios. This was on track with our expectations and continues to demonstrate our unique ability to accretively redeploy capital from our disposition program. During the quarter, we sold 395 properties, generating approximately $125 million of net proceeds at an average economic disposition yield in the high 3%. Next, I'd like to turn to our balance sheet and recent capital activity. At the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was down to 5.1x. Our $1.25 billion revolving credit facility had a $110 million drawn balance, and we had approximately $50 million of cash available on the balance sheet. Importantly, as we announced previously, during the quarter, we paid off our final securitization 2015-SFR2. Our balance sheet is now 100% unencumbered, marking an exciting milestone in AMH's history. Additionally, all debt other than our credit facility is fixed rate, and we have 0 maturities until 2028. And next, I'll cover our updated 2025 earnings guidance. As I mentioned earlier, we now expect full year same-home property tax growth in the high 2% area. And when combined with our team's continued execution, controlling the controllables on expenses, we have lowered our full year Same-Home Core expense growth expectations by 50 basis points to 3.25%. In turn, this translates into a 25 basis point increase to the midpoint of our full year Same-Home Core NOI growth expectations to 4%. And when further combined with our modestly improved outlook on full year net interest costs, we have increased the midpoint of our full year 2025 Core FFO per share expectations by $0.01. Our new midpoint of $1.87 per share now represents a year-over-year growth expectation of 5.6%. And before we open the call to your questions, I'd like to highlight that 2025 is on track to be a perfect demonstration of the strength of the AMH strategy. Our relentless focus on portfolio optimization and operational excellence is expected to drive an impressive 4% growth in Same-Home Core NOI this year, while notably also expanding Core NOI margins. And on top of Same-Home, this year, we expect an incremental 160 basis points of Core FFO per share growth contribution driven by our prudent approach to capital management, including the balance sheet, capital recycling, and our development program. All told, our full year expected Core FFO per share growth now leads the residential sector by hundreds of basis points and once again demonstrates the power of the AMH strategy. And with that, we'll now open the call to your questions. We're out of respect for the crowded earnings calendar. We're going to limit the initial queue to only one question. To the extent we have time, please feel free to rejoin the queue for follow-ups. Operator? Operator: [Operator Instructions] Our first question comes from Juan Sanabria with BMO Capital Markets. Unknown Analyst: This is Emily on behalf of Juan. I wanted to ask you following the shift in your lease expiration strategy to front-load the expirations in the first half of the year, how has that change impacted occupancy and new lease trends in the third quarter? And as we move through the fourth quarter, how should we think about seasonality compared to last year in terms of both the new lease and blended rate growth? Lincoln Palmer: Thanks, Emily, for your question. I appreciate it. We've done a lot of work this year on the lease expiration management program. As we mentioned in previous meetings, we spent most of the year making large shifts in expirations from the back half of the year to the first half of the year. It's playing out extremely well and about as we expected. As we moved out of third quarter and into fourth quarter, we're going to start realizing the peak of those benefits with the lowest number of expirations. That should allow us to build a little bit of occupancy into the end of the year and to set ourselves up well for 2026. Christopher Lau: And Emily, Chris here, if you want to see how it's actually translating through in a couple of other places, knock-on benefits to our numbers. You can see that turnover rate was down, comping positively 60 basis points year-over-year in the quarter. That's a function of optimizing of lease expirations. And then in turn, that enabled the team to really execute well in terms of controlling the controllables. And as you can probably see from the print, R&M in turn for the quarter grew just a touch over 2%. Operator: The next question comes from the line of Jamie Feldman with Wells Fargo. Unknown Analyst: Thi's is Connor on with Jamie. The Midwest markets continue to outperform. Do you expect that to be sustained into year-end? And could this outperformance continue into 2026? Or would you expect some reversion between the Sunbelt and Midwest regions? Lincoln Palmer: Thanks for the question, Connor. I appreciate having you on. We continue to see great strength in the Midwest. We think it's due to good underlying fundamentals. Midwest has a great quality of life, good cost of living, still relatively affordable from a housing standpoint. So we think the long-term fundamentals in the Midwest will continue to support the diversified portfolio in a positive way. It's possible that there could be some divergence between the different markets as we continue to resolve some of the issues across the different areas. But so far, we're very happy with the Midwest and it's contributed very well to the portfolio, and we don't expect that to change anytime soon. Operator: The next question comes from the line of Eric Wolfe with Citi. Nick Kerr: It's actually Nick Kerr on for Eric this morning. So a question on the same-store revenue growth. If you guys have done 4.2% year-to-date, it seems like you're implying a pretty big deceleration in 4Q. So I just wanted to understand what's kind of driving that decel, whether that's worse fee income, higher bad debt, just kind of the puts and takes there. Christopher Lau: Sure. Nick, Chris here. Look, I think a couple of different thoughts come to mind from a timing perspective. The first of which has to do with the timing of last year's leasing spreads. And in turn, how those are earning into this year. If we all recall, blended spreads in the first 9 months of last year were running well north of 5% before moderating into the low 3s in the fourth quarter of 2024, which you can then see flowing through into our run rate of revenue growth by quarter this year. That's one. Two is timing of fees like we've been talking about all year. As we know, a good portion of our fees are related to leasing volumes, which we strategically have accelerated into the earlier parts of the year given the lease expiration management initiative, which is great in terms of aligning leasing activity with leasing season, but also means that fourth quarter fees will likely comp a little bit negatively year-over-year. And then finally, look, we are very aware that it's somewhat of a choppy residential environment out there. You can see it across many of the other residential peers reporting this week. And so we also just want to make sure that we remain prudent in the guide. But if we zoom it out and think about the broader context, I'd say that we are extremely proud of our full year top line outlook in the high 3s, 3.75% at the mid, which, as we all know, is head and shoulders above the rest of the residential landscape and especially impressive when you think about our expense growth in the low 3s, which I would remind us all means that we're expecting to expand NOI margins this year. Operator: The next question comes from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: Bryan, I guess I wanted to come back to the comments you made about the fourth quarter. I appreciate the early color on October. But I guess you did make a comment that said you reached the seasonal low. So I guess you're sort of suggesting that November, December trends may be better, like these might mark kind of the worst monthly trends for the quarter. A, is that kind of the case? And then just when you kind of wrap everything together, could you or Chris, just maybe remind us about the puts and takes as we think about next year, either the one-timers that helped this year or some of the one-timers that might have hurt this year that might help growth next year? Bryan Smith: Yes. Thank you, Steve. I was really trying to give commentary to put the performance into context. As we exited the Labor Day period, which is traditionally pretty slow, we normally see a pickup in September, kind of the second half of September. And that pickup was a little bit delayed. This is in terms of foot traffic and the other metrics that we're measuring from a leasing perspective. We saw that pickup in October, which gives us confidence in the momentum that we're carrying into November. And if you couple that with the strides that we've made on the lease expiration management initiative, where we're going to have our lowest number of move-outs in the month of November, it really screens well for us to pick up occupancy and position the portfolio well as we enter 2026. So I think you're right on in terms of our outlook for November and December having a really positive effect on occupancy with the objective of positioning ourselves well to take advantage of the returning pricing power that we'll see in next year's spring leasing season. Christopher Lau: Yes. And then, Steve, Chris here for the second part of your question, I would totally underscore the importance of that momentum that Bryan is talking about carrying into the new year. We joke all the time that spring basically starts now heading into the end of the year. But it's just a couple of directional thoughts as we're all beginning to kind of frame things for 2026. The building blocks, like we've talked about before, if we think about the guide this year and our expectation for blended spreads in the back half of 2025, that would imply '26 earn-in somewhere just a touch under 2%. Most likely for next year, we don't expect loss to lease to play a major role in '26 revenue growth. And then the remaining question is market rent growth for next year, where, obviously, a little bit too early for us to express a view. But if you'd like an early read from, say, some of the John Burns data as an example, he's actually expecting market rents to reaccelerate a touch going into next year. His latest data for 2025 is that he was expecting market rents to grow 75 basis points or so this year. He sees that going up into the 1.5% to 2% area next year. I just give that as kind of a directional reference point with the reminder that we typically outperform Burns's average estimates within the AMH footprint. Operator: Our next question comes from Haendel with Mizuho Securities. Haendel St. Juste: I guess I'm curious how you're thinking about stock buybacks today versus what you're yielding in the development and the funding capacity on your balance sheet. I guess I'm curious if you're positioned to perhaps do both. Christopher Lau: Sure. Appreciate it. It's a good question. It's Chris here. Look, stock buybacks are definitely something that we're watching very closely, and we look at them just like any other form of investment as we're ultimately endeavoring to maximize shareholder value over the long term. With that said, we are very mindful that stock buybacks can be a little bit of a double-edged sword as we think about them in terms of increasing leverage and then reducing future capacity to create value through incremental growth. But look, at the right levels, buybacks can definitely make sense. I would remind you that we have an active share repurchase program already in place. We have been active on it in years past at the right levels. And to your question about capacity, we have close to half a turn of opportunistic leverage capacity on the balance sheet. So again, I think the key is at the right price and appropriately sized buybacks could definitely make sense, again, at the right price as a complement to the value that's being created by our development program. Operator: The next question comes from Jeff Spector with Bank of America. Jeffrey Spector: Bryan, you talked about portfolio optimization. I know that you've had a number of initiatives underway this year, last year. Is there anything new or changing into '26 that we should be aware of that could further help whether it's grab again market share in terms of searches or AI, anything else that would be new, helpful, beneficial, I should say, next year? Bryan Smith: Yes. Thanks, Jeff. You nailed a number of our initiatives. From an asset management perspective, we've become a lot more sophisticated in the way that we're analyzing our existing assets and the type of rigor that we're putting into the areas that we're optimistic about investing into and growing into in the future. So the asset management function has been -- has done a fantastic job of taking assets out into the disposition market and repositioning those into higher yield, higher growth areas. So we got that part of the equation. And then the initiatives that we're in the midst of rolling out, some actually already have rolled out from an AI perspective are going to further help that operational advantage that we see. So we started, as I've talked about in the past, with a focus on kind of the front end of the resident life cycle, which is the leasing cycle and implemented a really effective AI tool that not only is a better -- creates a better experience for the prospects, but it's also a lot more efficient for us internally. It was something that we rolled out, customized and are starting to see the benefits of it from our leasing platform. As we continue to think of other ways that AI can contribute in the near term, we've talked about improvements to the communication platform, which is helpful from a number of different angles, probably will show up most in the way that we renew, retain our residents. But the way that we're communicating with them spans the entire spectrum of the way that they order services and submit maintenance requests and really opens up kind of the next level of communication, which is a key preference from their side. There are a lot of other smaller initiatives that are coming through. But in terms of what we're going to look into next year, we'll see the full power of the improvements we've made on the leasing side. We've improved our access solution I think we've become more precise on where we're investing. This feedback is also supporting the importance of the diversified portfolio footprint and the focus on single-family detached. So there are just a number of good things that are going to continue to play out in 2026 from that perspective. Operator: Our next question comes from Adam Kramer with Morgan Stanley. Adam Kramer: I just wanted to ask about what you guys are seeing in terms of supply. And I think there's sort of a few different buckets of it, right, BTR supply versus what's happening in the existing home side, shadow supply, maybe what's happening with new homes from homebuilders as well. So maybe just what you're seeing in sort of each of those buckets? And maybe how does that compare to 6 or 12 months ago? Lincoln Palmer: Yes. Thanks, Adam. This is Lincoln here. Look, we start with supply on a local level. I think it's easy to talk about it on a national level. But to get the real picture, we have to kind of zoom in a little bit to what's happening in each of the local markets. And we acknowledge that it's still difficult to find a lot of information that may be more available in other more developed platforms like the multifamily tools. But what we're doing is we're starting with our internal data. We're combining that with some external sources. We've got good information from publicly available stuff like Zillow and Burns and then some other proprietary sources that are flowing into our revenue optimization model. There definitely is an impact, I think, from the conversions of for sale to for rent. It's a little bit difficult to nail down exactly what that is, but you can see where that may be impacting our portfolio with a little bit of rate pressure and a little bit of occupancy. But we have a lot of markets that are still running extremely well. We talked about the Midwest a little bit earlier, some of our Western markets, Salt Lake City, Seattle, some of those are doing extremely well from a supply standpoint. It does seem that BTR and multifamily are off-peak deliveries. We'd expect those to continue to improve into 2026. The rate at which that happens probably depends a little bit on the level of demand that's in the marketplace, but we do expect it to get a little bit better. Operator: Our next question comes from David Segall with Green Street. David Segall: I was curious if you could provide any insight into the pricing for smaller portfolios in the market and maybe the opportunity set for consolidation in the space. Bryan Smith: Yes. Thanks, David. This is Bryan. The pricing for smaller portfolios is relatively consistent with what we've seen on the MLS side and on the National Builder side. I think there's still a little bit of a disconnect with owners expecting to be able to get kind of end user homeowner pricing in terms of their market value expectations. So we haven't seen a lot of change there. What we've looked at is generally characterized by high 4 caps, maybe 5 at best. But there's still a little bit of a gap between their pricing and what we would need to be able to do anything at scale. Christopher Lau: And David, Chris here. Pricing aside, like we've talked about before, looking forward, we're very optimistic on the number of those types of portfolio opportunities that are out there. And one of the things that we especially like about them is the ability to uniquely unlock value by bringing them on to the AMH platform, right, which is just what we have done and are doing, creating value in that portfolio we acquired towards the end of 2024. Operator: Our next question comes from Linda Tsai with Jefferies. Linda Yu Tsai: On the improved NOI margins in '25, how much of this is from lower churn versus operating efficiencies? Like what are you doing to improve upon controlling the controllables? And what does this trajectory look like as you move into '26? Christopher Lau: Sure. Chris here. Why don't I start? And then if there's anything else that Lincoln wants to fill in from an operational perspective, he can chime in, too. I would say it's a function of a couple of different things. One, of course, it starts with good strength in the top line, solid and full occupancy in the 96% area this year, good strength in spreads over the course of the year in the high 3s, ultimately translating into the top line growing high 3s. Beyond that, it is very much a function of just, like you said, controlling the controllables on expenses. The team is doing a great job there executing over the course of the year. And for this year, we're getting a little help from timing of property taxes as well. So as we think about looking forward, I would say last year, 2024 and this year 2025 are both good examples of the opportunity that we've been talking about in terms of longer-term ability to continue to creep and grind margins higher, right, given the opportunity to continue to maintain strength in the top line. Longer term, we view this business as inflationary plus to the top line. And via all of the investments we're making controlling expenses, holding the line on expense growth at inflationary levels, maybe even a touch below as we execute really well, translating into continued opportunity for margin expansion year-over-year going forward. And again, last year and this year are good examples of margins creeping higher by tens of basis points per year. Lincoln Palmer: Yes. Thanks, Linda. This is Lincoln. As far as the ops side of the business, one of the things we haven't talked about for quite a while is our investments in our Resident 360 program. I think what we're seeing now is some returns on those investments that are continuing to pay dividends. As part of that initiative, we realigned our maintenance functions with the local markets where there could be better decision-making more quickly, provide better service to the residents and hold vendors accountable to scope and cost. That seems to be paying some dividends. And then the other thing that seems to be working very well is we're finding some synergies between the purchasing skill sets in our new development program and our property management programs that are continuing to keep our costs under control. So overall, we have optimism that as we continue to focus on the business and improve the different areas that we'll continue to see improvements. Operator: Our next question comes from Jesse Lederman with Zelman & Associates. Jesse Lederman: I want to clarify the comments made earlier about reaching an inflection point recently. Was that for occupancy? I know you reached 95.1% in October. So are you expecting the inflection and improvement through the rest of the year exclusively for occupancy? Or do you expect that to translate through to accelerating rent growth as well, which would, of course, be counter seasonal? And then anything you're doing to spur the inflection such as increased incentives or concession on vacant units? Bryan Smith: Jesse, this is Bryan. Yes. The inflection point commentary really was centered around what we're seeing on our dashboards from leasing activity. It starts with increased inquiries into our website, into our system, migrates into showings, applications and ultimately leases. The commentary included a commentary that October leasing was better than September. We're going to see that those effects in occupancy, especially coupled with, as I mentioned earlier, the lease expiration management initiative. So I would expect to see those benefits on the occupancy side. The rent growth will return in the spring leasing season next year, especially since we're going to be well positioned at that point. I appreciate you noticing too, on the concession side, we maintain this fantastic momentum on new development communities and getting those leased without the use of concessions. And then with the scattered site same home portfolio, concessions aren't a tool that we've employed. So what you're seeing is the actual pull-through results. Operator: Our next question comes from Brad Heffern with RBC Capital Markets. Brad Heffern: For the development program, can you talk about what the go-forward yield is today? And how do you see that evolving? Bryan Smith: Yes. Thanks, Brad. This is Bryan. The yield for 2025, we talked about that at the beginning of the year, and the expectation was that it was going to accelerate from the low 5s in Q1 into the mid-5s for the year. As we got into the spring leasing season, we're really pleased with the results that we saw and hope that maybe the mid-5s maybe even a touch better. But in light of the general conditions that we saw kind of exiting September, exiting the third quarter, it looks like that mid-5s might be just a touch lower for 2025. It's a function of really just short-term changes in rents. On the input side, the team has done a fantastic job of managing costs. So we're delivering these houses at construction costs that are consistent, at least flat over 2024, which is especially impressive in this environment that includes commentary -- daily commentary on tariffs and a lot of other moving pieces. So the delivery from the cost perspective has been very successful. We're on track with our number of deliveries that we said at the beginning of the year. So the development team has done a fantastic job executing. What we're seeing on the rent side is temporary in nature. As we look forward, we have good visibility in the environment as to what we're delivering in Q4 and into Q1. And I'd expect those yields to kind of be consistent with what we're seeing now. As we get into the spring leasing season, hopefully, we'll be able to accelerate those rents. Operator: Our next question comes from Jade Rahmani with KBW. Jason Sabshon: This is Jason Sabshon on for Jade. So CapEx came in a bit lower versus expectations. So curious what drove that? Was it the level of construction activity in your markets with reduced activity from some of the builders, lower multifamily starts driving better pricing with trade partners. Any thoughts there? And if you'd expect this trend to continue, would be helpful. Lincoln Palmer: Yes. Thanks, Jason. I think what you're seeing is a little bit of timing. There are some fewer move-outs in third quarter than there are in the first part of the year. So we need to keep that in mind. But overall, I would account most of the improvement to just continued vigilance in the stabilized portfolio to cost controls, controlling those controllables, which is our mantra in the back half of the year here. As I mentioned earlier, it's those impacts from Resident 360, the intentional focus on maintenance, the cooperation between the different groups in the company and probably a little bit of continued contribution of low-cost purpose-built single-family homes for our new development program that have lower cost profiles. So overall, I would call it intentionality that's driving that CapEx improvement. Operator: We have our next question from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Just curious if you could give us any thoughts on regulatory updates, especially as you're about to kind of go through an election cycle. Bryan Smith: Omotayo, this is Bryan. From a regulatory perspective, it's been relatively quiet as it pertains to single-family rentals of late. We've internally taken the opportunity to get out and really tell our story with the local municipalities and government officials. And I think we've done a very good job of showing them what we're delivering into the communities, showing them that we're part of the solution from a supply perspective. And then you get a little bit higher level, there's just a lot of talk about federal government shutdown, immigration policies. From a shutdown perspective, we're really hopeful that our government leaders can find a solution quickly. In the near term, it hasn't had a lot of effect -- a direct impact on AMH. But we do have a couple of cases with some residents that have been affected, and we're working very closely with them to bridge those gaps. And then from an immigration perspective, we haven't seen any effect on the cost of our development program and the way that we're delivering the vertical construction cost, as I mentioned earlier. But over the long run, it's difficult to really put a finger on whether there's going to be any issues from a demand perspective for housing. So in a nutshell, it's been relatively quiet. We've been proactive in messaging and are just paying very close attention to what's going on at a macro level. Operator: Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments. Bryan Smith: Yes. Thank you for your time today. We really appreciate the continued interest in AMH and look forward to speaking with you next quarter. Operator: Thank you. Ladies and gentlemen, the conference of American Homes 4 Rent has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Third Quarter 2025 Earnings Call. [Operator Instructions] I would like to turn the call over to Steve Elder. Please begin. Steven Elder: Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and Jagtar Narula, our CFO. The press release and supplemental materials issued yesterday and a slide deck to walk through prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the press release and supplemental materials have been included in an 8-K filed with the SEC yesterday afternoon. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted net income per diluted share, adjusted operating income and related margin as well as adjusted free cash flow during our call. Please see Exhibit 1 of the press release for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements as a result of various factors, including those discussed in the press release, the supplemental materials and the risk factors identified in the most recently filed annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and other subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa. Melissa Smith: Thank you, Steve, and good morning, everyone. We appreciate you joining us. Today, I'll provide an overview of our financial results and then share key takeaways from our annual strategic planning process, which included a deeper assessment of our portfolio and segments. Q3 marked a turning point with acceleration in revenue growth. We're excited about the path ahead and confident in our abilities to deliver sustainable growth in the markets we serve, expand profitability and generate strong free cash flow. I'll start with our third quarter results. I'm pleased to report that we delivered strong performance delivered primarily by the Mobility segment, with both revenue and adjusted EPS exceeding the high end of our guidance range. Revenue for the third quarter was $691.8 million, an increase of 3.9% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, revenue was up 4.4%. This return to growth reflects the actions we've taken over the past few quarters, the strength of the underlying business and moving past the OTA customer headwind in Corporate Payments. With our actions translating into improved top line performance, we have our sights set on our long-term revenue growth targets of 5% to 10%. And importantly, we're also focused on expanding margin through efficiencies, which will be further supported as volume returns. Adjusted net income per diluted share was $4.59, an increase of 5.5% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q3 adjusted EPS grew 7.2%. We remain committed to delivering double-digit long-term adjusted EPS growth. Although the macro backdrop remains dynamic, we're now moving past the headwind from the OTA transition and our strategic investments are already yielding results. We've been laying the foundation for this return to growth, and we are confident that the uptick we showed in Q3, particularly in Corporate Payments, sets us up well as we finish out 2025 and beyond. With that, I'd like to spend a few minutes on our strategy as well as how our businesses work together, the opportunities ahead and the pillars guiding us forward. Our purpose is clear: to simplify the business of running business. By delivering a differentiated value proposition to our customers, we believe we can generate above-market revenue growth, sustainable profitability, robust free cash flow and long-term value for our shareholders. Our strategy comprises 3 strategic pillars. These guide our people, their efforts and how we allocate capital. First, we are amplifying our core by continuing to strengthen our leadership positions and deepen customer loyalty with targeted investments, best-in-class sales execution and operational discipline. Second, we're expanding our reach by extending our platform into adjacent workflows and new use cases, unlocking additional growth vectors while building customer value. Finally, we're accelerating innovation, allowing us to get more productivity out of our investments and delivering operating leverage in our model. Our approach to capital allocation is grounded in our strategy, and we will remain disciplined as we balance investments in growth with a sharp focus on efficiency, free cash flow generation and returns. As we execute our strategy and position WEX for the future, we are leveraging AI to reimagine how we operate and serve our customers. Our use of AI in customer discovery, prototyping, coding, QA, infrastructure management and security has helped drive a 20% increase in product innovation velocity. We're also using AI to harness our proprietary data to make smarter, faster decisions from fraud prevention and credit management to claims processing and customer support. Our use of AI creates direct value for our customers and differentiates our product. In our Benefits segment, AI has reduced claims processing time from days to minutes. In customer service, human in the loop, generative AI is boosting productivity and lowering our cost to serve. In Q3, we introduced AI insights in field service management, pioneering a shift from reports to real-time intelligence and action, helping customers get the answers they need. With AI increasingly embedded across our platforms and operations, we believe it will help us scale the business, accelerate innovation and strengthen WEX's long-term competitive advantage. Let me now move to our portfolio review and outcomes. On our last call, I spoke about the unique strengths of our 3 segments. Each year, we review these segments and update our enterprise strategy as part of our planning process. This year, the Board also conducted a comprehensive portfolio assessment drawing on both internal expertise in 2 independent top-tier global investment banks, Bank of America and JPMorgan. This was a rigorous process guided by our responsibility to be thoughtful stewards of shareholder capital and our commitment to pursue the most value-accretive opportunities. As part of this process, we took a hard look at our portfolio to ensure each business we own meets our criteria for returns, margins and strategic focus. Based on this comprehensive assessment, we have determined that our businesses are stronger together. Collectively, our Mobility, Benefits and Corporate Payments segments give us an exposure to large, growing and operationally complex markets where we believe our scale, payments intelligence and proprietary data provide us with a strong competitive advantage. We also benefit from cross-selling various products, and we can point to more than 200 discrete examples so far this year. Our businesses provide necessary balance supporting financial resilience through different macroeconomic cycles. Importantly, they all share a common backbone, including WEX Bank, a global compliance function, risk and regulatory management, intelligent spend controls, our technology infrastructure and advanced fraud prevention, which creates operating leverage, lowers unit costs and accelerates innovation across segments. We believe each of our segments will contribute meaningfully to our growth and profitability over the long term and that our unified platform will maximize shareholder value. We are also always open to considering alternative approaches to strategy and business configuration that advance this goal, and we'll continue to evaluate opportunities to refine the portfolio. With that, I'd like to outline our 4 foundational competencies that enable us to execute against our strategic pillars and are the engine behind our competitive advantage. They extend across our portfolio, are difficult to replicate and power our customer value proposition. The first core competency is payment intelligence. We integrate payments, proprietary data and banking services to deliver actionable insights that help customers make faster, better informed decisions. This is not easy to do, but WEX excels at managing complexity. For example, in Mobility, the insights we provide enable real-time fleet management, helping customers control spend, optimize routing and improve efficiency across millions of daily transactions. Our second core competency is workflow optimization. WEX has a long history of combining payments and workflow to create differentiated customer value. For example, in Benefits, we offer a complete platform that integrates payments into the broader workflows that employers and employees rely on daily. This is a key differentiator, deepening our role within customers' operations. Our third core competency is scale and infrastructure. We leverage our global scale, proprietary technology and risk and compliance expertise to reduce friction, offer enhanced control and deliver measurable efficiency gains. For example, in Corporate Payments, our global infrastructure enables us to process high volumes of virtual card transactions securely and seamlessly across markets delivering reliability, speed and compliance that sets the industry standard. Finally, our fourth core competency is industry expertise. We have established ourselves as experts within the markets we serve, and we apply our deep industry expertise to our customers' toughest challenges, developing customized solutions that address their needs. With that, I'll shift gears and review our Q3 segment results, beginning with Mobility. Mobility remains our largest segment, representing roughly half of revenue. Its competitive strengths come from our closed-loop network, which directly connects fuel buyers and sellers and from our scale, which allows us to serve the largest and most complex organizations. This is demonstrated by our BP win last quarter. Our data-rich solutions are deeply embedded in our customers' daily operations, delivering functional value and creating long-term stickiness. Our global fraud, credit and compliance capabilities underpin our offerings, benefiting businesses ranging from local contractors to major oil companies. Excluding the benefit from higher fuel prices, Q3 results for the Mobility segment were in line with our expectations. Transaction levels were down slightly from the prior year, consistent with the overall market trends. We continue to operate in a challenging macroeconomic environment with same-store sales in the over-the-road market softening during Q3, while North American mobility same-store sales mirrored trends seen earlier this year. Amid the dynamic macro, we're focused on maintaining our high retention rates and gaining market share while operating efficiently. One market where we see opportunity to expand share is small businesses, which we define as fleets with 25 or fewer vehicles. These businesses have historically relied on general-purpose credit cards, but by using our fuel card, they can save on fuel costs, access discounts, manage fraud and better control their expenses. Small businesses have been a core customer segment since WEX's founding, and we believe this segment of the market has tremendous value potential. Year-to-date, our targeted marketing investments here have resulted in a 12% year-over-year increase in new small business customers. At the same time, we're building on our differentiated offerings to extend our reach and bring in new opportunities, including the BP win we announced last quarter. The conversion of the existing BP portfolio continues to be on track for sometime next year with sales to new customers beginning at the end of this year. We're also broadening our opportunity set in Mobility through innovation. An example of this is the 10-4 by WEX app, which is designed to help small trucking businesses, a large but underserved part of the market. This year, those customers have saved more than $300 per month in fuel costs on average by using our app. We're excited to expand our technological reach through our new partnership with Trucker Path, a leading mobile app used by more than 1 million professional truck drivers, which we announced earlier this week. We're also excited about the trajectory of Payzer acquired in November 2023 in which we recently rebranded as WEX Field Service Management or WEX FSM. Although it took longer than we planned to establish momentum, revenue grew a healthy double digits in Q3, and we remain energized by this opportunity as we deepen our position in this attractive adjacent market. Overall, Mobility continues to generate strong free cash flow and will remain a consistent growth engine for WEX as we drive expanded and new value-added product and service offerings to customers. Turning now to Benefits, which simplifies the complex world of employee benefits administration. For the past decade, the business has grown consistently, now representing approximately 30% of company revenue. Its products and services are deeply embedded in our customers' administration processes, creating strong customer retention and predictable SaaS and custodial revenue streams. Overall, SaaS account growth was 6% in the quarter with HSA accounts on our platform up 7% in Q3, bringing us to more than 8.8 million HSA accounts. This represents more than 20% of all HSA accounts in the country. We're currently in our open enrollment sales cycle and the pipeline remains strong. According to the 2025 Devenir midyear report, WEX retained its position as the fifth largest HSA custodian in the market. Notably, we serve as a technology partner to 7 of the top 10 custodians listed in the report. Over the long term, we will continue to drive volume by elevating awareness of HSAs across the industry, including through leadership and national HSA awareness programs. We remain well positioned for continued growth in the evolving HSA landscape, which offers an expanding TAM. As we discussed last quarter, we see an opportunity in 2026 with new legislation, which will expand HSA eligibility across public health exchanges for the first time in more than a decade. We estimate this could expand the TAM by 3 million to 4 million new accounts and believe we are well positioned to benefit given our unique partner-focused distribution approach. Our strategy and benefits is to continue to outpace market growth by delivering a compelling product portfolio. WEX Bank provides a distinct advantage here, allowing us to generate higher yields on custodial balances, which supports targeted investments in customer relationships and new business opportunities. Finally, let me discuss Corporate Payments, which represents approximately 20% of our revenue and includes 2 major offerings, embedded payments and direct accounts payable solutions. Embedded payments offers high operating leverage with incremental volumes largely falling to the bottom line due to our scalable technology platform and global compliance infrastructure. We're seeing broad-based adoption across industries, including tech companies offering AP automation, health care payments and expense management. Our direct AP solution, which leverages our corporate payments platform is focused on the underserved mid-market and continues to deliver outsized growth with Q3 volumes up more than 20% year-over-year. Customers in industries such as construction, retail, manufacturing and health care choose WEX for our in-house supplier enablement capabilities, which allows us to deliver virtual card adoption with detailed reconciliation data. As we anticipated, Corporate Payments returned to revenue growth in Q3 as underlying market performance has improved, and we have largely lapped the large OTA transition. Our enhanced platform and disciplined investments in sales are resonating in the market, driving a robust pipeline of new customer opportunities. We're now focused on converting that pipeline into spend volume, which will support sustained growth into 2026 and beyond. From a strategic perspective, we're building on our leadership in embedded payments, which is anchored by our travel customers and driven by our industry-leading virtual card issuing engine and expanding into new use cases and markets. At the same time, we're scaling direct AP as a central part of our investment plan, tapping into a large expanding addressable market where we're still in the early innings. Before I hand the call over to Jagtar, yesterday, we announced the appointment of Dave Foss to our Board of Directors effective November 3. This is the result of an extensive search process with the assistance of a leading independent recruiting firm. Dave serves as President of Jack Henry from 2014 to 2022 and Chief Executive Officer from 2016 until his retirement from the role in 2024. In addition, he's a Director at CNO Financial, where he chairs the Governance and Nominating Committee, his experience across financial services and technology, coupled with his tenure as a public company executive and Board Director, will be invaluable as we enter our next phase of profitable growth. We're confident that the expertise and fresh perspective that Dave brings will yield immediate contributions to our Board and company. On behalf of WEX, I want to extend a warm welcome to Dave. Across the business, our teams are executing with discipline, extending our competitive advantages and converting our targeted investments into tangible results. Q3 marked a turning point with acceleration in revenue growth, and we are confident in the opportunities ahead. Our focus remains on delivering sustainable growth, strong margins, attractive returns and robust free cash flow while creating long-term value. With that, I'll turn it over to Jagtar to walk you through our financial performance and updated outlook in more detail. Jagtar? Jagtar Narula: Thank you, Melissa, and good morning, everyone. As a reminder, in an effort to provide greater transparency into our business and segments, we began publishing a supplemental materials deck this year, which can be accessed on the IR section of our website. Also, comparisons are year-over-year unless otherwise noted. Total revenue in the quarter was $691.8 million, up 3.9% -- the impact of foreign exchange rates and fuel prices decreased revenue growth by 0.5%. Revenue was above the top end of the guidance range we provided last quarter. Adjusted earnings per share was $4.59, an increase of 5.5%, partially offset by a decrease of 1.6% related to lower fuel prices and foreign exchange rates. Adjusted EPS was also above the high end of the guidance range we provided in July. Although fuel prices were lower than last year, they were higher than our guidance assumed, contributing most of the outperformance in addition to some underlying expense benefits. In our Mobility segment, revenue increased 1% despite a drag of 1.4% related to lower fuel prices and foreign exchange rates. Our payment processing rate was 1.33%, an increase of 2 basis points sequentially. The sequential increase in the net interchange rate is due primarily to merchant pricing and mix. In our Benefits segment, total revenue was $198.1 million, which rose 9.2%. SaaS account growth of 6% was consistent with the performance in the first half of this year, contributing the majority of the revenue growth. Custodial investment revenue, which represents the interest we earned on custodial cash balances increased 14.9% to $61.7 million. Earned interest yield increased 15 basis points year-over-year. The Benefits segment continues to capitalize on both the scale we have built and the value derived from our investment portfolio at WEX Bank, which allows us to deliver industry-leading returns on our HSA assets. Finally, in Corporate Payments, revenue of $132.8 million increased 4.7%. Purchase volume in Corporate Payments declined 0.9% on a year-over-year basis, a notable sequential improvement. The decline in volume was more than offset by an increase in the net interchange rate leading to the revenue growth. We have largely lapped the headwind created by the large OTA customer transitioning to a new operating model with us and we will fully lap this impact in Q4. In addition, there was a substantial volume decrease for our legacy non-travel embedded payments customer where we are now earning contractual minimums. Despite the recent volume pressures, the scale of our Corporate Payments segment continues to support a strong margin profile for the business. With that, let me transition to the balance sheet. Our business operates at attractive margins as a result of the scale and competitive advantages that Melissa talked about earlier. WEX is a business that generates strong recurring revenue, which in turn produces reliable free cash flow. This is a strength in all periods, but especially in periods of economic uncertainty and gives us significant capital deployment optionality. In deploying capital, our approach is guided by 2 core principles. First, we are committed to maintaining a strong balance sheet and ensuring we have the right resources to operate effectively under both normal and stressed conditions, which we do by maintaining appropriate leverage. We ended Q3 with a leverage ratio of 3.25x, down from 3.5x at the end of Q1 and within our long-term range of 2.5x to 3.5x. We have historically reduced leverage by about 0.5 turn per year, and we'll continue to focus on debt reduction. Following that, our priority is to strategically invest in our core businesses by targeting investments where we can fortify our competitive positioning, deliver attractive returns and capture growth. After addressing these 2 core priorities, we evaluate deploying our remaining capital towards accretive M&A opportunities, which must meet strict financial and strategic criteria or returning capital to shareholders through share repurchases. Every step of our disciplined capital allocation process is grounded by a clear objective to maximize long-term shareholder value. Now let's move to earnings guidance for the fourth quarter and the full year. In Q4, we expect to generate revenue in the range of $646 million to $666 million. We expect adjusted net income EPS to be between $3.76 and $3.96 per diluted share. For the full year, we expect to report revenue in the range of $2.63 billion to $2.65 billion. We expect adjusted net income EPS to be between $15.76 and $15.96 per diluted share. Compared to the midpoint of the previous ranges, these represent increases of $19 million in revenue and $0.29 in EPS. The increase represents the outperformance in Q3, a continuation of the positive revenue trends and expense savings we have seen over the past 2 quarters and a higher fuel price assumption. Before I conclude my prepared remarks, let me take a moment to share my perspective on the business today. Despite a challenging macro environment, especially in our Mobility segment, combined with the short-term customer transition headwinds in Corporate Payments, our business continues to demonstrate resiliency and we are seeing sequential improvements. This momentum has helped offset headwinds from ongoing softness in certain markets, specifically trucking. As we approach 2026, we remain cognizant of the macro uncertainty, but are encouraged by the building blocks we've established this year. In Corporate Payments, we're excited to move past the customer headwind. In Mobility, where we currently expect the sluggish trends to persist in the near term, we believe our targeted sales and marketing efforts, including the recent BP win, will contribute to improved results in 2026 and beyond. Finally, we continue to win new business and benefits and enter the open enrollment period from a position of strength. While it is too early to forecast account growth for 2026, we expect payment processing revenue and interest income, excluding changes in the rate environment, to again outpace account growth as they have historically. Through strategically investing to amplify our core and expand our reach, we are well positioned to continue to drive growth and further benefit from the eventual turn in the macro environment. In closing, our third quarter results underscore the strength of our diversified model and the discipline of our execution. We remain focused on executing our strategy to deliver results that drive sustainable long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani: Melissa, I appreciate all the commentary at the beginning about the review that you guys did. And I can't say I disagree that the businesses work well together. I'm just curious sort of what the conclusion was with the stock and sort of how to get investors to sort of appreciate how all of those factors come together. Was that part of the analysis? Melissa Smith: Yes. Thanks for the question. Yes, we talked for the fact that the Board has gone through a strategic review annually. This year, we went even deeper, and we brought in 2 independent investment banks. I talked about that in the call, but both Bank of America and JPMorgan. Part of that work was to really dig in and look at each of our segments and understand the businesses with their view from an independence perspective. I think that the Board conducted this really thoughtfully with discipline, with objectivity. And say, well, look through that, it really the focus came out of continuing to deliver and execute against our strategic plan. We talked about the pillars that we have in our plan, and we're now beyond this period of time where we're lapping the OTA transition, which has had a pretty heavy impact on the stock. So we're excited about how we are growing the business, how we're coming out of the third quarter and how that positions us in the future. And that was really the counsel that we had from the investment banks as well. Sanjay Sakhrani: Got it. Okay. Great. And then just a follow-up question on Mobility. I think, Melissa, you mentioned over-the-road saw some softening during Q3. Could you just talk a little bit about that and sort of how that sets up relative to your expectations? Because I do think you guys were talking a little bit about a pull forward, but is the deterioration a little bit more than expected? And then just another one on the financing fee rates that kind of went up. Was there a price in there or something else? Melissa Smith: I'll take the first. So just from a macro perspective in our Mobility business, I'll talk about both the impact to over-the-road and in the rest of the business. And the over-the-road business, which is, as you know, 30% of the business, we saw a pull forward related to the tariffs at the beginning of the year and then some softening in the second and the third quarter. When I say it got worse, it got about 0.5 point worse in the third quarter, so not significant. But what we are seeing within that part of the marketplace, it's been in a rolling recession for a number of the years. Our sales teams have done an amazing job of selling through that, and we continue to do that this year. We're focused on sales. We're focused on retention and think of this as a transient issue that will work its way through eventually. And then with the rest of the business, what we have seen, we believe, relates to the uncertainty that's happened, and it's related to the tariffs where we've seen about negative 4% same-store sales within our local business. That's been pretty consistent in the course of the year. It got maybe a pitch worse in the course of the year. But I would say it's been a bit of a slog. I think to actually use that word, getting through this year. And again, we've done a really strong job of selling through that. We've talked about the incremental investments we've made in marketing. We've got 10% more new accounts that have come through that small business channel this year, which is directly related to those investments. And we are really focused on new customer retention. And again, expect this to be transient. We don't know exactly when it's going to turn. But in our history, we go through these periods of time, and as long as we focus on retaining the customer and building the portfolio, then that works its way through eventually. And then on top of that, we know next year, we've got the conversion of BP that's happening at some point in the year, and that will add between 0.5 to 1 point in revenue in the 12 months after that. So we have a lot of things that we're working on where we feel like we're pulling levers of things that we can affect waiting for the macro to evolve. Jagtar Narula: And then Sanjay, on your question regarding the financing fee rates. So rates this quarter were pretty comparable to what we've been seeing in the last couple of quarters. It's a big bump when you look at it year-over-year. And there's a couple of reasons for that. So one, we did make some pricing changes last year that went into this year. So that was part of the bump in the rate. And also, I'd remind you that this quarter last year, you'll recall that there was kind of a onetime event that brought down the financing fee number and the rate as a result. So when you look at the year-over-year compare, that looks a little odd. But if you look over the last couple of quarters sequentially, you'll see that we're kind of in line with where we've been. Operator: Your next question comes from the line of Darrin Peller with Wolfe Research. Darrin Peller: Can we touch a little more on the trends in Corporate Payments for a minute, just given -- I know we're now kind of lapping, as you said, some of the headwinds we've been dealing with, which is great to see. But in terms of the overall underlying drivers, anything you're seeing that surprised you in either direction around volumes across travel or B2B? And maybe we could just stand by and reiterate again what you see that business doing and performing really over the next 18 months when we think about the opportunity there because it does look like it's someone that should truly reaccelerate as we exit the year again. Melissa Smith: Yes. Thank you for the question. So if you look at our core payments business, we're excited about hitting this inflection point. It was important to us to return that segment of the business to growth. We've largely lapped the OTA business model transition in the third quarter. So we've largely got that behind us. On top of that, we're seeing really good momentum. A couple of places that we have made investments are extending the product capability across embedded payments. So extending the capability of what we're doing in travel and applying it to other industries, that has gone really well in the marketplace. We're selling -- we're onboarding. It's a slower onboarding cycle. And so it's good and bad because it gives us visibility into next year, but it takes a little bit of time to move those customers on to our portfolio. But we feel really good about how the products are resonating in the marketplace, how they're selling, the customer signings and how they're onboarding. And also in our AP direct product offering, we talked about the fact we had ramped our salespeople there. That has been just a beautiful model where as we've added people, we've actually seen strong production and more than 20% volume growth in this last quarter. So those 2 things give us a lot of confidence as we think about the growth trajectory going forward. About half the business is travel. So we know that could be some of the growth over time. We should be able to grow through that because travel has become a smaller part of the model. But as we think about that segment, we've talked about our long-term range of 5% to 10%, and we're feeling really good about where we are right now. Darrin Peller: Okay. That's helpful. Maybe just my quick follow-up would be on -- when I think about the Benefit side and the OBBBA and whether that can accelerate benefits in '26, maybe just help us understand your thought process around potentially trying to gain some of those 3 million to 4 million incremental HSA accounts we might see. Melissa Smith: Yes. We think of it as a really nice long-term tailwind. These are customers or potential customers that are largely getting access through the public exchanges with a little over 7 million people, which we think is about 3 million to 4 million accounts. We have access to those customers largely through our partner channel, which we think of it as a distinct advantage for us because we're going into the marketplace, not just directly, but through financial institutions and TPAs and people who are health insurance companies as well that sit in that portfolio. And so we believe that we will get our fair share of that. It's going to happen over time. We don't think it's all going to happen immediately. And the nice thing about this is there's nothing we have to do. The platform itself is ready. This is more education and onboarding. Operator: Your next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start with maybe the Mobility segment and the trucking backdrop. Melissa, you mentioned it remains quite challenged. At the same time, you are investing in marketing and growing in that segment. So maybe just spend a few minutes just talking about the underwriting, how you're thinking about underwriting, how you're managing that underwriting? Are you tightening, reducing days to pay, things like that? Just trying to understand how you keep credit in check in that segment. And if you have any concerns about maybe bankruptcy rising same-store sales trends don't start improving? Melissa Smith: Yes. Thanks again. So if you go across that segment, 30% is over-the-road business, which you're largely talking about there. We actually had tightened credit standards a while ago. We've been in this rolling recession for quite some time. And over that period of time, we've spent a lot of time and investment around our risk models. We feel as we've seen the benefit of that work so that as we're making credit decisions, we're making them in an even more informed way. It's a lot of where we had our initial applications of AI within the company. So, so far, we've seen really good performance in our mobility business, even though we've seen that weakness that's happened over the last few years. The asset quality continues to look good as well. So we feel really comfortable about the fact that we're extending the right amount of credit to the right customers. And we've done more work around also introducing new payment options, particularly in our North America Mobility business that allows us to have access to customers on more of a prepaid basis, which is part of why we're seeing some success bringing on smaller businesses. So if you look across this, I would say I don't feel like we're -- that we're changing the credit quality. We're just being thoughtful about where we're adding new customers, and that's largely because of how we've refined our models. The investments that we've made have been in the North American Mobility business, which has a very strong LTV to CAC. We're seeing that come through right now. We've talked about the fact that over the 2 years following the investments, we earned back 4x what we spend in terms of revenue. And so far, that's holding through. Mihir Bhatia: Okay. And maybe just switching a little bit for a second to just fuel and interest rate sensitivity, Jagtar, maybe you can just comment a little bit on the -- remind us of the fuel price sensitivity of the business, both on the top and bottom line? And just how quickly does that come through? Does the -- you mean we talked about the financing pricing changes earlier in response to Sanjay's question. Does that impact that fuel price sensitivity? And also just the sensitivity of the business to interest rates as interest rates decline over the next year? Jagtar Narula: Yes. So on the fuel prices, I'd just remind you, we put a supplemental deck beginning of this year, and we update that sensitivity on a quarterly basis. So that's another area you can look for it. Roughly speaking, for fuel prices, that one hasn't changed since the beginning of this year. A $0.10 change per gallon in fuel prices on an annualized basis, up or down would be at $20 million of revenue up or down, and that would translate to about $0.35 of EPS. In terms of speed there, that would be a pretty quick flow-through to both revenue and EPS because that sort of directly affects interchange in finance fees that we earn. And that would flow through both the processing line as well as the finance fee line because our finance fees to some degree, are dependent on the size of the bill, which does fluctuate with fuel prices. On interest rates, that one has moved a little bit, but still within close to the range that we had talked about last quarter. So 100 basis point change in interest rates up or down would move revenue plus or minus $40 million with a $100 million increase increasing revenue $40 million, again, on an annualized basis and a 100 basis point decrease decreasing revenue $40 million on an annualized basis. The difference here is when you get to EPS, it actually flips because of the liabilities in our balance sheet. So $100 million increase in interest rates would decrease EPS by about $0.30 and minus 100 million basis -- 100 basis points on interest rate would actually increase EPS by $0.35. Operator: Your next question comes from the line of David Koning with Baird. David Koning: Nice job. A couple of questions on Mobility. One is, I know you had a tougher comp in Q3 '24 or basically a tough comp this quarter because Q3 '24, I think you had a couple of extra days and yet you still accelerated underlying growth. So I guess, a, are you seeing really pretty good underlying momentum in Mobility? And b, was your comment about better growth going forward, do you mean better organic growth in '26 than '25? Melissa Smith: I'll answer the second part. [ I'm sure ] you can take the first part of that, too. On the second part, yes, from an organic growth perspective next year, I'm going to put aside macro because -- and say we know that we're operating in a difficult macro environment, particularly in our Mobility business right now. And we also know that we are having a very strong sales year this year and overall retention rates look comparable to the prior year. And so all of those things are a positive as you think about rolling into your next year because you get the benefit typically of those sales or these are long-term investments that we're making, and it does take time for that to actually show up in our P&L. So we do think that, that's going to create some momentum as you go into next year. Jagtar Narula: Dave, I'll address your first question on the comp. So looking at '24 to '25, days fueling was actually pretty comparable. I know when we went back to '24, the '24 to '23 compare had some days, fueling days noise in it. This year, it's actually pretty comparable year-to-year. I'd also kind of remind you what I said, I think it was in response to Sanjay or Darrin's question around we had some onetime remediation last year, a onetime event that impacted the numbers a little bit. And that made it an easier compare this year that added roughly 1 point to 2 of growth WEX fuel. David Koning: Got you. Yes. That makes sense. And then I guess for my follow-up, you talked a lot about corporate revenues. Obviously, that's hitting a much easier comp. But on a sequential basis, historically, volume has been down sequentially as people don't travel quite as much in Q4, but yield has been up sequentially and revenues have been -- ended up flat sequentially in most historic Q4s. Are we back to that sort of cadence? Is that kind of how to think of it? Jagtar Narula: Yes. I think we're back to the cadence where volumes will be down because of travel. We will see interchange processing rates up. Part of that is mix and part of that is we typically have revenue recognition when we hit certain thresholds related to schemes with associations, and we'd expect that in the fourth quarter as well. I wouldn't say revenues are flat quarter-over-quarter sequentially. We do typically tend to see some decrease in the Corporate Payments segment from Q3 to Q4. David Koning: Okay, great. Well, nice job guys. Operator: Your next question comes from the line of James Faucette with Morgan Stanley. Michael Infante: It's Michael Infante on for James. I just wanted to ask about your perspective on the implications of Visa's new commercial enhanced data program and how you think about the interchange and data implications associated with that. Melissa Smith: So great question. As you know, that we actually use both schemes. So in our Mobility business, it's our own proprietary network. With our Mobility business where we've extended our scheme, it's been through Mastercard and then in Corporate Payments, and Benefits, there's a blend of both that are used. From a acceptance standpoint, we think of each of those schemes is there's something that's beneficial about each in the different markets and nuances that we use, and we'll continue to think about that going forward with any new product rollouts that are happening. Michael Infante: That's helpful. And maybe, Jagtar, just a quick housekeeping one for you on the Benefits SaaS ARPU side. It looks like the year-over-year trend there continues to improve. But how are you thinking about the exit rate for this year and the potential for that line item to inflect positively in '26? Jagtar Narula: Yes. I would say that ARPU -- so when you do the math, go to the supplemental schedule for modeling and make sure you're backing out interest that's showing up on the account servicing line to look at kind of ARPU. ARPU has been basically flat, I think, quarter-over-quarter. I would expect it to roughly remain the same. It will depended somewhat on mix and what we end up selling during selling season. But from a modeling standpoint, I wouldn't expect significant increases going into '26 at this point. Operator: Your next question comes from the line of Nate Svensson with Deutsche Bank. Christopher Svensson: Accelerated trading across the business is very encouraging to see. But I did want to ask again about the end health in the U.S. trucking sector maybe in a little different light. I wanted to know where we're at in terms of the overall capacity reduction across the sector and how you're maybe thinking about the potential impact of the removal of certain CDL holders, which I know has been a big piece of discussion in the media recently. Melissa Smith: Yes. Well, actually, when you think about what's happened in the over-the-road space, there has been -- there was a huge oversupply that came from the pandemic, and they've been working through that oversupply issue for the last several years. You can still see, if you look at some of the broader indexes like the cash rate and ATA Truck Tonnage, they're still showing year-over-year volume pressure. So to the extent that you're going to see some of the -- some of that supply continue to come out of the marketplace for that reason or honestly, other reasons, I think that the market still needs that to happen to get to more of a normalized rate. We haven't seen any dramatic shift in terms of volume or volume activity. As I said, we went down about 0.5 point in terms of same-store sales from Q2 to Q3. And I think everybody in this marketplace has been wanting this to change and it hoped it would. What happened from a tariff perspective, at least within our portfolio, put a little bit more pressure, not a lot more, but only about 9% of goods that are moved in the United States are coming from outside the United States, but we've seen some softness in quarters, particularly from Canada to the U.S. And so you've got a couple of things that are combined, I think this year. You've got the oversupply issue with some tariff noise added on top of that. So continued reduction in supply, I think, is a benefit to the space. Christopher Svensson: That's super helpful, Melissa. I appreciate it. I did want to follow up with maybe a 2-parter on Corporate Payments. So -- the first is, I know last quarter, we talked about a large public fintech company in embedded payments that you signed. Just wondering any update on the ramping there, any early learnings or takeaways from that relationship? And then the other question, just on the direct account volume, still strong at 20%, I think I saw, but it did decelerate a little bit from 25% last quarter. I know it's been a big focus area for your investments in your sales force. So just wondering if there's anything going on with macro or underlying trends that might explain the slowdown relative to the increased investments? Melissa Smith: Sure. So on both of those things, first, the new customer is onboarded. They're in the process of ramping right now. And so a large amount of that was already in the third quarter, but there's a little bit more as it continues to ramp through the end of the year, which we've assumed in our guidance. Relating to your second question was... Christopher Svensson: Direct... Melissa Smith: Direct. Yes, actually, the direct business did what we thought it was going to do in this quarter. As we have continued to add salespeople, it's been remarkably consistent with what we've seen for output from that sales organization. And so anything that's happening there is not related to sales activity. We are seeing a little bit of same-store sales softness within that base customers. It's just a few points. But I would say similar trends that we're seeing in some of the mobility customer base. There's just a little bit less spending year-over-year. Jagtar Narula: And then I would say that we look at cohort by cohort, how customers are ramping and how that volume goes and is it moving like expectations. So to Melissa's point, I think things are going as expected. And there might be some noise quarter-to-quarter, but we're not seeing any deceleration from expectations. Operator: Your next question comes from the line of Rayna Kumar with Oppenheimer. Rayna Kumar: Can you provide any color on expectations for adjusted operating margin for the rest of the year? And now assuming a stable macro, should we anticipate margins to expand next year? Jagtar Narula: Rayna, yes. So by the rest of the year, I mean I'm assuming you mean Q4. So what I'd say is if you look at kind of year-over-year, Q3 this year versus last year, operating margins were down, call it, on the order of 400 basis points. There was a couple of pieces for that. We had kind of a tough credit loss comp compared to last year because last year was a very good credit loss year. And then there's the sales and marketing and product investments that Melissa has talked about. The credit loss piece that compare was probably on the order of 200 basis points of the comp. So I would expect that to improve as we go into Q4. So Q4 is typically a lower operating income margin because of the drop in Corporate Payments in the travel business. But in terms of thinking about the year-over-year comparison, whereas this quarter was kind of a 400 basis point, that 200 basis point credit loss impact should go away. And then... Rayna Kumar: Yes. And sorry, on '26, if you can comment. Jagtar Narula: Yes. I mean it's a little too early for me to give a guide in '26. What I'd say is, as Melissa talked about, we feel good about revenue right now. We will have the lapping of some of the investments that we've made, kind of the full year impact of those. So at this point, I would say operating income next year, operating income margins will trend similarly to this year, but we're still budgeting. Operator: I will now turn the call back over to Melissa Smith for closing remarks. Melissa Smith: In closing, we're focused on delivering shareholder value. We're executing our strategy and taking actions to deliver accelerated and sustainable profitable growth in the markets we serve. Recognizing the dynamic and challenging macro environment, we've continued to manage expenses while investing strategically to capture future growth and efficiencies. We're encouraged by our Q3 results and look forward to driving momentum as we close out 2025 and turn the page to 2026. Thank you for your interest in WEX. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Analyst and Investor Update Call Q3 2025. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Rob Smith. Please go ahead. You can go ahead, Mr. Smith. Richard Smith: Serge, It's Rob. I lost your introduction. Maybe you've you got to switch line now? Operator: You can go ahead, Mr. Smith. Richard Smith: Operator? Operator: Can you hear us, Mr. Smith? We lost connection to the speakers. Please stay on the line. Richard Smith: [Technical Difficulty] Shanghai, China, where KION is at the CeMAT trade fair, which is currently taking place here in Shanghai. But I'll tell you more about that later. Please look for our update presentation on the IR website for today's call. I'm going to start with a summary of our third quarter 2025 results and several exciting business highlights. And then, Christian will update you on the efficiency program before taking you through the detailed Q3 financials and our updated outlook for 2025. And then, I'll be back for our key takeaways before we open the line for questions and answers. Starting, please, on Page 3. The third quarter was another solid quarter, in line with our expectations. Group order intake was EUR 2.7 billion, a 10% increase compared to the prior year. Revenue was flat at the KION level with the increase in Supply Chain Solutions compensating for the anticipated decline in the ITS segment. Adjusted EBIT was EUR 190 million, corresponding to an adjusted EBIT margin of 7%. Year-over-year, while the SCS continued to improve its profitability, profitability in ITS reflected the expected negative impact of lower volumes. Both operating segments improved their adjusted EBIT margin sequentially. Free cash flow was a strong positive EUR 231 million. And earnings per share was EUR 0.87, an increase of nearly 60%. On Page 4, I'll share with you some recent business highlights. In September, Linde Material Handling announced its partnership with the European aircraft manufacturer, Airbus, for the deployment of automated logistics solutions on the Jean-Luc Lagardere site in Toulouse, where the aircrafts of the A320 family are assembled. A range of robotic solutions designed to help optimize the efficiency and safety of Airbus' logistics processes have been commissioned. These innovations include the R-MATIC trucks, retractable mast autonomous guided vehicles, or AGVs, for a much more reliable material flow management and improved working conditions, helping Airbus build the 320 family. Also in September, KION Group received the highest award, which is a Platinum rating, from EcoVadis for the first time. This places KION among the top 1% of the more than 150,000 companies rated by EcoVadis. KION joined its well-established brands, Linde Material Handling and STILL, which were awarded the Platinum award from EcoVadis again in 2025. This positive group-wide development highlights KION's steadfast commitment to our sustainability strategy. And here at the CeMAT in Shanghai, China, KION is showcasing an advanced physical AI-powered Omniverse solution as part of the large-scale collaboration with NVIDIA and Accenture to reinvent industrial automation. CeMAT fair visitors are experiencing how AI-driven industrial trucks and digital twins can transform supply chain operations. The showcase is a milestone on KION's path to an adaptive autonomous material handling standard for customers worldwide. And Dematic unveiled the first demonstration of the FD system, showcasing its end-to-end workflow and innovative evolution of Dematic's multi-shuttle technology. It's ideal for a wide range of industries, including third-party logistics, supermarkets, e-commerce, apparel, pharmaceuticals and electronics. CeMAT is a truly inspiring experience for us: for me, personally inspiring, for our Board members, for our teams. I'd like to share with you our mutual impression of an atmosphere that's very powerful here. Our supply chain solutions industry is an industry of the future, and we are all in the middle of the beginning of this future at this point with lots of excitement still to come. CeMAT is a strong manifestation of the trends we at KION identified that are driving our business and our own innovation, especially electrification, the increased demand for warehouse trucks, e-commerce, automation and robotics. Yesterday, at the CeMAT, we signed 7 ecosystem strategic partnerships with highly innovative players that are outstanding in their respective fields of the supply chain solutions industry. With win-win partnerships like these, KION is enhancing its ecosystem focus on innovation, advanced robotics and automation technologies. With all what we've seen during these recent days, I'm very convinced KION is well positioned to shape the supply chains of the future. I'll hand now over to Christian, and he will take you through an update on the efficiency program, our detailed Q3 financials and our updated outlook for 2025. Christian Harm: Yes. Thank you, Rob. As promised over the last months, we are providing you now with an update on the efficiency program that we announced in February of this year to achieve a sustainable annual cost saving of around EUR 140 million to EUR 160 million from 2026 onwards. For the implementation of those cost-saving measures, nonrecurring items of approximately minus EUR 240 million to minus EUR 260 million were initially expected. I'm sure, you have all seen our announcement last week. Following the constructive and effective teamwork with our works council labor representatives, we have made substantial progress in the negotiations in most jurisdictions, particularly in Germany, giving us a better view on program instruments, financials and timings. We still have some jurisdictions in which we are still negotiating, which is why we don't have a final number yet. But we can now more precisely quantify the expected expenses, and we are now able to lower them to between EUR 170 million and EUR 190 million in 2025. The savings target remains largely unchanged at between EUR 140 million and EUR 150 million. We are able to achieve almost the same savings with much lower expenses, mainly because many employees accepted our voluntary redundancy package. As a consequence, we don't need additional redundancy schemes. We expect the savings to start impacting the bottom line already in the fourth quarter '25 with a small amount and anticipate the majority of the savings to become effective in 2026 and the remaining will then support earnings in outer years. Of the EUR 197 million efficiency program-related expenses recorded in the first half of 2025, we were able to release approximately EUR 34 million in the third quarter. Many leavers have, for personal tax reasons, opted for the severance payment to be paid out in the first quarter '26 rather than at the end of this year. Accordingly, this will shift a significant portion of the lower-than-initially-expected cash out for the efficiency program from the fourth quarter to the first quarter of next year. Let's go now to Slide 7 for the key financials of the ITS segment. Order intake reached 60,000 units in the third quarter, which is a sequential decrease of 14%, a pretty normal seasonal development in the third quarter. Year-over-year, the increase was 17%, an acceleration of the growth rate seen in the first 2 quarters, which is also due to the lower prior year base. New orders in value terms increased 8% year-on-year, driven by a 17% increase in the new truck business. The service business also showed continued growth at 1%. The order book reflects ongoing lead time normalization, and its margin quality is in line with our expectations, as reflected in our outlook. Revenue declined by 3% year-over-year to EUR 1.9 billion. The 3% growth in service partially compensated for the expected 9% decline in the new truck business. Again, remember that in 2024, the new truck business revenue significantly benefited from the tailwind of a high order backlog. Adjusted EBIT at EUR 171 million and the corresponding adjusted EBIT margin at 8.8% reflected the expected impact from lower volumes, resulting in lower fixed cost absorption in a year-over-year comparison. The sequential improvement in the adjusted EBIT margin, despite the usually weaker summer quarter, is supported by a slightly higher gross margin. We will now continue on Page 8, which summarizes the key financials for SCS. Following the record order intake in the second quarter, which was also impacted by the favorable timing of some order signings, orders in the third quarter declined by approximately 50% sequentially but still representing a 16% increase year-over-year. This year-over-year growth was once again driven by a 46% increase in business solutions orders, while the order intake in customer services was down 12% on a strong prior year quarter. Remember, we had flagged in the second quarter update call to not extrapolate the record order number for every quarter going forward. While we may have passed the trough, we are still in a lumpy recovery trajectory, and we are also likely to see the next quarter below the EUR 1 billion mark again. While last quarter's increase in order intake was very much driven by the pure-play e-commerce vertical, their share in this quarter's business solutions orders was 24%, meaning that the growth was fueled by customer in other verticals. As a result of the growth in order intake, the order book increased 16% year-over-year, and that year-over-year increase would have shown an even higher growth rate of 22% without the adverse foreign exchange translation effects. Overall, revenue increased both sequentially and year-on-year and is starting to benefit from the recovery in the order intake, which increased the business solutions revenue by 15% year-over-year in the quarter. The adjusted EBIT improved strongly year-on-year to EUR 48 million, with adjusted EBIT margin increasing to 6.2%, following higher revenues and improved project execution. Let's quickly run through the key financials for the group now on Page 9. Order intake benefited from the improvement in demand in the new business in both operating segments. The order book reflects the increased demand in SCS, partially offset by the continued lead time normalization in ITS and FX translation losses in SCS. Revenue in SCS is starting to benefit from the order intake recovery since the beginning of 2025, offset by the expected revenue decline in the ITS new truck business. Adjusted EBIT at EUR 190 million and the adjusted EBIT margin at 7% was impacted mainly by the lower fixed cost absorption in ITS and the normalized EBIT in the Corporate Services Consolidation segment, which was partially compensated by the strong earnings improvement in SCS. Now Page 10 shows the reconciliation from the adjusted EBITDA to group net income. Nonrecurring items in the quarter included approximately EUR 34 million release of provisions for the efficiency program. Please note that due to the overall lower-than-initially-expected expenses for the efficiency program, we have revised our full year 2025 expectations for nonrecurring items to between minus EUR 210 million and minus EUR 230 million from between minus EUR 240 million and minus EUR 275 million. You will find this information on the housekeeping slide in the appendix. In this quarter, [ PPA ] items were at the usual quarterly level. Net financial expenses improved year-over-year, mainly due to the positive impact from the fair value of interest derivatives and the lower net interest expenses from lease and short-term rental business. We have also adjusted our expectations for full year 2025 net financial expenses to between minus EUR 140 million and EUR 160 million from previously between minus EUR 170 million and EUR 190 million. Pretax earnings grew 9% to EUR 142 million in the quarter. Tax expenses of only EUR 23 million in the quarter corresponded to a tax rate of 16%, significantly lower than in the prior year quarter. The main driver for the lower tax expenses in the quarter resulted from a revaluation of the deferred tax liabilities amounting to EUR 38 million, following a June 2025 resolution of the German government on the lowering of the federal corporate tax rate from 2028 onwards. And then, the net income attributable to shareholders increased disproportionately by 58% to EUR 114 million, corresponding to earnings per share of EUR 0.87. Now, let's continue with the free cash flow statement on Page 11. Free cash flow in the quarter reached positive EUR 231 million, substantially driven by an improvement in net working capital in ITS. In contrast to the prior 2 years, we had a EUR 50 million cash out in -- sorry, where we had a EUR 50 million cash out in the fourth quarter for additional pension funding, we funded [ EUR 50 million ] in the second quarter and EUR 35 million in the third quarter. Page 12 shows the development of net financial debt and our leverage ratios. We had a solid decrease in net debt to EUR 818 million at the end of the third quarter 2025. Consequently, the leverage ratios improved across both net debt definitions by 0.1x compared to the end of June 2025. Our leverage ratios continue to remain slightly lower than the level last seen post our December 2020 capital increase. But this time, we achieved the improvement entirely through self-help measures. Slide 14 now lays out our updated guidance for the fiscal year 2025. I will quickly walk you through it. Based on the 3 solid quarters -- the first 3 solid quarters and our visibility for the fourth quarter, we have narrowed the guidance range for ITS. For SCS, the good year-to-date performance, including the growth in order intake since the beginning of the year, allows us to increase the lower end of both the revenue and adjusted EBIT guidance. In addition to the above, the narrowed group guidance range reflects our expectations of more negative adjusted EBIT contribution from the Corporate [ Services ] Consolidation line. This difference is around EUR 10 million in the midpoint, driven by higher expenses for long-term incentive programs, resulting from the increased share price and for strategic projects. And finally, as outlined earlier in this presentation, we expect lower expenses and related cash out for the efficiency program in addition to a significant portion of that cash out shifting from the fourth quarter '25 to the first quarter '26. Accordingly, our free cash flow guidance increased substantially to between EUR 600 million and EUR 700 million from previously EUR 400 million to EUR 550 million. As always, you will find the slide on the housekeeping items in the appendix. And with that, now, I hand back to Rob for our key takeaways. Richard Smith: Thank you, Christian. Let's move to Page 15, where we have our key takeaways. KION achieved another solid quarter, completing the first 9 months of 2025 in line with our expectations. Both the industrial truck market, as well as the warehouse automation market, have passed through their troughs and are on a recovery path amongst geopolitical challenges. KION is growing order intake in both operating segments. Following the constructive and effective teamwork with our works council labor representatives, we have made significant progress in implementing the efficiency program. With most jurisdictions having completed their negotiations, we're able to reduce our expected costs for the efficiency program meaningfully, while delivering the targeted savings. A significant portion of the associated cash out is shifting from the fourth quarter of '25 to the first quarter of '26, preserving cash in 2025. With 9 months of 2025 behind us and increased visibility on the fourth quarter, we have narrowed our guidance ranges for revenue and adjusted EBIT. We've also increased our outlook on free cash flow for fiscal year 2025 due to the lower expenses for the efficiency program and the shift of the related cash out. Our outlook remains subject to no significant disruptions to supply chains as a result of trade barriers, especially tariffs and restrictions on access to critical commodities. This does conclude our presentation. Thank you for your interest so far. We look forward to taking your good questions. Back to you, Serge. Let's open the line. Operator: Thank you, Mr. Smith. Can you hear me? [Operator Instructions] Richard Smith: Serge, we can't hear you. Operator: Can you hear me, Mr. Smith? Richard Smith: Nor can we hear [indiscernible]. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We will continue with the Q&A shortly. Richard Smith: I trust everyone has heard Christian and me for the last 15 minutes, but we don't hear any... Operator: Can you hear me, Mr. Smith? Richard Smith: [ Haven't ] put on the other line yet. Operator: Do you hear me now, Mr. Smith? Christian Harm: Okay. Raj is writing us the question and we're answering to that. Richard Smith: It's an outstanding solution. Operator: Okay. We'll start with the Q&A. The first question comes from Sven Weier. Sven Weier: I hope you can hear me, Rob and Christian. Operator: Please ask the question. We will forward it, Sven. It will take a bit. Richard Smith: Actually, now, I do hear you. Sven Weier: You can hear me? Okay. Great. So I have 2 questions, please. The first one is a more short-term question. And obviously, you had a great order intake development on the truck side in Q3 against what were, I guess, tough economic circumstances in Europe. So wondering if you could see a continuation of that also in the fourth quarter so far? That's the first one. Richard Smith: I'm sorry, I hear your voice, and there was some feedback on the line. If you would be so kind just to repeat that, maybe we'll get a better chance the second time. Sven Weier: Of course. Yes. I hope you can... Christian Harm: [indiscernible] will order intake continue like this in the fourth quarter? Richard Smith: Yes, sure. Let's talk about that, Sven. I mean, maybe we look at both segments. Historically, the fourth quarter is a very strong segment, probably the strongest segment for order intake in the ITS segment. Seasonally, the third quarter is usually a little lighter and the fourth quarter is a strong fourth quarter. I anticipate that will be a similar situation this year, no reason not to think it would. And as we say in both segments, we're past the trough. We're in a growing -- we're back into growth mode in the markets, and our order intake is certainly in growth mode. We have expected we got a better third quarter this year than we did last year in SCS. And as we described, we expect certainly a stronger second half this year than the second half last year. And we're looking for a good fourth quarter here. Sven, I trust that answers your first question. Sven Weier: Yes, and I could hear you really well. So that's fine. The second question is a little bit more looking forward on the... Richard Smith: So, you had a second question as well, Sven? Sven Weier: Yes. Can you hear me? Can you hear me, Rob? Operator, can you pass it on? Operator: Please ask your second question, and we will forward it to Mr. Smith. Sven Weier: Yes. So the second question is around the general sentiment among your clients, both in ITS and in SCS, in terms of their investment plans going forward. Do you sense they want to grow CapEx and it's just politics preventing them to do so, meaning that if there was any clearance on the political side, that this investment is released? Or what's the kind of general investment sentiment among both client segments? Richard Smith: The general sentiment, Sven? There we go. How about that? General sentiment among clients in ITS and SCS. Do we sense they want to grow CapEx and our geo -- let's talk about that. I think it's pretty exciting. I think everybody thinks it's exciting that President Xi and Trump came together today, shook hands, and it looks like there's a significant de-escalation of tensions there. And no one has seen any effect of that yet, but I do feel that that's a very good step in the right direction, and I think all our customers are going to feel that way, too, in all markets. I think it was positive. I think it was already priced into the markets, but I think it will be a positive thing for our customers, especially on the SCS side. The Fed has reduced the rates now again. So with 2% in Europe and the lowest rate in America over the last 3 years, that has to be a positive thing. And our customers have been very active with us in the pipeline. And it's just a matter of going through and converting those into orders now. We've talked about that being lumpy. But the trough is behind us. We're in an upward slope. And we're expecting to have a second half stronger than the second half last year. And we think we'll have a seasonal adjusted good fourth quarter as usual on the ITS side. So I think the sentiment is clearly much more positive post the meeting with Trump and Xi today than has been in the lead up to that over the last several months. Operator: Ladines and gentlemen, please shorten a bit your questions since we're forwarding them to Mr. Smith. The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I have 2 as well. My first one is on the phasing of savings. So I think if you look at the savings, it translates to EUR 35 million to EUR 37 million per quarter, and you want to achieve fully in 2026. So maybe if you can give us some indication on how we shall think about phasing and by when do you expect the full run rate to be achieved? The second question is on lower interest rates from lease and short-term rentals. Christian Harm: Okay. So the question was on the phasing of the savings for the efficiency program, right? Let me take this one. So, as I said, right, we will have a small part of the savings already in the fourth quarter of this year, and then the far majority of the savings then in 2026 and actually very much sort of forward-loaded in the year. And there will be a small remainder potentially in the following year. So we will have a small part right now and the majority in the beginning of 2026. Akash Gupta: And my second question is on lower interest rates -- lower interest from lease and short-term rentals. I mean, your rental revenues were up 2% in the quarter. So maybe if you can elaborate what is driving this lower interest from lease and short term. Is this due to lower interest rates, or something changed in the way how you do business? And what shall we expect going forward in terms of the sustainable interest from lease and short-term rentals? Christian Harm: That's actually a consequence of the lower negative interest that we had against the prior year. We don't change the way we do the lease business. There is no structural change in how we perform the lease business or the short-term rental business. We have actually just a lower negative -- a lower interest against the prior year, and that's the consequence of that. Well, I mean, that will -- so, that sort of will potentially continue in the fourth quarter as a development. But then, sort of over next year, that effect will then actually disappear as the rates actually align themselves again. Operator: Next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Perfect. Trust, operator, you can hear me. One question would just be what is the reason for cutting down the upper end of the savings range from EUR 160 million to EUR 150 million? And I'll take the second question afterwards. Christian Harm: Okay. Yes. Well, okay. So I think cutting down the upper end is a pretty harsh wording actually on the adjustment, right? When we defined the efficiency program, we basically targeted the entire EMEA region and all the countries in the setup. Now, the EMEA region actually has not a consistent level of personnel costs, nor do sort of individual jobs and functions have all the same personnel costs. So, on the implementation, now, as we are sort of finishing sort of the execution of the program, the mix that we have between countries and between functions, as we have come to the end of that, is slightly different to the mix that we had planned initially. So that's the background of that slight adjustment, I would call that rather. Tore Fangmann: Understood. Second question would be on the higher gross margin in IT&S. Is this a question of mix? Or is there some pricing in there? Or is it just more efficient production? Christian Harm: So the question on the gross margin in ITS, it's basically a mix. I mean, we did not have issues in production throughout the year. We have been reporting in the past that production is actually running overall quite well. So there was no impact on that. So when we look at the gross margin impact there, that's mainly mix. Operator: The next question comes from Martin Wilkie from Citi. Martin Wilkie: It's Martin from Citi. My question was on the pipeline in Supply Chain Solutions. There's a lot of debate across the industry as to whether the interest rate environment has prevented some projects going ahead, and we are now seeing rates coming down. Richard Smith: I appreciate the question. And you're asking on what's the pipeline in our Dematic business, our Supply Chain Solutions business. Very healthy pipeline, continued very active discussion with our customers. And I've been sharing that. It's stayed healthy. It stayed quite active pipeline. And now, as we've been talking for the last couple of quarters, customers are coming in and starting those projects. So the difference, I think, now to previous times is, we see ourselves and the market is clearly with the trough behind us and on an upwards order intake trajectory now. So the pipeline is good. The pipelines continue to be good, and it's very active with our customers. Operator: The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: My question relates to SCS. And I was wondering why the gross margin was down so much sequentially in Q3? I think it was down 300 bps. Christian Harm: So the question was on SCS. Why is the gross margin down sequentially? So as we -- I mean, we have been talking about closing out the legacy projects over the recent months, right? Closing out legacy projects, as we close them, still comes with the cost, right? We had some costs in the third quarter that we had to reflect for the legacy projects in the business solutions margin, right? And that's reflected here in the gross margin development sequentially for SCS. Now, on the legacy projects, maybe just overall, right, we are -- as I've said, we are continuously closing out those projects. Also in the fourth quarter, we will have a further closing out of legacy projects. There will be a very small number remaining for the next year. And again, as a reminder, that's also not new. There will be one large project that we have that will last into 2027. But we are closing the legacy projects out as we speak. And at times, that comes with costs. We had to reflect some in the third quarter. Gael de-Bray: Could you perhaps quantify this cost in -- I mean, in Q3 and maybe in the first 9 months so far? Christian Harm: Quantify the cost of the -- separate out the legacy cost development in the first 9 months. Operator: The next question comes from Lasse Stueben from Berenberg. Lasse Stueben: Could you please share the verticals and regions in SCS that are driving the orders from the non-e-commerce side? Richard Smith: Sure, Lasse. Let me -- why don't I try it a little bit differently because orders are up well year-on-year in all 3 regions. What I'd call out is, if you want to talk verticals, the order intake in SCS, some good growth in the non-e-commerce verticals of third-party logistics, also food and beverage. And we also had [Audio Gap] in durable manufacturing. So those 3 really stood out. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We lost the connection with the speakers. We'll shortly continue with the conference. Ladies and gentlemen, please hold the line. The conference will shortly continue. Richard Smith: Can you hear us now? Operator: Mr. Lasse , you can ask your question now. Richard Smith: [indiscernible] answering your question again. You were asking where are the pickup year-on-year in non-e-commerce. A matter of fact, all 3 regions are having good growth on a year-on-year basis. The strongest is in the Americas, but all 3 are making good year-on-year growth. And the verticals that are non-e-commerce pure-play verticals that are picking up in a good way would be the third party, the 3PL vertical. Food and beverage has a good pickup and durable manufacturing as well. I hope you caught all that. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: So I just want to ask about the guidance for ITS. So the full year guidance is reduced in terms of range. And if we look at the midpoint of the guidance for the revenue number for ITS, that would imply, in the fourth quarter, revenue number could be down quite a bit, something like 8% if we take the midpoint of the full year guidance as a reference. That is a bigger decline compared to the previous quarter. Is that something you see to be fair? Or you're probably a bit conservative on your guidance for ITS revenue? Christian Harm: So the question is, whether the midpoint Q4 for ITS implies lower year-on-year, is that fair? Well, I mean, we had this development for 3 quarters now in a year, right? Also the fourth quarter will not be an exception to that, right? I said we will have small impacts from the efficiency program kicking in the fourth quarter, but that will not be sufficient to reverse that trend -- that will not be sufficient to reverse the trend already. So therefore, the fourth quarter, in that respect, has to be seen in the context of the entire year. And so, yes, we consider that actually fair. Operator: The last question comes from Alexander Hauenstein from DZ Bank. Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Rob Smith for any closing remarks. Richard Smith: Serge, thank you for helping us do the best that we could in the Q&A session and thank everyone for your patience during the Q&A session and your interest during our call. We're looking forward to continuing this dialogue with our investor conferences in November and early December. We'll be back in February for our full year results and our guidance for 2026 at the end of February. Obviously, the Q&A session wasn't as easy as we expected it would be and as it normally is. And so, our IR team will be clearly available to everybody that has a question they'd like to get a little bit more detail and depth on in rest of today and the days to come to make sure that the messages that we've got are well understood and the results that we've brought are well appreciated. So thank you for your interest, and we wish you all a good weekend. Goodbye now. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, everyone, and welcome to the MYR Group Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Jennifer Harper, MYR Group's Vice President of Investor Relations and Treasurer. Please go ahead, Jennifer. Jennifer Harper: Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's third quarter results for 2025, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group's Commercial and Industrial segment. A copy of yesterday's press release is available on the MYR Group website at myrgroup.com under the Investors tab. A webcast replay of today's call will be available on the website for 7 days following the call. Please note today's discussion may contain forward-looking statements. Any such statements are based upon information available to MYR Group's management as of this date, and MYR Group assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q and in yesterday's press release. Certain non-GAAP financial measures will also be presented. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in yesterday's press release. With that, let me turn the call over to Rick Swartz. Richard Swartz: Thanks, Jennifer. Good morning, everyone. Welcome to our third quarter 2025 conference call to discuss financial and operational results. I will begin by providing a summary of the third quarter results and then we'll turn the call over to Kelly Huntington, our Chief Financial Officer, for a more detailed financial review. Following Kelly's overview, Brian Stern and Don Egan, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segment's performance and discuss some of the MYR Group's opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions. The strength of our long-term customer relationships and a strong market position resulted in a solid third quarter performance. Our teams continue to execute projects with operational excellence and expand existing client relationships through master service and alliance agreements across our districts. Bidding activity remains healthy as we strategically pursue and capture new opportunities that position us for potential future growth. The Edison Electrical Institute's (sic) [ Edison Electric Institute's ] 2024 Financial Review released earlier this month, projects that U.S. investor-owned utilities will exceed $1.1 trillion in combined capital investments for 2025 through 2029. More than $123 billion of this is forecast to be spent on transmission in the first 3 years from 2025 to 2027. The report also found that electric utilities are on pace to spend nearly $208 billion on grid upgrades and expansions in 2025, the highest amount ever. Growing demand for electrification, a focus on grid monetization and hardening and technology advancements continue to be strong market drivers and could present opportunities for consistent success across our business. According to FMI's 2025 North American Engineering & Construction Outlook released in July, chosen key markets for our C&I segment are forecasted for healthy growth through 2025 and into 2026, including data centers, transportation, health care, education and wastewater construction. By expanding existing relationships with our preferred customers, and strategically bidding and expanding work in our chosen markets, we continue to experience a steady backlog of work and could see potential growth moving forward. As always, our greatest strength lies within our talented and dedicated employees. We continue to develop and empower our teams to reach their highest potential as we grow our company. Our team members strive to provide excellence in safety and project delivery, helping our customers achieve their business goals. Now Kelly will provide details on our third quarter 2025 financial results. Kelly Huntington: Thank you, Rick, and good morning, everyone. Our third quarter 2025 revenues were $950 million, which represents an increase of $62 million or 7% compared to the same period last year. Our third quarter T&D revenues were $503 million, an increase of 4% compared to the same period last year. The breakdown of T&D revenues was $293 million for transmission and $210 million for distribution with increases in revenues from both transmission and distribution projects from the prior year. Work performed under master service agreements continue to represent approximately 60% of our T&D revenue. C&I revenues were $447 million, an increase of 10% compared to the same period last year. The C&I segment revenues increased primarily due to an increase in revenue on fixed price contracts. Our gross margin was 11.8% for the third quarter of 2025, compared to 8.7% for the same period last year. The increase in gross margin was primarily due to the third quarter of 2024 being negatively impacted by certain T&D clean energy projects and a C&I project. In the third quarter of 2025, gross margin was also positively impacted by better-than-anticipated productivity, favorable change orders and favorable job closeouts. These margin increases were partially offset by an increase in costs associated with project inefficiencies, unfavorable change orders and inclement weather. T&D operating income margin was 8.2% for the third quarter of 2025 compared to 3.6% for the same period last year. The increase was primarily due to the third quarter of 2024, being negatively impacted by certain clean energy projects as well as favorable change orders and better-than-anticipated productivity on certain projects during the third quarter of 2025. These increases were partially offset by higher costs related to project inefficiencies, unfavorable change orders and inclement weather. C&I operating income margin was 6.4% for the third quarter of 2025 compared to 5.0% for the same period last year. The increase was primarily due to the third quarter of 2024, being negatively impacted by a single project as well as contingent compensation expense related to a prior acquisition that did not recur in the third quarter of 2025. Operating income margin for the third quarter of 2025 was also positively impacted by better-than-anticipated productivity and favorable job closeouts. These positive drivers were partially offset by unfavorable change orders and higher costs related to project inefficiencies. Third quarter 2025 SG&A expenses were $66 million, an increase of approximately $8 million compared to the same period last year. The increase was primarily due to an increase in employee incentive compensation costs and an increase in employee-related expenses to support future growth. These increases were partially offset by contingent compensation expense related to our prior acquisitions recognized during the third quarter of 2024 that did not recur. Our third quarter effective tax rate was 28.3% compared to 42.5% for the same period last year. The decrease was primarily due to lower permanent difference items, mostly associated with deductibility limits of contingent compensation experienced in the prior year, as well as lower U.S. taxes on Canadian income. Third quarter 2025 net income was a record $32 million, compared to net income of $11 million for the same period last year. Net income per diluted share of $2.05 increased 215% compared to $0.65 for the same period last year. Third quarter 2025 EBITDA was a record $63 million compared to $37 million for the same period last year. Total backlog as of September 30, 2025, was $2.66 billion, 2.5% higher than a year ago. Total backlog as of September 30, 2025, consisted of $929 million for our T&D segment, and $1.73 billion for our C&I segment. Third quarter 2025 operating cash flow was a record $96 million compared to operating cash flow of $36 million for the same period last year. The increase in cash provided by operating activities was primarily due to the timing of billings and payments associated with project starts and completions and higher net income. Third quarter 2025 free cash flow was $65 million, compared to free cash flow of $18 million for the same period last year, reflecting the increase in operating cash flow, partially offset by higher capital expenditures to support future growth. Moving to liquidity and our balance sheet. We had approximately $267 million of working capital, $72 million of funded debt, and $400 million in borrowing availability under our credit facility as of September 30, 2025. Funded debt-to-EBITDA leverage remained strong at 0.34x as of September 30, 2025. We believe that our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs, support the organic growth of our business, pursue acquisitions and opportunistically repurchase shares. I'll now turn the call over to Brian Stern, who will provide an overview of our Transmission and Distribution segment. Brian Stern: Thanks, Kelly, and good morning, everyone. The continued focus on strengthening and expanding existing relationships with key customers, along with executing our work to their expectations, led to solid third quarter results in our T&D segment. We continue to see steady bidding activity and are pleased with our strong backlog consisting of master service agreements and a healthy mix of various sized projects. This quarter, L.E. Myers was awarded a midsized transmission line rebuild project in North Carolina as well as substation and transmission work in Iowa. In addition, High Country Line Construction won multiple transmission line projects in the Midwest, while E.S. Boulos and Harlan Electric were awarded substation and transmission work, respectively, throughout the Northeast. Great Southwestern Construction received transmission line and substation project awards in Texas, with Sturgeon Electric winning work in Arizona, Oregon and Alaska. As Rick mentioned, we are seeing significant investments in electrical infrastructure throughout North America. Utilities continue to invest in upgrading and expanding their electric infrastructure driven by several factors, including aging infrastructure, concern over resiliency and reliability and the need to accommodate larger load growth. After roughly 2 decades of flat electricity demand, it is now growing rapidly and driving the need for electric infrastructure investments. According to Power Insights 2025 North American transmission market forecast released in September, report forecast 9.1% compound annual growth rate in transmission spending from 2024 to 2029. In summary, we believe these encouraging forecasts could generate growth opportunities for our business as we continue a firm dedication to our customers and a strict adherence to our operating principles. I'd like to thank all of our talented employees for their commitment and effort in making our success possible. I will now turn the call over to Don Egan, who will provide an overview of our Commercial and Industrial segment. Don Egan: Thanks, Brian, and good morning, everyone. Our C&I segment achieved solid results in the third quarter, thanks to the strength of our chosen core markets. We continue to strategically monitor and pursue new opportunities in a healthy bidding environment while executing projects of various sizes in close collaboration with our valued customers. Recent market outlook suggest positive indicators for the segment. The Dodge Momentum Index increased 3.4% in September and commercial planning expanded 4.7% in the same period. Year-to-date, the DMI is up 33% from the average reading over the same period in 2024. The unprecedented growth in spending on data centers is expected to continue at an elevated pace. According to the American Institute of Architects, the AIA July 2025 Consensus Construction Forecast reported that after increasing more than 50% in 2024, data center spending is expected to grow by an additional 20% in 2026. These encouraging forecasts could generate growth for our business and we continue to leverage our expertise to place us in a leading position to win opportunities in these markets while bolstering our strategy to remain diversified across our chosen core markets. In the third quarter, our teams across all subsidiaries earned multiple awards and secured new work in each of our core markets. This includes wins in data centers, health care, clean energy, warehousing, higher education and transportation. These achievements reflect our continued momentum and strong market presence across the U.S. and Canada. To conclude, our chosen core markets are healthy and the strength of our customer relationships continue to generate additional opportunities. This is thanks to our committed employees and their daily dedication to executing projects with a safety-first mindset. Thanks, everyone, for your time today. I will now turn the call back to Rick, who will provide us with some closing comments. Richard Swartz: Thank you for those updates, Kelly, Brian and Don. Due to the strength of our core markets and our ability to bolster and broaden our customer relationships to create growth opportunities. We are proud of our third quarter performance. Our focus remains on safely executing projects, strategically bidding opportunities, and meeting the needs of our customers as they adapt to dynamic market conditions and a shifting energy landscape. This is supported by our continued investment and development of our teams across the company as our people enable us to maintain our status as an industry leader by the work they perform every day. Our commitment to our employees and customers is the foundation we built from to remain a strong and agile partner for customers. I would like to extend a thank you to our employees for their invaluable contributions and to our shareholders for your continued support of MYR Group. I look forward to connecting with you in the future quarters. Operator, we are now ready to open the call up for your comments and questions. Operator: [Operator Instructions] And our first question comes from Sangita Jain of KeyBanc. Sangita Jain: So first, if I can ask on C&I margins. There were considerably stronger than they have been in the recent quarters, even though you had a negative change order. So can you talk a little bit about that and how we should think about those C&I margins going forward? Richard Swartz: Yes, I would say we did have a slight negative there. But overall, we had some positive adjustments too. So our margins were a little higher than what we projected coming into this year. I think as we look to next year, I would say our margin profile is probably -- we've always said it's going to be in that 4% to 6% in the past. And I think as we look into next year, it will kind of go to the mid-range of kind of that 5% to 7.5%. So we're upping that a little bit as we forecast out next year with probably 10-ish percent growth, both in our C&I and T&D areas. Sangita Jain: So 10% core growth -- sorry, go ahead, Kelly. Kelly Huntington: I was just going to say, to elaborate just looking at full year for C&I, given that we have been trending a little higher, we are expecting that we'll be in the upper half of the target range for this year of the 4% to 6% for full year '25. And then as Rick mentioned, looking to raise that expectation for next year to that 5% to 7.5% range. Sangita Jain: Okay. Did I just hear, like, you say, 10% for next year? No, or did I get that wrong? Richard Swartz: I would look for 10%-ish revenue growth. Sangita Jain: 10% revenue growth company-wide? Richard Swartz: Yes. Sangita Jain: Okay. Great. But 5% to 7.5% in C&I? Richard Swartz: Yes, with our margin profile remaining the same on T&D, that 7% to 10.5% and probably operate in the mid-ish range of those numbers just because we're not seeing the large projects really roll in until 2027. Sangita Jain: Okay. That's helpful. And then I appreciate the breakdown of the new awards in the quarter on the T&D side. Does -- how sizable are they in the sense that does that change your breakdown between MSA and non-MSA work in that segment? Richard Swartz: No, we really didn't speak anything about large projects coming into our backlog. So it's small and midsized. So somewhere in that same range where we've been, I would say, is kind of how we're forecasting it for this next quarter. Operator: And our next question comes from Andrew Wittmann of Baird. Andrew J. Wittmann: Everybody wants to talk about data centers. So let's talk about data centers. I mean, obviously, this is a growth end market for electricians, broadly speaking, Rick, in the past, and we've talked to you about this, you like totally see the opportunity there. You're open to it. You've always said we don't want to abandon our legacy customers everywhere else as well. But just kind of wanted to get an update on your view here. Is this market evolving faster and bigger than you maybe thought 6 months ago? And how is your company approaching the data center opportunity? Are you going to go for it directly or wait for overall demand to lift demand for the types of services you offer and still compete in the traditional end markets as well. I was just wondering if you could talk about that, maybe the simple way of asking that question, of course, is do you expect the data center as a percentage of your C&I mix to materially increase or not? Richard Swartz: I think as we go forward, data centers could increase, but our other core markets are very strong to within C&I. So when we talked about the overall market we're in, whether it's wastewater or hospitals or solar even on that side, and we see good growth opportunities there. So really not focused on just data centers. But again, a lot of good opportunities going forward, but I don't see that outpacing the other segments at this point. Andrew J. Wittmann: Got it. Okay. And then I guess I wanted to follow up on your balance sheet and your ability and desire to deploy capital. Obviously, balance sheet like normal is in a very good spot here. Historically, you've done some M&A pretty consistently over the years. But the dynamics and the growth rates behind your business have changed and have got to think the multiples like your own stock multiple are up. I was just wondering kind of, Rick, what you're seeing out there and your desire as well as your ability to deploy M&A capital in an environment like this where prices are up? What do you think? Richard Swartz: The multiples are definitely up. I mean, as you said, our multiple is up. But when we look at it, for us, it's really just focused on that right strategic fit. There's opportunities out there. But again, it's got to fit us from a cultural fit and then from a structural fit. So we continue to look at them and evaluate them. And there's quite a bit of activity out there, so that's positive. And hopefully, we can capitalize on the right opportunity, but our balance sheet enables us to really go after any acquisition. We've always said that our kind of goal is to anything within that annual revenue of $50 million to $60 million is kind of our target. We're not looking for something transformational. But again, we continue to see good activity in that market and just trying to find the right fit. Operator: And our next question comes from Jon Braatz of KA-CCA. Jon Braatz: Rick, on the margin profile for the C&I segment, you increased the range a little bit. Does that reflect market conditions or execution? Richard Swartz: I would say both. I think our -- we're always focused on execution, how we better improve our performance out there, but also seeing some market -- I guess, expansion in our margins within the market. So we push margins every chance we get, but we're also focused on our own performance. So I would say it's a mixture of the two. Jon Braatz: Okay. And then industry-wide in the T&D segment, every time you read a report from utility companies, they talk about accelerating spending plans. And I guess from an overall perspective, Rick, does -- is there enough labor out there to meet this demand that seems to be forthcoming? And if not, is there going to be some opportunity to take some additional margin? Richard Swartz: Well, we hopefully -- we definitely hope so, and that's the way we've always said it. I mean as we look out into this market, it's an elongated market, and it's going to go out for years. Not all these projects are going to be built overnight. And it's just not the labor side. It's also the material shortages or those time delays on that material coming in. So I would say those cycles on material aren't getting any shorter. So I think it's a balancing act between kind of the labor availability in the market, but also the material availability. So I would say lots of early conversations with our clients, very positive on the conversation, but really a number of customers are concerned about what they're going to build more or less in '26. They're more concerned about what they're going to build in '27, '28, '29 and beyond. So very good conversations going on. Operator: Our next question comes from Brian Brophy of Stifel. Brian Brophy: I appreciate the thoughts on 2026. I'm curious if you're expecting any change to some of the high single-digit growth, excluding solar and T&D and C&I that you've communicated for this year? Richard Swartz: As Kelly said, we're running a little ahead of that on the T&D side. C&I is right in that range for kind of that overall revenue growth. So we see that coming in maybe a little stronger on the C&I -- or on the T&D side and kind of maintaining where we're at on the C&I side this year. Kelly Huntington: So we're at up 10% so far year-to-date on C&I. Brian Brophy: Got it. That's helpful. And then just curious, the latest you're hearing from your customers on large transmission project opportunities and what that outlook would look like as we look out a couple of years? Richard Swartz: It's strong on that side. I would say lots of good conversations going on, lots of good activity. We're doing a lot of budgeting with our clients, a lot of working with our clients on longer-term projects. So again, remains a very active market. Those projects, as I said before, they are large projects that we're discussing aren't going to start in '26, but they'll start in '27, '28, '29. And we're even having conversations with clients on projects that go out past then. Operator: Our next question comes from Ati Modak of Goldman Sachs. Ati Modak: Rick, can I ask you for directional comments relative to that 10% overall revenue growth you talked about for '26. Is that a decent bogey for a run rate expectation based on everything that you're seeing in the market? Or what factors would you ask us to consider as we think about that? Richard Swartz: Well, I would say it doesn't have -- we don't forecast a dip in the economy or a dip in anything going forward with our clients as far as pulling back work when we look at the project availability and the current market. I would say that's how we're forecasting it right now with that kind of 10-ish percent overall growth and pretty equally spread between C&I and T&D as we see it today. Ati Modak: Got it. That's super helpful. And then maybe, Kelly, one for you, no buybacks this quarter. Just curious if there's anything to point out there or point out in terms of related to near-term capital allocation program? Kelly Huntington: Sure. So you're right. We did announce that program at the last earnings call for another $75 million, and we continue to look at that opportunistically. So it remains part of our capital allocation strategy. But I would say, as usual, we are prioritizing directing capital towards growth. So on the organic side, that kind of comes in the form of both our capital expenditures, which you could see this quarter did trend a little higher, part of that was timing from earlier in the year, but part of that is to support that longer-term growth that we see, particularly on the T&D side, which is, of course, the more capital-intensive side of the business. So that we could see running closer to 3% of revenue, given the growth opportunity that's out there. And then I would say, back to Rick's answer to the earlier question, we're also in a really good position to pursue acquisitions that are the right fit, so continue to be active in evaluating opportunities there. So I think just to summarize, I'd say we're in a great position to do all three. Operator: And our next question comes from Julien Dumoulin-Smith of Jefferies. Brian Russo: It's Brian Russo on for Julien. Just to follow-up on the T&D segment. How should we think about your current MSAs or new or potentially enhanced MSAs with the upward CapEx provisions that we're seeing with many of your large utility customers already this quarter? Is that part of what might be driving the 10% -- 10-ish percent growth in that segment in '26 over high single digits in '25? Richard Swartz: Yes, that's definitely a component of it. As we look at that, our -- most of our customers are forecasting some increased spend next year and as we said then, in future years beyond that, we'll see some large projects hopefully come into the mix. But I would say it's increased spend on MSA is a good component of that. Brian Russo: And with the whole labor shortage, maybe backdrop in the latter years, say, '27, '28, when you resign your MSAs, do you have more leverage in terms of the premium for skilled labor? Or should we just kind of assume similar margins as they are today? Richard Swartz: Well, I think we're always pushing on our performance to outperform where we've been. But with that being said, 90 -- over 90% of our clients are return clientele. So we're always going to treat those clients fair. We're going to look at our productivity side, and we're going to try to enhance our margins where we can. But again, always treating our customers fairly. Brian Russo: Okay. And then lastly, I appreciate the project discussions at T&D earlier. Could you kind of triangulate any of those projects that might be more significant than others? Or what was added to the September backlog or that is still to be added? Richard Swartz: I would say our backlog, we always capture it at a month end. So again, it's always going to be lumpy at any given time. I think when you're looking at -- as we said, no large project came into it, Brian talked about some of the projects, smaller and midsized projects that were captured, and we see that continuing. But again, we -- I would say we don't get down to a customer by customer, but good activity in all the markets we're in, and we pretty much have coast-to-coast coverage a little bit into Canada. So pretty excited about the opportunities that lie in front of us. Operator: I'm showing no further questions in the queue. I would now like to turn the call back over to Rick Swartz for any additional or closing remarks. Richard Swartz: To conclude, on behalf of Kelly, Brian, Don and myself, I sincerely thank you for joining us on the call today. I don't have anything further, and we look forward to working with you in the future and speaking with you again on our next conference call. Until then, stay safe. Operator: Thank you. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Capital Clean Energy Carriers Corp. Third Quarter 2025 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Brian Gallagher, Executive Vice President of Investor Relations; and Mr. Nikos Tripodakis, Chief Commercial Officer. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, October 30, 2025. The statements in today's conference call that are not historical facts, including our expectations regarding sale or acquisition transactions and their expected effect on us, cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or share buyback amounts, dividend coverage, future earnings, capital allocation as well as our expectations regarding market fundamentals and the employment of our vessels, including delivery dates, redelivery dates and charter rates may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We make no prediction or statement about the performance of our common shares. I would now like to hand the call over to our speaker today, Mr. Brian Gallagher. Please go ahead, sir. Brian Gallagher: Thank you, operator. Good morning or afternoon to you wherever you are, and thank you for listening to the Capital Clean Energy Carriers Q3 2025 Earnings Call. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. So let's kick off with a highlight slide on Slide 4. Q3 2025 saw the company make significant progress across 3 fronts in achieving its strategic objectives. Firstly, we increased our charter coverage with another long-term time charter for up to 10 years on one of our LNG carriers currently under construction. Secondly, we completed the sale of 1 of the 3 remaining container vessels under our ownership, leaving us now with only 2 container vessels, both of which were on long-term time charters. And lastly, we have now secured financing for all of our MGCs and LCO2 multi-gas carriers, whose deliveries commence from January 2026 onwards. Our net income for the quarter from continued operations came in at $23.1 million. And I would like to note here that given the sale of the Manzanillo Express, the container vessel, we have now classified her under discontinued operations. So continued operations fleet refers to 3 -- sorry, 12 LNG carriers and 2 container vessels. Our net income figure reflects the special surveys that 2 of our LNG carriers, 14% of our fleet undertook during the quarter. The company fulfilled its ongoing commitment to fixed distribution of USD 0.15 per shareholder -- per share, sorry, to shareholders, thus retaining the company record of distributing a cash dividend for every single quarter since our listing way back in March 2007. Our Head of Commercial, Nikos Tripodakis, will guide us through another long-term charter contract addition and the encouraging dynamics within the LNG market landscape during the quarter later on. But I will now hand it over to our CEO, Jerry Kalogiratos, to take us through, firstly, the financial highlights. Gerasimos Kalogiratos: Thank you, Brian, and good morning or afternoon to everyone listening in today. In terms of operational and financial performance, this has been a rather routine quarter. However, I would like to highlight, as Brian pointed out, that we have now classified the Manzanillo Express as a discontinued operations due to its sale, which nevertheless had the full quarter before being delivered to its new owners early in the fourth quarter. I should add here that this is the 13th container carrier sale in 24 months, consistent with the company's strategy to pivot to gas transportation. Secondly, we reported the successful completion of our 2 special surveys during the quarter as our first 2 LNG carriers, the Aristos I and the Aristidis I completed 5 years of service. This is an important milestone for CCEC as it represents the first LNG carrier special survey under our stewardship. I'm pleased to report that both were completely successfully and ahead of schedule with a combined total of 38 days of off-hire for the 2 vessels and total cost of approximately $8.8 million or $4.4 million per vessel. So both the reclassification of the Manzanillo Express under discontinued operations and the 2 special surveys affected our results compared, for example, to the previous quarter. Despite an ongoing capital investment program of over $2.3 billion in our newbuilds, the dividend payout remains a core component of the company's value proposition to shareholders. The $0.15 dividend will be paid on November 13 to shareholders on record on November 3. This will be the 74th consecutive quarter that the company has paid a cash dividend. Moving now to the balance sheet on Slide 7. The key development here was securing of financing for 2 liquid CO2 carriers and multi-gas carriers and the 6 MGCs, which means that all 10 of our multi-gas carriers under construction have now secured debt funding as detailed in our earnings release. We will have more news on the financing of the 6 LNG carriers delivering in '26 and '27 in due course. And of course, I remind you that 3 of the 6 LNG carriers have already secured long-term employment. Our cash balance stood at a total of $332.2 million as of the end of the quarter. Our balance sheet remains strong with a sound net leverage ratio below 50%. You can see that our capital base continues to consolidate as we await the next schedule of ships to be delivered next year. Of our total debt, 79% is floating. Hence, looking ahead, we expect to benefit further now that the Fed has started cutting rates, including yesterday's 25 point cut. Moving to Slide 9. It is important to highlight the evolution of this chart since the beginning of the year as we have made significant progress in securing employment for newbuilding vessels despite the challenging market conditions. The latest long-term time charter we have announced today is for 7 years with 3 1-year options thereafter. The employment commences in the first quarter of 2028, and we expect to trade the vessel on short or index-linked time charters between its scheduled delivery from the shipyard in the first quarter of 2027 and the commencement of its long-term charter. I should add here that we have had a couple of questions already on the Attalos being allocated as the LNG vessel for the new contract announced today, as we had also suggested this would be the vessel for the 2 period charters we announced with our first quarter results in May. All 6 of our newbuilds under construction have optionality for our customers, as previously disclosed, and the specific vessel will be selected as and when the charter starts. So we have 3 charters to allocate to 6 vessels, and we'll do so nearer the time. And Slide 9 is illustrative of where we believe they will end up. Our average charter duration stands at 6.9 years across the fleet, and our LNG fleet showcases a firm period charter backlog of $2.8 billion of contracted revenue or 93 years and $4 billion of contracted revenue or 126 years if all options were to be exercised. To put this into context, in the fourth quarter of '24, we reported a firm charter backlog from our LNG fleet of $2.2 billion or 68 years. We continue to be in constant dialogue with counterparties regarding our LNG fleet in what has become increasingly a more active period market and looking for the right employment structure for our remaining open newbuilds. Turning now to Slide 10 and looking at the contracted revenue base in more detail. Overall, when it comes to CCEC, no single counterparty represents more than 19% of the $3 billion contracted revenue backlog. This diversification provides the company with a strong framework to build our gas transportation portfolio further with a mix of existing corporate relationships and new customers. I'm happy to disclose that the counterparty for latest contract award is a new name to our roster of energy majors, utilities and traders, thus diversifying further our customer base. I would like to finish off this section now with a quick look at our newbuilding CapEx program and our expectations with regard to its financing described with more detail on Slide 11. We ended the third quarter with $332 million of cash on our balance sheet. This cash level is before we received the net proceeds from our latest container sale of $26 million. From our newbuilding program of $2.3 billion, we have already paid advances by quarter end to the tune of $580 million. Assuming we draw the base financing amount for our newbuilds in line with the financing secured for the multi-gas carriers and the financing assumptions for the LNG carriers as outlined on Slide 11, we will be left after the delivery of all of our newbuilds with a net equity inflow of $216 million. That is without taking into account any cash flow generation from our existing fleet. I would like to turn now to our Chief Commercial Officer, Nikos Tripodakis, who will run through our LNG market slides. I will return with a summary and then be available to answer your questions along with Nikos and Brian at the end of the call. Nikos, over to you. Nikolaos Tripodakis: Thank you, Jerry, and good morning or afternoon, everybody. I would like to address 3 main subjects today. Firstly, the strong rise in the expected demand for LNG shipping on the back of an unprecedented surge in LNG supply growth. Secondly, the recent ban of Russian LNG from the European Union and the implication of this ban on the demand for LNG shipping. And finally, how scrapping and commercial removals of older vessels will facilitate the market rebalancing towards 2027 and 2028. Starting with Slide 13, we can see that the acceleration in the LNG growth that we commented on during the Q2 earnings call has gathered further pace during Q3. There has been a surge in LNG projects reaching final investment decisions, that is LNG projects, which have secured firm financing and are moving ahead with the construction of their LNG production facilities. Three of these FIDs alone came during Q3. In total, demand for LNG carriers from the 7 projects that have achieved FID in 2025 is ranging approximately between 70 to 120 [ vessels on ] assumptions as highlighted on Slide 13. The ignition for this growth has come from the Trump administration since January, and we anticipate even more FIDs to be achieved in the coming months, which will in turn create further demand for shipping. Now turning to another important development within our wider sector, the intention of the EU to band Russian LNG imports. We can see on Slide 14 that recently as part of its 19th sanctions package, the EU announced plans to bring forward the ban of Russian LNG in the beginning of 2027 from the previous target date of 2028. From an LNG freight perspective, in simple terms, this would require a replacement of a relatively short-haul voyage of 2,500 nautical miles from Yamal to Rotterdam with one of approximately double its length from the U.S. Gulf. According to analysts, Russian LNG is likely to flow East with a mix of transit in winter and summer. Overall, it is estimated that global LNG shipping ton mile demand would gain approximately 2% compared to 2024 levels. Clearly, there are additional considerations at play here, but overall, this development should be net positive for LNG freight. Moving now on the supply side developments, which are on Slide 15. We can see that the main development has been the record level of vessels removed with 14 vessels sold for scrap so far this calendar year. This is illustrated on the right-hand side of Slide 15, while the average age of LNG carriers exiting the fleet was 26 years, a new record low in a continuous downward trend since 2022. If we focus on the left-hand side of the Slide 15, we can see the rising numbers of older vessels that are idling and as such, effectively commercially removed from the market. Since the second quarter, there has been a sustained rise in steam and tri-fuel vessels standing idle, around 16% to 18% of steam vessels, which is approximately 35 ships are sitting idle, which means that are nearly 1/5 of all steam vessels stand without long-term or spot employment. Owners of these vessels have been choosing to idle or lay up rather than sell these vessels for scrap in an effort to exhaust any commercial opportunities that may arise, but it seems almost unavoidable for the majority of those vessels that after a sustained period of idleness, the lack of commercial opportunities in combination with an impending costly special survey will lead to even more demolition sales. The trend set in 2025 is very strong, and we feel that it is set to continue. In addition to the increasing number of vessels idling, we can also see the pipeline of vessels that are redelivering from long-term charters in Slide 16. As the chart shows, according to brokers, 86 steam LNG carriers are due to come off long-term time charter contracts between now and 2030, which reflects approximately 45% of the entire steam fleet. And this pipeline of redeliveries of steam vessels from long-term contracts in combination with the increasing numbers of older tonnage approaching the fourth and fifth special surveys as shown in Slide 17 enhances the argument around the inevitability of the removal of these vessels. On the left-hand side of Slide 17, we can see that an increasing number of vessels are entering the age range for the fifth or sixth special surveys. Some of these vessels may still be on long-term charter at the time of those special surveys, but the combination of the age profile as shown in Slide 17, the redelivery profile as shown in Slide 16 and the ramping up of idling as shown in Slide 15 paint the overall picture that these vessels are reaching the twilight of their commercial life and utility in the LNG market. Moving on to Slide 18. We summarize our view on the long-term supply and demand picture for LNG freight. As with any shipping segment, there are always a lot of cross currents and moving parts, but we have tried to incorporate the recent supply and demand developments on this chart. Firstly, to explain the chart, the orange dashed line represents the maximum potential growth in LNG demand for LNG carriers in view of global LNG projects extending to 2032, let's say, our high case demand scenario. The blue dashed line represents the number of LNG vessels required based solely on those projects that have reached FID status, a relatively conservative approach as we expect many more projects to reach FID in the months to follow. The dark gray bar represents the gross number of LNG carrier deliveries expected on a cumulative basis year-on-year, while the orange bars being the estimate from CCEC on LNG vessels removals. Lastly, the dark blue bars represent the net number between vessel deliveries and removals. So overall, we expect to see the inflection point in the LNG vessel supply moving from surplus to deficit sometime between 2027 and 2028, with the potential that this could even be earlier than that, given the trends outlined earlier. I will now hand the presentation back to Jerry for a summary of the third quarter and the company position going forward. Gerasimos Kalogiratos: Thank you, Nikos. Now focusing on our present and future fleet on Slide 20, provides an opportunity to round up where CCEC is and our direction going forward. We continue to be opportunistic about fixing long-term employment for our 3 open newbuild LNG carriers as there are increasingly fewer uncommitted LNG newbuildings available at a time when we see growing activity in the LNG industry with both new SPAs being signed and the FIDs moving ahead. As the slide clearly shows the ticks against each vessel indicates those with term employment. Remember, just 3 quarters ago, we had 6 open LNG carriers and owned a total of 8 containers. Today, we only have 3 uncommitted LNG carriers under construction and just 2 containers remaining in our portfolio. Our 10 multi-gas carriers are complementary to our LNG portfolio and leverage to the energy transition, and we expect to have more color with regard to their employment closer to their delivery. Finally, our 2 legacy container vessels are well underpinned on long-term charters, potentially out to the end of the next decade, but provide optionality for CCEC going forward. In short, in all parts of the CCEC fleet, we have focused and are executing on the chosen strategy in its specific area. So turning to the final slide, #21. And looking forward, CCEC is expect to control the largest LNG [indiscernible] carrier fleet available on the U.S. Stock Exchange in addition to the other 10 multi-gas vessels. The company has considerable contract coverage of 6.9 years already and strong visibility on cash flows, while we believe that we have an advantage over many of our peers in only being invested in the latest generation gas vessels. That concludes the prepared remarks by management for the third quarter of 2025. And with that, I will now pass it back to the operator for questions. Operator: [Operator Instructions] And the first question comes from the line of Alexander Bidwell with Webber Research & Advisory. Unknown Analyst: So taking a look at the newbuild charter, my math has shown the rate to be roughly in line with the 2 other charters that you signed earlier this year, sitting somewhere in the 80s. How do you feel these rates sit compared to the general market appetite? And do you see any room for long-term rates to push up or down? Nikolaos Tripodakis: The first comment is that this latest charter is higher than the previous 2. We feel that this is on the high end of where the market has been over the past 4 to 5 months. And in general, it is in line with the view that have been consistent throughout the year that long-term rates, 7 years plus or 5 years plus for these latest generation two-stroke vessels from 2027 and 2028 are in the very high 80s to low 90s range. So given the amount of demand that's coming from FID projects and all these new volumes that are expected to hit the market by the end of the decade, we feel that this has been sort of the low end of where the rates will be in the future. And for later deliveries, it will be even stronger. Unknown Analyst: All right. And then just taking a look at the relationship between carriers and new liquefaction capacity shown on Slide 18. So I believe last week, Qatar had pushed back its guidance for the North Field expansion by about 6 months. That shifts about 32 million tonnes of production to the right. So looking at delays -- or potential delays to some of these LNG projects that are under construction, what sort of impact should we expect to see on the balancing of the carrier market? And is there anything we could see owners do to help, I guess, mitigate the effects, say, sliding deliveries for newbuilds back a little bit to try to align with when some of these volumes come online? Nikolaos Tripodakis: As far as delays are concerned in these projects, what I can say is that most of these delays have already been priced in. So we have seen the biggest delay in the market has come from the Biden administration pausing the permits on these LNG facilities and production permits. Now with the Trump administration, there has been this resumption in permits and FIDs. So any delays that we should have hedged ourselves against have already taken place. We don't expect too many delays moving forward. Most of these projects will start in a range of 2028 to 2030. We are very positioned for that. And what we can do, just to answer your question, in the interim is either secure very short-term time charters, 1 to 2 years, just to get redelivery of the vessels back in the part of the curve that we feel is significantly short, which is '28, '29 onwards or just go for straight TCs from '27 and '28. It's always an exercise for us, and we just choose whatever we feel is the best choice at the time. Operator: The next question comes from the line of Omar Nokta with Jefferies. Omar Nokta: I just maybe wanted to -- I just want to ask about the market. And I think maybe, Jerry, your comments just now, I want to make sure I understood or heard correctly, that this latest charter that you've entered into or that you've announced today, that one is set to be basically higher than the 2 that you fixed, say, 6 months ago? Gerasimos Kalogiratos: Yes. That was Nikos. But yes, indeed, this charter is higher than the previous 2 charters, but do note also the slightly later delivery. Omar Nokta: Right. Okay. I guess I just wanted to ask kind of -- it feels like the -- when we look at charter rates, especially spot rates, obviously, they have been very weak. So it's been -- when we look at it from a big picture perspective, it seems that the market is quite soft and yet you're able to still secure contracts, even though as you say, it's a later delivery, it feels like that the charter rates are holding up much more firmly. It feels like it wasn't like that, say, perhaps the last downturn we saw in LNG shipping where almost like long-term contracts, maybe were no bid perhaps. What's different this time around where you can have a soft market today and yet still a very resilient term charter market? Nikos Tripodakis: It's a very accurate question. It's sort of a paradox that's unique in the LNG industry. And I think this comes from a combination of 2 things, mainly the oversupply of the current market and the trading economics, which favor deliveries into Europe from the U.S. So shorter tonne miles and an oversupplied spot market, along with all the steam carriers and the tri-fuel vessels, vessels that are more eager to secure employment and thus push the market down. And then on the other hand side, you have the exact opposite in a sense, which is a market from 2027, 2028, where you see this 50% increase in global LNG trade and those volumes will need vessels to transport them, efficient vessels that are in line with the latest regulatory requirements and emission controls and all that. And there are just not enough vessels for that part of the decade. So on the prompt, there's an oversupplied market, along with inefficient ships. And on the back end of the curve -- back end, let's say, '27, '28, you have this significantly undersupplied market given the amount of volume that is hitting the water. So everybody can see that. This is why charters are still paying levels that are 3 or 4x higher than the spot market. They do the analysis as well, but that is the summary. The market is undersupplied in terms of efficient tonnage. Everybody can see that. The spot market is oversupplied, and it all comes down to when this transition will take place. And our view is that will take place in 2027, 2028. Omar Nokta: Yes, that makes sense. I mean clearly, as you're highlighting in the slides, '27, '28 being the inflection point, it's interesting to see the market actually priced accordingly as opposed to wait until we get there. And then maybe just a quick follow-up. Just in terms of, say, the spot market. Obviously, it's evolved in recent years to being perhaps maybe a bigger percentage of the overall trade, but what's your guess or what's your estimate, what you would say that the spot market represents in terms of total LNG shipping? Nikolaos Tripodakis: Very small amount. Now the exact percentage, I would guess is lower than 15% to 20%, I would say, of the vessels on the water are trading in the spot market. It has become more liquid definitely as the total number of vessels on the water are increasing, but it is still not liquid enough in terms of -- if you compare it against the tanker segment or the dry segment. And it mainly affects older tonnage, steam vessels and 5-fuel vessels because the latest technology vessels like the ones we control are very attractive charters for long-term TCs, and they can actually base their economics with the most efficient vessels. Operator: [Operator Instructions] And the next question comes from the line of Liam Burke with B. Riley Securities. Liam Burke: Jerry, this sounds like nitpicking, but you do have one vessel coming off charter in '26. Have there been discussions? I mean, how are those discussions gone in terms of renewing on a longer-term basis? Gerasimos Kalogiratos: Let me pass this on to Nikos. Nikolaos Tripodakis: What we can share for now is that we have mostly been turning down bids for this vessel. We have had a range of discussions from short-term time charters, 1 to 2 years on either floating or fixed rate. Our view is that we will not have any issues whatsoever in securing employment for this vessel. It just comes down to making sure we secure the right type of employment and get the redeliveries we want for potentially in 2029 and then capitalize further on the tightness of the market. So we still have 1 year to make a decision on that. But yes, we feel confident about this. Liam Burke: Great. And Jerry, you mentioned on the multi-gas carriers that you'll be able to give us some color on the potential charters in the future. But what is your -- I mean, in the early discussions, what is your sense of the interest there? Gerasimos Kalogiratos: So the -- really, the first vessel that's due is in January, our handy 22,000 cubic multi-gas carrier liquid CO2 carrier. As we have discussed also in previous calls, this is really a sophisticated semi-ref handy LPG carrier. And of course, it can transport liquid CO2 as well as LPG, ammonia and petrochemical cargoes. It offers really very strong operational flexibility due to it's specification. It's quite a unique vessel, which will allow efficient performance across a wide range of trades and cargo types. And already, we can see that charterers are interested in that flexibility. So in terms of this market, which is really -- I think next time we will have our quarterly earnings call, this vessel will be delivered to us, all going well because its delivery is due in very early January. This market -- this vessel will trade in the semi-ref segment, which currently is showing a solid momentum despite the broader macro volatility. So a combination of specific LPG projects as well as sustained activity in the petchem parcel trades has been keeping tonnage in this segment well balanced and utilization quite high. And as a result, it has been supporting firm and healthy freight levels. So most requirements at present are in the 4- to 12-month range with TCE levels generally ranging from just below mid-900s. This is -- these vessels are on a per month basis up to around $1 million per month depending on terms and trade. So I think this is the kind of duration and TCE rates that you should expect, always subject, of course, to market developments until delivery because this is -- these type of vessels are fixed much closer to their window of availability unlike LNG carriers, which can be fixed years in advance. Operator: And the next question comes from the line of Climent Molins with Value Investor's Edge. Climent Molins: You talked a bit about the EU's move to fast track the ban on Russian LNG. But could you provide some commentary on whether we should expect an impact on the LNG market from recent sanctions by the U.S. on both LUKOIL and Gazprom. Gerasimos Kalogiratos: Personally, I don't think there should be any additional impact because already all major LNG projects with the exception of Yamal have been sanctioned. So we shouldn't expect at least any direct impact. If anything, we have seen lately a bit of a trade dropping between -- with Russian LNG being shipped from Arctic LNG 2 as well as port of [ Vaya ] to China on dark fleet vessels. I think by -- we might see more of that if the EU pushes in that direction. But I don't think the recent U.S. sanctions will be affecting directly the trade. There have been some discussions from what we hear in Asia, especially Japan, who have been importing LNG from the Sakhalin project. There has been some push from the U.S. to import more from U.S. projects rather than Russia. That would be, of course, fantastic for the market. That would be long-haul trade as opposed to a very short-haul trade. But it remains to be seen how this will develop going forward. Climent Molins: That's helpful. And this one is a bit more on the strategy side. You've been clear your 2 remaining container ships are up for sale at the right price. But is there any appetite to look for incremental acquisitions, be it on newbuilds or secondhand assets? Gerasimos Kalogiratos: I think if you look back at the CapEx slide we discussed, you can see that we have quite a significant CapEx moving ahead. That's on Slide 11. But at the same time, if you look at our cash position and the fact that after every vessel has been delivered on the back of rather, I would say, conservative financing assumptions, we will have an equity -- a net equity inflow well in excess of $200 million before we account for cash flow generation from the fleet. That means that by the end of our newbuilding program, we will have potentially a good cash position to look again at further acquisitions and growth. I think it's too early to discuss growth as it's important for us to secure more employment and more visibility. We are doing this. And as you can see, almost every quarter, we are delivering on that side. And then as we have a more stable footing in terms of our newbuilds, then we can also look at more acquisitions. I mean, as you can tell from our view on the market, we think that in the medium to long term, this is -- the LNG market is expected to be short of ships somewhere between 2027, 2028 inflection point, and then we will [ need ] the number of vessels. The more months that go by and orders are not being placed in shipyards, the potentially -- the tighter the market is going to be going forward in 2 or 3 years from now. So I think we want to take advantage of this tightness that we see going forward. But at the same time, we want to make sure that we have -- we are -- we have covered our base, and we are on a stable footing. Climent Molins: Yes, I meant on top of your current order book, but you did answer my question. Operator: There are no further questions at this time. I'd like to turn the call back to Mr. Jerry Kalogiratos for closing remarks. Gerasimos Kalogiratos: Thank you, operator, and thank you all for joining us today. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to AB InBev's Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investors tab in the Reports and Results Center page. Today's webcast will be available for on demand playback later today. [Operator Instructions] Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 12, 2025. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin. Michel Doukeris: Thank you and welcome everyone to our Third Quarter 2025 Earnings Call. It is great pleasure to be speaking with you all today. Today, Fernando and I will take you through our operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we'll be happy to answer your questions. Let's start with the key highlights. In the third quarter, we continue to navigate a dynamic operating environment with headwinds in China and unseasonable weather in the Americas, particularly in Brazil, constraining our results. After a slow start to the quarter in July and August, we saw improved performance in September. We remain focused on the consistent execution of our strategy and adapted where required. We maintained our disciplined revenue management plan and continued to deliver on our productivity initiatives. Consistent investments in our brands and innovations drove increased portfolio brand power and continued market share gains in key markets. Despite the challenging environment, we delivered another quarter of top and bottom-line growth, margin expansion, and U.S. dollar EPS growth. Our growth platforms of premium beer, non-alcohol beer, and Beyond Beer continue to outperform, and the quarterly GMV of BEES marketplace has reached nearly $1 billion. In the U.S., our portfolio is continuing to build momentum and gain share of the industry, led by Michelob Ultra, which is now the number one brand in the industry by volume year-to-date. Our solid financial results in the first nine months of the year reinforce our confidence in delivering our outlook for the year, given our deleveraging progress and strong free cash flow generation, the Board has approved a $6 billion share buyback program to be executed within the next 24 months, as well as an interim dividend of EUR 0.15 per share. We also continue to proactively manage our debt portfolio and have announced the redemption of $2 billion of outstanding bonds. In summary, we are confident in the resilience of our strategy and ability to deliver consistent results. We are investing to provide superior value to our consumers, and we are winning in key markets and growth segments. We are taking action where adjustments are required and are excited about the opportunities ahead to drive shareholder value creation through profitable growth and disciplined capital allocation decisions. Turning to our operating performance, while overall volumes were below potential, we grew revenue in 70% of our markets. The combination of our disciplined revenue management choices and portfolio of mega brands that command a premium price drove a revenue per hectoliter increase of 4.8%, resulting in top-line growth of 0.9% Our productivity initiatives more than offset transactional FX headwinds to drive an EBITDA increase of 3.3% with margin expansion of 85 bps. The strength of our diversified geographic footprint enables us to navigate the current environment and deliver profitable growth in the long term. Revenue increased in 70% of our markets this quarter, and we delivered bottom-line growth in four of our five operating regions. Now I'll take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the momentum of our portfolio continued, and we are increasing investments in our brands to fuel growth. In Beyond Beer, our portfolio growth accelerated with a revenue increase in the mid-40s led by Cutwater, which grew revenue in the triple digits. Cutwater is now one of the top 10 largest spirits brands in the U.S. and was the number one share gainer brand in the total spirits industry in August and September. In beer, our market share momentum was led by Michelob Ultra, the number one volume share gainer in the industry and now the largest brand year-to-date in both on and off-premise channels. Ultra has gained market share in all 50 states this quarter. The brand has 16% share of the industry in its top state and 8% average share nationally, but has less than 6% share of the industry in 20 states, so there remains a significant opportunity for further expansion and growth. Michelob Ultra Zero was launched early this year and is already the second largest non-alcohol beer brand and the number one fastest growing non-alcohol beer in the industry. Ultra is the superior light beer made for those who seek an active lifestyle and balanced choices. Now let's turn to Middle Americas. In Mexico, our revenue continued to grow, driven by disciplined revenue management choices. The industry was, however, impacted by a softer consumer environment and unseasonable weather, which resulted in our volumes declining by low single digits. With improved weather and consumer sentiment, our volumes improved sequentially throughout the quarter, gaining share and returning to growth in August and September. In Colombia, record high volumes drove low teens top-line and mid single digits bottom-line growth, with our portfolio estimated to have gained share of total alcohol beverages. In Brazil, market share gain and disciplined revenue and cost management offset a soft industry to deliver flat EBITDA with margin expansion. Our revenue declined by 1.9% driven by volume performance, which was negatively impacted by unseasonable weather and a softer consumer environment. When we look at our performance across both South America and Middle Americas, it is clear that the industry has been impacted by a combination of cyclical and one-off factors this quarter. Cyclical factors include inflationary pressures and low consumer sentiment, which have impacted demand not only for beer but all consumer categories to different degrees. What has perhaps been more acute for beer than other categories has been the unseasonable weather. Latin America accounts for 20% of the global beer volume, which is typically 1.5 to 2x the weight of other categories in the consumer goods area, and the region is even more relevant for our business while we are managing through the short-term headwinds. When we look ahead at the outlook for the category, the fundamental drivers are unchanged, and we see clear potential for industry volume growth as conditions normalize, as evidenced by Mexico where our volumes returned to growth in August and September. In Europe, continued market share gains and premiumization drove flattish volumes and margin recovery. We gained share of the industry in five of our six key markets, with our performance driven by our mega brands and non-alcohol beer. In South Africa, the underlying momentum of our business continued, maintaining share of beer and gaining share of Beyond Beer. Top-line grew by mid single digits and EBITDA grew by high single digits with margin expansion. Now moving to APAC. In China, revenue declined by 15.2% with our volumes underperforming the industry. While the overall industry has been impacted by a soft consumer environment, which has been even more pronounced in our footprint and key channels, we recognize that we have opportunities to enhance our execution and route to market to better align our results with our capabilities. We are a company of owners who strive for operational excellence. We have been working in China to right size inventories in line with the channel shifts, allocate resources towards areas of growth, and elevate our execution. We have a clear view of where to improve, and as we move forward, our priority is to reignite growth and rebuild our momentum. To achieve this, we are focused on increasing investments in our mega brands, leading innovation within the industry across packaging and liquids, strengthening our route to market in the in-home channels with an increased focus on online to offline, continuing our geographic expansion, and rebuilding our excellence in execution. We are moving with speed to ensure that our business emerges stronger and investing to be better positioned to outperform in the long term. Now let's take a look at the key highlights of our three strategic pillars, starting with leading and growing the category. Our megabrands continue to lead our growth with net revenue increasing by 3%. Corona continued to drive premiumization across our markets, growing revenue by 6.3% outside of Mexico and growing volumes by double digits in 33 markets. Through the consistent execution of our category expansion levers, we aim to increase participation across our markets by offering supreme core brands, innovating in balanced choices to provide consumers with no and low alcohol, low carb, zero sugar, and gluten-free options, and expanding our premium and Beyond Beer portfolios. On a rolling 12 months, participation of legal drinking age consumers within our portfolio was stable. In non alcohol beer, our portfolio momentum continued with net revenue growing by 27%, led by the growth of Corona Zero. We are now leaders in eight of our top 14 non alcohol beer markets and estimate to have gained share in 70% of them. Non alcohol beer is a key opportunity to develop new consumption occasions and increase participation, and we are investing and innovating to lead the growth. This quarter, we announced a partnership with Netflix, which is the world's most popular streaming service. They are creating content that shapes culture, and watching Netflix has become a new social occasion. Our iconic brands are part of the fabric of society in the markets in which we operate, and it is a perfect pairing to bring together beer and entertainment in this unprecedented way. What makes our partnership with Netflix unique is its global reach and scale of activations across our portfolio of brands. Consumers will see this come to life through co-marketing campaigns, activations, title integration, limited edition packaging, and even at live events. What we are most excited about is how this partnership will create more meaningful experiences for consumers across their passion points, including comedy, music, cooking, and live sport events. The beer and Beyond Beer category remains vibrant, and we are leading innovation to address emerging consumer needs, providing choice and superior value in different occasions and balanced choices. We are innovating liquids to provide consumers with different options to meet different lifestyles. From the rollout of Stella gluten-free in Brazil to Harbin Zero Sugar in China to Michelob Ultra Zero in the U.S. and Cass 4.0 in South Korea, we are leading the category in liquid innovation. In Beyond Beer, Cutwater continues to expand, growing volumes by triple digits, approaching $0.5 billion in annualized retail sales, and is now a top 10 spirits brand in the U.S. After a successful rollout in Africa, our flavored beer Flying Fish is now expanding to Europe and the Americas. In adjacent beverage categories, we are taking the learnings from developing a number of successful brands in the energy drink space in the U.S. and have launched Phorm Energy to participate directly in this segment. Let's now turn to our second strategic pillar, digitize and monetize our ecosystem. In the second quarter, BEES captured $13.3 billion in gross merchandising value, an 11% increase versus last year. The growth of BEES marketplace accelerated with more than 500 partners on the platform. Quarterly GMV increased by 66% versus last year and is now approaching $1 billion. In DTC, our digital platforms continue to enable a one-to-one connection with our consumers and help us in developing new occasions. Our digital platforms generated $138 million in revenue, serving 11.9 million consumers and generating close to 18 million orders online. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, Optimize Our Business. Fernando Tennenbaum: Thank you, Michel. Good morning. Good afternoon, everyone. I will take a few minutes to discuss the progress we have made in optimizing our business. Our EBITDA margins improved by 85 basis points this quarter, with expansion in four of our five operating regions. We know that each quarter will be different, but we are confident that the combination of our leadership advantages, disciplined revenue management, continued premiumization, and efficient operating model create an opportunity for further margin expansion over time. Moving on to EPS, we delivered underlying EPS of $0.99 per share, a 1% increase in U.S. dollars and a 0.3% increase in constant currency versus last year. EBITDA growth accounted for a $0.09 per share increase, partially offset by higher other financial results, which increased due to a higher cost of FX movements and cost of hedging. The objective of our capital allocation framework is to maximize value creation for our shareholders. Given the progress we have made on our deleveraging and our solid year-to-date financial results, we have increased flexibility on our capital allocation choices. We remain confident in the long term growth and value of our business and have announced today a new $6 billion share buyback program to be executed within the next 24 months. In addition, we have announced an interim dividend of EUR 0.15 per share, our first interim dividend since 2019. We also continue to proactively manage our debt portfolio and have announced a bond redemption of $2 billion. Our bond portfolio remains well distributed with no relevant near and medium term refinancing needs. Upon completion of the bond redemption announced today, we will have no bonds maturing through 2026 and we have no financial covenants. Our results in the first nine months of the year, the resilience of our strategy and the strength of our megabrands all reinforce our confidence in our ability to deliver on our 2025 outlook of 4% to 8% EBITDA growth. With that, I would like to hand it back to Michel for some final comments. Michel Doukeris: Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap on our performance year-to-date. We are encouraged by our results for the first nine months of the year as we delivered EBITDA growth at the midpoint of our outlook range. Underlying EPS increased by mid single digits in U.S. dollar and by 12% in constant currency. While our volume performance has been below potential due to a combination of cyclical and short term factors, we remain confident in the long term fundamentals of our business. With strong free cash flow generation, we have increased capital allocation flexibility and announced a $6 billion share buyback program, an interim dividend of EUR 0.15 and a bond redemption of $2 billion. As Fernando just mentioned, our performance year-to-date and the strategic choices we have made position us well to deliver on our outlook for the year. Our brands have met consumers in some of the most iconic events in sports and culture this year, creating moments of celebration and cheers. But, as we look to 2026, there is an incredible opportunity to activate the beer category because next year, on top of our powerful lineup of mega platforms, we have the FIFA World Cup in North America. This iconic event encompasses 104 games across three countries. Each game is an opportunity to bring beer and sports together and create unforgettable moments for our consumers. With that, I'll hand it back to the operator for the Q&A. Operator: [Operator Instructions] Our first questions come from the line of Edward Mundy with Jefferies. Please proceed with your questions. Edward Mundy: Two questions for me please. The first is around the board's thinking around the shift to a two-year buyback program of $6 billion. Given the balance sheet repair, is it to signal clearer capital allocation priorities from here? Is there also a practical reason insofar as it gives you a little bit more flexibility in the pace of buybacks, given that historically you've tended to get your buybacks done ahead of schedule? That is my first question. My second question is around the broader category, the broader beer category. One of your peers recently highlighted a medium-term outlook for global beer of about 1% volumes. Putting the external environment to one side, how important is it that the rate of pricing required across the broader industry could start to moderate after the huge extremes over the last few years given inflation and negative transaction? How important is it that the pricing going forward might become less meaningful in helping to stimulate volume growth? Fernando Tennenbaum: Fernando here. Let me take the first question and then I will transition to Michel. When we talk about capital allocation, I think it's always important to put in context that the objective of the capital allocation is to create long term shareholder value. The framework is unchanged and remains very disciplined within our choices. What is evolving is that now that we have an improved balance sheet, we have increased flexibility and what you see is that we are exercising some flexibility. The share buyback in itself is an effective use of capital for shareholder value creation. If you think about it as we move from an inorganic to organic transition, I think the first thing that was important for us was to give a framework so people understand the sort of growth that we can deliver. That's the medium term outlook that we provided four years ago. If you look at what we did in the beginning of this year, we provide a framework with the ambition for a progressive dividend. I think now the share buyback is just another natural evolution on that, a two year share buyback of $6 billion, but that should not be seen on a standalone basis. It's the share buyback, it's also the interim dividend which is consistent with our ambition of progressive dividend over time and also the debt reduction that we announced which is consistent with our capital allocation priorities. Much more of an evolution and kind of the consequence of the additional flexibility that we have nowadays. Michel? Michel Doukeris: I think that just building on the share buyback point, there is a lot of consistency on the capital allocation choices and this, of course, is the return to shareholders, the debt, but that is the number one priority that we have, which is organic growth. We'll continue to invest for this number one priority, which is drive the category and the company forward on an organic basis. In terms of the category overall, I think that we shared with you during the capital markets day the view that we have around the category and the potential that we see for future growth coming from structural tailwinds related to economic growth, demographics, and where this growth most likely will come from developing and emerging markets where we have a strong footprint, strong growth to market, and scale. Therefore, we are in the same line where the full potential of the category today would be around 1% growth in normal conditions. The more we increase the addressable market with these Beyond Beer propositions, there are opportunities for us to further stretch this growth, right? Looking at the short term, I think that we see this Latin America impact on the beer category overall. Latin America is very important for CPGs, but is much more important for the beer category to the range of almost twice the size that it represents for beer versus other CPGs. We saw some pressure across CPGs overall in Latin America, but this is more impactful for beer and even more for us because Latin America is much bigger for us than it is for beer overall and for other CPGs. When you think about price, I think that there are two components on that. One is that beer is an affordable category and affordability is very important for beer. And after 3, 4 years of high cost pressure, high inflation for us and for consumers in general, of course we had to be very disciplined in revenue management and to recover our margins, as you just saw during the webcast, to continue to recover our margins over time because of revenue but also cost discipline. As we look forward, inflation is normalized, coming down, so we would expect less pressure on the prices coming from inflation. I'm of the view that we should be very disciplined as category leaders to continue to build over time the capabilities to move prices with inflation so we can continue to recover our margins, but also have a good category and ability to deliver on the investments and everything that we want to do for the future. And how you do that? You need to balance, as we always do, the affordability with the ability to build brands, because premium brands, they command premium price, use the right revenue management capabilities. A good revenue management strategy needs to deliver at least with inflation. This is in the long run, because in the long run we need to capture the cost increase and the opportunities that we have to premiumize in the market. Nothing changed on our side there. I think that what's going to change is a little bit of the environment because inflation is coming down, therefore less pressure will hit consumers. Operator: Our next questions come from the line of Mitchell Collett with Deutsche Bank. Please proceed with your questions. Mitchell Collett: I've also got two questions, I think one for each of you. The first one is on longer term volume growth. I mean, you cited some of the external factors that have impacted not just this quarter, but overall 2025. How do you think about volume growth longer term for the category, particularly in your footprint? You gave the comment that 2026 offers an incredible opportunity to activate the beer category. Do you think you can get back to volume growth in 2026? My second question, which I think is for Fernando, is can you give us any color at this stage? I know it's early on the potential impact of input costs in 2026. I'm specifically thinking about the impact of FX and the timing of your FX hedges. Michel Doukeris: I think that you're right, like 2025 is being very typical and that is this combination of the pressure that inflation has been built over consumer and the consumer baskets. We see this overall across many markets, reduction on the total basket, while beer and alcohol has been maintaining the share of baskets. It's really about a little bit of pressure on consumption. There is this big one-off of this change in the weather pattern because of the La Niña that is impacting the Americas. Some countries such as Brazil were heavily impacted by that. The fundamentals behind the category growth remain the same. As we said before, a lot of this growth, projected to be over 80%, will come from developing and developed markets. Our footprint is very strong in these regions and I see no reason today why this will change over time. Next year then becomes a very special year. While you know that we don't guide for volume, we see the outlook as a positive one because there is less pressure on consumers coming from lower inflation. As salaries rebuild, purchase power rebuilds, prices tend to normalize. Consumers tend to be in a better position. I'm not making any forecast on the consumer sentiment, neither the purchase power for next year. Consumer sentiment is impacting this year and as everybody else, we hope that things will normalize over time. If this bounces back, it should be a positive as well. Overall for CPGs, it's hard to believe that's going to be worse than what we saw this year. The worst case scenario should be the same, but we think that can be better. Then we have FIFA. FIFA over time is being 0.20 to 0.25 impact on the category in the years that we have the games. The fact that's going to happen in North America is great for the category because it's going to impact the overall Americas, of course, but then has great viewership time across Europe and Africa and of course in Asia. People always adapt. The nightlife is much stronger as a consumer occasion in APAC. I think that's going to be a great year for FIFA. Everybody's very excited. The games will be longer next year because more teams, so more people participating. We can't wait to see the fans across the globe gathering and gathering over a beer to watch for that. We continue to work hard focusing on what we can control. You see that the growth of non-alcohol is a great opportunity for us. Our Beyond Beer portfolio continues to accelerate and we continue to innovate in the balance choices. We are providing more options for consumers in more occasions. We are doing our part and we are looking forward to see how consumers will react next year. Fernando Tennenbaum: Mitch, Fernando here. Your question on COGS. We don't provide any specific guidance on cost of goods sold, but you know our hedging policy always hedge 12 months ahead. If you look at where FX is today and what it was one year ago, you can get a good sense on that. From where the market is, it's kind of more like a normal year. Once again, I think we said normal year in 2025. I think 2026 is more of a normal year. Different dynamics in different markets, I think next year probably given where you see Midwest premium today, probably a little bit more pressure on the U.S., but then again, this is based on current market prices. They can always move around and effects a little bit the other way around as we saw in 2025. In 2025, we saw more pressure in the first half given the currency behavior in 2024 and more pressure in the second half, I'm sorry, and less pressure in the first half. In 2026, given how things are evolving, things continue to be the same way. Likely to be the other way around, but then again, this is basically on current effects. We still have two months to go, but let's keep monitoring that. Operator: Our next questions come from the line of Laurence Whyatt with Barclays. Please proceed with your questions. Laurence Whyatt: A couple from me as well, please. Firstly, you kindly gave some information on the exit rate in Mexico suggesting that was improving throughout the quarter. I was wondering if you had a similar view on what was happening in both Brazil and Colombia just to see if we're getting a similar consumer improvement in other parts of Latin America. Secondly, perhaps Fernando, historically you would say that going below 2x net-to-EBITDA was value destructive for AB InBev, just wondering if you continue to share that view and what steps you could take if that metric were to be getting close to being hit. Michel Doukeris: Yes, we made a comment on the exit rate for Mexico because I think that was very telling the fact that once the price environment normalized a little bit, the weather was slightly better. We could see not only our market share bouncing back, but also volumes improving through August and September. Unfortunately, in Brazil it is a tale of two stories. I think that the industry overall remains very impacted by this very unseasonable weather. At this point, it can really be said that's unseasonable because the winter was cold. Yes, winters can be cold, but you see September is usually much better weather in Brazil, even October, and still cold and wet in a very strange way. Brazil didn't improve a lot for the weather. Of course, we've been adjusting our execution. Relative prices in the market improved after more than a year of prices being very open on the gap, and our share bounced back strongly, which reinforces the strength of our portfolio. The way that our megabrands are growing in Brazil and the share gains on the premium segment that continue to accelerate. When you look at Colombia, Colombia is not getting all this impact. Colombia volumes continue to grow, share of alcohol beverages continue to improve, very strong performance. Consumer confidence is not that high, but not as low. Inflationary pressures in Colombia are more moderate, so consumer is in better shape there than it is in some other parts in Latin America. Of course, this all is bouncing back and now we are looking at the summer so we can see really where the industry is going to land overall and how the weather is going to be. As we said, as we look forward for 2026, some of these one offs can actually be positive as we build back in 2026. Fernando Tennenbaum: And Laurence, it's Fernando here. Your question on leverage. We've been very consistently saying that our optimal capital structure is around 2x. It's also fair to say that most of the benefit of leverage you get once you get to 3x. The long term goal is still 2x, but you have less of an urgency to go there. You can have more flexibility once you're below this level, which we reached at the end of last year. Of course, every year is going to be slightly different. Sometimes you have effects, fluctuations, but the resilience of our business gives us the consistency to be more on the, as I can say, more on the offense now. Bear in mind that the priority #1 is always organic growth. We keep investing, we keep, if you see this quarter, sales and market, we continue to invest there, but definitely way more flexibility and kind of still 2x is the optimal capital structure. Operator: Our next questions come from the line of Rob Ottenstein with Evercore ISI. Please proceed with your questions. Robert Ottenstein: Thank you very much. Two questions from me as well. The first one is I want to focus on the announcement that you've won the Champions League. That came as a bit of a surprise to me. So maybe put that in the context of how you're looking at sports and some of these big assets, how that's evolving. Most importantly, obviously there's a lot of big numbers on this. I don't know if you can talk about the numbers on this, but maybe talk about the ROIC, how you see that being an efficient use of marketing investment, and also a little bit about timing. My understanding is that Heineken still has it for the next couple of years. That's the first question on the Champions League. The second question, arguably in the U.S., perhaps the greatest success this year has been Cutwater. That's a brand that you've had for a number of years and it's just exploded this year. Maybe talk a little bit about the success that Cutwater is having this year, what you think the drivers are for that, whether you think that's sustainable, what you've learned from it, and can you take that model to other countries? Michel Doukeris: So starting with the recent announcement and the role of these events, sports and occasions, I would start by talking about consumers. This is the main reason why we do the investments and why we are lining up into mega platforms. Consumers are behaving different and consumers are as usual evolving. As such, it was very important as we build our strategy and we fine tune our execution to make sure that we are leading and moving fast to where consumers are and will be more and more. That is why when we start leading in terms of execution with this concept of mega platforms and megabrands, integrating our brands with big partner, big partnerships, big events and relevant cultural moments is key for our brands to win in the long term. As I said before, these winning brands that command premium price and premium positioning are very important on our strategy. This works for FIFA, this works for Netflix, this will also work for UEFA, which is an important component as we build this integration with platforms and culturally relevant moments that consumers are looking for, are talking about and are experiencing. It is all about the consumer, how we integrate our brands and these relevant cultural moments and how our brands over execute competitors within the category. That is a great addition. We could not be more excited with the opportunity. As everything moves, 2027 is the right timeline for us to start executing on that. The second part on the U.S. and Cutwater, I think that you have been following. We have been talking about this portion of the consumer and consumption occasions where bitter is not the choice, where more refreshing is not the choice, where people want to indulge a little bit more, where the palate is a little bit more sweet, right, and more mixed. We decided to bet on that back in 2018 with Cutwater. We have been building this brand very patiently, but we have built the brand in a very high quality way. Consistency, right distribution, right price as a premium brand, right investments, right consumer occasions and as the brand improves availability, as consumers get to know the higher quality that we have on this proposition and we position very right for the right occasion, I think that the brand is gaining relevance. What we saw over the summer now is consistent brand building and relevance getting to a tipping point. This brand is now the number one share gainer in spirits, triple digits over the summer, becoming one of the top 10 spirits brands in the U.S. and built from scratch. If one would say what we learned from that is that yes, we can build brands in a very relevant way, yes, we can build this Beyond Beer segment to be what we expect to be for us, so incremental and something that will increase our addressable market. We have been rolling out this notion of the Beyond Beer and how to tap into more occasions across many markets. I gave here during the webcast the example of us rolling out now Flying Fish across many different markets from Africa to Europe to Americas. The early results and indicators are very positive as well. There is more to come and we continue to build Cutwater. We are just at the beginning. I think that the brand, still very small for us, is accelerating and we have a big ambition to drive not only Cutwater but Nutrl and the other propositions that we've been betting on in this Beyond Beer space. Operator: Our next questions come from the line of Andrea Pistacchi with Bank of America. Please proceed with your questions. Andrea Pistacchi: This is the first one. So your volumes have been more challenging this year. But after 9 months, you're still very much on track, in fact, you're at the middle of your 4% to 8% EBITDA guidance range. So I wanted to ask whether you had to make any adaptations to the plans that you would have had at the beginning of the year, maybe more agile revenue management or something more tighter cost control? And again, then you would have had at the beginning of the year. If you could discuss this a touch? And then just on the MAZ, the Middle America Zone, there's a question earlier on Colombia, I just wanted to broaden it slightly. So Middle Americas ex Mexico is very profitable for you. It continues to deliver solid volume growth. So could you just discuss a bit on how the environment is in these markets, why you think it's different from, say, Mexico, Brazil? How confident you are in your ability to continue to deliver volume growth in these high-margin countries in the next 12 months-or-so? Michel Doukeris: I think that in a way they are in the same vicinity right on volume and how performance and our execution is adjusting, adapting on this environment. I think that the environment is one that's very dynamic and we've been seeing this of course over the last few years. Every year there is some extra components. As I said before, to me, the extra component on this dynamic operating environment this year was the unseasonable weather in the Americas, but more pronounced in Latin America. I think that we've been adjusting. We often say here in house that our strategies, just like beer, can be used in many different occasions. We've been adapting the execution. We are very agile in reallocating resources. Our portfolio has breadth that is useful for us in this moment because we have from premium brands to value propositions that they can adapt and be used to accelerate a little bit our execution when it's needed. The discipline in cost management, the discipline in revenue management was very, very important for us. A differentiator, I would say, during this period because despite a very challenging consumer environment, we are able to deliver margin expansion, EBITDA growth, EPS growth. Saw very solid financial results that are a product of our very solid operational capabilities and delivers through the quarter. When you look at mass, it is not only very important for us and very relevant for our performance during the quarter and in the long run, but, of course, this quarter specifically because overweight in the beer category versus other CPGs and overweight for us ABI was a big impact on the volume. It is relevant. We are adapting, brands are performing very well, we continue to invest, we continue to manage the portion of the business that we control. And of course, in the long term we continue to see this as a very relevant growth driver for the industry. We are best positioned to capture this growth over time with the operations, scale, and brands that we have in the region. Thank you for the question. Operator: Our next questions come from the line of Celine Pannuti with JPMorgan. Please proceed with your questions. Celine Pannuti: My first question, could you, coming back maybe on the Cutwater question, but in a broader sense, how big is Beyond Beer now for you in terms of the portfolio? You said it grew, I think, 27%. Where do you see the capabilities outside or the opportunities outside of North America? If you could help us a bit frame the growth journey and as well the profitability of that category both in North America and outside of North America. My second question, I think it was an impressive performance in gross margin despite some of the FX headwinds that you were facing. Could you give us a view on the building block on the gross margin performance in the quarter, please? Michel Doukeris: I think that I'll hit some numbers quickly here to cover the points that you asked about. I think that the last time that we talked about that, I mentioned that Beyond Beer is a great opportunity for us because it cuts across this interaction of the different alcohol beverages and is incremental for us, right, so, 2/3 plus of the volume that we capture in these occasions from these consumers is incremental to our portfolio. I also remember that the last time that we talked about this, this was around 1% of our overall volume. This today for us is around 2%. It is growing 27%. The opportunity here is huge because the addressable market outside of the beer category is very relevant and is bigger than the beer category itself. It is a huge addressable market. Today it is a very small portion of our volumes, but it is growing very fast. It is all about the consumers. There is a group of consumers there that indulge in different occasions with different liquid profiles. We have been learning a lot about that and we have been having some very successful launch and scale up products in this area. Cutwater, Nutrl, Brutal Fruit, Flying Fish, Busch Light Apple, to mention a few of them. On average, they are sold at higher prices than the beer equivalent products that we have. They have profitability per hectoliter per SKU that is higher than the profitability that we have with equivalent beer SKUs. I think that we continue to work hard on that. This is small for us today, 2% of the portfolio, but it is big in our opportunity to grow with more consumers in more occasions and in a very large addressable market of consumer occasions and volume pool. I'll hand over to Fernando to the second question. Fernando Tennenbaum: On the gross margin side, I think the gross margin side one is a function of your health brand portfolio. You see the net revenues per hectoliter. As Michel said, premium brands command premium pricing. You can move with the revenue management agenda. The second component of that is of course the cost of goods sold. In the cost of goods sold, you have one component that is the FX and commodities, which is market price, but you have the other components, which is the efficiencies, the kind of fixed costs. There is always a kind of opportunity for us to keep driving on that. For me, it's a combination of strong portfolio with premium brands and also driving efficiency on the cost of goods sold. If you remember, we talked about it several times that when we look for margins, we still see opportunities for us to improve our operations, to improve our margins and a lot of that would be coming from gross profit. It's just delivering on what we already mentioned several times in the past. Operator: Our next questions come from the line of Simon Hales with Citi. Please proceed with your questions. Simon Hales: My first question, I wonder, Michel, could you talk a little bit more about China? Again, I wonder if you could quantify how big the destock was in Q3 in the context of the little over 11% fall in volumes, and should we expect some further destocking, do you think, in Q4? Is there any reason to believe in overall terms that your Q4 volumes in China will be less bad than they have been in Q3? Perhaps just associated with that, you highlight some new innovations that you've got coming in the market, Magnum and some 1-liter cans, are they in market yet or will they be in market in Q4? That's the first question. The second one, a little bit more briefly, I wonder if you could talk a little bit about the early consumer and retail reaction to the launch of Phorm Energy in the U.S. and maybe highlight what really differentiates that brand from other competitors in the energy space. Michel Doukeris: On China, I think that what we highlighted in prior quarters is a kind of one third of what we see in the volumes is coming from really geographical footprint, channel footprint. One third comes from these adjustments on the inventories. You give me here an opportunity I'll take to talk about this. I think that just so I'm clear about the adjustments on the inventories, of course, when regions start to decline, we need to adjust our inventories with the wholesalers so we can have a healthy operating environment. This is what we are doing this year as channels shift as well. You have a second adjustment that needs to be done so we keep the channels healthy, and once they rebound, we can then grow with the channels without stressing the ecosystem. One third is really the shift that happened between on and off premise, where the off premise started growing faster. The propositions that grew in the off premise are more on the core plus sub premium, and then this caused a share loss for us because we were more on the off premise, and we are of course smaller and less distributed in the off premise. Here is where we are making most of the adjustments. When we look at China, most of this adjustment is being already done. There is still, of course, a little bit to be done as you go through October, November, December, but should not be beyond the fourth quarter. At the same time, because we start expanding distribution off premise, adjusting innovation, adjusting execution. That will be a combination of continuing to right size the inventories, but then having acceleration on our STRs and some of the innovations that we launched and tested. You mentioned BUD Magnum, very successful in India, very successful where we launched it in China. We will start to roll it out now, not only the product itself, but some very interesting new packaging that is making a big strike in China will come to BUD Magnum. We had the new Corona can called drop line can, which is a full lid opening can. That's very interesting. We launched it first in O2O, was a big success, and now we're going to expand distribution on this packaging. We have some new deals coming in Harbin as well, not only the expansion of Zero Sugar, but some new propositions there that will be helpful as we further enhance our route to market in the off-premise. Inventory adjustments, one-third channel shifts, one-third, these both should phase out as we go through quarter 4. And then we have increased availability in the off-premise, increased investments for execution and innovation that will start to kick in in quarter 4 and will be very relevant for us in the next year. Phorm is interesting because in a way we've been participating in the energy drink in the U.S. for over a decade, and we have had some very successful scale up of brands in our network, but we were never majority owners of any of these brands. While we were an important component of the scale up and growth of these brands, we were not the owners. The latest one we divested at the beginning of this year, end of last year, was a good divestment, was a good run of the brand. But now we have a brand that we are majority owners, committed to the long term. Incredible partners that are with us in the journey from our wholesalers to the Phorm partners to the UFC. Not UFC, but Dana White partner with us in building that. Brand launch is being very exciting. The product is great because I think that the most differentiated thing is the fact that we are focused on a very specific consumer cohort, those who do the work and need this energy every day. The product brings this clean energy approach, very balanced elements, and I think that the proposition is a strong one, is getting good traction, and we are just at the beginning. I think that there will be a nice upside coming next year because the launch was this year. Distribution is building, awareness is building, and we have some flavors that we are expanding on the back end of this year and will be fully available next year. The most important thing here is our commitment and investment to the long term, because now we are majority owners of the brand and we have incredible partners that are with us on the journey. Operator: These were the final questions. If your question has not been answered, please feel free to contact the investor relations team. I will now turn the floor back over to Mr. Michel Doukeris for closing remarks. Michel Doukeris: Thank you very much. Thank you, everyone, for joining, for the ongoing partnership and support for our business. I hope that you are all doing well. Remember to drink a beer for Halloween, and we'll talk soon. Thank you. Operator: Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and enjoy the rest of your day.
Operator: Good day, and welcome to the Cushman & Wakefield Third Quarter 2025 Earnings Call. [Operator Instructions] please note that this conference is being recorded. I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Thank you, and over to you. Megan McGrath: Thank you, and welcome to Cushman & Wakefield's Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our Investor Relations website at ir.cushmanwakefield.com. Please turn to the page in our presentation labeled Cautionary Note on Forward-Looking Statements. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations of GAAP to non-GAAP financial measures, definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release and the appendix of today's presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2024 and in local currency, unless otherwise stated. All revenue figures refer to fee revenue, unless otherwise noted, and any reference to organic growth excludes the impact of last year's divestiture of our non-core Services business. And with that, I'd like to turn the call over to our CEO, Michelle MacKay. Michelle MacKay: Good morning, everyone, and thank you for joining us today. What you will see in our results is momentum across all areas of the business as our unique runway puts us in a position to continue to grow organically. This quarter, we delivered the largest third quarter leasing revenue in the history of the company. We set a new high watermark for third quarter cash flow generation. We announced an additional $100 million debt prepayment, bringing our total debt paydown to $500 million in a 2-year period. Year-to-date, we have improved adjusted EBITDA margin by 70 basis points compared to last year. We have continued to drive down our cost of capital with our recent term loan repricing achieving the lowest credit spread in the history of the company and the recent amendment of our revolver, which further lowered our borrowing costs. These actions have fueled strong year-to-date earnings growth. And today, we are raising our 2025 adjusted earnings per share guidance for the second consecutive quarter to 30% to 35% growth. And while this is outstanding performance, consider that we have accomplished it while building out our data and AI infrastructure and continuing to invest organically for growth. We have onboarded new institutional capital markets advisers with total average gross revenue more than 200% higher than those recruited in all of 2024, hiring over 45 advisers in key markets to expand our global capital markets platform. We are investing in our services platforms, accelerating our third quarter organic growth to 7%. We are investing in our project management platform, where EMEA revenues surged by 30% this quarter. We are investing and retaining our top leasing talent, driving a year-to-date increase in the number of large and mega deals by over 40%, underscoring our success in penetrating high-value opportunities. The performance is clear evidence of the accelerated pace at which we are executing our strategy, simultaneously expanding earnings and reducing leverage precisely as we committed to at the onset of our journey 2 years ago. Now I'll hand the call over to Neil to provide a more detailed review of our third quarter results. Neil Johnston: Thank you, Michelle, and good morning, everyone. Before I get started, a quick reminder, all comparisons are to the prior year and in local currency and organic figures exclude the impact of last year's divestiture of our non-core Services business. Unless otherwise noted, all revenue figures refer to fee revenue. Our third quarter results highlight 3 key themes. First, we are seeing clear momentum in our business as revenues expanded across our segments. Second, with improved execution, we are translating this accelerated growth into consistent bottom line performance, delivering our fifth consecutive quarter of year-over-year adjusted EPS growth. And third, this momentum and execution have allowed us to accelerate our balance sheet transformation, repaying $250 million of debt since July. Q3 revenue of $1.8 billion increased 8% with organic revenue of 9%. Adjusted EBITDA rose 11% to $160 million and adjusted EBITDA margin expanded 23 basis points to 9%. Our year-to-date adjusted EBITDA margin growth of roughly 70 basis points reflects strong operating leverage and effective expense management aligned with our growth strategy. For the quarter, adjusted EPS grew by 26% year-over-year to $0.29 from $0.23 a year ago. Now turning to revenue performance by service line. Our leasing business, which grew 9% in the quarter, continues to exceed expectations. In the Americas, leasing grew 11%, driven by a flight to quality in office and industrial. In both sectors, flight to quality remains a key theme and continues to lift average revenue per lease. Office activity remained robust and is becoming increasingly broad-based. High occupancy in premium buildings is driving rents higher and prompting tenants to consider the next tier of quality assets. This healthy underlying demand is also creating opportunities in areas such as project management as owners work to make their buildings more competitive. In industrial, demand is higher for modern facilities. For example, newer properties built after 2020 have recorded 196 million square feet of net absorption so far this year, accounting for virtually all of the industrial net absorption. In EMEA, leasing grew 9% as the U.K. and Spain both performed well. In APAC, where leasing revenue declined 6%, strong performance in Singapore and Australia helped mitigate a tough comparison in Greater China. Overall, investment in the APAC region remained steady, and we believe the underlying outsourcing and development trends that have driven the region's success are still intact. Shifting to capital markets. The business continues to scale meaningfully, delivering 20% year-over-year growth. In the Americas, revenue grew 16% with double-digit growth across all asset classes and deal sizes, reflecting the depth and breadth of the market, supported by healthy fundamentals and sustained momentum. Multifamily and office transactions were both particularly active, while industrial benefited from an increase in average deal size. Our work to enhance our capital markets platform has created strong momentum in this business line. Internationally, capital markets also performed well, with EMEA revenue up 14%, driven in large part by the Netherlands, where we executed a large debt financing deal. APAC Capital Markets revenue grew 84% with the largest contributions coming from India and Japan, where transactional markets remain healthy and institutional funds continue to flow. Turning to Services. The Americas posted 6% organic Services revenue growth, driven primarily by the expansion of current mandates in facility services and facilities management. In EMEA, Services grew 17% as we've accelerated growth in our retooled project management business, winning new and expanding existing contracts in France and Italy. APAC recorded 6% Services growth, driven largely by new wins and expansions of existing business in project and facilities management, particularly in India and Greater China. Now I want to briefly address our earnings from equity method investments. In the third quarter, we reported an $8.6 million loss, down from a $12 million contribution a year ago. This year-over-year decline was impacted by 2 factors: first, a roughly $5 million decline in earnings from our Onewo joint venture in China due primarily to quarterly earnings timing. For the full year, we expect Onewo's revenue to be relatively flat versus the prior year. Second, we recorded higher noncash MSR and loan loss provisions in our Greystone joint venture. As we noted last quarter, our adjusted net income and adjusted EBITDA now exclude noncash items related to Greystone to better reflect the JV's underlying performance. Excluding these noncash items, Greystone's core business generated $13 million of EBITDA this quarter, driven by solid underlying production volumes, which were up 18% versus the prior year. Moving to our balance sheet. We ended the quarter with net leverage of 3.4x, the lowest it's been since Q4 2022. Trailing 12-month free cash flow was $165 million, representing an approximately 61% conversion rate. We continue to expect to exit the year within our targeted range of 60% to 80% free cash flow conversion. We've also continued the significant progress we've made in reducing our interest burden. During the third quarter, we prepaid $150 million and repriced approximately $950 million of our 2030 term loan debt, lowering the applicable interest rate by 50 basis points to SOFR plus 275. Shortly after quarter end, we repriced an additional $840 million of 2030 term loan debt, lowering the applicable interest rate by 25 basis points to SOFR plus 250, the most favorable credit spread in our history as a public company. And yesterday, we made an additional $100 million debt repayment, bringing our total debt prepayment in the past 2 years to $500 million, which represents a 15% reduction in our gross debt balance from just 2 years ago. Looking ahead, we now expect full year leasing revenue to grow towards the high end of our 6% to 8% guidance range. We continue to expect mid-single-digit Services revenue growth, and we continue to expect full year capital markets revenue to grow in the mid- to high teens. Finally, we are raising our expectations for adjusted EPS and now anticipate full year 2025 adjusted EPS growth of 30% to 35%, ahead of our previously provided 25% to 35% target range. In summary, we are seeing strong momentum in our business with solid market trends bolstered by our strategic growth investments and improved operational performance. With that, I'll turn the call back over to Michelle. Michelle MacKay: Last quarter, I stated that you should continue to expect more from us on operational execution, cash flow, deleveraging and market share gains, and we have delivered on all fronts. Our teams are working with confidence and purpose, always with the client at the center of the conversation. And I want to thank our employees for everything they do to drive our success. We look forward to sharing our longer-term strategy with many of you at our Investor Day in early December. Let me now hand the call back to the operator for questions. Operator: [Operator Instructions] We have a first question from the line of Julien Blouin from Goldman Sachs. Julien Blouin: Congrats on the quarter. Just looking at the Americas Capital Markets growth, you noted that you hired 45 advisers and gross revenues for those hires was 200% higher than 2024. I just wanted to get a sense, do you feel like you are still early in the process of seeing the flow-through impact from those hires sort of benefit your Americas Capital Markets growth? It just looks like maybe while the growth was strong in sort of the mid-teens range, maybe a touch below what we've seen from some of your peers. Michelle MacKay: Yes. Thanks for the question. We are definitely in the ramp-up stages with regard to our ability to execute in the markets and the capital markets in particular. And there's a lot of runway in front of us. So we anticipate continued growth going into 2026. We're not done building the platform either. And I just want to point out that we're building a global capital markets platform, not a U.S. institutional platform. Julien Blouin: Got it. Okay. That's helpful. And maybe that sort of relates to my next question, which was going to be on EMEA margins. The year-over-year margin expansion in the quarter was quite a bit below what we saw last quarter despite what it sort of looked like similar capital markets and leasing top line growth and even stronger Services growth. Just wondering sort of what drove that on the margin side in terms of maybe incremental margins maybe being lower, does it have to do with some of these hiring initiatives or investments you're making in EMEA? Neil Johnston: Yes. Sure, Julien. I'm happy to take that one. On a year-over-year basis, EMEA margins were up 170 basis points in the quarter, which was a very good result. Last quarter, we did benefit from some FX and incentive compensation timing, which did not recur to the same extent in the third quarter. If we look overall, we're very pleased with the improvement we're seeing in the margins there, both as a result, as you pointed out, of the retooling of our project management business as well as higher brokerage revenue. If we think about EMEA going forward, we do expect to see continued benefits from improving scale in brokerage and our margin profile in Services. Operator: We have the next question from the line of Stephen Sheldon from William Blair. Stephen Sheldon: Nice work here. I just want to -- starting in trends in EMEA, I guess, they were really strong across service lines again. So just curious in your view, how much of that is any change in the backdrop? Has that gotten better at all? So improving backdrop versus better execution? And then just would love some more detail on the factors supporting stronger Services growth there. I think you called out project management in the release and maybe noted a couple of countries in the commentary. But just any more detail on where you're seeing the strength by service line or geography would be helpful. Michelle MacKay: Okay. I'll start on that one, Stephen, and then turn it over to Neil for a little more backup. In terms of momentum in Europe, we're seeing leasing and capital markets observing growing strength across all of Europe from our side. The strong Cushman & Wakefield market performers in Q3 were U.K., Ireland, Netherlands, Spain. They all had strong year-over-year gains in both leasing and capital markets. And in general, when you think about what's driving the leasing fundamentals there, it's supported by good labor market resilience, healthy corporate profits. The office take-up continues to trend higher over there. Vacancy in Europe is the lowest of the 3 global regions. It's now under 10%. And when we talk about what's supporting capital markets, inflation over there returning to target, multiple rate cuts by the European Central Bank contributing to easier financing and stable economies and stronger euro boosting investor confidence. So like the U.S., investors are reengaging and taking advantage of better credit spreads there, improved liquidity and repriced assets. Neil, is there anything else you want to add to that? Neil Johnston: Yes. I think what I thought was quite encouraging in EMEA was the strength of our leasing business, particularly in the U.K. It's our biggest market by far in Europe, and leasing there was up 37%. So certainly, that was a good trend. And then if we look at capital markets, primarily the Netherlands, a little bit of some big deals coming through, but certainly, capital markets was positive. And then on the Services side, you asked what's sort of contributing on the Services side. It's really two things. It is project management, but it's also that design and build business, which we retooled. We're seeing improvements in margin in that business. And certainly, it's a big focus of ours as we go forward. Stephen Sheldon: Very helpful. And then on the transactional lines. Great results there. I guess what trends have you seen so far in October? Any signs of things slowing down at all? Or I guess, have you -- has the momentum kind of continued into the early portion of the fourth quarter? Michelle MacKay: Yes, simply put the momentum is continuing into the fourth quarter. Stephen Sheldon: Got it. And maybe one more then. Just how are you thinking about Cushman & Wakefield's opportunity to support the data center build-out and optimization? Is there more you can do there? Clearly, that has been and likely will continue to be a large area of growth. So how do you think about positioning Cushman to kind of Cushman & Wakefield to kind of capitalize on some of the activity there? Michelle MacKay: Yes, great timely topic here. We've been involved in data centers for a number of years and expect it to become a bigger part of our business going forward. It's been a key area of investment for us. We see data centers as exciting and growing like a lot of people do in the U.S. in particular, global data center capacity and U.S. capacity, as you may know, is expected to at least double over the next 5 years. So we're scaling up our business quickly. One of the interesting things here for a platform like ours in terms of the runway that we have is that it's an asset class that touches so many of our business lines in ways that really speak to our particular strength. And what we're doing really well in data centers is we're bringing the full Cushman platform to bear to the clients. So we have a dedicated data center research team that puts out excellent comprehensive reports. Our advisers are some of the top data center advisers in the country, and they come from within the industry, and that's key. So they really understand the nuances of all the players. And we've been doing for many years, facilities management and services work for some of the top names in the industry and have done project management work in data centers across the globe. And importantly, we're incorporating our own key technology into this process, notably with our proprietary site selection tool. You've seen a lot of discussion around how do you find the right sites, how do you find the right power? What is the right power. Our product is called Athena, which was launched earlier this year and is streamlining the site selection process for our clients. So we're going to dig much deeper into this at Investor Day in December. So hopefully, we'll see you there and we can talk more about it. Operator: We have the next question from the line of Anthony Paolone from JPMorgan. Anthony Paolone: On the Services side, it seems like after you guys have done almost a couple of years of work on that business, you're back to that sort of mid-single-digit or so growth level. Can you talk about just your confidence level of that kind of continuing on a go-forward basis, what the prospects for the business looks like? And also any comments on profitability because I think that was a big focal point of yours as well, but we can't quite see it as clearly in the results. Michelle MacKay: Okay. Yes. No problem, Tony. So as you've seen, we've made incredible progress this year in Services, which has seen accelerated growth for the past 3 quarters. And importantly here, we're moving up the value chain of services into more technical services, again, something we'll speak about at Investor Day. We've also successfully retooled the Services business in a number of ways. We talked about desiloing. That's a big deal for us. This means structural changes in the organization, leadership changes that we've made across the Americas and internationally and cultural changes, bringing leaders together in person often to think more strategically about the business on whole, how we can cross-pollinate, bringing it to our clients as one entity. And secondly, we're focused on profitable growth, not growth for growth's sake. A lot of you heard me say that early on as we started to walk away from nonprofitable contracts in the Services business. This is not only good for our bottom line, but for our clients as well. It allows us to focus on the strategic value we bring to their real estate strategy, and it increases our customer retention as we move up the value chain in terms of technical services that we're providing. When we talk about growth going forward, Neil, do you want to comment on that? Neil Johnston: Sure. If we think about Services growth, I think there are 2 areas that I would look at. The first one is our global occupier Services business, which just has huge potential. We have a tremendous platform tremendous opportunity to scale there without increasing our infrastructure. So that will scale very nicely from an operating leverage standpoint. And also, as Michelle said, as we connect that global occupier service to some of our regional Services businesses, big opportunity there. And then the other area where we're seeing very nice growth, particularly in India and certainly in Europe and in the U.S. is really around project management. Those contracts are slightly shorter, so that builds quickly. That business has very strong margins in the U.S. So that will certainly contribute to profitability, and that's an area that I think has a lot of potential as we look forward. Operator: We have the next question from the line of Seth Bergey Citi. Seth Bergey: I guess my first one is just around capital allocation. You repaid, refinanced some of the debt this quarter and subsequent to quarter end. How do you think about the opportunity set versus continuing to deleverage and pay down debt versus the need for continued organic growth in the business and investment in that and M&A opportunities that you see out there? Michelle MacKay: Yes. Thanks for the question. We are always balancing this as we have discussed in the past. If you notice our free cash flow conversion, how much we're bringing into the company, it's really allowing us to do all the things. As I like to say to my team, we're deleveraging, we're reducing the cost of that capital, and we're simultaneously investing organically across the platform. We're not going to give you our percentages, but I'll let you know that everything we've identified to invest in, we're able to do. M&A as a target is a focus for us, of course. But by default, we're builders here. We're building an organic machine. M&A has to be something really special, really well priced for us to execute on it. Seth Bergey: Okay. That's helpful. And I guess just for APAC, it looks like it was slightly impacted by one of the JVs in China. Do you kind of expect that to kind of normalize into the fourth quarter? Neil Johnston: Yes, sure. So as we look at APAC, as I stated in the prepared remarks, APAC had a $5 million headwind from the timing of Onewo, our joint venture there, just a comparison year-over-year. We do expect the full year Onewo contribution to be approximately flat versus last year. So it really was a timing issue. And then if you exclude this headwind from the quarter, APAC EBITDA would have increased year-over-year as Services and capital markets grew in the quarter. Operator: We have the next question from the line of Ronald Kamdem from Morgan Stanley. Ronald Kamdem: Great. Just 2 quick ones. Just going back to sort of the Services business line, I would love to just double-click on the next leg of margin opportunity. What do you sort of expect to drive that? Is that the technology investments? Are there more cost-cutting opportunities? Just how do we think about sort of what's going to drive the next leg of margin? Michelle MacKay: Yes. There's a lot to drive margin there. To your point, yes, the use of technology. Also, we're moving up the value chain of services. So when you think about some of our businesses, they are highly commoditized at this point, and we're shifting into the zone, say, more mechanical and engineering. Those are also higher-margin businesses for us. On top of that, honestly, we don't do a great job of the cross-sell. And services is a great place to add service lines on to what we're providing for the client, makes it stickier, and that also improves the margin. You're also going to see us retain clients at a much higher rate. We've invested in the kind of structural things you need to do to retain that client base, which both pulls margin and builds it at the same time. Ronald Kamdem: Great. Helpful. And then if I could follow up on sort of the recruiting and some of the talent that you've added to the company. It sounds like there's still a pipeline sort of building there. Is there a way to just qualitatively tell us what the environment for recruiting is in terms of compensation or the market or whatever? Is it getting more competitive? Michelle MacKay: Yes. Are you speaking purely to capital markets? Ronald Kamdem: Yes, generally to specifically the capital markets, but comments in other parts of the firm as well. Michelle MacKay: Okay. It hasn't gotten more expensive. Interestingly, and a real positive for us is that we're starting to receive a lot of inbound calls from the who's who, if you will, of the capital market sector as people are starting to understand that if you don't have a full baked platform with your own research tools, site selection tools like Athena that we're using for data center work that you otherwise are going to fall short right now, 2, 3 years from now in terms of your career. So we are having absolutely no problem recruiting in that industry in particular. And the pricing is something that's always been a bit elevated. We have targeted markets surgically as to where we need to go. And so we're making sure that we are spending the dollars exactly where we need to build. Operator: We have the next question from the line of Mitch Germain from Citizens Bank. Mitch Germain: Michelle, you mentioned cross-sell. I'm curious what you're doing internally to incentivize or drive more cross-sell across your businesses? Michelle MacKay: Yes. Great question. First of all, we're tracking it. And it's a pretty low number at the moment. And we're putting inside the company different forms of incentives. We're not going to talk about exactly what those are to facilitate cross-selling. But also the organization on a whole, I've talked about this a lot needed to be desiloed, and we've really moved about de-siloing first because, yes, you can give people the carrot. You prefer not to give them the stick. What you want to have is a culture that believes in the cross-sell. So we spent a lot of time and effort building that culture out through the organization. In fact, we've got a name for it. It's called Plus One. Mitch Germain: Great. That's super helpful. And then I know that you guys mentioned the flight to quality. I think it's specific in office and industrial. And I'm curious how you as an organization are positioning to capture some of that benefit as some of your tenants look to upgrade the quality of their tenants or customers look to upgrade the quality of their real estate. Michelle MacKay: Yes. Look, this is a real strong point for us leasing, and particularly, you heard me mention larger deals constituting a 40% increase year-over-year in the pipeline of what we've seen. So this just plays through up to our strength. But to your point, Class A buildings are averaging about 90% attendance now. Leasing volume is really on track, very importantly in both industrial, logistics and office, as you can see, as our clients are moving to better quality space, they are paying more rent for it. And we've seen a big valuation bump in those leases. And again, just a big area of strength for us. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michelle MacKay for the closing remarks. Michelle MacKay: Thank you, everyone, and we look forward to speaking to you at our Investor Day in December. Operator: Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Quanta Services Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Kip Rupp, Vice President, Investor Relations, for introductory remarks. Kip Rupp: Great. Thank you, and welcome, everyone, to the Quanta Services Third Quarter 2025 Earnings Conference Call. This morning, we issued a press release announcing our third quarter 2025 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our third quarter 2025 operational and financial commentary and our 2025 outlook expectation summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember that information reported on this call speaks only as of today, October 30, 2025. And therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements and information intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions or beliefs about future events or financial performance or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke? Earl Austin: Thanks, Kip. Good morning, everyone. Quanta delivered another quarter of strong results, achieving double-digit growth in revenue, adjusted EBITDA and adjusted EPS compared to the prior year, along with record backlog of $39.2 billion and a number of other record financial metrics. These results reflect accelerating demand in our Electric segment, robust activity across our end markets and positive momentum headed into 2026. They demonstrate the strength of our portfolio, the capability of our craft-skilled workforce and our ability to provide certainty through world-class execution as customers modernize and expand critical infrastructure. Our performance continues to be powered by Quanta's core drivers, craft-skilled labor, execution certainty, and disciplined investment, which are critical to how we operate and create long-term value. Our craft workforce remains the foundation of our business, executing with safety, quality, reliability across diverse infrastructure solutions. Execution certainty reinforces our reputation as a trusted partner capable of consistent high-quality project delivery and disciplined investment ensures capital is allocated toward opportunities that strengthen our platform, deepen customer relationships and support sustainable growth. Quanta's integrated solution-based model continues to differentiate our platform. By combining craft labor with engineering, technology and program management expertise and critical supply chain capabilities, we deliver comprehensive self-perform solutions across the full infrastructure life cycle. This approach deepens customer partnerships and positions Quanta as a long-term collaborator, not a traditional contractor. Quanta operates at the center of a fundamental transformation in the energy and infrastructure sectors. The convergence of the utility power generation, technology and large load industries is driving increased demand for resilient grids, expanded generation and storage and new infrastructure to support electrification, data centers and domestic manufacturing. These structural drivers are fueling a generational investment cycle and critical infrastructure. And Quanta's diversified scalable platform is well positioned to capitalize on these opportunities. To that end, this morning, we announced the expansion of our Total Solutions platform that builds upon our world-class craft-skilled labor capabilities and history of constructing more than 80,000 megawatts of power generation through our industry-leading renewable energy and battery energy storage solutions as well as other forms of generation. Our Total Solutions power generation platform leverages these capabilities to address growing generation and infrastructure needs due to the rapidly increasing demand for electricity from data centers, manufacturing and reshoring, industrialization, electrification and power grid expansion. This platform is focused on providing a fully integrated solution to high-quality customers for their generation development strategies. As a demonstration of this platform strength and scalability, NiSource has engaged Quanta's for a design, procurement and construction execution of generation and infrastructure resources capable of producing approximately 3 gigawatts of power for a large load customer. This project highlights the strength of our Total Solutions platform, spanning power generation, battery energy storage, transmission, substation and underground infrastructure and underscores the value of our collaborative approach and builds on our relationship with NiSource and strong presence in Indiana. We believe these announcements reinforce our strategy to lead in large converging markets where utilities, power consumers and industrial operators require scalable integrated solutions. We expect to achieve record backlog and another year of double-digit earnings per share growth in 2026. Our strategy remains focused on delivering certainty to customers, investing in talent and technology and expanding our addressable markets through disciplined strategic growth. Quanta's resilient solution-based model has performed well through varying market conditions. Our strong execution, disciplined investment and commitment to safety and quality continue to differentiate our platform and support sustainable value creation for our shareholders. I will now turn it over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2025 guidance, and then we will take your questions. Jayshree? Jayshree Desai: Thanks, Duke, and good morning, everyone. This morning, we reported third quarter results with revenues of $7.6 billion, net income attributable to common stock of $339 million or $2.24 per diluted share, adjusted diluted earnings per share of $3.33 and adjusted EBITDA of $858 million. Based on our continued backlog momentum and strong revenue growth during the quarter, we are raising our full year revenue expectations to a range of $27.8 billion to $28.2 billion. We are also raising our full year free cash flow expectations to $1.5 billion at the midpoint, driven by another quarter of healthy free cash flow, which totaled $438 million. During the quarter, we issued $1.5 billion of notes to recapitalize the balance sheet and enhance our liquidity position following the acquisition of Dynamic Systems. The interest rate on these notes was approximately 40 basis points lower than our issuance in the third quarter 2024 reflecting the benefit of our recent ratings upgrade and the stability of our earnings outlook. This transaction reinforces our ability to support operations, maintain financial flexibility and deploy capital strategically while preserving our investment grade rating. Our customers continue to value Quanta's differentiated self-perform craft labor solutions, and we are expanding our platform for growth as evidenced by the power generation platform we announced today. These dynamics, coupled with another quarter of record backlog, give us confidence in our ability to drive sustained revenue and earnings growth over the coming years. As we look toward 2026, the end market momentum and our consistent execution position us to deliver another year of double-digit adjusted EPS growth and attractive returns. We believe the opportunities ahead represent the next phase of a generational investment cycle in critical infrastructure, and Quanta is well positioned to lead through it, delivering consistent performance, disciplined capital deployment and long-term value creation for our stakeholders. Additional detail and commentary on our 2025 financial guidance can be found in our operational and financial commentary and outlook expectation summary both available on our Investor Relations website. With that, we're happy to take your questions. Operator? Operator: [Operator Instructions] Our first question is from Steve Fleishman from Wolfe Research. Steven Fleishman: I will follow the rule and try to stick to one question. Yesterday, we heard from AEP talking about a potential partner for their high-voltage transmission opportunities. Maybe I'd be curious if you could comment on whether that would likely be you? And then also just how much of the kind of high voltage transmission that's being discussed in Texas, PJM is kind of already in any backlog? Or is that all mainly to come? And when might we see it? Earl Austin: Yes. Thanks, Steve. With AEP, look, they're a large customer of ours, have been for many, many years. We have great relationships there. And I do think we're collaborating on 765 capabilities and doing a lot of different things together. So I do -- there's more to come there with us. But as we sit today, none of the 765 is in our backlog. We have lots of discussions, lots of verbals. We have LNTPs, all kinds of different things, but none of that is in the backlog at this point. It's something that we're taking our time with to make sure we get it right. We're setting the resources and making sure internally that we have the training done and working with the clients on this in a collaborative manner. I do think there's opportunities for us. We've made investments in our transformer facility and done some things there collaboratively with our clients. So yes, we have a great relationship there, probably more to come, and I like our chances on the 765. Operator: Our next question is from Andy Kaplowitz from Citigroup. Andrew Kaplowitz: Duke, Jayshree, obviously, the Total Solutions platform announced today, I think, can provide a whole new driver of backlog growth. But how do you think about execution risk for these larger total solution jobs that include power generation. I don't think you ever really left power generation, but Duke, as you know, when you've focused on bigger power generation, you've had a little more variable performance. So can you get favorable terms and conditions and get comfortable? How do you protect Quanta as you enter these larger jobs? Earl Austin: Yes. I mean, great question. When we think about it, we've built 8 gigs of generation and Zachary has built 6, so 14 gigs put together. They built 100 CCGTs. So when I think about it, we put a great partnership together. We collaborated significantly with the client not only for us but for the end users, ratepayers as well as the large load customer. So I think when we look at it in a holistic manner at Total Solutions, we were able to put together what I consider derisk both sides here on cost escalations and things of that nature. We've said publicly that we're not taking risk on these kind of projects. And I think we've done a great job of working with the client here in a collaborative manner to what I consider to give the ratepayer the right cost as well as the end user, which is a large load customer the right cost. So it's really -- I think when we plan -- when we get in front of these things, we can give a total cost solution and derisk everyone in the value chain here and I think we've done that. Operator: Our next question is from Steven Fisher from UBS. Steven Fisher: So in 2019, you rolled out this Utility Services model, which reduced the reliance on larger discrete projects and focused I guess it was around 80% plus or so more on kind of Utility Services. And I think that's obviously been a very, very successful strategy. And I'm just curious how we should think about your overall strategy. I know, obviously, it's very heavily focused on being a solutions provider in this new platform. I think you would say is clearly part of providing solutions. But just curious how we should think about framing the strategy between being sort of this more base-level recurring services type strategy versus more of a discrete EPC project delivery that may be a little bit lumpier? Earl Austin: Yes. Thanks, Steve. Look, I think when you look at the company, nothing's changed. We certainly believe that craft skill is at the core. It's fungible. We'll move across different platforms from MSAs to larger projects and solve the solution-based approach to the client. We're not going to turn down because it's a large project, I mean I think that's part of this and projects are getting bigger. But we're working for clients that we work for decades. And that hasn't changed. We continue to do that. We're also discussing technology as [indiscernible]. And I do believe we're addressing that. And so our clients there, we work for decades. So as we look at both sides of this, and I would tell you that we're still around 80% of base business even with what you see today. Now we've talked about this before, I do believe you're going to get in a period where you start stacking large projects on top of that base. And I've been consistent in that. You're just now starting to see it go up. So I would expect the backlog to continue to increase. I would expect us to stack and continue to. Nor the power plant nor green belt is in our backlog and it will continue to stack. So at the larger projects, LNTPs, no 765 in there. I really like our chances of stacking this for decades or more. And we're giving long-term growth profiles. We're doing the things that we need to do to be a consistent compounding earnings platform. Operator: Our next question is from Sangita Jain from KeyBanc. Sangita Jain: So can I ask a follow-up on the JV that you announced this morning for the large load center. I'm assuming that this is mostly all your basic high voltage work that you do. But I'm wondering if there's a potential to add further scope to this with the customer itself for low-voltage electrical or mechanical work? Earl Austin: No, Sangita. This is a full CCGT. I mean it's a full build. That's -- it's a 50-50 partnership. Certainly, we have aspects of this that will perform that internally and then Zachary has aspects of this that they'll perform really well. So it's a full JV, a full turnkey project, and it's electric Scope 2. I think you'll see in the program itself with NiSource, we'll continue to see some stacking there with other things and opportunities. But in general, what you see is us building out that platform of what I consider from the CCGT 3 gigs and the batteries around it, and that's what we're building. I hope I answered your questions. Operator: Our next question is from Julien Dumoulin-Smith. Julien Dumoulin-Smith: Look, if I could follow up a little bit on this question of scope of business. Obviously, you guys are expanding into the -- more of the generation side. But how do you think about expanding more into the data center side, specifically, right? You're talking about pursuing generation here, specifically for large loads. How about getting sort of inside the house? Obviously, you guys have done a couple of acquisitions here. It would seem germane to your strategy to continue to ramp and expand the scope more directly here. How do you think about that and the rate of growth there in specifically? Earl Austin: Yes, Julien. I mean, I think we're down to a shell at this point, and that's from what I can -- you can put a slide and basically build a building. The customers and how we look at it in solution based, if they ask us to build a balance of plan or what I would say the total data center and we can build it. The MEP piece of it, we can go -- we can grade. We can do whatever is necessary. I think we'll have those opportunities. We'll probably work with a general here or there on that. But look, we're in a position where we can build basically the whole data center. We can build a generation behind it, all the way to rack. So I feel real comfortable with how we've positioned ourselves to take advantage of these opportunities. We want to go fast, one person, and we can do that. So it's also working with the client, the utility as well and how that converges, I think, is where the real opportunities for us is that convergence of generation, labor certainty and where we sit in that sphere there. So I like it that we're in front of it. And I do think we have a lot of opportunity to continue to build out scope with technology. Julien Dumoulin-Smith: Excellent. We'll hear about it grow next year maybe. Earl Austin: Yes. Operator: Our next question is from Jamie Cook from Truist Securities. Jamie Cook: Duke, I just want to build on your announcement this morning with the total solutions power generation platform and the joint venture with Zachary to build power plants. I guess just taking this a step further, this is sort of unlike you to sort of joint venture with someone. So I'm just thinking longer term, is this sort of you dipping your toe in power generation and getting more comfortable. To what degree do you think you need to do an acquisition and acquire someone to do full EPC power plants? Like is this a step in dipping your toe and then over time, you would do an acquisition so you could do everything, I guess, by yourself. Earl Austin: Yes, Jamie, I look at it like we're listening to our customer and they're asking us to expand our services. And I believe we've got the capabilities to do so. So we're working with select customers on this and long-standing customers on power generation. I do think it's a great business for the foreseeable future. Zachary was a great company, very much valued the same as us, know them well, know the family well, a great opportunity for us to work together on some things that they do better than us. And we have the capabilities internally to do everything so do they. We felt like this was a great venue for us in Indiana to work together to build this plan. Risk is always concerning me in these combined cycles. And I believe we've done a nice job here of working collaborative with the client. So I feel real comfortable with that. Yes, we can expand here. It can be a large, what I consider, opportunity for the company, and we'll take advantage of it. But in select cases, I'm not going to get pressured to go sign up 10 combined cycles. It's just not who we are and we'll make sure that we limit ourselves to strategic partners and people that will collaborate with us on a total solution. This is a large program. It's very much a solution for us. And I think we've done it the right way with the JV to mitigate some risk for the client and ourselves. So I think it's a smart way to kind of for us to go into Indiana and other places, other kind of machines, we would look at it differently. But for this one, this was a great opportunity for us. And I think what we've leveraged our capabilities along with Zachary is to have a complete solution for the client. Operator: Our next question is from Ati Modak from Goldman Sachs. Ati Modak: I'm just wondering, as you think about the JV opportunities in general, is there a way to think about the dollar value of the project, maybe on a gigawatt basis or whatever way you would like to guide us? And what's the view on the total market opportunity that you have for CCGTs as it stands today? And what is a reasonable market share for you longer term? Earl Austin: I think how to look at the JV is just kind of -- when we think about our portion of it, it's -- the whole thing is similar to SunZia. I mean I think that's how you have to look at this and how we're looking at it, we have half the CCGT, but on the other side of that, Quanta doing direct with other opportunities there with battery and other things. So I think I would look at it like a SunZia from that standpoint and from our revenue base. Although the JV will be half, we're 50-50 on that, and Jayshree can walk through the accounting, but it's 50-50. And as far as the market, look, I wouldn't get it all lathered up that we're going to go after all the CCGTs that are out there. That's not who we are. We're really going to -- we're focused on our customers and in certain programs and where it can be more a total solution, much like what you've seen with NiSource in Indiana. We want that total solution. We're not going to -- if it's a one-off, I do not believe you'll see us in that arena unless we can -- unless it makes total sense, but I doubt it. So I think we're going to be extremely selective here on how we go to market with combined cycles. Operator: Our next question is from Nick Amicucci from Evercore. Nicholas Amicucci: I just wanted to kind of touch upon. So just given kind of the massively increased demand for natural gas as the feed fuel. I mean, have you guys been having some conversations? Obviously, the pipeline business is kind of -- it was targeted to be down this year. Just kind of thinking about the available infrastructure currently within the United States and then the need -- the inevitable need for some more. Just wanted to get a sense of are people starting to talk about that? Or is it still very early innings? Earl Austin: No. I mean I think we have probably a conversation every day about a piece of pipe. When I think about it, I wouldn't -- when I go into next year, it's $500 million. That's what we're going to guide. And we're not going to -- unless we have book work against it, we're not going to get ourselves in a position where that's something that the company is focused on, and we'll build it. We certainly see it. We have great customers there. It will be selective. The risk profiles and everything else on a large diameter pipe, and it's lumpy. We're trying to be a compounder of earnings and give good guidance for multi years and decades in fact. So it's hard to do when you're with lumpiness of big pipe. It's just not us. And so I think, yes, we can build billions in pipe. It's just a matter if the client needs us to do it, and we'll have to do it in a way that we can derisk ourselves. I don't like the weather risk and that risk, a bunch of different things there. If we can derisk ourselves, we'll build it all day. And I do think the opportunity is there. It's a good market, and certainly, you can see it. It's still tough at the state level in permitting. We're not past that yet. Operator: Our next question is Ameet Thakkar from BMO. Ameet Thakkar: On one of your earnings supplements, I think kind of said that your solar and storage backlog increased pretty significantly versus last quarter. I was just wondering if you guys could provide a little bit more color on how much did it increase? And then what do you guys see as the kind of drivers of that? Is that more from the legislative and safe harbor certainty? Or is this kind of just more follow-through from kind of the power demand environment that's out there? Earl Austin: Our renewable business hasn't let up. We said it last quarter, I'll say it again. It's just LNTPs that are coming into FNTPs. Nothing new. I think we're growing the business. Obviously, power is in need. And if you can build it faster with renewables and batteries, that's what's happening. The fastest thing in the market right now is we'll be all encompassing in power and generation. The fact that we put in this, what I consider, as total solution now, it will continue. And I think backlog in the renewables side has been great. The inbounds are great. And I don't think it's pull-in, I think it's just the normal course. And we're seeing a nice market there. We continue to see it. Battery storage business is fantastic. We're happy with where we sit in the market. And now that we can provide a larger solution, I think it's great. And you'll continue to see us follow our customers. I mean if you look at our bigger customers and look at what they're saying, I think we're right there in front of them or right there with them. And it's important to us to be able to say yes to a customer app when they ask us to do something and they ask us to go with them that we can say yes and have the capabilities to do so. The 67,000, 68,000 employees we have out there, they're fungible in many ways that we can move them around. We have to do a great job up here of making sure that we have, what I consider, the end markets to move to, and we can be more selective and we have been. So that renewable piece is a part of it. We're building a lot of renewables in Indiana. And so that same workforce will move over and do some CCGT work. So I just think we're extremely fungible. We're happy with where we sit. And backlog was broad-based, and we had not put the bigger projects in it. Operator: Our next question is from Justin Hauke from Robert W. Baird. Justin Hauke: Great. I guess I just wanted to build on Jamie's question. The thing, I guess, you guys have always self-performed so much of your work and that's sort of a way that you've mitigated risk. And so just with the joint venture, maybe you can clarify kind of what's in your wheelhouse that you'll be doing and what's in Zachary's in terms of the combined cycle gas plants. And then also just on the margin profile. I know you're not looking to do kind of discrete one-off plants. But I guess, how we would think about it is historically, the margins on those have been a little bit lower than the grid work just because the utilities, the ROEs are lower on that CapEx versus the spend on grid with some of the adders. So anything different from the margin profile on the work that would be coming in on that? So kind of those are the questions. Earl Austin: Yes. As far as who's performing what, I mean both of us can perform total solutions. So I think they're better at certain things than we are. And we'll make sure from an engineering standpoint, they certainly have the engineering staff and the capabilities there, so the front end side of it, the back end side of it makes a lot of sense for Zachary. And then, of course, we'll balance each other across the plant, whether it's internal subcontract, how we decide to do it. But we're capable of doing the whole thing. I think what the right answer is, how do we -- we continue to use local content in Indiana. We have a great presence there. We'll work with the client on that to make sure that we're pulling in local content into the state as well as we have offices there. We can self-perform all the mechanical, we can self-perform all the electric, basically can do it all. I just -- it's kind of a '27, '28 build with the ramp in '28 -- '27, '28, and we'll just have to see where we're at there. But -- and we have all those capabilities internally. We'll just balance each other there. As far as margin profile, I would tell you it's at parity or better in the segment. Operator: Our next question is from Phil Shen from ROTH Capital. Philip Shen: I know you haven't given guidance for '26. But as we wind down '25, can you share what the growth trajectory for organic growth might look like for '26? Perhaps comments on the different outlook for Electric Infrastructure and UUI. If you can't take that, perhaps you can comment on the margin profile, the expanded total solutions platform compared to the current electric power margins. Is the deal with NiSource margin accretive or in line with current run rate? Earl Austin: It's in line or accretive on the first -- on the last question. As far as guidance and where we're at, I mean, look on '25, we're right in line. I see some say $10 million or one way or the other on $2.8 billion. I wouldn't get worked up about it. We hit it down the middle and I think we've taken into account a lot of things and giving conservative guidance. More importantly, when we look at guidance, I mean, I'm looking in '28, '29, what we're saying, we floored it at 10% and kind of 15% EPS -- adjusted EPS at the midpoint, given all levers of the balance sheet and 20% is what we've done. So I don't know -- I think I've given you 5-year guidance as far as I'm concerned, outward. And so I don't -- that's the guidance. And it will be somewhere in there when we go to the Street. Operator: Our next question is from Chad Dillard from Bernstein. Charles Albert Dillard: So a big picture question for you guys. So over the medium and long term, how do you think the power industry evolves to serve large load customers like data centers? Is it [indiscernible] model like we're seeing with NiSource? Is it behind the meter? Is it traditional grid connection? I know it's a combination of all the above, but I would love to get a sense for like how you think that mix evolves? And then I guess, secondly, when it comes to the JV just announced, how do we think about the contract structure, and just like how you guys are thinking about bidding? Is it competitive? Is it open book? Any color on that would be helpful. Earl Austin: I mean I think it's all of the above when you look at these things. Some of it, we're certain on. We don't have any issues with. We can -- as long as we can scope it and feel good about it, we're happy to have lump sum on things. It doesn't -- we can do that. But if it's stuff that we don't understand. we'll derisk ourselves. You can expect that. I mean I've said it publicly, we're not going to take risk on these larger projects with our labor and our labor force and everything we have for certainty, it's not the right answer for the client. And so I think us working together preplanning early and upfront is extremely important for us when we look at the future of how we build things, especially today. Operator: Our next question is from Sherif El-Sabbahy from Bank of America. Sherif El-Sabbahy: I just wanted to touch on M&A a bit. Just as your backlog builds on multiyear demand, would you ever consider shifting your M&A focus to complement your craft labor pool by acquiring smaller service providers? Or do you feel that the steps you've taken internally to grow the labor pool are able to match the workload that you want to take on in the coming years? Earl Austin: Yes. I mean we don't buy for capacity. We never have a strategy totally. And so when we think about it, we're filling a strategic gap, you could expect us to do so. I think we've done a nice job with that. We've stayed in front of vertical supply chain. We don't talk about that much, but I think we've done a really nice job of our vertical supply chain and what we can do with that. We continue to add there. I think we have probably 10 projects ongoing that are enhancing our vertical supply chain that doesn't get talked about. And so we're going to -- from our standpoint, we're filling the needs of the solution-based approach for our clients. And we'll continue to do so. We're adding fabrication. We're adding just about everywhere, but it's all strategic around the client. And look, I would say we're ahead in that, and we'll continue to buy great family companies and make huge difference in how we think about it. The culture and the company means so much more than anything else. And then we start there and then does it fit the strategies next and then the financials will be after. But as far as I'm concerned, we pay a nice, what I consider, multiple for a great company. And you've seen us go from civil to transformers to other things. They all have a purpose and they all have a strategy. We'll continue to leverage that strategy as we move forward in great markets that we have with technology and utilities. Operator: Our next question is from Brent Thielman from D.A. Davidson. Brent Thielman: A bit of a follow-on to that last question. But when you look across this sort of massive craft workforce you've accumulated here, are there trades in particular where you see real scarcity such that it's actually somewhat of a limiting factor to our growth? The growth has been good, obviously. And maybe where you're especially focused on sort of recruiting talented folks out there? Earl Austin: Yes. I think we've added about 6,000 with acquisitions this year, a little over, quarter -- year-over-year. So when you think about it, I mean, we've invested in that craft-skilled workforce in our colleges and our campuses and everything we've done [ via ] curriculum. We can move that curriculum into all phases of craft. Now I mean we're early in our technology piece, Cupertino acquisition was a great platform. That inside wireman like as far as I'm concerned, is scarce, it's probably where you see scarcity. We've been able to add fabrication. We continue to add premanufacturing, let's call it, premanufactured products that are allowing us to scale it. But I think that's probably when I think through it, we'll continue to beef that program up and add faster to our inside wireman. And now we're in plumbing, mechanical all kinds of trades there from our mechanical business. So that's next, and we'll continue to add curriculum. Some kids don't want to get in the air. And some of these businesses are more local than others. So on our high voltage, we travel, we can't -- they're starting to do more of that on the inside, but it was predominantly local. So we have to build these locals much, much stronger. And you'll see us do that. You'll see us add there. But in general, I would tell you the inside piece of it and the mechanical piece, we're early. So that's where the gap is for us and try to enhance that as quick as possible. Operator: Our next question is from Mike Dudas from Vertical Research Partners. Michael Dudas: Duke, given the extraordinary demand you're seeing and the tightness in capacity, are your customers starting to recognize they need to secure your time, your MSA, your resources at a more quicker rate? And does that lead to maybe better scale and execution on margins as we move forward? And maybe an ancillary to that, any concern on how the industry is going to pay for all this capacity that's coming through, certainly living in New Jersey, we've been seeing a lot of issues on rates going up, et cetera. Just wanted to get your thoughts on how that's plays through as you're talking to utilities and your developers? Earl Austin: Yes. I mean I think affordability is always an issue. Fuel is a big piece of the bill, I mean, 60%, and interest. Interest going down, you got to look at your fuel as well. And so that's -- those 2 are big pieces of a bill. Now I do think you're going to see large transmission get built and things of that nature, PJM is [ sharing ] infrastructure. So there's different models out there. But I'll go back to -- I think if you look at technology and look at where the loads coming, you haven't built the transmission line in the United States, it's not NPV-positive, number one. Number two, generation the more generation, you can see it with the NiSource example, where the ratepayer is actually benefiting from the load. Those models are out there. And I do think technology is going to pay their way. So you're seeing utilities and technology come together for what I think is the benefit of the ratepayer here. And it's taken a little bit of time. But as that goes forward, look, we all have to be prudent and watch the affordability piece of this, but the NPV on the other side of it is a downward trajectory. So I like what I see. I think we'll get there, and you'll see a positive effect to the ratepayer. We all have to be cognizant of. Operator: Our next question is from Alex Rygiel from Texas Capital Securities. Alexander Rygiel: Nuclear power is gaining momentum here. Can you talk about how Quanta might get involved in that? Earl Austin: Yes. I mean, look, as long as we don't have to go behind that, what I would consider [ NERC-fence and the nuc-fence ], we're good. I mean I think once you get behind there, we have to derisk ourselves and think hard about it. It's not something that the company is jumping up and down to take a risk on. So we're always around the edges on things. And I think as long as we can do the things that we know how to do and stay out of the nuclear fence, we feel real comfortable that we're not the reactor person, and we're not the person inside the fence. There's a lot of ancillary things we can do and will do. But once we cross the line of that fence, it's not us. Operator: Our next question is from Brian Brophy from Stifel, Nicolaus. Brian Brophy: Just following up on the NiSource project. Curious if you can comment on whether that is structured as a cost plus or a fixed price project. I would assume it's fixed price, but I think you've alluded to in the past, potentially structuring those on a cost-plus basis to derisk it. Just curious if you can provide any color. Earl Austin: Yes. I mean, we're not going to get involved in what kind of contract structure we have. But I would just say, look, I'll stand by my comments previously that the company on these type of projects are not -- we're not going to take certain kinds of risk on them. And so I feel comfortable with where we sit there. I feel comfortable with the conduct. And I can look everyone, all the investors in the eyes and say, everything I've said about risk on a combined cycle, we have not taken that. So I'm happy with where we sit, happy with the contract structure that it's a collaborative structure with the client that allows both to come out in a way that we can derisk both of ourselves and give the right answer to the ratepayer as well as a large load customer. So I like where it sits. I'm not going to get into exactly what the structure looks like. Abbey did a great job there, and I'm extremely pleased with where we sit. And we have a great offering with Zachary built 100 plants and ourselves have built 8 gigs of generation. I'm super happy with how we sit in Indiana and what we're doing there for the local economy. It's a great partnership with NiSource. I hope it continues and it should. Operator: Our next question is from Maheep Mandloi from Mizuho Securities. Maheep Mandloi: Maybe just one question on the JV and maybe this is for Jayshree. Can you just talk about the accounting here? It seems like 50-50 JV and NiSource talked about like a $6 billion, $7 billion CapEx. Could we assume that $3 billion coming to some backlog here? And in terms of the rev rec, could you share that? Or how to think about that here? Earl Austin: I think the backlog will be incremental on that. So you can -- I would tell you, the larger piece to that is air permits. It will hit second half of next year, that will come into backlog. And you should look at our piece of it similar to SunZia, how it kind of stacked up, and that's how we look at the thing. And then as far as the combined cycle, it's 50-50. Jayshree Desai: Yes. And the accounting on that, as we said, will be proportional. So we'll just -- the income statement will reflect our share of that work on -- from the revenue all the way down to the profit and balance sheet as well. Earl Austin: There's parts of the it with the battery and things like that are straight to Quanta and parts of it that are part of the JV. Jayshree Desai: Yes. And just to make sure that, as Duke said earlier, we -- the backlog will reflect as the work progresses. So we're in LNTP phase now. We'll move forward in those things. As Duke mentioned, there's an air permit that has to get -- has to be obtained middle of next year. That's when it really hits FNTP. So you can expect most of the revenue pickup. And as Duke was saying, it starts in the back half of '26 and really more into '27 and '28. Earl Austin: Yes. There won't be anything meaningful -- I mean as far as going to construction or revenues in '26. Jayshree Desai: Correct. Operator: Our next question is from Adam Thalhimer from Thompson, Davis. Adam Thalhimer: Guys, nice quarter. Jayshree Desai: Thank you. Adam Thalhimer: If you can comment on the Dynamic acquisition, how the integration is going? What kind of demand you're seeing generally in Texas? And what would be your appetite for more mechanical construction acquisitions? Earl Austin: I mean I think we're extremely pleased with the acquisition. We bought a great family business, long-standing, everything that we thought, we do it 10 times over. I feel like as far as how it's integrated with our offering now, I mean the inbounds and what we can do certainly picked up on the mechanical side. We're addressing and investing them. We can do a lot from fabrication. They already had large facilities and broad-based service offering. So we'll expand it very quickly, much like we've done with Cupertino and Blattner. So I think you can see that type of expansion with DSI. As far as mechanical, look, it's trades -- as long as it fits the profiles and the trades, we would look at it. It's something we're starting. We'll work with DSI to look at opportunities as they come in. Nothing imminent, but we'll continue to look at that offering. I like the business. It's obviously -- we have peers there, and they've done a really nice job. They're ahead of us, but we're catching up pretty quick. And I like where we're going. Operator: Next from Joe Osha from Guggenheim Partners. Joseph Osha: Lots of talk about combined cycle gas. I'm a little curious, we hear a lot about single cycle going inside the fence alongside some of these big data centers to complement [ grid ] scale renewables. I'm wondering if that's perhaps part of the work that you're seeing or perhaps contemplating. Earl Austin: Yes. I mean we said that before. I mean when we started putting this group together, it was really around the single cycle. So we felt like that was something right down the road for us. But it's led to where we're at today and having more of a total solution to it. But we have a nice group that we're looking at it all. I mean, I think it's important for us not only for the technology or the large load customer on the other side, but the utility as well and how we interface that and speed this process up. Everyone right now is around speed. And I think we can provide a unique solution with the moat around the utility and helping both sides of this. So like I said, it comes together at generation and craft skill, which we check both boxes and the certainty thereof. And can we move faster with single cycles? It's speed to market, whether it's solar, batteries, single cycle, the combined cycle lead times, if you have the engines, just all those things matter here. It's a race. And I think in general, for generation, and we're right in the middle of it. So I'm pleased with where we sit. Operator: Our last question is from Laura Maher from B. Riley. Laura Maher: My question is, are there -- the utility seeing any regulatory pushback to fund T&D growth? Earl Austin: I mean I think you would see affordability issues that are in certain places. But most of the commissions are really as long as it's a positive to the ratepayer. And like I said, I mean, most transmissions NPV positive. Every commission is different and every state is different, so they approach it in different ways. But for the most part, I mean, everyone the need for infrastructure is there, and we want a modern, robust grid. I mean, in order to have an economy that we see today, the grid has to be modern. And not only are we seeing these new projects, but just you still have an ongoing -- I mean, we performed very nicely for 3 decades in negative load growth. And that business is still there. I mean we still have to operate these systems. And so you have that ongoing with the load in front of it, and it's broad-based. So I think the commissions we're there to serve, and we're going to make sure that the affordability of the ratepayer is there as an industry and everyone is cognizant of that. And fuel, how do you purchase fuel, your fuel source, taking risk on larger projects. I mean, I think everyone is looking at risk on the outer years in stranded assets, all kinds of different things that you can get into. And that's why you've seen the pace be a little slower with technology because they want to make sure that the stranded assets are not at the ratepayer. But as you see, I believe the models are there that will move much faster now that the models are in place to solidify the fact that the ratepayer benefits in most cases. Operator: Thank you. We have no further questions at this time. I will turn the call back over to management for closing remarks. Earl Austin: I want to thank the 68,176 men and women in the field who make these calls possible and our field leadership who continue to make us look good. And thank you for participating in our conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.